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trusts, each family group owned 50 percent of the outstanding
shares of stock of G&J.
In 1982, G&J elected to be taxed as a “small business
corporation” (an S corporation), within the meaning of section
1371 of the Internal Revenue Code of 1954. By agreement dated
November 1, 1982 (the S corporation agreement), the shareholders
of G&J agreed to maintain G&J’s status as an S corporation for at
least 10 years. G&J, in fact, maintained its S corporation
status through July 31, 1992, at which time there were no plans
to change its S corporation status. Further, an agreement
restricting the transfer of the G&J shares by and among the
members of the Gross family group (the Gross family restrictive
transfer agreement), dated October 29, 1982, also remained in
effect as of July 31, 1992.1 The Gross family restrictive
transfer agreement contained express provisions to prevent
termination of G&J's S corporation status. As of July 31, 1992,
G&J had issued an outstanding 19,680 shares of common stock
without par value.
In 1992, G&J's top management positions and voting control
were largely in the hands of the senior members of the Gross and
Jarson family groups. The shareholders of G&J got along well,
1 There was a similar restrictive transfer agreement by and
among the members of the Jarson family group holding shares of
G&J dated Apr. 1, 1983, which also remained in effect as of
July 31, 1992.
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