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The installment note obligated HII to pay the principal of
$2,953,642.56 in 12 equal quarterly installments, with interest
accruing at 6.5 percent. The 6.5-percent interest rate specified
in the installment note was below the prevailing market rate of 9
percent. The note was for a period of 3 years.
Mr. Hess and Mr. Kucklick treated the redemption, the
employment agreement, and the 8-year covenant as a package deal.
They did not separately negotiate the value of Mr. Kucklick’s
shares and the value of the 8-year covenant, nor did they ever
discuss making any separate payment for, or allocation of the
amount paid for, that covenant. The redemption agreement, which
was executed on February 26, 1995, did not specifically allocate
any of the purchase price to the 8-year covenant, and it did not
provide for separate consideration. It provides:
THEREFORE, in consideration of the mutual
agreements and covenants set forth herein, the
sufficiency of which consideration is expressly
acknowledged, the parties agree as follows:
1. Redemption of Shares. At the closing on the
Closing Date * * *, Kucklick will surrender to the
Corporation certificate number 2, representing the
Shares, and the Corporation shall repurchase and redeem
the Shares for the consideration set forth below. Such
repurchase is a complete redemption of all of the stock
of the Corporation owned by Kucklick and is intended to
qualify as a complete redemption pursuant to the
provisions of Section 302(b)(3) of the Internal Revenue
Code of 1986, as amended * * *
2. Payment for Shares. In full payment for the
Shares and in complete termination of Kucklick’s entire
equity interest in the Corporation, at the closing on
the Closing Date, the Corporation shall pay to Kucklick
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