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women’s apparel manufacturer. The taxpayers concluded that if
Ronnie could acquire Denise in exchange for Ronnie’s stock,
Ronnie would acquire not only Denise’s manufacturing facilities
but also the sales relationship with I. Amsterdam. In the early
part of 1969, negotiations began. Denise’s shareholders were
interested in the taxpayer’s acquisition proposal but would not
consider accepting stock in a privately held corporation.
In conjunction with the proposed acquisition of Denise, the
taxpayers began to explore taking Ronnie public. The underwriter
they had selected recommended that Nashville and Jasper be
combined with Ronnie before the public offering. In January
1970, the taxpayers and another shareholder of Nashville and
Jasper agreed to sell all of their stock to Ronnie for $800,000.
The taxpayers contemplated that the purchase price would be paid
from the proceeds of one or more public offerings of Ronnie’s
stock.
On March 30, 1970, the first public offering of Ronnie’s
stock was made. A portion of the sales proceeds was used to make
the downpayment to the Nashville and Jasper shareholders.
On October 30, 1970, Ronnie entered into an agreement with
Denise’s shareholders to acquire all of Denise’s outstanding
stock in exchange for Ronnie’s stock.
On April 20, 1972, a second public offering of Ronnie’s
stock was made. A portion of the proceeds was used to pay the
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