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Beginning in 1987, petitioner became gradually more involved
in the business operations and finances of 2618 and the club,
principally out of concern that Helmle might not be able to pay
legal fees owed to petitioner in excess of $500,000. During
1987, petitioner entered into agreements with Helmle and others,
which, in consideration of a management fee, gave petitioner the
right “to control and manage the activities of the club CALIGULA
XXI”, and placed him “in total control of all financial and
managerial decisions at the club”. The agreements also enabled
2618 to redeem the stock of the other 50-percent shareholder
(making Helmle the sole shareholder) with the proceeds of a
$275,000 bank loan to petitioner that, pursuant to the
agreements, was to be repaid (including interest) by means of
scheduled monthly payments from 2618 to petitioner.
On February 15, 1988, ownership interests in the following
tangible and intangible personal property relating to the club
were transferred to petitioner in satisfaction of $35,000 in
legal fees owed to him: (1) 2618's leasehold interest in the
building in which the club operated; (2) furniture, furnishings,
fixtures and leasehold improvements in the building; and (3) the
right to use the Caligula XXI name. Petitioner then leased such
property back to 2618.
On March 15, 1988, petitioner agreed to acquire Helmle’s
stock in 2618 and, thereby, become the sole shareholder in 2618.
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