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Because BCC’s shareholders had not exercised their right to
reset the purchase price, when decedent modified the 1981
Agreement in November 1996, the price dictated under that
agreement was set by reference to book value. Thus, had decedent
died during the fiscal year in which he modified the 1981
Agreement, he would have received approximately $7.6 million for
his BCC shares under the 1981 Agreement in unmodified form.
The 1996 Agreement modified the “Purchase Upon Death”
section of the 1981 Agreement by (1) eliminating book value as
the redemption price for decedent’s shares and replacing it
instead with a fixed price of $4 million, (2) removing the
automatic mechanism for adjusting the price annually on the basis
of book value, (3) eliminating the shareholders’ right to set the
price annually on August 1, and (4) precluding the right of BCC
to pay in installments.
The estate raises several arguments as to why these changes
are not substantial modifications. Focusing first on the change
in price, the estate argues that the setting of a new price in
the 1996 Agreement was not a change in shareholder rights because
the 1981 Agreement gave the shareholders the ability to change
the price, and thus the price change was “in compliance with the
agreement.” We disagree. As set forth in the regulations, the
validity of which has not been challenged, even if a change is
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