CMA Consolidated, Inc. & Subsidiaries, Inc. - Page 72

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          C.  The December 2, 1996, Debt Conversion Transaction                       
               By October 1996, Crispin and Koehler realized that Cap Corp.           
          was insolvent with obligations that were several multiples of its           
          assets.  They also realized that Cap Corp.’s poor financial                 
          condition was negatively affecting CKS’s operations.  Hence, they           
          formulated a debt conversion transaction whereby:  (1) Crispin              
          and Koehler would establish a new corporation; (2) that new                 
          corporation would assume substantially all of Cap Corp.’s                   
          outstanding debt to petitioner, in exchange for receiving Cap               
          Corp.’s 100-percent stock ownership interest in CKS; and (3)                
          petitioner would cancel all but $100,000 of the Cap Corp. debt              
          assumed by the new corporation, in exchange for a preferred stock           
          in the new corporation.                                                     
               On or about October 22, 1996, Crispin and Koehler                      
          incorporated Crispin Koehler Holding Corp. (CKH), a California              
          corporation.  Crispin’s and Koehler’s respective stock ownership            
          interests in CKH were the same as their then-respective stock               
          ownership interests in Cap Corp.--9 percent for Crispin and 91              
          percent for Koehler.  CKH’s place of business was the same as               
          petitioner’s.                                                               
               On December 2, 1996, Cap Corp., CKH, CKS, and petitioner               
          effected a debt conversion transaction relieving Cap Corp. of               
          $2.259 million of its debt to petitioner.  This debt relief for             
          Cap Corp. was accomplished through the following two steps:  (1)            






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