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Cap Corp. (through Koehler), CKH (through Koehler), CKS (through
Koehler), and petitioner (through Crispin) executed a December 2,
1996, stock purchase agreement under which CKH assumed $2.259
million Cap Corp. debt in exchange for 100 percent of the
outstanding stock of CKS (503,820 shares); and (2) CKH (through
Koehler) and petitioner (through Crispin) entered into a December
2, 1996, “Debt Conversion Agreement”, under which they agreed
that CKH would issue to petitioner 215,990 shares of CKH $10
preferred stock in exchange for petitioner’s cancellation of all
but $100,000 of the $2.259 million Cap Corp. debt assumed by CKH.
CKH paid the $100,000 of the Cap Corp. debt by offsetting it
against a $100,000 receivable due to CKH from petitioner.
CKS (which CKH was acquiring from Cap Corp.) was worth far
less than $2.259 million as of December 2, 1996. Crispin and
Koehler estimated that CKH’s net asset value (excluding CKS’s
indeterminate and highly speculative value) did not exceed
$100,000 after the debt conversion transaction.11
11As will be discussed more fully infra in connection with
the National Service Industries (NSI) consulting fee issue, at
the time Crispin Koehler Holding Corp. (CKH) was created in
October 1996, NSI was negotiating with petitioner for
petitioner’s help in arranging an NSI subsidiary’s divestment of
a “tax benefit transfer lease” without adverse tax consequences.
To effect such a divestment, it would be necessary for petitioner
to use a securities broker-dealer like Crispin Koehler Securities
(CKS). On Dec. 1, 1996, NSI and petitioner executed a consulting
agreement whereby petitioner would be paid a $2.5 million
consulting fee for its services in arranging such a divestment.
Petitioner contends that it and CKH had previously reached an
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