- 36 -
The testimony regarding Moshe Melnik’s concern about
possible litigation with his ex-wife also fails to convince us
that the structure selected by the Melniks had a legitimate
business purpose, independent of tax considerations. Even if the
testimony were true, the testimony does not establish a business
purpose for the use of foreign entities. At best, it indicates
that Moshe Melnik had a personal reason for placing a portion of
the proceeds in an entity that his ex-wife could not easily
access, but such motivation hardly qualifies as a business
purpose for the structure that the Melniks chose for the sale of
their HouTex stock.
The other reason offered by the Melniks and Mr. Pennoni for
the use of foreign entities is the concern about liability
resulting from warranties given to MMI in connection with its
acquisition of HouTex. We do not accept their testimony as
credible. We do not believe that MMI would have entered into the
transaction to acquire HouTex stock from a foreign entity if
there had been any realistic chance that the warranties MMI had
negotiated would be rendered unenforceable by the Melniks’ use of
the foreign entity. In fact, MMI stock and warrants to which the
Melniks and Clend were entitled under the acquisition agreement
were held in escrow after the HouTex acquisition closed to ensure
that their contractual obligations to MMI were fulfilled.
Page: Previous 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 NextLast modified: May 25, 2011