348 Planning and Forecasting
that the internecine jealousies between Brad and Lisa were becoming un-
manageable. Ruefully, Morris conceded that it was not unforeseeable that the
manager of a significant part of his business would resent the presence of a
rival who would be perceived as having attained her present position simply
by dint of her relationship to the owner. This jealousy was, of course, in-
f lamed by the thought that Lisa might succeed to Morris’s stock upon his
death and become Brad’s boss.
After some months of attempting to mediate the many disputes between
Lisa and Brad, which were merely symptoms of this underlying disease, Morris
came to the conclusion that the corporation could not survive with both of
them v ying for power and inf luence. He determined that the only workable so-
lution would be to break the two businesses apart once again, leaving the two
rivals in charge of their individual empires, with no future binding ties.
Experienced in corporate transactions by this time, Morris gave the prob-
lem some significant thought and devised two alternate scenarios to accom-
plish his goal. Both scenarios began with the establishment of a subsidiary
corporation wholly owned by the currently existing company. The assets, liabil-
ities, and all other attributes of the molding operation would then be trans-
ferred to this new subsidiary in exchange for its stock. At that point in the first
scenario (known as a spin-off ), the parent corporation would declare a divi-
dend of all such stock to its current stockholders. Thus, Morris, Lisa, and Brad
EXHIBIT 11.8 Corporate redemption versus cross-purchase agreement.
Corporate Redemption Cross-Purchase(Assume all parties purchased stock at $100 per share.
Current fair market value, is $200 per share.)Morris Lisa Brad Morris Lisa Brad80
shares10
shares10
shares80
shares10
shares10
shares10
shares10
shares$8,000 $1,000 $1,000
Cost$8,000 $8,000++Total basis: $1,000 $1,000 Total basis: $9,000 $9,000$8,000 $1,000 $1,000
Cost