Micalizio

Facts and Procedural History

Robert Micalizio (Robert) has been employed since 1960 for the J. R. Norton Company (Norton), a closely held agricultural corporation. In June 1963, Robert purchased stock in Norton for $100,000 and financed the purchase by executing two promissory notes which called for 19 annual principal payments of $2,500 with balloon payments in the 20th year. Each note stated: “This note is secured by a pledge of shares of stock.” Robert, however, retained custody of the share certificates, which were issued in his name alone.

Norton pays dividends only on its preferred stock, all of which is owned by J. R. Norton. The remainder, totalling 25 percent of all stock, is owned by Robert (15 percent) and three other vice-presidents (collectively 10 percent). After a corporate merger, the 150,000 Norton shares were reissued to Robert in January 1971. In March 1971, Robert executed a corporate buy-sell agreement which specified that the minority shareholders could not sell or transfer their stock to any third person without first offering to sell it to the corporation for the lower of the book value of the stock adjusted annually on the basis of standard…