Page:United States Statutes at Large Volume 111 Part 1.djvu/944

 Ill STAT. 920 PUBLIC LAW 105-34—AUG. 5, 1997 "(II) in the case of a right or obhgation to redeem or purchase stock transferred in connection with the performance of services for the issuer or a related person (and which represents reasonable compensation), it may be exercised only upon the holder's separation from service from the issuer or a related person. "(ii) EXCEPTION. —Clause (i)(I) shall not apply if the stock relinquished in the exchange, or the stock acquired in the exchange is in— "(I) a corporation if any class of stock in such corporation or a related party is readily tradable on an established securities market or otherwise, or "(II) any other corporation if such exchange is part of a transaction or series of transactions in which such corporation is to become a corporation described in subclause (I). "(3) DEFINITIONS.— For purposes of this subsection— "(A) PREFERRED STOCK.— The term 'preferred stock' means stock which is limited and preferred as to dividends and does not participate in corporate growth to any significant extent. "(B) RELATED PERSON.—^A person shall be treated as related to another person if they bear a relationship to such other person described in section 267(b) or 707(b). "(4) REGULATIONS. —The Secretary may prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection and sections 354(a)(2)(C), 355(a)(3)(D), and 356(e). The Secretary may also prescribe regulations, consistent with the treatment under this subsection and such sections, for the treatment of nonqualified preferred stock under other provisions of this title.". (b) SECTION 354.— Paragraph (2) of section 354(a) (relating to exchanges of stock and securities in certain reorganizations) is amended by adding at the end the following new subparagraph: " (C) NONQUALIFIED PREFERRED STOCK.— "(i) IN GENERAL.—Nonqualified preferred stock (as defined in section 351(g)(2)) received in exchange for stock other than nonqualified preferred stock (as so defined) shall not be treated as stock or securities, "(ii) RECAPITALIZATIONS OF FAMILY-OWNED COR- PORATIONS. — "(I) IN GENERAL.— Clause (i) shall not apply in the case of a recapitalization under section 368(a)(1)(E) of a family-owned corporation. "(II) FAMILY-OWNED CORPORATION.—For purposes of this clause, except as provided in regulations, the term 'family-owned corporation' means any corporation which is described in clause (i) of section 447(d)(2)(C) throughout the 8-year period beginning on the date which is 5 years before the date of the recapitalization. For purposes of the preceding sentence, stock shall not be treated as owned by a family member during any period described in section 355(d)(6)(B). ".

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