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total advances to the shareholder exceeded 75 percent of his
redemption account, the board of directors would demand repayment
to the extent of the excess. The board demanded repayment of two
of the more than 70 advances to shareholders. In each case,
repayment was demanded because, after a decline in the value of
the shareholder's redemption account, advances to the shareholder
exceeded 75 percent of the account.
All advances were recorded on SDI's certified financial
statements as loans receivable. To obtain an advance, a
shareholder was required to execute an application. The
applications generally stated the amount of the advance requested
and provided that: (1) No interest would accrue; (2) the board
would demand repayment if the shareholder's total advances
exceeded 75 percent of that shareholder's redemption account; and
(3) the shareholder's redemption account could be used to satisfy
any outstanding advances. These applications were routinely
approved by SDI's board of directors. SDI denied only two
applications. These applications were denied because the future
profitability of the respective applicant's redemption account
was questionable.
SDI advanced funds to Messrs. McCurley and Hall. Each time
Messrs. McCurley and Hall requested funds, they executed an
application and submitted it to SDI's board of directors. The
board approved, by resolution, each advance. Messrs. McCurley
and Hall each tendered noninterest-bearing demand notes in the
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Last modified: May 25, 2011