-37-
Although the testimony presented by petitioners indicates that
SLC may have been experiencing some cash-flow problems after the
agreement, SLC apparently had sufficient liquidity to pay both
Dudley Merkel and David Hepburn hefty salaries for SLC’s fiscal
years ending February 29, 1992, and February 28, 1993. We take
those payments as some evidence of the nonprecarious financial
situations of both SLC and petitioners on the measurement date
and during the 400-day workout period. The fact that the 400-day
workout period had 371 days to run on the measurement date is a
fact to be taken into account, but it does not convince us, as
petitioners suggest, that the probability of a demand for payment
under petitioners’ guarantees (as renegotiated) was 92 percent.
The State tax assessment was ultimately abated, and petitioners
have failed to convince us that such result was not foreseen.
Considering all of the evidence, petitioners have failed to
persuade us that a bankruptcy event was likely to occur. Such a
finding is not inconsistent with the testimony of Robert Kennedy
and David Hepburn that the possibility of bankruptcy was “real”
and not “insignificant”. Therefore, petitioners have failed to
prove that, as of the measurement date, they would be called upon
to pay any amount as a result of petitioners' guarantees.
3. State Tax Exposure
The State tax assessment became final on June 14, 1991, in
the amount of $980,511.84. As in effect and in relevant part,
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