- 8 -
accrued interest of 10 percent but did not require regular
interest or principal payments.
In January 1988, petitioner conveyed a line of credit to BEI
in the amount of $15 million. BEI issued to petitioner, in
exchange for the line of credit, a promissory note that provided
for interest to accrue at 10 percent and for payment of the
principal and interest on January 1, 1994. In October 1988,
petitioner also conveyed a line of credit to TELCOR in the amount
of $1.75 million that was evidenced in a note with the same terms
as the BEI note. Regular payments of principal or interest were
not required under the notes. Petitioner's prior advances to BEI
and TELCOR were accumulated into the two line-of-credit notes,
and BEI and TELCOR could draw against the line of credit for
additional advances up to the maximum stated in the notes less
the amount of the prior advances. The first set of notes that
had been executed on behalf of BEI, TELCOR, and the TELCOR
subsidiaries (described above) were treated by the companies and
petitioner as consolidated into the two line-of-credit notes.
Both BEI and TELCOR had negative shareholder's equity
accounts and deficits in their retained earnings accounts as
follows for fiscal years ending October 31:
BEI
Year Retained Deficit Shareholder's Equity
1987 ($2,427,382) ($2,002,419)
1988 (7,384,635) (6,959,672)
1989 (10,775,987) (9,671,195)
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011