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transfer the advances to any person without regard to any
transfer of stock of the borrower.
Petitioners and LIIBV treated the advances from LIIBV to
Transit, LWSI, and Tree as loans on their financial statements.
LIIBV could have sued, but did not, to enforce the agreements.
During the years in issue, LWSI and LWSL had credit lines
from RBC and BBC totaling about $250 million, which were senior
to LIIBV's and LTL's advances.
5. Terms and Conditions of Specific LIIBV Agreements
a. Transit and LWSI Loan Agreements
LIIBV advanced $5 million to Transit on open account on
December 18, 1985. On February 4, 1986, Transit and its
subsidiaries, and LTI as guarantor, signed a loan agreement with
LIIBV which established a $50 million line of credit convertible
to a 5-year term loan due on September 1, 1988.16 Transit agreed
to pay interest quarterly beginning on May 31, 1986. The
agreement included an acceleration clause (i.e., the full amount
advanced would be due if Transit defaulted). Transit and LTI
agreed that they would each would maintain a long-term debt to
equity ratio of no more than 2 to 1 and a current assets to
current liabilities ratio of no less than 1 to 1.
The agreement did not require the directors of Transit or
LTI to adopt a resolution authorizing the guaranty or require the
16 Loans to Transit under the Feb. 4, 1986, agreement were
to mature on Sept. 1, 1988, unless the outstanding principal was
previously converted into a term loan to be repaid in 10
semiannual installments.
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