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On July 31, 1984, petitioner borrowed $206,040 from Phoenix
Federal and then lent the money to Adult Living Centers to help
meet the cash requirements. The promissory note evidencing
Phoenix Federal's loan to petitioner was secured by petitioner's
stock in Adult Living Centers. The note was due on December 31,
1984.
On October 15, 1984, Phoenix Federal provided a $700,000
line of credit to Adult Living Centers to help cover cost
overruns and operating deficits. Petitioner executed a limited
guaranty of collection on a portion of the line of credit
(Phoenix Federal line of credit guaranty) based on his
proportionate stock ownership interest in Adult Living Centers.
Adult Living Centers used funds borrowed on the line of credit to
repay petitioner the $206,040 he had lent to the corporation.
Petitioner then repaid his $206,040 loan from Phoenix Federal.
In 1985, Phoenix Federal sold its controlling interest in
Adult Living Centers to William Ricketts, a Muskogee businessman.
Mr. Ricketts and the other principals in Adult Living Centers
determined they needed additional cash-flow in order to salvage
the Van Orden project. Mr. Ricketts thought an additional
nursing home facility would provide enough excess cash-flow to
service the Van Orden project debts and provide administrative
cost savings.
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