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During the 5 years after the acquisition, USI put some $12
to $14 million into petitioner's former companies and guaranteed
some $2 million in loans. Initially, the operations were
successful. Petitioner received one distribution of USI stock
(called by the parties earn-out stock), valued at $871,484 and
based upon 1969 profits. Soon, however, relations between
petitioner and USI began to sour. Petitioner's former businesses
became less and less successful. USI began limiting petitioner's
authority, and ultimately in May 1971, removed him as president
and chief operating officer, and appointed him to be a salaried
consultant, with little work to perform.
In December 1971, petitioner pledged his USI stock to the
First National Bank of Leesburg (Leesburg Bank) as security for a
$1.5 million loan. On April 20, 1972, petitioner failed to make
an installment payment on the note he had transferred to USI and
informed USI he was not going to pay the remaining balance on the
note but instead would offset it against USI’s outstanding
obligations to him. USI stopped paying his salary and requested
that Chemical Bank in New York, its stock transfer and dividend
disbursing agent, stop payment on petitioner's USI dividends.
Under instructions from USI, Chemical Bank delivered petitioner's
USI stock dividend checks to USI. On June 15, 1972, petitioner
borrowed an additional $135,000 from the Leesburg Bank, assigning
as security all dividends from his USI stock. Both petitioner
and the Leesburg Bank mailed to USI notice of the assignment.
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