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fixtures, receivables, and other assets. Grocers was owned by
Max and Milton Levit, and its chief financial officer was James
Nelson (Nelson). Petitioner’s and UPE’s loan requests of Grocers
and loan renegotiations were subject to the approval of Milton
Levit. When a loan request was approved, Nelson became
responsible for its management and collection. It was Grocers’
policy not to become involved in the operation of retail stores
or to become an equity investor or stockholder. If a borrower
defaulted without satisfactory means of repayment, Grocers
enforced its security interest by taking possession of the
secured assets and liquidating them. Some of petitioner’s early
stores were purchased from and/or with financial assistance from
Grocers. Petitioner acquired small stores from Grocers and/or
its debtors after the debtors’ default on their obligations to
Grocers.
Once petitioner was firmly established in the supermarket
business, Stewart used petitioner’s capital to diversify into the
purchase and sale of used industrial equipment. Stewart
incorporated UPE in Texas during 1987 to sell salvaged equipment
that had been removed from industrial plants. Most of UPE’s
salvaged materials consisted of powerhouse and ethylene plant
equipment. A substantial portion of UPE’s operating expenses was
due to the cost of labor, cleanup, and storage for equipment.
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