Flint Industries, Inc. and Subsidiaries - Page 18




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               G.  Petitioner’s Plan To Dispose of G�nther                            
               G�nther’s financial condition as of May 31, 1992, was so bad           
          that petitioner could have forced G�nther to file for bankruptcy            
          simply by withholding additional financial support.  Petitioner             
          discussed bankruptcy but decided to pursue an orderly disposition           
          of G�nther to minimize petitioner’s losses from G�nther’s                   
          financial collapse and to avoid triggering contingent and/or                
          potential liabilities, which did not appear on G�nther’s balance            
          sheet.  The plan included making payments on the guaranteed bank            
          loans to prevent G�nther’s default until a purchaser could be               
          found, shoring up G�nther’s German balance sheet by waiving                 
          petitioner’s right to collect a portion of G�nther’s intercompany           
          account balance, and minimizing petitioner’s exposure on the                
          lease guaranty by purchasing G�nther's interest in Actium.                  
               1.  The First Waiver Subject to Reinstatement                          
               Under German GmbH law, a formal contribution to the capital            
          of a GmbH by its owner requires an amendment to the GmbH’s                  
          charter, which must be effected in accordance with German GmbH              
          law.  An informal contribution to a German GmbH, however, does              
          not require a charter amendment.  One type of informal                      
          shareholder financing available to a German GmbH is a waiver of a           
          shareholder’s loan to the GmbH.                                             
               A waiver of a shareholder's loan subject to reinstatement is           
          a form of contingent debt that can return a subsidiary GmbH to              







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