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percent. On November 21, 1995, petitioner executed a promissory
note (1995 note) with Mr. Rowe for $605,681 (i.e., his
outstanding balance) of the $807,081 total outstanding balance of
the transfers. The 1995 note was payable on demand, was freely
transferable, had no maturity date or payment schedule, and had a
stated interest rate of 10 percent.
On January 1, 1998, when the outstanding transfers totaled
$1,222,133, petitioner executed two written line of credit
agreements with the Rowes for $1,000,000 and $750,000. The line
of credit agreements provided that the balances were payable on
demand, and the notes were freely transferable. In addition, the
agreements provided a stated interest rate of 10 percent and had
no maturity date or payment schedule.
Petitioner was profitable, and numerous banks sought to lend
petitioner money. As a result, FTB worked diligently to retain
petitioner’s business, made funds immediately available upon
petitioner’s request, and was willing to lend petitioner 100
percent of the transferred amounts. FTB, however, required
petitioner to subordinate (i.e., to FTB’s outstanding loans with
petitioner) all transfers.
In 1993, FTB lent petitioner $1,850,000. The loan agreement
stated “no payments shall be made by Borrower to satisfy any
* * * [stockholder] indebtedness for so long as the Loans shall
remain unpaid.” Petitioner, however, made partial repayments to
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