Indmar Products Co., Inc. - Page 11

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          associates.  His testimony, however, was contradictory,                     
          inconsistent, and unconvincing.  For example, Mr. Rowe testified            
          that either “a handshake” or “a signature” was sufficient to bind           
          him to an agreement.  Yet, he readily failed to honor his                   
          “agreements” not to demand repayment.  In addition, despite the             
          FTB loan restrictions on repayments to stockholders, when the               
          Rowes needed cash for personal needs, petitioner paid them on               
          demand.  In essence, the Rowes simply wanted to receive a 10-               
          percent return on, and ready access to, the transferred funds.              
          As a result, petitioner, along with the Rowes, manipulated facts            
          to attempt to make the transfers appear as debt and avoid certain           
          legal consequences.                                                         
          III. The Transactions Were Not Arm’s Length                                 
               The transfers between petitioner and the Rowes were not                
          arm’s-length transactions.  First, because the Rowes wanted a 10-           
          percent return, the interest rate paid by petitioner was above              
          the market and prime rates for almost 12 years.  Second, the                
          Rowes began transferring funds to petitioner in 1987 but did not            
          begin reducing the “handshake deals” to a writing until December            
          31, 1993, and the outstanding balance was not fully documented              
          until November 21, 1995.  In 1997, the Rowes made additional                
          transfers, but they were not evidenced by a writing until 1998.             
          Third, petitioner and the Rowes executed waivers that were                  
          violated, and, at their convenience, considered nonbinding.                 

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