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Petitioner agreed to certain covenants with respect to the
Miller/Huntington Loan, including covenants that, other than the
extension of credit by petitioner to MMS under the MMS/Miller
Loan line of credit, petitioner would not, and would cause MMS
not to, lend or incur indebtedness (except indebtedness for the
purchase of property equal to the purchase price). Petitioner
was also required under the Miller/Huntington Loan to submit
MMS's financial statements and a report of MMS's accounts
receivable to Huntington on a monthly basis, and to submit his
personal financial statements as Huntington might from time to
time require. No covenants had been required of petitioner as
guarantor of the MMS/Huntington Loan. The Miller/Huntington Loan
further provided that an event of default would exist if either
petitioner or MMS became insolvent, or if MMS failed to comply
with any provision of the MMS/Miller Loan.
On its Federal income tax return and financial statement for
the 1992 calendar year, MMS reported a $750,000 loan from a
shareholder as of yearend.
Modifications to the Restructured Loan
On February 15, 1993, the lines of credit under the
Miller/Huntington Loan and MMS/Miller Loan were both increased by
$250,000. These changes were effected through loan modification
7(...continued)
the Bank * * * .
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