- 114 -
audited financial statements for the year ended December 31,
1990, and PKV&S’s audited consolidated financial statements for
the year ended December 31, 1991, did not bear interest.
Third, no evidence indicates that PKVI LP actually made any
payments of principal or interest to PK Ventures. Moreover,
PKV&S’s inconsistent reporting of imputed interest payments from
PKVI LP on its consolidated income tax returns for 1987 through
1991 does not persuade us that the transfers from PK Ventures to
PKVI LP were bona fide loans.
Fourth, no evidence indicates that PK Ventures had the right
to enforce the payment of principal or interest with respect to
its transfers to PKVI LP. Rather, PK Ventures and PKVI LP agreed
that PKVI LP would not make any payments of principal or interest
if such payments would have caused it to default or breach any
other note or agreement to which it was a party. This agreement
subordinated the right of PK Ventures to demand payment of its
transfers to PKVI LP to the rights of PKVI LP’s creditors.
Fifth, PKVI LP was thinly capitalized. PKVI LP reported
$50,000 of capital contributions on its books. PKVI LP had
approximately 24 times more debt to unrelated parties than it had
equity at the end of 1986, 37 times more at the end of 1987,
45 times more at the end of 1988 and 1989, 42 times more at the
end of 1990, and 45 times more at the end of 1991. If the
transfers from PK Ventures to PKVI LP are treated as debt and
Page: Previous 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 NextLast modified: May 25, 2011