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adjusted basis in the three parcels of real property transferred
by petitioners to NAC Corporation on December 26, 1989:
Property Liability Adjusted Basis
Clinton Way $1,386,654.50 $349,774.06
Fresno/Herndon 161,558.28 631,632.42
Total 1,548,212.78 981,406.48
The combined excess of liabilities over petitioners' adjusted
basis was thus $566,806.30.
On December 26, 1989, petitioners also transferred their
Capital Note in the face amount of $1,060,000 to NAC Corporation.
The Capital Note was unsecured. It purported to be petitioners'
unconditional promise to pay NAC Corporation interest at the rate
of 11 percent per annum in monthly installments commencing
February 1, 1990, and continuing in each consecutive month to and
including January 1, 1995. Beginning February 1, 1995, monthly
installments of $23,046.97 were payable until all principal and
any accrued but unpaid interest were paid in full, with any
remaining balance due January 1, 2000.
The Capital Note provided for acceleration in the event of
default at the option of the holder. The payment terms of the
Capital Note did not parallel those of the Standard Insurance
Note, which provided for equal monthly payments of principal and
interest at 11 percent per annum (with provision for a certain
rate adjustment after five years) until the earlier of January 1,
1998, or the date on which the note has been paid in full.
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