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As restructured as of September 30, 1993, the lease payments
to be paid to Atrium during the 4-year renewal period were set
forth and described in what was referred to as a residual value
certificate (RVC). Under the terms of the RVC, ABN would be
required to pay Atrium, on November 30, 1996, and on November 30,
1998, an unspecified amount equal to 200 percent of the fair
market value of the leased equipment, as of the two respective
payment due dates, in excess of specified base amounts of $5
million on the first date and $2 million on the second date. In
other words, if the fair market value of the leased equipment as
of the specified dates did not exceed the stated base amounts for
the equipment, no payments would be due from ABN under the RVC.
Also, under the terms of the RVC, ABN expressly disclaimed any
warranty or representation regarding the present or future value
of the equipment.
In connection with ABN’s, Atrium’s, and ultimately
petitioner’s participation and acceptance of the terms of the
RVC, no appraisal was obtained of the fair market value of the
leased equipment as of September 30, 1993, and ABN, Atrium, and
petitioner relied on an incomplete and outdated appraisal of the
leased equipment made in 1991. No credible effort was made to
establish, as of September of 1993, that the base amounts
specified in the RVC were reasonable and that the RVC had any
foreseeable value.
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