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entered into a film processing contract with Technicolor.
Technicolor lent MCEG $5.5 million to induce MCEG to enter into
the contract. Because of concerns about MCEG’s long-term
viability, Technicolor secured the loan with video distribution
royalty rights from four MCEG films. If the distribution
royalties were insufficient, MCEG was obligated to repay the loan
by October 31, 1991 (1988 loan). Technicolor’s sales plan, dated
October 18, 1988, for fiscal year 1989, did not list MCEG as a
customer. On October 31, 1990, MCEG was placed into involuntary
bankruptcy, and on March 19, 1992, the U.S. Bankruptcy Court
approved MCEG’s chapter 11 reorganization plan. The successor
entity, MCEG Sterling, Inc., did not continue doing business with
Technicolor.
C. The 1989 Asset Valuation
On June 23, 1989, C&L prepared a valuation report (1989
Valuation) that determined the FMV of Technicolor’s assets for
purposes of allocating the purchase price to those assets. C&L
divided the acquired assets into four classes, discussed supra in
section I.A. Class III included Technicolor’s customer
relationships. C&L determined the value of the relationships by
computing the present value of the net realizable earnings that
these assets would generate over their remaining lives. The
remaining lives were determined by adding a 3-year projected
extension to each relationship’s termination date. The remaining
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