Operating
Covenants). The 2UBC Construction Agreement, however, allowed
LBC to terminate its obligations relating to the Atrium after
June 30, 2001, upon payment to Den-Cal of a termination fee and
the occurrence of certain other conditions. LBC and Den-Cal
acknowledged that LBC's election to terminate the Atrium
Operating Covenants "would result in the diminution in value of
Two United Bank Center in an amount at least as large as the - 28 -
termination fee", and, accordingly, LBC granted to Den-Cal a lien
to secure performance under the Atrium Operating Covenants in the
event that the Atrium were razed prior to expiration of the
obligations.
The 2UBC Sale Agreement, the 2UBC Construction Agreement,
and related agreements shall be referred to collectively as the
2UBC Transaction.
b. Tax Treatment of the 2UBC Transaction
As a result of the 2UBC Transaction, LBC realized the
following amounts from the sale of its properties:
Property Amount Realized
2UBC improvements $22,847,841
2UBC land 4,219,181
50-percent interest in Motorbank I improvements 9,795,022
50-percent interest in Motorbank I land 2,038,506
On January 26, 1988, the UBC affiliated group filed an
amended corporate income tax return for its 1985 taxable year, on
which the UBC affiliated group reported adjusted bases for
determining gain or loss from the sale of its properties in the
2UBC Transaction as follows:
Property Adjusted Basis
2UBC improvements $15,533,317
2UBC land 664,559
50-percent interest in Motorbank I improvements 1,816,730 - 29 -
50-percent interest in Motorbank I land 321,083
The parties agree that those adjusted bases are correct, except
to the extent, if any, that the cost of the Atrium Assets, see
supra sec. II.A.7., is allocable to the bases of the properties
sold in the 2UBC transaction.
9. The 3UBC Transaction
a. The Various Agreements
By purchase and sale agreement dated December 31, 1987, LBC
sold 3UBC, but not the land underlying 3UBC (the 3UBC land), to
Holme, Roberts & Owen (HRO), a partnership that was engaged in
the practice of law and that served as the Bank's legal counsel
during the years in issue (the 3UBC Sale Agreement). The
purchase price of $15,957,648 was paid by a note that was
nonrecourse to the partners of HRO; however, the note was secured
by a deed of trust to 3UBC and an irrevocable letter of credit in
the amount of $2.4 million.
By an agreement dated December 31, 1987, LBC leased the 3UBC
land to HRO for a term commencing on December 31, 1987, and
running for 34 years and 9 months (the 3UBC Ground Lease). For
the period through September 30, 2012, the annual rent was
$25,000 plus 30 percent of any net rental income generated by
3UBC in excess of $2.5 million. After September 30, 2012, the
rent was to be at fair market value. Pursuant to the 3UBC Ground
Lease, LBC and HRO granted to each other certain reciprocal
easements pertaining to the ingress and egress of pedestrians - 30 -
through common areas, including the Atrium. Also, LBC agreed to