- 5 -5
capital loss. The tax-exempt foreign partner would be allocated
most of the capital gain, and AlliedSignal would realize the
capital loss.
Merrill Lynch representatives further explained that the
proposal was a package deal. Merrill Lynch would serve as the
partnership's2 financial adviser and, for a $7 million fee,
recruit the foreign partner and arrange for the issuance and sale
of the PPNs and LIBOR notes. To ensure a market for such
issuance and sale, Merrill Lynch would structure and enter into
the requisite swap transactions. Merrill Lynch would also serve
as the partnership's financial intermediary, earning an
additional $1,060,000 to $2,130,000 on the PPN sale and $212,000
to $425,000 on the LIBOR note sale. The foreign partner, for its
participation in the transaction, would charge AlliedSignal the
greater of $2,850,000 or 75 basis points (b.p.)3 on funds
advanced to the partnership. In addition, AlliedSignal would pay
all of the partnership's expenses. Merrill Lynch estimated that
AlliedSignal's total expenses for the entire venture4 would be
2 We refer to ASA as a "partnership" and AlliedSignal, ABN,
ASIC, Barber, and Dominguito as "partners". These terms are used
for convenience and are not intended to have any legal
significance.
3 One basis point is equal to 1/100th of 1 percent.
4 We refer to the entire series of transactions as the
"venture". This term is used for convenience and is not intended
to have any legal significance.
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