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value of the Sumitomo LIBOR notes based on the sum of the par
value of the IBJ CDs plus accrued interest, less the private
placement discount and the cash received upon the sale of the IBJ
CDs, as follows:
Par value of IBJ CDs $100,000,000
Plus accrued interest (through 7/29) 201,562
100,201,562
Less private placement discount (750,000)
Net amount 99,451,562
Less cash received (80,000,000)
Merrill Lynch origination value $19,451,562
Sumitomo valued the LIBOR notes that it had issued to Otrabanda
at $18,905,565.
According to Pepe's computations, Otrabanda received
consideration totaling $99,451,562 consisting of the $80 million
in cash and the Sumitomo LIBOR notes with a present value of
$19,451,562. The difference between the par value of the IBJ CDs
plus accrued interest ($100,201,562) and the total consideration
that Otrabanda received ($99,451,562) reflects the $750,000
private placement discount on the sale of the IBJ CDs.
Contrary to the origination value that Pepe assigned to the
Sumitomo LIBOR notes, Otrabanda carried the LIBOR notes on its
audited and unaudited financial statements at their cost of
$20,201,562--the present value of the LIBOR notes of $19,451,562,
plus the $750,000 private placement discount on the sale of the
IBJ CDs. Otrabanda adopted this approach based upon advice from
Merrill Lynch. As discussed in detail below, the private
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