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reserve for the transaction.14 In calculating the recommended
reserve, the summary stated the following:
The first item of tax reserve concerns the sale to
Merrill Lynch Asset Management of the leasing
subsidiaries we wish to retain. The IRS could maintain
that the form of this transaction should be disregarded
and in substance, a distribution with a reduction in
tax basis should be deemed to have occurred. The $16
million reserve amount is the $57 million I noted
previously multiplied by the 28% capital gains tax
rate.
Following the presentation, Merrill Parent’s board of directors
approved the plan, including the sale of Merrill Leasing to
Inspiration.
E. Nonbinding Letter of Intent
On July 29, 1986, 1 day after the presentation to its board
of directors, Merrill Parent entered into a nonbinding letter of
intent with Inspiration for the sale of the stock of ML Leasing
to Inspiration. The letter of intent provided a “period of
exclusivity” during which Merrill Parent would negotiate
exclusively with Inspiration to reach an agreement for the sale
of ML Leasing. Upon executing the letter of intent, the parties
agreed that “if such sale agreement is not executed on or prior
to August 31, 1986, neither of us intends to proceed with the
transactions contemplated herein.” The letter of intent provided
14The $37 million tax reserve consisted of a $16 million
reserve for the possible disallowance of the deemed dividend
resulting from the cross-chain sale and a $21 million reserve for
lost tax benefits if certain income projections were not
realized.
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