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deduction attributable to the alleged termination of the MCEG
relationship and a $2,698,000 loss deduction attributable to the
alleged termination of the MGM/UA relationship.7
II. Loan Assumption and Foreign Exchange Gain Deferral
On October 7, 1988, Holdings and CIC entered into a note
purchase agreement (Holdings/CIC transaction). The agreement
provided that Holdings would lend CIC �29,498,525 (i.e., the
equivalent of $50 million) in exchange for a promissory note
(note). The note had a 10-year term and required interest
payments calculated at an 11.5-percent rate, compounded semi-
annually and payable annually. All principal and accrued and
unpaid interest were due on October 7, 1998, but the principal
could be repaid at any time without penalty.
In 1996, Carlton’s board of directors decided to acquire RSA
Advertising, Ltd. (RSA), and Cinema Media, Ltd., a subsidiary of
RSA. A portion of this acquisition would be funded with funds
from CIHI. On June 28, 1996, CIC and CIHI entered into a note
assumption agreement (CIC/CIHI transaction). This agreement
provided that CIC would pay CIHI $49,784,881 in exchange for
CIHI’s assumption of CIC’s obligations to Holdings. The
$49,784,881 was the amount necessary to pay off the outstanding
7 In a third amendment to petition, petitioner, in the
alternative, contends that the loss relating to MCEG is properly
deductible for the year ending Sept. 30, 1992, 1993, or 1995.
With respect to MGM/UA, petitioner contends that the loss is
properly deductible for the year ending Sept. 30, 1992.
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