Claymont Investments, Inc., As Successor in Interest to New CCI, Inc. and Subsidiaries - Page 15

                                       - 15 -                                         
          Bernard Cragg, Carlton’s finance director, testified that at the            
          time Carlton agreed to the purchase price of the acquisition, he            
          did not know exactly how long Paramount or MGM/UA would remain a            
          customer, and that Carlton did not have detailed information                
          relating to Technicolor customers.  In addition, with respect to            
          MGM/UA, documents contemporaneous with the acquisition stated               
          that Technicolor’s relationship with MGM/UA was “uncertain”.  For           
          example, the disclosure schedule to the stock purchase agreement            
          and the preacquisition review stated that “MGM/UA is a company in           
          a state of change”, “Technicolor has no written agreement with              
          MGM/UA”, and “it is unclear whether Technicolor will receive any            
          business from MGM/UA at all in the future.”  Furthermore, with              
          respect to Paramount, although it had a history of doing business           
          with Technicolor at the time of the acquisition, it had been a              
          contractual customer for less than 2 years.  At trial, Earl                 
          Lestz, president of Paramount’s Studio Group, testified that                
          Paramount never gave Technicolor or Carlton any reason to expect            
          that Paramount would remain a customer for any extended period of           
          time.  Mr. Lestz’s testimony, the competitive nature of the film            
          processing market, and Technicolor’s high client turnover rate              
          before the acquisition, establish that Carlton’s expectation of a           
          permanent relationship with Paramount was not reasonable.                   
               In short, petitioners did not establish tax bases with                 
          respect to the customer relationships with MCEG, Paramount, and             

Page:  Previous  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  Next

Last modified: May 25, 2011