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To acquire SMHC in a manner that might preserve the tax
attributes, the Ackerman group formed a new limited liability
company, Santa Monica Pictures, LLC (SMP), which elected to be
treated as a partnership for Federal tax purposes. The Credit
Lyonnais group agreed to contribute to SMP the high-basis, low-
value indebtedness and SMHC stock after first contributing to
SMHC a library of what might charitably be called B-grade films.
In exchange, the Credit Lyonnais group was to receive preferred
interests in SMP and a $5 million “advisory fee”.2 Pursuant to a
side agreement, the Ackerman group committed to purchase these
preferred interests from the Credit Lyonnais group, upon demand,
for a $5 million “put” price.3
In late 1996, the Credit Lyonnais group made the agreed-upon
contributions to SMP. Some 3 weeks later, the Credit Lyonnais
group exercised its “put”, sold its SMP interests to Somerville S
Trust (Mr. Ackerman’s grantor trust), and so departed SMP. SMP
was left holding, instead of the proverbial bag, the high-basis,
low-value assets that the Credit Lyonnais group had contributed
and, indirectly (through SMHC), the B-grade films.
2 More precisely, the $5 million advisory fee was to be
paid to one of the Credit Lyonnais group members, Credit Lyonnais
International Services (CLIS).
3 More precisely, the commitment to purchase the Credit
Lyonnais group’s preferred interests was made by one of the
Ackerman group members, Rockport Capital, Inc.
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Last modified: May 25, 2011