-106-
and Jouannet struck a deal: Rockport Capital, Mr. Lerner,
Generale Bank, and CLIS would join together as purported members
of a limited liability company, SMP, which elected to be treated
as a partnership for Federal tax purposes. In exchange for
common interests in SMP, Rockport Capital and Mr. Lerner would
contribute $20 million cash or marketable securities. In
exchange for preferred interests in SMP, Generale Bank would
contribute its $974 million in receivables from SMHC, and CLIS
would contribute its $79 million receivable and SMHC stock. At
the time of these contributions, the receivables and SMHC stock
had purported bases totaling over $1.7 billion. These
properties, however, had little, if any, value.
As part of the transaction between CDR and the Ackerman
group, CDR negotiated a side letter agreement in which Rockport
Capital agreed to purchase Generale Bank’s and CLIS’s (sometimes,
collectively, the banks) preferred interests in SMP upon written
notice from those entities (put rights). The banks’ put rights
were exercisable during a 1-year period beginning December 31,
1996. The deal closed on December 11, 1996. Less than 3 weeks
later, on December 31, 1996 (the first day of the 1-year put
period), the banks exercised their put rights. Somerville S
Trust (standing in the shoes of Rockport Capital) purchased the
banks’ preferred interests in SMP.
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