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due diligence on the film rights is an appraisal that Sage
Entertainment conducted. Mr. Lerner testified that approximately
4 to 6 weeks before the closing on the CDR transaction, he hired
Steve Kutner of Sage Entertainment to appraise the EBD film
library, that he had a large number of discussions with him about
various approaches to valuation, and that Mr. Kutner appraised
the EBD film library at $29 million.97 Mr. Lerner testified
that, on the basis of Mr. Kutner’s valuation, he felt “very
96(...continued)
Schedule 1.6(b), of course, contains a listing of the EBD film
titles and development projects. The exchange and contribution
agreement provides indemnification from CDR (capped at $2
million) for any material breach of this representation and
warranty. See Exhibit 188-J, J001341, 1344. It is patently
unclear what is meant by the term “good title” and whether these
provisions afford any meaningful rights with respect to the EBD
film library. Petitioner’s representatives, Troy & Gould,
acknowledged this “recitation” of good title; however, they
concluded:
despite this recitation, we do not have documentation
of the assignment [from CLIS to SMHC]. Moreover, the
term ‘U.S. Video Film Rights’ is nowhere defined in the
Agreement, and the Agreement contains no explicit
recitation that Santa Monica Holdings owns such rights.
Rather, this phrase appears only as the heading on the
Schedule; the phrase does not appear in the body of the
Agreement.
This is another significant gap in the chain of title.
Despite the obvious infirmities in SMHC’s rights to the EBD film
titles, there is no indication that the Ackerman group ever
claimed any indemnification under this provision.
97 Mr. Kutner did not include in this figure the value of
second-cycle exploitation or other rights, which he opined could
increase the value of the EBD film library by as much as 40 to 50
percent.
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