-166-
provisions, CDR effectively tied up any value that might be
realized on the Carolco securities.
On the other hand, the Ackerman group was primarily
concerned with certain representations and warranties that they
wanted with respect to Generale Bank’s and CLIS’s tax basis in
the receivables and SMHC stock. This concern is apparent in an
early draft of the letter agreement, in which the Ackerman group
proposed:
3. Certain Representations and Warranties of CLIS
and GB. (a) CLIS hereby represents and warrants that
CLIS’s basis computed under United States Federal
income tax principles in the stock of Holdings is not
less than $________.
(b) GB hereby represents and warrants that GB’s
basis computed under United States Federal income tax
principles in the Note [SMHC’s $1.050 billion debt
obligations to Generale Bank] is not less than
$________.
Mr. Geary testified that he had never seen representations and
warranties like these. He found that these items were too
complicated and exposed Generale Bank and CLIS to all sorts of
liabilities. Consequently, he had these open-ended
representations and warranties removed. Later, the Ackerman
group proposed a “Rider 12A” to the exchange and contribution
agreement providing the following representation and warranty:
SMHC “shall not have made any payment on the Holdings-CLIS Debt
or Holdings-GB Debt and neither the Holdings-CLIS Debt nor the
Holdings-GB Debt has been written down for accounting or tax
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