-167-
purposes.” In the final draft of the exchange and contribution
agreement, Generale Bank and CLIS warranted and represented that
they had received no payment of principal on the $974 million in
receivables and the $79 million receivable, respectively, and
that those receivables had not been written down for accounting
or tax purposes. Pursuant to this final draft, the Ackerman
group was entitled to indemnification from CDR of up to $10
million for any breaches of these representations or warranties.
b. Redemption and Liquidation Rights
Petitioner contends, however, that Generale Bank and CLIS
had an interest in maximizing their return from a redeveloped
SMHC. Petitioner points to the redemption rights (and ostensibly
the conversion rights) provided in the letter agreement and
distilled into the SMP LLC agreement. Under the SMP LLC
agreement, Generale Bank and CLIS were given conversion rights
for their preferred interests in SMP which were exercisable on or
after December 10, 2001.118 The preferred interests were
convertible into nonvoting Common II interests.119 In the event
that SMP received a conversion notice, it had the option to
redeem the preferred interests, in whole but not in part, at a
118 The agreement provided that the conversion right would be
immediately exercisable in the event SMP failed to make a certain
required distribution.
119 The preferred interests were convertible on a basis equal
to the “Convertible Percentage”, which the LLC agreement provided
would initially equal 45 percent.
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