-168-
redemption price equal to the sum of the preferred capital
accounts for all holders of preferred interests.120 In explaining
the conversion feature, Mr. Lerner testified: “Credit Lyonnais
was very concerned that the company would become increasingly
valuable over the period of time that we were adding film
libraries to it, and they wanted the opportunity to convert from
a preferred stock position, which had fixed value plus return, to
a full equity position”. He added, “They were willing to let’s
say remain in a preferred position for awhile, but ultimately
they wanted the option to get more of the animal, which is to say
increase their interests to a level where they could participate
in what we thought would be the equity build up of the
investment.”
We cannot agree that the conversion right denotes any long-
term commitment on the part of Generale Bank and CLIS, or that it
otherwise lent economic substance to the banks’ purported SMP
interests. The conversion feature appears in the initial draft
term sheet that Shearman & Sterling prepared at the request of
Mr. Lerner. This item does not appear to have been an item that
was specifically negotiated by CDR or Mr. Geary or one that they
really cared about. Indeed, Mr. Geary testified that although
the conversion feature was always part of the deal between
120 Amendment No. 1 credited $3,125,000 to Generale Bank’s
preferred capital account and $1,875,000 to CLIS’s preferred
capital account.
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