-169-
Rockport Capital and CDR, Generale Bank and CLIS were relying on
the side letter agreement because they did not want to have to
wait for the conversion of their preferred interests into common
stock which would take 5 years.
Furthermore, as explained below, when considered in
conjunction with SMP’s option to convert the banks’ preferred
interests into debt, it does not appear that the banks’
conversion feature would have been likely to provide any
meaningful inducement for the banks to remain in SMP.
c. SMP’s Conversion Option
SMP had the option to convert the banks’ preferred
interests, in whole but not in part, into debt of SMP. SMP could
exercise this conversion right any time on or after December 31,
1997 (the last date by which the banks could exercise their put
option). If the conversion right w exercised, the resulting debt
(so-called “preferred debt”) would have a $5 million principal
amount and a 5-year term; it would bear interest at an 8-percent
annual rate, payable annually from one year after the issuance of
preferred debt to the maturity thereof. If the conversion option
were exercised, SMP would have the option of redeeming the
preferred debt, upon 30 days’ notice, at 100 percent of the
principal amount ($5 million) plus any accrued and unpaid
interest.
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