Santa Monica Pictures, LLC, Perry Lerner, Tax Matters Partner - Page 89

                                        -171-                                         
          put period, SMP could convert the banks’ membership interests               
          into preferred debt, and the banks’ potential payback would be              
          limited to the same $5 million that they could have received                
          almost immediately by exercising the put option.                            
               Presumably, this conversion feature was of little concern to           
          the banks, because as we have found, they intended to exercise              
          their put option as soon as possible anyway.  The debt conversion           
          feature would appear to have provided SMP added assurance,                  
          however, that the banks would exercise their put option, which              
          was an essential part of the Ackerman group’s plan to acquire the           
          banks’ built-in losses.                                                     
                    d.  Distribution Rights                                           
               Petitioner also points to certain distribution rights that             
          the banks were given in their preferred interests in SMP.                   
          Amendment No. 1 to the SMP LLC agreement provided that SMP would            
          make annual distributions to its members of all “Excess Cash                
          Flow” according to the following priorities:                                
                    (i) First.  The holders of Preferred Interests                    
               shall receive pro rata in accordance with their                        
               respective Preferred Capital Accounts the lesser of (x)                
               Excess Cash Flow and (y) an amount equal to 8% of the                  
               balance of the Preferred Capital Accounts on the last                  

               121(...continued)                                                      
          language to mean that the put price would equal the original $5             
          million credited to the banks’ preferred capital accounts,                  
          unadjusted for any “Net Income” adjustments to those accounts               
          that might subsequently occur.  With that being said, the banks             
          had no incentive to stick around until Dec. 31, 1997, as opposed            
          to Dec. 31, 1996.                                                           





Page:  Previous  161  162  163  164  165  166  167  168  169  170  171  172  173  174  175  176  177  178  179  180  Next

Last modified: May 25, 2011