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e. Carolco Securities
Petitioner points to Generale Bank’s and CLIS’s interest in
receiving the future value of the Carolco securities that SMHC
held as evidencing economic substance in the banks’ preferred SMP
membership interests. Petitioner points out that even after
Generale Bank and CLIS exercised their put rights, SMP continued
to treat Generale Bank and CLIS as partners, sending those
entities Schedules K-1 for each year from the time the banks made
their contributions.
Generale Bank’s and CLIS’s retained interest in the Carolco
securities does not reflect a long-term commitment to SMP or SMHC
or lend substance to their purported membership interests.
Although the Carolco securities were to be held in SMHC, whatever
value might have been realized on the Carolco securities had
nothing to do with SMHC, SMP, or any prospective film
distribution business. Instead, Generale Bank and CLIS had tied
up whatever value that remained in the Carolco securities as a
contingent amount in their put purchase price.
Amendment No. 1 also gave the banks certain preferred
distribution rights to any value that might be realized from a
liquidation of the Carolco securities.125 Petitioner points to
125 With respect to the Carolco subordinated notes, Amendment
No. 1 provided that as promptly as practicable after the “SN
Liquidation Date”, SMP would distribute to holders of preferred
interests pro rata in accordance with their respective preferred
(continued...)
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