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pursuant to a credit agreement dated October 30, 1990. Sealion
then lent the $150 million to Pathe, which in turn used the funds
to finance part of the acquisition of MGM Communications.
Sealion entered into a stock purchase agreement dated as of
November 1990, with Melia International N.V. (Melia), which owned
51.9 percent of Pathe’s outstanding common stock. Pursuant to
the stock purchase agreement, Sealion purchased 900,000 shares of
MGM-Pathe’s common stock (constituting 1.5 percent of the common
stock of MGM-Pathe) from Melia. Sealion in turn pledged its 1.5-
percent interest in MGM-Pathe to Credit Lyonnais as security for
the $150 million loan. Thereafter, Sealion, Melia, and Pathe
controlled the boards of directors of Pathe and MGM-Pathe.
D. Cashflow Problems of MGM-Pathe
Before the Pathe acquisition, MGM relied on cashflows from
its distribution agreements to conduct its day-to-day operations
and to generate revenue. To finance Pathe’s recent acquisition
of MGM/UA Communications, however, Mr. Parretti entered into new
distribution agreements which were then factored with financial
institutions, thereby depriving MGM of approximately 80 to 90
percent of its ordinary cashflow. Consequently, MGM-Pathe was
soon unable to finance its day-to-day operations, including
motion picture production and release. To fund all its operating
costs, including the payment of interest, MGM-Pathe had to rely
on external capital in the form of continuous borrowing from the
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