-293-
The draft memorandum ends with the following statement:
Given the limited scope of our review, and your desire
for us to emphasize a quantitative as opposed to a
qualitative review, please appreciate that more
detailed procedures, analysis and review would be
necessary before any reliance should be placed on our
analysis for tax return or other tax filing purposes.
We will be pleased to further discuss the opportunity
for Ernst & Young LLP to become engaged to provide a
more detailed analysis of tax basis.
We believe that the draft memorandum speaks for itself--any
reliance on that memorandum in preparing tax returns would be
plainly unreasonable.
3. May 12, 1997, Shearman & Sterling Memorandum
On May 12, 1997, Gerald Rokoff and Alvin Knott of Shearman &
Sterling prepared a memorandum addressed to Messrs. Lerner and
Rhodes discussing certain issues relating to the CDR transaction
and SMP’s bases in the SMHC receivables and stock. Mr. Lerner
testified that this memorandum was prepared in connection with a
possible merger transaction in which SMP’s stock and debt
interests in SMHC would be contributed to SMHC or another holding
company. In connection with this proposed transaction, Mr.
Lerner testified that he sought and received the advice of
Shearman & Sterling as to whether the $79 million receivable and
the $974 million in receivables should be treated as worthless or
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