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worthless when those assets were contributed to SMP. In
addressing that issue, Shearman & Sterling discusses Los Angeles
Shipbuilding & Drydock Corp. v. United States, 289 F.2d 222 (9th
Cir. 1961) and Higgenbotham-Bailey-Logan Co. v. Commissioner, 8
B.T.A. 566 (1927), cases which we have discussed supra in the
context of the worthlessness issue. In concluding that the SMHC
receivables were not worthless under those cases, Shearman &
Sterling relied on the faulty factual assumption that the EBD
film rights and Carolco securities had considerable value.209 The
memorandum provided the following analysis:
Debt of a corporation, such as * * * [SMHC], which
has valuable assets that could be sold or exploited to
pay off a portion of the debt is certainly not
worthless. * * * [SMHC] has retained extensive films
rights and properties which had been acquired by Credit
Lyonnais in connection with its lending activities.
Those rights include distribution rights to
approximately sixty-five films, sequel rights and film
development rights. In addition, * * * [SMHC] also
owns approximately $60 million (face value) of the
securities of Carolco, Inc., which is engaged in
bankruptcy proceedings. The Company [SMP] is actively
exploiting * * * [SMHC’s] film rights and the Company
has commenced discussions with a number of parties to
acquire additional film libraries. The Company is also
pursuing its rights to maximize its recovery of its
investment in Carolco.
We understand that * * * [SMHC’s] rights in the
Carolco investment have been valued at approximately
$11 million. The projected income stream from the next
cycle of * * * [SMHC’s] film rights has been estimated
to have a present value of approximately $29 million
and a future value in excess of $35 million. This
209 The Shearman & Sterling memorandum does not discuss
whether the NOLs in SMHC had any value.
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