-296-
estimate does not include sequel rights, development
projects, residual values or the proceeds of subsequent
distribution cycles. The members of the Company
believe that the going concern value of * * * [SMHC]
should be based on a market multiple of * * * [SMHC’s]
anticipated earnings. This valuation should take into
account the contribution to be made by the joint
ventures under consideration and the exploitation of
* * * [SMHC’s] additional rights. The valuation
currently given for comparable companies is in the
range of 8 to 15 times earnings.
When this memorandum was prepared it would have been clear,
at least to Mr. Lerner, that SMP was not “pursuing its rights to
maximize its recovery of its investment in Carolco.” The record
contains no indication of any such efforts; indeed, as of April
3, 1997, the bankruptcy court had confirmed the fourth amended
plan of reorganization and also had confirmed that SMHC would
receive nothing for the Carolco securities.
Shearman & Sterling’s conclusions were also based, in part,
on the dubious Sage Entertainment appraisal of the EBD film
rights and the Harch Capital Management report regarding the
Carolco securities. For the reasons discussed supra, we do not
believe that Mr. Lerner reasonably relied on those purported
appraisals. Moreover, although the memorandum was dated May 12,
1997, Mr. Lerner claims that he relied on it in October 1998 and
October 1999, when SMP’s and Corona’s partnership tax returns
were prepared and filed. Clearly, by this time, on the basis of
Troy & Gould’s conclusions, Mr. Lerner should have recognized
that Mr. Kutner’s conclusions could not be relied upon.
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