Santa Monica Pictures, LLC, Perry Lerner, Tax Matters Partner - Page 230

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          like MGM, was forced to cut production in the early 1990s due to            
          serious financial problems.                                                 
               In 1993, Carolco underwent a financial restructuring (the              
          1993 Carolco restructuring) to reduce or satisfy Carolco’s                  
          financial obligations and to provide additional capital to permit           
          Carolco to continue as a going concern.  As part of the 1993                
          Carolco restructuring, MGM, with other investors, agreed to                 
          invest in Carolco in exchange for distribution rights to                    
          Carolco’s films.20  On May 25, 1993, in connection with the                 
          restructuring, MGM Holdings purchased 30,000 shares of Carolco              
          preferred stock for $30 million and Carolco subordinated notes              
          for $30 million (the Carolco securities).21  Credit Lyonnais                
          provided MGM Holdings the funds for investing in the Carolco                
          securities.                                                                 
               As a result of the 1993 Carolco restructuring, Carolco’s               
          management began preparing some of Carolco’s motion picture                 
          projects for eventual production.  By January 1995, however, due            
          to the unexpectedly high cost of certain motion pictures it                 
          became apparent that Carolco would have inadequate capital to               


               20 On May 1, 1993, Carolco and MGM entered into two                    
          distribution agreements; a “Domestic Output Agreement”, and an              
          “International Output Agreement”, in which MGM was to distribute            
          Carolco films.                                                              
               21 Between Jan. 15, 1994, and Oct. 15, 1995, Carolco issued            
          additional securities to MGM Holdings in lieu of quarterly                  
          interest payments on the Carolco subordinated notes.                        





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