Santa Monica Pictures, LLC, Perry Lerner, Tax Matters Partner - Page 236

                                        -305-                                         
          Generale Bank and CLIS to the Ackerman group and that the banks             
          demanded the side letter agreement because they full intended and           
          planned to exit SMP as expeditiously as possible.  There is no              
          evidence that the banks exited SMP as a result of the French                
          government’s intervention.                                                  
               Mr. Levinton examined the operation of the partnership tax             
          rules, including sections 721, 722, 723, and 704(c), as well as             
          the regulations thereunder.  He concluded that “assuming the form           
          of the transaction is respected, Rockport would succeed to the              
          position of CLIS and GB with respect to the built in loss                   
          attributable to their contributed property.”                                
               Mr. Levinton referred to Shearman & Sterling’s May 12, 1997,           
          memorandum, agreeing:  “The debt will not be worthless.”  Mr.               
          Levinton pointed out that upon the formation of SMP, the                    
          contributed stock and debt were “valued” at $5 million in the               
          aggregate and that this might present an argument as to whether             
          the debts were nominal or “de minimis”; however, he concludes               
          that $5 million is not nominal or “de minimis” compared to $0.              
          Mr. Levinton did not discuss the value of the assets underlying             
          the debts and stock and assumed, without any explanation, that              
          the stock and debt had a value of $5 million.                               
               Mr. Levinton alluded to Generale Bank’s and CLIS’s put                 
          rights in the side letter agreement and observed:                           
               Cast in its most unfavorable light, it could be argued                 
               that, at the same time CLIS and GB were negotiating to                 





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