Santa Monica Pictures, LLC, Perry Lerner, Tax Matters Partner - Page 277

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          Goldwyn-Mayer, Inc.”  The letter agreement did not mention any              
          films or film business.                                                     
               2.  Draft Term Sheet and Letter Agreements                             
               On October 16, 1996, at Mr. Lerner’s request, Shearman &               
          Sterling sent Mr. Geary a “Draft Term Sheet” proposing a                    
          transaction with Generale Bank concerning MGM Group Holdings.               
          The draft term sheet contained a section entitled “Initial                  
          Transactions”, providing:                                                   
               Generale Banque acquires all the stock of MGM Group                    
               Holdings (“Group”) and subsequently contributes                        
               obligations owed to it by Group in the approximate                     
               amount of $1.050 billion (collectively, the “Note”) to                 
               the capital of Group.                                                  
          The draft term sheet proposed an alternative transaction whereby:           
               if CLIS’s current basis in Group stock is significant,                 
               in lieu of the transactions described in the term                      
               sheet:  (a) CLIS will contribute all of the stock of                   
               Group to Newco in exchange for Preferred Interests, (b)                
               Generale Banque will contribute the Note to Newco in                   
               exchange for Preferred Interests, and (c) Newco will                   
               contribute the Note to Group.                                          
          The draft term sheet also contained a section entitled                      
          “Transaction Structure”, providing:                                         
               Step 1:  Rockport Capital, Inc., and its associates                    
               (the “Initial Members”) form a Delaware limited                        
               liability company (“Newco”), and contribute assets                     
               (cash and securities) to Newco in an agreed amount to                  
               enhance and monetize the value of the Preferred                        
               Interests to be issued in Step 2.                                      
               Step 2:  Generale Banque contributes all of the stock                  
               of Group to Newco in exchange for preferred membership                 
               interests in Newco (“Preferred Interests”).                            







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