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The draft term sheet contained a section called “Terms of
Preferred Interests”, which provided:
The Preferred Interests will have a liquidation value
equal to $ million, will have a 6% per annum
dividend preference, and will be convertible after 5
years into 51% of Newco’s common membership interests,
provided that if the conversion right is exercised,
Newco may redeem all of the Preferred Interests at
their liquidation value plus accrued and unpaid
dividends. The conversion right will be accelerated in
the event Newco fails to make a dividend payment when
due on the Preferred Interests, and in other pertinent
circumstances.
In addition to these items, the draft term sheet contained a
section entitled “Conditions”, which, among other things,
required Generale Bank to give satisfactory representations and
warranties to Newco and Rockport Capital as to the original
amount of the loans evidenced by its “Note”, the amount
outstanding under those loans at the time of the contribution of
the note to Newco, and the fact that MGM Group Holdings and
Generale Bank continuously recorded the note as debt from the
date of its creation through the date of contribution. It also
provided that Rockport Capital (and its associates) would decide
whether Newco should be structured as a partnership or a
corporation for Federal income tax purposes. The draft term
sheet did not mention any films or film business.
On October 21, 1996, at the request of Mr. Lerner, Shearman
& Sterling sent Mr. Geary a memorandum entitled “Draft Letter
Agreement” discussing the alternative transaction alluded to in
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