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Villani was requested to develop a plan for presentation to the
Board that would include potential investments with favorable
offsetting tax implications.
C. Proposed Transaction With SMP
Mr. Lerner was on Imperial’s board of directors during 1996,
1997, and 1998. Mr. Lerner was aware that Imperial was actively
looking for a transaction that would generate large capital
losses to offset its capital gains.
On October 7, 1997, Mr. Lerner sent Mr. Villani a memorandum
discussing a proposal whereby Imperial would purchase a 25-
percent interest in SMP for $5 million. Mr. Lerner represented
that SMP had “assets totaling $49 million (with zero liabilities)
including: $29 million in film library assets (appraised value)
and $20 million in cash[.] ICII’s 25% share of the assets would
equal approximately $12.25 million, a multiple of the proposed
investment”. The memorandum stated: “Rockport intends to use
* * * [SMP] as a platform to finance and build a film library of
significant size that should enable * * * [SMP] to capitalize on
a changing dynamic that is occurring in the film industry.” The
memorandum also stated:
Tax Attributes. In addition to the foregoing, the
Company may realize income tax benefits on the disposal
of its assets in the form of capital losses. Based on
a 25% ownership interest, * * * [Imperial’s] share of
such losses would be approximately $400 million. We
anticipate that the parties would enter into a tax
sharing agreement providing for a sharing of the
benefits attributable to this loss[.]
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