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Imperial received and considered this memorandum.
On October 24, 1997, Mr. Lerner sent Mr. Villani an email
stating:
I am preparing a short term sheet for the film
partnership investment we discussed last week. I
haven’t heard any more from KPMG and I assume that they
have no more comments. The two issues we need to tie
down are the size of the investment and the
compensation formula. A quarter of the partnership
would give * * * [Imperial] a loss of about $430
million. The board should approve the deal in broad
outlines and we should then work out the details as
quickly as possible since time is running out on the
year and you have a lot of things to do. * * *
On October 27, 1997, Mr. Lerner faxed Mr. Villani a
confidential letter outlining the proposed transaction between
SMP and Imperial:
1. * * * [Imperial] will acquire 25 percent of
SMP for $5.0 million (25 percent of SMP’s cash assets),
payable in cash at the Closing. * * * [Imperial] may
also have the option to increase its interest in SMP on
agreed terms.
2. Any tax benefits derived by * * * [Imperial]
or its affiliates associated with an ownership interest
in SMP, including the sale or disposition of any of its
assets, will be shared with SMP’s current partners on a
50-50 basis. Amounts received by SMP’s partners as a
result of the sharing of tax benefits will be available
for investments with * * * [Imperial] on a deal by deal
basis. We anticipate that * * * [Imperial’s] share of
SMP’s potential tax losses will exceed $430 million.
On October 29, 1997, at a second meeting of Imperial’s board
of directors, Mr. Lerner proposed that Imperial invest in SMP.
Mr. Snavely testified that the proposed investment in SMP was
supposed to result in favorable tax treatment.
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