Santa Monica Pictures, LLC, Perry Lerner, Tax Matters Partner - Page 321

                                       - 88 -                                         
          driving the Corona transaction and were the primary reason in               
          1997 for Imperial’s investing in the Corona transaction.                    
               3.  Initial Purchase of SMP’s Interest in Corona                       
               SMP and Imperial executed a purchase agreement (the purchase           
          agreement), as of December 15, 1997, providing for Imperial’s               
          purchase from SMP of a 79.2-percent membership interest in                  
          Corona.  According to the purchase agreement, Imperial was to pay           
          $1,252,000 for the membership interest, of which $212,000 was to            
          be paid in cash and the $1.04 million balance was to be paid with           
          a note.  In connection with the purchase agreement, Imperial                
          executed a $1.04 million promissory note (the $1.04 million note)           
          dated December 15, 1997, payable to SMP.  On December 18, 1997,             
          Imperial paid $212,000 to SMP.  No payments of principal or                 
          interest were ever made on the $1.04 million note.60                        
               In an amendment and restatement dated as of December 15,               
          1997, Corona’s LLC agreement was amended and restated to reflect            
          the admission of Imperial as a new member of Corona.  This                  
          document reflected Imperial’s agreement to pay SMP a fee of 20              
          percent of the tax losses received from Corona.  This fee was to            
          be structured as a contribution by Imperial to Corona and a                 


               60 Pursuant to the $1.04 million note, interest was to                 
          accrue at a rate of 8 percent per annum and was payable                     
          semiannually on June 15 and December 15 of each year.  Imperial             
          agreed to pay the outstanding principal amount of the $1.04                 
          million note together with accrued and unpaid interest thereon on           
          Dec. 15, 2002.                                                              





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