Free Memorandum in Support of Motion - District Court of Connecticut - Connecticut

Case 3:02-cv—01725-AWT Document 84-3 Filed 10/03/2006 Page 1 of 1
l BAER MARKS & UPHAM -
~ ·\ _ 805 Third Avenue
` j New York, New York 10022 - ~
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Facsimile: 212-702·s7s7
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I TO: jeffrey M. Cole
FROM: Stanley E. Bloch
DATE: july 12, 1995
RE: American Cable Entertainment- Scott (42473-01-01) , 1


We have been working on the various alternatives in restructuring the debt of American Cable
Entertainment- Scott. As you may recall, the potential income tax obligation that would arise on
a sale of its assets would be a significant concern. While a large pan of the debt of the company
is presently secured and, therefore, as I understand it, the creditors will come ahead of any income `
tax liability, a significant portion of the debt is unsecured and, therefore, if there was a sale of assets
at this time, the tax liability, which could amount to as much as $40,000,000-$$0,000,000, would
, -»\ significantly adversely affect the amount the unsecured debt holders would receive. We are,
_ therefore, thinking of requesting the unsecured debt holders to extend the due date of their debt or
I to make certain other concessions with respect thereto, in exchange for, among other things, the
granting by the company to them of a. security interest in all of the assets ofthe company. These .
granted security interests would rank in the order of the debt obligations (i.e., junior subordinated —
debt would be behind subordinated debt, which would be behind senior subordinated debt).
l if the company, after such granting, sold some of its assets and used the proceeds to pay off some.
of its existing debt, there would be no funds available to pay the income tax liability associated with
the sale. What would lRS' rights be with respect to the company in pursuing the tax liability and
what type of timing would you reasonably expect? Would the officers, directors or stockholders
have any liability for the tax and assuming that the assets are sold for fair value, would the transferee
have any liability for taxes? Would the IRS, among other rights, have the right to file an involuntary
bankruptqr petition against the company? V
Assuming that your answers to the foregoing questions are not negative, is there any reason why we
could not indicate in writing to the unsecured creditors that one of the reasons they should
acquiesce in our restructuring proposal is that the security interest to be granted to them will come
ahead of tax liabilities. Please note that there might be a similar disclosure in any bankruptcy
reorganization plan which we file and any such plan would, as a matter of law, have to be filed with
the iRS. _ -
It is important that I have your answers to the foregoing as soon as possible and, in any event, by
Monday at about Noon.
x SEB/nmh
l I cc: MVB .
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