John Branca, V Irs Opening Statements.

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UNITED STATES TAX COURT - TRIAL

ESTATE (OF MICHAEL J. JACKSON DECEASED) EXECUTORS: JOHN G. BRANCA. AND JOHN MCCLAIN V

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COMMISSIONER OF INTERNAL REVENUE (IRS) February 6th 2017

Presiding Judge Mark V. Holmes

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Jackson’s estate is represented by Avram Salkin, Charles Paul Rettig, Steven Richard Toscher, R obert S. Horwitz, Edward M. Robbins Jr., Sharyn M. Fisk and Lacey E. Strachan of Hochman Sa lkin Rettig Toscher & Perez PC, Paul Gordon Hoffman, Jeryll S. Cohen and Loretta Siciliano of Hoffman Sabban & Watenmaker and Howard L. Weitzman of Kinsella Weitzman Iser Kump & Aldisert LLP.

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The IRS is represented by its attorneys Donna F. Herbert, Malone Camp, Sebastian Voth, Jordan Mus en and Laura Mullin. --------------------------------------------

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OPENING STATEMENTS

Judge Holmes: Please be seated. Mr. Toscher, do we have anything preliminarily before we start?

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Mr. Toscher: Your Honor, there is one. I know we talked about a couple of the motions and on the stipulation, but when we last left the conference call there was the question of The Court excluding expert witnesses. Respondent .... I know The Court .... well, no. Let me deal with the experts rather than all witnesses. But The Court indicated it was The Court's custom to allow the expert witnesses, I think. But we do have three of the Respondents .... well, one of the Respondents expert and two of his assistants in the courtroom. I just wanted to point that out and renew our request that they be excluded. Judge Holmes: Okay. It will be denied. Do you have any motions about witnesses, Ms. Collins .... Ms. Herbert?

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Donna. Herbert: Your Honor, we would like to invoke Rule 145 regarding fact witnesses in this case.

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Judge Holmes: Okay. Who's your first witness? He can stay or she can stay. Mr. Toscher: Co-Executor John Branca, Your honor

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Judge Holmes: Okay. Mr. Branca can stay. The other fact witnesses need to be out of the courtroom. Please don't discuss your testimony with anybody, don't read transcripts. Talk about only the weather and the Super Bowl or something until your testimony is completed and you're released. Do you know who these witnesses are, Ms.Herbert, Mr. Toscher? Mr. Toscher: Your Honor, Petitioner does not have any other witnesses in the room.

Judge Holmes: Okay. But it's a standing motion on her part so just understand it's been invoked. And I take it you'd like to invoke the rule against them? Mr. Toscher: Yes, Your Honor.

Judge Holmes: And who would that be?

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Judge Holmes: If you have any such fact witnesses, they're also excluded. Donna. Herbert: Thank you, Your Honor. We would like to also designate one person as our representative ....

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Donna. Herbert: .... according to the Rule. And that would be Michael Perlmutter who's sitting right there.

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Judge Holmes: Hello, Mr. Perlmutter. Yes. He gets to stay. Mr. Branca and the Co-Executor, if he's around, would get to stay of course under that Rule, as well. Anything else? Mr. Toscher: Your Honor, the issue on our motion in limine and the .... Judge Holmes: Oh, yes.

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Mr. Toscher: .... and the issue on the objections on the stipulation and the issues regarding certain sealing issues regarding the stipulation documents. Judge Holmes: Okay. Let's deal with the motion in limine. In addition to the problems with getting expert witness reports in by the deadline, Mr. Toscher, is there any reason this isn't just like the Volokh report?

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Mr. Toscher: Well, there's a number of substantive differences, Your Honor. But without dealing with that is that it's late, it's a surprise, it prejudices us. We haven't had a chance to depose Mr. Nimmer or respond so I think it's wholly inappropriate at this late date. Does it testify as to the law? Well, as to the uncertainty of the law, yes. But ....

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Judge Holmes: In that sense it struck me as being reasonable to Professor Volokh's report. Ms. Herbert, who wants to speak for the Government on this motion? Mr. Voth:

Sebastian Voth for Respondent.

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Judge Holmes: All right, Mr. Voth. I kicked out the Volokh opinion. Why shouldn't I kick out Mr. Nimmer's?

Mr. Voth: So during this .... for a while right now Petitioner has continuously attacked the reliability of Mr. Anson's report. So Respondent's expert is simply addressing the points raised by Petitioner to show that the bases for his conclusions are reliable. Now Nimmer's report was not included in Anson's report to offer the truth of any legal advice or interpretation, but solely as a basis for the conclusions in Anson's report. The basis in law for Mr. Anson's conclusions did not seem sufficiently supported according to Petitioner; hence the need for the Nimmer report. Judge Holmes: I understand.

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Mr. Voth: This was not an attempt to place inadmissible evidence into the record. Judge Holmes: All right. So I won't exclude it as expert witness report that was done without the right to depose, but I will exclude it as representing the argument on the same grounds as my ruling on the Volokh motion. So it shall be treated as stricken. Your motion in limine is granted, Mr. Toscher. Next up, stipulations.

Judge Holmes: Mr. Horwitz?

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Mr. Toscher: Yes, Your Honor. And Mr. Horwitz is going to handle the stipulation issues.

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Mr. Horwitz: Thank you, Your Honor. There are a number of documents ident- .... exhibits identified in the stipulation that the estate objects to on grounds of relevance, including foreseeability. As The Court's aware, in valuing an asset for purposes of the estate tax the asset is valued as of the date of death without consideration o subsequent events, though the courts have called on limited exception were the event reasonably foreseeable. And we believe a number of the exhibits relate to events that were not reasonably foreseeable at the time of death and are, therefore, inadmissible for purposes of valuing assets of the estate. First are a number of exhibits relating to the Cirque du Soleil shows that were put on between the estate and Cirque de Soleil. And I think the first show premiered in 2011, almost two and a half years after Michael Jackson's death. And those are Exhibits 237 through 246. Judge Holmes: Okay. I don't want the numbers now. What are the subject matter to Cirque du Soleil?

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Mr. Horwitz: Okay. Well, there are the agreements with Cirque de Soleil and then the distribution statements, royalty statements, and financial documents, and the Cirque de Soleil marketing materials.

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Judge Holmes: Okay.

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Mr. Horwitz: And we believe it was not reasonably foreseeable and that whether there would or would not be any show would be speculative. During the deposition of Tohme Tohme in this case, and Mr. Tohme was a representative of Michael Jackson or purported to be a representative, he was at pages 63, line 13, through 66, line 10, he was asked:

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"QUESTION: So let's talk about the Cirque de Soleil. Cirque de Soleil come .... came to meet with you?" "ANSWER: There was a guy from Las Vegas. His name is Jack." "QUESTION: Jack Wishna?"

"ANSWER: Jack Wishna, thank you. He's the one that contacted me several occasions." "QUESTION: Do you think Jack Wishna was from Cirque de Soleil?" "ANSWER: He told me he was with Cirque de Soleil."

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"QUESTION: Would it surprise you to know that he was not with Cirque de Soleil?"

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"ANSWER: No. I wouldn't be surprised. But this is what he told me at the time and he has a relationship with them. I told him .... you know, I told Michael so he .... Michael said, 'Tell him to get us what they have in mind and" ....

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"QUESTION: He never heard back from Jack Wishna, though, did you?" "ANSWER: No. We didn't hear back from Jack. Just a couple of phone calls with me and then it was .... it went into a dead end."

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Additionally, besides Mr. Tohme's evidence, Respondent's counsel submitted a list of questions to Cirque de Soleil last year. And in response Cirque de Soleil said that it was contacted at one time by Jack Wishna who claimed to be a representative of the estate, but they never heard back from him. And that they had no discussions with Michael Jackson about doing a Cirque de Soleil show. Oh, okay. That Mr. Wishna claimed to be a representative of Michael Jackson and they never heard back from him. Judge Holmes: This sounds like argument for later on. In addition to Cirque de Soleil related materials are there other subject matters that .... Mr. Horwitz: Yes. The second one is the movie motion picture This is It ....

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Judge Holmes: Okay.

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Mr. Horwitz: .... which was released on October 28th, 2009. And those are the agreement with the term sheet involving AEG, the Estate of Michael Jackson, Sony Pictures and Entertainment, and Columbia Pictures. The probate court order approving the term sheet, the AEG ....

Mr. Horwitz: Okay.

Mr. Horwitz: Okay.

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Judge Holmes: I need the subject matters.

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Judge Holmes: Again, I don't need the exhibits right now.

Judge Holmes: This is Cirque de Soleil. What's next?

Mr. Horwitz: The .... well, there's also an a .... agreement between the Estate and AEG. And the pleading and hearing transcripts concerning a hearing on the approval of the AEG amendment which was necessary to make ....

Mr. Horwitz: Yes. Judge Holmes: .... a subject matter?

Judge Holmes: Okay. I'm ....

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Mr. Horwitz: That's the subject matter.

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Judge Holmes: Okay. Again, I just need the subject matter. Is there ....

Mr. Horwitz: And then there are also distribution statements ....

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Judge Holmes: I understand.

Mr. Horwitz: .... for This is It.

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Judge Holmes: I mean, these are all contested exhibits relating to Cirque de Soleil and the This is It motion picture. For these what I'll do is the person who wants them in has to move for their admission. It's conceivable you'll lay a foundation. It's conceivable they won't object at that time, but you'll have to renew your objection at that time when they move for its admission into evidence.

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Mr. Horwitz: Okay. Then there were also post-death agreements between AEG and Bravado International and between the estate and Bravado International, plus Bravado royalty statements. And then there are a group of exhibits between Triumph International which was an entity owned by the estate and companies after .... that were entered into after the death of Michael Jackson. Do you want the names of those?

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Judge Holmes: No. Again, they're going to have to move for their admission into evidence because you've reserved your objection to their admissibility. When and if they move for their admission we can go exhibit by exhibit or subject matter by subject matter.

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Mr. Horwitz: Okay. There are also other agreements entered into by or on behalf of the estate that were post-death. There is a binding memorandum of understanding for the 2016 sale of the estate's interest Sony ATV to Sony. There are a number of exhibits that were listed which involve assets of the estate that are not at issue where either the valuation was not challenged and raised in the notice of deficiency or that were settled with appeals during the pendency of this case. And then there are a number of financial documents that are post-death including the statements from Broadcast Music, Incorporated, beginning with the third quarter of 2009 through, I think, 2014. 2010 a .... Sony ATV refinancing agreements, trademarks registered by the estate after Michael Jackson died. A complaint filed by the estate in 2016. Again, it's an entity called Gourmet Gift Baskets. Moon Walk Royalty advance statements and contracts and statements to Optimum Productions. And the estate's income tax returns, 2010 through 2013 income tax returns for entities controlled by the estate. Judge Holmes: As with all of these, if you've reserved the objection in the stipulation it's noted and the other side has to move for its admission and we can do them like that. All right. Donna. Herbert: Your Honor, may I be heard on this subject?

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Judge Holmes: Sure.

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Donna. Herbert: Okay. Respondent's position is that the subsequent events that are reasonably foreseeable as of the date of death are relevant and admissible in evidence. And, therefore, Respondent would .... it would drastically increase trial time to have to go through these .... there are 600 exhibits .... one by one to offer them.

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Judge Holmes: But you need to lay a foundation. And you can do it my subject matter. That's where I was going with this. You'll have somebody talk about This is It, somebody talk about Cirque de Soleil and then we'll go through entire chunks of these fairly quickly and I can determine whether or not it was reasonably foreseeable that such assets would be created postdeath. We'll deal with it that way. Next up, you had a third, Mr. Toscher.

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Mr. Toscher: Your Honor, we've lodged the fact stipulation and but let me address the document stipulation provided The Court all the exhibits. There are certain of the exhibits which are subject to various confidentiality agreements, court orders under seal .... Judge Holmes: A sealing question, yes.

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Mr. Toscher: Yes. And what we would like is to follow the procedure I think Judge Lauber followed in Amazon where we will .... before they're admitted to the public record we will file a motion setting forth on each exhibit .... it won't be all of them, of course. Most of them not .... but what the basis of the confidentiality is. Give the Government opportunity to weigh in on that issue discuss what we've talked about, and then The Court can decide, you know, in terms of the sealing issues as to what becomes public and what doesn't.

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Judge Holmes: Okay. What volume are we talking about here?

Judge Holmes: That's reasonable. I can deal with that.

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Mr. Toscher: We're .... we may be talking about 50 to 100 exhibits.

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Mr. Toscher: And we'll try to pare it down, Your Honor. We'll have good reason. We understand the balancing The Court has to do.

Judge Holmes: All right. That will be for the future. Thank you for the warning. The stipulations that The Court has already received are into evidence subject to those restrictions and the reserved objections have to be overcome. The proponent has to actually make a motion to get exhibits into evidence. And the sealing question will be dealt with by motion as it occurs. With that, anything else from Petitioners? Mr. Toscher: No, Your Honor.

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Judge Holmes: Anything from Respondent? Donna. Herbert: I have a few things, Your Honor. With regard to fact witnesses that have been listed by both the Petitioner and Respondent Respondent would prefer to recall that witness when we're putting on our case in chief so that we have a chance to listen to Petitioner's full case before recalling that witness. However, we're flexible with witnesses that would come from out of town.

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Judge Holmes: That's what I was just going to say, Ms. Herbert. Do we have any witnesses for whom that would be spectacularly unique?

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Mr. Toscher: Well, Your Honor, we have some witnesses that, as we discussed the Rule, we would like to finish one witness in one time. We plan on calling a number of witnesses the Government has listed. I think if the Government needs to recall them again that's subject to The Court's discretion. I don't see the compelling need, but that's – we have to see the testimony. Judge Holmes: Given the stakes involved we can do it more formally then and you could recall them as part of your case in chief. That will limit your cross examination, of course, on direct case, though.

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Mr. Weitzman: That .... that's what I was going to ask. Judge Holmes: Yeah.

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Mr. Weitzman: Because I'm in favor of the one-time only and they can do whatever they want. I just want to make sure what you're saying is if a witness comes in, even if they're from out of town and they want to recall them, the witness will have to make themselves available to come back?

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Judge Holmes: That's correct.

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Mr. Weitzman: Okay. Secondly, we have two witnesses that are coming out of town and we is it all right if we interrupt any other witness that might be testifying when that witness Judge Holmes: I'd be happy to do that. These are third-party witnesses. I take it .... Mr. Weitzman: Third party.

Mr. Weitzman: Yes. Thank you, Your Honor.

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Judge Holmes: .... they're not employees of the estate. That's fine. I'll run things for the convenience of the witness. Give as much notice as you can to Ms. Herbert and her team.

Donna. Herbert: Your Honor, I do have a question about the expert witnesses. When would be the appropriate time for them to testify in rebuttal? Judge Holmes: At the end of the case in chief for your side and we'll have a rebuttal case and then you get a .... whatever, joinder case so we'll deal with it that way. We'll wind down.

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Judge Holmes: Mr. Weitzman?

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Donna. Herbert: Oh, there's one also matter regarding discovery. In The Court's order of January 5th, The Court ordered Petitioner to produce 24 cease and desist letters and we have only received 12.

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Mr. Weitzman: I think that kind of falls in my responsibility. I couldn't find 24 that weren't duplicated. I'm looking for others that I can send or I didn't have, you know, total control of. But they're basically all the same. There's no nuance or nothing different. But I am still searching. I did not have all continents. You were correct. Antarctica I didn't have any, didn't have one in Australia, but we did have South America which I think has been turned over and North America and maybe Canada. I can go through those again. Judge Holmes: Do you have anything that could use to help them, any suspicions of where he might be able to look to find more cease and desist letters from the continents that he hasn't already produced them from?

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Donna. Herbert: Not really, Your Honor. That's why we asked. And I think that we should perhaps be the judge of which ones look duplicative or redundant. Judge Holmes: I agree with that.

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Donna. Herbert: If they produce .... Judge Holmes: Produce them duplicative ones and let her decide. 12 more?

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Donna. Herbert: We would like 12 more.

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Mr. Weitzman: Not sure I can come up with 12 more. I'll come up with as many as I can. I'm not sure what the purpose is, but that's not my Judge Holmes: Just find them, Mr. Weitzman.

Judge Holmes: Find them in a couple of days. A. couple of days. Donna. Herbert: That would be fine. Judge Holmes: By close of business Wednesday.

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Mr. Weitzman: Yes, Your Honor.

Mr. Weitzman: And, by the way, if I can't find 24 I'll tell her. Judge Holmes: That's fine, do.

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Donna. Herbert: Your Honor, I don't know if The Court prefers, but will The Court be amenable to each party announcing for the following day which witnesses they plan to call?

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Judge Holmes: I would ask them that anyway to help me prepare. Mr. Toscher: That's fine, Your Honor.

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Judge Holmes: They'll have a little bit of road after the end of every day, that's fine. Anything else, Ms. Herbert? Donna. Herbert: No, Your Honor.

Judge Holmes: We are ready for opening statements, then, Mr. Toscher. Who will be doing it for Petitioners?

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Mr. Toscher: Your Honor, Mr. Avram Salkin will be doing the opening for Petitioners. Judge Holmes: Mr. Salkin, the floor is yours. Mr. Salkin: Good morning, Your Honor. Can I have The Court's approval of not waiving our objection to post-death events by mentioning them in the opening statement in case they move to admit them?

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Judge Holmes: Go ahead.

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Mr. Salkin: All right. Petitioners are the Co-Executors of the Estate of Michael Jackson, deceased. It's my pleasure to represent the estate of the person who is perhaps the greatest entertainer of all time. Despite his phenomenal talents, he also had some significant burdens. One was incurring some overwhelming debt. And by the time he died it exceeded $400 million.

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And the other was the burden of being plagued with unproven allegations of sexual molestation from 1993 till the date of his death.

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The purpose of these proceedings is to determine the fair market value on June 25th, 2009, of three specific assets. First, the beneficiary interest in New Horizon Trust II, which is the owner of an undivided one-half interest in Sony ATV Music Publishing, LLC, referred to as Sony ATV. The second is the estate's beneficial interest in New Horizon Trust III which is the owner of a music catalog called MIJAC and referred to as MIJAC which holds the right to the writer's share of royalties on various songs, some written by Michael Jackson, some written by others. And the third is the value of the Michael Jackson right of publicity, or I'll call it name and likeness, as of the date of his death. Let me first start with Sony ATV. At the time of Mr. Jackson's death the estate's half interest was burdened with a $300 million debt and the interest was pledged to the lenders. The documents provided that the interest in the Sony ATV could not be sold until the obligation was paid in full. Going back to the history of the asset, in 1985 when Mr. Jackson was at the peak of his career he sought to buy the ATV music catalog which had what Petitioner's expert called a "trophy set of compositions".

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They were the Beetle compositions written by John Lennon and Sir Paul McCartney. As part of the bidding process in addition to bidding $47 and a half million dollars to purchase the catalog, Mr. Jackson agreed to put on a benefit performance in Australia and donate one of his special music compositions to the seller's daughter, Dr. .... Mr. Robert Holmes in court. And that apparently was able to swing the deal and allow Mr. Jackson to purchase the record catalog of ATV. In 1995,

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Mr. Jackson's financial troubles emerged again and he was thinking of selling his interest in ATV. His attorney and Co-Executor of the estate, John Branca, sitting in the room here, urged him not to sell and that other alternatives should be explored, which turned out to be a very good recommendation. In 1995, Sony ATV was formed. Michael Jackson contributed his ATV catalog, Sony contributed a significant catalog of its own, and Michael Jackson received approximately $100 million as part of the association of the organization.

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The purposes included not only the operation and management of the catalog, but also the acquisition of new product through acquisition of other catalogs and retention of writers which are all talent costs and paying significant advances to line up these writers to enhance and enlarge the size of the Sony ATV. During the course of his ownership of Sony ATV the borrowing addiction continued to the point of 1997 when Mr. Jackson had to borrow $300 million secured by his Sony ATV interest.

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He was sufficiently in debt so that he did not have the ability to enjoy any of those proceeds. They went to the cost of the transaction, they went to pay off prior debt, and the little balance that existed went to stay as interest reserve since the anticipated distributions from Sony ATV would not be adequate to serve as the interest. In order to obtain the financing Mr. Jackson needed the guarantees of Sony.

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And each time that a guarantee was obtained a price was paid. By the time of Mr. Jackson's death the operating agreement of Sony ATV had some provisions that were very disadvantageous to Mr. Jackson. For example, distributions were limited, distributions to Mr. Jackson, that is, to $11 million a year. And that was only for another 30 months after the date of death. After that there was no guarantee.

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The agreement provided that after the expiration of the 30 months any surplus cash would go to pay Sony's indebtedness that at time was approximately $692 million. So at the time of death, yes, it was foreseeable that there would be distributions of $11 million per year.

There was no way to anticipate the amount of distributions after the expiration of the 30 months. Managerial authority was essentially limited to the ability to elect half of the members of the board of representatives which would be comparable to a board of directors. But this was a rather unique board of representatives. It only had the authority to act on so-called major decisions. It had not right to participate or interfere with day-to-day operations. It did have budgetary approval, but if a budget wasn't approved the prior year budget would just continue in place.

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It did have the power to hire the CEO, but did not have the power to hire anybody else. It did not have the power to fire even the CEO. And the Jackson interest had very limited rights to respect to books and records. Primarily just the right to receive annual audited statements.

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Respondent will be arguing that all of this goes away because there's a buy/sell provision in the operating agreement which, according to its language, can be initiated by either party. However, the estate cannot initiate it without paying $300 million and the practicality of it is that a purchaser of the Jackson interest or the estate interest would not have a very interesting purchase if they were anticipating on selling out under the buy/sell agreement. The ticket to admission is paying $300 million. So a prospective hypothetical buyer comes along, pays $300 million, and then thinks they're going to exercise the buy/sell right. They don't know if they'll end up being the buyer, they don't know if they'll end up being the seller, they don't know what the price will be, and they don't know if the transaction will go through because it would be subject to regulatory approvals not only in the United States, but in Europe, including anti-trust problems.

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So that it's a very iffy proposition for someone to be able to lay out $300 million for a ticket to go through a process that could leave them ending up in even worse shape than the Jackson interest because they would be a holder of an economic interest.

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No right to management of any kind, not right to inspect books and records, and after 30 months no rights to distributions. Going to valuation, the parties have dramatically different numbers. Respondent has valued the interest at $508 million, and I'm rounding to some extent, reduced by the debt of $302 million, leaving a net equity of $206 million.

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Petitioner's expert has valued the interest 8 at less than $300 million concluding that there is no equity whatsoever at the time of death. The experts on both sides have used two approaches ....

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discounted cash flow and the market approach. But Petitioner will establish that the utilization of these approaches by Respondent is flawed.

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For the market approach Respondent is treating Sony ATV .... a company with approximately 400 employees, 750,000 copy rights, 26 locations in 12 countries not only administering copy rights, but acquiring talent, acquiring catalogs .. as a record catalog like you would compare someone with one apartment house for valuation with someone running thousands and thousands of units through a real estate investment trust. Petitioner's expert has taken what's called net publisher's share, also referred to as NPS, which is the gross revenues reduced by the amounts paid to writers and just taking that and multiplied it by a number without reference to operating expenses, taxes, acquisition costs, and other things. We believe that it's a deeply flawed methodology and the evidence will show that it should be totally disregarded. The other approach is the discounted cash flow which projects the anticipated cash flow over a number of years and then discounts it back to present value.

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The important part is the cash flow. Petitioners expert thinks that everything should be taken into effect in determining cash flow. Respondent's has left out talent costs, which is the amount paid to sign up writers who turn their product over to the company. That was about $14 million projected in 2010 and gradually estimating over time.

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So the projection by Respondent, that will be established to be at least $14 million less cash flow each year. The Respondent's expert has failed to include capital expenditures and has greatly diminished the projected cost of new catalogs as well as tax liabilities. Taking all these things into effect, Petitioner's expert will opine that if these changes were made to the discounted cash flow approach as performed by Respondent, they, too, will conclude that there was no equity in Sony ATV at the time of death. Lastly, the Respondent has taken the position that even if there is an equity there should not be discounts for lack of marketability or lack of control. Apart from the buy/sell agreement, based on the authority in this court and the courts throughout the country, there'd be no doubt that these discounts are available for very significant amounts to reduce the value of the half interest in a company that is burdened with the burdens that the estate has.

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The complexity and the cost to engage in the buy/sell process will be shown to not be sufficient to take away the need to have these discounts to arrive at fair market value. If the evidence is admitted, it will be shown that in 2016 the estate sold its interest in Sony ATV for $750,000. It still had to pay off the balance of the $300 million loan that was in existence at the date of death. And the calculations will show that this transaction seven years later first has little relevance.

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Sony ATV moved from number four in the industry to number one in the industry over that period of time, made several significant acquisitions, and it was a totally different company. But even if it is being considered, discounting back the 2016 price to 2009 will demonstrate that there was no equity in 2009. Turning next to the MIJAC catalog.

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This is a catalog of over 500 compositions both written by Michael Jackson and written by others. The value before deducting the debt that encumbers the catalog is $183 million asserted by Respondent and $71 million asserted by Petitioner. Both sides have valued it primarily or almost totally using the discounted cash flow approach. The differences are demonstrated by this first spreadsheet entitled base amount with the word Dahl in the middle.It's got Dahl in the middle, it's not numbered, and it says MIJAC in the upper- left corner Please bear with me. I'm not used to working with this high technology. This highlights the major differences in the valuation. There are several components of the income of MIJAC which are listed down the left side. The line that says "MJ songs," which is the lower of the two circles, shows that Respondent has valued the MJ songs which is just the writer's share at $110 and a half million while Petitioner has valued it at $36.7 million. And the other differential is BMI, which is British Music which pays for performance royalties, and Respondent has valued that at $30.3 million against the estate's $14 million. The main differences in the computation are as follows: first, was normalized base for the discounted cash flow; secondly is the spike.

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A spike occurs when a noted artist dies and their products increase sales significantly and that eventually there's a return to normal. With respect to the BMI, and that's the one that has the four columns from Dahl about three- quarters of a page ....

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Petitioner will show that this schedule reflects the collections on a quarter-by-quarter basis from 2005 through January of 2010. And going to the six lines at the bottom on the right it summarizes the collections year by year and shows the total for the five years at $7.3 million. And the five-year average would accordingly be a little over 1.4, $1.5 million per year as contrasted with Respondent's valuation of $29 million.

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And, unfortunately, my math levels not sufficient to figure out how they were able to reach that number. Going to the averaging, Respondent's expert took the position at the base to start the calculation of the cash flow and used the words "three-year average".

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He did it in a very unique way. He took all of 2007 and all of 2008, half of 2009, and then doubled half of 2009 without paying attention to what happened in 2008 and 2009. The greatest hit that Michael Jackson ever participated in was called "Thriller". The writer's share .... and we're now looking at 20 to 25 years after that was initially released .... Consistently up to 2008 ran about 1 to $1.1 million a year.

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Fairly consistent. In 2008, February, the Jackson interest spiked because "Thriller 25" was introduced with a great deal of advertising and promotion so that in 2008 the income from "Thriller" went from approximately a million dollars per year up to $1.6 million a year for that year. 2009 it's even more exaggerated. It went from what would be $500,000 for a typical half year up to over a million and a half dollars. And the Respondent's expert made no adjustment to take that into effect for either of the two years as well as a couple of other releases that increased cash flow by $500,000 during that period.

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So his valuation started with a base of about a million dollars higher than what you would find with a normal averaging. Go to the next one, the short list. The spike. With respect to the spike Respondent's appraiser listed seven outstanding stars, artists, to compare the album sales starting a year before death and going into three years after death. The schedule that the Respondent prepared stopped after the three years and only took into effect the greatest recordings of these few people.

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The parties involved were Isaac Hayes, Rick James, Ray Charles, Selena, John Denver, Notorious B.I.G., and a man named Jeff Buckley that at my age I had never heard of before this. Petitioner's expert went into Soundscan to develop the schedule that is now on the screen. And not only did he limit the analysis to albums sold in the three years after death, but went out five years. And did not limit it to the best-selling albums, but went to all albums of these seven great performers. And the chart shows if you compare the pre- death column with the year five column, in five of the seven instances albums sales in year five are less than for pre-death. It shows a return to normal almost completely by year five.

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The one exception is Notorious B.I.G. His album sales were up about 30 percent between date of death, year of death, and five years after. And Jeff Buckley, which is an outlier that really shouldn't be considered, he had one album out before he died. It had sales of about 11,000 units.

ich

And you can compare that with several of these that are over a few hundred thousand. But he had a hit song, "Hallelujah" that he did a beautiful rendition that triggered not only increase sales of the album that included "Hallelujah", but it also enabled the release of two other albums that he had made before he died.

mM

And putting all that together made him a rising star after he departed from this world. If one were to look at the Respondent's schedule or royalty income from the Michael Jackson compositions, in year 10 they have still about double the pre-death amounts. It takes until year 24 for there to be a return to normal on the projected sales of albums to match the pre-death level.

Te a

The last item involving MIJAC is the unreleased compositions. Respondent claims that these are worth $22.2 million. The main vehicle it uses to get there is to take not only the writer's share .... which is all MIJAC is ever entitled to which is around 93 cents per album for domestic releases, around 73 cents per album for foreign distribution .... those numbers have to be divided among the composition to put it on an album so that if there's 11 songs on an album each writer with one song would get one-eleventh.

ww

w.

And then the writer's share is broken up additionally if there are two or three writers each of them share equally in whatever the portion is. In addition to the writer's share, there's the recording share for the person that performs the composition. That's generally about four times the writer's share. The Jackson performance share is included in what's called the master recordings, an MJJ Joint Venture, both of which were reported on the estate tax return with a notation that there were other releases that existed, but it was believed that their value was null.

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This was disclosed throughout the proceedings, including the report of Respondent's initial appraisal. Mention is made in the examination report, there is a seven-page letter from the estate's counsel to examinations explaining this material. We believe that the stipulation of settled issues relating to the masters and MJJ Ventures applies not only to the released items, but these unreleased items and should not be valued as part of this proceeding.

lJa ck so

More than that even though we've basically explained why Petitioner is going to be asserting that 80 percent should be disregarding, Respondent claims that there are more albums available posthumous than Mr. Jackson released during his lifetime. We've talked about his dire financial straits before he died. He went over five years without releasing a new album prior to death. If he thought any of these items were worthy of commercial exploitation they would have been on the street.

The estate has done what they can to try to put these in shape for distribution. It has taken tremendous expenditures for things like backup singers and orchestration and other terms that the music industry uses that I'm not familiar with and it has generated $1.433 million to date for the writer's share.

ich

ae

I'm told by the estate representatives that what they have seen in the remaining material is not commercially sufficient to be able to turn into a release of any kind. The evidence will explain the process that was used to try to determine what is commercially useable and it will show that a reasonable search was made that related to things that only could generate this amount. And after they came out after the first year the sales dwindled sharply and there's been little revenue more than three or four years after the time of release.

mM

Going next to the right of publicity or name in likeness, Respondent claims the fair market value is $161.3 million at the date of death. Petitioner claims it's worth $3.1 million. Respondent is assuming something other than the hypothetical seller that forms the basis of valuating assets for federal estate tax purposes. A hypothetical seller is not deemed to own rights to all kinds of music that a buyer of that asset can have asset ... access to.

Te a

Who would pay over $100 million just to be able to license Michael Jackson's picture on T-shirts and guitars or whatever else somebody can think of or to appear on a television endorsement for automobile or some other product particularly in light of some of the problems with his image as it occurred at the time of his death? Respondent not only believes that merchandise is something that can be used to exploit the name and likeness, they have mentioned themed attractions with $80 million value. The Cirque de Soleil show, films, Broadway musicals, things that are totally dependent on the use of music owned by the estate and in many cases music owned by others that the estate doesn't even control.

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So they have broadened this asset to something that is far greater than just the right of publicity. The estate has depended on the provisions of California Civil Code 3344.1 to set forth its protection for merchandising and endorsements. The code section specifically excludes protection of a California resident, which Mr. Jackson was, for a play, a book, a magazine, a newspaper, musical compositions, audio/visual material, radio or television, or advertising for

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any of those uses. Those are all exempt from protection so that if somebody wanted to make a Michael Jackson documentary which did not include the music, under California law they would have every right to go out and do that.

lJa ck so

Respondent has basically relied on an opinion which Your Honor has excluded that basically takes the position that the law is confusing and, therefore, we can go out and send cease and desist letters to people and maybe they will be concerned because we'll slow up their project and they'll pay us some money. It's hard to see the value in an asset that creates a potential license to extort money out of people. Going back to a little bit of history, prior to 1993 Mr. Jackson was riding high. Everything he did turned to gold except for his spending habits. But in 1993 the first sexual molestation allegation surfaced. It was not only devastating to him individually, but it was also devastating financially. Pepsi canceled its sponsorship. He had only one other tour sponsor after that which had such little success selling the products that a $6 million advance that was paid to Michael Jackson required the return of 4 million of the $6 million.

ae

And for the '02 concern that was scheduled to open in London shortly after the time that Michael Jackson died, 50 sell-out concerts were unable to attract a tour sponsor. Although there were negotiations for the sale of tour merchandise which is merchandise sold in conjunction with a performance, no advance had been obtained prior to Mr. Jackson's date of death despite the fact that there was some interest in selling the merchandise but without a guarantee.

ich

The estate has expert, Mark Roesler, has prepared a projection which we'll show in a minute. But first let me mention things that confirm Michael Jackson's lack of marketability at the time of his 44 death. These are the sources used by advertisers to determine whether or not to retain somebody. First is Q scores. They try to determine familiarity.

mM

And then once someone says they're familiar with the celebrity they let the surveyor know whether they have a favorable impression or a negative impression. Jackson's impressions were overwhelmingly negative before he died. Even more telling is the Davie-Brown surveys which make similar surveys and it looks at various characteristics.

w.

Te a

One of them is likeability and merchandising potential. Out of 407 celebrities surveyed, Michael Jackson was last, 407 out of 407. As a potential spokesperson for a product same result, 407 out of 407. A little bit better with trust, 406 out of 407. To a large extent death can cure some of these problems and it has to some extent. So there has been some rehabilitation possibly caused by the beautiful memorial service that was seen around the world, by perhaps sympathy by the way he died at the hands of a doctor who illegally gave medications to Mr. Jackson which was a contributing factor to his death, by the media publicity and other events that have occurred including litigation for wrongful death and other things of that nature.

ww

This led to a successful documentary based primarily on Michael Jackson's music, on the footage that was taken for rehearsals for the '02 show in London. This was raw footage mostly black and white that was only taken for the purpose of figuring out how to make the show better. This was not anything that was ever intended to be released to the public.

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The evidence will show that the estate did not even have possession of the footage at the time of Michael Jackson's death and that the co-venture, AEG, claimed that it was their footage and wasn't about to release it until serious negotiations were concluded leading to the This is It documentary that turned out to be very popular.

lJa ck so

The other popular event that occurred is the Cirque de Soleil shows. There's two, one was traveling around the world, the current one is a ... the O Show pending in Las Vegas, which combines the genius and the acrobatic quality of wonderful performers of Cirque de Soleil with the Jackson music. Except for the use of the Jackson name for advertising, the name will be established to have a very limited value other than associating with the music. So the effect of this rehabilitation has helped sell lots of music. The more media attention the more people want to go out and buy albums from someone they fondly recall or to figure out why this person is so popular and getting so much press. But it's very limited with respect to merchandise.

ae

Total merchandise sales revenue for the royalties of the estate has been around present value of around $14 million. Where does this come to? One thing there has been the need for many lawsuits to protect the image of Michael Jackson and to clear up claims by various people who assert that they have an interest in Michael Jackson's right of publicity.

ich

These lawsuits have all been protective; although they plead various alternative theories. They have not gone after anyone that is engaging in the activity which is not protected under the California law. And they have collected little, if any, money as a result of these. The estate just wants to stop it.

mM

They're not out to get rich by holding people up. So the projection by Mr. Roesler, which I 47 mentioned a few minutes ago, it's projected ten years of revenue at $22 and a quarter million from the date of death. Mr. Roesler is the president of CMG Worldwide. Either the largest or close to the largest party that assists successors of deceased celebrities to market their products. He projects ten years of expenses at about $15 and three-quarter million concluding that there should be pre-tax income of about $6 and a half million over the ten years.

Te a

After calculating a terminal value because year 10 to year 70 benefits are still there, taking adjustments for taxes, and discounting the present value Petitioner's other expert Mr. Fishman concludes that the value is $3,078,000. So to conclude, Petitioner will show that its equity in Sony ATV had a fair market value of less than $300 million before offsetting the indebtedness and we'll show that the equity in MIJAC was also worth less than the $72 million of debt.

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And it will show that the right of publicity created some value that there was some rehabilitation from someone that had a zero value at the date of death to something, but nothing remarkable like what Petitioner claims. All of this is intertwined with two other issues which we are leaving for The Court's review in the pretrial memorandum that is tax effecting, which we'll cover in

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large part by expert witness Nancy Fannon, and by penalties which The Court will be able to determine at a later time. Thank you. Judge Holmes: Ms. Herbert?

Judge Holmes: Yes. Ms. Herbert: Thank you. Judge Holmes: The floor is yours, Ms. Herbert.

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Ms. Herbert: Your Honor, may I request a five-minute break?

Ms. Herbert: Thank you, Your Honor. Your Honor, I think the question of the day is was Michael Jackson an international icon whose name and music had great value at the moment of his death or was he, as Petitioner would have The Court believe, a virtual pariah whose image was so damaged that these intangible assets were of very little value?

ich

ae

Regarding his name and likeness, Petitioner's case seems to be that Michael Jackson was an accused child molester and was also tabloid fodder. And, thus, Petitioner would have The Court believe that a hypothetical buyer would offer a pittance for the rights to his name and likeness on a worldwide basis and that a hypothetical seller of those rights would agree to part with that asset on those unfortunate terms. Michael Jackson's assets must be valued using a fair market value standard as of the moment of death.

mM

You must consider both the interest of the hypothetical willing buyer and willing seller, both of whom have knowledge of all relevant facts. Petitioner did not value the assets this way. Respondent's expert, Weston Anson, on the other hand did correctly apply this standard. The assets valued by Mr. Anson are Michael Jackson's name and likeness, the MIJAC song catalog, and Michael Jackson's 50 percent interest in Sony ATV.

Te a

As an overarching theme that applies to all of these valuations we will show that it is not appropriate to take intangible assets and a business interest and give them a 40 percent valuation haircut for projected income taxes. Petitioner's approach incorrectly looks only what a specific buyer might do as opposed to considering the hypothetical willing buyer and seller.

w.

Petitioner's tax effecting expert, Nancy Fannon, has come up with a hypothesis and only a hypothesis that for all types of assets, including intangible ones, and after tax value is warranted. Her theory has never been proven by empirical evidence and it is also not supported in the marketplace.

ww

Regarding Michael Jackson's music Petitioner, in determining potential future revenues, ascribes a mere 50 percent post-death spike in revenues to Michael Jackson's music when his actual postdeath spike turned out to be nearly 1400 percent. Respondent's expert uses a very conservative 460 percent which was based on an analysis of the spikes of comparable artists who died prior to Michael Jackson, including Ray Charles, John Denver, and others. Petitioner's expert, on the

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other hand, relies on a study that was completed well after the date of death of purported postdeath spikes of a variety of artists many of whom were not at all comparable to Michael Jackson, a solo artist.

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Now regarding Sony ATV, The Court should be aware that in 2009 it was one of the largest music publishing companies in the world and held one of the premiere music catalogs in the world, including a collection of Beetles songs. Petitioner determined that the value of Michael Jackson's interest should reflect a significant devaluation first by tax effecting the revenues and then by applying deep discounts for lack of marketability and lack of control.

Respondent's expert will demonstrate that these devaluations are not appropriate. Now there are three steps when you value an estate. First you have to determine what assets are includable in the gross estate. Once you determine that, you have to value those assets using the fair market value standard. And finally you have to examine that value from the standpoint of both the hypothetical willing buyer and willing seller regarding whether it makes sense to consider the synergistic value of these assets.

ich

ae

In other words, whether to slice them and dice them or whether to value them together. Petitioner has taken out its sharpest kitchen knife and has sliced and diced the intangible assets of the estate in such a way as to minimize their value. Their approach is not supported by statute, case law, regulations, or commonsense. The assets of the estate are included in the gross estate by virtue of federal law. Petitioner, at least with regard to name and likeness, is trying to lead The Court down a narrow garden path ... Mr. Toscher: Objection, Your Honor. It's getting argumentative now. Judge Holmes: Overruled.

mM

Ms. Herbert: ... by taking the stance that only California law controls the value of this asset. However, Internal Revenue Code Section 2031 provides that the value of the gross estate is determined by including the value at the time of the decedent's death of all property, real or personal, tangible or intangible, wherever situated. And that phrase bears repeating, "wherever situation". Plus the Treasury Regulations provide that all relevant facts and elements of value must be considered in every case. Petitioner misreads this regulation.

Te a

Petitioner, having valued Michael Jackson's name and likeness on the tax return at a paltry $2,105, says, "Look over here, Your Honor, look at the California right of publicity statute. There's nothing else to see." Petitioner is not legally correct. The intangible asset of name and likeness includes a panoply of rights; the laws of other states, federal protections, and international protections are all available and were available on the date of death.

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The hypothetical buyer and seller of Michael Jackson's name and likeness would rely on the broadest possible forms of legal protections and the facts will demonstrate that they did. Petitioner values name and likeness based on a flawed analysis if past history only.

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lJa ck so

Yet it's recognized in the valuation industry as well as by case law that fair market value is based on the future revenue potential of that asset. The willing buyer is a motivated investor that's looking to maximize the value of its investment in the future. Therefore, it is the future revenue potential as of the moment of death that is important here in determining value. Focusing only on past revenue streams can severely distort value. Petitioner criticizes Respondent's expert's name and likeness report because some of the income streams used to value it relate to the music. An example is Cirque de Soleil, a show that

Respondent will demonstrate was foreseeable at the moment of death. First, Petitioner takes the preposterous position that as a legal matter a company like Cirque de Soleil would be able to create a Michael Jackson themed show using his music, image, signature, dance moves, and even a hologram without paying a dime to the estate and without the estate having any cause of action against that company.

ae

But that is not reflected in the real world. The preposterous nature of this assertion is supported by the fact that not long after Michael Jackson died the estate entered into negotiations with Cirque de Soleil to produce just such a show. And even one of the wherefore clauses of their agreement states that Michael Jackson's name, image, and likeness were before death and continued to be after death a great commercial value. The estate also earned millions and millions of dollars from this project and clearly not all of it was from the music.

ich

A visit to the Mandalay Bay Resort in Las Vegas reveals that the "Michael Jackson: ONE" Cirque de Soleil show is a totally immersive experience where one sees a statute of Michael Jackson in the lobby, images of Michael Jackson throughout the hotel, and his name, image, and iconic signature prominently displayed. During the show, itself, one sees images of Michael Jackson displayed in the background. One hears his actual voice talking to the audience.

mM

One sees a hologram of Michael Jackson coming through the gates of Neverland Ranch. One sees dancers wearing his iconic costumes and dancing his iconic dances. Yet the estate will say that this show is only about his music. Petitioner, John Branca, has even testified under oath that portions of the income from Cirque de Soleil and the movie This is It were for name and likeness use.

Te a

So it is the epitome of hypocrisy for the estate to claim that none of the income from these projects was for name and likeness. And, further, that a hypothetical buyer and seller of the name and likeness rights of Michael Jackson would have believed that the asset they were buying or selling bore practically no legal protections.

w.

They want The Court to believe that this is all about T-shirts and mugs. They're wrong. It also defies credulity that the estate would take the position that anyone anywhere is free to do any sort of show or movie using Michael Jackson's trademarked name, signature, and images without seeking a license from the estate and that the hypothetical purchaser of these rights would have just let that happen.

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Now regarding the synergistic approach taken by Respondent's expert in valuing these intangible assets, Respondent's expert did include some music income streams in his name and likeness

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discounted cash flow analysis. He incorporated these revenues for ease of presentation, because it is logical, and because it does not result in any duplication of revenue streams. Again,

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Petitioner wants it both ways. And the valuations of the music assets included with the estate tax return they attributed nothing for music revenues from a potential Cirque de Soleil show despite its clear foreseeability. There is no way they can argue that Cirque de Soleil could use the music of Michael Jackson without licensing it. When Respondent's expert projects income from a Cirque de Soleil show Petitioner complains that part of the value really belongs to the music.

But when one looks at all of Petitioner's appraisals, including their MIJAC appraisal, nowhere in them can you find projected income from a possible Cirque de Soleil show. They would apparently prefer that this value just vanish into thin air. Respondent's expert appropriately looking at the synergistic value of these assets and income streams with the reasonable idea that hypothetical buyers and sellers would look to maximize the value of these assets.

ae

Now that brings me back to slicing and dicing. Imagine, Your Honor, if the estate owned a car, let's just say a Rolls Royce, which, by the way, it did. Now the car would clearly be included in the gross estate, that's step one. Once we've identified hypothetical buyers and sellers of that car would it make sense for the wheels to be valued and then maybe the doors and the engine all separately or would both the hypothetical buyer and seller consider that it makes the most sense to value it as a whole? This is what Petitioner is doing.

ich

Petitioner is taking the wheels off the car and then saying, look, this car is not worth much. Petitioner's name and likeness expert, Mark Roesler, stated in his deposition without any hyperbole that "Michael Jackson was the greatest entertainer of all time".

mM

That's a pretty big statement and it's also a direct quote. Many other people, including Mr. Salkin, have said the same thing. Berry Gordy said the same thing. Petitioner will nevertheless attempt to paint a picture that it was Mr. Branca and only Mr. Branca who was able to create a silk purse from a sow's ear. It will say that it was Mr. Branca's great talent that caused Michael Jackson to become the highest earning dead celebrity according to Forbes for most of the years after this death until now.

Te a

And, in fact, reportedly the highest earning dead celebrity of all time. They want to distract The Court from the incontrovertible truth that Michael Jackson was at the time of his death and continues to be an international icon. He was the King of Pop. And, by the way, they did sue a popcorn company that dared to use that name. Attributing all of the success to Mr. Branca is yet another garden path down which Petitioner invites The Court to go.

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As the stipulated facts and Respondent's witnesses will demonstrate, Michael Jackson was much more than the flesh and blood flawed 50-year-old man. His years of record-breaking musical stardom starting as just a young, but extremely talented child did not evaporate just because he stayed out of the limelight for a few years or was poorly managed or because he was accused and then acquitted of child molestation.

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His potential for name and likeness income did not vanish just because he wasn't maximizing it during the few years prior to this death. Yes, Mr. Branca did a really good job marketing Michael's image after death. But if it was any low-end performer off the street, John Branca's talents would not have been enough to transform that low-end performer into the highest earning dead celebrity ever.

lJa ck so

The evidence will show that there were people and companies who were very interested in exploiting his name and likeness before death. The Nederlander Broadway Organization entered into a contract with Michael to do a Broadway show. This was in 2008. As Jimmy Nederlander will testify, any image problems with Michael Jackson were already baked in the cake. In early 2009, AEG entered into a deal with Michael to do ten concerts in England. And when the concerts sold out ... when the tickets sold out in just a few hours after they went on sale, AEG increased it from 10 shows to 50 shows. Bravado International Merchandising contacted AEG in order to become the exclusive merchandiser for the concert series.

ae

Although they had not entered into a formal contract, it was underway. And this was all done before Michael died. Even Mr. Branca, himself, envisioned many ways to exploit Michael Jackson's name and likeness before he died. He had a meeting with Michael about nine days before Michael died at the Staples Center. And at that meeting he presented him with a list of ideas for marketing name and likeness including movies, merchandising,

ich

I believe even the use of the footage from the concerts. Now in the hypothetical buyer and seller test it is assumed that the parties are aware of all pertinent facts. Thus these pre-death events were by definition foreseeable because they were in process at the time of death.

mM

Then almost instantaneously after death many of the ideas were implemented including using the concert footage to create This is It, which is said to be the highest grossing documentary of all time grossing well over $250 million.

Te a

Negotiations began with Cirque de Soleil within about two months after death. Again very, very foreseeable. And that ... and the highest grossing concert tour of all time "Immortal," was created. "Immortal" was a Cirque de Soleil show and still is. Then later a second Cirque de Soleil show debuted in Las Vegas and that was "Michael Jackson: ONE," which I previously discussed.

w.

That also broke records for its success. All of these post-death events were imminently foreseeable. For many of these opportunities there was concert evidence that they were actually foreseen, how could they not be foreseeable? At the moment of Michael's death the world was stunned. The world mourned. His record sales spiked almost 1400 percent. The Internet crashed. His memorial service was watched around the world by over 30 million people. This is not what would happen to a spurned performer, a has been, a freak, as the estate has so ironically asked The Court to believe.

ww

It only has to look at the cease and desist letters issued by the estate and the causes of action in the estate's various complaints against usurpers of Michael Jackson's name, image, and likeness

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around the world to see that the estate is well aware of the various protections that give value to these assets. And, by the way, not only the California law is cited in those complaints I would add.

lJa ck so

One only has to look at the preambles of the various contracts that the estate entered into after death to see that they were well aware of such protections and of the tremendous value that Michael Jackson's name and likeness had and that this asset was a big part of what was licensed for these various projects. One only has to read transcript of testimony given by John Branca in various lawsuits that not only did Michael Jackson's name and likeness have great value, but that John Branca, himself, was well aware of that fact. When he was asked what the main assets of the estate were John Branca listed name and likeness first.

ae

Now regarding the unpublished music of Michael Jackson, now when it is in the estate's interest they point to post-death events while rejecting such post-death events that might tend to show that the assets had value. At the moment of death and in the moments immediately following a hypothetical buyer and seller would have had good reason to believe that there was a large supply of unpublished music. Witnesses will testify that throughout his life Michael over recorded, meaning that he recorded many more songs than he needed for each album.

ich

Witnesses will testify that Michael would often record a whole album's worth of songs for each album that was published. If in the ensuing years it turned out that there was less saleable music than originally thought, this does not affect the fair market value of this asset at the time of his death. Now turning again to Sony ATV, as Mr. Salkin mentioned, it's public knowledge that the estate in 2016 sold its interest in Sony ATV for $750 million.

mM

Petitioner does not want this fact to be considered or alternatively believes that this somehow supports its below zero value as of the date of death. Respondent's expert has demonstrated in his reports regarding Sony that this sale corroborates the methodology he used in arriving at his date of death value. And it's explained in his report.

Te a

Petitioner's expert has also applied significant discounts for lack of control and lack of marketability to decedent's interest in Sony ATV. Michael Jackson held a 50 percent interest in that company with equal voting rights to the other 50 percent interest holder Sony. Major decisions required approval from both 50 percent interest holders. Although the day-to-day operations were conducted by Sony, this in and of itself does not reflect the lack of control.

w.

Having veto power is nuclear, having a buy/sell agreement is likewise nuclear. Thus, the picture painted by Petitioner that the interest was severely limited is without merit. Furthermore, in determining the fair market value of Michael Jackson's 50 percent interest in Sony ATV, one must also consider the market for such an interest.

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The company held a collection of songs that are some of the best-known and most successful anywhere. One example, as previously mentioned, is the Beetles catalog. If Michael Jackson's 50

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percent interests were offered to the public for sale as of the date of death, there would have been a buying frenzy for that interest.

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It could have sold at a premium as opposed to a discount. In sum, Your Honor, the valuation submitted by the estate are flawed in many respects which will be demonstrated after all of the evidence and testimony is adduced at trial. Petitioner's position is based on erroneous interpretations of law and a biased view of the facts. Respondent's expert's opinions, on the other hand, are conservative, they are well supported, and they are logical. Thank you. Judge Holmes: All right. Mr. Toscher, do you want to call your first witness or take a slightly early lunch break? Mr. Toscher: Let's take a ... yeah. No, no. I just want to make sure. You're doing the witness. Your Honor ... Judge Holmes: Oh, Mr. Weitzman will have the witness. Okay. We'll resume in exactly an hour. Mr. Toscher: Thank you, Your Honor.

ae

**RECESS**

Judge Holmes: The floor is yours, Mr. Toscher.

Judge Holmes: Oh, yes.

ich

Mr. Toscher: Your Honor, thank you. Just one quick housekeeping matter. Mr. Court Reporter's trying to see if we can get daily transcripts and ...

mM

Mr. Toscher: ... confirm it yet. So what we ask The Court's permission to do pending the confirmation for us to bring in a court reporter to get us roughs so our expert witnesses don't have to be in the courtroom so they can have the testimony. Judge Holmes: That's fine. If the Government wants that, that's fine, me, as well.

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Te a

Mr. Toscher: We'll wait to hear from Mr. ... I just know his first name's Steve, but thank you, Your Honor.