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May 3rd, 2005 Trial Analysis: David Saunders, Jeff Klapakis, Craig Bonner, Paul Zelis, Steve Robel, John O’Bryan, John Duross, Rudy Provencio, Part 4 of 4

July 19, 2014

Under recross-examination, Mesereau grilled Duross about his assessment of Jackson’s financial position:




8 Q. Mr. O’Bryan, you mentioned that you did an

9 analysis of Mr. Jackson’s interest in the Sony/ATV

10 catalog, as well as an analysis of the value of the

11 MIJAC catalog in coming to the conclusions that

12 you’ve stated to the jury today; is that correct?

13 A. I did consider those values, yes.

14 Q. And you’ve also stated that you arrived at

15 those values based on a cash flow analysis?

16 A. That’s correct. That’s how you value that

17 investment.

18 Q. What do you mean by a cash flow analysis?

19 A. The cash that actually is paid to someone

20 over a period of time. That’s the cash flow.

21 Q. Okay.

22 A. How that cash flows to you and what you’re

23 willing to pay for that investment is how much cash

24 you will get in the cash flow that you get out of

25 it. That’s a common valuation methodology.

26 Q. So those catalogs are only worth their —

27 you arrive at your value based on what kind of

28 income streams they produce? 8641

1 A. Right.

2 Q. Okay. So tell us about your analysis of the

3 MIJAC catalog. What were your findings or what were

4 your conclusions about the value of the MIJAC

5 catalog based upon your cash flow analysis in this

6 case?

7 A. Well, the MIJAC catalog, I believe, has gone

8 down in value from 1999. The revenues, the

9 royalties stream has gone down by almost 30 percent

10 from the 1997, ‘98, ‘99 time frame, into ‘00, ‘01,

11 ‘02, ‘03. And by virtue of the fact that the cash

12 flow stream goes down, the value goes down. That’s

13 just the way — it’s the way the model works. You

14 simply multiply the revenue stream times the

15 multiplier. So if, in fact, the revenue stream goes

16 down, the value goes down, and that makes sense.

17 So that’s gone down.

18 Q. Okay.

19 A. And on the Sony/ATV, it was exactly as I

20 described, and that is that the amount of money

21 which Mr. Jackson and/or his entities have been

22 taking out on an annual basis and/or not paying into

23 the partnership on an annual basis has created a

24 growing liability.

25 And by the time you pay back that growing

26 liability, there is a substantial amount of time

27 that will pass before you see cash flows out of

28 that. There’s a guaranteed amount of six and a half 8642

1 million, I think, through 2005. And that goes down

2 to two million. And then after that, it’s just the

3 actual amounts. But when those actual amounts are

4 paid, you have to first repay the amounts that Sony

5 hasn’t been paid, and/or the investments that

6 they’ve made that in fact they have not been paid

7 back for, including interest.

8 And I looked at that and it’s a long while,

9 once you get through this guaranteed portion, before

10 you’ll see a cash flow on that investment.

11 Q. So based on everything that you’ve

12 considered, I believe you said that Sony is putting

13 more royalties — more copyrights into that catalog

14 as time goes on?

15 A. They continue to invest.

16 Q. Mr. Jackson is taking more than his share

17 out in terms of cash on an annualized basis?

18 MR. MESEREAU: Objection; misstates the

19 evidence.

20 THE WITNESS: I wouldn’t say he’s taking

21 more than his share, but —

22 THE COURT: Just a moment.

23 THE WITNESS: I’m sorry.


25 THE COURT: Well, I’ll allow the answer.

26 You may —

27 THE WITNESS: I wouldn’t say he’s taking

28 more than his share. I would say that Sony isn’t 8643

1 getting their share.

2 Q. BY MR. AUCHINCLOSS: So is the catalog

3 producing what was anticipated when this agreement

4 was originally reached?

5 A. I don’t know when it was anticipated, or

6 when it was reached. I don’t know.

7 Q. So tell us about this — the structure of

8 Mr. Jackson’s interest in the ATV catalog.

9 MR. MESEREAU: Objection; foundation.

10 THE COURT: Overruled.

11 You may answer.

12 Q. BY MR. AUCHINCLOSS: You mentioned he

13 doesn’t own half of that catalog today on an asset

14 basis. In other words, if it’s worth a billion

15 dollars, he doesn’t own half a billion dollars,

16 doesn’t have a half-a-billion-dollar interest in

17 that catalog; is that correct?

18 A. Well, he owns half of the catalog.

19 Q. Yes.

20 A. But his interest in the catalog is not worth

21 half of the catalog value —

22 Q. All right. So —

23 A. — because of the front-end loading of the

24 cash flow stream that has gone to him and not gone

25 to Sony.

26 Q. So if the catalog gets sold, then Sony walks

27 away with more money than Mr. Jackson?

28 A. Yes, because he has to repay all of the 8644

1 advances on all of the investments that Sony has

2 made. Absolutely.

3 Q. And you stated that Mr. Jackson has a right

4 to sell his interest in that catalog for $200

5 million; is that correct?

6 A. There is a “put” option. That means I

7 can — it’s a technical term in financial — it

8 means I can put this opportunity to you, and that

9 “put” option is worth 200 million. Starting on

10 December 2005, Mr. Jackson can force Sony to pay him

11 $200 million for that investment for his share.

12 Q. And I think you previously testified that in

13 February of 2003, that asset, his Sony/ATV catalog,

14 was mortgaged to the tune of $200 million; is that

15 correct?

16 A. That’s right. But remember, you also have

17 to consider the taxes on that. If you sell that,

18 you’re going to pay taxes.

19 Q. Good point. Tell me what happens, from a

20 tax basis, if Mr. Jackson has to sell his Sony/ATV

21 interest for $200 million to pay off that $200

22 million loan.

23 A. His basis is somewhere around $40 million,

24 meaning his cost basis. So you’d subtract the 200

25 from the 40, and you get a gain of about 160

26 million, and you’d basically calculate it in what’s

27 called capital gains rates, which federal and state

28 would be about 25 percent, so you’d pay about $40 8645

1 million in taxes.

2 Q. Now, you said that he can exercise this

3 “put” option asking Sony to purchase that catalog in

4 December of 2005, correct?

5 A. That’s correct.

6 Q. When is that loan due, that $200 million

7 loan?

8 A. December 20th, 2005.

9 Q. Now, assuming, as Mr. Mesereau asked you to

10 do, assuming that he was just going to sell his

11 interest in the Sony/ATV catalog back in, let’s say,

12 2003 – okay? – February of 2003, and assuming Sony

13 agreed and said, “We’ll sell our interest. We’ll

14 sell it on the open market.”

15 Using your cash flow analysis, can you give

16 us — get us in a range, a reasonable range on a

17 cash flow basis what Mr. Jackson’s interest would be

18 in the sale of that Sony/ATV catalog, if it were to

19 occur?

20 A. My — it would be —

21 MR. MESEREAU: Objection; foundation.

22 MR. AUCHINCLOSS: He’s testified he did a

23 cash flow analysis. Counsel asked him this question

24 as part of his opinion.

25 THE COURT: All right. I’ll allow the

26 answer.

27 As I understand the question, he’s asking

28 you what interest he would have if it were sold. 8646

1 MR. AUCHINCLOSS: That is the question.

2 THE COURT: The catalog were sold.

3 THE WITNESS: In 2003, that interest was

4 probably worth a couple hundred million dollars.

5 Q. BY MR. AUCHINCLOSS: Okay. Now, moving on

6 to the MIJAC catalog, you said that you did a cash

7 flow analysis on that. What — give us the same

8 analysis in terms of what that catalog was worth to

9 Mr. Jackson back in 2003.

10 A. Well, as I mentioned, the royalties had

11 dropped about 25 percent — 33 percent, excuse me.

12 So if you take 33 percent off the value of 128

13 million, then it comes up to somewhere between $75

14 and $80 million.

15 Q. And he’s also asked you some questions about

16 Neverland. Do you know if Neverland has a mortgage

17 on it?

18 A. Neverland is cross-collateralized with one

19 of the Sony/ATV loans to the extent of $18 million.

20 Q. What do you mean by “cross-collateralized”?

21 A. The collateral on the MIJAC loan — excuse

22 me, the $24 million loan, which is now $70 million,

23 is collateralized by the MIJAC catalog. The bank

24 has asked for additional collateral, including an

25 $18 million lien on Neverland.

26 Q. Why would a bank ask for additional

27 collateral on a $70 million loan?

28 A. They want more collateral. 8647

1 Q. Would it have anything to do with the

2 perception of what that catalog was worth?

3 A. Certainly.

4 Q. And what would the tax ramifications be if

5 Mr. Jackson was to sell his Sony — or sell his

6 MIJAC catalog for, let’s say, 70 million?

7 A. It would be the same calculation. The

8 interest — the investment was about ten million.

9 So you’d have about a $60 million gain, I’m just

10 rounding it to 70. Less ten million, or 60 million,

11 at 25 percent would be about a $10 million tax, so

12 you’d have a net of $50, $60 million.

13 Q. Okay. So summarizing everything, is it your

14 testimony that Mr. Jackson’s ATV catalog is fully

15 mortgaged? In other words, if — well, let me back

16 up.

17 As of February of 2003, your testimony is

18 that the Sony/ATV catalog was worth $200 million,

19 approximately?

20 MR. MESEREAU: Objection. Misstates the

21 evidence; no foundation.

22 THE WITNESS: I think that’s a —

23 MR. AUCHINCLOSS: Just a minute.

24 THE WITNESS: Oh, I’m sorry.

25 MR. AUCHINCLOSS: And I should rephrase

26 that, Your Honor.

27 THE COURT: All right. Rephrase it.

28 Q. BY MR. AUCHINCLOSS: Your testimony is that 8648

1 that catalog, Mr. Jackson’s financial interest in

2 that catalog, the Sony/ATV catalog, in February of

3 2003 was worth approximately — I know we’re not

4 talking about a sharp pencil here, but approximately

5 $200 million?

6 MR. MESEREAU: Objection; foundation.

7 THE COURT: Overruled.

8 He’s asking you if that’s what you’ve

9 already testified to.

10 THE WITNESS: That’s correct.

11 Q. BY MR. AUCHINCLOSS: Okay. And there’s a

12 loan against it at that time for $200 million?

13 A. That’s correct.

14 Q. And if he sells that asset for $200 million,

15 he has to come up with another $40 million from

16 somewhere to pay taxes?

17 A. That’s correct.

18 Q. He also has another $10 million in unpaid

19 vendors that he has to come up with?

20 A. As of February 13th, that’s correct.

21 Q. Okay. And if he sells his MIJAC catalog for

22 $70 million, which is about your stated — you

23 stated that’s about what it’s worth?

24 A. Approximately.

25 Q. It is encumbered or there are loans against

26 that catalog to the tune of about 70 million?

27 A. $70 million, correct.

28 Q. And if he sells that catalog, then he — he 8649

1 incurs an additional ten million in taxes?

2 A. That’s correct.

3 Q. You previously testified that Mr. Jackson

4 was accruing debt at a rate of about, I believe it

5 was, $20 to $30 million a year?

6 A. That’s correct. To fund living expenses.

7 Q. So his living expenses were exceeding his

8 income for that amount per year?

9 A. Correct.

10 Q. And as a financial advisor, is that a

11 advisable course of action for somebody?

12 A. None that I would give.

13 Q. Okay. As far as providing you with

14 information, is it — is it true that I personally

15 have not provided your office with anything in terms

16 of me giving you documents?

17 A. Do you mean you personally?

18 Q. Yes.

19 A. I don’t know where the documents came from.

20 I assume they came from your office. But you didn’t

21 hand me any document, no.

22 Q. Very well. Did Chris Linz of our office,

23 who you’ve mentioned — do you know who she has?

24 A. Yes, I’ve met Chris Linz.

25 Q. Was she your contact point in the District

26 Attorney’s Office?

27 A. With respect to documents. I mean we spoke

28 to you about documents. 8650

1 Q. Yes.

2 A. We spoke to Miss Linz. And my understanding

3 was Miss Linz was the one that passed documents to

4 us.

5 Q. And were you given an opportunity, you or

6 your staff given an opportunity to go through all of

7 the D.A.’s records to review documents for purposes

8 of your analysis and opinions in this case?

9 A. Yeah, we were made available to all the

10 documents I believe you had.

11 Q. No restrictions whatsoever?

12 A. No. The only thing was that some just

13 wasn’t available.

14 MR. AUCHINCLOSS: Thank you. I have no

15 further questions.

16 THE COURT: It’s about time for the break,

17 Mr. Mesereau.


19 THE COURT: Unless you were just going to ask

20 one question.

21 MR. MESEREAU: No, Your Honor.

22 THE COURT: All right.

23 (Recess taken.)

24 THE COURT: All right. I think it’s okay

25 now.

26 Q. BY MR. MESEREAU: Did you say you did an

27 appraisal of the value of the Sony/ATV catalog?

28 A. No, I considered values. I did not do a 8651

1 formal appraisal, as I mentioned earlier.

2 Q. Do you have a piece of paper which reflects

3 your values?

4 A. I have it in my mind, yes.

5 Q. You didn’t reduce it to paper?

6 A. I have papers in front of me here that show

7 me how I get to that. But there’s nothing that’s

8 formalized as far as a valuation report, no.

9 Q. So pretty much it was done in your head?

10 A. No. I mean, it was done with calculators

11 and with computers and the like, but I understand

12 the value, and about the amounts I stated at those

13 times.

14 Q. Did the computer generate any type of report

15 showing your analysis?

16 A. No. It’s — basically I have it in my notes

17 in front of me.

18 Q. Can I take a look at it?

19 A. Certainly.

20 MR. MESEREAU: May I approach, Your Honor?

21 Q. Now, I realize you said you’re not an expert

22 in the music industry, right?

23 A. That is true.

24 Q. And you indicated you didn’t know who the

25 recording artists were whose music were copyrighted

26 and owned by the catalogs, correct?

27 A. No, I’ve seen that. I just don’t recall as

28 I sit here right now. The appraisal that was done 8652

1 in 1999 lists all of the copyrighted material in

2 that document.

3 Q. How many recording artists are we talking

4 about; do you know?

5 A. In the Sony/ATV?

6 Q. Yes.

7 A. I don’t recall. There was a number, as I

8 recall.

9 Q. There were hundreds, correct?

10 A. Yeah. There was a substantial amount, yes.

11 Q. You had country western musicians, correct?

12 A. That’s correct.

13 Q. You had very different kinds of musicians in

14 that arrangement, correct?

15 A. There was a wide disparity of types of

16 music, yes.

17 Q. And how many years out did you project the

18 value of the catalog?

19 A. Well, I looked at when Mr. Jackson’s

20 interest would actually begin to see the benefit of

21 some cash flow. And it’s well out into 2015, I

22 believe.

23 Q. Well, if you don’t know who any of the

24 recording artists are and you can’t put a value on

25 their music today or tomorrow, how can you possibly

26 give a value to the catalog?

27 A. Because I used the financial statements that

28 were prepared by Pricewaterhouse Coopers. 8653

1 Q. When?

2 A. They were prepared, I think, in 2003.

3 Q. Well, what is the music going to be worth in

4 2006 or 2007 when you look at it artist by artist?

5 You don’t know, right?

6 MR. AUCHINCLOSS: Objection. Argumentative

7 and irrelevant.


9 THE COURT: Overruled.

10 You may answer.

11 THE WITNESS: No, certainly you do. I mean,

12 that’s exactly how you do valuation, is you look at

13 what the catalog is producing in cash flow streams,

14 and then you value that. And that’s going to change

15 over time. But you have to use historical paths to

16 then try and figure out what the future will be.

17 Q. BY MR. MESEREAU: Did they pick up any

18 artists last year?

19 A. I suspect they did. There’s constant

20 investments.

21 Q. Do you know who they were?

22 A. No, I don’t.

23 Q. Do you know what their music is worth?

24 A. No, I’m simply looking at the cash flow

25 stream that this partnership is producing and

26 projecting that out into the future.

27 Q. If —

28 A. That’s the only way anyone can do a 8654

1 valuation. No one is going to value the cash flow

2 stream based on artists that aren’t even in the

3 catalog yet.

4 Q. But if you have artists who are in the

5 catalog and you have someone who’s an expert on how

6 their music is marketed and how it might be marketed

7 differently this year or next year, you can place

8 additional value, correct?

9 A. Additional over what? I’m simply using the

10 real numbers as to what the cash flow was, and that

11 cash flow would generate a value. And that’s how

12 you value that asset.

13 Q. Has the cash flow changed from year to year?

14 A. Yes.

15 Q. Where is it going to be three years from

16 now? Do you really know?

17 A. That’s the projection you have to make —

18 Q. Okay.

19 A. — to come up to a value. And that’s

20 exactly how it was valued — pardon me.

21 Q. Sure.

22 A. That’s exactly how it was valued by the

23 valuation people in 1999, was simply to look at an

24 income stream, try and understand what that income

25 stream was going forward, and then put a multiplier

26 on it. That’s how any valuation works.

27 Q. So in other words, if you’re going to try

28 and put a value on this music catalog and project 8655

1 out three or four or five years from now, you don’t

2 need to know who the recording artists are, what

3 kind of music they’ve generated, and where that

4 music is likely to be or not be in a few years,

5 right?

6 A. No, that has to be considered. But again,

7 historical paths to the cash flow is what’s most

8 important.

9 Q. So now you’re conceding it is important to

10 know who the recording artists are and what value

11 you might be able to place on their music two,

12 three, four, five, ten years from now, right?

13 MR. AUCHINCLOSS: Objection; argumentative.

14 THE COURT: Overruled.

15 You may answer.

16 THE WITNESS: As of 2003, we know what the

17 cash flow was. And at that point in time, you can

18 value based on the cash flow. In fact, if there are

19 other artists added in 2004 and 2005, that could

20 change the cash flow, and that should be considered,

21 absolutely. But in 2003, when you have the figures,

22 that cash flow is known and can be used to then

23 value into the future.

24 Q. BY MR. MESEREAU: Okay. Looking at the

25 document that we talked about earlier, which is a

26 letter from International Business Management dated

27 February 13th 2003, to Attorney David LeGrand, okay?

28 A. Yes, I remember that memo. 8656

1 Q. That’s the letter that, on page two, says

2 the value of the Sony/ATV catalog is estimated to be

3 approximately one billion dollars; right?

4 A. That’s correct.

5 Q. Okay. According to that letter, which you

6 certainly did consider in your work, right?

7 A. That is correct.

8 Q. It says that in November of 2005, the bank

9 will enforce a put, right?

10 A. Correct.

11 Q. Which forces Sony to either buy out Mr.

12 Jackson’s interest at fair market value, right?

13 A. Correct.

14 Q. Sell the entire catalog to a third party,

15 right?

16 A. Correct.

17 Q. Or give Mr. Jackson the opportunity to

18 purchase Sony’s interest in the catalog, right?

19 A. Correct.

20 Q. And do you have any way of knowing what

21 Sony’s interest in the catalog will be in November

22 of 2005?

23 A. No.

24 Q. Why not?

25 A. Because I don’t have that — I haven’t

26 calculated what Sony’s interest is.

27 Q. How would you do it, if you were going to?

28 A. The same way as you do with Mr. Jackson’s 8657

1 interest, you simply look at the cash flows that

2 would be accruing to or earned by Sony, project that

3 out over time, and then discount it back.

4 Q. How do you relate the one-billion-dollar

5 amount to the value either side has in the catalog?

6 A. Well, the one billion dollars is the entire

7 catalog.

8 Q. Right.

9 A. It’s made up of two components, the Sony

10 component and Mr. Jackson’s component. And the two

11 would equal whatever the value is.

12 Q. Okay. So if the value is one — is

13 estimated at one billion dollars, each side would

14 theoretically have a $500 million interest, true?

15 MR. AUCHINCLOSS: Objection; misstates the

16 evidence.

17 THE COURT: Overruled.

18 You may answer.

19 THE WITNESS: If it’s — if the catalog is

20 worth a billion dollars, that’s what the catalog’s

21 worth. Then you have to go about the process of

22 understanding what the cash flows which will accrue

23 to each party will be, and that’s how you value the

24 total one billion dollars.

25 Q. BY MR. MESEREAU: And you have no way of

26 knowing what third parties are out there trying to

27 purchase it, correct?

28 A. I do not, no. 8658

1 MR. MESEREAU: Okay. No further questions.

2 MR. AUCHINCLOSS: I have no further

3 questions, but I do have a request at sidebar.

4 THE COURT: All right. We should mark the

5 Power Point.

6 MR. AUCHINCLOSS: And I have a copy of that,

7 which I’ll mark.

8 THE COURT: And you may approach.

9 (Discussion held off the record at sidebar.)

Auchincloss had additional questions for Duross under redirect examination about his knowledge of the value of Jackson’s catalog:



13 Q. All right. Mr. O’Bryan, I’m just going to

14 finish up with one final question.

15 Based upon your cash flow analysis and

16 everything you know about this case, what is the

17 maximum — in general, what is the value of what

18 Mr. Jackson could obtain for this ATV/Sony catalog

19 in February of 2003?

20 MR. MESEREAU: Objection. No foundation; no

21 expertise.

22 MR. AUCHINCLOSS: I phrased it in terms of a

23 cash flow analysis, which he’s testified extensively

24 about.

25 THE COURT: What I’m going to do is limit

26 the question to a little different question, which

27 would be what was the value he used in determining

28 the net worth figure that he’s already testified to 8659

1 the jury.

2 MR. AUCHINCLOSS: Maybe I’ll lay a couple of

3 foundational questions before I ask that one. Just

4 a couple.

5 Q. Mr. O’Bryan, are you familiar with how these

6 catalogs are appraised, in general terms?

7 A. Yes, I am.

8 Q. And when an appraiser conducts an appraisal

9 of a music catalog, do they use a cash flow

10 analysis?

11 A. Yes, they do.

12 Q. And are cash flow analyses something that

13 you do in the course of your business as a forensic

14 accountant or a CPA?

15 A. All the time.

16 Q. And is — and did you do such an analysis in

17 this particular case?

18 A. We did, yes.

19 Q. And based upon that, can you tell us what

20 your analysis — what your conclusion was based on a

21 cash flow analysis of the value of Mr. Jackson’s

22 share of the ATV catalog in February of 2003?

23 A. As I stated, I believe that’s $200 million.

24 MR. AUCHINCLOSS: All right. Thank you.

25 THE COURT: Mr. Mesereau?

Mesereau questioned the logic that Duross used to ascertain that Sony’s share of the catalog was worth $700 million, and had Jackson sold his share he would have walked away from the transaction penniless because of taxes and debts to other creditors.


28 BY MR. MESEREAU: 8660

1 Q. When you say Mr. Jackson had a $200 million

2 interest in the catalog in February of 2003, are you

3 suggesting that if he sold it for $200 million, he

4 would end up with zero because of his debt?

5 A. Yes. And/or taxes.

6 Q. And where did the other 700 million in value

7 of the catalog go to? Sony?

8 A. Go to Sony, yes.

9 MR. AUCHINCLOSS: Objection; misstates the

10 evidence.

11 Q. BY MR. MESEREAU: Even though they each had

12 a 50 percent interest —

13 THE COURT: Just a moment.

14 The objection is overruled.

15 Q. BY MR. MESEREAU: Even though they each had

16 a 50 percent interest in something estimated at one

17 billion dollars, you think Sony’s interest is really

18 worth 700 million, correct?

19 A. Yes, at least that.

20 Q. And tell me how you arrived at that

21 conclusion.

22 A. Again, it’s just simply looking at the cash

23 flows that would be accruing to Mr. Jackson over

24 time, beginning in 2003, out over a period of time.

25 And because of the fact that he has taken much more

26 than Sony, Sony is due an equal amount. Sony is

27 additionally due the investments that they have

28 made, plus interest. The cash flows that would 8661

1 accrue to Mr. Jackson and/or his interest would not

2 even occur until about 2015. At that point in time,

3 the discount rate used would, quite frankly, have a

4 value of around $200 million.

5 Q. Do you know Mr. Jackson was offered 400

6 million for half of his interest in 2003?

7 MR. AUCHINCLOSS: Objection; assumes facts

8 not in evidence.

9 THE COURT: I guess the question is are you

10 aware of any such offer.

11 THE WITNESS: No, I’m not.

12 Q. BY MR. MESEREAU: Are you aware of what

13 anyone has ever offered Mr. Jackson for his interest

14 in the catalog?

15 A. No, I’m not.

16 Q. Have you ever tried to market a music

17 catalog in your career?

18 A. I have not, no.

19 Q. Ever tried to negotiate a sale of any

20 interest in a music catalog?

21 A. I have not, no.

22 Q. Is this the first music catalog you’ve

23 analyzed with your cash flow analysis?

24 A. No. I also did one for Mr. Bowie, David

25 Bowie.

26 MR. MESEREAU: No further questions.

Just when you thought this testimony couldn’t drag on any longer, Auchincloss decided that he still needed Duross to clarify certain issues, so under further redirect examination he asked Duross about the tax ramifications of a hypothetical sale of Jackson’s share of the catalog:



2 Q. If Mr. Jackson wanted to sell his share of

3 the ATV catalog to somebody else in 2003, could he

4 have done it?

5 A. Only with the approval of Sony.

6 Q. And as far as this put goes, did you

7 consider that in your cash flow analysis, the fact

8 that in December of ‘05 he would receive $200

9 million?

10 A. Certainly. I mean, that’s a stated amount

11 that he could get in ‘05.

12 Q. So if he sold it in 2003, he would accrue —

13 what was your tax analysis in terms of how much

14 capital gains tax he would have to pay?

15 A. 25 percent.

16 Q. So $40 million?

17 A. Off —

18 Q. Off the 200 million?

19 A. That’s correct.

20 Q. Okay. Finally, there was —

21 A. It was $50 million. Well, no, that’s not

22 true because you have to take the basis out.

23 Q. So you tell me.

24 A. So it was about 40 million, as I recall.

25 Q. And Mr. Mesereau said if Mr. Jackson got

26 $200 million, then Sony would be entitled to $700

27 million. I believe we’ve got a math problem there.

28 A. Well, the 800. That’s why I said – 8663

1 Q. It would be 800. All right. Thank you.

2 Nothing further.

3 No further questions, Your Honor.

4 THE COURT: All right. Thank you.

5 For the record, what’s the exhibit number on

6 the Power Point?

7 MR. AUCHINCLOSS: That would be 886, Your

8 Honor.

9 THE COURT: All right. Thank you.

10 Call your next witness.

11 MR. ZONEN: Call Rudy Provencio to the

12 stand, please.

13 MR. PROVENCIO: Right here?

14 THE COURT: Yes, please. When you get

15 there, remain standing.

16 Look at the clerk over here. Raise your

17 right hand. Right here.

The next and final prosecution witness was Rudy Provencio, one of Marc Schaffel’s friends from high school who later did business with him beginning in 2001. Schaffel invited Provencio in to a business venture with Jackson to market the benefit song “What More Can I Give?” Here is Provencio’s description of this proposed idea which never came to fruition:



5 Q. Mr. Provencio, what is — good afternoon.

6 A. Hello.

7 Q. What is your current occupation?

8 A. Independent contractor.

9 Q. What kind of an independent contractor are

10 you?

11 A. For entertainment, placement of music for

12 film and television.

13 Q. What does that mean?

14 A. Basically it means that I take music that

15 already exists, and I place it in film and

16 television, depending on what they are looking for

17 or what they want. You know, like for a — for a

18 commercial, they would like want something, maybe an

19 oldies —

20 BAILIFF CORTEZ: Excuse me.

21 THE WITNESS: Can you hear me? Can you hear

22 me okay? Sorry.

23 THE BAILIFF: If you could just scoot closer

24 to the mike.

25 THE WITNESS: Scoot closer?

26 For T.V. or film, basically what are they

27 looking for? If they’re looking for an oldies, like

28 if — for instance, if The Gap is looking for an old 8665

1 song, I would secure rights for that — for that

2 song and bring it in, and secure the legal part of

3 it, and the whole nine yards, so —

4 Q. BY MR. ZONEN: Do you work for a company or

5 are you self-employed?

6 A. Self-employed.

7 Q. How long have you been in this business?

8 A. The entertainment business?

9 Q. Yes.

10 A. 20 years.

11 Q. Prior to that, what type of work did you do?

12 A. I worked for record companies, various

13 record companies.

14 Q. Do you know Marc Schaffel?

15 A. Yes, I do.

16 Q. Did you know him by the name Fred Schaffel?

17 A. Yes, Fred Schaffel.

18 Q. When did you first meet Mr. Schaffel?

19 A. I met him in high school in 1983, ‘84.

20 Q. You both went to high school, the same

21 school?

22 A. Yes, Toledo, Ohio.

23 Q. In Toledo, Ohio?

24 A. Uh-huh.

25 Q. At some point in time, did you actually do

26 business with Mr. Schaffel?

27 A. Not until much later, which would have been

28 2001. 8666

1 Q. And in 2001, did he contact you or did you

2 contact him?

3 A. He contacted me.

4 Q. Now, how did he know who you were at that

5 point or where you were or what you did?

6 A. He came over to the record labels a couple

7 of times to pick up CDs and such, and I kept in

8 contact with him. When he moved out to California,

9 I met up with him, I believe in ‘93. Yes, it would

10 have been ‘93, because I was working at Warner

11 Brothers Records at that time, so I met up with him

12 and, you know, we kept a casual contact.

13 Q. Were you both living in the Los Angeles area

14 during that time?

15 A. Yes.

16 Q. All right. Did he invite you into some form

17 of business adventure?

18 A. Yes. With him and Michael Jackson.

19 Q. All right. What was it exactly that you

20 were invited to go into?

21 A. We were — well, I was invited to come and

22 participate in a benefit single called “What More

23 Can I Give?” and he said that it was a Michael

24 Jackson and Marc project, and they would — were

25 both going to hire me to work on this project if I

26 was willing to come on board with them.

27 Q. All right. Did you eventually talk with Mr.

28 Jackson about your involvement in that? 8667

1 A. We had a meeting at — well, we first had a

2 meeting with — the first one we had at The Beverly

3 Hills Hotel with Lee Davidian, I think is his last

4 name, where it was Ali, myself, Marc, and we talked

5 about doing “What More Can I Give?” into a game that

6 Ali was producing —

7 Q. Uh-huh.

8 A. — or such.

9 So, you know, there was a lot of material to

10 cover in that meeting. I remember that, because

11 there was going to be a game featuring Michael

12 Jackson in the game —

13 Q. All right.

14 A. — and the music of “What More Can I Give?”

15 was going to be in that, so we talked about that.

16 Q. Explain — “What More Can I Give?” you

17 mentioned was a benefit single.

18 A. Charity single.

19 Q. What does that mean?

20 A. Basically we hadn’t announced what

21 Michael — excuse me, what Michael’s charities were

22 going to be yet, because Michael would have to do

23 that. That’s — he is the captain of the helm, so

24 he’d have to do that. But basically what the idea

25 and the premise was to do a benefit single that

26 would benefit people just in general and Michael’s

27 charities in particular. We hadn’t narrowed it down

28 exactly what those charities were going to be until, 8668

1 you know, a little bit more into the project.

2 Does that answer your question?

3 Q. Yes, but we’ll have a couple more, as you

4 can imagine.

5 A. All right.

6 Q. How does a single benefit anybody in the day


7 and age where you only buy CDs with many songs on


8 them? What —


9 MR. MESEREAU: Objection. Move to strike;


10 colloquy.


11 THE COURT: Coming from you?


12 (Laughter.)


13 MR. ZONEN: My sentiments exactly.


14 THE COURT: All right. Stricken.


15 MR. ZONEN: Stricken, all right.

16 Q. How does a single benefit anybody? How do

17 you market a single?

18 A. Well, we were looking at it to be the next

19 “We are the World.” You know, Michael is — was a

20 genius behind that. That made more money than any

21 other single in history.

22 Q. Tell us what “We are the World” was.

23 A. Oh. I believe in 1983 or ‘84 it came out

24 and basically it made a trazillion dollars. I don’t

25 know how much exactly. I won’t say, you know,

26 $100 million, because I don’t know. But we were

27 estimating that even if “What More Can I Give?”

28 could make half of that, that would make like 8669

1 $50 million right there and would be able to go to

2 some of Michael’s charities, you know, in the

3 process.

4 Q. Okay. How is it marketed?

5 A. It —

6 Q. A single, how do you market a single?

7 A. Well, it depends. Basically, you know, we’d

8 have — well, the way that I was thinking that we

9 were going to do it, the way that we had talked

10 about it is, we would do a press release later in

11 regards to who was going to be the beneficiaries.

12 But Michael would have to have done that because

13 that’s going to be Michael’s charities.

14 But — but it would have gone through the

15 regular routes, which would have been a record

16 company for the distribution. We didn’t really want

17 Sony at the time. There was some problems with

18 Sony. So we were going to look, per advice, Marc

19 and Michael, to go other places and look at other

20 distribution, like I believe we ended up talking

21 with Zamba Entertainment, and they handled Britney

22 Spears and Backstreet Boys and stuff, and so they

23 were hot, so we were thinking we were going to

24 possibly go with their distribution.

25 Q. Now, like, would this be a song that would

26 have been performed by multiple groups?

27 A. By multiple who?

28 Q. Groups. Performers. 8670

1 A. Multiple performers, yes.

2 Q. Performers.

3 A. We had a recording time in the studio and we

4 brought in quite a few artists.

5 Q. Is that, in fact, what “We are the World”

6 was?

7 A. No, that was an arrangement that was

8 different. They came from an awards show and went

9 right across the street, essentially, or down the

10 street and they recorded it in one fell swoop.

11 Q. And who are “they”? You say “they” came and

12 did that.

13 A. Oh, well, the performers that were on “We

14 are the World,” Kim Carnes, Huey Lewis and the News,

15 Michael was there, Diana Ross, everybody went from

16 an awards show looking good and went into this thing

17 with recording, filming, the whole nine yards.

18 Ours was a little bit different, because

19 what we were going to do is bring people in one at a

20 time and record it, so it was a little bit more —

21 it was essentially the same premise, but a little

22 bit more lengthy.

23 Q. All right. Were you anticipating having

24 multiple groups or performers?

25 A. Yes, we did.

26 Q. And were you going to be generating an

27 entire CD or a single song?

28 A. We were going to have a Spanish version that 8671

1 was completed with Casey Porter doing the Spanish

2 version, which was completed, and then we were going

3 to have the English version and many, many, many

4 different artists. Santana played on the Spanish

5 version. And so we were going to have many artists

6 on — essentially the same amount of artists, but a

7 little bit different with the Spanish version than

8 the other one.

9 Q. Again, this is a single song?

10 A. Yes, a single song with many versions. So

11 that would be considered what’s called a CD-5. So

12 that would be different versions of the same song.

13 Q. By “different versions,” how would it be

14 marketed? I mean, in a physical form.

15 A. Well, the marketing, it’s its own unit when

16 you look at it, because it’s a Michael Jackson song.

17 It’s — you know, which you can’t get bigger than

18 that. And, you know, you’ve got a benefit. You

19 would have a press — world press release around it.

20 You know, it would create its own buzz. You

21 wouldn’t even have to take out an ad anywhere, so

22 then you’d have to have the disks from the record

23 label to kind of get it in the public’s hands, which

24 would have been Best Buy and the other chains.

25 Q. So you actually purchase it as a CD?

26 A. You would purchase it as a CD.

27 Q. On the CD is one single song?

28 A. A single song with many versions, yes. 8672

1 English and Spanish as well. And re-mixes. There

2 were going to be re-mixes by Junior Vasquez.

3 Q. That does sell?

4 A. Oh, absolutely. For something like — if

5 you can tie into something that is of importance,

6 like charities and things like that, then you — you

7 have a commodity that’s very well sought after.

8 Q. Tell me when it was that you were called

9 into this. When were you invited to explore the

10 possibilities of joining this enterprise?

11 A. 2001.

12 Q. Do you remember when in 2001?

13 A. June is the first meeting.

14 Q. Okay. The first meeting between you and

15 who?

16 A. Marc and Michael. And Ali joined us on that

17 first meeting.

18 Q. All right. And that first meeting was in a

19 hotel in Los Angeles; is that right?

20 A. Yes.

21 Q. Now, was the song already drafted? Was it

22 already performed? Was it already recorded?

23 A. Yes, Michael had done a demo of it.

24 Q. Okay. Were artists lined up to participate

25 in the recordings?

26 A. Yes. Absolutely.

27 Q. Had some of the artists already participated

28 in the recordings? 8673

1 A. Not until — not at that time. Not June.

2 Q. Okay.

3 A. Michael had a demo, and the only thing that

4 was on it was Michael’s voice.

5 Q. All right. Is it possible, in fact, to be

6 able to have multiple artists performing at

7 different locations at different times —

8 A. Absolutely. That’s what we did.

9 Q. One of the things you have to do is wait

10 until the whole question is asked.

11 A. Oh, I’m sorry.

12 Q. She goes nuts otherwise.

13 A. Oh, I’m really sorry.

14 Q. Is it possible to be able to, in fact,

15 perform at different places and different times and

16 then be able to mix it all into one product?

17 A. You can perform many places at the same

18 time, and so that’s — yes. And then you can mix it

19 as one product later, yes, absolutely.

20 Q. So it was not necessary to be able to have

21 everybody perform at the same time, same location as

22 was done in “We are the World”?

23 A. Correct.

24 Q. That was a matter of convenience back then?

25 A. That was a matter of happenstance.

26 Q. Okay.

27 A. I believe. You just happened to go across

28 the street and there you are — 8674

1 Q. Okay.

2 A. — performing a song. I mean, they planned

3 it. But they also planned it that all these

4 performers could — from what I understand.

5 Q. You described this as a benefit single,

6 which means part of the purpose is to raise money

7 for charities; is that correct?

8 A. Absolutely.

9 Q. Was it also intended to be for profit?

10 A. Well, yeah. You have to make a profit to

11 keep going. I mean, it’s like, you know, you can’t

12 be in the ditch for $20 million. Yeah, so it had to

13 make a profit somewhere.

14 Q. So not just pay expenses. This wasn’t just

15 a charitable enterprise exclusively, but it was

16 going to generate profit for some people. Would

17 that be correct?

18 A. Yes.

19 Q. Okay. Now, were you hired on salary?

20 A. Yes. Salary, uh-huh.

21 Q. Were you ultimately hired to do this?

22 A. Yes.

23 Q. And did you actually work on this project?

24 A. Yes.

25 Q. And by the time you — from the point that

26 you began the project to the time that you

27 officially ended your employment on this project,

28 how long had you worked on it? 8675

1 A. Until 2001 — June is when we took the first

2 meeting. I’d have to look at my records to see

3 exactly when they signed my contract, and then it

4 was 2003 of February, the 25th, I believe I received

5 my last check.

6 Q. All right. And when did you cease your

7 employment? Was it on the day you received your

8 last check?

9 A. No, I stopped going in the office I believe

10 it was the first week of August.

11 Q. What kind of things were you expecting to do

12 in terms of promoting and marketing and creating

13 this product?

14 A. Well, nobody had any record experience.

15 MR. MESEREAU: Calls for speculation.

16 MR. ZONEN: I believe he did it.

17 THE COURT: But you asked him what he was

18 expected to do.

19 MR. ZONEN: All right. Let me change the

20 question, then.

21 Q. What actually did you do during the two

22 years of employment in this capacity? What types of

23 things did you do?

24 A. Okay. Well, I was the general manager of

25 the label of Neverland Valley Entertainment. I

26 oversee the books. Not all of the books, but a

27 certain major portion of the books. Everything from

28 the task of filing, to making sure artists are where 8676

1 they’re supposed to be, and doing the things that

2 we’re supposed to do to get things done to get the

3 single finished, and to facilitate any other dream

4 or necessity that Michael might have that would fall

5 into us participating with him —

6 Q. All right.

7 A. — on that.

Next, Provencio describes the creation of Neverland Valley Entertainment (the company that Jackson and Schaffel founded together), possible business ventures that were discussed with Jackson, ideas that were thought of to make “What More Can I Give?” as profitable as possible, and Provencio’s compensation breakdown:

8 Q. You’ve mentioned Neverland Valley

9 Entertainment. What exactly is Neverland Valley

10 Entertainment?

11 A. It’s Marc and Michael’s company.

12 MR. MESEREAU: Objection; foundation.

13 THE COURT: Sustained.

14 Q. BY MR. ZONEN: All right. At some point in

15 time, did you become part of Neverland Valley

16 Entertainment?

17 A. Well, yeah, when they signed my contract.

18 Q. And during the course of your two years of

19 working as the general manager of Neverland Valley

20 Entertainment and based on your conversations with

21 both Marc and Mr. Jackson, did you learn what

22 Neverland Valley Entertainment was?

23 MR. MESEREAU: Objection. Assumes facts not

24 in evidence and foundation.

25 THE COURT: Overruled.

26 You may answer.

27 Q. BY MR. ZONEN: What is it?

28 A. Can you state the question again? I’m 8677

1 sorry.

2 MR. ZONEN: Perhaps the court reporter could

3 read it.

4 (Record read.)

5 THE WITNESS: Well, it was a Michael and

6 Marc company. That’s what it was.

7 Q. BY MR. ZONEN: Was it created while you were

8 there?

9 A. Well, yeah. It was created as — as — it

10 wasn’t — it wasn’t flying until we got a loan, but,

11 yeah, we were in the midst of having conversations

12 with Parviz to get a loan, or they were, to get a

13 loan to get this thing flying.

14 Q. All right. Who were the people who were

15 involved at that time, at the time that you came

16 into it, with Neverland Valley Entertainment?

17 A. Who were the people involved?

18 Q. Yes.

19 A. It would have been Michael, Marc, myself.

20 You know, Dieter and Ronald were on the fringes, but

21 the — but the single was Marc and Michael.

22 Q. The what was Marc —

23 A. The single. The “What More Can I Give?” was

24 Michael and Marc’s creation.

25 Q. Did you have meetings with Mr. Jackson

26 pursuant to your coming on board?

27 A. Yeah, we had meetings at The Beverly Hills

28 Hotel, and then we had meetings at The Universal 8678

1 Hilton.

2 Q. What discussions did you have with Mr.


3 Jackson about your involvement in this in both —


4 either of those two meetings?


5 MR. MESEREAU: Objection; vague.


6 THE COURT: Overruled.


7 You may answer.


8 THE WITNESS: Okay. The first — the first


9 meeting, we talked about the video game, and then we


10 talked about how “What More Can I Give?” would be a


11 great project, which — you know, which we could


12 work on, make some cash, and — you know, and


13 basically have it segue way into many other things.

14 You know, maybe — because there wasn’t — we had a


15 conversation in regards that the “What More” — or


16 the “We are the World” wasn’t marketed to its full


17 potential. There weren’t like a lot of T-shirts


18 made. There was different marketing —


19 MR. MESEREAU: Objection; nonresponsive.


20 THE COURT: Sustained.


21 MR. ZONEN: I’m sorry, Your Honor?


22 THE COURT: Sustained.


23 Q. BY MR. ZONEN: Did you have a discussion as


24 to how “What More Can I Give?” would be marketed


25 during either of those two meetings?


26 A. Yes.


27 Q. What was the nature of that discussion?


28 A. The nature was that basically we needed to 8679


1 reach its full potential, much more and much better,


2 making it much bigger and making much more money


3 than “We are the World” made. How are we going to


4 do that? Are we going to take a present situation


5 and make it better? You know. Basically this


6 present model that we had was “We are the World.”

7 How do we explore that?

8 Q. And you said —

9 A. And you need a business plan.

10 Q. And you said “and make more money.” Was

11 there a discussion with Mr. —

12 A. It had to be bigger.

13 Q. Hold on.

14 A. Sorry.

15 Q. You’ve got to wait until the question’s

16 asked.

17 Was there a discussion with Mr. Jackson as

18 to the potential of what could be made on the

19 production of “What More Can I Give?”

20 A. To answer your question, Michael wanted it

21 bigger and better than “We are the World.” So it

22 had to be more than “We are the World,” which

23 unfortunately I don’t remember off the top of my

24 head. I know it was like $100 million, something

25 crazy like that.

26 Q. Mr. Jackson had indicated he wanted this to

27 exceed that?

28 A. Oh, yeah. He was very excited. It had to. 8680

1 It had to.

2 Q. Was there any discussion as to what

3 percentage of this would actually go toward the

4 charitable causes and what would be profit?

5 A. We hadn’t really finessed that all out.

6 I mean, we really were — we were — everything was

7 moving very quickly, like everything in my

8 experience with Michael. Everything moves very,

9 very quickly, and Michael wants his results now.

10 And we really hadn’t gotten down to sitting with

11 lawyers to work out percentages and things like

12 that.

13 We knew essentially, you know, what we

14 wanted to do overall, but we had to get a product

15 made first, so that was — that was our first and

16 most important thing was to get this product made.

17 Q. Did you ever actually sit down with lawyers

18 and work out details of percentages as to who would

19 get what during the course of that two years you

20 worked on that project?

21 A. No.

22 Q. Did you have some form of contract signed


23 with either Michael Jackson or Marc Schaffel as to


24 what your compensation would be?


25 A. Yes. They gave me a point on the record.


26 Q. Did you have a salary in addition to a point


27 on the record?


28 A. Yes, I did. 8681


1 Q. What was the salary?


2 A. 225,000.


3 Q. And was that for the duration of the


4 project?


5 A. For the project.


6 Q. Would it make a difference how long the


7 project took?


8 A. Not really. The project had to be done,


9 so —


10 Q. Did you have a sense at the time as to


11 what — I mean, did you anticipate what it would be?


12 A. A year, maybe a little bit more. But a


13 year.


14 Q. Now, you also said a point was given to you.


15 What does that mean?


16 A. Well, a point is basically a percentage, or


17 a 1 percent of the gross, or the total of a project.


18 Marc got four points. Michael had given Marc four


19 points. And Michael and Marc had given me one


20 point.

21 MR. MESEREAU: Objection; nonresponsive.

22 THE COURT: Sustained.

23 Q. BY MR. ZONEN: All right. Let’s talk about

24 what was going to you, and then we’ll talk about Mr.

25 Schaffel.

26 A. Okay.

27 Q. One point was given to you, and you

28 mentioned the gross. Explain what that means. 8682

1 A. Well, what the album makes, you know, is

2 considered — you know, what it really actually —

3 what’s in the kitty at the end of the day is

4 really — you know, what you’re selling — I’m not

5 making sense here, but what — when the product is

6 sold, you know, you’ve got your expenses covered

7 first. That comes out of — like you make a dollar,

8 and let’s say you just made the dollar from that CD.

9 You’re — 60 cents of it is taken away because

10 it’s, you know, marketing, whatever.

11 This was going to be a cheap single, so we

12 weren’t going to be spending a tremendous,

13 tremendous amount of money, so there would be more

14 take-home, you know, for Neverland Valley

15 Entertainment, so — I think I just got lost.

16 Q. Let me ask this: The 1 percent gross —

17 A. Uh-huh.

18 Q. — does that mean your 1 percent would come


19 to you before any of the expenses were paid?


20 A. Oh, no. We hadn’t worked that all out yet.


21 That hadn’t been worked out. So if the record made


22 50 million dollars, you know — you know, you have


23 to remember, we hadn’t sat down with the lawyers to


24 get the exact verbiage down, so we were estimating.


25 And our assumptions in our meetings was that if it


26 made $50 million, I would be getting 1 percent of


27 that.


28 Q. Which would be $500,000? 8683

1 A. Or if it made more.


2 Q. Or if made 100 million, you’d get one


3 million?


4 A. Exactly.

5 Q. All right. Did you negotiate that? In

6 other words, was that part of the negotiation as you

7 came into this project?

8 A. No.

9 MR. MESEREAU: Objection; relevance.


11 THE COURT: Sustained.

12 Q. BY MR. ZONEN: When did you get the 1

13 percent?

14 MR. MESEREAU: Objection; relevance.

15 THE COURT: Sustained.

16 Q. BY MR. ZONEN: Who was it who gave you the 1

17 percent?

18 A. Michael and Marc.

19 MR. MESEREAU: Objection; relevance.

20 THE COURT: Overruled.

21 Q. BY MR. ZONEN: Go ahead.

22 A. Michael and Marc.

23 Q. Was that in the form of a document signed by

24 both of them?

25 MR. MESEREAU: Objection. Leading and

26 relevance.

27 THE COURT: Overruled.

28 You may answer. 8684

1 THE WITNESS: Yes. They both signed it.

2 Q. BY MR. ZONEN: And did you — and did you

3 commence work on this project?

4 A. Yes.

5 Q. All right. What were the — over the next,

6 say, couple months after you began working in June

7 of ‘01, did you speak with Mr. Jackson on any kind

8 of regular basis?

9 A. Well, we had the studio time, and we’d have

10 our meetings in the studio time, and, you know,

11 there was plenty of filming of that.

12 Q. Did you have conversations with him as well?

13 A. Yes.

14 Q. What was Mr. Schaffel’s role in this? You

15 were the general manager. What was he?

16 A. He was the president of Neverland Valley

17 Entertainment.

18 Q. And did he have a similar agreement to yours

19 in terms of compensation?

20 A. Yes, he did.

21 MR. MESEREAU: Objection; no foundation.

22 THE COURT: Sustained.

23 Q. BY MR. ZONEN: As the general manager, did

24 you have access to all of the records that dealt

25 with the expenditures?

26 A. Well, they were in a filing cabinet, and I

27 went through all of them, yes.

28 Q. You read them all? 8685

1 A. I read most of them.

2 Q. As well — it was the two of you. Did you

3 have conversations with Mr. Schaffel about such

4 matters?

5 A. Oh, yeah, we talked about things. He was a

6 little bit more braggadocious, but —

7 MR. MESEREAU: Objection; nonresponsive.

8 THE COURT: Sustained.

9 Q. BY MR. ZONEN: Braggadocious?

10 A. Yeah. He bragged a lot.

11 Q. What was his compensation, Mr. Schaffel’s?

12 MR. MESEREAU: Objection. Foundation;

13 relevance.

14 THE COURT: Sustained.

15 Q. BY MR. ZONEN: Did you review his employment

16 documents as well?

17 A. I looked at them, yes.

18 Q. Yeah. And did that contain what his

19 compensation was?

20 A. Yes.

21 Q. And what was it?

22 MR. MESEREAU: Objection; relevance.

23 THE COURT: Sustained. It’s hearsay, really.

Next, Zonen asked Provencio about his dealings with Jackson on a professional level during various business meetings:

23 Q. BY MR. ZONEN: As the general manager, did

24 you have access to all of the records that dealt

25 with the expenditures?

26 A. Well, they were in a filing cabinet, and I

27 went through all of them, yes.

28 Q. You read them all? 8685

1 A. I read most of them.

2 Q. As well — it was the two of you. Did you

3 have conversations with Mr. Schaffel about such

4 matters?

5 A. Oh, yeah, we talked about things. He was a

6 little bit more braggadocious, but —

7 MR. MESEREAU: Objection; nonresponsive.

8 THE COURT: Sustained.

9 Q. BY MR. ZONEN: Braggadocious?

10 A. Yeah. He bragged a lot.

11 Q. What was his compensation, Mr. Schaffel’s?

12 MR. MESEREAU: Objection. Foundation;

13 relevance.

14 THE COURT: Sustained.

15 Q. BY MR. ZONEN: Did you review his employment


16 documents as well?


17 A. I looked at them, yes.


18 Q. Yeah. And did that contain what his


19 compensation was?


20 A. Yes.


21 Q. And what was it?

22 MR. MESEREAU: Objection; relevance.

23 THE COURT: Sustained. It’s hearsay, really.

24 Q. BY MR. ZONEN: During the next couple

25 months, you indicated that you did have meetings

26 with Mr. Jackson. Can you tell us with what level

27 of frequency you would meet with him?

28 A. Well, whenever he came to the studio, but 8686

1 sometimes he wouldn’t come to the studio. So it was

2 whenever he came into the studio.

3 Q. And how often might that be?

4 A. Boy, the first couple of months, it was

5 pretty regular. I mean, he came in, you know, three

6 or four times a month.

7 Q. Did you have meetings with him on a regular


8 basis when he came into the studio?


9 A. Well, we would talk about the project, how


10 did we think — when Michael walks in the door,


11 he’s — he’s meticulous. He wants to know


12 everything that’s going on and what’s happening, and


13 he’s a great businessmen.


14 MR. MESEREAU: Objection. Nonresponsive and


15 move to strike.


16 THE COURT: Sustained.

17 Q. BY MR. ZONEN: Did you brief Mr. Jackson on

18 a regular basis of what was going on with Neverland

19 Valley Entertainment?

20 A. We did, yes.

21 MR. MESEREAU: Objection. Foundation;

22 leading.

23 THE COURT: Overruled.

24 You can go ahead and answer.

25 He did. He said, “Yes.”

26 Q. BY MR. ZONEN: How did you do that? How did

27 you brief him?

28 A. We would have meetings. Michael would want 8687

1 to know what’s going on. “Who do we have coming in?

2 Did you get this person? Is Usher coming?”

3 MR. MESEREAU: Objection. Nonresponsive;

4 move to strike.

5 THE COURT: I’ll strike after, “We would have

6 meetings.”

7 Q. BY MR. ZONEN: What kind of things would Mr.

8 Jackson want to know in the course of these

9 meetings?

10 A. That we are getting the hottest artists out

11 there right now on this project. We had to be the

12 hottest.

13 Q. And did he ask you details in terms of who

14 you were going after and what you were intending to

15 do, attempting to do?

16 MR. MESEREAU: Objection; leading.

17 THE COURT: Overruled.

18 Q. BY MR. ZONEN: You can answer.

19 A. Oh, he wanted to know that it was the

20 hottest artist, and when are they coming, and what

21 are we doing.

22 Q. All right. In addition to the meetings at

23 the studios that took place, did you also have

24 meetings with him at other locations?

25 A. The — well, like I said, we had The Beverly

26 Hills Hotel. We had the studio meetings. And then

27 we would have — we had two meetings at The

28 Universal Hilton. 8688

1 Q. All right. Did you have telephone

2 conversations with Mr. Jackson?

3 A. Oh, yeah. He called — him and Marc would

4 call my house.

5 Q. On what level or frequency? And we’re

6 talking about Mr. Jackson, not Marc Schaffel. But

7 on what level of frequently would you have a

8 conversation with Mr. Jackson about the business?

9 A. In the beginning, the first couple of

10 months, it was — I would say it was — it was

11 semi-regular, once or twice a month. You know, just

12 late-night phone calls, because Michael gets up

13 late, so — or — so it would be late-night phone

14 calls sometimes.

15 Q. You would be home by the evening hours?

16 A. Yeah, I’d be home.

17 Q. All right.

18 A. Exhausted, but home.

19 Q. And did you ever get calls from Mr. Jackson

20 while you were at the office?

21 A. Yes, he would call in.

22 Q. And did you, in fact, have an office there?

23 A. Yes, at Neverland Valley Entertainment.

24 Q. And where was Neverland Valley

25 Entertainment?

26 A. In Calabasas, California.

27 Q. At somebody’s residence?

28 A. At Marc’s residence, yes. 8689

1 Q. Describe for us his residence, please, in

2 Calabasas.

3 A. A gated community. Pretty swanky. It’s

4 pretty nice. A rich person’s home.

5 Q. And was the office set at a particular

6 location within the house?

7 A. Upstairs.

8 Q. All right. Were there multiple offices

9 devoted to this project?

10 A. Well, you know, there was an office at

11 Neverland, but, you know, that wasn’t really used

12 that much. You know, it was you usually worked out

13 of the bungalow and then — and then — but that was

14 the primary office, Mr. Schaffel’s —

15 Q. At Mr. Schaffel’s residence, were there

16 multiple rooms that were devoted to this project?

17 A. Yes.

18 Q. Okay. Did you have separate rooms from Mr.

19 Schaffel?

20 A. Yes. I did.

21 Q. Okay. Were you able to hear, from where you

22 worked, conversations that Mr. Schaffel was having

23 on the telephone?

24 A. Well, Marc had a really bad habit of having

25 you sit there, and he would —

26 MR. MESEREAU: Objection; nonresponsive.

27 THE COURT: Overruled.

28 You may finish that sentence. 8690

1 THE WITNESS: Marc would have a really bad

2 habit of having you sit there, and he would put

3 people on speakerphone, and — or answer on

4 speakerphone, so you would know who it was, so he

5 can kind of gloat that, you know, “Oooh, look who

6 I’m talking to,” whether it’s Michael or Beyonce or

7 some other star. And then he would pick up the

8 phone or he would just leave them on speakerphone,

9 and you could hear the whole conversation.

10 Everybody in the house that we were working

11 in, we were always shocked that pretty much a lot of

12 business was known just by sitting there, you know.

13 Q. BY MR. ZONEN: All right. So did you have

14 to actually be in his room to be able to overhear

15 these conversations?

16 A. Well, yeah. I mean, pretty much you had to

17 be in his office. But then I could hear them in my

18 office, too, if I jumped on a conference call with

19 them.

Provencio revealed something very personal about Jackson in this excerpt that gave the media another weapon to use against him in their vicious assault on his character; he stated that when Jackson is upset, he uses his “other” voice, and the media used this quote to claim that Jackson’s soft-spoken, childlike image was a façade. Mesereau’s objection was sustained by Judge Melville:

20 Q. Did you frequently overhear conversations

21 that Marc Schaffel was having with other people

22 concerning his business enterprise?

23 A. Yes.

24 Q. Did you frequently overhear conversations

25 that Marc Schaffel was having with Michael Jackson?

26 A. Yes.

27 MR. MESEREAU: Objection; foundation.

28 THE COURT: Sustained. 8691

1 Q. BY MR. ZONEN: Do you know Michael Jackson’s


2 voice?


3 A. Yes.


4 Q. Is it fairly distinct?


5 A. Well, unless he’s upset. Then he uses the


6 other voice.


7 Q. Now, you tell us another voice —


8 MR. MESEREAU: Objection; nonresponsive.




10 THE COURT: Sustained.

11 Q. BY MR. ZONEN: Have you talked with Mr.

12 Jackson often enough or been present during his

13 conversations that you’re able to recognize his

14 voice when he calls?

15 A. Michael Jackson’s voice is the most

16 distinctive voice in the world, I think.

17 MR. MESEREAU: Objection. Nonresponsive;

18 move to strike.

19 THE COURT: Overruled. Next question.

20 Q. BY MR. ZONEN: All right. That means yes,

21 you do know his voice?

22 A. Yes.

23 Q. And you know his voice well?

24 A. Based on my experience of hearing him.

25 Q. On those occasions when he called, did you

26 have any difficulty at all recognizing his voice?

27 A. No. God, no. He always introduced himself

28 as Michael Jackson. 8692

1 Q. All right. Were you able to overhear

2 conversations between Marc Schaffel and Michael

3 Jackson?

4 A. Yes.

5 Q. Both sides of the conversation? In other

6 words —

7 A. At times. Not all the time, but at times.

8 Q. All right. Can you give us a sense of how

9 often you would overhear a conversation? And I’m

10 now talking about both sides of the conversation

11 between Marc Schaffel and Michael Jackson. How

12 often would that happen?

13 A. Could you be more clear? I’m sorry.

14 Q. Well, in the first couple months of your

15 employment with Neverland Valley Entertainment —

16 A. Uh-huh.

17 Q. — give us a sense of how often you would

18 overhear a conversation between Marc Schaffel and

19 Michael Jackson.

20 A. Frequently. Especially if I stayed later,

21 because Michael would always — always call later.

22 And he would always call him “Arnold.” That was his

23 nickname. “Ar-nold.” And then — and then he would

24 pick up the phone and say, “You’re looking for

25 french fries?”

26 MR. MESEREAU: Objection. Nonresponsive;

27 move to strike.

28 THE COURT: Stricken. 8693

1 Q. BY MR. ZONEN: All right. We’ll get to

2 Arnold in just a moment.

3 A. Oh, all right.

4 Q. Let’s talk about — if we can, let’s talk

5 about — this happens when we get later in the day.

6 A. Okay.

7 Q. The frequency with which you might hear


8 conversations between Michael Jackson and Marc


9 Schaffel where you could actually hear both sides of


10 the conversations, you answered “frequently” to that?


11 A. Yeah.


12 Q. Give us a sense, please, of what that means


13 in a week period of time.


14 A. Well, if you’re speaking about the


15 beginning, before the Martin Bashir thing, Michael


16 was calling. He wanted to know what was happening


17 with the project. He’s a meticulous businessman.

18 MR. MESEREAU: Objection. Nonresponsive;

19 move to strike.

20 THE COURT: So the question is kind of hard

21 to get back to, but you were asking him what the

22 frequency of calls from Michael Jackson were.

23 MR. ZONEN: Yes, Your Honor, I was.

24 THE COURT: That’s the question. How often

25 did he call in a week?

26 THE WITNESS: In a week? God, sometimes ten

27 times. Hey, he would be on the phone with him for

28 hours sometimes at night. And we didn’t have a 8694

1 schedule. You have to remember, work is work. You

2 get up, you work. And when Michael calls and you

3 got something to do, you work.

4 MR. MESEREAU: Objection; nonresponsive.

5 THE WITNESS: So it’s like that’s the way it

6 was.

Zonen wrapped up his direct examination for the day after this last series of questions on the amount of work hours that Provencio put into his project with Jackson and Schaffel:

7 Q. BY MR. ZONEN: Give us a sense of when you

8 were there at this office in Calabasas, what kinds

9 of hours and days did you put in?

10 A. Seven days a week. If you had to do

11 something, you had to do it.

12 Q. Now, you were working pretty much full time

13 on this project?

14 A. Yes. This was our only project in the

15 beginning.

16 Q. The point that was offered to you, that

17 1 percentage of — at the time as was described as

18 gross, did that give you some incentive to work even

19 harder on making this —

20 A. Well, God, yeah.

21 MR. MESEREAU: Objection. Leading and

22 relevance.

23 THE COURT: Sustained.

24 Q. BY MR. ZONEN: What is the consequence of

25 having a commission like that?

26 A. You’d be rich.

27 MR. MESEREAU: Objection; relevance.

28 MR. ZONEN: Would you like me to move on, 8695

1 Judge?


3 MR. ZONEN: And I will.

4 Q. All right. During the course of the

5 conversations that you had with Mr. Jackson, and of

6 course the conversations you had overheard with Mr.

7 Schaffel, as frequently as they were, describe how

8 attentive to business Mr. Jackson was.

9 A. He wanted to know the details.

10 MR. MESEREAU: Objection; no foundation.

11 THE COURT: Overruled.

12 Q. BY MR. ZONEN: Go ahead.

13 A. He wanted to know the details. He wanted to

14 know what was happening with the project. You know,

15 the project was — you know, it was taking time to

16 get the artists in, so he wanted to know we were

17 getting the hottest artists and the best artists,

18 and where were we going to be going next, and — and

19 things like that. I mean, it was pretty much our

20 duty to make sure everything was set up.

21 MR. MESEREAU: Objection; nonresponsive.

22 THE COURT: The last sentence is stricken.

23 Q. BY MR. ZONEN: Do you know who was financing

24 this project?

25 A. Michael was.

26 Q. Do you know how it was being financed?

27 A. Yes.

28 Q. How? 8696

1 A. Through a money lender named Parviz in

2 Beverly Hills.

3 Q. Was that a loan that was obtained by Michael

4 Jackson?

5 MR. MESEREAU: Objection; leading.

6 THE COURT: Overruled.

7 Q. BY MR. ZONEN: Go ahead.

8 A. Yes, it was a loan that Marc and Michael got

9 from Parviz for ten million dollars.

10 Q. Were you there?

11 A. I was there when the paperwork was signed.

12 We brought the paperwork to Parviz after Michael had

13 signed it in Beverly Hills, in the 9000 — I believe

14 the 9000 block of Beverly Hills, Wilshire, and

15 Parviz ran it upstairs, and we came back the next

16 day, and it was signed.

17 Q. Okay. Now —

18 A. And I saw the document.

19 Q. Was the ten million dollars actually turned

20 over to either Marc Schaffel or Michael Jackson?

21 A. No, it was — it was, like, in the bank, and

22 they withdrew, I think it was like two million

23 dollars, two and a quarter initially to start the

24 company, start the project going.

25 Q. All right. And which bank, incidentally,

26 was that deposited into?

27 A. It was — it was Marc’s bank, and that would

28 have been B of A. No, not B of A. It was, uh, U – 8697

1 God, I can’t remember the name of it. I can see the

2 logo, but I can’t remember the name of it. But —

3 Q. Were you about to say —

4 A. But it was the one off of Santa Monica. I

5 remember because we went there many times, because

6 Beverly was the lead person that we dealt with.

7 Q. All right. So you were there in Santa

8 Monica, the City of Santa Monica?

9 A. Uh-huh.

10 Q. Beverly was the person —

11 A. Yes.

12 Q. — you dealt with?

13 A. Her name was Beverly.

14 Q. And you’ve seen her?

15 A. Oh, yeah, I’ve talked to her many times.

16 She made me open an account. I didn’t have a

17 million dollars to put in it, but —

18 Q. Did you get a toaster?

19 A. I didn’t get anything. So — but I opened

20 an account with her.

21 THE COURT: You want to quit, don’t you?

22 MR. ZONEN: I really do.

23 THE COURT: All right.

24 See you tomorrow at 8:30. Remember the

25 admonitions.

26 MR. ZONEN: Thank you.

27 (The proceedings adjourned at 2:30 p.m.)

28 –o0o—8698

To be continued:


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