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The response was consistent with what Imani had told Jack, which came as a relief. Jack’s quick glance to his right, however, confirmed that Shaky’s lawyer was anything but relieved.
“When did you first meet Mr. Nichols?”
“Twelve or thirteen years ago. Mr. Nichols was the chief executive officer of EML Records at the time.”
“Was that before or after the death of Mr. Tyler McCormick?”
“Before.”
The time frame was right, but Jack still had no idea how the prosecutor intended to establish the relevance of this witness’s testimony. For the moment, he held his objections.
“How did you come to meet Mr. Nichols?” asked the prosecutor.
“EML Records was in serious financial distress. Mr. Nichols reached out to Saxton Silvers to explore the possibility of selling the company. I presented a plan to him, and EML Records engaged us.”
“Engaged you to do what?” asked the prosecutor.
“I identified several potential buyers. Mostly large private equity firms. Saxton Silvers structured a blind auction. Each potential buyer submitted a sealed bid stating how much over market price they were willing to pay on a per-share basis. The highest bidder would be the winner.”
“What does that investment term mean, ‘over market price on a per-share basis’?”
“EML Records was listed on the NASDAQ as a publicly traded company. Its shares had a price established by the market. To get control of the company, a buyer would have to pay a premium over market value. So, the bid might be ‘two dollars over market value.’ Or three dollars. Whatever the buyer was willing to bid after conducting its own due-diligence review of the company’s financial records.”
The prosecutor turned the page in his notepad. “You mentioned that EML Records was in financial distress at this time. What was the nature of that financial distress?”
“EML shares were down thirty-six percent over the previous fiscal year. Forty-eight percent over the last two years. Mr. Nichols’s choice was either sell or file for bankruptcy.”
“What was the cause of this precipitous decline in stock value?”
“In a word: piracy.”
The word had popped into Jack’s head before the witness had answered. This seemingly irrelevant testimony was suddenly hitting closer to home.
“Can you elaborate?” asked the prosecutor.
“Sure. This time period was the height of music piracy. Rather than pay for music, consumers went to piracy websites and got their musicfor free under the peer-to-peer, or P2P, file-trading platforms. It was illegal, but it was an epidemic. P2P is largely outdated now. But piracy still costs the movie and music industries about two hundred fifty billion dollars each year. Back ten or twelve years ago, it was even worse.”
“Was Mr. Nichols’s company affected by the piracy epidemic?”
“Absolutely. More than most labels.”
“Why was that?”
“Most companies have two major lines of business, licensing and recording. Song licensing for movies, TV shows, and commercials was unaffected by piracy. Only consumer sales for recorded music were down. Most companies stayed profitable because of licensing revenue. But EML’s licensing was done by a separate company, EML Licensing, Inc.”
“Did Mr. Nichols have any stake in the licensing company?”
“No. Licensing was a completely separate company with its own NASDAQ ticker symbol, its own shareholders, and its own management. Mr. Nichols’s compensation was tied strictly to the performance of EML Records, which was very well run, but it was getting killed by piracy.”
“Did Saxton Silvers do any valuations of EML Records prior to the auction?”
“Yes.”
“What value did Saxton Silvers put on the company?”
“Two-point-three billion dollars.”
“And that valuation took into account the ravaging effects of piracy, correct?”
