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Simon Cowell / SONY BMG
London Meeting
June 3, 2008
2
Syco 3.0Unique Advantages of Partnership With SONY BMG
U.S. Switzerland Poland Taiwan MexicoCanada Sweden Hungary Korea Central AmericaUK/Ireland Austria Turkey Hong Kong U.S. LatinFrance Denmark Russia Indonesia BrazilGermany Norway South Africa India ArgentinaBelgium Finland Australia Singapore ChileNetherlands Greece New Zealand Thailand ColombiaItaly Portugal Japan Malaysia EcuadorSpain Czech Republic China Philippines Venezuela
U.S. Switzerland Poland Taiwan MexicoCanada Sweden Hungary Korea Central AmericaUK/Ireland Austria Turkey Hong Kong U.S. LatinFrance Denmark Russia Indonesia BrazilGermany Norway South Africa India ArgentinaBelgium Finland Australia Singapore ChileNetherlands Greece New Zealand Thailand ColombiaItaly Portugal Japan Malaysia EcuadorSpain Czech Republic China Philippines Venezuela
Continuity of Established SONY BMG Relationships
Around the World
Continuity of Established SONY BMG Relationships
Around the World
Exchange Opportunities With All U.S. Labels
and Key Territories
Exchange Opportunities With All U.S. Labels
and Key Territories
Important Relationships With SONY BMG Parent
Companies
Important Relationships With SONY BMG Parent
Companies
Begins Now! …Not In 2011Immediate Profit Share In Syco and Ronagold Assets
SONY BMG Committed to Invest Required Funds to Achieve JV Goals
Begins Now! …Not In 2011Immediate Profit Share In Syco and Ronagold Assets
SONY BMG Committed to Invest Required Funds to Achieve JV Goals
3
JV Beginning Now! …Not In 2011
Effective January 1, 2008, SONY BMG contributes ~$200M of Syco and Ronagold assets and Pop Idol override
50% of asset value given to SC, now and ongoing
SONY BMG makes $200M flat payment to SC
$100M on signing
$34M in 2010
$66M in 2015 (or earlier if thresholds are met)
50% share of JV profits from January 1, 2008 thru 2015, worth est’d $296M
Additionally, SONY BMG to fund all JV productions and investments
JV Beginning Now! …Not In 2011
Effective January 1, 2008, SONY BMG contributes ~$200M of Syco and Ronagold assets and Pop Idol override
50% of asset value given to SC, now and ongoing
SONY BMG makes $200M flat payment to SC
$100M on signing
$34M in 2010
$66M in 2015 (or earlier if thresholds are met)
50% share of JV profits from January 1, 2008 thru 2015, worth est’d $296M
Additionally, SONY BMG to fund all JV productions and investments
Syco 3.0 – New Improved Proposal
Forecast SC income:Flat payments $200M+ Est’d profit $296M
Total $496M
Note: all other terms as before
4
New Improved Proposal Vs. Prior Offer
Additional $66M On Signing Was $34M, now $100M Interest benefit to SC est’d at $10M
Additional $18M Profit Share 50% Profit Share In 2008 & 2009 (Was 25%)
Additional $28M in post-tax profits to SC
Accelerate Final Flat Payment and Profit Share When Threshold Achieved Vs. All In 2015
Additional $66M On Signing Was $34M, now $100M Interest benefit to SC est’d at $10M
Additional $18M Profit Share 50% Profit Share In 2008 & 2009 (Was 25%)
Additional $28M in post-tax profits to SC
Accelerate Final Flat Payment and Profit Share When Threshold Achieved Vs. All In 2015
ImprovementsImprovements
5
Pre TaxIncome
($ In Millions)
Pre TaxIncome
($ In Millions)
Post TaxIncome
($ In Millions)
Post TaxIncome
($ In Millions)
SC* SONY BMG Worldwide Income
Income Projections: New Improved Proposal
Includes $200M Flat Payment*
6
Understanding of Competitive
Offer
Understanding of Competitive
Offer
SONY BMGOpportunities Are
Far Greater Than AnyCompetitive Offer
SONY BMGOpportunities Are
Far Greater Than AnyCompetitive Offer
SC Pre Tax Income Projections ($ In Millions)
Our Unprecedented Success to Date Is theFoundation to Build A $1 Billion Media Empire
Our Unprecedented Success to Date Is theFoundation to Build A $1 Billion Media Empire
$496M
$557M
$619M
Forecasted Income: % of Base Case100% 125% 150%
$400M $400M $400MSC
Pre
Ta
x In
com
e
$500
$600
$400
50% Participation In Valuable Asset
Portfolio
50% Participation In Valuable Asset
Portfolio
with
7
Shared Ambition to Build A $1Billion Media Company
Add Resources to Coordinate Global TV Activities
Appoint Dedicated SBMG Global Brand Executive Focused On Syco Business
– Responsibilities Include Endorsements, Branding, Sponsorship, Online, Games, Film, Music Publishing, Etc
Create International Structure to Focus On Local Territory Syco Exploitation
Assemble Biannual Meeting of Key Global SBMG/Syco Executives to Brainstorm Opportunities, Develop Plans for Execution
Add Resources to Coordinate Global TV Activities
Appoint Dedicated SBMG Global Brand Executive Focused On Syco Business
– Responsibilities Include Endorsements, Branding, Sponsorship, Online, Games, Film, Music Publishing, Etc
Create International Structure to Focus On Local Territory Syco Exploitation
Assemble Biannual Meeting of Key Global SBMG/Syco Executives to Brainstorm Opportunities, Develop Plans for Execution
RefocusSONY BMG
Organization to Maximize
Exploitation of Syco Assets
RefocusSONY BMG
Organization to Maximize
Exploitation of Syco Assets
Establish LA Presence With Necessary Resources In TV and A&R
Expand In-House TV Producer Team to Deploy On Key Productions
Increase Global Marketing and A&R Resources Accordingly
Establish LA Presence With Necessary Resources In TV and A&R
Expand In-House TV Producer Team to Deploy On Key Productions
Increase Global Marketing and A&R Resources Accordingly
Grow Current TV and Recorded
Music Business
Grow Current TV and Recorded
Music Business
Aggressively Pursue New Business Opportunities
Commit to Provide Funding for Diversification Into New Media Sectors
Aggressively Pursue New Business Opportunities
Commit to Provide Funding for Diversification Into New Media Sectors
Expand Into New Business Areas
Expand Into New Business Areas
Simon Cowell / SONY BMG
London Meeting
June 3, 2008
9
SONY BMG Assets Created Together
Il Divo
CarrieUnderwood
Six
AmelBent
The XFactor
GarethGates
ClayAiken
KelliePickler
ChristopheWillem
PaulPotts
ShayneWard
KellyClarkson
DamienLeith
MichelleMcManus
JordinSparks
GotTalent
ShannonNoll
WillYoung
AnthonyCallea
Robson &Jerome
FantasiaBarrino
Daughtry
TaylorHicks
GuySebastian
Westlife
DavidCook
ElliotYamin
RubenStuddard
LeonaLewis
FiveMark
Medlock
American Inventor
10
Leona Lewis: Most Recent Syco/SONY BMG Global Success
#1 Top Selling Global Album In 2008#1 Top Selling Global Album In 2008
Debut Album AlreadyGold or Platinum in 17Territories; 4M Units
Spirit
•Fastest selling UK debut album ever (375,000 copies in first week)
•Entered US Billboard 200 at #1 - first British solo artist to achieve this with debut release
Bleeding Love
•Best selling UK single of 2007
•First #1 US single by UK female in over 20 years
•Only the second single to ever fall out and return to the number one position on the Hot 100 twice
Debut Album AlreadyGold or Platinum in 17Territories; 4M Units
Spirit
•Fastest selling UK debut album ever (375,000 copies in first week)
•Entered US Billboard 200 at #1 - first British solo artist to achieve this with debut release
Bleeding Love
•Best selling UK single of 2007
•First #1 US single by UK female in over 20 years
•Only the second single to ever fall out and return to the number one position on the Hot 100 twice
1111
Tax Appendix
12
Major New Tax Development
New Tax Structure
100% Capital Gain Benefit to SC
Partial Tax Benefit to SONY BMG
Create New English Limited Liability Partnership (LLP)
SC Will Be Partner In LLP and Furnish Services As A Partner
$200M Flat Payment – 18% Tax Rate for SC Vs. Significant Risk of 41% Rate In Option 3
SC Profit Share – 40% Personal Tax Rate Vs. 46% Corporate Rate
Lower National Insurance Costs for JV
See Tax Appendix for Further Details
Significantly Less Risk of Tax Audit for SC
13
Current Status
SBME - UK
RonagoldSIMCOSimon Current
Employment Contract
Royalty Free
License
Simon Cowell (SC)
Assets Including Intellectual Property
and Goodwill
Royalty Free
License
14
Preliminary Step
SBME - UK
RonagoldSIMCOSimon Current
Employment Contract
SC
Assets Including Intellectual Property
and Goodwill
• Ronagold and SIMCO Give Notice to SBME-UK to Terminate Current Royalty-Free License
Adjusted
License
Adjusted
License
15
Venture Formation
• SBME-UK and SC Incorporate A 50/50 English Limited Liability Partnership (LLP) and Make Nominal Capital Contributions (£50K)
– Initially LLP Could Be Formed Internally Within SBME-UK
• SBME-UK and LLP Enter Into Secondment Agreement Under Which SBME-UK Employee Seconded to LLP On A Part-Time Basis (Employee Will Report to SBME-UK and SC) and Employee Would Invest Capital In Short-Term Interest Bearing Intra-Group Loans
• SBME-UK, SC and LLP Enter Into Joint Venture Agreement Pursuant to Which:– SBME-UK Contributes Its Shares In Ronagold and SIMCO to the LLP As A Gift
– SBME-UK Contributes to the LLP As A Gift Up to $200 Million In Three Tranches (i.e., $67 Million Day 1, $67 Million 2010 and Up to $66 Million In 2015 If Earn-Out Conditions Are Met)
– SC Sells His Intellectual Property For Up to $200 Million (i.e., $67 Million Payable Day 1, $67 Million 2010, and Up to $66 Million In 2015 If Earn-Out Conditions Are Met)
– SBME-UK and SC Agree to Adapt A New LLP Agreement Containing the Terms On Which the LLP Will Be Managed by SBME-UK and SC and Under Which SC Agrees to Devote Substantially All of His Time to A&R On Behalf of the LLP On An Exclusive Basis Until 2015
– SC and SIMCO Agree to Terminate SC’s Current Employment Contract
16
Venture Formation
SBME - UK
SIMCO
Simon Cowell
Ronagold
LLP
50% 50%
IP
100%
$200
Million
$200
Million
17
Structure Tax Advantages
• SBME-UK Should Be Directly Entitled to Amortize 50% of the Cost to the LLP of the Intellectual Property and Goodwill Acquired by the LLP From SC
• Simon's Ability to Claim 18% Tax Rate On the Receipt of $137 Million Plus the Net Present Value of $66 Million Substantially Improves As Compared to Simon's Current Maidmetal Proposal
– As A Matter of English Law, SC Should Be Deemed A Partner and Not An Employee
• SBME-UK Saves Stamp Duty Costs ($1 Million) Since It Is Not Required to Acquire SC’s Shares In Maidmetal