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IN THE UNITED STATES COURT OF FEDERAL CLAIMS ) ) ) Plaintiff, ) ) v. ) ) THE UNITED STATES ) OF AMERICA, ) Defendant. ) ) INNOVAIR AVIATION LIMITED,

DOCKET NO. 96-408C (Senior Judge Loren A. Smith)

PLAINTIFF INNOVAIR AVIATION LIMITED'S MEMORANDUM OF CONTENTIONS OF FACT AND LAW INTRODUCTION Sixteen years ago, the Government used its sweeping forfeiture powers to seize and then dispose of Innovair's indispensable business asset, an exclusive license agreement to distribute aircraft conversion technology it had jointly developed with its then-partner Basler Turbo Conversions, Inc. ("BTC"). The Government's purpose was to collect for public coffers every last penny it traced back to a front company for a foreign drug cartel, and it did not pause in its efforts even though, as it admits, it never thought Innovair had any involvement in or knowledge of the tainted source of funds it received in payment on aircraft contracts. In its zeal to collect the funds it claimed as tainted, the Government elected to ignore the fact that Innovair was an innocent owner of those funds and to ignore the risks posed by seizing and disposing of property that the law deemed unforfeitable. The risks were twofold: the obvious and unavoidable risk that the Government's

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actions would put Innovair out of business and the risk that someday the Government would be called upon to pay Innovair just compensation for the taking of its property. To be sure, while the risk to Innovair was apparent on its face, the government's own risk must have seemed remote: how many property owners can withstand the cost, let alone fight the legal maneuverings, of sixteen years of litigation with the United States? On August 31, 2006, this Court granted Innovair's motion for summary judgment, ruling that the United States took Innovair's property when it transferred Innovair's Technology License Agreement ("TLA") to BTC pursuant to the Substitute Res Bond Agreement. Innovair Aviation Ltd. v. United States, 72 Fed. Cl. 415, 416 (2006) ("Innovair"). The question now before the Court is the amount of just compensation to which Innovair is entitled. As set forth in greater detail below, the TLA was the 1988 contract between Innovair and BTC that allocated their respective rights and obligations regarding the DC-3 aircraft conversion technology the companies had jointly developed. Among other rights, the TLA granted Innovair the exclusive right to market the conversion technology in all territories other than the United States, except for sales to foreign militaries negotiated by the United States. The value of the TLA turns largely on the legal import of two enforceable contracts: the TLA itself and the 1991 Distributor Agreement between Innovair and United Technologies Corporation ("UTC"), a leading aircraft engine and parts company. The meaning of these contracts depends not one whit on the testimony of witnesses or other -2\\\DC - 085544/000001 - 2572168 v2

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extrinsic evidence, but rather rests solely only on their legal effect as determined by this Court. STATEMENT OF ISSUES 1. What just compensation is due Innovair for the Technology License

Agreement taken by the Government? 2. 3. What is the date of the taking? Should Innovair be awarded compound prejudgment interest? CONTENTIONS OF FACT I. The DC-3/C-47 Aircraft and the Conversion Concept. A. DC-3/C-47.

The aircraft conversion technology rights conveyed by the TLA relate to the modernization of DC-3/C-47 aircraft. The DC-3/C-47 was originally built in the 1930s and 1940s, and is famed for its rugged workhorse quality and its remarkable longevity. See Innovair, 72 Fed. Cl. at 416-17. Nicknamed the "Gooney Bird" and also known as the Dakota, the DC-3/C-47 is a Douglas Corporation twin-engine aircraft. Douglas built approximately 10,000 DC-3/C-47, the majority of which were originally built as C-47s for military use. The aircraft is not pressurized, and is therefore not subject to pressure fatigue factors that limit the operational lifespan of pressurized airframes. See id. at 417. This makes the DC-3 airframe exceptionally durable and strong. See id. The DC-3 can take off from rough fields, desert or beach, and short runways, and can land in similarly difficult environments. For these reasons, the aircraft has proven to be particularly useful in less developed -3\\\DC - 085544/000001 - 2572168 v2

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countries that regularly operate aircraft on short runways and rough terrain. In addition, the DC-3's cargo capacity matches its useful load--i.e., it has a favorable ratio of cubic volume to useful load--meaning the airplane is spacious by comparison to similar aircraft. In the late 1980s, approximately 1,000 DC-3s remained in use as passenger, cargo, or military planes, primarily in developing nations. Id. Although many operators continued to rely on DC-3/C-47 planes, by the 1980s, it was becoming more difficult and expensive to operate and maintain these aircraft. The DC-3/C-47 housed piston engines that ran on aviation gasoline. Aviation gas was becoming more expensive and less available in many locations, particularly outside the United States. Additionally, because manufacturers had ceased production of the DC-3/C-47's piston engines in the early 1950s, parts and supplies for the repair and maintenance of the DC-3's radial piston engines were becoming more scarce, as were the number of people who were qualified and experienced in repairing and maintaining the engines. Id. Operation of original DC-3/C-47s was also costprohibitive because the piston engines required overhauls approximately every 700 hours, far more frequently than modern turboprop aircraft. See id. Engine overhauls are expensive ­ approximately $150,000 in the late 1980s ­ and just as important, take the aircraft out of productive use for a period of time. Despite these drawbacks, however, the DC-3/C-47 remained a valued aircraft. In the 1980s, McDonnell Douglas Corporation, the successor company of the DC-3/C-47 manufacturer, and the Federal Aviation Administration ("FAA")

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assembled a panel to study the DC-3 and determine its maintenance and parts replacement requirements. The panel included representatives from a number of major DC-3 operators, including Basler Flight Service ("BFS"). Bob Clark, a BFS employee and an experienced DC-3/C-47 pilot and mechanic, served as BFS's representative to this committee and was elected by its members as chairman. In April 1988, after lengthy studies, the committee issued an FAA-approved Supplemental Inspection Document ("SID") which set forth the maintenance requirements for the DC-3. See id. Significantly, the committee determined that the DC-3/C-47 had no life limit, meaning that it could fly in perpetuity if the operator implemented the SID program. B. Genesis of the Conversion Concept.

In the early 1980s, Bryan Carmichael and Barry Wilson (together, the "Carmichael-Wilson Group") became interested in forming a business as Asian distributors for modernized DC-3/C-47 aircraft. At that time, both Carmichael and Wilson had long careers as executives of large international corporations. Carmichael had recently retired after serving in executive positions overseeing the international divisions of the major pharmaceutical companies Pfizer and WarnerLambert, holding positions including Chairman, President and CEO of Pfizer Worldwide and later, Senior Vice President and President of International Operations at Warner-Lambert. After starting his career under Carmichael's wing at Pfizer, Wilson had by the early 1980s risen to executive positions in international divisions of Bristol Myers Squibb-Europe, Lederle and Medtronic.

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Following Carmichael's retirement, he and Wilson decided to team up as entrepreneurs in an aviation-related business that would build on their decades of international business experience, particularly in Asia, while providing the opportunity to build their own business. Although neither had worked in the aviation field, each had a longtime interest in aviation and aircraft, and both were trained pilots. After investigating a potential distributorship with a Lear Jet product under development from 1980-82, Carmichael and Wilson became aware in 1983 of an effort to modernize and commercialize DC-3/C-47 aircraft converted to turboprop power. United States Aircraft Corporation ("USAC"), based in Van Nuys, California, was working on a business venture to convert DC-3/C-47 aircraft from piston engine to turboprop power and had obtained a one-off STC for a single DC-3/C-47 converted to turboprop power using the Pratt & Whitney PT-65 engine. Id. In 1983, Carmichael contacted USAC about obtaining distribution rights to the technology for Asia. With Wilson's assistance, Carmichael analyzed the USAC business opportunity by working with Singas, a Singapore-based company that operated similar aircraft, and with other DC-3/C-47 operators in the Philippines and Australia to determine whether there would be customer interest in the converted DC-3/C-47. Negotiations with USAC never came to fruition, however, because USAC was not positioned to obtain a multiple STC due to a shortage of

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financing. 1/ When it became clear that USAC did not have the financing to go through the FAA's elaborate documentation and conformance requirements to obtain the multiple STC that would enable it to commercialize the converted DC3/C-47, Carmichael and Wilson became interested in purchasing the USAC technology and obtaining a multiple STC themselves. They investigated the number and location of DC-3s available for conversion, appraised the market through a $40,000 feasibility study and other means, and expected the venture would be profitable. They believed that, with turboprop engines, the DC-3/C-47 would retain the aircraft's advantages, add substantial operating and performance value, and eliminate its disadvantages. See id. They believed that converting DC3/C-47 aircraft from piston engines to turboprop engines could be achieved for a fraction of the cost of purchasing a new airplane with comparable performance capabilities. Once Carmichael and Wilson decided to try to obtain a multiple STC for DC3/C-47 conversion based on the USAC technology, they looked for a suitable partner who could bring technical expertise to the venture. The search for an experienced 1/ In order to ensure that a newly designed aircraft is airworthy, aircraft manufacturers are required to obtain certification from the FAA after submitting test results and engineering data. If the aircraft design is safe, airworthy and satisfies all other requirements, the FAA issues it a "type certificate." 49 U.S.C. App. § 1423(a)(2); 14 C.F.R. § 21.21(b). If a manufacturer wishes to alter the design of a certified type aircraft, the manufacturer is required to obtain an STC. 14 C.F.R. § 21.113. As in the case of type certificates, the manufacturer must present the necessary engineering and test data to demonstrate to the FAA that the modified aircraft is airworthy. 14 C.F.R. § 21.115-21.117. A "one-off" STC permits the manufacturer to modify a limited number of planes whereas a "multiple" STC permits the manufacturer to modify an unlimited number of planes. See also Innovair, 72 Fed. Cl. at 417 n.2. -7\\\DC - 085544/000001 - 2572168 v2

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DC-3/C-47 operator and mechanic led them to Warren Basler, who, along with his wife Patricia Basler (together, the "Basler Group"), operated a fleet of DC-3s, had experienced DC-3 engineers, and owned a facility suitable for performing airplane conversions. Id. Basler's team of DC-3/C-47 pilots and mechanics included Bob Clark, who had chaired the FAA's SID committee for the DC-3/C-47 and had tremendous knowledge of DC-3 aircraft and FAA regulations. In 1988, the Carmichael-Wilson Group joined forces with Warren Basler and the Basler family to develop the DC-3 conversion technology. Id. Carmichael and Wilson negotiated with USAC for a license agreement for the use of its conversion technology, and Basler bought the converted DC-3/C-47 aircraft that USAC built and certified. C. Formation of the DC-3/C-47 Conversion Companies.

To carry out the DC-3/C-47 conversion business, the Carmichael-Wilson Group and the Basler Group formed two corporations: Innovair and BTC. BTC, a domestic corporation, was formed to handle domestic conversions and sales, as well as sales to foreign militaries negotiated by the United States or its agencies. Id. Innovair, a Hong Kong corporation, was formed to carry out all foreign conversions and sales, with the exception of those sales to foreign militaries negotiated by the United States or its agencies reserved for BTC. Id. The Carmichael-Wilson Group owned 51% of Innovair's stock and 49% of BTC's stock. Id. The Basler Group held 49% of Innovair's stock and 51% of BTC's stock. 2/ Id. Consequently, the

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Carmichael-Wilson Group controlled Innovair, and the Basler Group controlled BTC. Basler's existing company, Basler Flight Service, remained 100% owned by Basler. Although the business partners believed that most customers for the converted DC3/C-47 would be located outside the United States, they chose to establish a company in the United States because they anticipated that a significant part of their business would involve contracting with the U.S. government for sales on behalf of foreign militaries. The business model provided for Innovair to perform all foreign sales and conversions of DC-3 aircraft, apart from sales to foreign militaries negotiated by the United States, while BTC would perform domestic sales, as well as any foreign military sales negotiated by the United States. BFS was to provide conversion services, including to Innovair for its international sales. Innovair planned to sell conversion kits to selected distributors, which would perform conversion kit installations in several facilities strategically located throughout the world. And, in some cases, Innovair's customers would be qualified to carry out their own conversions. With Innovair and BTC sharing interlocking ownership, and split all-but50/50 between the Carmichael-Wilson Group and the Basler Group, the partners planned a close and cooperative relationship. To go into business, however, Innovair and BTC first had to acquire a multiple STC for the converted aircraft from the FAA. In 1988, at the beginning of their venture, the shareholder groups interest. BTC's shareholders were Warren Basler, who held a 51% interest, Elsa Carmichael, who held a 34% interest, and Barry Wilson who held a 15% interest. -9\\\DC - 085544/000001 - 2572168 v2

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decided that the domestic company, BTC, would own the multiple STC, and that Innovair and BTC would negotiate a Technology License Agreement under which Innovair would share in the costs of the multiple STC program and would receive a license to exclusively market the conversion technology and converted aircraft and to sell conversions kits outside the United States. II. The Technology License Agreement. On June 24, 1988, Innovair and BTC executed the TLA. In the TLA, Innovair and BTC recognized that BTC would be the owner of the multiple STC but agreed that Innovair would have the right to use the STC and related technology to make its foreign conversions and sales. TLA ¶¶ 2.02-2.04, 3.03. The TLA provided that Innovair had the "exclusive right and license" to use, lease, and sell the licensed products in Innovair's sales territory, and the exclusive right and license to purchase from BTC licensed products in the sales territory. TLA ¶ 3.03; see also Answer ¶ 8. The licensed technology included all documentation and data "necessary to enable Innovair to manufacture kits or convert DC-3 aircraft in the most efficient manner known to and utilized by [BTC]." TLA ¶ 3.022; see also TLA ¶ 3.071. It also included "subsequent inventions, improvements and modifications relating to the Licensed Products conceived by [BTC] during the term of this Agreement." TLA ¶ 3.0221. The TLA expressly gave Innovair the right to purchase the converted aircraft from BTC, purchase conversion kits from BTC, manufacture its own conversion kits or converted aircraft, sublicense its rights to permit others to install kits and conversions using the licensed technology, and grant sales and

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distribution rights to third parties. TLA ¶ 3.03. Innovair also had the right to send its employees and agents to BTC for training and to request that BTC send qualified personnel "at its place of business or elsewhere in the Territory." TLA ¶ 3.072-73. Just as BTC was obligated to share the technology for any of its improvements or modifications with Innovair, Innovair had the obligation to share any inventions, improvements or modifications it made to the technology with BTC on a perpetual, royalty-free basis. TLA ¶ 3.10. The TLA was not assignable, had an initial term of ten years, and would be automatically renewed for two additional five-year periods unless either party provided written notice six months prior to the expiration of the initial term of its intention not to renew. TLA ¶ 3.13. In consideration for BTC's grant of exclusive rights and licenses, Innovair was required to pay to BTC an initial sum of $300,000 and later to pay half the cost of obtaining certification up to $1,375,000. TLA ¶¶ 3.041-3.042. Innovair also agreed to provide managerial and marketing services, "at a reimbursement rate of fifty percent (50%) of their costs to Innovair." TLA ¶ 3.043. Innovair fully performed its obligations under the TLA by taking on the management of the STC program over a two-year period (although it was never reimbursed for 50% of its costs), by preparing marketing materials and presentations, contacting potential customers, making sales presentations on BTC's behalf, and funding the $1,675,000 payment for the license as reflected on both Innovair's and BTC's books. Carmichael and Wilson further contributed to BTC's STC program by personally

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providing $500,000 in cash so BTC could meet its payroll and keep the project going during a period of financial difficulty. They also assisted BTC by permitting BTC to use $200,000 in Innovair funds to cover urgent costs associated with the new hangar and conversion facility BTC constructed. III. FAA Certification, the Conversion Process and the Basler-Turbo 67. A. Development of the Prototype and Multiple STC Program.

In order to obtain a multiple STC for the converted DC-3/C-47, Innovair and BTC were required to build a prototype aircraft that conformed to the technology package they had developed, prepare extensive documentation concerning the converted aircraft, and successfully complete the required series of flight tests. Carmichael managed the STC program, including the development and construction of the prototype in Van Nuys, California, from 1988 to 1990, Innovair, 72 Fed. Cl. at 417, taking on the full-time job when it became clear that the project would otherwise proceed with no management. The development effort was funded by paid-in capital and shareholder loans, including substantial investments from Carmichael and Wilson, id., and by progress payments made on aircraft conversion contracts. Between 1988 and 1990, Innovair and BTC developed the Basler Turbo-67 prototype at a facility in Van Nuys, California under the direction of Bryan Carmichael and Bob Clark. Carmichael directly managed and implemented the STC program and BT-67 prototype development, including by setting up facilities in Van Nuys and providing overall management services. He also commissioned

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design work from the engineering firm LaCadre in order to demonstrate the technical feasibility of the prototype turbo conversion. Warren Basler was not directly involved in the planning, management, or execution of the prototype's development. Bob Clark acted as technical director in Van Nuys where he managed the prototype design and oversaw the flight test program. Clark was the logical choice to direct the technical side of the prototype development. He had worked for BFS since April 1973, where he was eventually promoted to Chief Pilot, and had logged about 6,000 hours in piston engine DC-3 aircraft. Clark also held an FAA inspection authorization to approve of major aircraft alterations and repairs. As a result of the operations in Van Nuys, the aircraft modification was approved and, in February 1990, the FAA issued a multiple STC for the BT-67, followed by a Parts Manufacturing Authorization. See also Answer ¶ 6. B. The Conversion Process

The conversion process starts with a suitable DC-3/C-47 airframe. 3/ The first step is to inspect and overhaul the aircraft, which includes gutting the airplane, removing the wings for inspection, and taking all of the steps identified in the SID document for DC-3 aircraft. The actual conversion begins by splitting the fuselage forward of the center section and inserting a 40-inch "plug" to move the cockpit forward. This serves to re-center the aircraft's center of gravity, because the turboprop engines are about

3/ As of 1990, there were an estimated 1,160 flyable DC-3/C-47 airframes available, 1,030 of which were located outside the United States. In the late 1980s and early 1990s, the cost of an airframe ranged from $80,000 to $150,000. - 13 \\\DC - 085544/000001 - 2572168 v2

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1,400 pounds lighter than piston engines. It also increases cabin volume and useful load. The conversion includes moving the bulkheads forward, installing a lighter floor, installing an enlarged cargo door, installing state-of-the-art instrumentation, avionics and electrical wiring, inserting a new control module, and modifying the cowling to allow for venting over the wings. This special venting design reduces the aircraft's infra-red profile and also serves as a lifting component. The conversion also includes the installation of PT-6A-67R turboprop engines manufactured by Pratt & Whitney Canada and Hartzell propellers. Other significant aspects of the conversion process include reinforcing the center section and auto wing reinforcing, modifying the outer wing, installing a new fuel supply system, installing fire bottles which detect fire and high temperatures, modifying the power plant, installing ice protection, and installing an aluminum propeller with longer blades. All aircraft systems are changed to meet current regulations, including fuel and electrical. Optional equipment may also be installed if ordered by a particular customer. C. The Basler-Turbo 67.

After the conversion process is completed, the aircraft is known as a Basler Turbo 67 ("BT-67"). The BT-67's new engines are far more powerful than the old piston engines and require far less maintenance, running thousands of hours longer between scheduled maintenance. The average life of a piston engine between overhauls approximates 700 hours, while a turboprop engine can operate 6,000 hours between overhauls. The BT-67 offers greater engine and system reliability, reduced maintenance costs, increased speeds from 173 to 205 knots, increased

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maximum range from 1,334 to 1,976 miles, increased maximum payload of about 3,900 pounds, improved take-off and landing performance, improved fuel efficiency, improved single engine performance, and a reduced infra-red signature. At the same time, the BT-67 maintains all the qualities that have promoted the DC-3/C47's exceptional reputation and provides even better performance on rough fields and with short take-offs and landings. III. Innovair and BTC Business Operations. From the beginning, the BT-67 showed great promise. Even before the FAA issued the STC, Innovair and BTC had sold four aircraft to Air Colombia (to be delivered after certification) 4/ and, as discussed in greater detail below, had been approached by a major international aircraft engine and parts manufacturer which wanted to enter into a distribution agreement. Although significant resources were devoted to the STC program between 1988 and 1990, Innovair and BTC jointly worked to market the BT-67 and to address other operational matters, particularly efforts to finance their growth. Air Colombia Sales. In 1989, Air Colombia contacted Warren Basler about purchasing several aircraft and eventually contracted to purchase four converted aircraft. 5/ The contracts were negotiated by Warren Basler and his attorney Tim

4/ To be sure, the Air Colombia contracts turned out to be a mixed blessing, since they wound up embroiling BTC and Innovair, both innocent of wrongdoing, in the Arizona-based forfeiture proceeding. All the same, the contracts provided the companies with progress payments and a sales history that provided at least shortterm benefits to both companies. 5/ Air Colombia initially contracted to purchase six aircraft, but later cancelled contracts on two aircraft. Innovair, 72 Fed. Cl. at 418. - 15 \\\DC - 085544/000001 - 2572168 v2

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Dempsey, while Carmichael was engaged in managing the STC program in Van Nuys. Although each sale qualified as an international sale within Innovair's territory, Innovair agreed to credit two of the sales to BTC, both because BTC was the named borrower on the loans from Valley Bank and the Bank wanted some assurance regarding BTC's finances, and also in order to demonstrate to other customers and investors that BTC was an active company. Pursuant to BTC's financing arrangements with Valley Bank, Innovair agreed to deposit all Air Colombia payments in BTC's bank account. Domestic Sales and Marketing. Carmichael provided significant assistance to BTC in reaching domestic customers. For example, he prepared a presentation to Federal Express in cooperation with consultant Aaron Gellman, which Carmichael then personally delivered to Federal Express. He also promoted the conversion project to the president of Federal Express's international operations. Federal Express ultimately drafted a written offer of its intention to purchase or lease aircraft from BTC, and leased at least one BT-67. Carmichael also engaged in discussions with the United States Forest Service in late 1990 on BTC's behalf, which led to contracts with the Forest Service for two DC-3 conversions, and negotiated the sale of a BT-67 to UTC on BTC's behalf. International Sales and Marketing. On Innovair's behalf, Carmichael and Wilson both personally contacted potential clients and distributors worldwide. Among other sales activities, Barry Wilson contacted potential distributors in South Africa, Turkey, and Zimbabwe. He performed market research in India where he

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also made contact with a potential distributor. Wilson personally made sales and marketing calls in South Africa, the UK, Turkey, Hong Kong, Queensland, and Indonesia. Moreover, because Wilson grew up in Zimbabwe and his family had significant business contacts there, he was also successful in securing customer contacts there. He evaluated military and commercial customers in Zimbabwe and found good potential with the Zimbabwean military as well as with the country's national airfreight airline, Affretair. He also explored conversion facilities in Zimbabwe. In early 1991, Innovair and BTC made demonstration trips with a BT-67 aircraft. BTC made demonstration trips to Bolivia and Colombia in pursuit of military sales and Innovair made a demonstration trip to Ankara, Turkey for the Turkish Air Force and Ministry of Defense. Innovair also appointed agents and distributors in various locations to undertake local marketing efforts and facilitate area transactions on Innovair's behalf, including in parts of Africa, Australia, Europe, South America, and Central and East Asia. For example, Cliff Burnett traveled on Innovair's behalf to Spain, France, Ireland, Hungary, Turkey, Israel, Greece, Guinea-Bissau, Libya, and Hong Kong to promote the BT-67 aircraft and make customer and distributor contacts. Innovair also identified adequate conversion facilities in Canada, England, Turkey, South Africa, Zimbabwe, Australia, Singapore, Thailand, India, Taiwan, and the Philippines. Robert Clark traveled to South Africa and Zimbabwe with Carmichael to promote the project and meet potential customers and distributors.

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Clark also inspected a military facility in Turkey, which he found was adequate for conducting DC-3 conversions, and inspected an FAA-approved repair station in Taiwan at Air Asia, which he also found to be suitable for DC-3 conversions. Innovair and Carmichael also directly and indirectly aided BTC in winning other aircraft and modification contracts. Together, Innovair and BTC had established customer contacts for sales in South America, some of which were realized after the government seized the TLA and transferred it to BTC. The 1991 demonstration trip also garnered significant market interest in the conversion program which ultimately inured to BTC's benefit. For example, after the taking, BTC sold nine BT-67 aircraft to Thailand over the course of several years. Marketing Materials and Favorable Press Coverage. Carmichael prepared marketing and advertising materials, both for Innovair and BTC. BTC did not produce any promotional materials. Innovair and BTC were also successful in generating press coverage both in the general press and in the trade press, the most important being a cover article on the BT-67 in an April 1991 issue of Flight International, one of the aviation industry's top trade journals. The project's advertising efforts also resulted in Time magazine running an article on the conversion project. The BT-67 project received additional press coverage in the Chicago Tribune, General Aviation News and Flyer, Private Pilot, the Milwaukee Journal, and Air Progress. Business Planning and Financing. For a period of time in 1990, Carmichael shifted his attention to preparing a Five Year Business Plan and

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working with Deloitte & Touche to prepare projected financial statements in order to attract investors to the project. At this time, the companies were also considering alternative corporate and business arrangements between Innovair and BTC, in part at the suggestion of Valley Bank of Oshkosh, BTC's lender. Initially, the Carmichael Wilson group loaned $1.1 million to the BT-67 project, while Basler contributed about $750,000. Innovair also guaranteed $4.1 million in loans from Valley Bank of Oshkosh to BTC in order to obtain financing the joint venture needed to acquire the STC and manufacture the Air Colombia aircraft. Carmichael and Wilson also provided personal guarantees for the Valley Bank loans. Over the initial years of the project, Carmichael and Wilson provided other capital contributions and loans to support BTC's operations because the project had a shortage of financing and had critical expenses to meet, including payroll. In 1991, Innovair commissioned Warwick Consulting Group, Inc. to perform an analysis of the BT-67 project that Innovair could use to promote the project to potential investors and financial institutions. Tension Between the Shareholder Groups. Beginning in 1990, problems developed between the shareholder groups that began to impact the Innovair/BTC relationship. The primary point of tension arose when BTC's minority shareholders ­ the Carmichael-Wilson Group ­ became concerned about the way BTC and BFS (both controlled by the Basler Group) were allocating the conversion business' costs and income between them. Because BFS was wholly owned by the Basler group,

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and Carmichael and Wilson were minority shareholders in BTC, the CarmichaelWilson Group was justifiably concerned that the accounts were being credited and debited appropriately. As sometimes happens in business relationships, litigation ensued in April 1991. Until the settlement of that litigation in 1993, however, the shareholder groups maintained their respective and substantial stake in each company. Absent the taking, which caused a permanent rift in the BTC/Innovair relationship, each shareholder group maintained a common interest in the success of each company. IV. The UTC Relationship. A. UTC's Approach to Innovair and BTC.

By 1989, when the STC program was in full gear in Van Nuys, UTC, a large international company that owned Pratt & Whitney, the manufacturer of the engines used in the BT-67, as well as other subsidiaries and business divisions, approached Innovair and BTC to discuss UTC's potential role as an Asian distributor for the BT-67. After the STC was issued, in the Summer of 1990, UTC entered into a Purchase Agreement with the companies that addressed two subjects: the purchase of a BT-67 from BTC for $2,279,753 6/ and the commitment by Innovair to negotiate a distributor agreement with UTC and to promise UTC the right to offset credits generated by BT-67 sales in certain identified countries in Asia.

6/ Since the contract called for UTC to supply the engines, the purchase price did not include the cost of engines. - 20 \\\DC - 085544/000001 - 2572168 v2

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UTC came to Innovair and BTC because of its interest in obtaining offset credits. 7/ UTC had a significant trade offset obligation in Taiwan that it wanted to reduce by establishing a business to distribute and manufacture BT-67s in that country. After conducting market studies, sales projections and other business planning, UTC decided to form a Taiwan-based company to serve as a BT-67 distributor. UTC's documentation demonstrates that UTC expected to perform at least 50 conversions over 4 years and recognized a sales potential for up to 129 units. To advance the project, UTC hired a team of professionals, primarily composed of UTC retirees, to conduct various start-up activities. The team was led by Herb Hayes, and included marketing specialists and technical personnel. Among other activities, they formed a Taiwan corporation named United Pacific Aircraft, sought local investors, and contacted potential customers. In addition, they identified a local company qualified to perform BT-67 conversions, Air Asia, inspected its facilities and brought approximately ten Air Asia personnel to BTC's facilities in Oshkosh, Wisconsin to obtain training on the conversion process and aircraft maintenance. After delivery of the aircraft in late 1990 pursuant to the Purchase Agreement, UTC along with Innovair and BTC planned and executed a round-theworld demonstration tour of the BT-67 in early 1991. Representatives of Innovair,

7/ Many U.S. manufacturers, particularly in the defense and aerospace industries, incur offset obligations in various countries based on the value of their sales in each of those countries. Offset obligations are typically satisfied when the manufacturer provides technology transfers or conducts in-country manufacturing that provides local employment. - 21 \\\DC - 085544/000001 - 2572168 v2

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BTC and UTC demonstrated the BT-67 in Canada, the United Kingdom, Switzerland, India, Pakistan, Hong Kong, and Taiwan. With UTC, Innovair also demonstrated the aircraft in Thailand where approximately 26 DC-3s were in operation. B. Terms of the Distributor Agreement Between Innovair and UTC

In the Spring of 1991, Carmichael and UTC representatives negotiated the Distributor Agreement contemplated by the 1990 Purchase Agreement. Following meetings in June, the parties had reached agreement and hammered out its terms. Among the terms the parties discussed and agreed to was the requirement that UTC guarantee Innovair minimum purchases of five kits per year. In June, UTC completed drafting the Agreement and sent it to Carmichael for his signature. The same month, Carmichael signed the Agreement and returned it to UTC for UTC's signature. UTC's executives later signed it on July 25, 1991. Under the Distributor Agreement, UTC obtained the exclusive right to sell the BT-67 aircraft or BT-67 conversions kits in the defined territory (a list of countries in Asia). Distributor Agreement § 4; see also Innovair, 72 Fed. Cl. at 418. It also expressly maintained all of its rights to offset credits established earlier in the Purchase Agreement. Distributor Agreement § 12.0. Innovair, in turn, obtained the right to require UTC to purchase five kits per year or to remit to Innovair the net income from sales of five kits per year. Distributor Agreement § 5.9 ("Distributor agrees to meet a minimum annual sales requirement of five kits and/or converted aircraft."); Distributor Agreement § 6.7; see also Innovair, 72 Fed. - 22 \\\DC - 085544/000001 - 2572168 v2

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Cl. at 418. The Distributor Agreement included detailed provisions governing pricing, with an initial 1991 price of $2,025,000 per kit (less a 10% distributor's commission), and terms governing price increases for future years. Distributor Agreement § 5. Notably, the Agreement required UTC to purchase the kits with the engines, even though a UTC subsidiary manufactured the engines. 8/ Although the Agreement provides specific termination provisions (Distributor Agreement § 13), it contains no limitations on remedies or damages for breach. V. Seizure and Taking of the TLA The United States seized the TLA on July 16, 1991, four days after receiving a letter from BTC's controller suggesting that it do so, even though the government believed that Innovair had no knowledge of or involvement in any wrongdoing by Air Colombia. 9/ For the remainder of the Summer 1991, Carmichael and his counsel engaged in regular discussions with the Assistant United States Attorney aimed at releasing the TLA back to Innovair pursuant to an operating agreement, and during that time Innovair attempted to keep its business plans in gear. By late September, Innovair realized that lengthier negotiations or proceedings would slow down its repossession of the TLA, and gave UTC permission to deal with BTC on BT-67 kits sales while Innovair attempted to regain its TLA.

8/ The Agreement further provides that the first two kits purchased in 1991 would be purchased without engines, and supplies specific pricing terms for those two kits. Distributor Agreement § 5.2.1(b). The history and procedural background relating to the forfeiture proceeding 9/ are recounted in detail in the Court's summary judgment decision, Innovair, 72 Fed. Cl. at 418-419, and in Innovair's Motion for Summary Judgment and other pleadings and for the sake of brevity will not be restated here. - 23 \\\DC - 085544/000001 - 2572168 v2

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On November 14, 1991, however, the government entered into the Substitute Res Bond Agreement with BTC and gave BTC immediate rights to conduct sales in Innovair's territory, effecting the taking. VI. Innovair's Business Plans in 1991. In absence of the taking, Innovair would have been able to reap significant income from the TLA over its initial ten-year term. Critically, it had successfully concluded the Distributor Agreement with UTC, with guaranteed minimum annual sales. Because the structure of the Distributor Agreement called for progress payments on kits on a schedule that infused significant cash to Innovair before requiring significant outlays of costs, the minimum kit sales under the Distributor Agreement would have placed Innovair in a positive cash position going forward. Moreover, holding the Distributor Agreement provided Innovair with immediate credibility with other potential distributors and customers, and with banks. Indeed, earlier in 1991, Innovair had hired a financial consulting company, Warwick, to help it find additional investors, but once the Distributor Agreement was reached, Innovair no longer needed or sought additional capital from outside investors. As reflected by the terms of the TLA, Innovair always maintained the right to purchase conversion kits from BTC at a 20% mark-up, or to manufacture kits or have kits manufactured for it by third parties. Due to the problems between the shareholder groups, by the spring of 1991, Innovair planned to begin manufacturing its own conversion kits or to purchase conversion kits from a separate company

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formed for that purpose. In that way, it could avoid the 20% mark-up charged by BTC and it could operate independently of BTC. At the time of the seizure, Innovair was in discussions with Bob Clark and other technical personnel concerning the formation of an entity to manufacture and assemble conversion kits. The conversion kit was composed of three sub-kits, delivered to the conversion facility on a production schedule. The Pratt & Whitney engines and the Hartzell propellers represented 60% of the cost of a kit and were delivered with the third and final sub-kit. The remaining parts of the kit were primarily purchased parts (approximately 70% of the remaining kit cost) and inhouse manufactured sheet metal fabricated parts. Only a small amount of capital, well within the means of the Carmichael-Wilson Group, was necessary to start a kit manufacturing facility, because it required only a modest warehouse, very limited tooling and equipment, and few personnel. Work on creating a kit manufacturing facility remained in the discussion and planning stage in early July 1991 and was not executed after the government seized the TLA. Despite the difficulty between the shareholder groups, Innovair maintained its rights under the TLA to obtain full and complete documentation of the conversion technology from BTC, including any improvements or modifications related to the technology. (Absent the seizure and taking, the Basler Group, which controlled BTC, for its part would have been motivated to cooperate with Innovair in order to obtain a return on its 49% stake in the company.) It had strong

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relationships with technical personnel who could not only build kits but also could train distributors, provide warranty work and otherwise support the product. VII. Valuation of the TLA. The valuation of the TLA was performed by Arthur Cobb, President of Cobb & Associates, Limited. His valuation is based on an analysis of the expectancy interest value Innovair held over the term of the TLA from 1991, when the taking occurred, to 1998, the end of the initial term of the TLA. In other words, he analyzed the net income Innovair would have obtained absent the taking from sales pursuant to the TLA. To perform his analysis, he studied voluminous records in this case, conducted substantial independent research, and applied the teachings of thirty years of experience in his field. His valuation provides a range of outcomes, including a high, mid, and low range of net income based on different levels of sales. He concludes that the lost value of the TLA to Innovair approximated $36,000,000 through June 23, 1998, the mid-range calculation. In performing his valuation, Cobb considered a host of relevant factors. These included the number of DC-3 aircraft available for conversion worldwide; the strength of the market demand for BT-67 aircraft, based on its competitive market position; 10/ Innovair's business set-up and distribution network; Innovair's contract with UTC; Innovair and UTC's marketing and sales efforts;

Cobb's analysis in this regard is bolstered by the expert opinion of Barbara 10/ Beyer of Avmark, Inc., an aviation consulting firm, who concluded that market conditions for sales of turboprop aircraft from 1990 through 1998 were favorable and experienced steady growth, reflected by the sales of comparable aircraft. - 26 \\\DC - 085544/000001 - 2572168 v2

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contemporaneous sales projections of Innovair, BTC, and UTC; and sales of competitive aircraft. As of 1990, there were an estimated 1,030 flyable DC-3 airframes located outside the United States which would have been candidates for conversion to BT67 aircraft. Cobb analyzed the level of use and potential demand for DC-3 aircraft conversions among commercial airlines, international courier express and parcel services, and foreign military organizations, all of which were operating prop and turboprop aircraft between 1991 and 1998. Cobb also analyzed whether the BT-67 was competitive in terms of performance and sales price when compared to similar aircraft. He compared Innovair's aircraft to nine comparable aircraft, and analyzed the number of sales of those aircraft during the relevant timeframe, as well as their speed, range, seating and cargo space, and estimated sales price. Competitive aircraft to the BT-67 include the Shorts 360, CN-235, Dash 8-300, ATR-42-300, and SF-340B. Between 1990 and 1998, 752 units of comparable aircraft were manufactured and delivered worldwide. His analysis of the competitor aircraft indicates that the BT-67 was competitive based on speed, range, capacity, performance, and price. Cobb also considered Innovair's distribution network, including the Distributor Agreement between Innovair and UTC. As discussed above, the UTC Distributor Agreement required UTC to purchase at least five conversion kits per year. In addition, UTC had global reach and resources, including an existing network of services personnel throughout Asia to support sales to Asian customers,

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and it devoted significant resources to marketing the DC-3 conversion program, including approximately $3 million on an aircraft and about $400,000 on salaries, studies, and marketing materials. To estimate lost sales, Cobb also considered contemporaneous projections, including (1) Innovair and BTC's 1990 Five Year Business Plan, and associated projected financial statements prepared by Deloitte & Touche, which projected a total of 174 sales from 1990 through 1994, for a net income to Innovair/BTC of $66,858,000; (2) 1991 offering memorandum prepared by Warwick Consulting, which projected 96 sales between 1990 and 1995, and a net income to Innovair/BTC of $29,721,000; and (3) UTC's 1990 projections of 50 conversions over four years and a sales potential of 129 units. He also considered the number of actual sales made by BTC (greater than 45), 11/ the majority of which were delivered to international operators, and the number of DC-3/C-47 aircraft converted to smaller turbo prop engine power under the Aero Modifications International STC (approximately 25) as of 1997. Cobb estimates that Innovair lost sales of approximately 90 units, resulting in net lost income of $36,417,000 in 1998. On the high range, Cobb estimates that Innovair lost sales of 130 lost units, resulting in net lost income of $57,986,000. At the low range, Cobb estimates that Innovair lost sales of 50 units, resulting in lost income of $13,817,000. These figures do not include pre-judgment interest.

11/ Cobb noted that BTC's sales of BT-67 aircraft may have been reduced by BTC/BFS's focus on other products and services, their failure to aggressively promote the BT-67 abroad, as well as Basler's death in 1997. - 28 \\\DC - 085544/000001 - 2572168 v2

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Although Cobb's valuation is comprehensive and well-grounded, at an absolute baseline of value, the TLA was worth the value of the net income that would have flowed from UTC's minimum kit purchases over the term of the Distributor Agreement, totaling 35 kits (five kits per year for seven years). CONTENTIONS OF LAW I. INNOVAIR'S PROPERTY WAS TAKEN BY THE GOVERNMENT. A year ago, this Court held in response to the parties' cross-motions for summary judgment that that "the Government took Plaintiff's property without just compensation." Innovair Aviation, Ltd. v. United States, 72 Fed. Cl. 415, 416 (2006). That ruling, which was explained in a well-reasoned opinion, is now the law of the case. The Government did not move for reconsideration of that ruling, and it is far too late to so move now. The only matter still to be decided is the amount of just compensation to which Innovair is entitled. Accordingly, with the date of the trial on damages fast approaching, this Court should not entertain any argument from the Government to the effect that a taking did not occur. II. AS JUST COMPENSATION FOR THE TAKING OF INNOVAIR'S PROPERTY, THE COURT SHOULD AWARD INNOVAIR THE LOST EXPECTANCY INTEREST VALUE OF THE TLA. "Just compensation requires that the government remunerate a deprived property owner so as to place the property owner in as good a position pecuniarily as if the government had not taken his property." Bassett, N.M. LLC v. United States, 55 Fed. Cl. 63, 69 (2002). The meaning of the term "just compensation" is "made emphatic by the adjective `just.' There can, in view of the combination of - 29 \\\DC - 085544/000001 - 2572168 v2

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those two words, be no doubt that the compensation must be a full and perfect equivalent for the property taken." Monongahela Nav. Co. v. United States, 148 U.S. 312, 326 (1893). Just compensation is typically measured by the fair market value of the property. But "the law is not wedded to any particular formula or method for determining fair market value as the measure of just compensation." Stearns Co. v. United States, 53 Fed. Cl. 446, 458 (2002), rev'd on other grounds, 396 F.3d 1354 (Fed. Cir. 2005). "The trial court has broad discretion to determine which valuation method is most appropriate given the facts of the case." Id. Accord Seravalli v. United States, 845 F.2d 1571 (Fed. Cir. 1988). Nor is fair market value the only permissible measure of just compensation. See, e.g., United States v. 564.54 Acres of Land, 441 U.S. 506, 512 (1979) ("[T]his Court has refused to designate market value as the sole measure of just compensation. For there are situations where this standard is inappropriate."); United States v. Commodities Trading Corp., 339 U.S. 121, 123 (1950) ("[W]hen market value has been too difficult to find, or when its application would result in manifest injustice to owner or public, courts have fashioned and applied other standards."); United States v. Cors, 337 U.S. 325, 332 (1949) ("The Court in its construction of the constitutional provision has been careful not to reduce the concept of `just compensation' to a formula. * * * [The Court] has refused to make a fetish even of market value, since it may not be the best measure of value in some cases."); Seravalli, 845 F.2d at 1574 n.14. It must be remembered that the words

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"fair market value" do not appear in the Fifth Amendment; one whose property is taken is entitled to just compensation. A. Lost Expectancy Interest Value Is The Best Method Of Valuing The TLA.

The property that the Government took from Innovair is a contract, the TLA. That contract, as the Government's expert recognized, "gave Innovair a unique set of rights with respect to a unique product." Kaplan Report at 26. This case is therefore a very unusual takings case. A run-of-the-mill approach to setting just compensation will not work here. Cf. Osprey Pacific Corp. v. United States, 41 Fed. Cl. 150, 151 (1998) ("This is an unusual case. Its fact pattern does not fit the regular takings mold."). The TLA's value cannot be determined by resort to comparable sales -- a method often use to determine fair market value -- because no truly comparable licenses have ever existed or been sold. Cf. Kimball Laundry Co. v. United States, 338 U.S. 1, 6 (1949) ("[W]hen the property is of a kind seldom exchanged, it has no `market price,' and then recourse must be had to other means of ascertaining value"). The Government's expert agrees that the comparable sales approach is not useful here. See Kaplan Report at 28; Kaplan Depo. at 145 (explaining that he did not use the comparable sales approach "[b]ecause I couldn't find comparable sales and comparable assets."); see also Cobb Depo. at 22 ("I'm not aware of a comparable

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TLA"). Another measure of the TLA's value is required. Lost expectancy interest value is the best measure. 12/ In the context of a breach of contract, an expectancy interest is a person's interest in "`being put in as good a position as he would have been in had [his] contract been performed.'" Citizens Fed. Bank, FSB v. United States, 59 Fed. Cl. 507, 514 (2004) (quoting Restatement (Second) of Contracts § 344(a) (1981)). Accord C.J. Betters Corp. v. United States, 25 Cl. Ct. 674, 677 (1992). In the context of a taking of property, the property owner's expectancy interest is his interest in being put in as good a position as he would have been in had his property not been taken. In the specific context of this case, Innovair's expectancy interest is its interest in being put in as good a position as it would have been in had the TLA not been taken. The TLA's expectancy interest value is the value that equals Innovair's expectancy interest. Plaintiff's expert Arthur Cobb calculated the lost expectancy interest value of the TLA by 1) identifying the availability of DC-3 airframes for conversion; 2) analyzing the market for BT-67 aircraft and competitive aircraft; 3) analyzing the marketing of the BT-67 and sales of BT-67s by BTC; 4) establishing a damages period; and 5) estimating lost sales, incremental expenses, and lost income. See Cobb Report. Cobb calculated lost expectancy interest value based on sales of 50 12/ The term "lost expectancy interest value" comes from the Arizona District Court. On remand from the Ninth Circuit's decision in United States v. Basler Turbo-67 Conversion DC-3 Aircraft, 1996 WL 88075 (9th Cir. 1996), the Arizona court stated that, according to the Ninth Circuit, "the value of the TLA should be measured by its expectancy interest." September 22, 1998 Order at 35 (attached as Exhibit 1 to Innovair's Proposed Findings of Uncontroverted Facts). - 32 \\\DC - 085544/000001 - 2572168 v2

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units, 90 units, and 130 units. The lost expectancy interest value based on such sales is $13.8 million, $36.4 million, and $57.9 million, respectively. See id. at 50-53. The lost expectancy interest value approach seeks to determine the value of taken property -- and hence the proper amount of just compensation -- by analyzing the expected income that the property owner lost out on receiving due to the taking. This is a legally sound approach. Indeed, more than a century ago, the Supreme Court explained that in awarding just compensation it is proper to consider the expected profitability of the taken property. In Monongahela Navigation Co., the Government took a privately-owned lock and dam on the Monongahela river, thereby depriving the owner of the tolls it had a franchise to collect. Asking "[h]ow shall just compensation for this lock and dam be determined?," the Court answered that "[t]he value of property, generally speaking, is determined by its productiveness, -- the profits which its use brings to the owner." 148 U.S. at 328. The value should be determined by "what the completed structure brings in the way of earnings to the owner." Id. This Court, too, in its just compensation cases has employed valuation methods that -- much like the Cobb approach -- look to the income that the property owner would have obtained but for the taking. See Stearns Co. v. United States, 58 Fed. Cl. 229, 230 (2003), rev'd on other grounds, 396 F.3d 1354 (Fed. Cir. 2005) (awarding $10 million in just compensation based on a "royalty income stream" analysis); Whitney Benefits, Inc. v. United States, 18 Cl. Ct. 394, 408-409 (1989) (holding that analysis of "projected income stream" was a "reliable method" for

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determining value where "the value of [the property] can be measured only by [its] ability to produce income"), aff'd, 926 F.2d 1169, 1177-78 (Fed. Cir.), cert. denied, 502 U.S. 952 (1991). The law of temporary takings provides further support for awarding Innovair lost expectancy interest value. The measure of just compensation for a temporary taking is "the value of the use of the property during the temporary taking, i.e., the amount which the owner lost as a result of the taking." Yuba Natural Res., Inc. v. United States, 904 F.2d 1577, 1580-81 (Fed. Cir. 1990). See also First English Evangelical Lutheran Church of Glendale v. County of Los Angeles, 482 U.S. 304, 319 (1987). ("[T]he Just Compensation Clause of the Fifth Amendment requires the government to pay the landowner for the value of the use of the land during this period."). In Yuba, the Federal Circuit held that the owner of certain mineral rights was owed just compensation for the amount he would have received from those rights during the six years those rights were temporarily taken by the Government. The property owner was thus entitled to the rent and royalty income it would have received under a proposed joint venture agreement but for the taking. See Yuba, 904 F.2d at 1580-81. The Government's taking of the TLA was surely a permanent taking -because the TLA was never returned to Innovair -- but the taking resembles a temporary taking in that the TLA was a contract with a ten year term, from 1988 to 1998, and the Government's taking deprived Innovair of its rights for a finite, discrete period of time, from 1991 to 1998. Thus, as in the case of temporary

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takings, the just compensation owed to Innovair is "the amount [Innovair] lost as a result of the taking" over that seven year period. Yuba, 904 F.2d at 1581. Just as the property owner in Yuba was entitled to compensation for the rent and royalties it would have earned during the five year taking in that case, Innovair is entitled to compensation for the income stream the TLA would have generated from 1991 to 1998. In Yuba, the Federal Circuit measured the value of the property rights by the property owner's expected earnings under a proposed joint venture agreement. Likewise, Innovair's property rights are worth at least the amount Innovair would have received from UTC under the Distributor Agreement, which obligated UTC to buy a minimum of 35 kits from Innovair over seven years. Innovair is not seeking lost profit damages. The Cobb approach determines the value of the TLA by analyzing the income stream that property would have generated in Innovair's hands. The expected income stream from the TLA is a factor that may be considered in determining the value of the TLA and the just compensation for its talking. See De Laval Steam Turbine Co. v. United States, 284 U.S. 61, 72 (1931) ("[T]he fact that the contract, if carried out, would be profitable is one of the circumstances which naturally would be considered by one seeking an assignment of the contract, and must be given its proper weight in fixing just compensation. But that is very different from an allowance of anticipated profits as in the case of a breach.") (emphasis added); Monongahela, 148 U.S. at 328-329; Whitney Benefits, 18 Cl. Ct. at 409 ("[P]laintiffs do not seek lost profits as consequential damages * * *. Instead, they seek the value of their coal which is

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measured by the dollar amount for which they could sell it."); see also Julius Goldman's Egg City v. United States, 697 F.2d 1051, 1056 (Fed. Cir. 1983) (upholding approach to valuing destroyed chicken flock that "included some recognition of lost profits as an element of fair market value, i.e., the values represented by the opportunity to profit from a chicken"). If Innovair were seeking lost profit damages it would, for example, be seeking to recover for its lost parts and spares business. Finally, we note that the Government's economic and aviation experts do not take issue with the approach employed by Plaintiff's expert Art Cobb in valuing the TLA. The Cobb approach is essentially of one of the three approaches that Government expert Kaplan identifies as a proper approach. See Kaplan Report at 26-27 (describing cash flow analysis as a proper way of valuing an asset, such as the TLA, that can be expected to generate a stream of cash payments during its life); Kaplan Depo. at 144. 13/ Government expert Arvai employed an approach very similar to the Cobb approach in a prior engagement in which he was hired to value a proposed STC for the conversion of Falcon 20 aircraft with Pratt & Whitney engines. Much like Cobb, Arvai 1) identified the number of Falcon 20s in the market; 2) examined the 13/ The other two approaches identified by Kaplan are the comparable sales approach -- which he admits cannot be used here -- and the replacement cost approach. The latter approach also cannot be used here because the TLA could not have been replaced. See Part V-B, infra. Moreover, the Supreme Court has rejected replacement cost. See 564.54 Acres of Land, supra (reversing lower court's use of replacement cost); Brooks-Scanlon Corp. v. United States, 265 U.S. 106, 125 (1924) ("We are of the opinion that value, so far as material, rather than replacement cost, should be taken into account, for the ascertainment of just compensation."). - 36 \\\DC - 085544/000001 - 2572168 v2

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potential market for the converted aircraft based on the performance characteristics of the aircraft and those of competitor aircraft; 3) predicted the number of sales of converted aircraft under an optimistic scenario, an expected scenario, and a pessimistic scenario, and 4) calculated expected incomes based on each scenario. See Arvai Depo. at 20-25. The salient difference between the Cobb approach and the Kaplan and Arvai approaches is that Cobb does not discount to present value as of 1991 the calculation of the TLA's expectancy interest value. Cobb does not do so because, among other reasons, the TLA's expectancy value would have been realized, not at a "present" point in time (i.e., the date of the taking), but over the years following 1991 and at least through 1998. It is not appropriate to discount to present value in calculating the lost expectancy interest. B. The Cobb Approach Is A Sufficiently Certain Approach to Valuing The TLA, And Any Uncertainty Surrounding The Determination Of Lost Expectancy Interest Value Is Attributable To The Government's Taking.

The Cobb Report represents a distinguished expert's best effort to determine the value of the TLA based on lost expectancy interest. Admittedly, we will never know for sure exactly how well Innovair would have fared in the market had the Government not taken the TLA. But the Governm