SCO Grp v. Novell Inc

Filing 856

NOTICE OF FILING OF OFFICIAL TRANSCRIPT for dates of March 9, 2010-Jury Trial(Parts Two and Three) before Judge Ted Stewart, re 567 Notice of Appeal,. Court Reporter/Transcriber Patti Walker, Telephone number [phone]. NOTICE RE REDACTION OF TRANSCRIPTS: Within 7 business days of this filing, each party shall inform the Court, by filing a Notice of Intent to Redact, of the parties intent to redact personal data identifiers from the electronic transcript of the court proceeding. The policy and forms are located on the court's website at www.utd.uscourts.gov. Please read this policy carefully. If no Notice of Intent to Redact is filed within the allotted time, this transcript will be made electronically available on the date set forth below. Transcript may be viewed at the court public terminal or purchased through the Court Reporter/Transcriber before the deadline for Release of Transcript Restriction. After that date it may be obtained through PACER. Redaction Request due 5/10/2010. Redacted Transcript Deadline set for 5/20/2010. Release of Transcript Restriction set for 7/19/2010. (Attachments: # 1 Part Three)(jmr) Modified by removing restricted text on 7/19/2010 (rks).

SCO Grp v. Novell Inc

Doc. 856

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(Recess) THE COURT: MR. SINGER: THE COURT: MR. SINGER: THE COURT: Who will be your first witness? Mr. Robert Frankenberg, Your HOnor. You'll be handling that? I will be handling that. Thank you.

Anything, counsel, before we bring the jury in? MR. SINGER: MR. BRENNAN: THE COURT: No, Your Honor. No Your Honor. Ms. Malley.

(WHEREUPON, the jury enters the proceedings.) THE COURT: Mr. Singer, would you like to call

your fist witness, please. MR. SINGER: Thank you.

We would call Mr. Robert Frankenberg. THE COURT: Mr. Frankenberg, do you want to come

forward and I'll swear you in. ROBERT J. FRANKENBERG Having been duly sworn, was examined and testified as follows: THE WITNESS: F-r-a-n-k-e-n-b-e-r-g. DIRECT EXAMINATION BY MR. SINGER Q. Good morning, Mr. Frankenberg. Robert J. Frankenberg,

Dockets.Justia.com

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Would you please describe your educational background. I have a degree in computer engineering from San Jose

State University, and I am a S.E.P. graduate of the Stanford Graduate School of Business. Q. Would you briefly summarize your employment background

before joining Novell. A. I spent four years in the U.S. Air Force as a radar

computer technician, and then was at Hewlett Packard from 1969 to 1994. I started there as a manufacturing technician

and left as the person responsible for Hewlett Packard's computer and networking business. I left Hewlett Packard in late March of 1994 to become the C.E.O. of Novell, and later became chairman of Novell. Q. The position that you took at Novell when you joined

was that of chief executive officer, and then later you also became chairman of the board? A. Q. That is correct. Can you briefly describe the major lines of Novell's

business at the point when you joined the company? A. Novell's major business was NetWare, which is a network

operating system that allows people and still does to connect personal computers together and share storage, share disk storage and printing. At the time those were very

expensive and it became a very popular product to be able to share those amongst many users.

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The second largest part of Novell's business was training people to support those systems. There were

several smaller businesses that included UNIX and UnixWare. And almost at the same time that I joined Novell they completed negotiations to buy Word Perfect corporation, which included word processing and a spreadsheet called QuatroPro from Borland, with the intent to create an office suite that would very much compete with Microsoft Office. Q. Did there come a time when you decided as chief

executive officer that it would be in the best interests of Novell to sell one or more of those businesses? A. Yes, we did come to that conclusion. We did a very

careful study, beginning shortly after I arrived, looking at all of the businesses that Novell was involved in. I

mentioned the chief ones in answer to your question, but there were actually quite a few more, about 15 or 16 different businesses. We came to the conclusion that we were trying to do too much, and that we were not properly funding the products that we felt we could be successful with, and so we came to the conclusion that we should sell several of those businesses, find good homes for them and find jobs for as many of the people involved with them as possible, and then focus on our networking product area. Q. So what businesses did you decide to sell?

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A.

We decided to sell Word Perfect, the Word Perfect It had already been integrated

product, not the company.

into Novell, and a suite that we called Perfect Office, which combined it with the other elements that I mentioned that had just been purchased before I got there. We decided to sell UNIX and UnixWare. still is a very popular operating system. UNIX was and UnixWare was that

same operating system but with networking capabilities built in consistent with NetWare, Novell's product. We also decided to sell Tuxedo, which was another product that we had purchased at the same time. That had

been purchased, I should say, and I was not there, but at the same time that UNIX was purchased from AT&T. Q. When did you come to the view that these businesses

should be sold? A. That would have been late in '94 or early '95. I

remember having made the decision and driving through a blinding snow storm to get home, so it was mid winter. Q. Did you have a time frame in which you hoped to

accomplish these sales? A. Well, when you make a decision like that it is best to

execute a sale properly and well but quickly, because customers find out that you're not going forward with it, and employees are disheartened because they are working on something that may not continue with the company, so we

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wanted to do it in as short order as possible. Q. With respect to the UNIX business, Mr. Frankenberg, was

it your intent to sell that business in its entirety? A. Q. line? A. Q. A. Q. Yes. Did selling UNIX include selling the UNIX copyrights? Yes. Was UnixWare the current UNIX product that Novell was Yes. Did selling UNIX include selling the UnixWare product

licensing at that time? A. Q. Yes. Did there come a time when you directed certain of the

people that worked for you at Novell to take steps to have that sale occur? A. Q. Yes. Was there a man named Duff Thompson who worked at

Novell? A. Q. A. Yes. What position did he have in 1995? He was the senior vice president of business

development. Q. Did you ask Mr. Thompson to take any steps to

accomplish the sale of the UNIX business? A. Yes, I did.

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Q.

What direction did you give Mr. Thompson and others at

Novell? A. I told them that we wanted to first of all sell UNIX

and UnixWare at a price that would be acceptable, that it would go to a company that would be able to carry it forward and that would have the means to do that and the ability to do that. We wanted to affect a common UNIX operating system

across the entire spectrum of the Intel processor product line, so that it would be compatible from the bottom of the line to the top of the line, and thus create a competitor to Microsoft's N.T. and other future operating systems. Q. Did that mean you wanted to pick a seller who you

thought could do that? MR. BRENNAN: move to strike. THE COURT: BY MR. SINGER Q. Was there a gentleman by the name of Ed Chatlos that Overruled. Objection, leading the witness and

also worked at Novell? A. Q. A. Q. A. Q. Yes. What role did he have in the transaction? Ed was the primary day-to-day negotiator. Do you recall who he reported to? I believe he reported to Duff. Did Mr. Thompson report to you?

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A. Q. A. Q.

Yes. Who was David Bradford? David Bradford was the general counsel of Novell. What was Mr. Bradford's role in the transaction as

compared to that of Mr. Chatlos and Mr. Thompson? A. Mr. Bradford would have overseen the effort. It was

his responsibility as general counsel, and he had many other things on his plate, but he would have overseen especially the legal aspects of it. Q. In terms of negotiating the deal, who would have been

the responsible people for that? A. The primary people negotiating the deal were Duff

Thompson and Ed Chatlos. Q. Do you recall who became to buyer of the business, the

UNIX business? A. Yes, Santa Cruz Operation, often referred to as SCO,

S-C-O. Q. Did you have any conversations with any of the

principles of SCO? A. I did, yes. I talked with Doug Michaels who was an I am pretty sure that it was at one of We

executive at SCO.

the industry conferences that he and I both attended.

talked about how attractive it would be to have a compatible UNIX running on Intel from the bottom to the top of their product line. He believed and he felt that SCO would be a

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good company to do that. Q. A. Q. A. Did you also have any communications with Mr. Mohan? Yes, I did. Who was he? I believe he was relatively new, but he was the C.E.O.,

the relatively new C.E.O. of SCO. Q. A. Were these the two top officials of SCO? I am sure there were other people, but those were the

two people that I talked to. Q. What was your belief as to whether Santa Cruz was the

appropriate company to sell the UNIX business to? A. They had quite a successful business at the time They had customers like

selling UNIX on Intel processors.

McDonald's who ran a good part of their business on their systems. They were viewed as a company that created very From that standpoint

highly reliable UNIX business systems. it seemed a good choice.

From another standpoint they were not very large, and they did not have a significant amount of cash behind them. Q. Do you recall, roughly speaking, the time frame when

you first discussed the possibility of selling the UNIX business to Santa Cruz Operation? A. Q. A. First discussed it with whom? Mr. Mohan or Mr. Michael. I believe that would have been in the spring, late

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spring of 1995. Q. Did you ever express to them that it was Novell's

intent to sell the UNIX and UnixWare business? A. Q. Yes. Did you ever express to anyone from Santa Cruz that it

was your intent to hold back the copyrights to UNIX in the course of selling that business? A. Q. No. Did any of the Novell executives working on the deal

ever tell you that the UNIX copyrights were being held back from Santa Cruz? A. Q. No. Did you ever hear from anyone that the copyrights had

been held back in the transaction from Santa Cruz? A. Q. At what point in time? Well, let's talk about the time when the deal was being

negotiated. A. Q. No. Now, I would like you to look at the A.P.A. If I might, I will give you a set of exhibits that we'll be using on direct examination. MR. SINGER: well. THE COURT: MR. SINGER: Is this already on the D.V.D.? It is on the D.V.D. Your Honor, we have a set for you as

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THE COURT:

I will just refer to my D.V.D. then.

BY MR. SINGER Q. Could you turn to what is marked as SCO Exhibit 1 in If you would turn to page 49, do

the book, Mr. Frankenberg.

you see your signature on this asset purchase agreement on behalf of Novell? I might note that the pages will also be shown on the screen in front of you. A. Q. A. Q. Okay. Whichever is more convenient. Yes. I do see my signature.

Is that your signature approving the sale of assets

pursuant to this agreement? A. Yes. MR. SINGER: I would like to move SCO Exhibit

Number 1 into evidence at this time. MR. BRENNAN: THE COURT: No objection, Your Honor. It will be admitted.

(Plaintiff's Exhibit 1 was received into evidence.) BY MR. SINGER Q. I would like to turn to the recital. It is the first

page of the asset purchase agreement. A. Yes, I see it on the screen.

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Q.

If you would look at A, it says the seller is engaged

in the business of developing a line of software products currently known as UNIX and UnixWare, the sale of binary and source code licenses to various versions of UNIX and UnixWare and the support of such products and the sale of other products which are directly related to UNIX and UnixWare, collectively, the business. Now, is that in your view an accurate description of the business? A. Q. Yes. Now, in B it says the board of directors of each of the

seller and buyer believe that it is in the best interest of each company and the respective stockholders that buyers acquire certain of the assets of and assume certain of the liability of seller comprising the business. Did you understand that to mean the UNIX and UnixWare business? A. Q. Yes. Would there be other assets for other businesses that

were not being sold? A. Q. Yes, there would be. Now, if we turn to Section 1.1, which says purchase of

assets, do you see under Section 1.1A it says on the terms and subject to the conditions set forth in this agreement, the seller will sell, convey, transfer and assign and

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deliver to the buyer, and the buyer will purchase and acquire from the seller at the closing date, as defined in Section 1.7, all of the seller's right, title and interest in and to the assets and properties of seller relating to the business, collectively, the assets identified on Schedule 1.1A hereto. Then not withstanding the foregoing, the assets to be so purchased shall not include those assets, the excluded assets set forth in Schedule 1.1B. Is that correct in your understanding that this was the sale of assets, with the assets to be sold on Schedule 1.1A, and the assets to be excluded on Schedule 1.1B? A. Q. Yes, it was. Can we now turn to Schedule 1.1A, which will be on the

screen, but also appears in the book after the signature page. Now, on Schedule 1.1A it says all rights and ownership of UNIX and UnixWare including but not limited to all versions of UNIX and UnixWare and all copies of UNIX and UnixWare, including revisions and updates in process, and all technical design, development, installation, operation and maintenance information concerning UNIX and UnixWare, including source code, source documentation, source listings and annotations, appropriate engineering notebooks, test data and test results, as well as all reference manuals and

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support materials normally distributed by the seller to end users and to potential end users in connection with the distribution of UNIX and UnixWare, such assets to include without limitation the following. Did that comport with your understanding of what Novell was selling? A. Q. Yes, it does. Was this inclusive of both UNIX and UnixWare

technology? A. Q. Yes. In fact, under UNIX source code products, do you see It appears right below that

listed both UNIX and UnixWare?

section under UNIX source code products. A. Q. Yes. I was looking at it on the page, not the screen.

It says UnixWare 2.0 as described in the UnixWare 2.0

licensing schedule and those products listed as prior products, and then you have the UNIX system five release four, and those products listed as prior products, and then several pages more of other technology; is that correct? A. Q. Yes. Did you understand that both UNIX and UnixWare source

code then was being sold -A. Q. Yes. -- to Santa Cruz? Did you understand that this list of assets would

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include the copyrights associated with UNIX and UnixWare? A. Q. Yes. Now, there is a separate section that deals with If you would turn to page 3 of 4 of

intellectual property. the asset schedule. Are you there? A. Q. A. Q. I am, yes.

Now, this listed trademarks; is that correct? Yes. Would that be additional intellectual property to the

assets listed on the source code products in Section 1? A. Q. Yes. Now, did you ever give any directions to the team

handling the documentation of this deal, that they should transfer all right, title and interest to UNIX and UnixWare, but they should retain the copyrights for UNIX and UnixWare from being sold? A. Q. No. Did you ever authorize anyone at Novell to remove the

UNIX and UnixWare copyrights from the assets being sold? A. Q. No. Did you ever tell anyone from Santa Cruz that

copyrights for UNIX and UnixWare were not part of the technology being sold? A. No.

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Q.

Now, let's turn to the list of excluded assets that

appear behind the list of assets being sold, Schedule 1.1B. Do you see that on the first page of the listed excluded assets there is a number of NetWare assets listed? A. Q. Yes. Did you want to be clear that NetWare assets were not

being transferred as a part of the sale? MR. BRENNAN: strike. I'm sorry. THE COURT: THE WITNESS: BY MR. SINGER Q. Yes. Did you want to be clear that NetWare was not The question is leading. Overruled. Repeat the question, please. Objection, Your Honor, and move to

being transferred as part of the transaction? A. It was very important that no aspects of NetWare be

transferred as part of the transaction. Q. So in the list of excluded assets, Roman numeral one Does item one pertain

pertains to NetWare; is that correct?

to assets not listed on Schedule 1, including without limitation any asset that pertains to NetWare? A. Q. A. I'm sorry. Okay. I'm lost.

This is under the schedule -Yes. I was looking at item two which says Yes.

I'm sorry.

NetWare operating system.

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Q.

Item two was the NetWare operating system; is that

correct? A. Q. A. Q. A. Yes. Item three was Tuxedo transaction processing. Yes. Was that a separate business? That was a separate product. It was part of the UNIX

and UnixWare purchase from AT&T. Q. A. Q. Was that being sold to Santa Cruz? No. Then you had under license technology that wasn't being

sold, under 4-A, NetWare and other Novell code contained in UnixWare 2.01 and Eiger. Do you see that? A. Q. A. Q. A. Q. Yes. What was Eiger? I don't recall. Was it a new product? I believe it was, but I don't recall exactly. This was Novell code that was being withheld? MR. BRENNAN: THE COURT: MR. SINGER: BY MR. SINGER Q. Item B, does that say NetWare code contained in Eiger Objection, leading the witness. Sustained. Okay.

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only? A. No. B. Q. A. Q. I'm sorry. Yes.

Item C is NetWare 4.1 for UnixWare; is that correct? Yes. Could you turn to the next page of the excluded asset

schedule. Here under intellectual property it says under A all copyrights and trademarks except for trademarks UNIX and UnixWare. Do you see that line? A. Q. Yes. Was that consistent with the understanding that you had

of the deal? A. Q. No. Now, do you recall whether or not you ever reviewed

this schedule in connection with the transaction? A. Q. I am sure that I did, yes. Do you have any understanding of why this wouldn't have

been caught at the time in 1995 when the transaction was being signed? MR. BRENNAN: Objection, that assumes facts not in

evidence and lacks foundation. THE COURT: THE WITNESS: Overruled. As I mentioned in response to an

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earlier question, we were very concerned that NetWare, which was our largest product, remain fully protected including all the copyrights and trademarks and code and so forth. What I think happened when I read this, if I actually noticed this, was I said, oh, that is the protection of the NetWare copyrights and obviously misread it. BY MR. SINGER Q. Now, do you recall that there were also board minutes

which were done at the time that Novell approved the transaction in September of 1995? A. Q. Yes. Were those minutes also prepared by the same lawyers

who documented the transaction? A. I believe those minutes were prepared by the secretary,

who was David Bradford, and who was also general counsel. Q. If those minutes reflected Novell was keeping UNIX and

UnixWare copyrights, would they be an accurate reflection of your understanding of the deal? A. Q. No, they would not. Are you aware, Mr. Frankenberg, of the language that we

are looking at on this schedule of excluded asserts, whether or not that was changed a year later by an amendment? MR. BRENNAN: covered by a ruling. THE COURT: Overruled. Your Honor, I believe this is

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MR. BRENNAN:

We had a motion in limine order,

Your Honor, and I believe it is covered by this, about the scope this witness would be permitted to testify to. THE COURT: motion that would be? MR. BRENNAN: will get that for you. I have reference to the Court's ruling and memorandum decision and order on defendant's motion in limine numbers 12 to 19 with respect to Mr. Frankenberg's testimony. That is recited in the Court's order on page 6 Yes. One moment, Your Honor, and I Can you remind me which numbered

going on to page 7. THE COURT: Thank you.

I will sustain the objection. MR. SINGER: May I be heard on that point, Your

THE COURT: MR. SINGER:

You may. I am not intending to ask Mr.

Frankenberg to interpret it, I am asking simply about whether he knows this language was replaced by a subsequent amendment. MR. BRENNAN: of the Court's ruling. THE COURT: I will continue to sustain the That would fly directly in the face

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BY MR. SINGER Q. Please look at Section 1.3 of the asset purchase

agreement on page 3, transfer of customers. Under 1.3A, little I, it says it is the intent of the parties hereto that all of the business and all of seller's backlog, if any, relating to the business be transferred to buyer. Accordingly, all parties agree to facilitate the

transfer of customers of the business from seller to buyer following the closing. Would you have transferred the UNIX customers to the buyer if you were not selling the entire UNIX business? A. Q. A. Q. No. Did all of the UNIX employees go over to Santa Cruz? Most of them did. I believe some were laid off.

Would you have done that if you were keeping the UNIX

business? A. Q. No. Would you look, please, at Section 1.6 of the asset This is called a license back

purchase agreement on page 5. of assets. Do you see that? A. Q. A. I do, yes.

What is your understanding of a license back of assets? The license back gave Novell the right to use the

intellectual property that had been sold to S-C-O in their

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products, and was protection for us versus someone later claiming that we did not have the right to make use of that technology. Q. Were there certain restrictions listed in there which

you had agreed to? A. Q. I am reading it. I don't see any restrictions.

Did this contemplate that there would be a separate

license agreement that would be entered into at the same time as the closing? A. Q. Yes. I would like you to turn, if you would, to Exhibit 162. This is the technology licensing

It is in your book. agreement.

Was this an agreement that was referred to from your understanding in Section 1.6 of the asset purchase agreement? A. Q. Yes. If you would turn to the last page of this, do you see

that this was entered into by Novell on December 6, 1995? A. Mr. Singer, the screen has gone blank. THE CLERK: MR. SINGER: Are you going to admit this? Yes.

I would move to have Exhibit 162 admitted. THE COURT: MR. BRENNAN: Any objection? No objection, Your Honor. Thank

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you. THE COURT: It will be admitted.

(Plaintiff's Exhibit 162 was received into evidence.) THE COURT: Mr. Singer, just so that you

understand, Ms. Malley cannot show the exhibit to the jury until after it has been admitted and that is why the screen was blank. MR. SINGER: BY MR. SINGER Q. Do you recognize this to be Mr. Thompson who signed on I understand.

behalf of Novell? A. Q. Yes. And were there restrictions in the technology licensing

agreement with respect to the use of the technology that was being licensed back by Santa Cruz? A. Q. Yes, there were. I think I misspoke. I said licensed back by Santa

Cruz, but it is licensed back by Novell from Santa Cruz? A. Q. A. Q. Yes. Is that correct? Yes, there were restrictions. If Novell was keeping the UNIX and UnixWare copyrights,

would Novell have needed to license back the right to use those assets in its business?

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A. Q.

I don't think so, no. I would like to discuss the payment terms. Was Santa Cruz in a position to pay cash for the

business? A. Q. No, they were not. Did the parties agree on a different source of

compensation for the business? A. Q. Yes. I would like you to look back at the asset purchase

agreement, Exhibit 1, Section 1.2 of the A.P.A. Does this set forth the payment terms? A. Q. Cruz? A. Q. Yes, it was. Was paragraph two that dealt with certain royalties Yes, it does. Now, was paragraph one the receipt of stock in Santa

also part of the payment for the business? A. Q. Yes, it was. Did that paragraph provide for a royalty stream in

certain existing UNIX licenses as part of the payment terms? A. Q. Yes, it did. Now, is it your understanding that Novell could obtain

that royalty interest and retain that while still selling the copyrights to Santa Cruz? A. Yes.

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Q.

Was there a third piece of compensation that Novell was

receiving that related to the sale of UnixWare products in the future? A. Q. A. Yes. Explain what your understanding of that was. There was a royalty on the UnixWare, on future UnixWare

sales. Q. Was it your understanding that those three revenue

streams together constituted the payment for UNIX and the UnixWare businesses? A. Q. Yes. I would like to show you, if I might, an exhibit which

is slide 15 from what was shown by the defendants during the opening statement a little bit earlier today. Do you see that that is a picture of only paragraph 1.2A as consideration of the assets, stock? Do you see that? A. Q. Yes. It does not have Section 1.2B royalties. Do you see that? A. Q. Yes. But if you look at the agreement, 1.2B royalties from

the UNIX and UnixWare system, was that part of the payment stream that Novell was receiving for the sale of the business?

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A. Q.

Yes, it was. I would like you to look at Section 4.16 of the asset

purchase agreement on page 24. Do you understand under Section 4.16B that there were certain rights that Novell was retaining, to force the buyer to take or not take certain steps relating to SVRX licenses? A. Q. Yes. What was your understanding of the purpose of that

provision? A. The purpose of this was to make sure that we would be

able to effect buyouts by customers of their SVRX licenses. A buyout is to monetize, or to in one sale grant the right of a customer to sell copies of the product and not have to do an ongoing royalty check each quarter. This would allow

us to receive a substantial payment from a number of SVRX licensees. Q. Was this waiver provision in 4.16B ever intended to

allow Novell to force a buyer to abandon enforcing its intellectual property rights if they wanted to pursue such an action? A. Q. No. Now, pursuant to the terms of the asset purchase

agreement, do you recall whether Novell and Santa Cruz were supposed to get together and agree on the terms of a press release?

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A. Q.

Yes. I would like you to look at Exhibit 526. Was this the jointly approved press release pertaining

to the transaction? A. Yes, it was. MR. SINGER: THE COURT: MR. BRENNAN: I move the admission of Exhibit 526. Any objection? Objection, Your Honor. I don't

think we have laid a proper foundation for this and it calls for the witness's speculation. THE COURT: Can you ask more questions to see if

you can establish a proper foundation? BY MR. SINGER Q. You had personal knowledge at the time of the

transaction in approving the press release? A. Q. A. Q. Yes, I did. As CEO you had to approve the press release? Yes. The press release, since it was a joint release, would

it be an official statement from Novell as well as SCO? A. Q. A. Yes. Is this the press release that you approved? Yes, it is. THE COURT: Foundation has been laid and the Court

will admit Exhibit 526.

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MR. SINGER:

Thank you.

(Plaintiff's Exhibit 526 was received into evidence.) BY MR. SINGER Q. If we look at the press release that was issued, it

says according to the terms of the agreement -- Mr. Calvin, if you could blow up that part -- according to the terms of the agreement SCO will acquire Novell's UnixWare business and UNIX intellectual property. Is that a correct statement? Yes. Did you understand that to include the copyrights? Yes. Is the asset purchase agreement which we have been

looking at similar to licenses that Novell might have issued to third companies like Hewlett Packard or others that might come in to seek a license to make use of the property? A. Q. Yes. And the license agreements, would they be a sale of

assets or would they be called a license agreement? A. Q. A. Q. A. They would be called license agreements. An asset purchase agreement, is that something else? Yes. Did this transaction close in December of 2005? Yes, it did.

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Q.

At that time was it your understanding that the

copyrights were being sold to Santa Cruz with the rest of the UNIX business? A. Q. Yes. Did your understanding ever change while you were the

chief executive officer of Novell? A. No. MR. SINGER: THE COURT: officer? THE WITNESS: From late March, early April of I have nothing further. How long were you the chief executive

1994, until late August of 1996. THE COURT: Thank you.

Go ahead, Mr. Brennan. MR. BRENNAN: Thank, you Your Honor.

CROSS-EXAMINATION BY MR. BRENNAN Q. Good morning, Mr. Frankenberg. Let me introduce myself. and I represent Novell. My name is Sterling Brennan

I don't think we have had the

privilege of meeting, have we? A. Q. We have not. Likewise. My first question, in essence, is the one that Your Honor has just asked you. You were with Novell for less Very nice to meet you.

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than two and a half years, right? A. Q. Correct. As you have indicated, you joined the company in April

of 2004, correct? A. Q. A. Q. Late March, early April, right at the border there. And you had left by August of 1996, correct? Correct. During the time that you were with Novell, for that

period of March and April of 1994, until August of 1996, you were the chief executive officer of Novell, right? A. Q. A. Correct. And chairman of its board of directors, correct? Shortly after I joined I became chairman. I was not

chairman when I joined. Q. How long after you joined was it that you became the

chairman of the board of directors? A. That would have been a couple months, I believe. I

don't remember precisely. Q. When you did become the chairman of the board of

directors, what was the purpose or function of Novell's board of directors? A. To oversee the operations of the company and govern its

proper conduct. Q. So was the board of directors in essence superior to

you or were you superior to the board?

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A. Q.

I worked at the pleasure of the board of directors. So the ultimate decisions and policy for the company

were set by the board of directors, correct? A. A number of decisions were delegated to me as C.E.O.,

but the ultimate decision was whether I remained the C.E.O. so that, of course, would be the case. Q. With respect to the asset purchase agreement that

Mr. Singer has talked to you about, the ultimate decision as to whether or not Novell should enter into that agreement was a decision of the Novell board of directors, correct? A. That is correct. It was the sale of significant assets

of the company and, therefore, required board approval. Q. I would like you to focus for a moment on the period of

September of 1995. Do you have that time period in mind? A. Q. Yes, sir. If you will look back to what has been marked as

Exhibit 1, that is the asset purchase agreement. Do you see that? A. Q. Yes. That is dated as of September 19, 1995. Do you see that? A. Q. Yes. As of the day before, September 18th, 1995, who were

the members of the board of directors of Novell as of that

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date? A. now. Let's see if I can remember. That was a few years ago

Jack Messman, Alan Ashton, Kanwal Rekhi. THE COURT: Do you have anything that can help

refresh his memory? MR. BRENNAN: I do.

I will ask one question, and then I will do just that, Your Honor. BY MR. BRENNAN Q. Do you remember any others than the three you have

mentioned? A. There are others whose names won't come to mind, but I John Young was a member.

do remember their faces. Q. A. Q. A. Q.

John Young was another? Yes. How many members of the board were there at the time? I believe there were eight or nine. Mr. Singer asked you about minutes of board of director

meetings. Do you recall that? A. Q. Yes. Do you know whether or not there was a board of

director meeting held by Novell before the asset purchase agreement was approved? A. Yes.

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Q. A. Q.

Were you present at that meeting? Yes, I was. Do you know whether minutes were prepared of that

meeting? A. Q. Yes, they were. Did you review the minutes to make sure that they were

accurate? A. Q. I did, yes. You have indicated that David Bradford was the one who

prepared those minutes. Correct? A. Q. Yes. Do you expect that those minutes would identify who the

persons were that were present at the board of directors meeting on September 18, 1995? A. Yes. MR. BRENNAN: THE COURT: MR. BRENNAN: BY MR. BRENNAN Q. Z-3. Do you recognize that? A. Q. Yes. Are those the minutes of the board of directors meeting You have before you what has been marked as Exhibit May I approach, Your Honor? You may, and you don't have to ask. Thank you.

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of Novell, Inc. held on Monday, September 18, 1995? A. Q. Yes, they are. It indicates at the top who the members of the board of

directors were that were present, correct? A. Yes. MR. BRENNAN: Your Honor, I move into admission

the minutes of the board of directors of Monday, September 18th, 1995 as an exhibit, Z-3. MR. SINGER: THE COURT: No objection. Exhibit Z-3 will be admitted.

(Defendant's Exhibit Z-3 was received into evidence.) BY MR. BRENNAN Q. If we look at the minutes of the board of directors

meeting it indicates in the first paragraph, quote, a meeting of the Novell, Inc. board of directors was held on Monday, September 18th, 1995, commencing at noon Mountain Time. The meeting was held pursuant to a telephone Seven of the eight directors were present Bob Frankenberg. That would be you,

conference call. for the meeting. correct? A. Q. A. Q. Yes. Jack Messman. I do, yes.

You recognize Mr. Messman, right?

He subsequently became the chief executive officer and

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chairman of the board of Novell, correct? A. I knew he became the chief executive, but I didn't know

he was chairman, but I wouldn't be surprised. Q. Then there is reference to Elaine Bond. Who was that? A. Elaine Bond was a board member who was on the board She had an I.T. background and was there

when I joined.

largely to represent the customer's point of view. Q. Do you now recognize that Elaine Bond was present at

the September 18th, 1995 board meeting? A. Q. Yes, she is listed as present. Then there is reference to a Larry Sonsini. Do you recognize that? A. Q. A. Yes, I do. Who is Larry Sonsini? Larry Sonsini is the one of partners of Wilson Sonsini

Goodrich and Rosati, and he was a board member and often provided legal advice. Q. So your understanding was Mr. Sonsini in addition to

being a member of the board of directors was an attorney who would give legal advice to the company, correct? A. Q. A. Q. Yes. Did you rely on Mr. Sonsini and his advice? Yes. Did he ever advise you during the period of time that

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you served as the chief executive officer of Novell? A. Q. to? A. Q. Yes. Then there is a reference to Alan Ashton. You Yes, many times. Did you find his advice to be sound and worth listening

mentioned him earlier, right? A. Q. Yes. Mr. Ashton had been one of the founders of the Word

Perfect Corporation, correct? A. Q. Correct. At the time of this meeting he was a member of the

board of directors and present at the meeting, correct? A. Q. Yes. Then there is a reference to Ian Wilson. Do you recognize that name? A. Q. A. I do. Who is Ian Wilson? Ian was a South African businessman who had involvement

in a number of technology ventures and was also on the board when I joined Novell. Q. A. Then John young. Who was Mr. Young?

John Young was the former C.E.O. of Hewlett Packard,

and my boss's boss before I left Hewlett Packard. Q. Did you trust Mr. Young's advice?

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A. Q.

I did, yes. Were there any members of the board that were present

at the September 18, 1995 meeting whose advice you did not trust? A. Q. No, sir. Now, apparently there were eight directors of Novell at

the time, right? A. Q. Yes. Only seven are identified as being present at the

meeting, correct? A. Q. Yes. Do you know who the director was who was not present at

the meeting? A. I think it may have been Kanwal Rekhi. Conwall was the

C.E.O. of a company that Novell had purchased before I got there. It doesn't say who wasn't present, but that is a

good possibility of who was not there. Q. In your role as the chief executive officer and

chairman of the board as well as a member of the board, did you ever undertake to mislead or misrepresent management or the board? A. Q. No. In fact, it was your desire always to be forthright and

complete in your transmission of information to the board, right?

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A. Q.

Very much so, yes. If you were ever present at a board meeting, including

the September 18th, 1995 board meeting, where there was any incomplete or inaccurate information presented, you would have done everything you could to correct that, right? A. Q. That is correct. Now, looking still at the first paragraph, it continues

also present by invitation were David Bradford, Ty Mattingly and Jeff Turner of Novell. Do you remember each of those individuals being present at the board meeting? A. Q. Yes, I do. Now, you indicated before that David Bradford was the

general counsel of Novell, right? A. Q. A. Correct. What was his role as general counsel? He was the chief legal officer of the company. He

represented the company in all legal matters.

He also had a

role in looking forward to potential legal issues that might face the company. Q. So if there were an important business transaction

involving Novell, and it also implicated legal issues, as the chairman of the board who would you look to for guidance? A. I would look to David Bradford and also, as you said

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earlier, Larry Sonsini. Q. At the board meeting you had present at least two

individuals who were trained lawyers, right? A. Q. Correct. Now, Mr. Sonsini's law firm also performed legal

services for Novell, correct? A. Q. Yes, they did. And Mr. Sonsini's law firm, Wilson Sonsini, was outside

counsel representing and advising Novell in connection with the asset purchase agreement between Novell and Santa Cruz Operation, correct? A. Q. That is correct. As the chief executive officer and chairman of the

board of directors, did you look to rely upon the legal advice that Wilson Sonsini provided Novell? A. Q. I did, yes. Did you trust the legal advice that Wilson Sonsini

provided Novell? A. Q. Yes, I did. Did you understand that there were attorneys

negotiating on Novell's behalf with Santa Cruz Operation with respect to the terms and conditions of the asset purchase agreement? A. Q. Yes. Did you understand that one of those attorneys was a

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partner at Wilson Sonsini by the name of Tor Braham? A. Q. Yes. Did you understand that Mr. Graham was working at

Mr. Bradford's direction to make sure that the asset purchase agreement best represented Novell's interests? A. Q. He, together with other people on the team, yes. Let's talk about others who may be on the team. You are familiar with Jim Tolonen? A. Q. A. Q. I am. Who was Mr. Tolonen as of 1995? He was the chief financial officer of Novell. Did Mr. Tolonen have any involvement in the asset

purchase agreement? A. Q. Yes, he did. Did you rely upon Mr. Tolman's recommendation an

advice? A. Q. I did, yes. You were aware that he was familiar with the terms and

conditions of the asset purchase agreement, correct? A. Q. Correct. So you would expect that if Mr. Tolonen were to provide

testimony regarding what the meaning and intent were of the asset purchase agreement, that you would expect him because of his involvement to be able to accurately state what the position of Novell was, correct?

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A.

I would expect him to accurately state what he saw that

as, yes. Q. Thank you. Now, let's look to the first section that describes what was discussed at the September 18, 1995 board meeting. You'll see that the first major heading is proposed sale of UnixWare business and equity investment in SCO. I'm going to ask that the first three paragraphs be highlighted. We'll take them in turn, however.

The first paragraph begins Mr. Bradford and Mr. Frankenberg -- let me go back one. Right at the outset it

states Mr. Bradford and Mr. Frankenberg first confirmed that the directors present on the call had received the materials regarding several proposed transactions. Do you see that? A. Q. I do, yes. Was it in fact the case that before the board meeting

each of the board members, yourself included, received a packet of information regarding transactions including the asset purchase agreement? A. Q. Yes. Then the next paragraph, if we could highlight that, It says Mr. Frankenberg then provided

continues as follow.

an overview of several business transactions that the company was negotiating with Santa Cruz Operation, Inc.,

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S-C-O, and Hewlett Packard for the purpose of strengthening UNIX on the Intel platform. He described one of the key

steps in this process was the sale of a portion of Novell's UnixWare business to SCO. Do you see that? A. Q. Yes. Does that accurately reflect what you stated and did at

the board meeting? Right? A. Q. Yes. In fact, what you described to the board of directors

was a contemplated sale of a portion of Novell's UnixWare assets, right? A. Q. Yes. In fact, what was being considered was not a sale of

all of the UnixWare assets but only a portion, right? A. The UnixWare business is different than the UnixWare

product. Q. A. So is it correct then -This is a portion of the UnixWare business being sold.

That excluded Tuxedo, which was part of the UnixWare business. Q. Is it correct that what you informed the board about

was the sale of a portion, as you put it, of the UnixWare business?

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A. Q. A. Q.

Correct. Not all of it, right? Correct. Then it continues that he then described a proposed

structure in which Hewlett Packard would take a leadership position in the development of 64-bit UNIX technology, under which Hewlett Packard would license Novell networking services as a core component of future 64-bit UNIX. Do you see that? A. Q. Yes. Is it correct that at the very time that Novell was

considering a sale of a portion of Novell's UnixWare business to SCO, it was also considering a separate transaction involving a license with Hewlett Packard relating to UNIX? A. Hewlett Packard was already a licensee of UNIX from This would be an extension of that license.

Novell. Q.

Well, the license that was being considered was one

that would be granted by Novell to Hewlett Packard, correct? A. Yes, of networking services. Novell already had a UNIX

license. Q.

It didn't need a UNIX license.

Well, in fact, Novell did not intend to transfer every

bit of its UnixWare business to SCO because it wanted to preserve the right to do other UNIX related business, right? A. That is not accurate. No.

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Q.

Okay.

Well, let's see if we can test that just for a

minute.

Are you aware, based on what you were shown earlier

today, that the asset purchase agreement includes certain exceptions? A. Q. A. Q. Yes. There were certain assets that were excluded, correct? Yes. And the assets that were excluded were all copyrights

and trademarks except UNIX and UnixWare, right? A. Q. A. Q. That is what it -That is what the document states, right? Yes. As you look at the agreement even today, you realize

that the wording of the agreement is that all copyrights and trademarks except the trademarks UNIX and UnixWare were excluded, correct? THE COURT: Ms. Singer? MR. SINGER: of the document today. THE COURT: objection? MR. SINGER: It is misleading in that the document I'm sorry. Could you restate the I object. That misleads the content One second.

today and the question related to what the document says today does not say that. It lacks foundation.

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THE COURT: BY MR. BRENNAN Q.

I will sustain the objection.

You do have in front of you the asset purchase

agreement that has been admitted into evidence as Exhibit 1, correct? A. Q. Yes. Mr. Singer asked you earlier to look at Section 1.1B

and the schedule thereunder, right? A. Q. Yes. Let's look again at the schedule, Section 1.1B, if we

might, of the asset purchase agreement. Do you have that before you? It is on the screen, yes. So of the excluded assets, if we were to look at the

second page under the heading Roman numeral five, it is intellectual property, right? A. Q. Yes. As you read those words as you sit here today, you're

capable of reading it and they say that excluded is all copyrights and trademarks except for the trademarks UNIX and UnixWare, correct? A. Q. A. Q. Correct. And also excluded are all patents, right? Correct. Let me have you focus for just a minute on patents.

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Did Novell hold any patents that related to UNIX as of

Yes. Were any transferred to Santa Cruz Operation? No. So this exclusion accurately states that the patents

that Novell held relative to UNIX did not transfer to SCO, correct? A. Q. Correct. The agreement also says that excluded are all

copyrights, correct? A. Q. Correct. So as you sit here today and look at this agreement,

you would agree with me that the stated words in the agreement exclude all copyrights, correct? MR. SINGER: Objection. I think this goes to our

motion in limine regarding the reading of the documents together. THE COURT: Well, I think that you questioned him

on this document by itself, and I think I need to allow cross-examination on this document by itself. Go ahead. Overruled. Would you repeat the question? Some

THE WITNESS:

time has passed since we -BY MR. BRENNAN

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Q.

I will try it again.

I will try it again and I hope I

get it the same. As you look at the words used in the asset purchase agreement, section five, the excluded assets, you would agree that those words state that all copyrights and trademarks except for the trademarks UNIX and UnixWare are excluded, correct? A. Q. That is what the document says, yes. As you sit here today would you agree that anyone else

who were to pick up the asset purchase agreement and look at the excluded assets schedule, section five, intellectual property, would you expect them to come to the same conclusion that you did today, that in looking at the words it would exclude all copyrights, right? MR. SINGER: Objection, foundation.

May we approach, Your Honor? THE COURT: at this point. We'll just go ahead and take a recess

15 minutes. Your Honor, just so we are clear,

MR. BRENNAN:

are we going to get an answer to -THE COURT: We will deal with the answer after I

have dealt with the objection. MR. BRENNAN: THE COURT: THE CLERK: Very well, Your Honor. Ms. Malley. All rise for the jury, please.

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(WHEREUPON, the jury leaves the proceedings.) THE COURT: MR. SINGER: Go ahead, Mr. Singer. Your Honor, this I think reflects the

concern that we have raised in the motion in limine that Novell should not be allowed to create the impression with the jury that the language as it is today in the A.P.A. has this excluded copyright and trademark language. That was

replaced by an amendment and it no longer exists in the agreement. Between my not being able to even have Mr.

Frankenberg acknowledge it, I think it is misleading to the jury to suggest in questions that deal with the agreement as it reads today, that this language appears here because it does not. This is exactly the concern with misleading the

jury that led us to file that motion. If I recall, the Court said, well, correctly, that it is necessary to get into the history of the transaction, so we need to take this up and see where we go at trial with objections and that the plaintiffs would be able to object at trial if this concern reappeared. reappeared. Well, it has

I think that the combination of Mr. Frankenberg

not being able to address amendment two, together with this line of questioning, is creating a misimpression on the jury that as it reads today this language appears in the agreement and it does not. THE COURT: Well, I believe the questions had to

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do with what it read the day that the board approved the minutes. That is all Mr. Brennan has asked, and because of

the questioning that you undertook of Mr. Frankenberg, the Court will allow a continuation of this type of questioning. MR. BRENNAN: THE COURT: MR. SINGER: Thank you, Your Honor. We'll take 15 minutes. Would I be allowed, Your Honor, to

ask that today it wouldn't be there, just reading from the exhibit that is in evidence? THE COURT: what? MR. SINGER: To address on redirect with Mr. I'm sorry? Will I allow you to do

Frankenberg, reading from evidence that is in the record, that that language would not appear today in the A.P.A. as amended? THE COURT: Well, again, Mr. Frankenberg left the

company before the amendment was made and that was the reason why the Court ruled as it did on the motion in limine dealing with that. You will have to simply deal with that

with another witness, Mr. Singer. MR. SINGER: (Recess) Thank you, Your Honor.