SCO Grp v. Novell Inc

Filing 857

NOTICE OF FILING OF OFFICIAL TRANSCRIPT for dates of March 10, 2010-Jury Trial-Volume II before Judge Ted Stewart, re 567 Notice of Appeal,. Court Reporter/Transcriber Ed Young, Ray Fenlon, Patti Walker, Telephone number (801) 328-3202. 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 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 Two, # 2 Part 3)(jmr) Modified by removing restricted text on 7/19/2010 (rks).

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SCO Grp v. Novell Inc Doc. 857 200 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 vs. IN THE UNITED STATES DISTRICT COURT DISTRICT OF UTAH CENTRAL DIVISION THE SCO GROUP, INC., a Delaware corporation, Plaintiff, ) ) ) ) ) ) ) CASE NO. 2:04-CV-139TS NOVELL, INC., a Delaware corporation, Defendant. _______________________________) AND RELATED COUNTERCLAIMS. ) _______________________________) BEFORE THE HONORABLE TED STEWART -------------------------------March 10, 2010 Jury Trial Volume II 201 1 2 3 4 5 6 7 8 9 10 11 12 For Defendant: 13 14 15 16 17 18 19 20 21 22 23 24 25 Court Reporters For Plaintiff: APPEARANCES BRENT HATCH 10 West Broadway, #400 Salt Lake City, Utah STUART SINGER 401 East Las Olas Boulevard Suite 1200 Fort Lauderdale, Florida EDWARD NORMAND JASON CYRULNIK 33 Main Street Armonk, New York STERLING BRENNAN 60 East South Temple Suite 1000 Salt Lake City, Utah ERIC ACKER MICHAEL JACOBS 425 Market Street San Francisco, California Ed Young Ray Fenlon Patti Walker 247 U.S. Courthouse 350 South Main Street Salt Lake City, Utah (801) 328-3202 202 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Exhibit 15 16 17 18 19 20 21 22 23 24 25 Plaintiff's Plaintiff's Plaintiff's Plaintiff's Plaintiff's Plaintiff's Defendant's Defendant's Defendant's Defendant's Defendant's Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit 133 90 669 254 97 571 A1 V5 O-10 G12 Q22 Witness Robert Duff Thompson Robert Duff Thompson Robert Duff Thompson Robert Duff Thompson Edward Chatlos Edward Chatlos Edward Chatlos INDEX Examination By Mr. Singer (Direct) Mr. Acker (Cross) Mr. Singer (Redirect) Mr. Acker (Recross) Mr. Normand (Direct) Mr. Acker (Cross) Mr. Normand (Redirect) Page 220 277 336 344 346 374 385 Received 252 256 268 270 272 274 290 310 315 324 329 203 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 March 10, 2010 PROCEEDINGS 8:30 a.m. THE COURT: MR. ACKER: MR. SINGER: THE COURT: Good morning. Good morning. Good morning. Counsel, let me deal with a couple of things, and then I know you have some things as well. Did we get ahold of Mr. Hunsaker yesterday to determine whether or not he was familiar with or related to Thomas Hunsaker, juror number nine? MR. HATCH: Your Honor, I did notice on the list that I read, that Mr. Hunsaker's name was on the list, although I have not been able to check the transcript to see if it was there. We did talk to Mr. Hunsaker, our witness, not the juror, and he indicated that he has no knowledge that this person is related to him in any way or does he know him, the Hunsaker that is the juror. THE COURT: In light of that, Counsel, do you see any reason to pursue it, Mr. Acker? MR. ACKER: THE COURT: No, Your Honor. Thank you. We had yesterday talked about the plaintiffs submitting their amended jury instructions to the Court tomorrow. I understand, Mr. Hatch, that you have requested 204 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 until Friday. The Court will give you until Friday, but I'm going to ask that the parties meet one more time between now and Friday to see if you cannot work out more of these instructions. The reason why is because it appears you're coming closer together, and I think a face-to-face meeting would probably be more helpful. If that is not productive, then you go ahead and submit your jury instructions by Friday, but the Court will then not request anything further from the defendants, but rather we'll put together a package and give it to you next week and allow you both to respond to it, and then by the third week we will be able to give you a further revised package. MR. HATCH: fine. THE COURT: I'm curious. Okay. We do have to deal with the Thank you, Your Honor. That will be opposition, not the opposition but the concerns with Mr. Messman's deposition. Any there other objections with any other deposition witnesses or are we down to Mr. Messman and -MR. NORMAND: Your Honor, we have been handling these on sort of a rolling basis, and I think we are through six or seven. THE COURT: Okay. 205 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. NORMAND: What we are trying to do is take them day to day and get them to Your Honor two days in advance, at least a day and a half in advance, and take it from there. THE COURT: Thank you. I was just hoping that the answer was, oh, we are done, but obviously my optimism is without foundation. I do appreciate what you're doing, Mr. Normand, and whoever is working on the defendant's side, and it is very helpful. I didn't want to seem ungrateful. Do you want to argue the objection to Mr. Messman's deposition portions now, counsel? the Court simply to rule on it? MR. NORMAND: Your Honor, we did, and you probably Do you want saw, we sent in a letter on the issue in which we summarized our objections. I am not sure there is much more to say, unless there is room for argument about whether the material that we regard as hearsay is coming in for some other purpose. THE COURT: That is the Court's concern. Who represents Novell on this? MR. JACOBS: THE COURT: quickly, if we could. First of all, let's deal with the issue of the statement that Mr. Messman would testify to regarding the I will handle this topic, Your Honor. Mr. Jacobs, let's deal with this 206 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 David Bradley representation in a board meeting about what was and wasn't being conveyed by the original agreement. would seem to me, Mr. Jacobs, that it would clearly be hearsay. It is certainly not a statement by a party It opponent, so what would be the justification for allowing that portion of Mr. Messman's video deposition to be heard? MR. JACOBS: Honor. Mr. Messman's state of mind, Your The plaintiff has placed the state of mind at issue and what did he know when Novell was issuing the statements that they challenge about ownership of the copyrights. Mr. Messman's recollection of what happened in the board meeting relates to that and to his state of mind. THE COURT: So it is not being offered for the truth that Mr. Bradford represented that the copyrights were not being conveyed? MR. JACOBS: THE COURT: that? MR. NORMAND: Your Honor, we are fine with that so That is correct. Mr. Normand, do you wish to respond to long as the jury is so instructed. THE COURT: How do we make that instruction? Do we interrupt the video? MR. NORMAND: I think there will be other points in other videos where we are interrupting to explain either a document that is coming in or for purposes of trying to 207 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 get an exhibit that is coming in admitted, so I don't think it is going to be unnatural to be stopping the video from time to time. We would propose to do that. All right. This is a little peculiar, Your THE COURT: MR. JACOBS: Honor, in that the jury has already seen minutes of this board meeting that account for the various statements that were made. I think if they got an instruction now, in the wake of Mr. Messman's testimony that this is not for the truth, but rather for his state of mind, I think that they could be quite confused. On this particular issue, because of the record of what happened at the board meeting, I think an instruction would be overdoing the issue of the distinction between state of mind and what happened. There may be other cases in which the jury should be told you're going to hear about a lot of statements that were made out of court, and they are being offered for the following purposes. THE COURT: MR. NORMAND: Mr. Normand, go ahead. Well, Your Honor, there is the potential for confusion because of the cumulativeness or redundancy and -THE COURT: Well, hold that point for just a minute, because I think that if I decide this on Mr. Bradford then I probably have to decide something 208 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 similar on another witness. now. Let's go on. Let's not decide that right The next one would be the conversations with Mr. Messman with some SCO employees about this issue. What is the intent of that being offered? It is something that is clearly hearsay within hearsay. MR. JACOBS: Actually, I believe what Mr. Messman is testifying to in the relevant passage is what he was told about the conversations his subordinates in the company had with SCO representatives, and so I think your characterization is correct. Once, again, SCO is placing into question what did Mr. Messman know and what did he do before Novell released the statements it released over his name? So the fact that he was informed by his subordinates that SCO representatives were contacting Novell about the copyrights is directly relevant to his state of mind. MR. NORMAND: Your Honor, built into this I suggest we would testimony is actually double hearsay. need a double instruction and there is a real potential for confusion here. The testimony is I think Chris Stone mentioned to me that Darl had approached him several times with regard to transferring the copyrights. In effect he is testifying that Chris Stone told me that Darl told him that he wanted the copyrights. It is double hearsay and it is 209 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 confusing. THE COURT: be viewed by the jury. I would agree. Okay. I will not allow it to The third one has to do, and now this is the plaintiffs trying to get in the Wall Street Journal article, which Mr. Messman apparently may have or may not have seen, and the question would be whether or not the plaintiffs should allow it to be heard by the jury, even though arguably we have the same issue here of whether it is being offered for the truth. MR. NORMAND: this. THE COURT: MR. SINGER: Go ahead. Your Honor, this issue is actually Your Honor, Mr. Singer will speak to going to come up first with Mr. Thompson and I was going to raise it in advance of his testimony. This is being offered under the principle that the Wall Street Journal came out with an article after the deal was announced, which we think reports it in a way consistent with SCO's position, and that no one reacted and said that was wrong. There is case law which indicates that when a party is aware of a published article but took no action to clarify it, then that is admissible evidence. Not for the truth of the matter, but their lack of reaction being put on notice that this is how the deal was being considered. 210 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: MR. JACOBS: is a little peculiar. Mr. Jacobs. I have not seen that case law and it We have a newspaper article, and the issue right now is Mr. Messman's deposition, unless we want to convert it over to Duff Thompson. THE COURT: deposition. MR. JACOBS: In Mr. Messman's deposition he is It was, what, 14 years Did Novell take any Let's focus just on Mr. Messman's asked did you see the article? before. action? He says I don't remember. He says I don't know. To put in an article through a witness who says I don't remember and I don't know, that is hearsay, and it is irrelevant and lacks probative value. THE COURT: respectfully disagree. Mr. Jacobs, I would have to I do believe it is relevant and relevant to the point that there was apparently no reaction to that article. As you just characterized, whether or not he saw it is not clear from his deposition testimony. What I'm going to do is I'm going to permit both of those disputed portions to come in. It is not my intention right now to give an instruction to the jury, because I do not want to draw undue attention to this. of the reason for this, Counsel, is that Mr. Messman is going to be testifying, as I understand it, later. To the Part extent there has to be rehabilitation you're going to be 211 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 given the opportunity, both of you, to do it. I think it is better to let both of those disputed portions to come in, but with nothing special to draw attention to it. not allow the hearsay on hearsay portion. MR. JACOBS: Yes, Your Honor. I will All right. I would note that their basic theory of Mr. Messman's failure here, as evidenced in their opening statement, is the failure to investigate on his part. We're going to be addressing that as a matter of law through the jury instruction process, but before Mr. Messman's testimony and as this process has unfolded a little bit, I think we would like to talk to you again about whether he can describe the various steps that led him to his view that Novell retained ownership of the copyrights even if they represent in some sense hearsay. THE COURT: Okay. You'll obviously bring that to my attention when you think the time is right? MR. JACOBS: THE COURT: You bet, Your Honor. Thank you, Mr. Jacobs. The court One last thing, Counsel, from me. reporters have expressed concern with being able to follow the video depositions. There are occasions certainly in this courtroom in the past where that has been very difficult. However, Ms. Walker was given a demonstration of the deposition and she thinks it will not be difficult for 212 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 them to make a record from that. If, however, that doesn't prove to be true, we may have to ask that you submit to the court reporters the written transcript of the video depositions so that they can use it to help correct what they may take. MR. JACOBS: Yes, Your Honor. Just to be clear on that point, we had a discussion about what the record would reflect with respect to deposition testimony, and it is our view that deposition testimony played in court is testimony, and I think the intent of Your Honor's comments is that the reporters will actually take it down word for word, and if they need to correct it based on a submission of the transcript, they would do so. Is that correct? THE COURT: MR. SINGER: THE COURT: That is correct. That is fine. It is not the intention, and let me make this clear, that we provide to the jury copies of either the written or video depositions. Mr. Singer, do you have something? MR. SINGER: Yes, Your Honor. Overnight, of course, we got the daily transcript, and I have to say I was even more concerned about the whole line of questioning about Section 9.5, the integration 213 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 clause in connection with the matter of the jury instruction, which Novell has not agreed with. If I might approach? THE COURT: MR. SINGER: Novell. THE COURT: immediately? MR. SINGER: THE COURT: MR. SINGER: Yes, Your Honor. All right. Your Honor, our concern is that the This is a jury instruction to be given Yes. I will submit what we proposed to reference to 9.5 has no relevance here other than to tell the jury that they shouldn't pay attention to exactly what they should pay attention to, the intent of the transaction. That has the risk of this jury now not paying attention to what is going to be very substantial amounts of testimony over the next days and weeks about what the parties said to each other about the intent of this deal, exactly what the Tenth Circuit said this trial is supposed to be about. shouldn't have happened. That 9.5 should not have been used to try to suggest to the jury that that type of evidence in this case is not relevant. THE COURT: MR. JACOBS: Mr. Jacobs. Yes, Your Honor. At Number one, we don't need an instruction now. 214 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 best the jury should be told you're going to hear a lot of evidence and I will instruct you on the law to be applied to that evidence at the end of the trial. Keep an open mind. Number two, is the cherry picking from the Tenth Circuit opinion, and proposing an instruction that would actually flip this whole topic away from the written agreement into what the parties were thinking. The third point is the questioning was entirely appropriate. The questioning was about what this witness understood at the time, what Mr. Frankenberg understood the purpose of the written agreement was in documenting the parties intent. It was not questioning that went to ten years later do you think this Court and jury should be hearing -- 15 years later -- what you thought at the time. I think we are overdoing the objection to the testimony. I would note, moreover, that Mr. Brennan backed away from further questioning under the Court's suggestion that if he proceeded we might be in an area that Novell -THE COURT: Mr. Singer, I am concerned, and Mr. Jacobs has pointed out something that the Court has had concern with, and that is that if I were to do what you suggest, that would in effect undermine the Court's previous rulings on motions in limine, precluding the defendants from referring specifically to the Tenth Circuit's decision. I believe Mr. Brennan came very close, however, 215 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 yesterday to raising it to the level where perhaps I may have to do what you have suggested, but I think he backed away. I just have to caution the defendants that if they continue to pursue questioning of additional witnesses to the point where the Court believes that it is misrepresenting what ultimately the jury has to consider, then at that time I will revisit the issue, but I am not going to give this instruction now. MR. SINGER: Thank you. Your Honor, we do have one more issue that perhaps is appropriate to raise now before Mr. Thompson is on the stand. THE COURT: MR. SINGER: All right. That is while we don't propose to get into the interpretation of amendment number two with Mr. Thompson, since he didn't negotiate it, we do intend to get into the fact that he was on the SCO board of directors at the time when this was approved. He approved it. He has sufficient knowledge then for us to at least elicit that and have that provision read to the jury which is in evidence, that he was on the board at the time that that was approved. He has personal knowledge of that and we don't believe that that is in any way inconsistent with the Court's earlier ruling on the motion in limine. 216 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 We don't propose to get into how he would interpret the language or the negotiations because he did not participate in that part. MR. ACKER: Your Honor's ruling on the motion in limine number 16 is clear that Mr. Thompson can't testify about amendment number two. Now, if they knew at the time that they wanted to put this testimony in, they should have raised that in the motion in limine, and the motion in limine lay out what Mr. Thompson knew or did not know about amendment number two, but the Court has ruled. MR. SINGER: We did note in our opposition to the motion in limine that he had knowledge of the circumstances of amendment number two's passage. There were about eight or nine of these dealt with in one order, and I don't think that perhaps this specific part of his testimony was treated in that order. THE COURT: If you're confining it to did he vote for -- that is what you are saying? MR. SINGER: THE COURT: MR. SINGER: He was on the board. He was on the board. He does not recall whether he voted for or abstained, but he was on the board when this was considered. MR. ACKER: It does not sound like he has much recollection about it at all, Your Honor. 217 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: I think I'm going to have to wait and If you lay a proper foundation see what foundation you lay. I will allow him to answer that very narrow question, but the Court will not allow you to ask anything that may lead him to be discussing what the amendment meant or anything to the merits of the amendment. MR. SINGER: Yes. The amendment is already in evidence and I would just intend, when laying the proper foundation, to have him read that section and ask if this is what came before you on the board at that time, which was an amendment to the A.P.A. THE COURT: There is going to have to be some foundation that he remembers that. MR. SINGER: MR. ACKER: Yes. Just on one other point, the point that Mr. Singer raised yesterday, SCO Exhibit Number 1 is the A.P.A. with amendment one and amendment two attached. I'm going to use today Novell Exhibit 1 which is just the A.P.A. without one and two, because I want it to be very clear in response to Mr. Singer's objections yesterday what exhibit we're talking about and what the witness's testimony is about that specific document. I just want to make that clear that I am going to do that with Mr. Thompon today. THE COURT: All right. The only concern I have is it is more paper for the jury to have. 218 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 briefly? it. that it -- MR. ACKER: I understand, Your Honor, but I think THE COURT: If you have to do it, you have to do MR. ACKER: slicing it thin here. THE COURT: I think it is important because we are I am speaking generally and I worry about us sending so much paper back there that the jury never makes its way through it. MR. SINGER: May I be heard on that issue very THE COURT: MR. SINGER: Go ahead. The concern we have is not the extra paper, it is the concern that somehow this will be used with the jury to suggest that the real A.P.A. is this one without the amendment, Novell Number 1, rather than SCO Exhibit 1 which has the amendments. That is a concern which has come about through a number of things that have already occurred in the trial. THE COURT: Let's see how it plays out today and then objections can be made, Mr. Singer, if you think they need to be. MR. SINGER: THE COURT: MR. ACKER: Thank you. Anything else? No, Your Honor. Thank you. 219 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Thompson. witness? the jury. THE COURT: Ms. Malley, please get the jury. Will you be Is Mr. Thompson in the courtroom? sending someone for him so that we can move quickly? MR. SINGER: Yes, we will. (WHEREUPON, the jury enters the proceedings.) THE COURT: Good morning, ladies and gentlemen of As I indicated in I want to apologize to you. one of the preliminary instructions, on occasion you may find yourselves waiting in the jury room while we deal with matters that we have to. We will try to keep those delays at a minimum, but it will happen from time to time during the course of the trial. Again, I have to ask you, ladies and gentlemen, whether or not any of you violated the very specific instruction that you have been given in reference to your conduct, particularly that conduct outside of the courthouse? All right. Once again, you passed the test. Mr. Singer, would you like to call your next MR. SINGER: Thank you, Your Honor. We would, and our next witness is Mr. Duff ROBERT DUFF THOMPSON Having been duly sworn, was examined 220 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BY MR. SINGER Q. A. Q. and testified as follows: THE WITNESS: Robert Duff, D-u-f-f, Thompson. DIRECT EXAMINATION Mr. Thompon, do you generally respond to the name Duff? Yes. If there are references to Duff that is generally referring to you? A. Q. A. Yes. Briefly summarize your educational background. Undergraduate degree in economics, master's of business administration and a J.D. Q. A. Q. A. Q. What institution? Brigham Young University. All three? Yes. Would you please summarize your employment after school. A. I worked in the law firm of Moyle & Draper for a few I went to the firm of Callister Nebeker & It was originally Greene Callister & Nebeker. Then I was hired as years. McCullough. I worked there for a number of years. general counsel for Word Perfect Corporation. Q. A. For how long were you at Word Perfect? From 1986 until 1994. 221 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. A. Q. In 1994 was Word Perfect sold to Novell? Yes. Did you move over at that time to become employed by Novell? A. Q. A. Yes. What were your responsibilities at Novell? I was senior vice president of corporate development and strategic relations. Q. What did that mean? What type of work did you do at the company? A. It had to do principally with all of the transaction work that was going on in the company, dealing with various partners in the industry to make sure that Novell was doing that which they needed done, and that they were doing that which Novell needed them to do. Q. A. Q. Who did you report to? Bob Frankenberg. Did there come a time when Mr. Frankenberg indicated that he wanted to sell the UNIX business? A. Q. A. Yes. Approximately when did that occur? That happened, to the best of my recollection, somewhere in the April or May time frame of 1995. Q. Did he indicate whether he wanted to sell part of the UNIX business or all of the business? 222 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. The indication to me was that he wanted to sell all of the UNIX business. Q. What was your understanding of the reason that Novell wanted to sell UNIX? A. Well, there were a number of reasons, but Novell had purchased UNIX in 1993, two years before, and they had been working on a product they called SuperNos, which was a combination of UNIX and NetWare. It was a very difficult The cost just process and it was a very expensive process. simply didn't justify continuing. There were 400 people located on this out in New Jersey working on this project, and a number of people at Novell working on this project, and my understanding was that the revenue that they were generating just was not sufficient to justify all of the expense. Q. Do you recall how much Novell had paid AT&T for the UNIX business? A. I was not there at the time they purchased it, but I became aware that they had paid something in the neighborhood of $300 million. Q. Did you anticipate getting as much in selling the UNIX business in 1995? A. The price really was not an issue. At least my understanding from Mr. Frankenberg was that the price wasn't the issue. The determination had been to get rid of this 223 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 cost center, the 400 people, and so when I received my instructions they did not indicate to me any kind of a price threshold that had to be met in order to sell it. Q. What role were you given by Mr. Frankenberg in connection with selling the UNIX business? A. I was assigned to conduct the negotiations. My group was assigned to conduct the negotiations. me. It was not just It was a gentleman by the name of Ed Chatlos that worked for me, a gentleman by the name of Ty Mattingly that worked for me, and there were a number of other people that were a part of that team. Q. Did you seek to identify an appropriate buyer for the business? A. We did. This was over the course of a couple of months and we met with a number of industry players, specifically including Intel and Hewlett-Packard to get their input on who might be a good candidate for this. Q. How did SCO come to your attention, Santa Cruz Operation? A. I didn't know them prior to this time. I was introduced to them through the discussions we had with Intel and Hewlett-Packard. Q. A. Who at Intel? Well, the meetings there I remember fairly clearly. It was the only time I ever met Andy Grove, one of founders of 224 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Intel. I met him and another gentleman by the name of -- I We had meetings with them and with believe David House. Hewlett-Packard, and over the course of time -- by the way, Ty Mattingly participated in these meetings and Bob Frankenberg participated in those meetings. It was suggested to us that SCO was a good candidate. Q. What was your understanding of why SCO was a good candidate to buy the UNIX business? MR. ACKER: I object. It is hearsay coming from H.P. and Intel if he doesn't have an understanding from another source. I would object. I think he needs to lay a foundation of where that understanding came from. THE COURT: Mr. Singer. BY MR. SINGER Q. You obtained information from a number of sources with More foundation is required, respect to potential buyers; is that correct? A. Q. Yes. Did there come a point in time when you and the other Novell executives made a decision to approach SCO? A. Q. A. Yes. Why did you do that? Well, there were a number of reasons. One of the reasons that they made a lot of sense, other than the fact that they were an acceptable party to Intel and 225 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Hewlett-Packard and some of our other UNIX partners -- let me back up. SCO had a worldwide channel of distribution. important in this discussion. That was It was important to find a company that had significant assets and significant sales reach, and this was a company that was roughly a $200 million a year company. 1,100 employees. distribution. It was a company that had 1,000 or They had an international channel of They were working in the UNIX area already. They were a good candidate in terms of the kind of product we were talking about. Also, we had talked to a number of our other UNIX partners about this idea of creating a UNIX -Q. Before you go on, Mr. Thompson, just so the record is clear, the company you were just describing with the number of employees and the worldwide distribution, you're referring to Santa Cruz Operation? A. Q. Yes. Please continue as to why you believed Santa Cruz was an appropriate candidate as a buyer. A. The strategy that was articulated in the discussions internally, Bob Frankenberg, Ty Mattingly and myself and others in the company, was to find a candidate that was capable of putting together a Switzerland type version of UNIX. 226 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 You see, most of the UNIX partners that Novell had, especially the large hardware manufacturers like H.P. and IBM and Sun and others, had their own version of UNIX. The reason they had their own version of UNIX is it was built specifically for their type of hardware, and we were looking for someone that didn't have hardware, kind of a legacy set of hardware that they were trying to sell the product for. That is why H.P. was not a good candidate. They already had their own operating system, or their version of the UNIX operating system called Hewlett-Packard H.P.U.X. No one would have trusted H.P. to take this because they were interested in selling their own hardware. We were looking for someone that would be acceptable in the industry that could design a form of UNIX on the Intel chip that then could be sold to any user and not specifically tied to any kind of hardware. Q. So was it important to find a buyer that was not itself in the computer hardware business? A. That was one of the criteria that became part of the decision to use SCO. Q. Were there other buyers interested in purchasing the UNIX business other than Santa Cruz? A. I can't answer the question as to whether anyone was We couldn't find anyone that was interested in There could have been interested. talking to us that was acceptable. 227 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 many parties that were interested, but they all had some specific agenda. IBM had its own operating system. H.P. had its own hardware and UNIX operating system. Sun had its own hardware and operating system, version of the UNIX operating system. None of them would have been good No one would have candidates for the rest of the industry. trusted them to be the seller of UNIX. Q. During this summer of 1995 when you were negotiating this deal, did any other party come forward as another buyer to compete for the transaction? A. Q. Not to my knowledge. Going back now to the discussions with Santa Cruz Operation, did you personally have discussions with the executives of Santa Cruz? A. Q. Yes. Which individuals do you recall having those discussions with? A. They had a team of people. A gentleman by the name of Alok Mohan was their C.E.O. A gentleman by the name of Jim Wilt was their head of corporate development and was my counterpart. A gentleman by the name of Jeff Seabrook Steve Sabbath was their participated in the discussions. general counsel and he participated in the discussions. There were others. There were technology people, licensing people, people on both sides, but that is the core 228 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 team from SCO that I worked with. Q. A. Over what length of time did those discussions occur? Well, the negotiations -- sort of the beauty contest to decide who was a good candidate started in that May time frame. By June we had actually decided to now begin the discussions in earnest with SCO. Q. At any time during the discussions with Santa Cruz Operation, did you on behalf of Novell say you were going to hold back the copyrights? A. Q. No. Would it have made any sense to you to sell a software business without the copyrights? A. No. My instruction from Bob Frankenberg was to sell the whole business, the whole UNIX business. Q. Did you participate then in negotiating the business deal through the summer of 1995? A. Q. Yes. What was the general nature of the proposed transaction that you came up with? A. Well, there were several aspects to the transaction. The first was to transfer to them the UNIX business that was existing, the existing UNIX business. The second was to discuss with them a merged product, which was a merger of the product that SCO had been working on and the product that Novell had been working on, which was the UNIX version. 229 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 That was the second aspect. The final aspect was that there would be some kind of a, quote, white box, which basically was that SCO would sell Novell's software through its channel. I should be very clear. White box was their way of Novell referred to all referring to the NetWare product. their product as the red box, because their Novell Netware came in a red shrinkwrapped box. When they negotiated with other parties, such as previous to that time in the spring we had negotiated with IBM on some issues, we had talked about IBM selling a blue box, basically IBM's color, blue, and that they would sell NetWare through their channel. Finally, in this instance it was the white box, which was SCO selling the NetWare software. Q. A. Q. A. Was this an important part of the deal to Novell? To sell the white box? Yes. Well, Novell had a sales model which was a leveraged model, meaning that if they could have any one party selling lots and lots of product through their channel, that was a good thing. Rather than develop their own sales channel of millions and millions of resellers, they wanted to use this leveraged model, and so the idea of having SCO sell product was a great idea. Q. Now, was there a meeting in Palo Alto in the summer of 230 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 2005 with Santa Cruz representatives about the transaction? A. Q. A. Did you say 2005? I did. I meant 1995. There were a series, a lot of meetings in the summer of 1995 between Novell and SCO in Palo Alto, Los Gatos, San Jose, all over the place in the bay area. Q. Do you recall a meeting in Palo Alto with the Santa Cruz executives where you discussed what would Novell be selling to Santa Cruz? A. Yes. I have in my mind a specific instance at the SCO SCO was represented by a firm by the counsel's offices. name Brobeck, and I remember meeting on the terrace of their offices with Alok Mohan and Jim Wilt and other members of our team to talk about the deal. Q. At that time do you recall what you said regarding how much of the UNIX business was going to be sold to Santa Cruz? A. Well, my recollection is exactly the same as I have given, that we're selling you all of the business, lock, stock and barrel, the whole thing. Q. By the whole business, did that include both UNIX and UnixWare? A. Q. Yes. What was your understanding as to whether the copyrights were also being sold? 231 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Well, it was the whole business. We were giving them source code, all of the manuals, the customer lists, we were giving them the whole business. I assumed and I understood that we were giving them the copyrights as well. Q. Would holding back the copyrights have been consistent with your instructions from Mr. Frankenberg, the CEO? A. I received no instructions from Bob Frankenberg to hold Indeed, I never heard anyone in the back the copyrights. course of those negotiations for several months talk about holding back the copyrights. Q. Did you in turn ever instruct anyone on the deal to hold back the copyrights? A. Q. A. I did not. What was Mr. Ed Chatlos' role in the transaction? Well, Ed was the primary negotiator. Ed actually lived back in New Jersey. He had worked with AT&T back in the '80s and had worked with USL, when it became USL, and then moved over to Novell when Novell purchased USL. Ed had been part of the AT&T and USL and Novell world for years and years and years. It turns out, when I was given my assignment as the head of corporate development, Ed was part of my staff located in New Jersey. Ed was the natural individual to be By chief the chief negotiator for this transaction. negotiator, I mean I expected Ed to be on that case every 232 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 day. That was his project. He had no other assignments during that period of time other than to work with this deal. Q. A. Q. He reported to you? Yes. What was Mr. Bradford's, the general counsel of Novell, responsibility in connection with this deal? A. Well, he was the general counsel of the company. As general counsel he would have had the responsibility to review and to manage all of the legal team and all of the issues that came up through the legal team. Q. A. Did he have the responsibility to negotiate the deal? Well, he didn't negotiate the deal. He was not in the meetings negotiating with SCO. Q. Did you ever ask Mr. Bradford or anyone who was working in the legal department for Mr. Bradford, or any outside counsel who was working with Mr. Bradford, to recut any parts of the deal with you and Mr. Chatlos on behalf of Novell, negotiated with Santa Cruz? A. Q. A. To recut any elements of the deal? Yes. All the time. Every time there was a negotiation session we would come back with notes and issues that had been worked out in the business sessions. We would come back and deliver that set of new data to the legal team. 233 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. Let me be more precise. Did you ever ask Mr. Bradford to change the deal so that the copyrights wouldn't be going over to Santa Cruz? A. Q. No. What was the role of outside counsel from Wilson & Sonsini, including MR. Tor Braham on the transaction? A. Well, Wilson Sonsini was outside counsel to Novell in that deal and in many others, and they had a team who were working with their counterparts at Brobeck to represent our interests, the Novell interests. Q. Were they given the responsibility to change elements of the deal that you and Mr. Chatlos had negotiated with the Santa Cruz representatives? A. Well, they were given the responsibility to document the deal that we negotiated. Q. Were they given the responsibility or would it be within their authority to have gone out and withdrawn the copyrights as one of the assets that Santa Cruz was buying? A. Well, I don't think it was in their job description to change the deal that we had negotiated without at least telling us that they were changing the deal that we had negotiated so that we could communicate that to the parties with whom we dealing at SCO. Q. A. Did that ever happen with respect to the copyrights? Not with respect to the copyrights. There were a lot 234 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 of issues, and we got feedback all the time from the lawyers. They would come back and say we have to do this We have to do this with respect to the We have to do this with There was a lot of with respect to tax. registration of the securities. respect to the human resources issues. interplay between the legal team and the business team, and we bounced things backs and forth all the time, but there was never an instance that I'm aware of that they would make a change and simply not talk to us about that. Q. Specifically, did anyone on the Novell side ever tell you that they had negotiated to hold back the copyrights? A. Q. No. Did anyone tell you from the Novell side that they were going to put in language to hold back the copyrights and simply not tell Santa Cruz about it? A. Q. No. Was there an issue with Santa Cruz having enough cash money to pay for the business? A. We knew going in, and as a part of the baiting of SCO as a potential candidate, we were aware of the fact that they were a $200 million company and not a $200 billion company. That would have been nice if they were a $200 They were a $200 billion a year company, but they weren't. million a year company. So we understood what they could do and what they couldn't do in terms of a cash purchase. 235 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. How did that lead to the payment terms which you understood were to be the compensation to Novell for selling the business? A. Well, we just had to come up with a different way to pay for the deal. Q. A. What did you come up with? Well, in the initial days there was some discussion The CFO about taking a larger percentage of stock from SCO. at Novell was a gentleman named Jim Tolonen. Jim Tolonen and his team were clear with us that they did not want to own anymore than, I believe, 19 percent of the company. Because if they owned more than 19 percent of SCO, took more than 19 percent of their stock, they would actually have to do some kind of an accounting procedure called consolidated statements, which would change the way that Novell reported its activities. They didn't want to do that. We were instructed to take no more than 19 percent of the company as part of this transaction, which is what we did. Six million and 100 some odd thousand shares represented something south of 19 percent of stock of the company and that was the stock element of the deal. The second element of the deal was that this new merged product, this new product that SCO would go out and develop and then sell, Novell had a participation right in the revenues that came from that. There were certain targets 236 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 and limits and so forth, and they wouldn't participate until SCO reached a certain number of units sold, and then they participated at a certain rate. If they sold more than that, they participated at a higher rate, et cetera, et cetera. So they had participation in this new product. The final element was that we would keep the revenues from the existing licenses, the UNIX SVRX licenses, that Novell would keep that revenue as part of the money coming back. I mean, Novell had spent 300 and some odd million dollars buying this, and selling this business now for a smaller number would be perceived as being a big mistake. Novell didn't want it put out in the press that they bought something for 300 million in '93 and sold it for 50 million in '95. We had a way of showing that we had gotten reasonable value out of the sale of the business. Q. Now, that value would be money which would come in over a period of years? A. The royalties would, yes. Well, actually the stock value was set at six million and 100 something thousand shares. The participation revenue would only come at the time the sales started to occur, and the royalty revenue would just be coming in every quarter. Q. Could you protect the right to that royalty income as a source of payment while still selling the copyrights? 237 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. A. Sure. I mean, that was the purpose of the A.P.A. Was Santa Cruz -The A.P.A. is the asset purchase agreement. We began to refer to it as the A.P.A. Q. Was Santa Cruz to receive the entire UNIX business except the royalties on these licenses -- that was not well phrased. When you decided on this payment mechanism, did that change the fact that you were going to sell the entire UNIX business to Santa Cruz? A. Q. A. When we decided on the payment system? Yes. No. The transaction never changed. Sell the business was the order of the day. the business. That was our instruction, sell We were just trying to figure out how to pay Novell and its shareholders a reasonable value for the sale of this business. Q. Now, were you personally involved in the transaction up to the date that the A.P.A. was signed? A. Q. Yes. In fact, beyond that, to the date it was closed in December -A. Q. A. Yes. -- of 1995? Yes. 238 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. I would like to give you a book of exhibits. Mr. Thompson, Exhibit 1 which is already in evidence is the asset purchase agreement, the so-called A.P.A. Just so that we have some identification of what is in Exhibit 1, do you see on the first page you have the asset purchase agreement that is before you? A. Q. Yes. Then if we go to page 49, do you see Mr. Mohan's signature on behalf of Santa Cruz Operation and the signature of Bob Frankenberg on behalf of Novell? A. Q. Yes. Then after that there are certain schedules of assets. Do you see that? A. Q. A. Q. Yes. Then after that -Yes, lots of schedules, actually. After that there are two amendments to the back of the agreement. Do you see that? A. Q. There is amendment one. At the very end, the last couple of pages, there will be amendment number two. A. Q. Okay. Yes, there is amendment two. Going back to the A.P.A., you are familiar with this document as the person in charge of selling the company? 239 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. Yes. Would you turn to the list of the assets being sold on Schedule 1.1A. A. Q. Yes. If we blow up that schedule on the screen here so that it is a little more visible, do you understand this to be, subject to the exclusions which we will talk about in a moment, the assets which were being sold as a part of the transaction? A. Q. Did you say that they were subject to the exclusions? Well, we'll turn to the schedule separately of the excluded assets, but did you understand that this schedule of 1.1A were the assets that were being sold? A. Q. Yes. These are all the included assets, yes. Did you understand this to represent the entire UNIX and UnixWare business? A. Q. I did. Was it your understanding that the copyrights were included in this sale of the UNIX and UnixWare business? A. I understood that ownership of UNIX was the ownership of the code, the ownership of UNIX, ownership of the business, ownership of the clients, ownership of the accounts, all of those things were what we were transferring to SCO. Q. That pertained both to the current UnixWare, the source 240 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 code as well as the older products of UNIX? A. We called out UNIX and UnixWare. Paragraph one, UNIX and UnixWare. Q. Could we now turn to Section 1.1B. Were there certain assets which you understood Novell was intent on retaining from the transaction -A. Q. A. Q. Yes. -- and not selling? Yes. What was your understanding of what those were supposed to be? A. The NetWare and other related Novell technologies. In this transaction NetWare was the crown jewel of Novell. we wanted to make sure that it was clear that even if there were some bits and pieces of the NetWare code that were going over as a part of the new merged product or any of those sorts of things, there was absolutely no question but that Novell was retaining the rights to the ownership of that. They were keeping that and reserving that back in this deal. Q. If we look at the items on the first page of this schedule, do most of those concern NetWare? A. Well, yes, all with the exception of Tuxedo were NetWare items. Q. Was Tuxedo also not being sold? 241 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. Tuxedo was not being sold. That was a Novell item. On the next page of this list of excluded assets, referring now to the old language on Section 5A before it was changed, where it says all copyrights and trademarks, was it consistent with your understanding of the deal that the UNIX copyrights would be excluded? A. No. My understanding of the use of this phrase here was the NetWare copyrights and trademarks. Q. A. Q. That is based on the deal which you negotiated? Yes. And what the other people that reported to you negotiated? A. Q. Yes. At the time that this was drafted, did any of the lawyers come to you and say, Mr. Thompson, we have decided to put in language in this schedule to hold back the UNIX copyrights? A. Q. No. That did not happen. Without the UNIX copyrights would Santa Cruz be able to operate the software business that they were buying? MR. ACKER: Objection, calls for a legal conclusion, Your Honor. THE COURT: THE WITNESS: I'll overrule the objection. It is hard for me to imagine any instance in which we are selling them the entire business, 242 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 to go forward with this business in the future, without giving them the underlying intellectual property rights that they needed to do so. BY MR. SINGER Q. I would like you to tell me, if you recall, if there was any license to Santa Cruz that was negotiated as a part of the A.P.A., so that instead of owning the copyrights they would just be given a license through this agreement to make use of them? A. Q. A. To the UNIX products? Yes. There was no such license. This was a sale. We There was referred to it as an acquisition, not a license. to be a license back for the NetWare technology, but not for the UNIX technology. Let me be clear. There was to be a license back from Novell to SCO to be able to use the NetWare technology in the future, but there was no such license for the UNIX software and copyrights to SCO. selling it to SCO. Q. Was there a license back from Santa Cruz to Novell so It was a sale. We were that Novell would have certain rights to use the UNIX assets that were being sold to Santa Cruz? A. Yes. We contemplated at the time the sale took place, we contemplated that there would be a need inside Novell -- 243 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 and, by the way, this is just good practice, that when you're selling something to make sure that you retain some internal license to keep it and use it. We knew, we, being Novell, knew that we might need to use that to develop some of our products, and we had used it to develop products. So we understood and contemplated in the A.P.A. that there would be a technology license agreement back from SCO. Once we had made this sale, that we would have this technology license agreement back from SCO back to Novell, to use those rights for internal purposes and for some other limited purposes. Q. Could we look at Section 1.6 of the asset purchase agreement which appears on page 5. MR. SINGER: Mr. Calvin, blow up Section 1.6 to make it a little easier. BY MR. SINGER Q. Is this the provision that you're referring to where SCO would license back the technology that it was buying, back to Novell so Novell could use it after the transaction? A. Yes. That is the provision in the A.P.A. that makes reference to that at the time of the closing we would sign a license back to Novell. license back to Novell. Q. Did this provision make sense to you if the UNIX Rather, that SCO would sign a copyrights were being retained by Novell? 244 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. No. I would like now to look at the next document in your book which is SCO Exhibit 162, the technology licensing agreement which is in evidence. Is this the technology licensing agreement that was called for by that provision of the contract? A. Q. Yes. Does this, in fact, have your signature on it on behalf of Novell? A. Q. Yes. Turn to page 3 of that document. MR. SINGER: ownership. BY MR. SINGER Q. Would you read out loud, Mr. Thompson, what it says Mr. Calvin, blow up the section, with respect to ownership of the licensed technology. A. As between Novell and SCO, sub one, ownership of licensed technology shall reside in SCO. Q. A. Sub two. Ownership of any modifications made to licensed technology pursuant to licenses specified in section two above shall reside in Novell. Q. So if Novell used this license to improve their own product, would they own those modifications? A. That is correct. 245 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. But the licensed technology itself that you were getting at the time of the sale, that Santa Cruz was getting, would that be what is referred to in item one that the ownership shall reside in SCO? A. Q. That was the intent and meaning of that provision. I would like to talk now about Section 4.16 of the asset purchase agreement. Now, do you understand this provision deals with something called SVRX licenses? A. Q. Yes. Do you have an understanding of what was meant by SVRX royalties, which are referred to in Section 4.16A? A. Q. A. Yes, I do. Can you tell the jury what that understanding is? Well, over the years many, many, many licenses had been entered into on many, many, many different UNIX products, product versions. 15 or 20 years. That occurred over the space of 20 years, As a result, all of these royalty agreements existed, or all these royalty schedules had been entered into that provided multiple millions of dollars a year in royalties for this UNIX software. Part of our transaction was that we would transfer the business, this business to SCO, to manage the clients and to manage all of these things, but Novell was going to keep those royalty revenues. That relates to all kinds of 246 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 versions of UNIX. SVRX. S is the system. V is version, revision is the R, and then X just means which version it was. The versions went all the way from -- 2.0 was the earliest one I ever say, and all the way up to 4.2 is the last one I think I ever saw. to each one of those things. Q. A. Did this include the current UnixWare product offering? Well, no. Well, let's see. No, I don't think so. There were royalties attached This provision relates to the items identified in Schedule 1.1A. There are actually a number of products listed there that are all UNIX system releases, SVRX version licenses. Q. You're referring to the language which says as listed in detail under item six of Schedule 1.1A? A. Q. A. Right. Can we turn to that provision? Yes. That is what I am looking at. There are 15, 20, There are royalty 25 different products identified there. schedules that apply to different companies, lots of different companies. Remember, there were a lot of these people, and it had been going on for years and years and years, and they had licensed these technologies over time and they were paying royalties on these various items. Q. We're looking now at this item six that is in the schedule of included assets that was referred to in Section 4.16. 247 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. Yes. Are these licenses that are listed here or are these products? A. Those are actually products. See, the UNIX licenses There was what you would were made up of multiple parts. refer to as the master software agreement, and then there were the sublicensing agreements which included these little product schedules for every product that they happen to license. You would have a master software agreement as a customer of AT&T or USL or Novell, and then you would have, depending on which versions that you had licensed, you would have all these separate schedules. You might have 2.0, 3.0, 3.2, 4.0, and you would have this list of schedules, and you would have your own separate revenue schedule coming in for each one of those. Q. A. What were those called? What were what called? I think they were called product schedules that were part of the sublicense agreements. Q. Were these the royalties which Novell was going to get as a part of the transaction? A. Q. Yes. Now, if we turn back to Section 4.16B, can you explain what your understanding was of the purpose of this language with respect to the buyer not amending any rights regarding 248 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 these SVRX licenses without prior consent of the seller, and then the seller's actions as set forth in that provision? A. Well, it is pretty clear. Novell was interested in It did not want making sure that it got those royalties. SCO to go out and do anything to disrupt that royalty stream. I don't have the exact numbers in my mind, but my recollection is it was something like $50 million a year in royalties. It wasn't just, you know, a couple hundred It was $50 million a year of royalties. thousand dollars. Novell did not want them disrupting any of this royalty income. So they wanted to make sure that SCO, even though we had transferred the business to SCO, the restriction was to say, listen, we're relying on this revenue stream as a part of this transaction. royalty stream. Don't do anything to upset this In fact, we're going to restrict you so that you can't do anything to undo or limit or disrupt this royalty stream. 4.16B was for. Q. Could you turn now back to the schedule of assets that That is at least my understanding of what we were looking at, the assets that were being sold. Is one of the items, item two, Roman numeral two? A. Right. Yes, that is right. All of seller's claims arising after the closing date against any parties relating to any right, property or asset included in the business. 249 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. A. Q. A. Q. Was this part of the assets being sold to Santa Cruz? Yes. Claims, would that include legal claims? Yes. Arising after the closing date, and that refers to the date when the UNIX business is going over to Santa Cruz? A. Q. Yes. That was my understanding. So all of those claims would be going over with the business; is that correct? A. Yes. MR. ACKER: Objection, leading. A question that ends with is that correct is usually a leading question. THE COURT: BY MR. SINGER Q. Was one of the assets that the seller was getting -I will sustain the objection. let me rephrase that. Did Santa Cruz's purchase include legal claims that it would have against parties that were connected with the business? A. It was the intent of the parties as part of the negotiations that post-closing, once the closing had occurred, that all of these claims would now be SCO's claims. Q. A. Look at Roman numeral three. Okay. 250 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. Was this also part of the assets being sold to Santa Cruz, all of sellers rights pertaining to UNIX and UnixWare under any software development contract, licenses and other contracts to which seller is a party, or by which it is bound and which pertain to the business, to the extent such contracts are assignable, including without limitation -then there are a number of things that are listed underneath that. A. That is right. Our intent in that particular provision was to try to enumerate all of the things that we were trying to sell them as part of the business. Q. Are you aware that there were agreements for software development with companies that went back all the way to the AT&T days, that had gone from AT&T to Novell and now from Novell to SCO? A. Q. I was aware of that. Are you aware that one of those were agreements that allowed IBM to have access to the UNIX source code for its development work? A. Q. I was aware of that. Do you have an understanding as to whether or not that agreement would be one of the ones under this section, Roman numeral three? A. Yes, that would be one of the agreements. It was one of the -- I mean, if you want to look specifically, and if 251 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 you look down at item L, under paragraph three look down at item L, it specifically refers to software and sublicensing agreements, including source code sublicensing agreements seller has with its OEMs. Q. A. OEM means? Original equipment manufacturers. I don't know why they use that phrase, but that is how they refer to them. Q. Was it your understanding that Novell retained the right after the closing to stop Santa Cruz from pursuing litigation, if they thought it justified, against IBM under its authority under this Section 4.16 that we looked at before? A. No. The restriction on bringing an action relates to the royalty stream -- upsetting the IBM royalty stream, not the master software license. Q. Now, after the transaction was -- I would like to actually look at Exhibit 133, which is the next document in your book. This is not yet admitted into evidence. to ask -MR. ACKER: MR. SINGER: THE CLERK: MR. ACKER: BY MR. SINGER Then it shouldn't be displayed. I don't think it is displayed yet. The jury can't see it. Okay. I would like 252 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. you? A. Q. Do you have this Wall Street Journal article before I do. Are you familiar with this as an article that appeared in the Wall Street Journal, September 20th, 1995, the day after the asset purchase agreement was signed? A. Q. Yes. I remember seeing it at the time. Do you recall anyone after this was published on September 20th, 1995 at Novell ever saying the Wall Street journal got it wrong? THE COURT: Mr. Singer, it is either going to be admitted or not admitted before you are allowed to ask questions regarding it. MR. SINGER: MR. ACKER: ruling. THE COURT: It will be admitted. I move the admission of Exhibit 133. No objection given the Court's prior (Plaintiff's Exhibit 133 was received into evidence.) BY MR. SINGER Q. 133. Mr. Thompon, would you please take a look at Exhibit This is the Wall Street Journal article at the time when the sale was announced; is that correct? A. Q. Yes. Could you read it out loud, and hopefully we will be 253 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 able to get a little better picture up on the screen. we go. Mr. Thompon, can you read the first paragraph? A. There Novell, Inc. today is expected to announce plans to relinquish control of the widely used UNIX operating system to Santa Cruz Operation and Hewlett-Packard. Q. Can you tell us what part or what aspect of control was going to Hewlett-Packard? A. Well, yes. That is a good point. That negotiation had been going on at the same time we were negotiating with SCO. The idea there was that the parties had worked together, Novell, SCO and Hewlett-Packard, in developing a -- I will use a technical term here -- a 64-bit version of UNIX on the Intel processor. Now, 64-bit is just a way to refer to the new, higher powered Intel chips that were going to be coming out over the next couple of years. The idea was that Hewlett-Packard, who had a tremendous development team in the UNIX world, highly respected -- in fact, at the time of the transaction there were a number of employees that formerly worked for Novell that went to work for Hewlett-Packard to help work on this. The rest of the employees, to my knowledge, then went to SCO to help work on the SCO side. They were working on a 64-bit version of UNIX, which 254 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 they could then sell as a network operating system, or as a UNIX operating system in a shrinkwrapped box that just goes out and works on people's P.C.s. At that time Microsoft pretty much owned the market for P.C. operating system software, and this was an attempt to compete with them. Q. A. Q. Was this happening at the same time? Same time. The next paragraph, could you read that out loud, please. A. The deal includes the purchase by Santa Cruz Operation of most trademarks and intellectual property associated with the UNIX software. One person familiar with the situation said he expects SCO to pay about $140 million, some of which will be shares of SCO, a Santa Cruz, California comp

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