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SCO v Novell Trial Transcripts - Day 2, Part 1 as text -Opening Arguments, 1st Witness, Frankenberg - Updated
Friday, July 23 2010 @ 07:19 PM EDT

I have the corrected transcript for day 2 [PDF] of the SCO v. Novell trial as text. This was the very first actual day of trial, the jury having been chosen and sworn in the day before. So today is Tuesday, March 9, 2010, and we have opening arguments from each of the parties and then SCO begins to present its case. You'll find the rest of the day here [PDF; text] and then here [PDF; text].

For SCO's side, Stuart Singer begins the opening argument, and then Brent Hatch finishes up the last part of it. For Novell, it's Sterling Brennan all the way. Then SCO puts on its first witness on the stand, Robert Frankenberg, formerly CEO at Novell, who is examined by SCO lawyer Stuart Singer of Boies Schiller, then on cross for Novell by Sterling Brennan, then Singer on redirect and Brennan on recross. Here's Groklaw's coverage of that day.

First though, there's some brief discussion about a juror with the same last name as Jeff Hunsaker. Novell noticed it after the jury was set, so the judge is concerned and asks SCO to check with Ryan Tibbitts, SCO's general counsel, as to whether there is a relationship or not, because Hunsaker is on SCO's "may call" list. Might it be a relative? [We learn the next day first thing in the morning that Hunsaker was asked if he knew the juror, and he didn't, so the matter is dropped, based on SCO's representations.] And Novell had filed some proposed alternative instructions, and Judge Stewart's law clerk, Tom Copeland, saw some real benefit to it," so the judge asks SCO to take a look by the end of Wednesday. At that point SCO's Ted Normand says they would file by the end of the day their proposed alternate instructions. Here's what Novell filed along with SCO's objections, here's what SCO filed, and here's what they each eventually came up with in response to the judge's proposed instructions, if you are curious. You can read what the judge finally read to the jury, if you want to, by reading the the last day [PDF] of trial, when the actual jury instructions [PDF] were read, and we'll have that as text shortly. But here's what was filed [PDF], and presumably he read it word for word. I'm guessing at least one of you will grep it to find out for sure.

: )

Then they bring in the jury, and the judge reads the statement of uncontroverted facts to them.

First, though, he asks them if any of them violated his instructions the day before not to research the case or talk to anyone about it. No one says they violated his instructions, so nobody raises a hand, and the judge says, "You all look innocent." This is a judge with a sense of humor. And I would suggest also empathy, in that he must know how the jurors are feeling being asked such a question on the very first day. So he is setting them at ease.

So then the lawyers begin to present to the jury the outline of what they'll be judging in this case. Singer begins, and I gather he has graphics, and early on in detailing the history of SCO Group, which he misrepresents as having been in business for 30 years, as if SCO were in fact Santa Cruz, which it isn't, he says:

SCO Group is a computer software company based here in Lindon, Utah. This is the building that SCO occupied until December of 2009. SCO and its predecessor companies have been in the software business for approximately 30 years. And SCO's business is UNIX, which is a computer operating system, like Windows, but for business computers.
And then he doesn't explain what happened next, why SCO isn't in that building any more. The bankruptcy is a sooper seekrit the jury isn't supposed to know about.

And how about "its predecessor companies"? That's not really accurate, I wouldn't say, *its* predecessor companies. The magistrate judge in the SCO v. IBM case already ruled that SCO didn't buy Santa Cruz. It only got two divisions, not the company. And Mr. Singer was there for that ruling.

And how do you like the description of SCO's business? It's "in the UNIX business". Linux is nowhere to be found in this revisionist tale.

And he goes on to characterize Novell's indemnification program as somehow competing with SCOsource.

And how is this for partial accuracy?

What is remarkable, though, is that this is a case where the executives at the time of the sale, on both Novell's side and Santa Cruz's side, agreed that the copyrights were sold.
That makes it sound unanimous, does it not? And yet, as the trial unfolds, a number of Novell executives appear who tell the jury the copyrights were not sold. It's quite a performance, I must say, and not in a good way to my taste.

As for the "slander of title" presentation, it's remarkable mainly in that here is SCO's Mr. Singer waxing indignant that Novell dared to claim it owned the UNIX copyrights. In time the jury agreed with Novell that it did in fact own the UNIX copyrights, so who's the slanderer now? No one normal sues someone because they think they own the copyrights and said they think they do. Was SCO evil for making an identical claim? You tell me.

But here's a really big fib from Mr. Singer:

Now Linux is open-source software, which means that thousands of people around the world make co-contributions to it, and the problem is no one can be completely sure where that code is coming from.
That is flat out not true. Linux has a process for contributions. Ask the Linux Foundation to explain it to you. Or just go online and look at the contributions as they are making their way through the process. You can do that, because it's all written in public. And since we know Boies Schiller folks read Groklaw, I'm sure they have to know that. As Singer himself tells the jury in his opening, some things are opinions, but other things are matters of fact. Libel, or slander, is where you say or write something as fact that isn't true.

Here's a fact, from a paper published by the Software Freedom Law Center:

The DoD indicates that FOSS has been central to its Information Technology (IT) operations since the mid-1990ís, and, according to some estimates, one-third to one-half of the software currently used by the agency is open source.
But SCO never alters its story in chief. Linux was just a hobbyist toy, Singer tells the jury, until IBM decided to make it useful for business. Now, they have to know that is not true either. Linux was in use by business before IBM heard of it. Reading this is making my blood boil. He talks like Darl. No kidding. He even talks about different "buckets of evidence." Just like Darl. Maybe it's the other way around. But don't they know the world knows better by now?

What normal person thinks that you can force people to license copyrighted code? That's for patents, not copyrights, and even with patents you can decide to write it differently to avoid the patent. But that is what SCOsource was, forcing Linux users to use what SCO told the world was its UNIX code. With copyrights, you do get to say no thank you. This is still America. And as you read on, you'll see Mr. Brennan tells the jury precisely that. We get to express ourselves in America. If we think we own the copyrights, we can say that. And since it turns out SCO doesn't own the UNIX copyrights, what exactly was it selling with SCOsource? A pig in a poke? Novell told SCO repeatedly that SCO didn't own those copyrights. Why, then, did SCO go forward with SCOsource prior to getting the dispute settled? You tell me.

Here's Singer's story about the excluded assets language in the APA. It was put in there contrary to the will of all the executives, and it wasn't caught until a year later. So "that language was taken out" and they replaced it with the language in Amendment 2.

He's kidding, right?

Nope. That SCO's story and he's sticking to it. He seriously tells the jury that story. All Novell meant to keep were the NetWare copyrights.

So now we know which of all the many stories SCO has told the court about Amendment 2 they finally told the jury in Utah. The lawyers went rogue, and the executives didn't notice because they just assumed the copyrights naturally were part of the deal. Isn't that how business is done? The lawyers write stuff and no one reads it? Puh-lease.

Here's what else he says about Amendment 2:

The new language makes clear that the copyrights belong to SCO.
If it were "clear", we wouldn't need a trial, now, would we? I believe that was why the appeals court sent the case back to a jury, to get clarity. Anyway, Amendment 2 has no language specifying any particular copyrights as being transferred, and copyright law, last I looked, does require specifics in order for copyrights to transfer.

He refers to the paralegal Kimberlee Madsen as "an assistant negotiator" for Santa Cruz. This girl keeps getting promoted higher and higher the longer the litigation lasts. He says she will give sworn testimony that Amendment 2 clarified that the copyrights were supposed to transfer.

Remarkable achievement, indeed, considering she has already provided sworn testimony that she never heard anyone so much as use the word copyright ("Madsen: I do not recall a specific conversation regarding copyrights...").

Here's how Singer talks about copyrights:

The first thing you'll hear is that the copyrights went to Santa Cruz. These are the original AT&T copyrights on UNIX that go back to when these different systems were developed. And then as more modifications occurred, more code was written, additional copyrights were obtained.
Say what? In what alternate universe did that happen? AT&T's USL didn't file for copyright protection at first, not until the litigation with BSDi. USL admitted that in the filing in that case. They relied on trade secret protection instead. That early code has no copyright. It's in large part why the USL v. BSDi case settled in 1994, one year prior to the APA at issue in the SCO v Novell case. The judge ruled on a motion laying out the weak position USL was in with regard to copyrights.

I will add on any further points, as I notice them, after I get my blood temperature back down to normal. Can you believe this case lasted for seven years and SCO still wants to litigate it? And how glad I am we went to so much trouble to put the facts out there for the public to know what is true and what is not. Imagine if the community had not done so.

Update: OK. I'm back on my horsie and ready to read some more. I can't help but notice this gem of a statement by Singer:

And that wasn't caught at that time, but it was caught a year later. And that language was amended. It was changed. And that language went out of the agreement and in its place is language which makes clear that the copyrights that Novell is to keep do not include the copyrights required for SCO to exercise its rights with respect to the acquisition of the UNIX and UnixWare technologies. It fixed the problem.

Now I might note, why is it that people didn't catch this in 1995? Why is it that the minutes didn't identify this correctly? The reason, we suggest, is because the business executives took it for granted that the copyrights were being sold. It was fundamental to the deal. No one of the lawyers who put this language in ever raised it with Santa Cruz. They never went to Santa Cruz and said, we want to change the deal, we want to keep the copyrights. They just put that in the schedule and it wasn't caught until a year later. ...

You will hear that Novell and Santa Cruz went forward from that point, and all of their actions reflected their understanding that the copyrights were sold. The registrations were transferred, customers were transferred, the products were re-marked, letters were sent.

His story, then, is that for an entire year, no one at Santa Cruz even *noticed* that they didn't get the copyrights. A year, ladies and gentlemen of the jury of the world. So how much did they find they needed them to run their business? How about not at all?

May I show you something Singer doesn't mention? Here are the relevant copyrights. We've had them on our permanent page for contracts and other vital documents involved in the SCO litigation since 2003. You know why that year? Because Santa Cruz never registered any of these UNIX or UnixWare copyrights on that list. Not a single one. Ever. Do you see the dates? The earliest is 1987, and then a few are registered in 1992. The APA was in 1995, Amendment 2 in 1996, and until 2003, when Caldera, now calling itself the SCO Group so as to make you think they are Santa Cruz, even though they are not, decided to sue the world, nobody bothered to change the registration information on these copyrights to tell the US Copyright Office, and hence the world, that the copyrights had transferred from AT&T or USL to Santa Cruz, or in fact to anyone else. If Santa Cruz really got the copyrights in 1996, after noticing they didn't get them in 1995, as Singer is spinning to the jury, and they were so vital as he is painting it, wouldn't the *first* order of business be to register them to Santa Cruz? He says they did that, but I don't see the record of it, and I remember 2003. We researched it very, very carefully. Litigation made everyone care. The law doesn't require you to register copyrights unless you want to sue someone. Then you have to if you want damages, but otherwise you don't have to. I'll keep reading the transcripts, and if I see any evidence otherwise, I'll swing back by.

But my best guess now is that he was speaking lawyer talk, talking about some registration documents that were in New Jersey, but those papers aren't the ones that matter. And I'd be very interested to see them, by the way. What matters is whether they are registered with the US Copyright Office as transferred. They were not, from all the evidence I've been able to dig up.

These copyright documents have been on Groklaw a long time. We know Boies Schiller guys do read Groklaw. I'm frankly astonished at what I'm reading. I never thought they would tell the same story in court that Groklaw has debunked with evidence in public since 2003. It makes me wonder about something. Is there any way to demonstrate that litigation is frivolous based on publicly available information that you know the litigant's law firm knows about and has told at least two journalists it reads and uses? Just asking.

When SCO lawyer Brent Hatch takes over for his 15 minutes, it's no better:

Now one potential customer that we're going to highlight is Hewlett Packard. HP is one of the largest companies in the world. We have all possibly owned their computers and their printers. SCO was in the middle of negotiating with them a deal in the tens of millions of dollars. The evidence will show that when negotiations broke down, it broke down because of Novell's slander, because Novell was claiming the ownership of the copyrights. Needless to say, Hewlett Packard wasn't going to spend millions of dollars on licenses from SCO if those copyright issues were still being disputed. That's just one deal.
That is not what came out at trial. What came out at trial was that HP thought buying a SCOsource license would be like supporting terrorism, in a long list of reasons set forth in an internal HP email that didn't mention Novell's statements as even one reason. Novell's lawyer, Mr. Acker, read the email to Darl McBride when the latter was on the stand on March 17, and you can find it on page 41 of the transcript for that day, beginning on line 5:
"Reasons not to do the deal. One, RedHat has counter-sued SCO and will view HP as partnering with SCO and will potentially refuse to deal with HP, paren, (HP Linux biz rapidly moves to zero). B, we have strong indications that the Open Source community will revolt against HP and will block any future HP enhancements to open source projects. C, while SCO has shown Joe some code, there is still no clear evidence that IBM, paren, (or anyone else) end paren, has actually done anything wrong. D, all legal experts in the field believe SCO's case is fundamentally flawed and have published white papers to support their position and (attached). E, while we may have a quote, "most favored nation" end quote clause in the deal, our competitive advantage could evaporate in a day. The deal is not exclusive."

And then the e-mail continues onto the next page. "F, this is, in effect, support of terrorism. Rewarding SCO for this behavior opens us up to other claims. We can't predict from who/where. G, doing a deal with SCO does not provide customers with full indemnification. Customers want full indemnification, so a deal with SCO is likely not enough. H, SCO has shown a pattern of unpredictable and "bad" behavior. We can't predict future behavior from SCO which could negatively impact HP. I, amusingly enough, doing the deal would negatively impact our relationship with Microsoft. J, SCO is perceived very negatively in the industry at large. HP will suffer a negative image as a result."

And then he concludes, "there is obviously no easy answer here. I believe that the risks associated with points "a" and "b" are large enough that we should not do the deal."

See Novell's claim about copyrights on the list? I don't either.

With all this whining by SCO about damage to SCOsource, I think someone should say out loud that SCOsource violates the GPL, the license on Linux. If you violate the GPL, and then distribute, it's a copyright violation, because you have no license now, having lost the GPL license.

From that perspective, SCO was encouraging copyright violations, as I view it, and hence SCO never had any right to sell those licenses in the first place.

Frankenberg's testimony is discordant with the written record, so that makes it interesting for starters. He was at the Novell Board meeting the day before the APA was signed in 1995, and yet he claims now on the witness stand that he intended to sell the copyrights too. He says that on UnixWare, they didn't intend to sell everything. They held back Tuxedo, which he describes as part of the UnixWare business, and he offers its exclusion as an explanation for his statement that they only sold a portion of the UnixWare business. There's a difference, he says, between UnixWare the product and UnixWare the business.

There was a contemplated networking services deal that Novell was negotiating with HP. Was Novell selling only a portion of UnixWare to preserve the right to do other UNIX related business? No, Frankenberg states. But some assets were excluded in the contract, right, he is asked? And it leads to this objection by Mr. Singer:

A. Yes.

Q. There were certain assets that were excluded, correct?

A. Yes.

Q. And the assets that were excluded were all copyrights and trademarks except UNIX and UnixWare, right?

A. That is what it --

Q. That is what the document states, right?

A. Yes.

Q. As you look at the agreement even today, you realize the wording of the agreement is that all copyrights and and trademarks except the trademarks UNIX and UnixWare were excluded, correct?

THE COURT: One second.

Ms. Singer?

MR. SINGER. I object. That misleads the content of the document today. THE

COURT: I'm sorry. Could you restate the objection?

MR. SINGER: It is misleading in that the document today and the question related to what the document says today does not say that. It lacks foundation.

THE COURT: I will sustain the objection.

You can see, even if the judge doesn't yet see it, that what Singer is trying to indicate is that because the APA was amended, Amendment 2 replaced the language of the excluded assets. That's SCO's theory. Mr. Brennan continues to question Mr. Frankenberg:
Q. You do have in front of you the asset purchase agreement that has been admitted into evidence as Exhibit 1, 5 correct?

A. Yes.

Q. Mr. Singer asked you earlier to look at Section 1.1B and the schedule thereunder, right?

A. Yes.

Q. Let's look again at the schedule, Section 1.1B, if we might, of the asset purchase agreement. Do you have that before you?

A. It is on the screen, yes.

Q. 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. Yes.

Q. 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. Correct.

Q. And also excluded are all patents, right?

A. Correct.

Q. Let me have you focus for just a minute on patents. Did Novell hold any patents that related to UNIX as of 1995?

A. Yes.

Let me interrupt to just point out that there was an article by Maureen O'Gara, IIRC, that claimed Novell didn't have any patents. They did, as SCO's own witness here testifies. Brennan knows where he is headed, so he continues:
Q. Were any transferred to Santa Cruz Operation?

A. No.

Q. So this exclusion accurately states that the patents Novell held relative to UNIX did not transfer to SCO, correct?

A. Correct.

Q. The agreement also says that excluded are all copyrights, correct?

A. Correct.

Q. 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.

Singer is referring to this SCO motion in limine [PDF], which was granted only in part and denied in part [PDF]. Mr. Brennan asks the question again, and again Mr. Singer objects. It ends up with the jury excused while the judge and the lawyers duke it out. Singer's argument:
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.
He can't ask Mr. Frankenberg about Amendment 2 because Frankenberg had nothing to do with Amendment 2. He did ask Frankenberg about the APA, though, the same document he now objects to Novell asking about. In the line-numbered version of part 1, on page 11, line 4, you can see him doing so. And you can see on page 19, beginning on line 20, and going on to the next page, where Singer asked Frankengerg about the amendment, and Brennan objects. And here is our chart of all the motions in limine. Here's the motion in limine on Frankenberg [PDF; text], the ruling on it [PDF].

The judge points out that Novell wasn't asking about how it reads today. It was asking about how the APA read on the day the board approved the minutes, and on that basis he will allow that. So Singer asks if he will be permitted to at least ask Frankenberg about that language not being in the APA as amended? No, the court says. Frankenberg left the company before the amendment. "You will have to simply deal with that with another witness, Mr. Singer," the judge says.

Then on page 104, there is this battle over a Novell objection, as Mr. Singer is asking the questions:

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. Yes.

Q. 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. No, they would not.

Q. 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: Your Honor, I believe this is covered by a ruling.

THE COURT: Overruled.

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: Can you remind me which numbered motion that would be?

MR. BRENNAN: Yes. One moment, Your Honor, and I 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 going on to page 7.

THE COURT: Thank you.

I will sustain the objection.

MR. SINGER: May I be heard on that point, Your Honor?

THE COURT: You may.

MR. SINGER: 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: That would fly directly in the face of the Court's ruling.

THE COURT: I will continue to sustain the objection.

Aside from showing how on-the-ball Mr. Brennan is, and why he needs to be with Mr. Singer on the other side, I learned something I had not known before: the lawyers who did the APA deal were also the same ones who did the board meeting minutes. My first thought was that this undermines SCO's story that rogue lawyers inserted language that excluded copyrights by mistake. I see Novell had a similar thought, because Brennan asks him about that meeting:
Q. 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. That is correct.

So why didn't he? It's the obvious question, in that the board minutes reflect that the copyrights were to be retained by Novell. And in a later question, we learn that all the attendants at the meeting were given a packet of materials, including the asset purchase agreement, so he had an opportunity to review it prior to it being signed.

Continuing on, Frankenberg's testimony attempts to explain what is hard to comprehend without some explanation: If SCO meant for all the copyrights to transfer, and it was a lock, stock and barrel deal, why was it that the APA says SCO was to pay Novell 95% of UNIX royalties, with SCO retaining only 5%? That, according to Frankenberg, was part of the payment. But how strange it would be if a contract had a provision that has no cutoff date when the full payment was reached, even if the APA said what Frankenberg testified to. A second part of the payment was supposed to be UnixWare royalties over a certain amount, according to Frankenberg, but as it turned out, they never paid a penny on that, so now how much sense does that story make? The third part of the payment was stock in Santa Cruz. Considering how the value of stock can and did fluctuate, how much of a bargain was this deal? Novell had paid $300 million two years prior. Here there is a no-cash deal, stock only, and whether they were payments for the deal or not, which I don't think they were, some promised royalties if they should ever be realized. The stock, it's brought out, was at the time of the deal worth maybe $5, or $6, so the stock was worth at most $25-30 million, a far cry from $300 million.

Frankenberg also testifies that the disputed "joint" press release about the deal was a joint release. And Brennan solicits from him that Duff Thompson was not a board member and wasn't at that significant board meeting, even though others who were not board members were there. He'll use that later, I expect.

Brennan reads from the board minutes to Frankenberg:

Pursuant to the asset purchase agreement, Novell will transfer to SCO its UNIX and UnixWare technology assets, a portion of the employee base in New Jersey, approximately 100 to 400 employees, equipment used in UnixWare business and certain assumed liability thereto.
Not all the employees, which is the impression I had gotten from Frankenberg's testimony on direct. And then Brennan goes in for the kill:
Q. And then it continues: SCO will also collect and pass through to Novell 95 percent of the SVRX royalties. Right?

A. Yes.

Q. So those SVRX royalties were the property of Novell before the transaction; right?

A. Yes.

Q. Novell will continue to receive 100 percent less 5 percent of those royalties; right?

A. Yes.

As I understand that, he's calling Frankenberg a liar. How can the SVRX royalties be payment for the deal, when Novell already had them, 100%? Perhaps that's why Frankenberg answers yes, when asked if the board minutes are accurate when it says the copyrights would be retained by Novell. He says he read them, approved them, and signed them, and that's what they say. After the board meeting, he signed the APA, and it says the same thing, that copyrights were excluded.

Following that signing, for a period of about three months, the deal didn't close, so all parties could review and make sure things were as they should be. During that three months, both parties saw some things to change, and they did change them, but not the excluded assets schedule. And as for the payment, Brennan reads to Frankenberg the part that says that the stock was full payment, that and SCO's assumption of certain liabilities. And it goes on to say that Novell "is retaining all rights to the SVRX royalties, notwithstanding the transfer of the SVRX licenses to buyer pursuant hereto." So where does Frankenberg's theory of the deal come from? Not from the APA, for sure. No one listening to this testimony can have any doubts that there is a chasm between the actual words of the agreement and Mr. Frankenberg's description of what he thought the deal was.

Let me correct that last part: what he says he thought the deal was. And he doesn't shift his story, despite what to me is a mountain of evidence that what he just testified to in a court of law under oath is a serious pile of silly.

So where would a story that makes no sense come from? -- here's the clue that matters. Brennan brings out that prior to Frankenberg's deposition being taken in 2007, he met first with two Novell lawyers, and then afterward with SCO's Duff Thompson, who is chairman of their litigation committee on the board, and then he went in to the deposition. In the first meeting, with the Novell lawyers, it seems Frankenberg told them that he had a vestigial memory of Novell retaining the copyrights:

Q. And at that meeting did you, in fact, confirm both to Mr. Brakebill and to Mr. Lundberg your belief that under the asset purchase agreement you've looked at today that, indeed, Novell wanted to retain the UNIX copyrights in order to facilitate both buyout negotiations of SVRX licenses and to protect the revenue stream under those licenses?

A. I did not say that. What I said was, I believe that there might have been some conversations about that, and I asked them if they could refresh my memory on it. They were unable to do that, nor was anyone else.

Q. In fact, do you recall when you were asked about this that you said that you had a vestigial memory of that topic being discussed?

A. Of the topic of intellectual property and copyrights, yes.

But here's the clue that stands out to me. Frankenberg claims he didn't know Thompson was the chairman of the litigation committee until someone said something about it during his deposition. But when asked if he was aware that Thompson has a financial interest in the litigation, he blurts out that he believes Thompson's partnership owns a lot of shares, a "significant amount", he says. How would he know that? And why?

Singer then has a chance to try to rehabilitate the witness. He gets Frankenberg to say that the lawyers were supposed to exclude the NetWare copyrights, so that's what he thought the excluded copyrights were.

His problem is that that isn't at all what the words say.

********************************************

1


IN THE UNITED STATES DISTRICT COURT
DISTRICT OF UTAH, CENTRAL DIVISION

THE SCO GROUP, INC., a Delaware )
corporation, )
Plaintiff, )
vs. )Case No. 2:04-CV-139TS
NOVELL, INC., a Delaware )
corporation, )
Defendant. )
_________________________________)
AND RELATED COUNTERCLAIMS. )
_________________________________)

BEFORE THE HONORABLE TED STEWART
---------------------------------
March 9, 2010
Jury Trial

REPORTED BY: Patti Walker, CSR, RPR, CP
[Address] Salt Lake City, Utah [Zip]

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A P P E A R A N C E S

For Plaintiff: Brent Hatch
HATCH JAMES & DODGE
[Address]

Stuart Singer
BOIES SCHILLER & FLEXNER
[Address]
Fort Lauderdale, Florida [Zip]

Edward Normand
Jason Cyrulnik
BOIES SCHILLER & FLEXNER
[Address]
Armonk, New York [Zip]

For Defendant: Sterling Brennan
WORKMAN NYDEGGER
[Address]
Salt Lake City, Utah [Zip]

Eric Acker
Michael Jacobs
MORRISON & FOERSTER
[Address]
San Francisco, California [Zip]

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I N D E X
Witness Examination By PAGE
Robert J. Frankenberg Mr. Singer (Direct) 86
Mr. Brennan (Cross) 113
Mr. Singer (Redirect) 176
Mr. Brennan (Recross) 186

EXHIBITS RECEIVED INTO EVIDENCE:
Plaintiff's 1 95
Plaintiff's 162 107
Plaintiff's 526 112
Defendant's Z-3 118
Defendant's T-5 152

SALT LAKE CITY, UTAH; TUESDAY, MARCH 9, 2010; 8:30 A.M.

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PROCEEDINGS

THE COURT: Good morning.

I understand that a question has been raised about juror number nine, Thomas Hunsaker.

MR. ACKER: Yes, Your Honor. Just out of an abundance of caution, after the close of the jury selection yesterday, we obviously recognized the similar name between Mr. Hunsaker and a senior executive at SCO currently. When we went back, and just on our memory, we couldn't recall whether or not Jeff Hunsaker's, the executive of SCO, name was mentioned during the course of voir dire. We just wanted to be sure there is no relation at all. I wouldn't think so given the dialogue that occurred in the juror room. If that is the case, we would want to raise it now so it doesn't become an issue.

THE COURT: Let me ask, Mr. Hatch, did you mention Mr. Hunsaker's name?

MR. HATCH: Your Honor, I didn't bring the notes that I read from. My recollection was that I did, but I can't -- I would have to check those notes.

THE COURT: Will his name come up again during the course of trial?

MR. HATCH: He's on our may call list, so he may be called. We don't have any problem if you, Judge, want to make an inquiry.

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THE COURT: I don't want to do that, unless it's necessary. So what I'm going to do is ask you to ask Mr. Hunsaker whether or not he's related to Mr. Thomas Hunsaker.

MR. HATCH: Let me have Mr. Tibbitts step out and do that.

THE COURT: Would you do that?

MR. HATCH: Sure.

THE COURT: If necessary, if he indicates there is any relationship, then we'll deal with that. I don't want to raise it with Mr. Hunsaker, the juror, and bring focus of his attention on the fact if it's not a reality.

MR. ACKER: I understand, Your Honor. I think it probably is not given the dialogue, but I just wanted to be sure.

THE COURT: You are absolutely right to bring it up, Mr. Acker. I appreciate it.

Another related matter, last night or early this morning defendants filed an alternative jury instruction packet. And I don't know if you have had a chance to look at it, Mr. Hatch, Mr. Singer?

MR. SINGER: I have not.

MR. HATCH: No, Your Honor.

THE COURT: What I would request is that you do look at it and respond to it by Wednesday at five o'clock.

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I haven't looked at it, but Mr. Copeland looked at it quickly and he saw some real benefit to it. But we think it ought to be dealt with in a timely fashion. So Wednesday by five.

MR. NORMAND: Your Honor, we also put in some proposed alternative instructions in the form of our reply. We were contemplating putting in our full set this afternoon. In that event, I think Novell would have the same opportunity to respond.

THE COURT: They would. If you do that by today.

By Thursday, if you would respond to theirs.

MR. ACKER: We will, Your Honor.

THE COURT: Okay.

Counsel, do you have anything else before we bring the jury in?

MR. HATCH: No, Your Honor.

MR. BRENNAN: No, Your Honor. Thank you.

THE COURT: Thank you.

Ms. Malley, if you would, please.

Counsel, let me remind you that I intend to read the statement of uncontroverted facts before you begin your openings.

MR. BRENNAN: Your Honor, may I make just a brief inquiry while we're waiting? Did you have in mind a very short break so we could set up or would you prefer just to

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go?

THE COURT: I'm hoping that we don't need to. I will have the jury stand and we'll take a break within the courtroom, but I don't want to take a separate break.

MR. BRENNAN: That's fine. We just need a few minutes to transition.

THE COURT: Certainly. I'll give you what time you need to do that.

MR. BRENNAN: Thank you, Your Honor.

(Jury present)

THE COURT: Good morning, ladies and gentlemen. Yesterday before we recessed, you were given very specific instructions as to how you were to conduct yourselves. In particular, you were told that you were not to discuss the case with anyone and I detailed what that entails. I have to ask you, did any of you violate that instruction in any respect?

You all look innocent.

Another thing, ladies and gentlemen, one of you is an alternate juror. Who that alternate juror is not for you to know. So every one of you must assume that you will be deliberating on the case and you are all to pay attention and to assume that at the end you will have that opportunity, and we'll reveal to you who the alternate juror is right before those deliberations begin. But that's not

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for several weeks.

I do want to now read to you a statement of controverted facts, which means these are facts that the parties have stipulated to and you therefore are to accept them as facts in this case.

The SCO Group, Inc. is a Delaware corporation with its principal place of business Lindon, Utah. It has been in the business of developing and selling software products.

Novell, Inc. is a Delaware corporation with its executive offices in Waltham, Massachusetts, and its principal product development facility in Provo, Utah. Novell is also involved in the development and sale of software products.

UNIX is the name of a computer operating system originally developed in the late 1960s by engineers at AT&T's Bell Laboratories. Different versions of UNIX are in widespread use around the world.

In September 1995, Novell, Inc. and the Santa Cruz Operation, Inc. entered into an asset purchase agreement, or APA. That APA was signed on September 19th, 1995, and was amended in December 1995 and October of 1996.

The parties to the asset purchase agreement were Santa Cruz and Novell, but SCO is now a party to the agreement in lieu of Santa Cruz. That is because several years ago SCO acquired from Sants Cruz all the UNIX and

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UnixWare assets that Santa Cruz had acquired from Novell.

In March 2003, SCO filed a lawsuit against International Business Machines Corporation, IBM, alleging that, among other things, IBM had breached contracts that SCO has the right to enforce. SCO subsequently terminated those contracts for the alleged breach.

Linux is the name of a computer operating system that was published as open-source software in the early 1990s.

As I indicated to you yesterday, the first thing we'll deal with today now will be the opening statements. The plaintiffs will go first and the defendants will then respond thereafter.

Mr. Hatch, will you be going first or you, Mr. Singer?

MR. SINGER: I will be.

THE COURT: Mr. Singer.

MR. SINGER: Good morning, ladies and gentlemen. My name is Stuart Singer and I'm one of the attorneys for the SCO Group in this case. I would like to begin by thanking you for your service and taking time from your lives to resolve this important dispute. There is no other country except America which has a jury system to decide civil cases. It wouldn't work without citizens like you. So on behalf of my colleagues, on behalf of SCO Group, I

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think on this issue I can speak for our opponents as well, we thank you for your attention to this case.

I will be presenting the first part of our opening statement and then Mr. Hatch will be presenting the second part.

SCO Group is a computer software company based here in Lindon, Utah. This is the building that SCO occupied until December of 2009. SCO and its predecessor companies have been in the software business for approximately 30 years. And SCO's business is UNIX, which is a computer operating system, like Windows, but for business computers. There are millions of SCO UNIX products in circulation and use around the world.

Now this is a case involving slander of title. What does that mean, slander of title? Slander of title is when one party, in this case Novell, falsely claims that another party's, in this case my client, SCO Group, property is, in fact, its own.

Now, for example, let's say you own a house and someone comes along and says that's not your house, that's my house, and that creates a cloud on your title and, as a result of that, you can't sell your house. That's a slander of title.

The same thing is true for companies. And here the property which is being slandered is a copyright -- a

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set of copyrights. Copyrights are what authors get to protect books, musicians get to protect music, and computer companies get to protect their programs. It's one of the most valuable things that a computer company can have.

Now in this case, Novell falsely claimed that SCO Group did not own the copyrights to the UNIX system. So this slander went to the very heart of SCO's business. And it came, ladies and gentlemen, from the very company that sold the business to Santa Cruz in 1995, a company which obviously knows or should know what it sold.

Now the slander involved here was made at the very top of Novell. It came from the CEO initially, a man named Jack Messman. That occurred on May 28th, 2003 when Novell put out this press release that was circulated all over the country and internationally saying SCO is not the owner of the UNIX copyrights. They are saying that a check at the copyright office would reveal that, that a review of the asset transfer agreement between Novell and SCO confirms it. And they are saying that the 1995 agreement did not convey to SCO the associated copyrights and that SCO can't demonstrate it has any ownership interest whatsoever in those copyrights. This, I might note, came out on the very day that SCO is reporting record earnings from licensing products directly related to the ownership of these copyrights.

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THE COURT: Mr. Singer, excuse me one second.

Ladies and gentlemen, can you see what is on that board, on those screens in front of you? Is there anyone who cannot?

If at any time during the course of this trial you think that you ought to be able to see something on the screens and you can't, please let the Court know, because there is some uncertainty. Okay.

Sorry, Mr. Singer.

MR. SINGER: Thank you, Your Honor.

Ladies and gentlemen, you will hear evidence that Mr. Messman didn't bother to have anyone thoroughly check Novell's own files and he did not know on May 28th, 2003 that there had been an amendment made to this asset purchase agreement, the contract by which the UNIX assets were sold, that makes clear that the copyrights did go over to the purchaser along with the rest of the business.

So SCO sent them this amendment. And eight days later, on June 6th, 2003, Novell admitted that they were wrong. In another press release, this one issued on June 6th, Novell says, Amendment No. 2 to the 1995 SCO-Novell asset purchase agreement was sent to Novell last night by SCO. To Novell's knowledge, this amendment is not present in Novell's files. By the way, we'll learn that it was present in their files. They say the amendment appears

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to support SCO's claim that ownership of certain copyrights for UNIX did transfer to SCO in 1996.

Now if that was the end of the story, it would be bad enough, a slander made and published to the entire world on the very day that SCO was announcing record earnings. But this is far worse, because not long after the June 6th retraction, Novell decided to retract the retraction and resume a campaign of slander.

So, on May 28th, we had the initial statement. On June 6th, there was a retraction. There were some letters back and forth between the parties. August 4th, Novell says that SCO's claimed ownership in the UNIX technologies must be rejected and they go back to saying they own the copyrights.

In October they go in to obtain copyright registrations themselves on UNIX, and they told the copyright office they retain all or substantially all of the ownership of the copyrights in UNIX, including the U.S. copyright registration referenced above.

Then in December of 2003, December 22nd, another important date, as you'll learn, Novell goes public again, says they have the copyrights, and starts a Web page where it continues to assert ownership of the UNIX copyrights to this very day.

In January of 2004, they launched their own

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program for licensing UNIX users to protect them against infringement that competes with SCO's program.

In March 2004, a Novell executive goes so far as to stand up at a convention and flat out say, we still own UNIX, even though that was a product that was sold to our client's predecessor and now belongs to SCO.

So this is a campaign of slander, broadcast and repeated to the world that continues to this very day. Mr. Hatch will talk later about the effect that this had on SCO's business. It depended on those UNIX copyrights.

Now how do we know it's a slander? You will hear tremendous amount of evidence about that in this trial. What is remarkable, though, is that this is a case where the executives at the time of the sale, on both Novell's side and Santa Cruz's side, agreed that the copyrights were sold.

Ladies and gentlemen, you're going to hear testimony in this trial from ten witnesses on both the Novell and the Santa Cruz side of the transaction which indicate that the copyrights were sold by Novell to Santa Cruz.

Our first witness, which you'll hear later today, is Robert Frankenberg. He was the president and chief executive officer of Novell. The number one guy at the time. He will testify that it was the intent of Novell to sell the entire business, including the copyrights, that

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that was the intent at the start of the transaction, it was the intent throughout the transaction, at the end of the transaction, that the copyrights were part of the business being sold. He's the number one guy.

He charged a man named Duff Thompson, who was a senior vice president, with finding a buyer and leading that process. He will be our number two witness that you'll hear either today or tomorrow morning. Mr. Thompson says the same thing as Mr. Frankenberg, that this was the sale of the entire business, including the copyrights.

Who was the lead negotiator working with Mr. Thompson? That was a gentleman named Ed Chatlos. You'll hear his testimony. He will be our third witness. He says the same thing, the copyrights were sold. These are the witnesses on Novell's side at the time of the transaction. And other witnesses, like Mr. Levine and Mr. Mattingly who were involved, will say the same thing.

Now, of course, on the buyer's side, Santa Cruz Corporation, which at the time was in California and then it was sold to a Utah company, which is why it's here now, they say, of course we got the copyrights. We wouldn't have bought the business if we didn't get the copyrights. It would be ridiculous to buy a software business without the copyrights.

Now since they are in California, we took their

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depositions, which is testimony under oath, just as if the witness was sitting in that witness stand, where the other side's attorneys have a right to cross-examine, and you will hear testimony -- and I'll just give you a couple of snippets of it, but you will hear it at greater length during the trial.

Doug Michels. Mr. Michels, you can see, was the founder and vice president of Santa Cruz. He said, and I quote, the only way that I know of and anyone on my team knew to buy a software business is to buy the copyrights. There is no way we would have ever done a deal to buy a software business where we didn't get the copyrights and all the other intellectual property.

Mr. Mohan, who is the CEO, is UNIX copyrights part of the UNIX business? Absolutely. Did Santa Cruz get the UNIX copyrights? Santa Cruz got the whole business. Copyrights were part of it.

You will hear testimony as well from Mr. Wilt, Mr. Sabbath, Ms. Madsen to the very same point.

Now it's unusual in a case that you have one witness from the other side who agrees with your position. Here, it's extraordinary that you have a set of five witnesses from Novell, including the three top people, involved in a transaction who agree.

Now we will also show you that this was a

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particularly malicious slander because Novell knew better than anyone else that they sold the copyrights. After all, they were the seller of the business. It went to the most important property that SCO had, its ownership of UNIX.

Now I would like to take a step back with you and talk about UNIX, talk about the business and how this became so important.

Now UNIX, like Windows, runs computers, except it's significantly designed for business computers. SCO UNIX runs businesses worldwide. If you go into a McDonald's to order a hamburger, that's on a SCO UNIX system. If you decide to purchase a share of stock on NASDAQ, that transaction will be processed on a SCO UNIX system. If you have a BMW and you take it in for servicing, SCO's software helps runs BMW service centers. In fact, internationally, the same is true, SCO UNIX products help run the German train system, the China post office, and one of Russia's largest banks. So while SCO is not a large company, its products are in use and depended on by companies all over the world.

Now SCO UNIX is the very heart of a lot of products that other companies also market because SCO owns the core intellectual property to UNIX. And over the years that has been licensed by different people who own UNIX and own those copyrights to a variety of companies, including

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IBM, Siemens, Data General, Sequent, and at the heart of that is the UNIX intellectual property that SCO holds by license agreements and copyrights the right to control.

Now how did this company turn out to be SCO's business? If we look at when UNIX was invented, that was in 1969 at the Bell Labs, which is owned by AT&T. And in 1993, Novell acquired that business from AT&T for $300 million.

Then in 1995, Santa Cruz Operation bought the business. And you will hear that Novell received compensation in excess of $200 million for that.

And then in 2001, a company called Caldera, which was based here in Utah, acquired UNIX business from Santa Cruz and changed the name to the SCO Group, which is the plaintiff in this suit.

Now Novell, as I mentioned, got handsomely paid for this business, receiving over $200 million in value. And that consisted of 17 percent of Santa Cruz's common stock, which was worth 50 to $60 million, and a royalty stream on what is called the SVRX licenses, that means system V, some release of UNIX, which were licenses that were already in place. Because Santa Cruz didn't have the cash to pay all cash for the business and Novell didn't want to take more than 17-percent stock, they decided the difference would be bridged by this royalty stream, which has resulted in over $200 million over the years going to

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Novell.

So why did Novell, having sold the business to Santa Cruz, falsely claim that they still own the copyrights? That brings us to Linux. Novell decided, along with its business partner, IBM, to make a big commitment to Linux.

Now what is Linux? It started as a hobbyist tool. It was invented by a man in Finland, a student named Linus Torvalds. In fact, the very name Linux is a combination of Linus and UNIX.

Now Linux is open-source software, which means that thousands of people around the world make co-contributions to it, and the problem is no one can be completely sure where that code is coming from. And Linux was distributed for free. It started as a hobbyist tool. But IBM decided that this would be a great platform around which it could build other businesses and sell products. And so they decided to enhance Linux, make in stronger for a business tool by putting in UNIX technology. The only problem is that UNIX technology belonged to SCO. It was protected by contracts.

And IBM began doing this in early 2000 and 2001. It had a tremendous effect on SCO's business. In 2003, SCO decided they had to do something about it. They decided to bring a lawsuit against IBM, and to ask users of Linux to

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buy a license, to say, all right, if you want to use Linux, pay us a license so that we're being compensated for the use of what is our intellectual property. This is called SCOsource licensing. You'll hear more about it during this trial. SCO entered into a number of licenses with different businesses for that.

And that was -- it was in discussions with many more, when Novell pops up in May of 2003 and says, wait a minute, SCO doesn't own the copyrights, you shouldn't buy a license from them. And Novell went even further. When SCO brought its dispute against IBM, Novell comes in and says, we have the rights, even though we sold you the business, to stop that lawsuit. And so they tried to stop the lawsuit from even going forward on its merits.

Now we suggest it's not coincidence that soon thereafter IBM invested $50 million with Novell. What was that for? So Novell could buy a Linux business too, which they did at the same, in the fall of 2003.

Now what will Novell tell you about this situation? Novell will tell you, despite what you have seen and you will hear from these witnesses, that they kept the copyrights after all. They owned the UNIX and UnixWare copyrights. And I would like to talk about the evidence that you will hear from which you can decide whether or not that is true.

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The first bucket of evidence that you can look at is the testimony of the people who did the deal, these executives. They looked each other in the eye, they shook hands, and they said you've got the business. The evidence is unmistakable that the intent was to sell copyrights.

But, ladies and gentlemen, there will also be documentary proof. We're not just relying on this. This was a transaction for business. And it was the APA, which was a document which existed and was negotiated to effectuate -- to put into effect the intent of those executives in selling the business.

Now let's look at what the APA says. First of all, it talks about what is the business being sold. It says the seller, which is Novell, is engaged in a business of developing a line of software products currently known as UNIX and UnixWare, the sale of binary and source code licenses -- binary is like you would buy if you buy a product out in the market, source code is what is used to develop new products because you can actually read it -- to various versions of UNIX and UnixWare, that's the business.

What is the intent of the transaction? The parties said in writing, it is the intent of the parties that all of the business and all the backlog relating to the business be transferred to the buyer.

So then what do you have in the manner in which

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that was to be accomplished? You will see that there was a list of assets which were being sold, a schedule. And that schedule -- I know this is small. You will have a chance to look at the document and we'll blow it up. This says, all rights and ownership of UNIX and UnixWare, -- these are the assets to be sold -- including but not limited to all versions of UNIX and UnixWare and all copies of UNIX and UnixWare, including all technical, design, development, installation, et cetera, including source code, source documentation and so forth, what we sold pertaining to the following products, and it lists UnixWare and UNIX.

By the way, to the extent Novell is now going to tell you, well, we just sold Santa Cruz UnixWare, we didn't sell them SCO, the black and white language on this schedule shows that isn't true. It shows that UNIX as well as UnixWare software was sold.

Now the way this deal was put together, there was a list of assets that were being sold, which is this schedule, and there was a list of assets which were being retained, because there were some businesses that Novell wasn't selling, like a business called NetWare. And this is where the problem that is behind this lawsuit occurred. Because what happened is that the lawyers, you will hear, ten days before the agreements were signed, put into this schedule, even though it was against the intent of the

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people who did the deal, they listed on those excluded assets, which mainly dealt with this NetWare product, in the middle of this document a line that said all copyrights and trademarks as being excluded from the sale, inconsistent with what you will hear all the business people intended.

And that wasn't caught at that time, but it was caught a year later. And that language was amended. It was changed. And that language went out of the agreement and in its place is language which makes clear that the copyrights that Novell is to keep do not include the copyrights required for SCO to exercise its rights with respect to the acquisition of the UNIX and UnixWare technologies. It fixed the problem.

Now I might note, why is it that people didn't catch this in 1995? Why is it that the minutes didn't identify this correctly? The reason, we suggest, is because the business executives took it for granted that the copyrights were being sold. It was fundamental to the deal. No one of the lawyers who put this language in ever raised it with Santa Cruz. They never went to Santa Cruz and said, we want to change the deal, we want to keep the copyrights. They just put that in the schedule and it wasn't caught until a year later.

Now you have here a transaction which closed in December 2005. You will hear that Novell and Santa Cruz

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went forward from that point, and all of their actions reflected their understanding that the copyrights were sold. The registrations were transferred, customers were transferred, the products were re-marked, letters were sent.

The only thing which was inconsistent with that were these minutes which were done by lawyers. But, in fact, even the press release indicates that the entire business, the intellectual property was sold. So if you look at the official press release that was agreed to by both Novell and Santa Cruz at the time of this sale, it said, according to the terms of the agreement, SCO will acquire Novell's UnixWare business and UNIX intellectual property.

So a year later a dispute arises when Novell on its own tries to restructure one of these license deals with, guess who, IBM. Santa Cruz says, wait a second, we own the business, you can't just do this unilaterally. And Novell backs down. That is when this Amendment No. 2, which is now part of the APA, was negotiated and took out the language which Mr. Messman relied on May 28, 2003, not knowing that he claims this amendment had been signed.

The new language makes clear that the copyrights belong to SCO. Because, as we see, you have a section about the sold assets, which were all rights and ownership of UNIX and UnixWare, that includes the copyrights. Then you have

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what was originally in the APA before the amendment, which excluded the copyrights. Then that was fixed with Amendment No. 2 which said, except for the copyrights required for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies, which put the copyrights at issue here back within the column of the sold assets, which is why Novell, on June 6th, 2003, agreed.

Remember the chart where they said this amendment appears to support SCO's claims that ownership of certain copyrights of UNIX did transfer in 1996? So this was the amendment that led Novell to admit, not in this court proceeding but rather to the world, Amendment No. 2 supporting SCO's position.

Now it's also important to consider what is not anywhere in this written amendment because SCO, Novell concedes, had to run a software business. They were buying a business. How were they going to run it without the copyrights? Novell is going to tell you that all that SCO got was an unwritten implied license, an unwritten license, when you have a document like this. Now that doesn't make a lot of sense.

You will hear testimony from Gervaise Davis, an attorney and professor who has done hundreds of licensing transactions in the computer business, and he will tell you that he's never seen a sale of a software business where the

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copyrights were not sold and you got something like an implied license. For one reason, an implied licensee couldn't bring any lawsuits to defend themselves against someone taking their property. So it just doesn't make a lot of sense.

In fact, the only license that did appear in this asset purchase agreement was a license back. There was a license from Santa Cruz back to Novell to use the intellectual property which was being sold. So it wouldn't make any sense for Novell to get a license back if they hadn't sold the intellectual property to begin with.

Now you will also hear sworn testimony from Steve Sabbath, who was general counsel, and Kimberlee Madsen, who was an assistant negotiator at Santa Cruz, that indicates that Amendment No. 2 clarified that these copyrights were sold and that was the purpose of it. Ms. Madsen will come here to testify. She has no interest in this dispute. She works for Apple now. She will indicate that Amendment No. 2 was intended to confirm the sale of the copyrights.

Now you will hear testimony from a lawyer at Novell on the other side, Ms. Amadia, that says, no, that wasn't the intent. The intent was just this implied license. You will have to judge whether that's credible. You'll need to ask yourselves whether any amendment at all was needed. If all SCO was getting was what they had in the

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1995 agreement without the copyrights, why did they make Amendment No. 2 at all?

So you'll have the testimony of all the executives. You will have the documentary evidence. But, ladies and gentlemen, there is a third type of evidence that is very important for you to consider in this case as well, this is because actions often speak louder than words. How did the parties act after this deal was done in 1995? You will see a lot of evidence on that.

You will hear from three witnesses who have been there since AT&T days in the licensing and engineering area, Mr. Broderick, Mr. Maciaszek and Mr. Nagle. They were there at the time when this business transitioned in 1995 from Novell to Santa Cruz. What will you hear from them? The first thing you'll hear is that the copyrights went to Santa Cruz. These are the original AT&T copyrights on UNIX that go back to when these different systems were developed. And then as more modifications occurred, more code was written, additional copyrights were obtained. If Novell intended to keep the copyrights, if they had a right to keep the copyrights, why are the copyright registrations actually with Santa Cruz? That doesn't make any sense whatsoever.

This in itself shows that Novell well recognized Santa Cruz got the copyrights along with the rest of the business. When they told the copyright office later in

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2003, let us register the copyrights, that was false. We already had those copyrights.

In addition, Novell, you will hear, worked with Santa Cruz who actually re-marked the products showing SCO as owner of the copyrights. Here's an example. This is a product of SCO UnixWare product in 1996 right after the sale, and it was re-marked with Santa Cruz Operation as the copyright owner. And Novell worked with SCO's engineers to do that. It doesn't make any sense if the copyrights weren't being sold.

Customers were told that SCO now owned the entire business. Here's a letter from Novell to one of those customers, Prentice-Hall, and there are many letters similar to this. What does it say? They told the customers, as you may know, Novell transferred to the Santa Cruz Operation its existing ownership interest in UNIX system-based offerings listed in attachment A. What does attachment A say? All releases of UNIX system V. Not just UnixWare. You'll hear Novell telling you that. All releases of UNIX system V and all UnixWare releases.

And what do they say after that? It makes immeasurably more business sense for SCO, as the owner of the transferred products, to handle directly with Prentice-Hall any matters that may become relevant under this subject agreement. SCO, as the owner of the

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transferred products. How do you own a product? You own the copyrights.

Now Novell will tell you that even if they were wrong, you should find that they acted in good faith when they made these slanders on Santa Cruz's title. And I submit to you to ask yourself if that's good faith when you are the seller. It's one thing if a stranger came along and said I own this car and the stranger doesn't know better and maybe the stranger was confused and made that statement in honest error. But Novell owns this business. Novell knew about all the things that I'm telling you. Therefore, when you are the seller, there is no excuse for being wrong about what you were sold.

Let's talk about what happened in May 2003. Consider the position again of Jack Messman, Novell's chief executive officer. He is considering putting out a press release that he knows will be devastating to SCO. He's going to tell the world that SCO doesn't own the copyrights that protect its crown jewels, the UNIX business, and he's going to say that Novell owns them. And Messman is the chief executive officer of a major company. He has a lot of people working for him. Does he make sure that he has the correct document, one with all the amendments, including Amendment No. 2, before going public? No, he doesn't do that.

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It turns out that that document was in the chief financial officer's files, probably down the hall from him in Waltham, Massachusetts. Does he pick up the phone and call Bob Frankenberg, who was the CEO before him, on the board at Novell, and say, were the copyrights sold? No, he doesn't do that. Does he talk to Mr. Thompson or Mr. Chatlos? No. He simply goes public and he wrongly states that the copyrights don't belong to Santa Cruz. And he admits this in deposition testimony that was taken from him.

I asked him under oath, so is it fair to say that Novell, through your action as CEO, intentionally communicated to the public on May 28th, 2003 that SCO did not own the UNIX copyrights? Is that correct? Answer, yes. Did you approve this letter before it was sent? Answer, yes. But you had not been aware of the Amendment No. 2? That's right.

So then SCO sends them Amendment No. 2 and says, here it is. And Novell recognized they were wrong. The very next day, Darl McBride, who you will hear testify, SCO's chief executive officer, said, what are you doing, Mr. Messman, Amendment No. 2 makes clear that the copyrights are owned by SCO, and he sent them a copy of that.

Mr. Messman now admits that the copy of Amendment No. 2 was in their files. I asked him under oath, so at the time Novell said this, it was not aware that the signed copy

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was in Novell's files? It later turned out to be in Novell's files; is that correct? Answer, yes. So there was no excuse for him making that slander.

But Novell was so intent on discrediting SCO, and because of Novell's ties to IBM, Novell decided, as we've seen, to retract the retraction and to continue with this campaign of slander throughout 2003. In September 2003, they sought their own copyright registrations falsely telling the U.S. Copyright Office that they owned these copyrights.

Now copyrights are not like patents. There is not a process by which the government approves them and decides whether or not it's a proper patent. You apply for a registration. The government assumes you are making a true and correct statement and issues it. That's how they got registrations and were able to tell the world in December of 2003 we're the copyright owner.

In November 2003, they buy Suse Linux, a Linux company, so they can go into the Linux business themselves. They get $50 million from IBM to invest to help them buy that company.

Then we get to spring 2004 when Chris Stone, who becomes Novell's vice chairman, Novell's number two man, stands up at a computer software business and he repeats the slander.

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I think we're going to need to rerun that.

(Video clip played)

MR. SINGER: So here you have him publicly saying flat out, we still own UNIX, we still own UNIX, even though they have sold the company, they've told customers they've sold the company, we have copyright registrations, and they are continuing to slander in public.

Compare, if you will, what Mr. Stone said, we still own UNIX, to what Novell told its customers in 1995 when the deal was done. In 1995, they say Novell transferred to the Santa Cruz Operation its existing ownership interest in UNIX system-based offerings, which are defined as all releases of UNIX. And in 2003, their vice chairman stands up and says, quote, we still own UNIX. That was false, that was slander we believe you will find. And to this day Novell, on their Web site, continues to republish that slander. So there will be plenty of evidence where you will be able to conclude that Novell acted recklessly, intentionally and maliciously.

But there is something more. All of this was timed to harm SCO to the max. Chris Stone, the man who stood up at the 2004 conference and said we still own UNIX, is also the Novell executive who talked to the press on May 28th, 2003, and said, here's the press release we're going to put out. And you will hear sworn testimony from one of

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the reporters he talked with, a lady named Maureen O'Gara, where Mr. Stone admitted that they picked May 28th, 2003 because that was the very day that SCO was going to announce its record earnings for the first quarter, for the period where they were selling their SCOsource product, the very day. And you will have to consider whether Mr. Stone says, oh, that was just a coincidence, whether that's believable. But Ms. O'Gara says, under oath, that that press release was timed on May 28th, 2003 to do maximum damage to, quote, up end the stock, to, quote, throw a monkey wrench into SCO. That's what Mr. Stone told Ms. O'Gara. And Ms. O'Gara testified that Mr. Stone said it laughing.

Then they did it again in December. December 22nd, 2003 is when Novell decides to come out with a press release which says, again, they own the copyrights in UNIX. And it claimed they had the copyright registrations. And don't you know it, December 22nd, 2003 is the day that SCO reports its record earnings for the year. Another coincidence? These things were intended to harm SCO to the max.

Now we anticipate that Novell's final defense will be to attack SCO in this very courtroom. They filed a counterclaim asking you to find that we've slandered their title, which you'll see is entirely without support. They will say that SCO is a disliked company and there was no

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proof of infringement.

Now it's not surprising that some people didn't like the fact that SCO, to protect itself, filed a lawsuit against IBM and was trying to obtain licenses from people who were using Linux. People didn't like the fact that a free product, they may have to pay a license for, and that SCO's enforcement of its rights was unpopular in some courts. Taking on companies like IBM and Novell has repercussions in the technology business.

Then, to be sure, there were differences in opinion about whether Linux infringes UNIX. There is a lot of evidence to be presented. You are not going to need to decide that issue. The courts will ultimately determine that.

You'll hear testimony that 19 to 45 percent of the people who used Linux in a corporate setting believed there was enough to the infringement issue that they wanted to buy a protection, a license. But what held it up, you're not going to buy it from someone if you don't believe they have the copyrights, that they have a right to sell it to you. You will see before the slander occurred, some companies did buy that, including Microsoft and Sun, entered into license agreements with Santa Cruz.

So it's one thing if Novell said we don't think Linux infringes UNIX. They said that. They had a right to

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say that. That would be fair. It's a matter of opinion. But copyright ownership, we think you will conclude, is not a matter of opinion. It's a matter of fact. And when they said we still own the copyrights, we still own UNIX, that was false, it was intentional and it was maliciously false. For SCO, whose business depended on those copyrights, it was the most damaging slander imaginable.

Now I'm going to turn the podium over to Mr. Hatch, who will talk about the effect of the slander and the damages that SCO has suffered.

Thank you very much.

THE COURT: Mr. Hatch, 15.

MR. HATCH: Thank you, Your Honor.

Ladies and gentlemen, actions cause effects. The evidence you are going to hear going to trial will show that Novell's false claims of ownership, these copyrights, seriously harmed SCO's business, particularly SCOsource business, and they did this to benefit their ongoing businesses. They had a reason. They had intent.

You recall Mr. Singer told you the SCOsource was a licensing program whereby SCO based its ownership on UNIX -- based on its ownership of UNIX was able to sell its property to Linux users and make money off of that.

Now Mr. Singer just told you about Mr. Stone, and it's true that the evidence is going to show that they timed

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their slander to inflict maximum damage on SCO. Novell understood that it was making its slanderous statements about the ownership timed exactly to overshadow SCO's positive financial results, and that was going to affect their stock price. He laughed, as Mr. Singer said, he laughed when he told this to the press. He picked that time.

Now, through these actions, Novell was being malicious. They were making every effort to hurt SCO. We'll show you that that is exactly what happened here. Novell, through its actions, planned the effect of maximum damages, and they succeeded.

Now during this trial we're going to introduce evidence that many of the largest companies in America considered and decided not to do business with SCO because of the copyright ownership issue being up in the air, as Novell had raised it. We'll prove that Novell's malicious slander of SCO was a substantial factor in these companies choosing not to do business with SCO. How do we know this? There will be evidence presented that many of them said so. They told us.

Now to understand that Novell's malicious acts caused the market to devalue SCO's business and caused customers to decide not to license SCO's SCOsource products, we'll show you what happened to the market for SCO's stock

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the day of Novell's damaging, slanderous statement on May 28th, 2003, that Mr. Singer talked about earlier.

Let me put that up. This is the instance where they claim to the world that they owned the copyrights, and not SCO.

On that day, based on publicly available information, it shows that the sales -- and this chart shows various sales throughout the day of SCO's stock and the price at which they were sold. You can see it began in the $10 range with very sporadic trading, and basically held fairly level throughout the day.

You will notice at about one o'clock -- you will see it's a military clock -- eastern standard time, just after 1:12 p.m eastern time, Novell had made its slanderous statements, the ones contained here. What happened almost immediately is the bottom fell out of SCO's stock. And Dr. Botosan is going to come here and show you that nothing else happened this day that could have caused that. Almost immediately after SCO made its slanderous statements -- I mean Novell made its slanderous statements, SCO's stock tanked. Now that shows the initial effect of the slander.

The interesting thing about that day is that May 28th was the same day that SCO was going to announce to the world its earnings. Its quarterly report was going to show that they had made over $21 million in revenues and more

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than $4 million in profits. That was record quarterly revenue. Those results would normally have resulted in a stock going through the roof.

Novell decided to chose this day to go public. You will hear testimony from Novell executives, and you've heard Mr. Stone talking about it and laughing about it, they are claiming now, when we brought that up and called them on it, that it was just coincidence.

Well, one week later after doing that and trying to cause damage to Novell, Mr. Singer pointed out to you, one week later when they finally read Amendment 2, claim they didn't have it, they turn around and they say, oh, well, it appears SCO does own the copyrights.

Now we've been litigating this case for years, you're going to spend three weeks at trial, and they are going to bring a lot of people in here to say, well, we really didn't do that. But the interesting thing about this statement one week later is when they first saw Amendment 2, first saw it, what was their initial reaction? This is before they hired hoards of lawyers. Some of them are going to come into court and tell you, oh, no, through legalities and other stuff, we didn't really sell to you what everybody on both sides -- every business executive on both sides of the sale said we sold. Their first reaction, we sold it.

So they tell the public that, and you are going to

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hear Novell say, well, we see that the stock went down. But you know what, later it went back up. And you will see charts that show that after this particular statement, the stock recovered almost the same amount as having gone down. What does that tell you? It tells you that people in the marketplace, when they knew SCO owned the copyrights and Novell had admitted to it, they are listening. They understand these SCOsource licenses and the copyrights mean everything to SCO's business.

You will see that over the course of the next couple of years, while the stock price starts to go back up, and, you know, there are days when it goes down -- let me do it this way. I knew that high tech wouldn't work very well. I should have started here. It goes down, May 28th. Recovers. And then over the course of the next six months or so, it has blimps up and down, up and down, but the stock goes up in price.

Then what happens December 22nd, about six months later, after meeting with the lawyers, after ignoring what they saw, they said the first time they see the amendment, their initial reaction, they start to say, because they want to do this December 22nd, that we don't own the copyrights again. They republish the slander.

Now Novell is going to say, well, you gained all this back. But then they do it again. You're going to see

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over the course of two years the stock starts to turn down again. What that shows you is the market understood. They understood what was important to SCO and what was important to their business being able to succeed.

Now during this time, during the time where there were not a lot of public statements here, this is when it became public, when it's going up, you are going to see that during that time, the evidence from Ms. Botosan and others, that there were independent market analysts who were forecasting that SCO would make significant profits through its SCOsource program, because at the time the market didn't realize that Novell was soon going to flip flop and again reassert its slanderous claims.

Now, regrettably, because of this change in heart in Novell, I want you to think about -- remember the first slander, the day they picked, what do you think December 22nd was? The evidence is going to show that that was the same day as SCO's fourth quarter and year-end earnings was going to be announced, an announcement that SCO was going to announce over $79 million of revenues for the year, over $5 million in profits, and about $25 million of the revenues came from this SCOsource program that was just beginning.

Now a public company like SCO makes those earnings announcements four times a year, once each quarter. Those days are known in advance. Of the 365 days in a year that

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Novell could have chosen to make its claims, Novell zeroed in precisely on the days that would have the most damaging effect on SCO, the days of their positive quarterly and annual earnings reports. They are going to call that a coincidence, and it wasn't. That's malicious, that's knowing, that's intent.

Now Novell continued to slander SCO by repeatedly claiming that it owned UNIX during the next two years, and this ongoing campaign of slander was causing SCO's customers to turn down deal after deal. You will hear from the executives who were negotiating at SCO, who were negotiating SCOsource licenses out in the marketplace, and they will tell you that Novell's campaign of this information to some of the largest business in America was, in fact, harmful to SCO's business.

I put just a few of them up here, contracts that couldn't be reached. Morgan Stanley, for instance, said they refused to meet with SCO until SCO provided, among other things, documents or information that disproved press reports that questioned SCO's claim of ownership of the relevant UNIX code. Cause, effect. Action, cause, effect. Ford, same thing. Sherwin Williams, same thing. Merrill Lynch, Hewlett Packard, Google, even the United States Department of Defense. Novell's statements were a substantial factor why these companies and others did not go

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with buying SCOsource licenses from SCO.

Novell will try to convince you that SCO never made a profit. You just heard that's not true. In any event, that's not an excuse for what Novell did to SCO. Under Novell's theory, if you can destroy a smaller competitor quickly --

MR. BRENNAN: Objection, Your Honor, this is argument, not an opening statement.

THE COURT: Sustained.

MR. HATCH: The evidence is going to show that if -- Novell will argue that SCO was never a particularly successful company. The evidence is going to show you, though, that the SCOsource program would not have been any different -- it will show you that SCO would have been successful. Novell is going to tell you that SCO's UNIX business, the part of the business we're talking about here in this trial, this SCOsource business had millions of dollars -- UNIX part of this business had millions of dollars of revenue and it really was the most profitable of SCO's businesses.

Those profits were being plowed, the evidence will show, into other parts of the business to upgrade SCO's products, to hire more employees, including here in Utah County. So, technically speaking, SCO did have some unprofitable years while they built up their business. I

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want to be real up front about that.

But what Novell doesn't want you to know --

MR. BRENNAN: Objection, this is argument. It's not evidence.

THE COURT: Sustained.

MR. HATCH: I will rephrase that, then, Your Honor.

The evidence is going to show in the very quarter that Novell first attacked in the May 28th slander, that over $20 million in revenues were reported by SCO and $4 million in profits. Those weren't losses. Those were profits. And those profits were attributable, and the evidence will show, in large part, to the success of the SCOsource program.

The evidence is going to show that before Novell began to make its slanderous statements, SCO had already signed large deals that were related to its SCOsource program and bringing in millions of dollars. The evidence is going to show that before Novell's slander, the SCOsource program had generated a substantial amount of interest in the Linux marketplace and that SCO had many other SCOsource deals in the pipeline.

Now one potential customer that we're going to highlight is Hewlett Packard. HP is one of the largest companies in the world. We have all possibly owned their

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computers and their printers. SCO was in the middle of negotiating with them a deal in the tens of millions of dollars. The evidence will show that when negotiations broke down, it broke down because of Novell's slander, because Novell was claiming the ownership of the copyrights. Needless to say, Hewlett Packard wasn't going to spend millions of dollars on licenses from SCO if those copyright issues were still being disputed. That's just one deal.

THE COURT: Mr. Hatch, you have three minutes left.

MR. HATCH: SCO will ask you to make an award that will just make them whole, and that's fair. To assist you in understanding and quantifying the damages to SCO, we'll present evidence through experts that these damages were conservatively calculated. You are going to hear from Dr. Gary Pisano, who is a professor at the Harvard Business School. Dr. Pisano, he is going to show in the total marketplace -- and you heard Mr. Singer talk about this, that the total possible marketplace, based on his research and looking at other independent researchers and using conservative estimates, that if you add the very likely and somewhat likely, almost 45 percent of the marketplace would have been likely purchasers of SCOsource products. Now he's going to say that even though that Novell may argue that SCO was not liked, was hated, that there were other reasons. He

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said he took all of those things into account and they still would have had success in the marketplace.

You are also going to hear from Dr. Christine Botosan, a professor of accounting at the University of Utah. Dr. Botosan, who has a Ph.D, conducted her own analysis and was able to calculate damages to SCO. She will be here to show you exactly how the damages were calculated and how much they are. Importantly, Dr. Botosan was able to compare her work with that of Dr. Pisano, and their calculations led to similar results.

Dr. Botosan is an accounting professor and she teaches her students, when dealing with financial statements and financial matters, that you should be conservative. You shouldn't exaggerate. That's exactly what she did here. In every instance, Dr. Botosan used numbers, forecasts and assumptions that were conservative and reasonable. And that even though the damages asked for here will be large, they will be fair. And the evidence will show that in doing so, SCO was affording Novell what Novell did not afford SCO.

Thank you.

THE COURT: Thank you, Mr. Singer, Mr. Hatch.

Ladies and gentlemen, we're going to take a brief recess here in the courtroom while defendants get the opportunity to set up. If you would like to stand up and stretch your legs, please feel free to do so.

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If we could please have the courtroom come back to order.

Mr. Brennan, go ahead, please. Thank you.

MR. BRENNAN: Thank you, Your Honor.

May it please the Court, and ladies and gentlemen of the jury, let me reintroduce myself. My name is Sterling Brennan. I practice law here in Salt Lake City. Yesterday I introduced my colleagues, Michael Jacobs and Eric Acker of the law firm of Morrison and Foerster. Mr. Jacobs and Mr. Acker and I have been able to practice law together for many years, and we're grateful that we have the opportunity to represent Novell during the course of this trial. Also yesterday I introduced Mr. Dana Russell, who is Novell's senior vice president and its chief financial officer.

I do join Mr. Singer in expressing our appreciation for your willingness to serve. We're mindful of the sacrifice that you make. On Novell's behalf, we'll do our very best to be efficient and clear in presenting the evidence. And we believe, and as we intend to show, the evidence will establish that Novell has not slandered, as you've heard today, the claim of ownership to the UNIX copyrights. In fact, Novell intends to show that no slander could have occurred for a number of reasons.

First of all, Novell believes that to this day it owns the UNIX copyrights. In addition, Novell is entitled,

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as an exercise of its free speech, to comment on matters that have been put into the public forum by SCO, and that Novell was well within its rights to claim its ownership and to challenge SCO to demonstrate that, in fact, it owned the copyrights.

In addition, Novell's public statements that have been identified for you today were in response to public statements and threats that, in fact, SCO shared with others. And the evidence will show that what, in fact, SCO did was sent letters -- some 1500 letters out to the world to those who were using this Linux software and open source, free source of software, and what SCO was attempting to do was to leverage on the users of the Linux open-source software royalty payments, or license payments. And that by putting that claim into the public domain, Novell then reserved the right, as an exercise of its free speech, to clarify and to state its position regarding ownership.

Now I want to share with you just a little bit of information about Novell. Some of you may be familiar with the entity. As the Court shared with you at the outset in terms of noncontested established facts, Novell is a company that has been in existence since about 1979. It was incorporated and formed here in Utah -- at least the business was operated in Utah since 1983. And Novell maintains to this day a large campus operation in Provo.

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If we were to focus on the time period of 1995, which is the period when Novell entered into the subject agreement with Santa Cruz Operation, Novell had a number of major projects and products that it offered. One was a product called NetWare. It also offered a product called WordPerfect. It also was the owner and offered UNIX. There also was a flavor of UNIX called UnixWare, which was a joint development between Novell and AT&T Labs.

Now you've heard a little bit about SCO. That is shorthand version for what is sometimes an acronym. SCO takes it's name from a company that was formed in 1979 in California called the Santa Cruz Operation, Inc. The Santa Cruz Operation, Inc. was a software company that, in essence, also was dealing in UNIX based system softwares. And then it was in May of 2001 that a company called Caldera acquired whatever rights, and we'll talk about what those rights were relating to UnixWare from Santa Cruz Operation. Caldera changed its name to the SCO Group in August of 2002. So the plaintiff in this case is this entity that we, in shorthand reference, call SCO, but its full title is SCO Group, Inc.

There have been a number of terms that have been bandied about already in the trial. Since you're, hopefully, going to be patient enough to be with us throughout the three weeks likely that we'll be together,

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there will be a number of terms that are used. Mr. Singer made reference to some of them today.

At the end of the evidence, as the Court has already informed you, you will receive legal instructions, the law that you are to apply. What I have to say here today, no more than that which my learned colleagues representing SCO suggested, is not evidence. Instead, it's our role to suggest what the evidence will be, and then we'll present the evidence and you will be the judges of the facts.

There are a couple of terms, however, that I think might be helpful for this discussion today. One is copyrights. Copyright, in simple terms, is a property right this is given to the creator or author of an original creative work. And so, as indicated, it could be a book. It could be a play. In this case it can be a creation -- the original creation of computer software.

There is also a reference that you've heard to operating systems. Some of you will be familiar with prominent operating systems. Microsoft Corporation offers one called Windows. And many, particularly consumer computers, run off Microsoft Windows. Apple Corporation also has an operating system, their variance. One is the Mac system.

One of the very first operating systems that was

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developed is this operating system called UNIX, developed by AT&T, and that development began as early as 1969. UNIX itself was a forerunner to what really led to the development of the Internet in many ways.

The operating system, in shorthand, is the interface between the user, typically the operator of the computer, and the hardware, and it allows instruction to be given, allocates computer resources. So virtually every computer operates off of an operating system.

Now UNIX itself developed a variant of UNIX called SVRX. You will hear that term. You'll see that term when you look at the actual documents in the case. Let me help you understand what SVRX refers to.

In the UNIX terminology, the s refers to system. The V is the Roman numeral V standing for five. The R is the release. And then the X is the variant for the version of that release. Sometimes your software 1.1, 1.2. It's that same sort of concept. So SVRX is a shorthand reference to UNIX's system V release and then whatever the number release is.

You are also going to hear about the term license and royalties. Well, here's the simple concept behind a license and a royalty. A license, essentially, is the right that the owner of copyrighted software would grant to someone else to make some sort of use of it. The license

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itself would typically describe the scope of the use. It also would likely, depending on what sort of arrangement there is, would define the payment, if there is a payment required, for the user to use that copyrighted software.

Novell enters into many license agreements, as do other software companies. The license would set forth what are the payment terms and, again, what the use terms are, and would typically specify what version is included.

Now you will also hear the term NetWare. Netware is a proprietary operating system that was developed by Novell. It's a little different than some of the operating systems that we've already made reference to in that NetWare was and is intended to help networks of computers join together to operate. Rather than perhaps a stand-alone computer, networks are created joining devices. The NetWare is a Novell product that helps those systems operate.

Now you've also heard the term and will throughout the course of this trial something called UnixWare. UnixWare is a joint development, initially between AT&T and Novell, to develop a variant, what we call a flavor of UNIX, that was intended to help network systems operate as well.

UnixWare itself was, as we'll see, transferred later to Santa Cruz Operation and then was transferred to the SCO Group. But not all of UnixWare, as we're going to see, it was not a complete transfer of everything that

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pertains to UNIX or UnixWare, but just parts.

Now when companies decide to sell all or part of their assets to another, there are a variety of mechanisms that could be used. Sometimes companies will whole merger where one company becomes in its entirety part of the other. There are other situations where companies, just as individuals do, would intend to sell a part or a portion of their assets. And the typical vehicle for that is an asset purchase agreement. Rather than sell the entirety of the business, one would sell a part. Sometimes those agreements, depending on what is written in them, also describe what liabilities might go with the assets. And the document that defines what the rights and obligations and duties of the parties are is typically the asset purchase agreement.

Now you've also heard reference to something called SCOsource. That is a program that SCO Group, Inc., the plaintiff in this case, undertook in 2003. And, as the evidence will show you, in a complete 180-degree turnaround from the business practices of the SCO Group before, which had been involved in helping Linux users, the SCO Group, in 2003, made this complete about-face and, as the evidence will demonstrate, turned on Linux users and went out to them and said, this Linux that you've been using and, in fact, products that we've been developing and help you use, we now

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have determined infringe UNIX copyrights. So instead of helping you, our customers, we're now going to come to you and demand that you pay us or else we'll sue you for copyright infringement.

That is the large motivator for the lawsuit. Contrary to what you've heard suggested to you today, the real change in the world was SCO Group, in 2003, completely changing its business model and going after, as has not yet been established that they even had the right to do, going after Linux users and trying to make a profit off of them.

Now there will be a number of things that will be the themes of this case. I want to suggest them to you, but first I need to make this suggestion to you. Of necessity, because the way the rules work, Novell goes second. The SCO Group is the plaintiff, bearing the burden of proof, as the Court has outlined, needs to go first. It will put on the evidence it feels will demonstrate its case. Novell, on the other hand, must stand back patiently and wait for its turn. I may have to bite my tongue hard for the first half of this trial. But then we'll have a chance to put on our evidence, to tell our story, to demonstrate why Novell believes it has not slandered SCO's title. We're going to have to ask you to be patient and not to make any judgments until you've heard all the evidence and the story.

This reminds me of a radio program that I used to

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enjoy. I wish it were still on the air. As I would drive to work up I-15, there was a radio commentator, Paul Harvey. He had a famous daily program called the Rest of the Story. The premise was something like this. Mr. Harvey, in a unique voice -- I would embarrass myself if I tried to mimic it, but in a unique way Mr. Harvey would tell the first after half of a real life account, someone famous in history or an event. One would get the picture, listening to the first half, that the outcome was going to be something in particular. Then he would take a commercial break and come back and tell the rest of the story. The outcome was unanticipated and different than one thought.

Well, with that analogy in mind, I need to ask you to wait until we can give you the rest of the story because it will be, in our estimation, far different than you hear perhaps in the first part.

Now the themes, again, in this case are three-fold at least. One, as I've indicated, Novell has a free speech right. It has a constitutional right when there has been an issue that's been injected in the public forum to speak its mind and to state its position. Novell has done that, and it can't be liable, we believe the evidence will show, for speaking its mind.

Secondly, words really matter. I'm going to show you in greater detail than you had a chance to see this

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morning parts of this. This is the asset purchase agreement between Novell and the Santa Cruz Operation that was entered into in 1995. And there are some very important words in here. The suggestion was made, oh, these were just lawyers who wrote it. Lawyers did write it, on purpose. And both sides were represented by very capable, experienced lawyers. And, in fact, most people, large companies, who do they turn to when the words matter? They do turn to their lawyers to make sure that the words are written in a precise way. So rather than just kind of gloss over the words, it's going to be important today that we look at them and understand what really is happening.

Now there has been another entity -- or product that's been referenced to, and that's Linux. Again, Linux is a little different than some other computer programs because Linux is developed through what's called the open-source community. Rather than being private individuals who are developing software for profit, there are other software contributors who, in this collaborative group sense, develop and take this software and improve it.

A common example sometimes that you would have seen perhaps is Wikipedia. Wikipedia is an online, essentially, encyclopedia, and people are free to make their contributions and add to it. Linux is very similar to that. So Linux is going to be an important focus of what we talk

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about here today and through the course of this trial.

Here's a quick overview. We mentioned that Novell acquired all of the rights -- it's important that I underscore that term all of the rights to UNIX from AT&T in 1993. As we'll show you, when Novell acquired all the rights to UNIX, it was not in an asset purchase agreement where some of the assets were acquired. Instead, it was, essentially, through a merger where all of the assets were placed inside Novell. That's in contrast to what you will see with the agreement that is at issue in this case between Novell and Santa Cruz Operation, entered into in 1995.

The 1995 deal between Novell and Santa Cruz was a selected asset purchase where only part of the assets were acquired. The asset purchase agreement was drafted, signed in September of 1995. The deal did not close, on purpose, for several months. We'll see there was a reason for that. Both sides, after signing the agreement, were given nearly three months to carefully review it before there was actually a transfer.

It's not a perfect analogy, but those of you who have been involved in the sale of a home, you sign an agreement to buy a house, but there's an escrow period where people get a chance to check it out to make sure there was no mistake, that what they did agree to buy is what they end up buying.

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The parties here, Novell and Santa Cruz Operation, took nearly three months to carefully scrutinize this word for word to make sure that the words were right, that they mattered, and they did. So the deal closed in December of 1995, and there was an amendment entered into on December 6th, 1995 to correct any errors. As we'll show you, nothing was changed regarding the assets that were excluded from this transaction, including the UNIX assets.

Well, then for nearly six years things go along without significant challenge or difficulty. In May of 2001, as we've indicated, Caldera acquires whatever UNIX rights Santa Cruz Operation had. And then where things became tumultuous was in the second half of 2002 and the first half of 2003. The evidence will show these developments.

SCO hired a new chief executive officer, an individual by the name of Darl McBride. Mr. McBride came in, realized that Caldera, now renamed SCO -- or to be renamed SCO was not doing well. Mr. Hatch did indicate that they did not have profits. They were a struggling business.

Mr. McBride, as you will hear, recognized that he had to try something radically different, and that is to turn on his previous customers. Instead of helping the Linux users and developing products that would help the open-source community, he decided we'll go out and extract

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license fees from these very people we've been trying to help.

So it was in the early part of 2003, January of 2003, that Mr. McBride and SCO launched this SCOsource license program where they sent all these threatening demand letters to Linux users, you've been using Linux, we now claim we own UNIX, and we think, although they've never had proof, that Linux infringes UNIX, and so pay us an extravagant license fee. And those letters went out in May of 2003.

Now I want to step back so we can clearly understand what this asset purchase agreement means, what it says and what it doesn't say. I told you that, in fact, AT&T had developed UNIX. I don't think there is any challenge here. I don't think there is any contrary evidence that AT&T was the original developer of UNIX.

To help and assist in that, Novell was, in some ventures, a co-developer, but the UNIX software business essentially had four components to it. They are demonstrated on the screen in front of you. One was the copyrights to UNIX itself, the code that had been started and prepared as early as 1969.

There also was revenue that flowed from code that was developed. I told you about SVRX code. And what AT&T did is it was able to license two companies and users of its

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UNIX code, and there were revenue streams that came to AT&T as a result.

There also were other things that the UNIX business, under AT&T's umbrella, had, and those were future development rights. AT&T continued to write new software, develop new products. One of those, as we mentioned, is UnixWare that was initially a co-venture between AT&T and Novell, that then became a Novell product, and there were revenue rights that flowed from that.

Well, then what happened is Novell, in 1993, acquired all of those UNIX rights from AT&T. And it wasn't just a partial deal, but everything, all those rights were sold to Novell for a hefty price, $300 million. Novell did not buy part of the business. It bought all of it, lock, stock and barrel, all of it.

Well, that was followed, then, by this graphic that I think will help you understand that transaction. AT&T sells all of the UNIX related business to Novell. There are no exclusions. There is not a schedule of assets that aren't included. There is not an effort to parse what went and what didn't. Everything went. And that was the price in exchange for the $300 million.

Now what happens? Two years later there is a different deal that's entered into, the asset purchase agreement. Novell had owned the entire UNIX business for

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about two years. Novell determined that in order to pursue some of its core products, NetWare being one of them, that it would undertake to see if it could sell, just as it had purchased the entire UNIX business. So it went out in the marketplace to see if there would be a potential buyer for all of UNIX business. Novell paid $300 million for it. It hoped to accomplish at least an equal sale price.

One of the buyers that expressed an interest was the Santa Cruz Operation, but there was a problem. Initially the thought was that Novell would sell all of the business to Santa Cruz, but Santa Cruz didn't have enough money. It did not have $300 million. It was not as large, as financially successful as Novell and others. It couldn't afford to buy the whole business. So the deal had to change.

What initially was hoped for would be an entire sale had to move to something that Santa Cruz could afford, and that was a partial sale. So there were certain assets that were required.

This is a portion from the asset purchase agreement. Right at the very beginning, the asset purchase agreement makes this statement, the boards of directors of each seller -- the seller in this instance is Novell -- and buyer -- it's Santa Cruz Operation -- believe it's in the best interest of each company and their respective

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stockholders that buyer acquire -- and here's important language, what is it that the buyer, Santa Cruz, acquired? It doesn't say all of the assets. It doesn't say all of the business. It says certain of the assets and assumes certain of the liabilities of the seller comprising the business.

So what happened in this transaction was rather than sell all of the business, there were certain things that were sold, certain things that were retained. What Novell did sell to Santa Cruz Operation were the future development rights that related to UNIX and UnixWare and the revenues that would come from that, but Novell retained or held back the UNIX copyright interest as well as the revenue that came from that.

What SCO gave for the piece of the business that it got was stock. How much was the stock worth? Well, you heard a little bit of a confusing message from SCO's lawyers, something about $200 million. Well, no. What Novell received was stock worth between about 39 million and $73 million, depending on the day that you measure it.

For example, if we were to look at the date that the agreement was signed, September 19th, 1995, SCO stock was trading at that point for about 11 and a half dollars. If you were to multiply that share price times the number of shares, is roughly 17 percent of the shares, you would get to a number of about $73 million. But the deal didn't close

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for 90 days, until December of 1995. You go to SCO's stock price, it had dropped, precipitously, between September 1995 and December 1995. The Santa Cruz Operation stock at that date was trading at about six and a half dollars. If you do the math there, it's about $39 million worth of stock.

Why then would SCO suggest to you that there was something like $200 million in revenues? Because what SCO wants to suggest to you is that somehow it paid Novell for an asset that Novell retained. Novell did not sell the UNIX copyrights and it retained the right to the royalties or license agreements. That was something that we simply didn't sell. So that was not consideration that was paid.

That is made clear in the agreement itself. This is from the asset purchase agreement. You will have a chance to see it. The agreement describes what is the payment that Santa Cruz is going to make. It says, interestingly, on the terms and subject to the conditions set forth in this agreement, as full payment for the transfer of the assets, and then it continues, SCO would transfer 6,127,500 shares. That is the purchase price. That is the entire purchase price. Not $200 million. Whatever the value is of those six million shares is what SCO paid Novell for the limited assets that it acquired.

Here's how the deal was intended to work and this is how the deal does work when one reads the agreement.

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There are UNIX users out there and they pay license fees, and they pay two sorts of fees. One for the SVRX license. That was the early UNIX that was developed by AT&T, bought by Novell. Then there was in this new UnixWare that was developed.

Under the agreement, Santa Cruz Operation would have entitlement to the license fees for new UnixWare development. Novell would retain the license fees for the old, or the SVRX licenses. What Santa Cruz would do under the agreement is, in essence, act as the collection entity.

So what Santa Cruz, then later SCO, got was a five-percent administrative fee for SVRX licenses. If we do a simply mathematical example, if Novell was entitled to a $100 a year license fee for SVRX licenses, under the agreement, as I'll show you the language in a minute, it was entitled to all of that $100. But SCO did the job to go out and collect it. For doing that, it got $5, or five percent.

Now one of the things that you are going to hear about through the course of this trial is who was doing what. There was a suggestion that lawyers were just running around. Well, as I mentioned, lawyers were very involved in this transaction. There were lawyers for both sides. On the Novell side, there were in-house lawyers. One was an individual by the name of David Bradford, who was Novell's general counsel at the time, and he was given the task,

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along with other senior business executives, to make sure that Novell's interests were protected.

Novell hired an outside law firm, a very reputable law firm based in the San Francisco Bay area by the name of Wilson Sonsini. That is the short version. The name goes on longer. One of the partners at the Wilson Sonsini firm was a partner by the name of Tor Braham. You are going to have a chance to be meet Mr. Braham. He will come into court. He was the primary draftsman and negotiator of this agreement. He wrote it. He knows what its terms say. He knows what he was asked to do by Novell. He knows what words were put in the agreement.

In addition, you are going to hear testimony, probably this afternoon, from some former Novell executives, high level executives. The realty is, however, they were so high level they did not become entrenched in the very details of the agreement. Keep in mind that what Novell initially wanted was to sell the entire business. It didn't find a buyer in Santa Cruz that could pay for it all, so the deal changed. Now we have to sell some of the assets. If we're not going to sell all of them, we're not going to get full price, let's make sure we don't give everything away. Let's reserve what we need to. Mr. Braham will explain to you that he was tasked with protecting Novell's interest in a more complicated transaction because it wasn't the entire

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sale of this. It was only a part of it.

Mr. Braham will also indicate that to protect Novell's interest, there were specific provisions put into the agreement to exclude certain assets from transferring. What was excluded? Among other things, the UNIX copyrights that is the very subject of this litigation. Also, it was made clear in the agreement that the royalties that were attached to these SVRX licenses remained Novell product and that it had control over it.

So let's look at the asset purchase agreement itself, in part, if we might. If you were to have this book in you hands -- you will have a chance to look at all of this -- and you were to open it up, you would find right at the front what is called an index of schedules. It's a little bit like a table of contents. It tells the reader what the parts are. What is this agreement comprised of?

Well, there are five schedules. One is the assets. This is the part of the document that lists what is it that Novell is selling. There was another part, the excluded assets. What is it that Novell is not selling. So if anyone, including the jury, wanted to look and find out what is it that Novell sold and what is it that it didn't, one would quickly turn to schedule 1.1, the list of assets. If one wanted to find out what was not being sold, one would turn to schedule 1.1(b), the excluded assets.

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So of necessity, to resolve the issues in this case, one would need to look at the actual language of the agreement. That was brushed over a little quickly for you. I'm not going to make that same mistake. I told you what the agreement itself says. Let's take a bit of a more detailed look.

In the recitals, that's the very first substantive page of the agreement, it describes what is this deal all about. We're going to recite what the foundation is for this agreement. It says, seller -- that's Novell -- is engaged in the business of developing a line of software products currently known as UNIX and UnixWare. Now that's not everything that Novell did. Keep in mind, in 1995 Novell has a whole sweep of products, WordPerfect, NetWare, GroupWise, a whole other sort and collection of products. But in terms of UNIX and UnixWare, there is reference to the sale of binary and source code licenses to various versions of UNIX, which was the AT&T developed product, UnixWare, which is the follow on or the new flavor that was developed between Novell and AT&T, both of which Novell acquired outright from AT&T, and the support for those products. That's the business that's referenced.

Now the question is did Santa Cruz Operation, and now SCO Group, did it buy all of this described business, because that's the claim. The claim that SCO Group is

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making is it bought all of the described business. The agreement answered the question for us. In fact, part B, the boards of directors of each seller and buyer. That's important. Who approved this deal.

I think the first witness that's going to be called today is Mr. Frankenberg, who was the former chief executive officer of Novell and the chairman of the board of directors. The board of the directors is the one that made the decision. And I invite you, during the course of this trial, to listen very carefully to and look at what the boards of directors of Novell and Santa Cruz thought this deal was about because they are the ones who made the decision to do the deal. And it says right here that the board of directors for both companies, and the language continues, believe it's in the best interest of each company and their respective shareholders -- excuse me, stockholders -- I showed you this before -- that buyer acquire certain assets.

The exchange is in part C, what is going to be the deal point in terms of compensation? Well, Novell gets these shares.

The agreement continues because it tells us what is being bought and what is not. Section (a), what are the assets? Now, again, on the terms and subject to the conditions set forth in this agreement. This is why this is

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so important.

What you are going to likely hear are statements being made by people who say this is what we thought the deal was going to be. Executives who thought, well, this is what we wanted to do, but that wasn't the deal. The deal said on the terms and subject to the conditions set forth in the agreement.

We need to look at what the words were. Seller will sell, covey, transfer, assign and deliver to the buyer -- Santa Cruz -- and the buyer will purchase and acquire from the seller on the closing date -- keep in mind I told you this deal is dated September 1995, it doesn't close for three months. Then it says, all of the seller's right, title and interest in and to the assets and properties of seller relating to the business. Now that's assets. Which assets? Identified on schedule 1.1(a).

So, again, if you want to find out what Novell sold, we're going to have to look at schedule 1.1(a). To be very clear about the point, Novell and Santa Cruz then agreed, notwithstanding the foregoing -- that is as an exception to what is being sold -- the assets to be so purchased shall not -- let me underscore that, shall not include those assets, called the excluded assets, set forth on schedule 1.1(b).

Well, let's look at schedule 1.1(a) to see what

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assets were and weren't sold. So if you were to -- and you will have a chance in the jury room after the close of evidence and you have a chance to deliberate, you will have a chance to look at Schedule 1.1(a) and see what was sold. Under intellectual property, and intellectual property comprises things like copyrights, patents, trademarks, this is the description of what Novell sold in terms of copyrights or other intellectual property interests to Santa Cruz. It says this, trademarks -- not copyrights, trademarks -- which are completely different than copyrights -- the trademarks UNIX and UnixWare as to the extent held by seller for Novell. So the complete description of the intellectual property, whether copyrights, patents or trademarks, were just two things, the UNIX trademark and the UnixWare trademark. That is the entire description of the intellectual property.

There is no suggestion that copyrights are transferred. If there be any doubt about that, one then would look at the excluded assets to see what was not sold.

Well, let's look at the asset purchase agreement. This now is schedule 1.1(b) entitled excluded assets. Now I've superimposed on you part of that pie that I showed you. Keep in mind that you will be able to verify this as you look at the agreement. Novell did sell rights to develop UnixWare and also permitted SCO to get revenues from the

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sell of UnixWare. That is only half the pie. What Novell retained was UNIX and the rights to revenues from UNIX.

So we look at what was not sold, what was explicitly, expressly held back, it says this -- and I just want to compare. Let me go back. This is what was included. Notice Roman numeral V under the list of included assets. Now we're going to flip the page and we're going to look at excluded assets. Now, again, we're at intellectual property. This is what was not sold, all copyrights. All copyrights were not sold. There is no equivocation. There's not, well, maybe some copyrights were, some weren't. This agreement, black and white, says all copyrights are excluded from the asset transfer.

And it continues, and all trademarks are excluded except for two. What trademarks were not excluded? Well, we looked at it before, UNIX and UnixWare trademarks. That lines up completely with the list of included assets. There is a perfect symmetry. The agreement says here's what is being sold, the intellectual property, only two things, trademarks for UNIX and UnixWare. We've looked at the next schedule, what is excluded, everything, all copyrights are excluded, and all trademarks are excluded except for two, UNIX and UnixWare. It lines up perfectly. Then, in addition, also to be clear, it says all patents are excluded. This agreement could not be more clear.

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Now I told you the agreement also reserved to Novell all of its royalty rights. Here's the language, you'll see it in the agreement, the role or the function of Santa Cruz Operation was to collect royalties for Novell for SVRX and its licenses. It says it right on the face of the agreement. Buyer agrees to collect and pass through to seller 100 percent -- 100 percent of SVRX royalties as defined and described in Section 4.16. Seller -- Novell -- agrees to pay buyer -- Santa Cruz -- an administrative fee of five percent of the SVRX royalties.

So the suggestion somehow that Novell was paid this royalty stream for SVRX in exchange for all the copyrights, that's belied by the agreement itself. The agreement says, no, Novell retains all of the royalty stream. If Novell didn't hold the copyrights, why does it get the royalties stream? It did retain the copyrights.

Now there is also another suggestion that somehow Novell went out and did something wrong or bad with IBM. Well, what you weren't shown is the language of the agreement. Here's another provision in the agreement itself. Section 4.16 says, at seller's sole discretion and direction -- that means Novell gets sole right, sole discretion -- buyer -- that is Santa Cruz -- shall amend, supplement, modify or waive any rights hereunder, and it talks about with respect to what, any SVRX license, to the

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extent so directed in any manner or respect by seller. That's some dense language. You will have a chance to look at it. You will see that Novell reserved to itself and Santa Cruz granted contractual -- the words matter, Novell's sole discretion to tell Santa Cruz, if you're trying to do something with the license, you've got to respect our request, and Novell acted in accordance with the contractual right it reserved.

Now just a couple of other points here. The suggestion has been, and I think you are going to hear this today and through the course of this trial, there were executives out there thinking the deal was this. But what really matters? Again, I keep saying this, you have got to look at the words. Words matter.

So the agreement itself makes this very clear, to avoid a problem which brings us here today in this court, the reason we're here today is because SCO is trying to suggest that the words really don't matter, that we need to look outside the agreement and see what was in peoples' minds and reject or not take into account the words. You can imagine what chaos would ensue. Someone enters into an agreement, five, ten, 15 years later -- here we are 15 years later -- they say, no, we didn't really mean that, that was a mistake or we thought something else. How on earth would anyone determine what the agreement was? You have to look

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at the words.

So here's what the agreement says about this, this agreement, and the schedules and the exhibits hereto, constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings. So what the parties expressly put in their agreement is whatever we may have had in our mind. Whatever we may have been thinking before we finally negotiated and signed our name, that is all out the door because we want to be governed by the written agreement. Makes sense that's what the parties agreed to.

Now also, again, the suggestion that the lawyers were running around doing this. Well, the parties themselves asked the lawyers to get involved and they acknowledge in Section 9, the parties hereto agree that they have been represented by counsel during negotiation. That's why the lawyers are so important.

Well, here's why Novell retained the copyrights. I've showed you the black and white letter of the agreement. First of all, Santa Cruz couldn't afford to buy everything. Second of all, there were concerns, quite candidly, about Santa Cruz's financial viability. It was a smaller company. It didn't have resources. Novell was concerned, as you will hear its negotiating lawyers say who wrote this agreement, that if there were a situation where Santa Cruz got into

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financial trouble and went into bankruptcy, what does Novell do to protect its retained interests in these license fees. If it gives them the copyrights, it has to run into a bankruptcy court to try to pull them out. Whereas if it retains them, it doesn't have to go through that problem. That's why the agreement was structured the way it is, to protect those royalty rights.

I mentioned the board of directors. This will be critical. I think you'll hear this this afternoon with Mr. Frankenberg. What did Novell really think it was doing when it entered into in this agreement. These are the minutes of the board of directors of a meeting for Novell held the day before the agreement was signed. This agreement was signed on September 19th, 1995, the day before Novell holds a board of directors meeting. Who was there? Mr. Frankenberg chaired the meeting. David Bradford, in-house counsel, was the corporate secretary. What was the resolution, what was the decision of Novell? It says right here, resolved, that the board of directors of this corporation, Novell, hereby determines that it is in its best interests -- in the best interests of this corporation to enter into the asset purchase agreement. What else? This is no mystery. This is no surprise. Novell will retain all of its patents, copyrights and trademarks, except for the trademarks UNIX and UnixWare.

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Now who else was at this meeting? Here's the evidence you are going to hear. Not only was Mr. Frankenberg there as the chair, but Jack Messman was there. You're going to hear his testimony. There was some suggestion that Mr. Messman must not have had any idea what was going on, he didn't understand, there were these retractions made. Mr. Messman was a member of the board of directors, was present when the asset purchase agreement was there, and he heard and received the report that Novell will retain all of its patents, copyrights and trademarks. Of course he believed Novell retained the patents, copyrights and trademarks, because that's what the agreement says and that's what the board of directors decided.

Well, I told you that after the agreement was entered into, that there had to be some adjustments made. What were the adjustments? Let's step back. The agreement is signed September 19th, 1995. Deal doesn't close for nearly 90 days. What are the parties doing? As I mentioned, they are going through the agreement. Did we miss anything. Did we make any mistake. Did we misstate anything. Did the contract that we signed say something wrong. Did it not say something we wish it had. Was there anything wrong with the agreement. Lawyers are involved, business executives for both sides.

So what happens is the day that the deal closes,

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the parties do sign an amendment. Now one would naturally ask the question, during that 60 to 90 days, Santa Cruz Operation must be pouring over the agreement. It must have come to the conclusion, arguably, that, whoa, we did not acquire the copyrights. The language that we signed says we don't get them. We've got to fix that. You would expect that.

When you have a chance to look at Amendment No. 1, there was no change to the language I showed you about excluding of copyrights. No change made. So Amendment No. 1 goes on for 18 pages listing other changes, but no change made either to the inclusion of copyrights, no change made to exclusion of copyrights.

What else happens? Well, the asset purchase agreement itself doesn't transfer anything. It describes what will be transferred. The legal document that transfers the assets is called a bill of sale. If I were to go down the street and buy a new car from one of our fine auto dealers and I entered into a purchase agreement, that wouldn't give me title. I've got to get a bill of sale. That is the document that is memorializing the transfer. The bill of sale doesn't say anything about copyrights, trademarks. It says, instead, look to the agreement, look to the asset purchase agreement to describe. I have shown you the language, all copyrights were excluded.

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So here's an excerpt from the bill of sale that says, in accordance with Article 1.1(a) of the agreement, then describes what the payment was, what the transfer would be, and the description of the assets would be those described in the agreement. It's so important that people look at what they wrote. There was no wool pulled over anybody's eyes.

Novell had very fine lawyers, but so did the Santa Cruz Operation. They had very fine lawyers. Very fine lawyers. Large law firm, Brobeck, Phleger & Harrison, at the time. One of the largest firms in the United States represented Santa Cruz Operation. You're not going to hear a lawyer, I don't expect, show up from that firm to suggest anything different than what I've told you here today. You will hear lawyers from Wilson Sonsini and you will hear in-house lawyers from Novell that drafted this agreement.

Now what happened after that? I told you that the asset purchase agreement was signed in September of 1995, and then was amended the day that it closed. And then about nine months after the close, Santa Cruz Operation said we wish we had gotten those copyrights. And so they came to Novell and said we would like the copyrights. And Ms. Alison Amadia, who you will meet in court, she will be here, she's going to come and testify, she was given the responsibility to work with Santa Cruz when it made this

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request for copyrights.

What is the first thing she does? She contacts -- as you'll hear her say, she says, I didn't write this agreement. I'm going to go back to those who wrote it. She contacts Tor Braham and said SCO is now asking for copyrights. I've read the agreement, she'll say, I've read the exclusions, they weren't transferred, is that right Mr. Braham. You will hear both of them say that's right. It was written in a very particular way to protect Novell. You will hear both Ms. Amadia and Mr. Braham indicate to be very careful not to transfer copyrights. That wasn't the deal.

She is the one, however, who negotiated and drafted Amendment No. 2. You'll hear her in court. She will describe what process she went through, what was at issue, and the language that was drafted. She will tell you that when SCO came out 14 months after signing the agreement, that SCO asked for the copyright transfer and Novell said no. We didn't do it in the initial deal, we didn't do it in Amendment No. 1, we're not going to do it now. Hence, the lawsuit. So Amendment No. 2 did not copyright transfer ownership.

Who else are you going to hear from? You're going for hear from Novell's chief financial officer at the time, the predecessor to Mr. Russell, who's name is Jim Tolonen. He will be here in court. He was involved in both the

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original asset purchase agreement and Amendment No. 2. He signed Amendment No. 2. You will have a chance to see that. He was the signatory for Novell. He will confirm to you that neither in the asset purchase agreement nor Amendment No. 2 was there any intent to transfer the UNIX copyrights.

Now to prove what I told you, what you will see is what SCO had asked for. It came to Novell 14 months after the deal was signed and said, you know, now we wish we had the copyrights and we would like to enter into an amendment that makes reference to copyrights that SCO has acquired. Novell rejected that proposal.

Instead, what was agreed to was something much different that does not transfer copyrights. In the final language of Amendment No. 2, there is no reference to copyrights being transferred. Instead, Amendment No. 2 says this, what will be excepted from the transfer is all copyrights and trademarks, except for the copyrights and trademarks owned by Novell as of the date of the agreement -- that is the asset purchase agreement. And for what? Required for SCO to exercise its rights with respect to the acquisition of the UNIX and UnixWare technologies.

THE COURT: Mr. Brennan, you have ten minutes.

MR. BRENNAN: Thank you, Your Honor.

So let's take a look at this. The suggestion that you've heard this morning is somehow that Novell had not

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transferred copyrights, and that was a mistake. The agreement you'll see throughout does not support that.

The other argument being made is somehow SCO needed ownership of the copyrights in order to operate its business. What was the business that was initially transferred? Was the UnixWare new development and rights that SCO would have to revenues for that. It did not need ownership of copyrights to run that business. In fact, it ran it perfectly well from 1995 until 2003, when Mr. McBride switched strategies. It never had or needed the copyrights.

There are many examples of this. Novell has provided license agreements to IBM, to Sun Microsystems, Hewlett Packard, many other companies that allow those companies to develop their flavor of UNIX. Just as UnixWare is a flavor of UNIX, all these other companies are doing all the things that SCO was able to do as well without ownership of the copyrights.

Now here's one last clue. There are others, but for time, I told you and you heard that Santa Cruz Operation sold whatever rights it had to Caldera, which was renamed the SCO Group, Inc. So one might be interested to go back and look at the agreement when SCO itself buys from Santa Cruz, what does it get? Here's the description of what intellectual property was transferred by Santa Cruz Operation to the plaintiff, in this case SCO Group. Subpart

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(v), right here, assigner -- that is the Santa Cruz Operation -- has no knowledge of any fact that would prevent assignees registration of any rights -- see this exception highlighted -- except that assignor may not be able to establish a chain of title from Novell. The company from which SCO bought these purported UNIX assets itself said we can't even demonstrate that we own those assets. We can't even prove we own the copyrights.

Now here's some witnesses you're going to hear about as we get into this critical 2002, 2003 time frame. Chris Stone, he will say that he was contacted by Darl McBride. Mr. McBride wanted right to copyrights. Mr. McBride knew they didn't have them. Mr. Stone rejected it.

You will hear from Joe LaSala, general counsel at the time that these statements were made, he will say they were contacted and that Novell did not agree.

You will hear from Greg Jones, also in-house lawyer at Novell, said he was contacted by Mr. McBride and he too rejected the request.

Now there was letters sent out. This May 12th letter, 2003, this is the Darl McBride letter sent to the world claiming that Linux infringes UNIX and requesting that people pay them money. That caused uproar. These letters were sent to 1500 companies throughout the country. Novell

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was one of them. Office Max. It created a huge uproar. This is an example of one of many we expect you'll see during this trial where people indicated that what now SCO was trying to do, switching its business model, created a huge backlash against SCO, not created by Novell.

What Novell did is responded and said, you have made these assertions, but we're telling you we still own the copyrights. Be very careful, SCO, about what you claim. You will see that.

Now why did SCO suffer the way it claims to have suffered? Was it because of Novell and what it did? No. First, there is no indication that UNIX is actually infringed by Linux. Let me say it the other way. They have yet to establish that Linux, this open-source code, is a copy of Linux. People are smart enough out in the community to understand that. It was a holdup, a stickup.

Second of all, there are these indemnification agreements, meaning that people could alternatively get protection so they wouldn't have to fight with SCO. There is something you'll hear about called the GPL, the general public license. There is a license out there for all users of open-source software that enables them and entitles them to use Linux. People can design around it. They can create their own method of software. SCO was asking for exorbitant rates. People just rejected it, said we're not going to pay

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you for that. Finally, there was this huge public backlash against SCO.

Here's what you were shown. I'm almost done. Mr. Hatch put up this graph. This is a copy of his, saying, my goodness, on May 28th, Novell made this public statement and that caused this enormous problem for SCO.

Well, let's take a quick look at this. On that single date and time, that single point in history, which claimed that Novell released its statement at about what, one in the afternoon, the stock opened that morning above $10 a share. Before Novell made one statement, the stock had already dropped by almost two and a half dollars. You received no explanation for that. How could possibly Novell be blamed for the stock price dropping that day?

Then they say, there was a statement made, the stock continued to drop. No more than the stock had already dropped before Novell made a statement. Mr. Hatch tried to do a fingerpainting. Here's the actual diagram. If you wanted to track, these are from public sources regarding SCO's stock price. If you look at May 28th, 2003, the date that the statement was made claiming these horrific results for SCO, look what happens then over the next six months. A tremendous rise in SCO's price.

I told you that you hadn't heard the rest of the story. You are given a one-day shot at stock price. You're

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not told what happened after that. During the trial, we'll tell you what happened after that.

Now in conclusion, SCO's slander claim must fail for a number of reasons. Number one, because Novell contractually -- contractually retained the rights to the UNIX copyrights. So anyone who wanted to go back and look and see who owned what, they look to the agreement. I've shown you the language. You will see it repeatedly during the course of this trial.

Second of all, even if we were to engage in a very generous assumption that somehow there was a mistake here, Novell at least had a good faith belief it owned the copyrights by opening up and looking at the language. It can't be liable for slander of title when it has a good faith belief and it has a constitutional right when this subject was thrown into the public forum, when SCO went out to the public and made these claims, when it upset the Linux open-source community, when it upset Novell's customers, Novell had a right to stand up and say no, we own this. Now for all those reasons, the slander of title claim asserted by SCO fails.

We greatly appreciate your patience with us. As I said at the outset, we'll have to sit back and wait until it's our turn. But we have every confidence that as you listen to and weigh all of the evidence, you will find that

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SCO cannot recover for slander of title. And that if any slander was committed, it was by SCO's false claim that it owned the copyrights, which were expressly excluded by the terms of this written agreement. Thank you for your attention.

Thank you, Your Honor.

THE COURT: Thank you, Mr. Brennan.

Ladies and gentlemen, we have gone longer than we normally would, so I don't want you to worry. This is the longest stretch you will normally have to endure. We'll take a 15-minute recess.

Ms. Malley.

THE COURT: Fifteen minutes, counsel.

(Recess)


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(Recess)

THE COURT: Who will be your first witness?

MR. SINGER: Mr. Robert Frankenberg, Your HOnor.

THE COURT: You'll be handling that?

MR. SINGER: I will be handling that.

THE COURT: Thank you.

Anything, counsel, before we bring the jury in?

MR. SINGER: No, Your Honor.

MR. BRENNAN: No Your Honor.

THE COURT: 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: Robert J. Frankenberg, F-r-a-n-k-e-n-b-e-r-g.

DIRECT EXAMINATION

BY MR. SINGER

Q. Good morning, Mr. Frankenberg.

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Would you please describe your educational background.

A. 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. That is correct.

Q. 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 product, not the company. It had already been integrated 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. UNIX was and still is a very popular operating system. 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. Yes.

Q. Did selling UNIX include selling the UnixWare product line?

A. Yes.

Q. Did selling UNIX include selling the UNIX copyrights?

A. Yes.

Q. Was UnixWare the current UNIX product that Novell was licensing at that time?

A. Yes.

Q. 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. Yes.

Q. Was there a man named Duff Thompson who worked at Novell?

A. Yes.

Q. What position did he have in 1995?

A. 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: Objection, leading the witness and move to strike.

THE COURT: Overruled.

BY MR. SINGER

Q. Was there a gentleman by the name of Ed Chatlos that also worked at Novell?

A. Yes.

Q. What role did he have in the transaction?

A. Ed was the primary day-to-day negotiator.

Q. Do you recall who he reported to?

A. I believe he reported to Duff.

Q. Did Mr. Thompson report to you?

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A. Yes.

Q. Who was David Bradford?

A. David Bradford was the general counsel of Novell.

Q. 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 executive at SCO. I am pretty sure that it was at one of the industry conferences that he and I both attended. We 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. Did you also have any communications with Mr. Mohan?

A. Yes, I did.

Q. Who was he?

A. I believe he was relatively new, but he was the C.E.O., the relatively new C.E.O. of SCO.

Q. Were these the two top officials of SCO?

A. 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 selling UNIX on Intel processors. They had customers like McDonald's who ran a good part of their business on their systems. They were viewed as a company that created very highly reliable UNIX business systems. From that standpoint 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. First discussed it with whom?

Q. Mr. Mohan or Mr. Michael.

A. 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. Yes.

Q. 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. No.

Q. 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. No.

Q. Did you ever hear from anyone that the copyrights had been held back in the transaction from Santa Cruz?

A. At what point in time?

Q. Well, let's talk about the time when the deal was being negotiated.

A. No.

Q. 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: Your Honor, we have a set for you as well.

THE COURT: Is this already on the D.V.D.?

MR. SINGER: It is on the D.V.D.

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THE COURT: I will just refer to my D.V.D. then. Thank you.

BY MR. SINGER

Q. Could you turn to what is marked as SCO Exhibit 1 in the book, Mr. Frankenberg. If you would turn to page 49, do 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. Okay.

Q. Whichever is more convenient.

A. Yes. I do see my signature.

Q. 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: No objection, Your Honor.

THE COURT: 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. Yes.

Q. 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. Yes.

Q. Would there be other assets for other businesses that were not being sold?

A. Yes, there would be.

Q. 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. Yes, it was.

Q. 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. Yes, it does.

Q. Was this inclusive of both UNIX and UnixWare technology?

A. Yes.

Q. In fact, under UNIX source code products, do you see listed both UNIX and UnixWare? It appears right below that section under UNIX source code products.

A. Yes. I was looking at it on the page, not the screen.

Q. 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. Yes.

Q. Did you understand that both UNIX and UnixWare source code then was being sold --

A. Yes.

Q. -- 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. Yes.

Q. Now, there is a separate section that deals with intellectual property. If you would turn to page 3 of 4 of the asset schedule. Are you there?

A. I am, yes.

Q. Now, this listed trademarks; is that correct?

A. Yes.

Q. Would that be additional intellectual property to the assets listed on the source code products in Section 1?

A. Yes.

Q. 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. No.

Q. Did you ever authorize anyone at Novell to remove the UNIX and UnixWare copyrights from the assets being sold?

A. No.

Q. 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. Yes.

Q. Did you want to be clear that NetWare assets were not being transferred as a part of the sale?

MR. BRENNAN: Objection, Your Honor, and move to strike.

I'm sorry. The question is leading.

THE COURT: Overruled.

THE WITNESS: Repeat the question, please.

BY MR. SINGER

Q. Yes. Did you want to be clear that NetWare was not 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 pertains to NetWare; is that correct? Does item one pertain to assets not listed on Schedule 1, including without limitation any asset that pertains to NetWare?

A. I'm sorry. I'm lost.

Q. Okay. This is under the schedule --

A. I'm sorry. Yes. I was looking at item two which says NetWare operating system. Yes.

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Q. Item two was the NetWare operating system; is that correct?

A. Yes.

Q. Item three was Tuxedo transaction processing.

A. Yes.

Q. Was that a separate business?

A. That was a separate product. It was part of the UNIX and UnixWare purchase from AT&T.

Q. Was that being sold to Santa Cruz?

A. No.

Q. 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. Yes.

Q. What was Eiger?

A. I don't recall.

Q. Was it a new product?

A. I believe it was, but I don't recall exactly.

Q. This was Novell code that was being withheld?

MR. BRENNAN: Objection, leading the witness.

THE COURT: Sustained.

MR. SINGER: Okay.

BY MR. SINGER

Q. Item B, does that say NetWare code contained in Eiger

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only?

A. No. B. I'm sorry. Yes.

Q. Item C is NetWare 4.1 for UnixWare; is that correct?

A. Yes.

Q. 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. Yes.

Q. Was that consistent with the understanding that you had of the deal?

A. No.

Q. Now, do you recall whether or not you ever reviewed this schedule in connection with the transaction?

A. I am sure that I did, yes.

Q. 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: Overruled.

THE WITNESS: 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. Yes.

Q. 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. No, they would not.

Q. 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: Your Honor, I believe this is covered by a ruling.

THE COURT: Overruled.

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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: Can you remind me which numbered motion that would be?

MR. BRENNAN: Yes. One moment, Your Honor, and I 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 going on to page 7.

THE COURT: Thank you.

I will sustain the objection.

MR. SINGER: May I be heard on that point, Your Honor?

THE COURT: You may.

MR. SINGER: 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: That would fly directly in the face of the Court's ruling.

THE COURT: I will continue to sustain the objection.

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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. No.

Q. Did all of the UNIX employees go over to Santa Cruz?

A. Most of them did. I believe some were laid off.

Q. Would you have done that if you were keeping the UNIX business?

A. No.

Q. Would you look, please, at Section 1.6 of the asset purchase agreement on page 5. This is called a license back of assets. Do you see that?

A. I do, yes.

Q. What is your understanding of a license back of assets?

A. 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. I am reading it. I don't see any restrictions.

Q. Did this contemplate that there would be a separate license agreement that would be entered into at the same time as the closing?

A. Yes.

Q. I would like you to turn, if you would, to Exhibit 162. It is in your book. This is the technology licensing agreement. Was this an agreement that was referred to from your understanding in Section 1.6 of the asset purchase agreement?

A. Yes.

Q. 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: Are you going to admit this?

MR. SINGER: Yes.

I would move to have Exhibit 162 admitted.

THE COURT: Any objection?

MR. BRENNAN: 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: I understand.

BY MR. SINGER

Q. Do you recognize this to be Mr. Thompson who signed on behalf of Novell?

A. Yes.

Q. 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. Yes, there were.

Q. I think I misspoke. I said licensed back by Santa Cruz, but it is licensed back by Novell from Santa Cruz?

A. Yes.

Q. Is that correct?

A. Yes, there were restrictions.

Q. 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. I don't think so, no.

Q. I would like to discuss the payment terms. Was Santa Cruz in a position to pay cash for the business?

A. No, they were not.

Q. Did the parties agree on a different source of compensation for the business?

A. Yes.

Q. 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. Yes, it does.

Q. Now, was paragraph one the receipt of stock in Santa Cruz?

A. Yes, it was.

Q. Was paragraph two that dealt with certain royalties also part of the payment for the business?

A. Yes, it was.

Q. Did that paragraph provide for a royalty stream in certain existing UNIX licenses as part of the payment terms?

A. Yes, it did.

Q. 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. Yes.

Q. Explain what your understanding of that was.

A. 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. Yes.

Q. 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. Yes.

Q. It does not have Section 1.2B royalties. Do you see that?

A. Yes.

Q. 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. Yes, it was.

Q. 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. Yes.

Q. 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. No.

Q. 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. Yes.

Q. 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: I move the admission of Exhibit 526.

THE COURT: Any objection?

MR. BRENNAN: 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. Yes, I did.

Q. As CEO you had to approve the press release?

A. Yes.

Q. The press release, since it was a joint release, would it be an official statement from Novell as well as SCO?

A. Yes.

Q. Is this the press release that you approved?

A. 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?

A. Yes.

Q. Did you understand that to include the copyrights?

A. Yes.

Q. 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. Yes.

Q. And the license agreements, would they be a sale of assets or would they be called a license agreement?

A. They would be called license agreements.

Q. An asset purchase agreement, is that something else?

A. Yes.

Q. Did this transaction close in December of 2005?

A. 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. Yes.

Q. Did your understanding ever change while you were the chief executive officer of Novell?

A. No.

MR. SINGER: I have nothing further.

THE COURT: How long were you the chief executive officer?

THE WITNESS: From late March, early April of 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. My name is Sterling Brennan and I represent Novell. I don't think we have had the privilege of meeting, have we?

A. We have not. Very nice to meet you.

Q. Likewise. My first question, in essence, is the one that Your Honor has just asked you. You were with Novell for less

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than two and a half years, right?

A. Correct.

Q. As you have indicated, you joined the company in April of 2004, correct?

A. Late March, early April, right at the border there.

Q. And you had left by August of 1996, correct?

A. Correct.

Q. 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. Correct.

Q. And chairman of its board of directors, correct?

A. 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. I worked at the pleasure of the board of directors.

Q. 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. Yes, sir.

Q. If you will look back to what has been marked as Exhibit 1, that is the asset purchase agreement. Do you see that?

A. Yes.

Q. That is dated as of September 19, 1995. Do you see that?

A. Yes.

Q. 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. Let's see if I can remember. That was a few years ago now. 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 do remember their faces. John Young was a member.

Q. John Young was another?

A. Yes.

Q. How many members of the board were there at the time?

A. I believe there were eight or nine.

Q. Mr. Singer asked you about minutes of board of director meetings. Do you recall that?

A. Yes.

Q. 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. Were you present at that meeting?

A. Yes, I was.

Q. Do you know whether minutes were prepared of that meeting?

A. Yes, they were.

Q. Did you review the minutes to make sure that they were accurate?

A. I did, yes.

Q. You have indicated that David Bradford was the one who prepared those minutes. Correct?

A. Yes.

Q. 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: May I approach, Your Honor?

THE COURT: You may, and you don't have to ask.

MR. BRENNAN: Thank you.

BY MR. BRENNAN

Q. You have before you what has been marked as Exhibit Z-3. Do you recognize that?

A. Yes.

Q. Are those the minutes of the board of directors meeting

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of Novell, Inc. held on Monday, September 18, 1995?

A. Yes, they are.

Q. 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: No objection.

THE COURT: 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 conference call. Seven of the eight directors were present for the meeting. Bob Frankenberg. That would be you, correct?

A. Yes.

Q. Jack Messman. You recognize Mr. Messman, right?

A. I do, yes.

Q. 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 when I joined. She had an I.T. background and was there 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. Yes, she is listed as present.

Q. Then there is reference to a Larry Sonsini. Do you recognize that?

A. Yes, I do.

Q. Who is Larry Sonsini?

A. 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. Yes.

Q. Did you rely on Mr. Sonsini and his advice?

A. Yes.

Q. 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. Yes, many times.

Q. Did you find his advice to be sound and worth listening to?

A. Yes.

Q. Then there is a reference to Alan Ashton. You mentioned him earlier, right?

A. Yes.

Q. Mr. Ashton had been one of the founders of the Word Perfect Corporation, correct?

A. Correct.

Q. At the time of this meeting he was a member of the board of directors and present at the meeting, correct?

A. Yes.

Q. Then there is a reference to Ian Wilson. Do you recognize that name?

A. I do.

Q. Who is Ian Wilson?

A. 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. Then John young. Who was Mr. Young?

A. 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. I did, yes.

Q. Were there any members of the board that were present at the September 18, 1995 meeting whose advice you did not trust?

A. No, sir.

Q. Now, apparently there were eight directors of Novell at the time, right?

A. Yes.

Q. Only seven are identified as being present at the meeting, correct?

A. Yes.

Q. 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. No.

Q. 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. Very much so, yes.

Q. 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. That is correct.

Q. 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. Yes, I do.

Q. Now, you indicated before that David Bradford was the general counsel of Novell, right?

A. Correct.

Q. What was his role as general counsel?

A. 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. Correct.

Q. Now, Mr. Sonsini's law firm also performed legal services for Novell, correct?

A. Yes, they did.

Q. 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. That is correct.

Q. 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. I did, yes.

Q. Did you trust the legal advice that Wilson Sonsini provided Novell?

A. Yes, I did.

Q. 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. Yes.

Q. 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. Yes.

Q. 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. He, together with other people on the team, yes.

Q. Let's talk about others who may be on the team. You are familiar with Jim Tolonen?

A. I am.

Q. Who was Mr. Tolonen as of 1995?

A. He was the chief financial officer of Novell.

Q. Did Mr. Tolonen have any involvement in the asset purchase agreement?

A. Yes, he did.

Q. Did you rely upon Mr. Tolman's recommendation an advice?

A. I did, yes.

Q. You were aware that he was familiar with the terms and conditions of the asset purchase agreement, correct?

A. Correct.

Q. 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. I do, yes.

Q. 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. Yes.

Q. Then the next paragraph, if we could highlight that, continues as follow. It says Mr. Frankenberg then provided 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. Yes.

Q. Does that accurately reflect what you stated and did at the board meeting? Right?

A. Yes.

Q. In fact, what you described to the board of directors was a contemplated sale of a portion of Novell's UnixWare assets, right?

A. Yes.

Q. 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. So is it correct then --

A. 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. Correct.

Q. Not all of it, right?

A. Correct.

Q. 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. Yes.

Q. 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 Novell. This would be an extension of that license.

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. It didn't need a UNIX license.

Q. 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. Yes.

Q. There were certain assets that were excluded, correct?

A. Yes.

Q. And the assets that were excluded were all copyrights and trademarks except UNIX and UnixWare, right?

A. That is what it --

Q. That is what the document states, right?

A. Yes.

Q. 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: One second.

Ms. Singer?

MR. SINGER: I object. That misleads the content of the document today.

THE COURT: I'm sorry. Could you restate the objection?

MR. SINGER: It is misleading in that the document today and the question related to what the document says today does not say that. It lacks foundation.

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THE COURT: I will sustain the objection.

BY MR. BRENNAN

Q. You do have in front of you the asset purchase agreement that has been admitted into evidence as Exhibit 1, correct?

A. Yes.

Q. Mr. Singer asked you earlier to look at Section 1.1B and the schedule thereunder, right?

A. Yes.

Q. Let's look again at the schedule, Section 1.1B, if we might, of the asset purchase agreement. Do you have that before you?

A. It is on the screen, yes.

Q. 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. Yes.

Q. 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. Correct.

Q. And also excluded are all patents, right?

A. Correct.

Q. 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 1995?

A. Yes.

Q. Were any transferred to Santa Cruz Operation?

A. No.

Q. So this exclusion accurately states that the patents that Novell held relative to UNIX did not transfer to SCO, correct?

A. Correct.

Q. The agreement also says that excluded are all copyrights, correct?

A. Correct.

Q. 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.

THE WITNESS: Would you repeat the question? Some 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. That is what the document says, yes.

Q. 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: We'll just go ahead and take a recess at this point. 15 minutes.

MR. BRENNAN: Your Honor, just so we are clear, 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: Very well, Your Honor.

THE COURT: Ms. Malley.

THE CLERK: All rise for the jury, please.

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(WHEREUPON, the jury leaves the proceedings.)

THE COURT: Go ahead, Mr. Singer.

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. Well, it has reappeared. 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: Thank you, Your Honor.

THE COURT: We'll take 15 minutes.

MR. SINGER: 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: I'm sorry? Will I allow you to do what?

MR. SINGER: To address on redirect with Mr. 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: Thank you, Your Honor.

(Recess)


THE COURT: Do you have anything, counsel, before we bring the jury in?

MR. SINGER: Would it be possible to hear the last question read back before the jury comes in? Is that go to be --

THE COURT: I think we have a new court reporter. That may not be appropriate.

MR. SINGER: Okay.

THE COURT: Mr. Brennan, you may have to ask the question again. And if you think you need to renew your objection, you can do so, Mr. Singer.

MR. SINGER: All right.

MR. BRENNAN: Thank you.

MR. SINGER: It may be the wording on the question rather than -- that's why I wanted to hear it exactly.

THE COURT: All right. Mr. Frankenberg, I think you can sense this, but if at any time a question is asked of you and you see Mr. Singer stand up, if you would not answer until I've had a chance to hear from Mr. Singer.

THE WITNESS: Yes, Judge.

MR. SINGER: Thank you, Your Honor.

(Whereupon, the jury returned to the court proceedings.)

THE COURT: Go ahead, Mr. Brennan.

MR. BRENNAN: Thank you, Your Honor.

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Q. BY MR. BRENNAN: Mr. Frankenberg, you may recall that before we took our break we were talking about the minutes of the board of directors of Novell held on September 18, 1995, as well as provisions of the asset purchase agreement.

We were looking in particular at Schedule 1.1(b), the excluded assets provision of the asset purchase agreement. The language that you now see before you in Section -- excuse me -- in Schedule 1.1(b), that same language was presented to the board of directors of Novell on September 18, 1995; correct?

A. Correct.

Q. In fact, what you have before you as the asset purchase agreement which you signed is in the same form that was presented to the board of directors the day before you signed the agreement; correct?

A. Correct.

Q. So let's go, then -- with that in mind, let's go back to admitted Exhibit Z3, the minutes of the meetings. And I'd like to continue with the account reported in the minutes, and the bottom last full paragraph on Page 1, which begins, various questions. Do you see that?

A. Yes.

Q. So that portion reads:

Various questions were then posed by the

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directors concerning: Possible analyst reactions; impact on employees; impact on Novell's relationship with Microsoft; the ongoing viability of SCO.

And then it continues with other items that were posed in terms of questions by the directors; correct?

A. Correct.

Q. I'd like to have you focus for a minute on the reference of the ongoing viability of SCO. What was it that was discussed at the board of directors meeting before this asset purchase agreement was approved regarding SCO's viability?

A. As I recall, the concern was the amount of cash that SCO had and the size of the company relative to the size of the task.

Q. In fact, SCO didn't have cash that it was even paying to Novell under the proposed asset agreement; correct?

A. Correct.

Q. And then it continues. It says:

Mr. Frankenberg, Mr. Mattingly and Mr. Bradford responded to the questions and a discussion ensued.

Do you recall responding to board of director questions at that meeting?

A. I do, yes.

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Q. Now, before we move on, to make sure we know who the players were, as it were, the attendees at the meeting, you mentioned earlier in response to a question by Mr. Singer that there was a Novell executive at the time by the name of Duff Thompson; correct?

A. Correct.

Q. Mr. Thompson was not a member of the board of directors, was he?

A. No, he wasn't.

Q. In fact, he was not even present at the September 18th meeting, was he?

A. Correct.

Q. But there were other people at Novell who also were not directors who were present; correct?

A. Correct.

Q. David Bradford is an example of that; correct?

A. Correct.

Q. Let's go to the top of the second page of Exhibit Z3, the minutes, and we'll focus on the first full paragraph that begins with, the directors. It continues, quote:

The directors next discussed various competitive alternatives and concluded that the transaction as structured was justifiable both from a strategic perspective as well as from a financial one.

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Now, in terms of the structured asset purchase agreement, you understood at the meeting of the board of directors that what SCO would be actually transferring to Novell was shares of SCO's stock; correct?

A. Correct.

Q. There was no money, actual currency or cash that would be transferred; right?

A. Correct.

Q. Now, you were not with Novell when it acquired the UNIX business in its entirety from AT&T, were you?

A. I was not.

Q. You were not involved in that transaction at all, were you?

A. No, I was not.

Q. Do you know how much Novell paid for the UNIX assets when it acquired the entire business from AT&T?

A. Over 300 million. I don't remember precisely how much, but it was over $300 million.

Q. And the transaction that you were considering at the board of directors meeting on September 18th, 1995, was not a transaction whereby Santa Cruz Operations would be paying Novell $330 million, was it?

A. No, it was not.

Q. As we've discussed, there was no cash that was going to come to Novell; right?

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A. In the initial payment, that's correct.

Q. And all that was going to come was the SCO's stock shares; right?

A. No. The SCO stock shares plus the royalties and buyouts of the SVRX.

Q. We'll cover that in a minute. But in terms of the actual compensation that would be paid to Novell, all that would come initially was the SCO shares; right?

A. Initially, yes. But the other compensation was part of the deal.

Q. I'll catch up with that in just a minute.

A. Okay.

Q. Now, the SCO shares themselves at the time this agreement was being discussed were worth how much?

A. In the range of 5 or $6 a share, I believe.

Q. So in your mind multiplying that out times the number of shares that would be transferred, what was your understanding of the value of the shares that Novell would receive from SCO?

A. In the neighborhood of 25- to $30 million.

Q. Far less than $330 million; fair?

A. Yes. Correct.

Q. So continuing now with the minutes of the board of directors meetings, it says:

Mr. Bradford and Mr. Sonsini then reviewed the

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terms of the asset purchase agreement between SCO and Novell.

Now, was it the case that Mr. Bradford and Mr. Sonsini were asked to review the terms because they were both attorneys?

A. Yes.

Q. They were both familiar with the language of the asset purchase agreement?

A. Yes.

Q. Mr. Bradford had been the one who was given legal responsibility for the terms and conditions; right?

A. He was given oversight responsibility of the legal aspects of the transaction, yes.

Q. And as you told us earlier, Mr. Sonsini was not only a member of the board, but was a legal advisor that Novell looked to regularly for advice; right?

A. That's correct.

Q. And is that why you asked Mr. Bradford and Mr. Sonsini, the two members that were present, one a board member, Mr. Sonsini, and Mr. Bradford, the general counsel, to review what the actual asset purchase agreement said?

A. Yes.

Q. So, did, in fact, Mr. Bradford and Mr. Sonsini review the asset purchase agreement with the board at that time?

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A. Yes, they did.

Q. And you had a chance to follow that discussion; correct?

A. Yes.

Q. You had a chance to look at what the terms and conditions of the asset purchase agreement were; right?

A. Yes.

Q. The notes -- excuse me -- the minutes then, continue:

Both the financial terms of the transaction were reviewed as well as the non-financial terms including issues of Standstill, Registration rights, Board seats, Rights of first refusal, employee severance and what happens in the event of a change of the SCO -- of either SCO or Novell.

Do you recall those items being discussed at the meeting?

A. Yes.

Q. And then it continues:

The directors asked a variety of questions concerning the contract terms, and suggestions were made to improve the terms of royalty collection from SCO.

Do you see that?

A. I do, yes.

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Q. Now, you understood under the asset purchase agreement what would happen is that Novell's rights to royalties from SVRX licenses would continue to be 100-percent Novell's payment stream; right?

A. Less the 95 percent collection fee.

Q. Less the 5 percent --

A. I'm sorry. Less the 5 percent. So 95 percent of the royalties would remain Novell's, not 100 percent.

Q. Just so we're all clear here. You understood that under the structure of the asset purchase agreement, Novell would retain the right to receive royalties from SVRX licenses; right?

A. Yes.

Q. And you understood that those SVRX licenses were part of the UNIX transaction that Novell had had with AT&T earlier; right?

A. As well as any sales that may have been made between those two events, yes.

Q. And that what SCO would do under the proposed asset purchase agreement is it would go out and collect those royalties for Novell, and all of them would be transferred to Novell except for 5 percent; correct?

A. Correct.

Q. And that 5 percent would be an administrative fee that SCO would be paid for administering and collecting the

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royalties; right?

A. Correct.

Q. Okay. Now let's go to the next section of the minutes. It says in the next session, it says, then upon motion. Let's focus on that. Quote:

Then upon motion duly made, seconded and unanimously carried, the following recitations and resolutions were adopted.

Do you see that?

A. Yes, I do.

Q. So following orderly corporate governance after the discussion of the asset purchase agreement, a member of the board of directors made a motion for resolutions and approval. That motion was seconded, and then there was a vote taken; right?

A. Correct.

Q. And the vote was unanimous in favor of the resolutions reached at the meeting; right?

A. Correct.

Q. And you were one who would have voted unanimously in favor of the resolutions; right?

A. Yes.

Q. Let's then look at the resolution. Next session, first paragraph.

Resolved. That the board of directors of this

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corporation, Novell, hereby determines that it is in the best interests of this corporation and its shareholders to enter into an asset purchase agreement with the Santa Cruz Operation, Inc., SCO.

Right?

A. Yes.

Q. And again, that asset purchase agreement was the one we were looking at that's Exhibit 1; correct?

A. Correct.

Q. With the terms that we looked at; correct?

A. Correct.

Q. Okay. Let's continue with the next paragraph in the resolution.

Pursuant to the asset purchase agreement, Novell will transfer to SCO its UNIX and UnixWare technology assets, a portion of the employee base in New Jersey, approximately 100 to 400 employees, equipment used in UnixWare business and certain assumed liability thereto.

Do you see that?

A. Yes.

Q. You understood that's what was going to happen under the transaction; right?

A. Yes.

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Q. And then the resolution continues:

Pursuant to the asset purchase agreement, SCO issued 6.1 million new shares of common stock to Novell.

Right?

A. Correct.

Q. So you understood that the structured agreement again is that Novell would get 6.1 million shares; right?

A. Correct.

Q. And then it continues:

SCO will also collect and pass through to Novell 95 percent of the SVRX royalties.

Right?

A. Yes.

Q. So those SVRX royalties were the property of Novell before the transaction; right?

A. Yes.

Q. Novell will continue to receive 100 percent less 5 percent of those royalties; right?

A. Yes.

Q. Then it says:

Further, SCO will pay to Novell ongoing royalties associated with their future sale of the UnixWare technology as more fully set forth in the asset purchase agreement.

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Do you see that?

A. I do.

Q. And did you understand under the asset purchase agreement if SCO which was granted the right to develop UnixWare were then selling new licenses to UnixWare, we're not talking about UNIX, we're talking about UnixWare. Are you with me?

A. I'm with you.

Q. Okay. So with the UnixWare new licenses that Novell would be entitled to a portion of those royalties, but only if SCO hit a certain threshold of sales; did you understand that?

A. Yes.

Q. And what did you understand that threshold to be?

A. As I recall, it was $84 million.

Q. Do you know whether SCO ever sold $84 million worth of the UnixWare royalties?

A. Well, that would have been after I left. So perhaps the same ruling earlier applies.

Q. And you don't know because you left the company; right?

A. I don't know.

Q. Fair enough.

Then let's go with the next portion of the resolution. And it bears particular attention:

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Novell will retain all of its patents, copyrights and trademarks, except for the trademarks UNIX and UnixWare, a royalty-free perpetual worldwide license back to UNIX and UnixWare for internal use and resale of bundled products exceeded with other miscellaneous unrelated technology.

Do you see that?

A. I do, yes.

Q. So at the meeting of the board of directors, it was specifically presented to the board that under the asset purchase agreement Novell would retain all of its patents, copyrights and trademarks with the sole exception of the UNIX and UnixWare trademarks; correct?

A. That's what it says, yes.

Q. And these are accurate board minutes; right?

A. Yes.

Q. And these were prepared by Mr. Bradford, the secretary of the corporation; right?

A. Yes.

Q. And you had a chance to review them and approve them; correct?

A. Yes.

Q. And you did; right?

A. Yes.

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Q. If we could look to the last page of the board meetings. Under the section, adjournment, there's language and a signature. Let's take a quick look at that. It says:

There being no further business to come before the board, the meeting was declared adjourned by Mr. Frankenberg at 1:30 p.m. Mountain Time.

And then there's a signature above the printed words, David R. Bradford, secretary; correct?

A. Correct.

Q. Now, after that board of directors meeting, did you then sign the asset purchase agreement?

A. Yes.

Q. Did you read every word of it before you signed it?

A. No, I did not.

Q. You were relying upon the advice of Mr. Bradford and Mr. Sonsini among others; right?

A. Also Duff Thompson, also Ed Chatlos, the other people on the team that were -- including the general manager of the UnixWare business, I relied on all of those people, yes.

Q. So thank you. Among others, Mr. Thompson, Mr. Chatlos all recommended that you sign the asset purchase agreement; correct?

A. Yes, they did.

Q. And as we look, the asset purchase agreement that

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you signed and it was approved by the board of directors is in the same form as Exhibit 1; right?

A. Correct.

Q. And it's that document that includes the schedule of excluded assets; right?

A. Yes.

Q. And that schedule of excluded assets is essentially the same as the resolution reached by the board of directors where the board of directors unanimously approved a resolution stating that there would be no Novell patents, no Novell copyrights and no Novell trademarks except for UNIX and UnixWare that would be transferred under the agreement; correct?

A. That's what it says, yes.

Q. Thank you.

Now, after the asset purchase agreement was entered into, the deal did not close for several months; correct?

A. Correct.

Q. And to your understanding, what was the reason for the deal not closing immediately upon signing the asset purchase agreement?

A. Well, I believe that there were quite a number of things that had to be accomplished including figuring out who would move from Novell to SCO, how that integration might take place so the disposition of employees that weren't going to

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move, reexamination of the documents, to make sure that they were correct, all the things that are required to properly complete a complex transaction such as this.

Q. And you understood it to be a complex transaction; correct?

A. Yes.

Q. This was more complex than a simple sale of the entire business. There were other moving parts; right?

A. Yes.

Q. You mentioned that one of the reasons that the transaction did not close immediately upon the signing was because there was to be a reexamination of the documents; right?

A. Yes. There always is under those circumstances.

Q. And so what Novell wanted to do is have a chance to go back and carefully read the language of the asset purchase agreement that you had signed in its behalf on September 19th, 1995; correct?

A. Correct.

Q. And you understood that Santa Cruz Operation would have the same right and opportunity; correct?

A. Correct.

Q. So for the almost three-month period between September 19th, 1995, and December 6th, 1995, both Novell and Santa Cruz Operation had a full opportunity to review the

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asset purchase agreement; correct?

A. Correct.

Q. And upon the closing of the asset purchase agreement that did occur on or about December 6, 1995, both Novell and Santa Cruz Operation reached an agreement that there were certain provisions in the asset purchase agreement that should be amended or modified; correct?

A. Correct.

Q. And those changes or modifications were set forth in what's known as Amendment 1 to the asset purchase agreement; that is correct?

A. Correct.

Q. And you were still the chairman of the board and chief executive officer as of December 6, 1995; right?

A. I was, yes.

Q. Mr. Frankenberg, I hand you what has been marked as Exhibit T5.

And as I understand it, Your Honor, there's a stipulation for admissibility of this exhibit?

THE COURT: Any objection to T5 being admitted?

MR. SINGER: Your Honor, it is already part of SCO Exhibit 1, so it's in evidence already as part of that exhibit.

THE COURT: All right.

MR. SINGER: I don't.

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MR. BRENNAN: This is a standalone version, Your Honor, just so we're clear.

THE COURT: Okay. All right. You couldn't operate from that portion of SCO's Exhibit 1?

MR. BRENNAN: You know, Your Honor, I'm sure I could. And if Your Honor would prefer me to do that, I would be willing to, but I think it might be easier than flipping back and forth to see it alone.

THE COURT: All right. Go ahead. The Court will admit Exhibit T5.

MR. BRENNAN: Thank you, Your Honor.

(Whereupon, Defendant's Exhibit T5 was received.)

Q. BY MR. BRENNAN: So looking at Exhibit T5, do you recognize this as the Amendment Number 1 to the asset purchase agreement?

A. Yes.

Q. So let's look at the first page and the first quarter of the page. And let's go down to just the first heading of Amendment Number 1.

So we've looked at this. This is the heading of Amendment Number 1 to asset purchase agreement. And then we'll look at the first paragraph. It states, quote:

As of the effective date indicated below, the September 19, 1995, asset purchase agreement, the agreement, between Novell and the Santa Cruz

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Operation, is amended in the following respects.

Do you see that?

A. I do, yes.

Q. And what follows are certain changes or modifications to the asset purchase agreement executed on September 19, 1995; correct?

A. Correct.

Q. Now, we talked earlier about Schedule 1.1(a) in the asset purchase agreement that listed the assets that Novell was to transfer to Santa Cruz. Do you recall that?

A. I do, yes.

Q. And Amendment Number 1 does not modify the language used in Schedule 1.1(a) to include copyrights, does it?

A. Not that I see here, no.

Q. There was no attempt made, to your understanding, either by Novell or by Santa Cruz Operation given the nearly three-month period to examine documents to then in Amendment Number 1 come back and say words to the effect, oops, we made some mistake. We intended to include Novell's copyrights to UNIX, and we now should go back and include those. That was never reflected in Amendment Number 1, was it?

A. It's not in there, no.

Q. Now let's consider on the other side of that coin, if you will, that's the excluded assets. We looked earlier at Schedule 1.1(b), which was the list of assets that were

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excluded. Do you recall that?

A. Yes.

Q. And in the September 1995 asset purchase agreement that you signed that we looked at and is consistent with the board meeting, Novell excluded and Santa Cruz agreed to exclude all copyrights and trademarks except for UNIX and UnixWare; right?

A. Right.

Q. So then looking at the amendment, there was no change in those exclusions, was there?

A. No, there was not.

Q. So is it correct, then, Mr. Frankenberg, that even after the board meeting that was held at which the asset purchase agreement was approved, after you and other members of the board had a chance to thoroughly review the asset purchase agreement and even after Mr. Sonsini and Mr. Bradford, the legal advisors, apprised the board about what was contained in the agreement and even after a nearly three-month period to review it, neither Novell nor Santa Cruz Operation chose to include UNIX copyrights in the asset purchase agreement when Amendment Number 1 was executed; correct?

A. Correct.

Q. Now, still if we could focus on Amendment Number 1, I'd like us to look to, it's numbered Page 11, which is the

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signature page.

Now, to your observation, was Amendment Number 1 signed in Novell's behalf?

A. Yes.

Q. And that was by Duff Thompson; right?

A. Yes.

Q. And based upon your review of the executed Exhibit Number 1, did you have reason to believe that Mr. Thompson would have reviewed Exhibit 1 before he signed it?

A. Exhibit 1? Do you mean Amendment 1?

Q. Yes. Thank you. My mistake.

A. Yes. I believe he would have.

Q. And then on the left-hand side of the signature page there appears to be a signatures for Santa Cruz Operation. Do you see that?

A. Yes.

Q. And you were asked by Mr. Singer about an Alok Mohan, and I believe you indicated you believed he was the chief executive officer of Santa Cruz; right?

A. Yes.

Q. And in reviewing Amendment Number 1, did you believe that Mr. Mohan had signed it in behalf of Santa Cruz Operation?

A. I did, yes.

Q. Now, Mr. Singer asked you whether you'd had

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discussions with SCO executives suggesting that copyrights were not to be included in the asset purchase agreement. Do you recall those questions and your answers?

A. Yes, I do.

Q. Now, after the asset purchase agreement was signed by you on September 19th, 1995, did you have any discussions with Alex Mohan of Santa Cruz between the date you signed it and December 6, 1995, when Amendment Number 1 was signed?

A. His name is Alok.

Q. I apologize.

A. Alok Mohan. Yes. I'm sure I did.

Q. And during that time period, did Mr. Mohan suggest to you that he believed that copyrights had been transferred under the asset purchase agreement?

A. I don't recall.

Q. He never brought that up, did he?

A. I don't recall him bringing it up, no.

Q. Also there was a question asked about a Mr. Doug Michels or Michels. I want to make sure I get my pronunciation. You probably can help me.

A. Doug Michels.

Q. Thank you, Mr. Frankenberg.

Between the time you signed the asset purchase agreement on September 19th, 1995, and December 6, 1995, when Novell and Santa Cruz signed the first amendment, did you have

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any discussions with Mr. Michael?

A. Yes, I did.

Q. And during any of those discussion, did Mr. Michels suggest to you that he thought that UNIX copyrights had been transferred under the asset purchase agreement?

A. I don't recall him saying that. I also don't recall him saying that they weren't, so....

Q. And let me see if I understand this. You were an executive at Hewlett-Packard for roughly 24 years. Do I have that right?

A. I was an executive for perhaps the last 10 years. I was at HP for almost 25 years.

Q. Thank you. And during the time that you were an executive at Hewlett-Packard, you were involved in business transactions; correct?

A. Correct.

Q. And was Hewlett-Packard represented by legal counsel in those transactions?

A. Yes, we were.

Q. And during the time that you were a Hewlett-Packard executive, did you allow legal counsel to represent the interest of Hewlett-Packard in reaching those agreements?

A. Not without discussions with me as the responsible executive or perhaps people responsible for the business. You don't let lawyers loose and say, go negotiate a deal.

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Q. You would have provided direction --

A. Sorry.

Q. I'm sorry?

A. No offense.

Q. None taken. Thank you.

You would have provided directions to legal counsel and expected legal counsel to carry out your instructions to obtain the best result consistent with what you asked them; right?

A. Generally the way I've worked is to come to a business agreement with the other party and ask legal counsel to memorialize that and be true to the deal that was made.

Q. And in connection with the asset purchase agreement, you had David Bradford and outside counsel Wilson Sonsini who were charged with making sure that Novell's legal interests were protected in connection with the asset purchase agreement; right?

A. Correct. As well as the -- as well as the business interest by the other members of the team.

Q. And you believe that Mr. Bradford and Mr. Braham accomplished their mission; correct?

A. Mr. Braham was a lawyer for Wilson -- working for Wilson Sonsini and working on this, yes.

Q. I'd like to have you turn back, if we might, to Exhibit 1, which is the asset purchase agreement signed on

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September 19th, 1995, where I hope to avoid being tedious. I'll do this as quickly as I can, but I do want to focus on a couple provisions in the asset purchase agreement itself. So we'll turn to the first page of -- and you were asked a bit about this by Mr. Singer representing SCO, and we're going to look at Recitals A and B, if we might.

Now, did you have an understanding that recitals essentially set forth the basic premises for the transaction?

A. Yes.

Q. So the so-called business that's the subject of the recitals is described in Recital A; right?

A. Yes.

Q. Okay. Then looking in B, is this language that we looked at before that references the board of directors of each of the buyer and the seller believing that it was, quote:

In the best interests of the each company and their respective stockholders that buyer acquire certain of the assets of and assume certain of the liabilities of seller compromising the business.

Correct?

A. Correct.

Q. So you understood what was going to happen in this agreement is that certain of the assets of the business were the subject of the asset purchase agreement; right?

A. Correct. Certain other, such as Tuxedo, were not

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part of the transaction.

Q. They were excluded; correct?

So then let's turn to the language regarding what was actually to be purchased. This is Section 1.1 on the bottom of the first page under, acquisition. So Section 1.1, purchase of assets subpart (a) begins this way, quote:

Purchase and sale of assets. On the terms and

subject to the conditions set forth in this

agreement.

Let me pause there. Did you understand that whatever was going to be done in terms of the business transaction that it was to be done on the terms and conditions that were described and set forth and stated in the actual asset purchase agreement?

A. Yes. To the extent that it reflected the intent, yes.

Q. And we'll look at this in a minute. But you also understood that there was a specific clause in the asset purchase agreement that said, that if there were any understandings or prior agreements or private thoughts, as it were, that were not reflected in the actual words of the agreement, that none of those mattered; right?

A. They say somewhere else, yes.

Q. We'll show that in a minute.

A. Okay.

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Q. Let's continue with the description of the assets. It says:

Seller will sell, convey, transfer, assign and deliver to buyer, and buyer will purchase and acquire from seller on the closing date all of seller's right, title and interest in and to the assets of properties of seller relating to the business.

But then it doesn't stop there, does it? It continues; right?

A. Yes.

Q. It continues as follows:

Identified on -- and we'll flip the page -- Schedule 1.1(a) hereto.

Do you see that?

A. I do, yes.

Q. So you understood as you signed the asset purchase agreement that to find out what assets were actually being transferred, conveyed or sold by Novell to Santa Cruz Operation would be those assets described in Schedule 1.1(a); right?

A. Yes.

Q. And then it continues:

Notwithstanding the foregoing, the assets to be so purchased shall not include those assets set

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forth in Schedule 1.1(b).

You see that; right?

A. I do, yes.

Q. So you understood to find out what was not included in the transaction you could look to Schedule 1.1(b); right?

A. Correct.

Q. Let's have a look at what the payments or payment was to be made. And let's go to Section 1.2 subpart (a). Mr. Singer asked you about this. It says:

On the terms and subject to the conditions set forth in this agreement -- and then these words -- as full payment for the transfer of the assets by seller to buyer, at the closing buyer shall assume the assumed liabilities and issue to seller 6,127,500 shares of fully paid and nonassessable shares of common stock of the buyer.

Do you see that?

A. Yes.

Q. And then that payment is described as the shares or purchase price; right?

A. Yes.

Q. So Section 1.2(a) tells us, correct, that the shares were the full payment for the assets; right?

A. Payments, it says, is the title for 1.2, I believe. And my view of the transaction was that the shares as well as

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the royalties were the payment for the UNIX and UnixWare business.

Q. Let's look at the language of the agreement to see again what the language of the agreement states.

A. Okay.

Q. Back to 1.2 subpart (a):

On the terms and subject to the conditions set forth in this agreement as full payment for the transfer of the assets.

Do you see that?

A. I do.

Q. And then it identifies two things that will constitute full payment, the shares and SCO's assumption of certain liabilities; right?

A. Yes.

Q. And those are the two items that are described as full payment of the assets; right?

A. Yes.

Q. Okay. Now let's go to Section 3. You were asked about this by Mr. Singer, as well. We'll focus on the first portion of this, maybe through the first full sentence, if we might. So looking at royalties, it says:

Buyer agrees to collect and pass through to seller 100 percent of the SVRX royalties as defined and described in Section 4.16 hereof.

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Right?

A. Yes.

Q. So there's no statement that what Santa Cruz Operation was going to do was pay to Novell these royalties in exchange for the assets, instead according to the language of the agreement what Santa Cruz agreed to do was to go out and collect and pass back to Novell those royalties; right?

A. Correct.

Q. In fact, the role of Santa Cruz in connection with this agreement was to go out and essentially act as an administrator and collector for Novell; right?

A. I think that understates the role.

Q. That's what the words say essentially; right?

A. That's what the words say, but I think it understates the role.

Q. Let's see what else the role is, because it continues:

Seller agrees to pay buyer an administrative fee of 5 percent of the SVRX royalties.

So you understood from the language of the asset purchase agreement itself that in exchange for Santa Cruz going out and serving the administrative function of collecting and turning over to Novell the SVRX royalties that an administrative fee of 5 percent of those royalties would be paid back to Santa Cruz; right?

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A. That's correct.

Q. Okay. Then it continues:

Seller and buyer further acknowledge and agree that seller --

That's Novell; right?

A. Yes.

Q. -- is retaining all rights to the SVRX royalties, notwithstanding the transfer of the SVRX licenses to buyer pursuant hereto.

Do you see that?

A. Yes.

Q. So you understood when you signed the agreement that Novell was retaining all of the rights to the royalties; correct?

A. To the royalties, yes.

Q. And then it says:

And that buyer --

That's Santa Cruz; correct?

A. (Witness indicates by nodding head up and down.)

Q. -- only has legal title and not an equitable interest in such royalties within the meaning of Section 541(D) of the Bankruptcy Code.

Do you see that?

A. Correct.

Q. Now, you understood that the reason that that

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language was included in the agreement is that Novell wanted to protect itself in the event that Santa Cruz Operation were to somehow have financial difficulty and file bankruptcy and that Novell then wanted to make sure that it had retained the full rights to the royalties; right?

A. That, as well as being assured that we would be able to negotiate buyouts of those royalties with existing customers.

Q. Yes. Thank you. And, in fact, that was an added reason why Novell retained control over the royalties; right?

A. Yeah. The major concern was making sure that we received the royalties, because, as I said, we viewed it as part of the payment.

Q. Now, I want to ask you a few questions about other provisions of the agreement. We're going to skip forward all the way to Section 9.3 of the agreement, if we might. It's on Page Number 47. I'm sorry. I misspoke. 9.5. My apologies.

Now, I asked you earlier if you thought that there was a clause in the agreement that essentially had the effect to make clear between the parties that what mattered and really the only thing that mattered was what was in the agreement. Do you remember me asking about that?

A. Yes.

Q. So let's look at Section 9.5. It states, quote:

Entire agreement. This agreement and the

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schedules and exhibits hereto.

I'll pause there. You understood that the reference to this agreement was the asset purchase agreement signed on September 19th, 1995; correct?

A. Yes.

Q. And then the reference to schedules were the schedules that were set forth in the agreement including the schedules of included assets and excluded assets; right?

A. Yes.

Q. And exhibits thereto. There were various exhibits to the agreement; right?

A. Yes.

Q. Okay. Then it continues:

(A). Constitute the entire agreement among the parties with respect to the subject matter hereof and supercede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof.

Do you see that?

A. Yes.

Q. Now, did you understand that the reason for that provision was so that in the event that either Novell or Santa Cruz Operation, it had previous discussions, previous understandings, even previous expectations or hopes or dreams or desires, that all of those would be eliminated and what the

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parties would agree to would be what was set forth in the written agreement?

MR. SINGER: Your Honor, I object on the basis of the prior rulings. If I could --

THE COURT: Can you refer me to the one you have in mind?

MR. SINGER: Well, it involves the issue of whether or not the intent of the parties is to be considered in interpreting the agreement.

MR. BRENNAN: That's not impacted by this provision, Your Honor.

THE COURT: I will overrule the objection and allow the answer.

Q. BY MR. BRENNAN: Mr. Frankenberg, do you have the question in mind?

A. Pardon?

Q. Do you have the question in mind? Do you remember the question I asked you?

A. Could you repeat it, please?

Q. I'll do my best. That was a long one. Maybe I'll shorten it this time.

A. Okay.

Q. Did you have the understanding when you signed the asset purchase agreement that the reason for Section 9.5 was to make sure that if either Novell or Santa Cruz Operation had

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had either prior understandings or expectations or thoughts that none of those would really matter or be binding, instead what would matter is what was set forth in the written agreement?

A. Well, clearly subsequently there was an amendment to this, so the entire agreement got modified to be something else.

Q. And that's because we looked at Amendment Number 1. Both parties in writing agreed to that amendment; correct?

A. Yes.

Q. And, in fact, there is a provision in the agreement that we can look at that says if both parties reach a modification in writing that that counts; right?

A. I assume so, yes.

Q. Okay. The section we're looking at says that if before signing this agreement someone had a hope or expectation or thought they had agreement, rather than worry about that, we're going to focus on what the words of this agreement says; right?

A. That's what this says, yes.

Q. And it says:

Supercedes all prior agreements and understandings.

Correct?

A. Yes.

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MR. SINGER: Your Honor, I'm going to object again and move to strike. This is ineffective as a matter of law under the law of this case, this provision.

MR. BRENNAN: Would you like me to respond or not?

THE COURT: Yes, if you may.

MR. BRENNAN: Your Honor, this is a written provision that's never been amended, and it's a standard integration clause. And I'm simply asking the witness and he's answered questions in terms of what his understanding was with respect to the meaning and effect of that provision.

THE COURT: The dilemma that I have is in light of Mr. Singer's question that was asked that you objected to that the Court sustained earlier that if you continue to pursue this I have no choice but to allow Mr. Singer on redirect to get into an area that you perhaps don't want him to.

MR. BRENNAN: I understand that, Your Honor.

THE COURT: If you want him to answer this question, I will then have to allow Mr. Singer to revisit that issue.

MR. BRENNAN: Well, I don't want the answer that badly, Your Honor.

THE COURT: All right.

Q. BY MR. BRENNAN: Now, you also understood that lawyers would be involved; right?

A. Lawyers would be involved in what?

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Q. In drafting and negotiating the agreement; correct?

A. Yes.

Q. So let's look at the next provision in the document that addresses the role of attorneys in both the preparation and drafting of the agreement. So if we could look at Section 9. -- give me one moment and I'll direct you to it -- Section 9.9. It says:

The parties hereto agree that they have been represented by counsel during the negotiation and execution of this agreement.

Do you see that?

A. I do, yes.

Q. And you understood that Novell purposely wanted to be represented by counsel in the agreement; right?

A. Yes.

Q. And you understood that so did Santa Cruz Operation. They wanted lawyers to be involved; right?

A. Yes.

Q. Now, speaking of lawyers, after you left Novell, you had your deposition taken in this case; right?

A. Yes, I did.

Q. And that deposition was taken by Mr. Singer; correct?

A. Correct.

THE COURT: Ladies and gentlemen, let me explain to

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you. You heard reference earlier during opening by Mr. Singer about depositions, and let me for your information explain to you that prior to trial the attorneys in this case had the opportunity to question the witnesses that were going to appear here. And that would be a very formal questioning. The witnesses would be put under oath. They would be represented by counsel, and their counsel could make legal objections to questions that were asked. A transcript of that question and answer would then be prepared, and the witness would be given an opportunity to review it and to make any changes in it. And then the document would be signed, and it can be used in trial for certain purposes.

So you will hear references to depositions both written and video during the course of this trial, and keep in mind what I just explained to you what it is.

MR. BRENNAN: Thank you, Your Honor.

Q. BY MR. BRENNAN: Now, before your deposition was taken, and by the way, do you recall that your deposition was taken by Mr. Singer in February of 2007?

A. That's correct, yes.

Q. And before your deposition was taken, you had occasion to meet with two attorneys that represent Novell; correct?

A. Correct.

Q. One was Mr. Ken Brakebill of the law firm of

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Morrison & Foerster; correct?

A. Right.

Q. And the other was Mr. Jim Lundberg, who was inhouse counsel for Novell; correct?

A. Correct.

Q. Do you recall where you met for that meeting?

A. I believe it was in my lawyer's office.

Q. And at that meeting did you, in fact, confirm both to Mr. Brakebill and to Mr. Lundberg your belief that under the asset purchase agreement you've looked at today that, indeed, Novell wanted to retain the UNIX copyrights in order to facilitate both buyout negotiations of SVRX licenses and to protect the revenue stream under those licenses?

A. I did not say that. What I said was, I believe that there might have been some conversations about that, and I asked them if they could refresh my memory on it. They were unable to do that, nor was anyone else.

Q. In fact, do you recall when you were asked about this that you said that you had a vestigial memory of that topic being discussed?

A. Of the topic of intellectual property and copyrights, yes.

Q. And then after you met with Mr. Lundberg and Mr. Brakebill you then met with Mr. Duff Thompson; right?

A. I did, yes.

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Q. And Duff Thompson was the Novell executive who in 1995 you were working with in connection with the asset purchase agreement; right?

A. One of the executives, yes.

Q. And when you were working with him among others at that time he was a Novell employee; right?

A. Right.

Q. But when the asset purchase agreement went through, Mr. Thompson left Novell's employ; right?

A. No.

Q. Well, he became a SCO -- member of the SCO board of directors, didn't he?

A. He became a member of the SCO board of directors as part of the purchase of -- well, as part of the agreement between SCO and Novell. He was still a Novell employee.

Q. And how long --

A. And later on he did leave Novell's employ, and I believe he remained a member of the board, yes.

Q. So when you met, then, with Duff Thompson before your deposition in 2007, after you met with Mr. Lundberg and Mr. Brakebill, you then went and met with Mr. Thompson; right?

A. That's correct.

Q. And then you had your deposition taken; right?

A. Correct. Before I met with Mr. Thompson I asked, we asked Mr. Lundberg if that -- if he would object to that,

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and he said he would not object to it.

Q. He wasn't opposed to that, was he?

A. He said to my lawyer that he wasn't opposed to that.

Q. So you then met with Mr. Thompson; right?

A. I did, yes.

Q. And you understood at the time that Mr. Thompson was on the SCO board of directors; right?

A. Yes.

Q. Did you understand at that time that Mr. Thompson was the chairman of SCO's litigation committee?

A. I did not know that. I knew he was on the board. I didn't know, in fact, I learned in the deposition that he was the chair of the litigation committee.

Q. So at least what you learned after your deposition was taken that when you met with Mr. Thompson before your deposition was taken that Mr. Thompson not only was a SCO director but the chairman of this litigation committee; right?

A. That's correct. That's what I learned, yes.

Q. And do you understand that Mr. Thompson was one who authorized the filing of this lawsuit against Novell?

A. I don't know that to be a fact. It may well be.

Q. Do you know what Mr. Thompson's financial interest is in the outcome of this litigation?

A. I believe his partnership owns a significant number

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of SCO shares. I don't know how much.

Q. Mr. Frankenberg, thank you for your time.

I have no further questions at this juncture, Your Honor.

THE COURT: Thank you, Mr. Brennan.

Mr. Singer?

REDIRECT EXAMINATION

BY MR. SINGER:

Q. Mr. Frankenberg, you've heard a lot of questions and you've seen some documents. Let me start with, was the deal as you understood it with Santa Cruz to sell the copyrights in UNIX and UnixWare or to retain copyrights?

A. To sell the copyrights in UNIX and UnixWare excluding the NetWare copyrights.

Q. Excluding the NetWare copyrights?

A. Right.

Q. And was that your intent at the beginning of the transaction?

A. Yes.

Q. Was that your intent throughout the transaction?

A. Yes.

Q. Was that your intent when the transaction closed?

A. Yes.

Q. If any lawyers put in language into an agreement that differed from that, would they be acting within or

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outside your authority as chief executive officer of the company?

A. Outside.

Q. Now, there were some questions about you trust your lawyers. Do you trust your lawyers to document a deal consistent with what the business people negotiated?

A. I trusted that they would do that, yes. Apparently that didn't happen.

Q. So to the extent there is language in there which excluded copyrights, would that have been consistent or inconsistent with what the lawyers were supposed to do in negotiating -- in documenting this deal?

A. They were supposed to be especially careful to make sure that none of the NetWare copyrights or other Novell product copyrights transferred as part of the deal. They were not instructed to withhold copyrights of UNIX or UnixWare.

Q. And when you looked at the APA and you saw reference to excluding copyrights, did you interpret that as being the NetWare copyrights, or did you interpret that as being the UNIX, the UnixWare copyrights?

A. When I saw that, I'm sure -- well, I shouldn't say that. When I saw that, what likely registered in my mind was that was NetWare copyrights. So they were doing their job. They were excluding the copyrights that were very important to us.

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Q. Now --

A. I should have read more carefully or clearly or we might not have been here.

Q. Now, there were some questions about the board of directors. Does any other board of directors member in this case have the authority to negotiate the deal separate from what you and the team of executives at Novell was doing?

A. No.

Q. Were any of the board of directors other than yourself negotiating the deal with Santa Cruz?

A. No.

Q. So the only way that the board of directors could have agreed to sell the copyrights would have been with your knowledge and action; is that fair?

MR. BRENNAN: Objection, Your Honor. That's leading the witness.

THE COURT: Sustained.

Q. BY MR. SINGER: Let me rephrase the question, Mr. Frankenberg. Is there any way the board of directors could sell the copyrights without you being aware of it as being part of the deal?

A. No.

Q. Now, I'd like to take a look with you at the minutes that you were asked to look at. And if you look at the first page, do you see any discussion in terms of what was

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discussed with the board about copyrights?

A. I'm sorry. I'm having trouble reading it. Maybe when I was younger I could have. But --

Q. I'm having trouble reading it, too. This might be easier.

A. Thank you.

Q. Take a moment and look at the summary of the discussion.

THE COURT: Can you read that all right, Mr. Frankenberg?

THE WITNESS: I can, yes. It's much better. Thank you, Your Honor.

THE COURT: All right.

(Time lapse.)

THE WITNESS: Nothing on the first page about copyrights.

Q. BY MR. SINGER: Okay. On the top of the second page where it discusses that, the directors next discussed various alternatives, that paragraph, anything there that you see about copyrights? And perhaps Mr. Calvin can blow up that top paragraph and make it easier to read.

(Time lapse.)

THE WITNESS: No. There's nothing about copyrights in there.

Q. BY MR. SINGER: From your own personal

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recollection, was there any discussion at the board meeting about the copyrights going or staying?

A. I don't recall any discussion about that, no.

Q. So then you get to the resolutions. Are the resolutions pretty much a formality after the discussion at the board meeting to vote to get the formal authority to take steps?

MR. BRENNAN: Objection, Your Honor. That's leading the witness again.

THE COURT: Overruled.

THE WITNESS: Generally resolutions are drafted ahead of the meeting. And unless there are things that change, a resolution is a result of the discussion or actions of the board. Those are generally what is put into the record.

Q. BY MR. SINGER: Do you recall any special attention paid at the meeting back in 1995 of the language of the particular resolution that had been drafted to approve the transaction?

A. I don't recall that, and the minutes don't say there's any discussion about the resolution. They refer to the discussion that we just talked about.

Q. If you had looked at the resolution and you saw, pursuant to the asset purchase agreement Novell will transfer to SCO its UNIX and UnixWare technology assets, would you have

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understood that to include the copyrights?

A. Yes, I would have.

Q. Now, when you do get down to the second paragraph that refers to Novell retaining all of its patents, copyrights and trademarks, you see that it's followed by a statement that says:

Worldwide license back to UNIX and UnixWare

for internal use and resale in bundled products.

Do you see that?

A. Yes, I do.

Q. Does that refer to the license back agreement that we talked about earlier this morning?

A. Yes, it does.

Q. And would there be any reason for Novell to have to license back from SCO copyrighted technology if it, in fact, never sold it to SCO in the first place?

A. I can't think of a reason, no.

Q. Now, to the extent someone were to read these minutes as excluding the UNIX and UnixWare copyrights from the sale, was that consistent or inconsistent with the deal that you and your executives negotiated with Santa Cruz?

A. It was inconsistent or would have been inconsistent.

Q. And if the attorneys had negotiated language and put language into the agreement that excluded the UNIX and

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UnixWare copyrights, was that consistent or inconsistent with what they were supposed to be doing?

A. It was inconsistent.

Q. Now, you've been asked about Amendment 1 which occurred over the 90 days that followed. Was there any reason that you're aware of why Santa Cruz would have thought that there was some problem with the language in the agreement in terms of getting the entire UNIX and UnixWare business including the copyrights?

A. I can't think of any, other than if they had read it more carefully than I did, they would have seen the reference to copyrights.

Q. But did any issue come up over those 90 days?

A. Not that I remember, no.

Q. Do you know whether or not during that period plans were made to transition the copyrights on the actual software?

A. I don't recall, no.

Q. But you're not aware of any issues that would have come up that would have led at that time before Amendment Number 1 to having to make some changes to the agreement?

MR. BRENNAN: Objection; leading question, Your Honor.

THE COURT: Sustained.

Q. BY MR. SINGER: Are you aware of any issues that came up between September and December of 1995 that would have

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drawn attention to this language regarding copyrights?

A. I'm not aware of any, no.

Q. You were asked about the fact, and this is in -- on the first page of the minutes, Exhibit Z3, that there was also consideration of an HP license, a license at Hewlett-Packard at the same board meeting; is that correct?

A. Yes.

Q. Was there anything inconsistent with Novell engaging in that license with its sale of the UNIX and UnixWare assets to Santa Cruz?

A. No; because Hewlett-Packard already had a license to UNIX. So they were one of the companies that already owned a license and already had UNIX-based systems in the market, and they were one of the companies paying royalties under the SVRX agreements. So as far as UNIX was concerned, they didn't need a license.

Q. With respect to the payment terms, was it your understanding that the payment was just the stock, or was it also the royalty stream?

A. It was the stock and the two royalty streams, the SVRX royalties and the UNIX royalties, less the 5-percent administrative fee on the SVRX royalties.

Q. Now because the royalties streams would go in the future, did you know how much money Novell would get over a period of years in return for the sale of the business?

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A. Not exactly. But we had pretty good estimates of what that might amount to.

Q. What was the estimated range of what Novell would realize for the sale of the business through those three components, the stock and the two royalty streams?

A. I don't recall the exact estimate, but it was in the order of $100 million.

Q. Did you recognize when you were pursuing the deal with Santa Cruz that Novell may be receiving less for the UNIX and UnixWare business than it had paid AT&T several years earlier?

A. Yes.

Q. And did you have a view as to whether that was still in the best interest of the company in terms of its overall business activities?

A. It was in the best interest of the company. Just looking at the estimates of what would come from SCO did not include payments that would come from buyouts of the SVRX royalties by existing customers. But monetary considerations aside, the major consideration was to get Novell out of the operating system business and focused on networking businesses where it had an opportunity to compete with Microsoft as opposed to -- compete successfully with Microsoft as opposed to trying to assault a fortified (inaudible).

THE COURT REPORTER: Fortified what?

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THE WITNESS: Fortified (inaudible). I'm sorry. Assault somebody who has a virtually assured position in the marketplace that you have no possible way of winning, is a better way of saying it. Sorry.

Q. BY MR. SINGER: There was some questioning about whether there was any discussion with Mr. Michels or Mr. Mohan about the transfer of the copyrights. Do you have any reason to believe that Mr. Mohan or Mr. Michels needed to raise an issue of the copyrights transferring during the time that you were chairman of the company?

A. No.

Q. And had anyone to your knowledge ever gone to the buyer and said, we want to change the language of the deal, or, we want to put in language in the agreement to keep the copyrights back? To your knowledge did that ever occur?

A. I have no knowledge of that occurring. It may have, but I have no knowledge of it.

Q. Your knowledge as chief executive officer was that the lawyers would document a deal consistent with what you and your executives had negotiated?

A. Yes.

Q. Thank you very much.

THE COURT: Mr. Brennan?

MR. BRENNAN: Yes, Your Honor. Just a few.

THE COURT: Go ahead.

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RECROSS-EXAMINATION

BY MR. BRENNAN:

Q. Mr. Frankenberg, you were just asked by Mr. Singer about what would be in the best interest of the corporation. I'd like to look back to what's been introduced into evidence Exhibit Z3, the minutes of the board of directors. I'd like to turn to Page 2 and look at the resolution.

Now, first of all, you understand that the purpose for minutes being prepared for the board of directors was so that there would be a clear record of what occurred so people could look back in time to see what really happened; right?

A. Yes.

Q. It's to create an official record of the corporation; correct?

A. Correct.

Q. And these board minutes were prepared for that same purpose; right?

A. Yes.

Q. So that, for example, those of us today in March of 2010 looking back to something that happened in September of 1995 could have a clear understanding of what was discussed and importantly what decisions were made by the board of directors by virtue of a record being prepared; correct?

A. Yes. That's the intent of minutes; right.

Q. And you told us that you had a chance to review and

186

approve these minutes; right?

A. I did.

Q. So let's, then, look at the resolution. I believe you suggested that the resolution that was --

A. I'm quite sure if you look at a subsequent set of minutes you'll see that the minutes were approved.

Q. Yes. In fact, that's what happened; isn't it?

A. I believe so. Yes.

Q. Thank you. I have had that benefit. I appreciate you pointing that out.

A. Okay.

Q. Now, the resolution itself, are you suggesting that the resolution was prepared in advance of the meeting of the board of directors?

A. That's generally what is done.

Q. So even before you went to the board of directors meeting, you knew that this was the resolution that was going to be considered; right?

A. I would say that the resolution would have been drafted ahead of the meeting. I don't know whether I looked at it ahead of the meeting or not.

Q. But I think you told us earlier that there was a package of materials prepared even before you went to the meeting; right?

A. Yeah. And generally that would have been

187

included -- any proposed resolutions would have been included in the package. I don't know for sure that they were.

Q. So you expect, then, that you and other members of the board of directors even before they arrived for the meeting on September 19th would have seen a resolution that would describe what was going to be considered and the business that would be before the board that day; right?

A. That would have been the normal procedure, yes.

Q. So there wouldn't have been any surprise even at the board of directors meeting as to what the board was being asked to approve, the members would have had a chance to think about even before they get there; right?

A. Generally the case, yes.

Q. So looking, then, back at the resolution, and this is the official action taken by the board of directors of Novell; correct?

A. Correct.

Q. The governing body of the corporation; right?

A. Correct.

Q. So again, in the first paragraph let's find out what, in fact, was in the best interest of the corporation. It says, quote:

That the board of directors of this corporation hereby determines that it is in the best interest of the corporation and its

188

shareholders to enter into an asset purchase agreement with Santa Cruz Operation.

Right?

A. Yes.

Q. So you and the other boards members felt that what was in the best interest of the corporation was to enter into the asset purchase agreement; correct?

A. Yes.

Q. And the version of which you signed; right?

A. Yes.

Q. The version of which you had a chance to review before you signed it; right?

A. Yes.

Q. The version of which was discussed with you and the other board members at the board meeting; right?

A. Yes.

Q. The version of which two senior Novell either executives or board members, Mr. Bradford and Mr. Sonsini, walked through with the board at the meeting; right?

A. Yes.

Q. It was that version of the asset purchase agreement that you and the other board members thought was in the best interest of Novell to enter into; right?

A. Yes.

Q. And that's the one you signed; right?

189

A. Yes.

Q. Now, Mr. Singer came back to you again and asked whether or not it was the intent to withhold copyrights from Santa Cruz under the asset purchase agreement. Let's look at the last sentence in the resolution where it says, Novell will retain.

So you're at the board meeting. We've talked about what was presented. We talked about what you had a chance to look at before. We talked about the legal advice that was given. And we talked about how the terms are reviewed. We talked about how you had a chance to review and this language, quote:

Novell will retain all of its patents, copyrights, and trademarks except for the trademarks UNIX and UnixWare.

You see that; right?

A. Yes, I do.

Q. And that language is consistent with the language in the asset purchase agreement; right?

MR. SINGER: Your Honor, I object to this.

Q. BY MR. BRENNAN: As signed on September 18th, 1995.

MR. SINGER: Objection; seeks the scope of recross, simply repeats recross.

THE COURT: Overruled.

MR. BRENNAN: I'll re-ask the question because I

190

got muddled there. I'll try again.

THE COURT: Go ahead.

Q. BY MR. BRENNAN: The language that we just read in the resolution is consistent with the language that's employed in the September 19, 1995, asset purchase agreement regarding exclusion of copyrights; correct?

A. Yes.

Q. So what the board reviewed and approved is consistent with what you signed and what SCO signed; right?

A. Yes.

Q. Thank you. I appreciate your time.

THE COURT: Okay. Counsel, may this witness be excused? By that I mean, he doesn't need to be worried about being recalled?

MR. SINGER: I believe that's correct, Your Honor.

MR. BRENNAN: Yes, Your Honor. Thank you.

THE COURT: All right.

Mr. Frankenberg, you may go about your business. You do not have to worry about being recalled as a witness in this case. But I would ask you to, please, not discuss your testimony with any other witness or in the presence of any other witness or allow in any way your testimony as presented here today to become part of another witness' understanding of what has taken place in this trial.

THE WITNESS: I'll do that, Your Honor.

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THE COURT: Thank you, Mr. Frankenberg. You may step down and be excused. Thank you.

THE WITNESS: Thank you.

THE COURT: We'll go ahead and recess, ladies and gentlemen, for the afternoon. But I do want to emphasize by reading to you again the instruction that I gave you yesterday about your conduct. And the reason I do this is because it is so important.

First, I instruct you that during the trial you are not to discuss the case with anyone including fellow jurors or permit anyone to discuss it with you. Until you retire to the juryroom at the end of the case to deliberate on your verdict, you simply are not to talk about this case. Not talking about this case means not talking about it in any way including by Internet, e-mail, text message and instant communication devices or services, such as cell phones, Blackberries, iPhones, or social networking including Facebook, Twitter, My Space, Linkedin, YouTube and so on.

Second, do not read or listen to anything touching on this case in any way. Do not watch or listen to any news reports concerning this trial on television or on the radio, and do not read any news accounts of this trial in a newspaper, on the Internet, on instant communication device, again, including Facebook, Twitter and so on. Importantly, if anyone should try to discuss this case with you, bring it to

192

my attention immediately.

Third, do not do any research or make any investigation about the case on your own.

And finally, ladies and gentlemen, you have now heard one day of testimony. You may be inclined to think, well, I can figure out this case already. That would be a very, very serious mistake. Until you have heard all of the evidence, until you have been instructed on the law that you are to apply and until you've heard closing arguments, it would be inappropriate for you to be making up your mind. At that point in time, you will begin your deliberations, and then and only then should you make up your mind about this case.

We will try to start promptly at 8:30 in the morning, and we would request that all of you be here. And as soon as you come into the building, please make your way to the juryroom and stay there until Ms. Malley comes to get you.

Ms. Malley, if you would, please.

(Whereupon, the jury left the court proceedings.)

THE COURT: Mr. Singer, I need to explain to you why I did not sustain your objection about Mr. Brennan's question, because in effect both of you did the same thing. Both of you just simply took the opportunity on redirect and recross to cover what had already been covered. I will not preclude you from doing so, but if we start reaching a concern

193

about finishing this within the three weeks, I may perhaps start admonishing you to be more careful with the use of the time, okay?

One other thing, counsel, that has occurred to me, because there are very important issues that the Court will have to decide on its own I may end up having to ask more questions of witnesses than I normally would. As a general rule I do not like doing that, even though I will give the jury instruction that, I may have asked questions, and do not presume that I have any position on this case. But I am concerned that I will have to do that, and I hope that you will understand the reason why I may do so, because there are some things that I have to understand that the jury does not. So if you think that the nature of my questions at any point is inappropriate I want you to let me know. But if I do, understand why I will.

Do you have anything else, Mr. Singer, before we recess?

MR. SINGER: Yes, Your Honor. I have a couple items.

One, Your Honor, we would request for the purpose of avoiding confusion of the jury that both sides, myself and other witnesses, as well as Novell 's -- other lawyers, as well as Novell's counsel, in referring to just 1.1(b) language which is taken out, either use the term, the original

194

language, or, the prior language, because I think that it is -- this language no longer exist in the agreement, and it's being referred to as the agreement, as though that currently exists. The Court knows and we know and Novell knows it's not there any longer. And I think in respect for the jury, it should be using terms such as, the prior language, or, the original language, so it doesn't suggest it's still there.

THE COURT: Mr. Brennan, do you wish to respond?

MR. BRENNAN: Your Honor, I think the problem with that proposition is illustrated by the witness we had today. Mr. Frankenberg was not even with the company when Amendment Number 2 was entered into. By its very nature we can only ask him about the agreements that existed at the time that he was with the company. And as I understand it, the entire line of inquiry that has been invited by Amendment Number 2 was, what was the intent of the parties at the time, I'm certainly not or my colleagues in a position to ask him about forward-looking documents that he had no role in, never commented on, didn't form an intent on. So the questions today were focused temporally on documents that he did have involvement on.

THE COURT: I understand that, Mr. Brennan. And there was nothing inappropriate about your question because I refused to sustain objections. But I do think that Mr. Singer's point is a good one. And to the extent that we

195

have witnesses, if there were any additional witnesses who will not be permitted to talk about the agreement to include the subsequent amendment in 1996, I think it would be worthwhile if you would always ask your questions in the context of the original agreement or the September 1995 agreement or something akin to that. It may be that that is not an issue in the future, but if there is, again, a witness that cannot talk about the amendment that you do confine your questions to that.

MR. BRENNAN: Thank you, Your Honor. We'll endeavor to do so.

THE COURT: Thank you.

MR. SINGER: Your Honor, we have a second related concern. And I didn't want to mention it in these terms in front of the jury. But the concern with raising Section 9.5, the integration clause of the contract, saying that one should not pay attention to prior discussions and negotiations, essentially, that's flatly against what the 10th Circuit has ruled in this case. Those are relevant. That's why the jury is going to be hearing a lot of testimony about this situation because there is ambiguous documents. And I'm concerned that that is essentially telling the jury don't pay attention to our evidence about the intent. And that isn't what the law is in this case.

MR. BRENNAN: Well, Your Honor, I think we're

196

mixing apples and oranges. What the 10th Circuit, as I understand its ruling, suggested is that by virtue of the second amendment that there was an ambiguity presented in that document that opened up the question of parole evidence as to what the intent of the parties is.

THE COURT: But the bottom line is they opened the introduction of parole evidence.

MR. BRENNAN: That's right.

THE COURT: And they said parole evidence is important. And I would agree with Mr. Singer, and I would request that you, again, that you -- I will not prohibit you from asking questions about it. But if you stress it unduly, I'm going to have to allow either an instruction to the Court -- or by the Court to the jury on this or an objection with Mr. Singer explaining it in more detail, which then will require me to say something to the jury, because I do agree. I think it does undermine what the 10th Circuit has told me as a trial court judge have to allow the jury to consider.

MR. BRENNAN: I have a proposal in response, Your Honor.

THE COURT: Go ahead.

MR. BRENNAN: In light of the suggestion that the Court made to me that if we pursue that it would open up, I think we probably prefer not to go down that road.

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THE COURT: I think that would be safest. I do.

MR. SINGER: Your Honor, what I would request is at the beginning of tomorrow perhaps an instruction that deals with what had occurred by simply saying, if the jury in this case should pay attention to all of the evidence including evidence of the intent of the transaction. They will hear that at the end, but now they've been told now because of Section 9.5 that somehow that doesn't matter, that only what matters is the plain language of the agreement.

THE COURT: If you can work out an instruction to the jury with Mr. Brennan, I will consider it tomorrow. I don't know that so much damage has been done with this one witness that it would be worthwhile to bring any attention to it. Again, as you just indicated, the jury will be instructed at the end of the trial.

So see if you can work something out. If not, then we'll take another look at it tomorrow. All right, Mr. Singer?

MR. SINGER: Thank you. Your Honor, the last point I wanted to make is we have been working cooperatively with Novell's counsel on the deposition designations. I believe there's a set of them which are either ready right now or will be ready momentarily where all but a handful of objections have been resolved for a series of I believe four deposition transcripts that will be played possibly as early as late

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tomorrow, but more likely on the day after depending on how long the cross and direct examinations go.

THE COURT: If you do not have all of them worked out, then I will need from you and opposing counsel the written objections and response to them so that I can deal with them during the course of the day tomorrow.

MR. NORMAN: Your Honor, we'll get those to you this afternoon. I'm not sure it constitutes a handful at this point. It may be two or three.

THE COURT: It would be very helpful, Mr. Norman, if you would get those to me today. Thank you.

Anything else, Mr. Singer?

MR. SINGER: Not from us, Your Honor.

THE COURT: Mr. Brennan, do you have anything?

MR. BRENNAN: No. Thank you, Your Honor.

THE COURT: Thank you. Counsel, we do have a hearing this afternoon.

No? Never mind. I was just told that my afternoon hearing is gone, so that means if you want to leave your materials on the desk, you may do so. All right.

(Whereupon, the court proceedings were concluded.)

* * * * *

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STATE OF UTAH )

) ss. COUNTY OF SALT LAKE )

I, KELLY BROWN HICKEN, do hereby certify that I am a certified court reporter for the State of Utah;

That as such reporter, I attended the hearing of the foregoing matter on March 9, 2010, and thereat reported in Stenotype all of the testimony and proceedings had, and caused said notes to be transcribed into typewriting; and the foregoing pages number from 134 through 199 constitute a full, true and correct report of the same.

That I am not of kin to any of the parties and have no interest in the outcome of the matter;

And hereby set my hand and seal, this ____ day of _________ 2010.

______________________________________

KELLY BROWN HICKEN, CSR, RPR, RMR

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