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SCO v. Novell Trial Transcripts, as text -- Day 3, Thompson and Chatlos
Saturday, July 31 2010 @ 06:04 PM EDT

This is the transcript of day three of the SCO v. Novell trial, Wednesday, March 10, as text. The trial began that Monday, March 8, 2010 with jury selection, and it would run for 15 days, Monday through Friday, for three weeks, with the Hon. Ted Stewart presiding. So this is still early, and SCO, who put its first witness, Robert Frankenberg, on the stand the day before, presents two more today. Today's witnesses for SCO will be R. Duff Thompson and Ed Chatlos. Here is Groklaw's eyewitness report from the trial for that day.

The day's transcript as PDF is in three parts: Part 1, Part 2, and Part 3. If you wish to jump to a different day of the trial, you can click on the date that interests you in the calendar, below, and it will take you to a transcript as text, but with the line numbers that appear in the PDFs:

March 2010
M Tu W Th F
08 09 10 11 12
15 16 17 18 19
22 23 24 25 26



We've got some other ways to navigate. You can jump to the transcript's start, part 2, or part 3. And in the index at the beginning of the transcript, we have placed links to the beginning of the testimony of each witness, on direct examination, cross examination, and redirect. Lawyers for the day are Stuart Singer and Ted Normand of Boies Schiller for SCO and Eric Acker and Michael Jacobs of Morrison & Foerster for Novell. We also have links to where in the day exhibits were accepted or referenced, but that is for context only, since we do not know what the exhibits are, unless they are mentioned during the testimony, which in many cases, they are.

But let's take a look at the highlights of the day. Before the jury comes in, there is discussion about what to do about Jack Messman's deposition testimony. The debate is a concern about hearsay and in one instance hearsay within hearsay, and then SCO tries to get the Wall Street Journal article it couldn't use in opening statement used in direct examination of Thompson. In the end, the judge says two of the disputed materials can be shown, but not the hearsay on hearsay, because Messman is going to be testifying in person, so each side will have its chance to question him live. So SCO gets to use the article, and Novell can use a statement about what was said at the board meeting, but Novell isn't allowed to show the part of the deposition where Messman mentioned that Chris Stone and others told him that SCO was contacting them asking for the copyrights.

Singer says that there is case law that if there is an article published and no one in a company tries to correct it, then it is admissible evidence. Jacobs says, "I have not seen that case law and it is a little peculiar." Just think of all the Groklaw articles that would be admissible evidence, then, since SCO never attempted to clarify them. They attacked me and Groklaw in general terms, but they never rebutted the research. I'd be delighted if they would.

However, if Stuart Singer makes a statement that Michael Jacobs says is so much Silly Putty, personally, I'm putting my money on Jacobs being right.

Speaking of Mr. Singer, he brings up again his concern, expressed repeatedly yesterday, about Novell's Sterling Brennan's questioning of Frankenberg on Tuesday about the APA. He wants a jury instruction about what he calls the "integration clause", meaning pushing again the SCO position that once Amendment 2 was signed, it wiped away the exclusion section's wording of the APA. Novell's position is that no jury instruction is required, that SCO is trying to flip the topic away from what the agreement said toward what the parties were thinking by cherry picking from the Tenth Circuit's opinion. But there is a court order on motions in limine that no one is to refer to the Tenth Circuit or the previous appeal. So SCO loses on that point, and there will be no jury instruction, unless Novell oversteps a boundary in questioning witnesses going forward.

Next SCO wants to be able to elicit testimony from Thompson regarding Amendment 2. He wasn't involved with it, so earlier the court ruled he can't testify about it, but SCO points out he was on the board at the time, so he should at least be able to mention that, although Singer admits he can't recall if he voted for it or abstained. The judge rules if he can lay the foundation properly and doesn't stray from the narrow point he wishes to make, he'll probably allow it.

Then the jury comes in. Again the judge asks them if they've obeyed his instructions to them? And again they "passed the test," the judge says, and so Mr. Duff Thompson is called to the stand.

Thompson is a lawyer, used to be general counsel for WordPerfect, then joined Novell in 1994 when WordPerfect got bought, is on the SCO board, chairman of the litigation committee, and it was he who signed Amendment 1 to the APA on behalf of Novell in December of 1995. Both Ty Mattingly, who will testify later in the trial, and Ed Chatlos worked for Thompson, and he reported to Frankenberg. It was Intel and HP who suggested to Novell that Santa Cruz would be a good candidate to buy the UNIX business, mainly because they didn't sell their own hardware.

So he was tasked to negotiate. He mentions that there was more than one aspect to the deal, and one part was about NetWare:

The final aspect was that there would be some kind of a, quote, white box, which basically was that SCO would sell Novell's software through its channel. I should be very clear. White box was their way of referring to the NetWare product. Novell referred to all their product as the red box, because their Novell Netware came in a red shrinkwrapped box. When they negotiated with other parties, such as previous to that time in the spring we had negotiated with IBM on some issues, we had talked about IBM selling a blue box, basically IBM's color, blue, and that they would sell NetWare through their channel. Finally, in this instance it was the white box, which was SCO selling the NetWare software.
I don't believe that is accurate. The APA [PDF] references the definition of White Box used in the Operating Agreement [PDF], and if you look there, on page 6 of the PDF, it says this about White Box:
e. Given the strategic importance of a unified set of APIs between the Merged Product and the 64-bit UNIX System product being developed by Hewlett Packard (the "White Box Product"), through the Hewlett Packard White Box Organization ("WBO"), SCO will work with Hewlett Packard ("HP"), and Novell will use commercially reasonable efforts to facilitate such interaction, to set up a process to ensure the definition of common interfaces between the Merged Product and the White Box Product as well as identification of compatibility interfaces required in the White Box Product.
Does that sound like NetWare to you? Me neither. I don't know why Thompson got that wrong, but he seems to have at a minimum misremembered. But how strange it is that I remember that and he doesn't. And if you read the transcript for day 2, you may recall that Frankenberg was asked if Novell wanted to retain some UNIX and UnixWare so as to pursue other UNIX deals, specifically one with HP, and Frankenberg denied it. So both SCO witnesses demonstrate why it's not a good idea to get into memories of what people thought a contract meant 15 years after the fact instead of relying on the words themselves.

And I'd be interested in how Mr. Singer could not know what White Box was, in that he's a lawyer and one who no doubt read both the APA and the Operating Agreement. Why didn't he refresh the witness's memory, I wonder?

Odder still, Thompson, an attorney too, testifies that the deal was to sell Santa Cruz everything, lock, stock and barrel. "I assumed and I understood that we were giving them the copyrights as well," he says, and then says he never heard anyone ever talk about not transferring the copyrights. Further, when shown the excluded assets section of the APA, he claims with a straight face that it means NetWare copyrights. I find that hilarious, in that NetWare wasn't sold, not part of the sale at all. Thompson's story is that there might be snippets of NetWare code interspersed in the product, and they wanted to make clear that even if that was so, the copyrights were not transferring. Here's why, as a paralegal, that doesn't sound right to me. NetWare was not being sold, but neither was Tuxedo, and they didn't list those copyrights as excluded from the assets. I am positive if they meant only certain copyrights were excluded from the sale but the others were to go to Santa Cruz, they would have listed them all with specificity, Tuxedo too, because otherwise there could be an inference that the Tuxedo copyrights did transfer, even though they didn't. If they failed to provide such specificity, and failed to say NetWare and Tuxedo copyrights didn't transfer but others did, then a blanket statement that copyrights don't transfer doesn't mean NetWare. All means all. So if they are being sincere in this story, and we are, after all, talking about SCO, then they should sue their lawyers, not Novell, I'd think. Of course, the lawyers will appear later, and they don't support this tale of SCO woe, as you will see.

And that isn't the most twisted. Here is what Thompson says the Technology License Agreement means:

Q. Would you read out loud, Mr. Thompson, what it says with respect to ownership of the licensed technology.

A. As between Novell and SCO, sub one, ownership of licensed technology shall reside in SCO.

Q. Sub two.

A. Ownership of any modifications made to licensed technology pursuant to licenses specified in section two above shall reside in Novell.

Q. So if Novell used this license to improve their own product, would they own those modifications?

A. That is correct.

Q. But the licensed technology itself that you were getting at the time of the sale, that Santa Cruz was getting, would that be what is referred to in item one that the ownership shall reside in SCO?

A. That was the intent and meaning of that provision.

That isn't what I get out of it. I'm not a lawyer, but what I read says that SCO was getting under the APA "licensed technology". That isn't the same as "purchased technology", now, is it? So the subparagraphs to me mean that SCO was getting some licensed technology under the APA, in that the copyrights were to stay with Novell, but they would own the physical stuff and any modifications. Novell could also improve the licensed technology, and it would own that. The reason this makes sense is that we know that Novell did continue to code, even after the APA. We see that in the copyrights' dates. And Novell's position is that what SCO got was a license, although not named that way in the APA. I think everyone at the time knew that was what it was, though, and the TLA reflects that. In fact, in Judge Stewart's eventual ruling and findings of fact, he noted that "licensed technology" is defined in the APA and it is "all of the technology included in the Assets and . . . all derivatives of the technology included in the Assets." So, there you are, ladies and gentlemen, it was licensed, just as Novell said it was.

We get to know what the Wall Street Journal article said that Stuart Singer was so crazy wild to show the jury, because he asks Thompson about it:

Q. The next paragraph, could you read that out loud, please.

A. The deal includes the purchase by Santa Cruz Operation of most trademarks and intellectual property associated with the UNIX software. One person familiar with the situation said he expects SCO to pay about $140 million, some of which will be shares of SCO, a Santa Cruz, California company that sells its own version of UNIX.

Q. When you read this, did you understand intellectual product to include the copyrights in UNIX?

A. I did.

Q. Did anyone, after this was published in The Wall Street Journal, at Novell come to you and say this is wrong, that we held back the copyrights?

Now, these are two lawyers. They have to know this is not evidence that proves anything at all. First, it's an article based on leaked info from an unnamed souce who is described only as "one person familiar with the situation", but who gets the financials wrong. The payment wasn't for $140 million, and it was not part shares. It was all shares, no cash at all. So how much did this alleged insider really know? Maybe there was no such person and the journalist just made it up. Such things have been known to occur, after all. Talk about hearsay within hearsay. But look at what it says about IP: that the deal includes "most trademarks". Most isn't all, and SCO is in court alleging that they got everything, lock, stock and barrel. Isn't that so? Plus, no one could get the trademark on UNIX, in that it went to X/Open.

SCO argues that if no one corrected this inaccurate info, then it must be true info. But it is patently obvious that it is not accurate in several details. So how can it support anything?

It's pitiful to think that Singer fought for this piece of nothing, and it tells me how little he had to work with.

And it's odd in another way, too. Did you notice that the article says this so-called knowledgeable person expects that the deal will be $140 million? That implies that the article was prior to the actual facts becoming known. And in fact, the date of the article is September 20th, 1995. After all, according to SCO, there was a joint press release on the day after the deal, right? That's September 20th also. Here's the press release [PDF], Exhibit 8 in the collection, if you'd like to confirm what I'm saying. Why wouldn't that press release be the answer to this Wall St. Journal's inaccuracies, if it were a joint release? See how internally inconsistent SCO's story is? As it happens, the judge eventually ruled that it was not a joint release, just a Santa Cruz document, since there is only a SCO logo on it. But if in fact it had been a joint release, that's Novell's answer to the inaccuracies right there, in that it corrects the payment for the deal, which by the way doesn't mention anything but stock and it mentions a royalty stream from UnixWare, but not the 95% on SVRx, which SCO now is claiming was part of the payment.

I'm surprised that the judge allowed this article to be shown to the jury, then, frankly, particularly on an unargued and unproven theory that the case law is that if you don't respond to an inaccurate article, it's evidence. Novell said that it was not aware of any such cases, and that should have meant SCO at least had to present cases, but we don't see that in the record. The internal inconsistencies on the SCO side should have blocked it, though, in my view.

You may notice that it mentions that the "UNIX IP" would transfer. Aside from the fact that this doesn't match the Wall St. Journal's account that only some trademarks would transfer, I think there is a fairly simple explanation. This is a SCO press release, not a Novell one. This press release would have been in the works for a while, because it includes statements by executives, who would have to have approved the quotations, if not the entire release. And the deal originally was to include the IP. It was only on September 19th that this changed to only some. I assume the PR department didn't get the memo in time to change this, or no one noticed or thought of it so it went out unchanged. Or, since the release mentions the deal wouldn't close until December, they may have thought it didn't matter, since there would be three months where both sides would be reviewing the terms, making this release a kind of interim announcement. And notice what Singer elicits next:

Q. When you read this, did you understand intellectual product to include the copyrights in UNIX?

A. I did.

Q. Did anyone, after this was published in The Wall Street Journal, at Novell come to you and say this is wrong, that we held back the copyrights?

A. No. No one commented on that at all.

Did either the Wall St. Journal article or the press release mention copyrights? Neither does. They talk about intellectual property, and as Richard Stallman keeps pounding into our heads, that can be trademarks, patents, copyrights. And we know some trademarks were listed as transferred, or at least the money stream, if any. That's intellectual property. So on what basis would Novell have a duty to correct the Wall Street Journal article mentioning intellectual property, particularly when though here says when he read the article, he read it as *meaning* copyrights? See what I mean about internal inconsistencies? And these are lawyers. If I am noticing all this, I'm sure they could think of these things too.

And how odd is this next interchange?

Q. At the time of amendment one had any issue arisen requiring clarification in amendment number one regarding the ownership of the copyrights in UNIX?

A. Not to me. No one had mentioned anything to me about a change.

Q. Was there any request made at the time of amendment number one to clarify any language that appeared in the asset purchase agreement regarding the ownership of the UNIX and UnixWare copyrights?

A. No.

How in the world does that help SCO? The language that appeared in the APA was that copyrights would be excluded totally. So you'd think it would help SCO if someone had asked that this be changed, if it was a lawyer mistake. I mean, SCO is arguing that the Wall St. Journal article means something, in that Novell didn't seek to correct it. But what does it mean that the APA said copyrights should be excluded, and no one from Santa Cruz asked that the language be corrected even though there was a three-month review period? Here's Amendment 1, by the way, which is what they are discussing. This is the Amendment to the APA [PDF; text] after the three-month review period.

We learn from Thompson that he and Alok Mohan joined the Caldera board after the Santa Cruz to Caldera sale, and they got options, which he exercised, paying about $12,000 for shares that he figured are now worth $90,000 or so. Of course if SCO had won the trial, the value likely would have shot up. But anyway, this is at least a partial explanation of how Mohan got his shares. And it means both Thompson and Mohan would have had and still have a financial interest in pursuing the SCO litigation.

During the testimony, they discuss three Novell press releases, so here they are, May 28, 2003, June 6, 2003, and December 22, 2003. Thompson is also asked about a letter [PDF] from Jack Messman to Darl McBride.

And with that, we come to the end of Stuart Singer's direct examination of Thompson, and Novell's Eric Acker stands up to begin cross examination. Almost immediately, he brings out that Thompson stands to gain from the litigation:

Q And you have a financial interest in the outcome of this case; correct?

A Yes.

Q And you want SCO to win, don't you?

A Repeat your name again.

Q Eric Acker.

A Mr. Acker, I want the truth to be told.

Q You want SCO to win, don't you?

A I want the truth to be told. The transaction that I conducted in 1995 with my team, I want that transaction to be understood.

Q All right. And we'll go through that.

A That's what I want.

Q We'll go through that. But in addition to your hundred thousand shares of stock that gives you a financial obligation in this case, you're part of a partnership, aren't you? E-S Net? ES-Net?

A ES-Net, Yes.

Q And isn't it true that your partner is a man by the name of Dan Campbell?

A Yes.

Q And hasn't Dan Campbell recently invested $100,000 in order to fund this litigation for SCO?

A Well, I'm aware that he has done that, yes. But that's Dan Campbell. That's not my partnership.

Q But Dan Campbell, your partner in your venture group; right?

A Dan Campbell, a former director of SCO, like me, already has shares in SCO. He exercised his options the same way I exercised my options. As an individual I do not control his investments. I do not benefit from his investments. His investments are his alone.

Q And he put $100,000 in in order to fund this case; right?

A I actually don't know how much money he put in. He didn't consult with me when he made the investment, and I don't know what the number is.

So, that's a nice ring around the rosy. SCO awards Dan Campbell options, which he exercises, and then he loans it back to SCO to continue to pursue the litigation. That would, of course, be the famous Yarro loan, with Dan Campbell chipping in $100,000, whereby on a default by SCO, all the assets go to those loaning the money. I assume by all assets, that would include all the desks and computers Darl didn't get with his purchase, including any and all evidence of wrongdoing should any exist in those drawers and cabinets and computers. Speaking of rings on rings. It's complicated, like Ezekiel's wheels, unless you think very, very simply. I gather Mr. Acker can do that, and Novell seems to bring him in whenever they expect a witness to hedge skillfully. He's a former federal prosecutor. He and Michael Jacobs are co-chairs of the Morrison & Foerster Intellectual Property Practice Group, and you can see why they would be when you see them at work.

Let me show you an example. Duff Thompson is a lawyer too, so when Acker is cross examining him, he knows that unlike most witnesses, this witness will know not only what the question is on its face, but also what it will be used for later legally. That makes it a lot harder to examine lawyers. Here in this exchange, for example, Acker wants Thompson to testify that Tor Braham of Wilson Sansini, who was the guy who drafted the APA, did it right. He knows, of course, that this is the last thing Thompson would like to admit, since SCO's theory of the case is that the lawyers went rogue and/or messed up the part about copyrights. So the dance goes like this, beginning with Thompson trying to indicate that Tor wasn't a key player:

Q That's who represented Novell in the transaction was the outside counsel?

A Yes.

Q And Tor Braham was the lead lawyer for that team; correct?

A Tor Braham was a participant. There were a number of other parties that were draftsmen in that process.

Q And because you were not acting as a lawyer at Novell in this period of time, you relied on Novell's outside counsel at Wilson Sonsini to do the detailed drafting of the APA agreement; correct?

A Wilson Sonsini was the principal outside firm, yes.

Q And you had confidence in the Wilson lawyers, including Mr. Braham; correct?

A They were our lawyers.

Q And you had confidence in them; correct?

A They were our lawyers. I mean were they perfect? No. And it was -- listen. Are you asking me were they absolutely dead-on on everything they ever did? I would say they were better than average.

Q So you had confidence in them; correct?

A I had confidence in them.

You can see that in the end Acker won. He got Thompson, despite all his hedging, to finally admit that he had confidence in those lawyers, by drawing him in, one small question at a time, so that he ends up where he does not want to be. Thompson was and is a lawyer, so who would know better than another lawyer who is good and who is not in that field? Of course, Thompson is between a rock and hard place, in that as a board member, if he thought they were no good, he would have had the responsibility to get new lawyers.

And notice how Acker then makes mincemeat of SCO's claim that part of the payment was the SVRx license royalties:

Q And so what Novell got was a little over 6,000,000 shares of Santa Cruz stock; correct?

A Right.

Q And then another portion of this deal was this SVRX license, which we're talking about 4.16(a) of the APA; correct?

A Yes, the royalties.

Q Now, those were royalties that before the deal, AP -- that Novell was collecting; correct?

A Yes.

Q And you said it was about 47 -- or 47 to $50,000,000 a year that Novell was collecting?

A I didn't say 47, but my recollection was that at or around the time that we were making the deal, our estimates in our mind it was around $50,000,000 a year.

Q And then after the transaction, the way it was structured, is instead of Novell collecting that money directly from licensees, Santa Cruz would collect the money and remit 95 percent of it to Novell; correct?

A Well, that's exactly what happened, is that when Novell -- when we did the transaction, Novell, which had been the licensor under those licenses, transferred those licenses to SCO, SCO became the licensor and now began to collect those royalties.

Q And so what happened between -- before the APA and after the APA is the amount of money that Novell was collecting from those licenses decreased by five percent; correct?

A Correct.

Q And so to take a round number, for instance, if Novell had been collecting $100 for the APA for those licenses, then after the APA it would -- it would get a hundred dollars for the APA, but it had to give five bucks back to Santa Cruz?

A That's correct.

Q That was the second part. We had stock, and then we had this 4.16 SVRX license component to the deal?

A Actually, just to be precise, SCO would receive that money. SCO would collect it, all of the royalties. SCO was the party that was in touch with the clients. And SCO on a periodic basis, and it seems to me that there were a particular number of days after the collection of some of the royalties that they were to remit those royalties back to Novell.

Q But regardless of how the mechanics worked, the hundred bucks came to Santa Cruz and 95 bucks went to Novell; correct?

A Yes.

You see how nonsensical that sounds? Can you imagine negotiating such a deal? Santa Cruz to Novell: "We want UNIX, and we'll pay you the royalties you are already getting, minus 5%. OK?" Novell: "Why would we do that?" Of course, SCO now would say it was a fine deal, in that otherwise 100% of the royalties would be theirs, along with the copyrights, if they'd had the cash to pay for it all. But they didn't have $300 million in cash, so there you are. If they had ham, they could have ham and eggs, if they had the eggs. So in effect, SCO is arguing that they paid for the copyrights with money that Novell already had, minus a portion. How stupid would Novell have to be to go along with that? Talk about shareholder lawsuits.

Here's my favorite moment in cross. As Acker has been asking Thompson about the deal, Thompson keeps adding material to his answer beyond what Acker has asked about. That's not what a witness is supposed to do, volunteer opinions on broader issues than just the question. If you are asked, "Is this the agreement you signed?" you are supposed to answer, "Yes" of "No", not "Yes, but actually the words don't match what I was thinking, which was that I thought it would be a better deal with the copyrights included, and I thought that is what we'd agreed on." Thompson doesn't use those exact words, but you catch the drift. Now, Thompson is a lawyer, so he must know that he's supposed to just answer the questions and let Mr. Singer later draw out all the details he'd like, but he keeps doing it anyway. Finally the court, without being asked, says this to Acker:

THE COURT: Mr. Acker, do you want me to instruct the witness to answer your question without proffering additional testimony?

MR. ACKER: No, Your Honor. We're doing fine, but I appreciate the offer.

We're doing fine. That made me smile, because he knows also that Thompson is doing what he should not be doing, but I gather in Mr. Acker's opinion, the more Thompson says, the worse it gets for him, and I'd have to agree.

Ed Chatlos takes the stand here. He testifies exactly as SCO would want him to, that the excluded assets list was talking about NetWare. He negotiated the deal for Novell, and he's positive Novell intended to sell the whole business. He makes an interesting slip of the tongue, which I will highlight in red:

Q Do you recall whether Novell intended to agree to any restrictions on the extent to which they could use this UNIX and UnixWare technology in selling products?

A There are restrictions in this document.

Q Why?

A We didn't -- excuse me -- SCO didn't want Novell to use the technology they are getting back from SCO to create competitive offer. So the restrictions, if I remember correctly, were the source code could be used in the labs and they could create derivative works. And then the binary versions of those could be used in their NetWare product or other products, but only in a very minor way. It couldn't be considered a primary component of the developing product.

He seems to have trouble recalling which team he's supposed to be on. And as his time on the stand continues, we learn that his wife works for SCO currently. She owns a couple hundred shares of SCO stock and about 8,000 options, and he tries to indicate that's no big deal, even if SCO should win, but when Mr. Acker makes him focus in a more fine-tuned way, he admits they'd make some money. His testimony in a nutshell is essentially that the contract means what it doesn't actually say in words, that the intent they all had trumps the words used. You could sum up his testimony in this exchange with Acker:
Q So, again, the contract doesn't expressly say that, but you are relying on your memory of a deal you did 15 years ago?

A Without a doubt.

Over and over. It's embarrassing for him. And he repeatedly insists that they sold the entire business, including the copyrights. Yet, he is read that the excluded assets list says no patents transferred. It doesn't register. And of course he wasn't there for Amendment 2, since he worked for Novell from 1993 through January of 1996. This is the guy the Appeals Court thought should have an opportunity to be heard from. They mentioned him by name. What were they thinking? All that extra expense for testimony like this?

As he is about to be excused, the judge asks him not to talk to others about his testimony:

THE COURT: Mr. Chatlos, thank you. That means you do not need to worry about being re-called in this case. You may go about your business. I will advice you to please not discuss your testimony with any other witness in this case or in the presence of any other witness or communicate your testimony to any individual who may report that, okay?
Later, when Ty Mattingly takes the stand, he knows that Chatlos has already testified, claiming that a friend of his, Lee Johnson, told him.

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

200


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 10, 2010

Jury Trial
Volume II

201


A P P E A R A N C E S

For Plaintiff: BRENT HATCH
[Address]
Salt Lake City, Utah
STUART SINGER
[Address]
Fort Lauderdale, Florida

EDWARD NORMAND
JASON CYRULNIK
[Address]
Armonk, New York

For Defendant: STERLING BRENNAN
[Address]
Salt Lake City, Utah

ERIC ACKER
MICHAEL JACOBS
[Address]
San Francisco, California

Court Reporters Ed Young
Ray Fenlon
Patti Walker
U.S. Courthouse
[Address]
Salt Lake City, Utah
[Phone]

202


I N D E X

Witness Examination By Page
Robert Duff Thompson Mr. Singer (Direct) 220
Robert Duff Thompson Mr. Acker (Cross) 277
Robert Duff Thompson Mr. Singer (Redirect) 336
Robert Duff Thompson Mr. Acker (Recross) 344
Edward Chatlos Mr. Normand (Direct) 346
Edward Chatlos Mr. Acker (Cross) 374
Edward Chatlos Mr. Normand (Redirect) 385

Exhibit Received

Plaintiff's Exhibit 133 252
Plaintiff's Exhibit 90 256
Plaintiff's Exhibit 669 268
Plaintiff's Exhibit 254 270
Plaintiff's Exhibit 97 272
Plaintiff's Exhibit 571 274
Defendant's Exhibit A1 290
Defendant's Exhibit V5 310
Defendant's Exhibit O-10 315
Defendant's Exhibit G12 324
Defendant's Exhibit Q22 329

203

March 10, 2010 8:30 a.m.

P R O C E E D I N G S

THE COURT: Good morning.

MR. ACKER: Good morning.

MR. SINGER: Good morning.

THE COURT: Counsel, let me deal with a couple of things, and then I know you have some things as well.

Did we get ahold of Mr. Hunsaker yesterday to determine whether or not he was familiar with or related to Thomas Hunsaker, juror number nine?

MR. HATCH: Your Honor, I did notice on the list that I read, that Mr. Hunsaker's name was on the list, although I have not been able to check the transcript to see if it was there. We did talk to Mr. Hunsaker, our witness, not the juror, and he indicated that he has no knowledge that this person is related to him in any way or does he know him, the Hunsaker that is the juror.

THE COURT: In light of that, Counsel, do you see any reason to pursue it, Mr. Acker?

MR. ACKER: No, Your Honor.

THE COURT: Thank you.

We had yesterday talked about the plaintiffs submitting their amended jury instructions to the Court tomorrow. I understand, Mr. Hatch, that you have requested

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until Friday. The Court will give you until Friday, but I'm going to ask that the parties meet one more time between now and Friday to see if you cannot work out more of these instructions. The reason why is because it appears you're coming closer together, and I think a face-to-face meeting would probably be more helpful.

If that is not productive, then you go ahead and submit your jury instructions by Friday, but the Court will then not request anything further from the defendants, but rather we'll put together a package and give it to you next week and allow you both to respond to it, and then by the third week we will be able to give you a further revised package.

MR. HATCH: Thank you, Your Honor. That will be fine.

THE COURT: Okay.

I'm curious. We do have to deal with the opposition, not the opposition but the concerns with Mr. Messman's deposition. Any there other objections with any other deposition witnesses or are we down to Mr. Messman and --

MR. NORMAND: Your Honor, we have been handling these on sort of a rolling basis, and I think we are through six or seven.

THE COURT: Okay.

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MR. NORMAND: What we are trying to do is take them day to day and get them to Your Honor two days in advance, at least a day and a half in advance, and take it from there.

THE COURT: Thank you. I was just hoping that the answer was, oh, we are done, but obviously my optimism is without foundation. I do appreciate what you're doing, Mr. Normand, and whoever is working on the defendant's side, and it is very helpful. I didn't want to seem ungrateful.

Do you want to argue the objection to Mr. Messman's deposition portions now, counsel? Do you want the Court simply to rule on it?

MR. NORMAND: Your Honor, we did, and you probably saw, we sent in a letter on the issue in which we summarized our objections. I am not sure there is much more to say, unless there is room for argument about whether the material that we regard as hearsay is coming in for some other purpose.

THE COURT: That is the Court's concern.

Who represents Novell on this?

MR. JACOBS: I will handle this topic, Your Honor.

THE COURT: Mr. Jacobs, let's deal with this quickly, if we could.

First of all, let's deal with the issue of the statement that Mr. Messman would testify to regarding the

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David Bradley representation in a board meeting about what was and wasn't being conveyed by the original agreement. It would seem to me, Mr. Jacobs, that it would clearly be hearsay. It is certainly not a statement by a party opponent, so what would be the justification for allowing that portion of Mr. Messman's video deposition to be heard?

MR. JACOBS: Mr. Messman's state of mind, Your Honor. The plaintiff has placed the state of mind at issue and what did he know when Novell was issuing the statements that they challenge about ownership of the copyrights. Mr. Messman's recollection of what happened in the board meeting relates to that and to his state of mind.

THE COURT: So it is not being offered for the truth that Mr. Bradford represented that the copyrights were not being conveyed?

MR. JACOBS: That is correct.

THE COURT: Mr. Normand, do you wish to respond to that?

MR. NORMAND: Your Honor, we are fine with that so long as the jury is so instructed.

THE COURT: How do we make that instruction? Do we interrupt the video?

MR. NORMAND: I think there will be other points in other videos where we are interrupting to explain either a document that is coming in or for purposes of trying to

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get an exhibit that is coming in admitted, so I don't think it is going to be unnatural to be stopping the video from time to time. We would propose to do that.

THE COURT: All right.

MR. JACOBS: This is a little peculiar, Your Honor, in that the jury has already seen minutes of this board meeting that account for the various statements that were made. I think if they got an instruction now, in the wake of Mr. Messman's testimony that this is not for the truth, but rather for his state of mind, I think that they could be quite confused.

On this particular issue, because of the record of what happened at the board meeting, I think an instruction would be overdoing the issue of the distinction between state of mind and what happened. There may be other cases in which the jury should be told you're going to hear about a lot of statements that were made out of court, and they are being offered for the following purposes.

THE COURT: Mr. Normand, go ahead.

MR. NORMAND: Well, Your Honor, there is the potential for confusion because of the cumulativeness or redundancy and --

THE COURT: Well, hold that point for just a minute, because I think that if I decide this on Mr. Bradford then I probably have to decide something

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similar on another witness. Let's not decide that right now.

Let's go on. The next one would be the conversations with Mr. Messman with some SCO employees about this issue. What is the intent of that being offered? It is something that is clearly hearsay within hearsay.

MR. JACOBS: Actually, I believe what Mr. Messman is testifying to in the relevant passage is what he was told about the conversations his subordinates in the company had with SCO representatives, and so I think your characterization is correct.

Once, again, SCO is placing into question what did Mr. Messman know and what did he do before Novell released the statements it released over his name? So the fact that he was informed by his subordinates that SCO representatives were contacting Novell about the copyrights is directly relevant to his state of mind.

MR. NORMAND: Your Honor, built into this testimony is actually double hearsay. I suggest we would need a double instruction and there is a real potential for confusion here. The testimony is I think Chris Stone mentioned to me that Darl had approached him several times with regard to transferring the copyrights. In effect he is testifying that Chris Stone told me that Darl told him that he wanted the copyrights. It is double hearsay and it is

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confusing.

THE COURT: I would agree. I will not allow it to be viewed by the jury. Okay.

The third one has to do, and now this is the plaintiffs trying to get in the Wall Street Journal article, which Mr. Messman apparently may have or may not have seen, and the question would be whether or not the plaintiffs should allow it to be heard by the jury, even though arguably we have the same issue here of whether it is being offered for the truth.

MR. NORMAND: Your Honor, Mr. Singer will speak to this.

THE COURT: Go ahead.

MR. SINGER: Your Honor, this issue is actually going to come up first with Mr. Thompson and I was going to raise it in advance of his testimony. This is being offered under the principle that the Wall Street Journal came out with an article after the deal was announced, which we think reports it in a way consistent with SCO's position, and that no one reacted and said that was wrong.

There is case law which indicates that when a party is aware of a published article but took no action to clarify it, then that is admissible evidence. Not for the truth of the matter, but their lack of reaction being put on notice that this is how the deal was being considered.

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THE COURT: Mr. Jacobs.

MR. JACOBS: I have not seen that case law and it is a little peculiar. We have a newspaper article, and the issue right now is Mr. Messman's deposition, unless we want to convert it over to Duff Thompson.

THE COURT: Let's focus just on Mr. Messman's deposition.

MR. JACOBS: In Mr. Messman's deposition he is asked did you see the article? It was, what, 14 years before. He says I don't remember. Did Novell take any action? He says I don't know. To put in an article through a witness who says I don't remember and I don't know, that is hearsay, and it is irrelevant and lacks probative value.

THE COURT: Mr. Jacobs, I would have to respectfully disagree. I do believe it is relevant and relevant to the point that there was apparently no reaction to that article. As you just characterized, whether or not he saw it is not clear from his deposition testimony.

What I'm going to do is I'm going to permit both of those disputed portions to come in. It is not my intention right now to give an instruction to the jury, because I do not want to draw undue attention to this. Part of the reason for this, Counsel, is that Mr. Messman is going to be testifying, as I understand it, later. To the extent there has to be rehabilitation you're going to be

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given the opportunity, both of you, to do it. I think it is better to let both of those disputed portions to come in, but with nothing special to draw attention to it. I will not allow the hearsay on hearsay portion. All right.

MR. JACOBS: Yes, Your Honor.

I would note that their basic theory of Mr. Messman's failure here, as evidenced in their opening statement, is the failure to investigate on his part. We're going to be addressing that as a matter of law through the jury instruction process, but before Mr. Messman's testimony and as this process has unfolded a little bit, I think we would like to talk to you again about whether he can describe the various steps that led him to his view that Novell retained ownership of the copyrights even if they represent in some sense hearsay.

THE COURT: Okay. You'll obviously bring that to my attention when you think the time is right?

MR. JACOBS: You bet, Your Honor.

THE COURT: Thank you, Mr. Jacobs.

One last thing, Counsel, from me. The court reporters have expressed concern with being able to follow the video depositions. There are occasions certainly in this courtroom in the past where that has been very difficult. However, Ms. Walker was given a demonstration of the deposition and she thinks it will not be difficult for

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them to make a record from that.

If, however, that doesn't prove to be true, we may have to ask that you submit to the court reporters the written transcript of the video depositions so that they can use it to help correct what they may take.

MR. JACOBS: Yes, Your Honor.

Just to be clear on that point, we had a discussion about what the record would reflect with respect to deposition testimony, and it is our view that deposition testimony played in court is testimony, and I think the intent of Your Honor's comments is that the reporters will actually take it down word for word, and if they need to correct it based on a submission of the transcript, they would do so.

Is that correct?

THE COURT: That is correct.

MR. SINGER: That is fine.

THE COURT: It is not the intention, and let me make this clear, that we provide to the jury copies of either the written or video depositions.

Mr. Singer, do you have something?

MR. SINGER: Yes, Your Honor.

Overnight, of course, we got the daily transcript, and I have to say I was even more concerned about the whole line of questioning about Section 9.5, the integration

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clause in connection with the matter of the jury instruction, which Novell has not agreed with.

If I might approach?

THE COURT: Yes.

MR. SINGER: I will submit what we proposed to Novell.

THE COURT: This is a jury instruction to be given immediately?

MR. SINGER: Yes, Your Honor.

THE COURT: All right.

MR. SINGER: Your Honor, our concern is that the reference to 9.5 has no relevance here other than to tell the jury that they shouldn't pay attention to exactly what they should pay attention to, the intent of the transaction. That has the risk of this jury now not paying attention to what is going to be very substantial amounts of testimony over the next days and weeks about what the parties said to each other about the intent of this deal, exactly what the Tenth Circuit said this trial is supposed to be about. That shouldn't have happened. 9.5 should not have been used to try to suggest to the jury that that type of evidence in this case is not relevant.

THE COURT: Mr. Jacobs.

MR. JACOBS: Yes, Your Honor.

Number one, we don't need an instruction now. At

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best the jury should be told you're going to hear a lot of evidence and I will instruct you on the law to be applied to that evidence at the end of the trial. Keep an open mind.

Number two, is the cherry picking from the Tenth Circuit opinion, and proposing an instruction that would actually flip this whole topic away from the written agreement into what the parties were thinking.

The third point is the questioning was entirely appropriate. The questioning was about what this witness understood at the time, what Mr. Frankenberg understood the purpose of the written agreement was in documenting the parties intent. It was not questioning that went to ten years later do you think this Court and jury should be hearing -- 15 years later -- what you thought at the time. I think we are overdoing the objection to the testimony.

I would note, moreover, that Mr. Brennan backed away from further questioning under the Court's suggestion that if he proceeded we might be in an area that Novell --

THE COURT: Mr. Singer, I am concerned, and Mr. Jacobs has pointed out something that the Court has had concern with, and that is that if I were to do what you suggest, that would in effect undermine the Court's previous rulings on motions in limine, precluding the defendants from referring specifically to the Tenth Circuit's decision.

I believe Mr. Brennan came very close, however,

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yesterday to raising it to the level where perhaps I may have to do what you have suggested, but I think he backed away.

I just have to caution the defendants that if they continue to pursue questioning of additional witnesses to the point where the Court believes that it is misrepresenting what ultimately the jury has to consider, then at that time I will revisit the issue, but I am not going to give this instruction now.

MR. SINGER: Thank you.

Your Honor, we do have one more issue that perhaps is appropriate to raise now before Mr. Thompson is on the stand.

THE COURT: All right.

MR. SINGER: That is while we don't propose to get into the interpretation of amendment number two with Mr. Thompson, since he didn't negotiate it, we do intend to get into the fact that he was on the SCO board of directors at the time when this was approved. He approved it. He has sufficient knowledge then for us to at least elicit that and have that provision read to the jury which is in evidence, that he was on the board at the time that that was approved. He has personal knowledge of that and we don't believe that that is in any way inconsistent with the Court's earlier ruling on the motion in limine.

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We don't propose to get into how he would interpret the language or the negotiations because he did not participate in that part.

MR. ACKER: Your Honor's ruling on the motion in limine number 16 is clear that Mr. Thompson can't testify about amendment number two. Now, if they knew at the time that they wanted to put this testimony in, they should have raised that in the motion in limine, and the motion in limine lay out what Mr. Thompson knew or did not know about amendment number two, but the Court has ruled.

MR. SINGER: We did note in our opposition to the motion in limine that he had knowledge of the circumstances of amendment number two's passage. There were about eight or nine of these dealt with in one order, and I don't think that perhaps this specific part of his testimony was treated in that order.

THE COURT: If you're confining it to did he vote for -- that is what you are saying?

MR. SINGER: He was on the board.

THE COURT: He was on the board.

MR. SINGER: He does not recall whether he voted for or abstained, but he was on the board when this was considered.

MR. ACKER: It does not sound like he has much recollection about it at all, Your Honor.

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THE COURT: I think I'm going to have to wait and see what foundation you lay. If you lay a proper foundation I will allow him to answer that very narrow question, but the Court will not allow you to ask anything that may lead him to be discussing what the amendment meant or anything to the merits of the amendment.

MR. SINGER: Yes.

The amendment is already in evidence and I would just intend, when laying the proper foundation, to have him read that section and ask if this is what came before you on the board at that time, which was an amendment to the A.P.A.

THE COURT: There is going to have to be some foundation that he remembers that.

MR. SINGER: Yes.

MR. ACKER: Just on one other point, the point that Mr. Singer raised yesterday, SCO Exhibit Number 1 is the A.P.A. with amendment one and amendment two attached. I'm going to use today Novell Exhibit 1 which is just the A.P.A. without one and two, because I want it to be very clear in response to Mr. Singer's objections yesterday what exhibit we're talking about and what the witness's testimony is about that specific document. I just want to make that clear that I am going to do that with Mr. Thompon today.

THE COURT: All right. The only concern I have is it is more paper for the jury to have.

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MR. ACKER: I understand, Your Honor, but I think that it --

THE COURT: If you have to do it, you have to do it.

MR. ACKER: I think it is important because we are slicing it thin here.

THE COURT: I am speaking generally and I worry about us sending so much paper back there that the jury never makes its way through it.

MR. SINGER: May I be heard on that issue very briefly?

THE COURT: Go ahead.

MR. SINGER: The concern we have is not the extra paper, it is the concern that somehow this will be used with the jury to suggest that the real A.P.A. is this one without the amendment, Novell Number 1, rather than SCO Exhibit 1 which has the amendments. That is a concern which has come about through a number of things that have already occurred in the trial.

THE COURT: Let's see how it plays out today and then objections can be made, Mr. Singer, if you think they need to be.

MR. SINGER: Thank you.

THE COURT: Anything else?

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

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THE COURT: Ms. Malley, please get the jury.

Is Mr. Thompson in the courtroom? Will you be sending someone for him so that we can move quickly?

MR. SINGER: Yes, we will.

(WHEREUPON, the jury enters the proceedings.)

THE COURT: Good morning, ladies and gentlemen of the jury. I want to apologize to you. As I indicated in one of the preliminary instructions, on occasion you may find yourselves waiting in the jury room while we deal with matters that we have to. We will try to keep those delays at a minimum, but it will happen from time to time during the course of the trial.

Again, I have to ask you, ladies and gentlemen, whether or not any of you violated the very specific instruction that you have been given in reference to your conduct, particularly that conduct outside of the courthouse?

All right. Once again, you passed the test.

Mr. Singer, would you like to call your next witness?

MR. SINGER: Thank you, Your Honor.

We would, and our next witness is Mr. Duff Thompson.

ROBERT DUFF THOMPSON
Having been duly sworn, was examined

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and testified as follows:

THE WITNESS: Robert Duff, D-u-f-f, Thompson.

DIRECT EXAMINATION

BY MR. SINGER

Q. Mr. Thompon, do you generally respond to the name Duff?

A. Yes.

Q. If there are references to Duff that is generally referring to you?

A. Yes.

Q. Briefly summarize your educational background.

A. Undergraduate degree in economics, master's of business administration and a J.D.

Q. What institution?

A. Brigham Young University.

Q. All three?

A. Yes.

Q. Would you please summarize your employment after school.

A. I worked in the law firm of Moyle & Draper for a few years. I went to the firm of Callister Nebeker & McCullough. It was originally Greene Callister & Nebeker. I worked there for a number of years. Then I was hired as general counsel for Word Perfect Corporation.

Q. For how long were you at Word Perfect?

A. From 1986 until 1994.

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Q. In 1994 was Word Perfect sold to Novell?

A. Yes.

Q. Did you move over at that time to become employed by Novell?

A. Yes.

Q. What were your responsibilities at Novell?

A. I was senior vice president of corporate development and strategic relations.

Q. What did that mean? What type of work did you do at the company?

A. It had to do principally with all of the transaction work that was going on in the company, dealing with various partners in the industry to make sure that Novell was doing that which they needed done, and that they were doing that which Novell needed them to do.

Q. Who did you report to?

A. Bob Frankenberg.

Q. Did there come a time when Mr. Frankenberg indicated that he wanted to sell the UNIX business?

A. Yes.

Q. Approximately when did that occur?

A. That happened, to the best of my recollection, somewhere in the April or May time frame of 1995.

Q. Did he indicate whether he wanted to sell part of the UNIX business or all of the business?

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A. The indication to me was that he wanted to sell all of the UNIX business.

Q. What was your understanding of the reason that Novell wanted to sell UNIX?

A. Well, there were a number of reasons, but Novell had purchased UNIX in 1993, two years before, and they had been working on a product they called SuperNos, which was a combination of UNIX and NetWare. It was a very difficult process and it was a very expensive process. The cost just simply didn't justify continuing. There were 400 people located on this out in New Jersey working on this project, and a number of people at Novell working on this project, and my understanding was that the revenue that they were generating just was not sufficient to justify all of the expense.

Q. Do you recall how much Novell had paid AT&T for the UNIX business?

A. I was not there at the time they purchased it, but I became aware that they had paid something in the neighborhood of $300 million.

Q. Did you anticipate getting as much in selling the UNIX business in 1995?

A. The price really was not an issue. At least my understanding from Mr. Frankenberg was that the price wasn't the issue. The determination had been to get rid of this

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cost center, the 400 people, and so when I received my instructions they did not indicate to me any kind of a price threshold that had to be met in order to sell it.

Q. What role were you given by Mr. Frankenberg in connection with selling the UNIX business?

A. I was assigned to conduct the negotiations. My group was assigned to conduct the negotiations. It was not just me. It was a gentleman by the name of Ed Chatlos that worked for me, a gentleman by the name of Ty Mattingly that worked for me, and there were a number of other people that were a part of that team.

Q. Did you seek to identify an appropriate buyer for the business?

A. We did. This was over the course of a couple of months and we met with a number of industry players, specifically including Intel and Hewlett-Packard to get their input on who might be a good candidate for this.

Q. How did SCO come to your attention, Santa Cruz Operation?

A. I didn't know them prior to this time. I was introduced to them through the discussions we had with Intel and Hewlett-Packard.

Q. Who at Intel?

A. Well, the meetings there I remember fairly clearly. It was the only time I ever met Andy Grove, one of founders of

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Intel. I met him and another gentleman by the name of -- I believe David House. We had meetings with them and with Hewlett-Packard, and over the course of time -- by the way, Ty Mattingly participated in these meetings and Bob Frankenberg participated in those meetings. It was suggested to us that SCO was a good candidate.

Q. What was your understanding of why SCO was a good candidate to buy the UNIX business?

MR. ACKER: I object. It is hearsay coming from H.P. and Intel if he doesn't have an understanding from another source. I would object. I think he needs to lay a foundation of where that understanding came from.

THE COURT: More foundation is required, Mr. Singer.

BY MR. SINGER

Q. You obtained information from a number of sources with respect to potential buyers; is that correct?

A. Yes.

Q. Did there come a point in time when you and the other Novell executives made a decision to approach SCO?

A. Yes.

Q. Why did you do that?

A. Well, there were a number of reasons. One of the reasons that they made a lot of sense, other than the fact that they were an acceptable party to Intel and

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Hewlett-Packard and some of our other UNIX partners -- let me back up. SCO had a worldwide channel of distribution. That was important in this discussion. It was important to find a company that had significant assets and significant sales reach, and this was a company that was roughly a $200 million a year company. It was a company that had 1,000 or 1,100 employees. They had an international channel of distribution. They were working in the UNIX area already. They were a good candidate in terms of the kind of product we were talking about. Also, we had talked to a number of our other UNIX partners about this idea of creating a UNIX --

Q. Before you go on, Mr. Thompson, just so the record is clear, the company you were just describing with the number of employees and the worldwide distribution, you're referring to Santa Cruz Operation?

A. Yes.

Q. Please continue as to why you believed Santa Cruz was an appropriate candidate as a buyer.

A. The strategy that was articulated in the discussions internally, Bob Frankenberg, Ty Mattingly and myself and others in the company, was to find a candidate that was capable of putting together a Switzerland type version of UNIX.

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You see, most of the UNIX partners that Novell had, especially the large hardware manufacturers like H.P. and IBM and Sun and others, had their own version of UNIX. The reason they had their own version of UNIX is it was built specifically for their type of hardware, and we were looking for someone that didn't have hardware, kind of a legacy set of hardware that they were trying to sell the product for. That is why H.P. was not a good candidate. They already had their own operating system, or their version of the UNIX operating system called Hewlett-Packard H.P.U.X. No one would have trusted H.P. to take this because they were interested in selling their own hardware. We were looking for someone that would be acceptable in the industry that could design a form of UNIX on the Intel chip that then could be sold to any user and not specifically tied to any kind of hardware.

Q. So was it important to find a buyer that was not itself in the computer hardware business?

A. That was one of the criteria that became part of the decision to use SCO.

Q. Were there other buyers interested in purchasing the UNIX business other than Santa Cruz?

A. I can't answer the question as to whether anyone was interested. We couldn't find anyone that was interested in talking to us that was acceptable. There could have been

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many parties that were interested, but they all had some specific agenda. IBM had its own operating system. H.P. had its own hardware and UNIX operating system. Sun had its own hardware and operating system, version of the UNIX operating system. None of them would have been good candidates for the rest of the industry. No one would have trusted them to be the seller of UNIX.

Q. During this summer of 1995 when you were negotiating this deal, did any other party come forward as another buyer to compete for the transaction?

A. Not to my knowledge.

Q. Going back now to the discussions with Santa Cruz Operation, did you personally have discussions with the executives of Santa Cruz?

A. Yes.

Q. Which individuals do you recall having those discussions with?

A. They had a team of people. A gentleman by the name of Alok Mohan was their C.E.O. A gentleman by the name of Jim Wilt was their head of corporate development and was my counterpart. A gentleman by the name of Jeff Seabrook participated in the discussions. Steve Sabbath was their general counsel and he participated in the discussions. There were others. There were technology people, licensing people, people on both sides, but that is the core

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team from SCO that I worked with.

Q. Over what length of time did those discussions occur?

A. Well, the negotiations -- sort of the beauty contest to decide who was a good candidate started in that May time frame. By June we had actually decided to now begin the discussions in earnest with SCO.

Q. At any time during the discussions with Santa Cruz Operation, did you on behalf of Novell say you were going to hold back the copyrights?

A. No.

Q. Would it have made any sense to you to sell a software business without the copyrights?

A. No. My instruction from Bob Frankenberg was to sell the whole business, the whole UNIX business.

Q. Did you participate then in negotiating the business deal through the summer of 1995?

A. Yes.

Q. What was the general nature of the proposed transaction that you came up with?

A. Well, there were several aspects to the transaction. The first was to transfer to them the UNIX business that was existing, the existing UNIX business. The second was to discuss with them a merged product, which was a merger of the product that SCO had been working on and the product that Novell had been working on, which was the UNIX version.

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That was the second aspect. The final aspect was that there would be some kind of a, quote, white box, which basically was that SCO would sell Novell's software through its channel. I should be very clear. White box was their way of referring to the NetWare product. Novell referred to all their product as the red box, because their Novell Netware came in a red shrinkwrapped box. When they negotiated with other parties, such as previous to that time in the spring we had negotiated with IBM on some issues, we had talked about IBM selling a blue box, basically IBM's color, blue, and that they would sell NetWare through their channel. Finally, in this instance it was the white box, which was SCO selling the NetWare software.

Q. Was this an important part of the deal to Novell?

A. To sell the white box?

Q. Yes.

A. Well, Novell had a sales model which was a leveraged model, meaning that if they could have any one party selling lots and lots of product through their channel, that was a good thing. Rather than develop their own sales channel of millions and millions of resellers, they wanted to use this leveraged model, and so the idea of having SCO sell product was a great idea.

Q. Now, was there a meeting in Palo Alto in the summer of

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2005 with Santa Cruz representatives about the transaction?

A. Did you say 2005?

Q. I did. I meant 1995.

A. There were a series, a lot of meetings in the summer of 1995 between Novell and SCO in Palo Alto, Los Gatos, San Jose, all over the place in the bay area.

Q. Do you recall a meeting in Palo Alto with the Santa Cruz executives where you discussed what would Novell be selling to Santa Cruz?

A. Yes. I have in my mind a specific instance at the SCO counsel's offices. SCO was represented by a firm by the name Brobeck, and I remember meeting on the terrace of their offices with Alok Mohan and Jim Wilt and other members of our team to talk about the deal.

Q. At that time do you recall what you said regarding how much of the UNIX business was going to be sold to Santa Cruz?

A. Well, my recollection is exactly the same as I have given, that we're selling you all of the business, lock, stock and barrel, the whole thing.

Q. By the whole business, did that include both UNIX and UnixWare?

A. Yes.

Q. What was your understanding as to whether the copyrights were also being sold?

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A. Well, it was the whole business. We were giving them source code, all of the manuals, the customer lists, we were giving them the whole business. I assumed and I understood that we were giving them the copyrights as well.

Q. Would holding back the copyrights have been consistent with your instructions from Mr. Frankenberg, the CEO?

A. I received no instructions from Bob Frankenberg to hold back the copyrights. Indeed, I never heard anyone in the course of those negotiations for several months talk about holding back the copyrights.

Q. Did you in turn ever instruct anyone on the deal to hold back the copyrights?

A. I did not.

Q. What was Mr. Ed Chatlos' role in the transaction?

A. Well, Ed was the primary negotiator. Ed actually lived back in New Jersey. He had worked with AT&T back in the '80s and had worked with USL, when it became USL, and then moved over to Novell when Novell purchased USL. Ed had been part of the AT&T and USL and Novell world for years and years and years. It turns out, when I was given my assignment as the head of corporate development, Ed was part of my staff located in New Jersey. Ed was the natural individual to be the chief negotiator for this transaction. By chief negotiator, I mean I expected Ed to be on that case every

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day. That was his project. He had no other assignments during that period of time other than to work with this deal.

Q. He reported to you?

A. Yes.

Q. What was Mr. Bradford's, the general counsel of Novell, responsibility in connection with this deal?

A. Well, he was the general counsel of the company. As general counsel he would have had the responsibility to review and to manage all of the legal team and all of the issues that came up through the legal team.

Q. Did he have the responsibility to negotiate the deal?

A. Well, he didn't negotiate the deal. He was not in the meetings negotiating with SCO.

Q. Did you ever ask Mr. Bradford or anyone who was working in the legal department for Mr. Bradford, or any outside counsel who was working with Mr. Bradford, to recut any parts of the deal with you and Mr. Chatlos on behalf of Novell, negotiated with Santa Cruz?

A. To recut any elements of the deal?

Q. Yes.

A. All the time. Every time there was a negotiation session we would come back with notes and issues that had been worked out in the business sessions. We would come back and deliver that set of new data to the legal team.

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Q. Let me be more precise. Did you ever ask Mr. Bradford to change the deal so that the copyrights wouldn't be going over to Santa Cruz?

A. No.

Q. What was the role of outside counsel from Wilson & Sonsini, including MR. Tor Braham on the transaction?

A. Well, Wilson Sonsini was outside counsel to Novell in that deal and in many others, and they had a team who were working with their counterparts at Brobeck to represent our interests, the Novell interests.

Q. Were they given the responsibility to change elements of the deal that you and Mr. Chatlos had negotiated with the Santa Cruz representatives?

A. Well, they were given the responsibility to document the deal that we negotiated.

Q. Were they given the responsibility or would it be within their authority to have gone out and withdrawn the copyrights as one of the assets that Santa Cruz was buying?

A. Well, I don't think it was in their job description to change the deal that we had negotiated without at least telling us that they were changing the deal that we had negotiated so that we could communicate that to the parties with whom we dealing at SCO.

Q. Did that ever happen with respect to the copyrights?

A. Not with respect to the copyrights. There were a lot

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of issues, and we got feedback all the time from the lawyers. They would come back and say we have to do this with respect to tax. We have to do this with respect to the registration of the securities. We have to do this with respect to the human resources issues. There was a lot of interplay between the legal team and the business team, and we bounced things backs and forth all the time, but there was never an instance that I'm aware of that they would make a change and simply not talk to us about that.

Q. Specifically, did anyone on the Novell side ever tell you that they had negotiated to hold back the copyrights?

A. No.

Q. Did anyone tell you from the Novell side that they were going to put in language to hold back the copyrights and simply not tell Santa Cruz about it?

A. No.

Q. Was there an issue with Santa Cruz having enough cash money to pay for the business?

A. We knew going in, and as a part of the baiting of SCO as a potential candidate, we were aware of the fact that they were a $200 million company and not a $200 billion company. That would have been nice if they were a $200 billion a year company, but they weren't. They were a $200 million a year company. So we understood what they could do and what they couldn't do in terms of a cash purchase.

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Q. How did that lead to the payment terms which you understood were to be the compensation to Novell for selling the business?

A. Well, we just had to come up with a different way to pay for the deal.

Q. What did you come up with?

A. Well, in the initial days there was some discussion about taking a larger percentage of stock from SCO. The CFO at Novell was a gentleman named Jim Tolonen. Jim Tolonen and his team were clear with us that they did not want to own anymore than, I believe, 19 percent of the company. Because if they owned more than 19 percent of SCO, took more than 19 percent of their stock, they would actually have to do some kind of an accounting procedure called consolidated statements, which would change the way that Novell reported its activities. They didn't want to do that. We were instructed to take no more than 19 percent of the company as part of this transaction, which is what we did. Six million and 100 some odd thousand shares represented something south of 19 percent of stock of the company and that was the stock element of the deal. The second element of the deal was that this new merged product, this new product that SCO would go out and develop and then sell, Novell had a participation right in the revenues that came from that. There were certain targets

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and limits and so forth, and they wouldn't participate until SCO reached a certain number of units sold, and then they participated at a certain rate. If they sold more than that, they participated at a higher rate, et cetera, et cetera. So they had participation in this new product. The final element was that we would keep the revenues from the existing licenses, the UNIX SVRX licenses, that Novell would keep that revenue as part of the money coming back. I mean, Novell had spent 300 and some odd million dollars buying this, and selling this business now for a smaller number would be perceived as being a big mistake. Novell didn't want it put out in the press that they bought something for 300 million in '93 and sold it for 50 million in '95. We had a way of showing that we had gotten reasonable value out of the sale of the business.

Q. Now, that value would be money which would come in over a period of years?

A. The royalties would, yes. Well, actually the stock value was set at six million and 100 something thousand shares. The participation revenue would only come at the time the sales started to occur, and the royalty revenue would just be coming in every quarter.

Q. Could you protect the right to that royalty income as a source of payment while still selling the copyrights?

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A. Sure. I mean, that was the purpose of the A.P.A.

Q. Was Santa Cruz --

A. The A.P.A. is the asset purchase agreement. We began to refer to it as the A.P.A.

Q. Was Santa Cruz to receive the entire UNIX business except the royalties on these licenses -- that was not well phrased. When you decided on this payment mechanism, did that change the fact that you were going to sell the entire UNIX business to Santa Cruz?

A. When we decided on the payment system?

Q. Yes.

A. No. The transaction never changed. Sell the business was the order of the day. That was our instruction, sell the business. We were just trying to figure out how to pay Novell and its shareholders a reasonable value for the sale of this business.

Q. Now, were you personally involved in the transaction up to the date that the A.P.A. was signed?

A. Yes.

Q. In fact, beyond that, to the date it was closed in December --

A. Yes.

Q. -- of 1995?

A. Yes.

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Q. I would like to give you a book of exhibits. Mr. Thompson, Exhibit 1 which is already in evidence is the asset purchase agreement, the so-called A.P.A. Just so that we have some identification of what is in Exhibit 1, do you see on the first page you have the asset purchase agreement that is before you?

A. Yes.

Q. Then if we go to page 49, do you see Mr. Mohan's signature on behalf of Santa Cruz Operation and the signature of Bob Frankenberg on behalf of Novell?

A. Yes.

Q. Then after that there are certain schedules of assets. Do you see that?

A. Yes.

Q. Then after that --

A. Yes, lots of schedules, actually.

Q. After that there are two amendments to the back of the agreement. Do you see that?

A. There is amendment one.

Q. At the very end, the last couple of pages, there will be amendment number two.

A. Okay. Yes, there is amendment two.

Q. Going back to the A.P.A., you are familiar with this document as the person in charge of selling the company?

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A. Yes.

Q. Would you turn to the list of the assets being sold on Schedule 1.1A.

A. Yes.

Q. If we blow up that schedule on the screen here so that it is a little more visible, do you understand this to be, subject to the exclusions which we will talk about in a moment, the assets which were being sold as a part of the transaction?

A. Did you say that they were subject to the exclusions?

Q. Well, we'll turn to the schedule separately of the excluded assets, but did you understand that this schedule of 1.1A were the assets that were being sold?

A. Yes. These are all the included assets, yes.

Q. Did you understand this to represent the entire UNIX and UnixWare business?

A. I did.

Q. Was it your understanding that the copyrights were included in this sale of the UNIX and UnixWare business?

A. I understood that ownership of UNIX was the ownership of the code, the ownership of UNIX, ownership of the business, ownership of the clients, ownership of the accounts, all of those things were what we were transferring to SCO.

Q. That pertained both to the current UnixWare, the source

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code as well as the older products of UNIX?

A. We called out UNIX and UnixWare. Paragraph one, UNIX and UnixWare.

Q. Could we now turn to Section 1.1B. Were there certain assets which you understood Novell was intent on retaining from the transaction --

A. Yes.

Q. -- and not selling?

A. Yes.

Q. What was your understanding of what those were supposed to be?

A. The NetWare and other related Novell technologies. NetWare was the crown jewel of Novell. In this transaction we wanted to make sure that it was clear that even if there were some bits and pieces of the NetWare code that were going over as a part of the new merged product or any of those sorts of things, there was absolutely no question but that Novell was retaining the rights to the ownership of that. They were keeping that and reserving that back in this deal.

Q. If we look at the items on the first page of this schedule, do most of those concern NetWare?

A. Well, yes, all with the exception of Tuxedo were NetWare items.

Q. Was Tuxedo also not being sold?

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A. Tuxedo was not being sold. That was a Novell item.

Q. On the next page of this list of excluded assets, referring now to the old language on Section 5A before it was changed, where it says all copyrights and trademarks, was it consistent with your understanding of the deal that the UNIX copyrights would be excluded?

A. No. My understanding of the use of this phrase here was the NetWare copyrights and trademarks.

Q. That is based on the deal which you negotiated?

A. Yes.

Q. And what the other people that reported to you negotiated?

A. Yes.

Q. At the time that this was drafted, did any of the lawyers come to you and say, Mr. Thompson, we have decided to put in language in this schedule to hold back the UNIX copyrights?

A. No. That did not happen.

Q. Without the UNIX copyrights would Santa Cruz be able to operate the software business that they were buying?

MR. ACKER: Objection, calls for a legal conclusion, Your Honor.

THE COURT: I'll overrule the objection.

THE WITNESS: It is hard for me to imagine any instance in which we are selling them the entire business,

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to go forward with this business in the future, without giving them the underlying intellectual property rights that they needed to do so.

BY MR. SINGER

Q. I would like you to tell me, if you recall, if there was any license to Santa Cruz that was negotiated as a part of the A.P.A., so that instead of owning the copyrights they would just be given a license through this agreement to make use of them?

A. To the UNIX products?

Q. Yes.

A. There was no such license. This was a sale. We referred to it as an acquisition, not a license. There was to be a license back for the NetWare technology, but not for the UNIX technology. Let me be clear. There was to be a license back from Novell to SCO to be able to use the NetWare technology in the future, but there was no such license for the UNIX software and copyrights to SCO. It was a sale. We were selling it to SCO.

Q. Was there a license back from Santa Cruz to Novell so that Novell would have certain rights to use the UNIX assets that were being sold to Santa Cruz?

A. Yes. We contemplated at the time the sale took place, we contemplated that there would be a need inside Novell --

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and, by the way, this is just good practice, that when you're selling something to make sure that you retain some internal license to keep it and use it. We knew, we, being Novell, knew that we might need to use that to develop some of our products, and we had used it to develop products. So we understood and contemplated in the A.P.A. that there would be a technology license agreement back from SCO. Once we had made this sale, that we would have this technology license agreement back from SCO back to Novell, to use those rights for internal purposes and for some other limited purposes.

Q. Could we look at Section 1.6 of the asset purchase agreement which appears on page 5.

MR. SINGER: Mr. Calvin, blow up Section 1.6 to make it a little easier.

BY MR. SINGER

Q. Is this the provision that you're referring to where SCO would license back the technology that it was buying, back to Novell so Novell could use it after the transaction?

A. Yes. That is the provision in the A.P.A. that makes reference to that at the time of the closing we would sign a license back to Novell. Rather, that SCO would sign a license back to Novell.

Q. Did this provision make sense to you if the UNIX copyrights were being retained by Novell?

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A. No.

Q. I would like now to look at the next document in your book which is SCO Exhibit 162, the technology licensing agreement which is in evidence. Is this the technology licensing agreement that was called for by that provision of the contract?

A. Yes.

Q. Does this, in fact, have your signature on it on behalf of Novell?

A. Yes.

Q. Turn to page 3 of that document.

MR. SINGER: Mr. Calvin, blow up the section, ownership.

BY MR. SINGER

Q. Would you read out loud, Mr. Thompson, what it says with respect to ownership of the licensed technology.

A. As between Novell and SCO, sub one, ownership of licensed technology shall reside in SCO.

Q. Sub two.

A. Ownership of any modifications made to licensed technology pursuant to licenses specified in section two above shall reside in Novell.

Q. So if Novell used this license to improve their own product, would they own those modifications?

A. That is correct.

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Q. But the licensed technology itself that you were getting at the time of the sale, that Santa Cruz was getting, would that be what is referred to in item one that the ownership shall reside in SCO?

A. That was the intent and meaning of that provision.

Q. I would like to talk now about Section 4.16 of the asset purchase agreement. Now, do you understand this provision deals with something called SVRX licenses?

A. Yes.

Q. Do you have an understanding of what was meant by SVRX royalties, which are referred to in Section 4.16A?

A. Yes, I do.

Q. Can you tell the jury what that understanding is?

A. Well, over the years many, many, many licenses had been entered into on many, many, many different UNIX products, product versions. That occurred over the space of 20 years, 15 or 20 years. As a result, all of these royalty agreements existed, or all these royalty schedules had been entered into that provided multiple millions of dollars a year in royalties for this UNIX software. Part of our transaction was that we would transfer the business, this business to SCO, to manage the clients and to manage all of these things, but Novell was going to keep those royalty revenues. That relates to all kinds of

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versions of UNIX. SVRX. S is the system. V is version, revision is the R, and then X just means which version it was. The versions went all the way from -- 2.0 was the earliest one I ever say, and all the way up to 4.2 is the last one I think I ever saw. There were royalties attached to each one of those things.

Q. Did this include the current UnixWare product offering?

A. Well, no. Well, let's see. No, I don't think so. This provision relates to the items identified in Schedule 1.1A. There are actually a number of products listed there that are all UNIX system releases, SVRX version licenses.

Q. You're referring to the language which says as listed in detail under item six of Schedule 1.1A?

A. Right.

Q. Can we turn to that provision?

A. Yes. That is what I am looking at. There are 15, 20, 25 different products identified there. There are royalty schedules that apply to different companies, lots of different companies. Remember, there were a lot of these people, and it had been going on for years and years and years, and they had licensed these technologies over time and they were paying royalties on these various items.

Q. We're looking now at this item six that is in the schedule of included assets that was referred to in Section 4.16.

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A. Yes.

Q. Are these licenses that are listed here or are these products?

A. Those are actually products. See, the UNIX licenses were made up of multiple parts. There was what you would refer to as the master software agreement, and then there were the sublicensing agreements which included these little product schedules for every product that they happen to license. You would have a master software agreement as a customer of AT&T or USL or Novell, and then you would have, depending on which versions that you had licensed, you would have all these separate schedules. You might have 2.0, 3.0, 3.2, 4.0, and you would have this list of schedules, and you would have your own separate revenue schedule coming in for each one of those.

Q. What were those called?

A. What were what called? I think they were called product schedules that were part of the sublicense agreements.

Q. Were these the royalties which Novell was going to get as a part of the transaction?

A. Yes.

Q. Now, if we turn back to Section 4.16B, can you explain what your understanding was of the purpose of this language with respect to the buyer not amending any rights regarding

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these SVRX licenses without prior consent of the seller, and then the seller's actions as set forth in that provision?

A. Well, it is pretty clear. Novell was interested in making sure that it got those royalties. It did not want SCO to go out and do anything to disrupt that royalty stream. I don't have the exact numbers in my mind, but my recollection is it was something like $50 million a year in royalties. It wasn't just, you know, a couple hundred thousand dollars. It was $50 million a year of royalties. Novell did not want them disrupting any of this royalty income. So they wanted to make sure that SCO, even though we had transferred the business to SCO, the restriction was to say, listen, we're relying on this revenue stream as a part of this transaction. Don't do anything to upset this royalty stream. In fact, we're going to restrict you so that you can't do anything to undo or limit or disrupt this royalty stream. That is at least my understanding of what 4.16B was for.

Q. Could you turn now back to the schedule of assets that we were looking at, the assets that were being sold. Is one of the items, item two, Roman numeral two?

A. Right. Yes, that is right. All of seller's claims arising after the closing date against any parties relating to any right, property or asset included in the business.

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Q. Was this part of the assets being sold to Santa Cruz?

A. Yes.

Q. Claims, would that include legal claims?

A. Yes.

Q. Arising after the closing date, and that refers to the date when the UNIX business is going over to Santa Cruz?

A. Yes. That was my understanding.

Q. So all of those claims would be going over with the business; is that correct?

A. Yes.

MR. ACKER: Objection, leading. A question that ends with is that correct is usually a leading question.

THE COURT: I will sustain the objection.

BY MR. SINGER

Q. Was one of the assets that the seller was getting -- let me rephrase that. Did Santa Cruz's purchase include legal claims that it would have against parties that were connected with the business?

A. It was the intent of the parties as part of the negotiations that post-closing, once the closing had occurred, that all of these claims would now be SCO's claims.

Q. Look at Roman numeral three.

A. Okay.

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Q. Was this also part of the assets being sold to Santa Cruz, all of sellers rights pertaining to UNIX and UnixWare under any software development contract, licenses and other contracts to which seller is a party, or by which it is bound and which pertain to the business, to the extent such contracts are assignable, including without limitation -- then there are a number of things that are listed underneath that.

A. That is right. Our intent in that particular provision was to try to enumerate all of the things that we were trying to sell them as part of the business.

Q. Are you aware that there were agreements for software development with companies that went back all the way to the AT&T days, that had gone from AT&T to Novell and now from Novell to SCO?

A. I was aware of that.

Q. Are you aware that one of those were agreements that allowed IBM to have access to the UNIX source code for its development work?

A. I was aware of that.

Q. Do you have an understanding as to whether or not that agreement would be one of the ones under this section, Roman numeral three?

A. Yes, that would be one of the agreements. It was one of the -- I mean, if you want to look specifically, and if

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you look down at item L, under paragraph three look down at item L, it specifically refers to software and sublicensing agreements, including source code sublicensing agreements seller has with its OEMs.

Q. OEM means?

A. Original equipment manufacturers. I don't know why they use that phrase, but that is how they refer to them.

Q. Was it your understanding that Novell retained the right after the closing to stop Santa Cruz from pursuing litigation, if they thought it justified, against IBM under its authority under this Section 4.16 that we looked at before?

A. No. The restriction on bringing an action relates to the royalty stream -- upsetting the IBM royalty stream, not the master software license.

Q. Now, after the transaction was -- I would like to actually look at Exhibit 133, which is the next document in your book. This is not yet admitted into evidence. I would like to ask --

MR. ACKER: Then it shouldn't be displayed.

MR. SINGER: I don't think it is displayed yet.

THE CLERK: The jury can't see it.

MR. ACKER: Okay.

BY MR. SINGER

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Q. Do you have this Wall Street Journal article before you?

A. I do.

Q. Are you familiar with this as an article that appeared in the Wall Street Journal, September 20th, 1995, the day after the asset purchase agreement was signed?

A. Yes. I remember seeing it at the time.

Q. Do you recall anyone after this was published on September 20th, 1995 at Novell ever saying the Wall Street journal got it wrong?

THE COURT: Mr. Singer, it is either going to be admitted or not admitted before you are allowed to ask questions regarding it.

MR. SINGER: I move the admission of Exhibit 133.

MR. ACKER: No objection given the Court's prior ruling.

THE COURT: It will be admitted.

(Plaintiff's Exhibit 133 was received into evidence.)

BY MR. SINGER

Q. Mr. Thompon, would you please take a look at Exhibit 133. This is the Wall Street Journal article at the time when the sale was announced; is that correct?

A. Yes.

Q. Could you read it out loud, and hopefully we will be

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able to get a little better picture up on the screen. There we go. Mr. Thompon, can you read the first paragraph?

A. Novell, Inc. today is expected to announce plans to relinquish control of the widely used UNIX operating system to Santa Cruz Operation and Hewlett-Packard.

Q. Can you tell us what part or what aspect of control was going to Hewlett-Packard?

A. Well, yes. That is a good point. That negotiation had been going on at the same time we were negotiating with SCO. The idea there was that the parties had worked together, Novell, SCO and Hewlett-Packard, in developing a -- I will use a technical term here -- a 64-bit version of UNIX on the Intel processor. Now, 64-bit is just a way to refer to the new, higher powered Intel chips that were going to be coming out over the next couple of years. The idea was that Hewlett-Packard, who had a tremendous development team in the UNIX world, highly respected -- in fact, at the time of the transaction there were a number of employees that formerly worked for Novell that went to work for Hewlett-Packard to help work on this. The rest of the employees, to my knowledge, then went to SCO to help work on the SCO side. They were working on a 64-bit version of UNIX, which

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they could then sell as a network operating system, or as a UNIX operating system in a shrinkwrapped box that just goes out and works on people's P.C.s. At that time Microsoft pretty much owned the market for P.C. operating system software, and this was an attempt to compete with them.

Q. Was this happening at the same time?

A. Same time.

Q. The next paragraph, could you read that out loud, please.

A. The deal includes the purchase by Santa Cruz Operation of most trademarks and intellectual property associated with the UNIX software. One person familiar with the situation said he expects SCO to pay about $140 million, some of which will be shares of SCO, a Santa Cruz, California company that sells its own version of UNIX.

Q. When you read this, did you understand intellectual product to include the copyrights in UNIX?

A. I did.

Q. Did anyone, after this was published in The Wall Street Journal, at Novell come to you and say this is wrong, that we held back the copyrights?

A. No. No one commented on that at all.

Q. I would like to turn back to the asset purchase agreement and turn to amendment number one which is in

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evidence. It appears on the screen. It is near the end of the documents in your book. Turn to the signature page of amendment number one.

A. Okay.

Q. Is this your signature on behalf of Novell on December 6, 1995?

A. Yes.

Q. At the time of amendment one had any issue arisen requiring clarification in amendment number one regarding the ownership of the copyrights in UNIX?

A. Not to me. No one had mentioned anything to me about a change.

Q. Was there any request made at the time of amendment number one to clarify any language that appeared in the asset purchase agreement regarding the ownership of the UNIX and UnixWare copyrights?

A. No.

Q. Now, also on December 6, 1995, was there a bill of sale which was prepared as a part of the closing?

A. Yes, I believe so.

Q. Is that typical in a transaction?

A. It is typical when you are transferring assets, tangible and intangible assets, to have a bill of sale.

Q. I am referring to SCO Exhibit 90.

MR. SINGER: I would like to move this into

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evidence. I don't recall if this has been --

THE CLERK: No.

MR. ACKER: No objection.

THE COURT: Exhibit 90 will be admitted.

(Plaintiff's Exhibit 90 was received into evidence.)

BY MR. SINGER

Q. Did you sign the bill of sale on behalf of Novell on this same day, December 6, 1995?

A. Yes.

Q. When you signed the bill of sale, was it your understanding that you were on behalf of Novell conveying the UNIX and UnixWare copyrights to Santa Cruz along with the rest of the business?

A. That was my understanding.

Q. This does not have a separate list of assets, this references back to the asset in the purchase agreement?

A. 1.1A.

Q. Now, after the sale closed in December of 1995, did you became a member of the Santa Cruz Operation board of directors?

A. Yes. One of the provisions in the A.P.A. was that Novell could appoint, as a result of its stock ownership in SCO, had the right to appoint a director to their board of directors. I was selected to be the individual to be the

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director.

Q. Would it be fair to consider you as the Novell representative on the board?

A. Yes.

Q. Did your employment with Novell change at some point in 1996?

A. Yes. I left Novell in 1996.

Q. Did you leave Novell voluntarily?

A. Yes.

Q. Had you announced earlier in 1995 as to whether you would leave Novell?

A. Yes.

Q. Did Novell want you to stay?

A. Well, my announcement was to Bob Frankenberg. I had indicated to him early in 1995 that as a result of some of the decisions that were being made that I felt it was best if I left. I am referring specifically to the fact that they had decided to sell the Word perfect applications division, which was the entity that I worked for before. They had decided to sell that. Given the fact that this was only a year after we had done the merger, and now within basically ten or 11 months of making the acquisition the company had made the decision, Bob had made the decision that it was time to get rid of the applications division, I thought it was probably time for me

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to leave. This was not the Novell that I had signed up for, essentially.

Q. In 1996 did you became a consultant for Novell after you formally stopped --

A. Yes. For a period of time after I left my employment I was a consultant to Bob.

Q. While on the Santa Cruz board of directors in 1996, did you become familiar with the dispute involving Novell's attempt to do a buy out of these royalties with IBM?

A. Yes, I did.

Q. What is your understanding of that dispute?

MR. ACKER: I object without more foundation, Your Honor.

BY MR. SINGER

Q. Did you gain an understanding of that dispute from serving on the board of directors of Santa Cruz Operation?

A. Yes.

Q. Did you see correspondence relating to that dispute?

A. Well, actually it was not correspondence. Actually Alok Mohan just simply confronted me at a board meeting and said what is going on? They had just discovered that Novell had --

Q. Pause for a moment. When you say he confronted you, was he confronting you in the sense that you were still a Novell representative, that you were a consultant or

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employed with Novell?

A. I think it was his view that he understood that somehow I had some connections to Novell and, as a result, I had knowledge that this buy out had taken place.

Q. Can you now explain your understanding of what the issue was that arose at that point where you were being asked to get involved?

A. I understand that the OEM group, the licensing group of Novell had gone to IBM to get a buy out of their royalty payment on these licenses that we talked about earlier.

Q. Explain how a buy out operates and what that means in the context of a stream of royalties.

A. It is instead of paying the royalty payment for the next umpteen years, we'll just simply give you a one-time payment. Here you go. Here is one check. Now I don't have to make those payments anymore.

Q. What was your understanding of what caused the dispute between Santa Cruz and Novell over that issue?

A. Alok was angry because no one from Novell had talked to him about this prior to Novell doing it.

Q. Now, did you become actively involved in seeking to resolve that dispute?

A. Alok asked me to contact Bob Frankenberg and find out what was going on. It was clear to me that this was something that Alok had to talk to Bob about. I called Bob.

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I don't remember if I spoke to him directly on that occasion or left a message for him, but I am aware that the two of them started to talk and have a dialogue on this issue.

Q. What was your next involvement, if any, with the issue?

A. My next involvement, as I recall, is at a subsequent board meeting where there were letters that were discussed that had been sent back and forth, and I think finally at another board meeting, SCO board meeting, where they had entered into an amendment to the A.P.A.

Q. Are you referring to what is called amendment number two?

A. Yes.

Q. Were you present for the board meeting at which that was considered?

A. Yes.

Q. Do you recall how you voted on that particular amendment?

A. They didn't permit me to vote.

Q. But you were present during the consideration?

A. Well, what I should say is, I was aware of the amendment and I saw it. I saw that it had Jim Tolonen's signature on it, which is frankly the reason I remember it, because I thought it was odd that it was Jim Tolonen's signature as the C.F.O. not some other businessperson in the company.

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I was actually asked to step out while the board discussed all of the issues and took the vote. I was not an impartial director and they understood that, and so I was asked to step out while that was voted upon.

Q. Because you still had an association with Novell?

A. That is right. And Novell still had its stock in SCO.

Q. You reviewed amendment number two, though, in connection with that?

A. Yes. It had been shown to me. That is right.

Q. Take a look at what is in evidence as part of SCO Exhibit 1, amendment number two. Is this the document which you saw at that time?

A. Yes, it is.

Q. Do you know whether after you returned to the board meeting, after stepping out, whether this had been approved?

A. It had been approved.

Q. There are several parts of this amendment; is that correct?

A. Yes. I see four separate paragraphs.

MR. SINGER: If we could blow this up on the screen.

BY MR. SINGER

Q. Just read point A --

MR. ACKER: I object to further questioning of this witness on this amendment given his testimony to date.

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THE COURT: I'll sustain the objection.

BY MR. SINGER

Q. After this amendment was -- well, let me ask this. During the time of this dispute, and I am not talking about this amendment, but did anyone ever suggest in your presence that Novell had retained the copyrights to the UNIX and UnixWare operating system?

A. No. I wasn't aware of any assertion by Novell of that position.

Q. Are you aware of any requests being made by Santa Cruz to Novell in connection with this dispute that they now at this point wanted a transfer of the copyrights to them?

A. No.

Q. Are you aware after this amendment being passed, did Novell ever seek to unilaterally deal with IBM again on revisions to a UNIX license?

MR. ACKER: Objection, calls for speculation. He was not at Novell any longer.

THE COURT: I'm sorry?

MR. ACKER: He was not at Novell. He is going to have to speculate to answer that question.

MR. SINGER: He was at Santa Cruz.

MR. ACKER: You asked him about Novell.

THE COURT: Ask the question again.

BY MR. SINGER

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Q. As a member of the board of directors of Santa Cruz, did you ever became aware of any activity by Novell to deal unilaterally with IBM up until the events of 2003?

MR. ACKER: Same objection.

THE COURT: Overruled.

THE WITNESS: The IBM incident was the only one that I was ever informed of and the only one of which I'm aware.

BY MR. SINGER

Q. Did Novell, either at the time you were at Novell or at Santa Cruz, ever to your knowledge assert the right to use any provision of the asset purchase agreement, including this Section 4.16 that we have looked at earlier, to say that it had the right to control what Santa Cruz did with respect to IBM?

A. What period of time are you referring to?

Q. Up until March of 2003.

A. Well, they didn't ever assert that while I was at Novell. To my knowledge, other than the situation with IBM, I am not aware that they ever asserted that right, as a member of the SCO board. I was never informed that they ever asserted that right again.

THE COURT: How long did you remain on the SCO board?

THE WITNESS: I was on the SCO board until the

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sale to Sun, just prior to the sale to Sun, which was 2003 or four. 2002 or three, something like that.

MR. ACKER: Your Honor, I don't want to interrupt the questioning, but there may be some confusion with the jury, and Mr. Singer can clear that up.

BY MR. SINGER

Q. Did there come a time in 2001 when the UNIX business that Santa Cruz had was sold to a company called Caldera?

A. Yes.

Q. Did Caldera subsequently change its name to the SCO Group, Inc.?

A. Yes.

Q. That is the plaintiff in this lawsuit?

A. Yes.

Q. Did you also became a member of Caldera's board of directors?

A. Yes. It was a similar situation, the --

THE COURT: Mr. Thompson, there is no question posed. I want you to just answer the question that is asked. Thank you.

THE WITNESS: Yes.

BY MR. SINGER

Q. Explain how you became a member of the Caldera board.

A. Yes. The original Santa Cruz Operations company was located in Santa Cruz, California, and ultimately changed

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its name to Tarantella, and decided to sell the UNIX business. The strategy that they had entered into in 1995 with Novell had not panned out as they had planned. They decided to sell that business and sold it to actually a Utah company, a company located here in Utah called Caldera. As a part of that sale, it was kind of a similar deal, they had the right to appoint two directors to the Caldera board, the Tarantella board. Alok Mohan, who was the president of Tarantella, the old Santa Cruz Operation, and I were appointed to the board of Caldera.

Q. Caldera is what is now known as the SCO Group, Inc.?

A. That is right.

Q. That was the name change?

A. Yes.

Q. Did you also serve for a while until 2002 or 2023 on the Tarantella board?

A. Yes. Well, I continued to serve on that board after the transaction with Caldera, that is right.

Q. Now, from 1996 to 2003, did you ever hear Novell assert any ownership of the copyrights in UNIX or UnixWare?

A. I did hear in 2003, but prior to that time I hadn't heard that.

Q. When you joined the board of directors of Caldera, which became SCO, did you also became a shareholder of SCO?

A. Of Caldera?

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Q. Of Caldera.

A. Well, I was on their board and we received stock option grants from time to time as members of the board.

Q. As you sit here today, have you exercised certain options on stock of the SCO Group, Inc?

A. Yes.

Q. How much did you spend to exercise those options?

A. I spend roughly 12,000 and some odd dollars to exercise 110,000 options.

Q. Do you know as of today approximately how much those 110,000 shares of SCO Group, Inc. stock are worth?

A. I think they are worth somewhere in the neighborhood of eighty to $90,000.

Q. Is this the same as the options that were made available to other directors on the SCO board?

A. Yes.

Q. Have you been on the board of SCO, from that time when the assets were sold and you were appointed to Caldera which became SCO, to the present?

A. Well, that is two different boards.

Q. Okay. Can you explain that.

A. I was on the Santa Cruz Operation board from 1996 until -- I am not sure if the appointment was in 1995 or 1996, but after the transaction closed with SCO, I was appointed to their board either late that year or early the

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next year. I was on that board, including through its name change to Tarantella until 2002 or three. I don't have that date clear in my mind.

Q. I am not asking anymore about that board. That was the Tarantella business?

A. In 2000 or 2001, and I forget which year, I think it was 2001, the sale of the UNIX business to Caldera occurred. I joined that board and have served on that board since I think it was around June or July of 2001.

Q. You serve on that board today; is that correct?

A. Not today.

Q. Up until recently?

A. Yes, up until recently.

Q. Can you tell me whether there was a time during which you were on the board in May of 2003 that you became aware of a press release that Novell issued on that date of May 28, 2003?

A. Yes, I did became aware of a press release.

Q. I would like you to turn to Exhibit 669. This is in the form of a letter from Mr. Messman at Novell to Mr. McBride at the SCO Group. Are you familiar with this?

A. Yes.

Q. Are you aware of whether this was also issued as a press release?

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A. I don't know if the whole letter was issued as a press release. I'm aware that there was a press release at the same time.

MR. SINGER: I would move the admission of Exhibit 669.

MR. ACKER: No objection.

THE COURT: And the objection?

MR. ACKER: No objection.

BY MR. SINGER

Q. Did you become aware of --

THE COURT: One second. Let me do my formality here. 669 will be admitted.

(Plaintiff's Exhibit 669 was received into evidence.)

MR. SINGER: Thank you, Your Honor.

BY MR. SINGER

Q. Now, this is a letter from Jack Messman to Darl McBride, Jack Messman being the CEO of Novell and Mr. McBride being the president and CEO of the SCO Group; is that correct?

A. Yes.

Q. How was this letter brought to your attention?

A. I actually received an e-mail from Doug Michaels who was one of the people at the old Santa Cruz Operation, and he became aware of this through some of his press friends.

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He e-mailed a group of us, not just me, a group of us and said you're not going to believe what Novell is claiming, and I didn't.

Q. When you are referring to what Novell is claiming, what are you talking about?

A. That they owned the copyrights.

Q. Would you turn to the last paragraph on the second page of the letter.

A. Okay.

Q. Take a moment and read that to yourself. Is this statement that SCO is not the owner of the UNIX copyrights what you're referring to?

A. Yes.

Q. Is it your understanding this was put out in a press release?

A. Yes.

Q. What was your reaction to hearing this from Mr. Michaels and seeing the letter and the press release?

A. Twofold. I was shocked and upset.

Q. Why were you shocked and upset?

A. Well, I was shocked because this was not my understanding of the transaction that I had participated in in 1995. I was upset because if that were true it means that I essentially misled SCO in the negotiations.

Q. Did you believe this to be true?

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A. I did not.

Q. Eight days later did you become aware of another press released by Novell on June 6th, 2003?

A. I became aware of the fact that Novell had been given some information and that they were now retracting this letter.

Q. Before we turn to that, is May 28, 2003, the date that SCO group issued an earnings release?

A. I don't know if it was exactly that day. If it wasn't that day it was very close to that day.

Q. Could you turn to Exhibit 254. Do you recognize this to be a press release by SCO on May 28, 2003?

A. Yes.

MR. SINGER: I would like to move the admission of SCO Exhibit 254.

MR. ACKER: No objection.

THE COURT: It will be admitted.

(Plaintiff's Exhibit 254 was received into evidence.)

MR. SINGER: Can we blow up the first part of this document?

BY MR. SINGER

Q. First of all, does this refresh your recollection that May 28, 2003 was the date of SCO's earnings release for the

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quarter?

A. Yes. I see the date on the top.

Q. You have been a member of the board of directors of SCO Group, the public company?

A. Yes.

Q. Can you explain the importance of earnings releases for a public company such as the SCO Group?

A. Well, you're always concerned about being able to show value to your shareholders, and if you have good earnings the stock price usually goes up. If you have good news about what is going on in the company the public views it as a reason to buy the stock and usually the stock price will go up.

Q. Do you recall whether on May 28, 2003 SCO had good news to report?

A. It had good news.

Q. Is that reflected in this press release?

A. Yes.

Q. The net income was $4.5 million for that quarter on revenue of $21.4 million and a reversal from a loss in prior periods?

A. That is correct.

Q. Was this the same day that Mr. Messman's letter and the Novell press release occurred?

A. Yes, it appears to be the same day.

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Q. Now, eight days later are you aware of Novell issuing another press release?

A. Yes.

Q. I would like you to refer to Exhibit 97. Is this that press release?

A. Yes.

MR. SINGER: I move Exhibit 97 into evidence.

MR. ACKER: No objection.

THE COURT: It will be admitted.

(Plaintiff's Exhibit 97 was received into evidence.)

MR. SINGER: Can we blow up this first part of this document?

BY MR. SINGER

Q. I am going to read this out loud. In a May 28th letter to SCO, Novell challenged SCO's claim that the UNIX patent and copyright ownership and demanded that SCO substantiate its allegations that Linux infringes SCO's intellectual property rights. Amendment number two 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. The amendment appears to support SCO's claim that ownership of certain copyrights for UNIX did transfer to SCO in 1996. The amendment does not address ownership of patents,

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however, which clearly remain with Novell. Did you read that?

A. Yes.

Q. Just so we are complete, there is a line in the press release that is not in the box here, and it says Novell reiterates its request to SCO to address its fundamental issue Novell raised in its May 28 letter of SCO's still unsubstantiated claims against the Linux community. That is the entirety of the press release other than some promotional information about Novell, correct?

A. Correct.

Q. What was your reaction to this press release?

A. Okay. Great. They understand what I understood.

THE COURT: Mr. Singer, how much more do you have?

MR. SINGER: Very little. I would say five minutes or so.

THE COURT: All right.

BY MR. SINGER

Q. Did you ever learn that Novell went back to reasserting claims of ownership to the UNIX copyrights after this June 6, 2003 press release?

A. I understand that they essentially retracted that statement and indicated that, no, they decided again that they did own the copyrights.

Q. Could you look at the last document in your book,

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Exhibit 517.

MR. SINGER: I move the admission of Exhibit 517.

THE COURT: Let him identify it.

BY MR. SINGER

Q. Tell us what this is.

A. This is a Novell press release dated December 22nd, 2003.

Q. Did you see this press release at the time it was issued?

A. I don't know if I saw it at exactly the time it was issued, but close to the time it was issued.

MR. SINGER: I move the admission of Exhibit 517.

MR. ACKER: No objection.

THE COURT: It will be admitted.

(Plaintiff's Exhibit 571 was received into evidence.)

BY MR. SINGER

Q. Can you read for the jury what this press release by Novell on December 22nd says?

A. Novell believes it owns the copyrights in UNIX, and has applied for and received` copyright registrations pertaining to UNIX consistent with that position. Novell detailed the basis for its ownership position in correspondence with SCO. Copies of our correspondence and SCO's reply are available here. Contrary to SCO's public statements, as demonstrated

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by this correspondence, SCO has been well aware that Novell continues to assert ownership of the UNIX copyrights.

Q. Mr. Thompson, are you aware of whether December 22nd, 2003 also was a date on which SCO was announcing its earnings, this time for the period ending in December?

A. I don't remember the exact date, but it was in or near this date.

Q. Are you aware of continued assertions of ownership to UNIX copyrights by Novell to this very day?

A. Yes.

Q. Now, were you the person in charge of the sale of UNIX to Santa Cruz?

A. Yes. I was given that charge by Bob Frankenberg.

Q. Based on your knowledge of that transaction, Mr. Thompson, was the statement by Novell in May of 2003 that they owned the UNIX copyrights true or false?

A. It is false. It is not consistent with the transaction that we conducted.

Q. Based on your knowledge of that transaction, was the statement by Novell on December 22nd, 2003 continuing to assert ownership of the UNIX copyrights, was that true or false?

A. I believe it is false.

MR. SINGER: Thank you.

That concludes my direct examination.

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THE COURT: Thank you, Mr. Singer.

We'll take a break and come back for the cross-examination.

Ms. Malley.

THE CLERK: All rise for the jury.

(WHEREUPON, the jury leaves the proceedings.)

THE COURT: We'll take 15 minutes, counsel.

(Recess)

***** Part 2: *****

(10:30 a.m.)

The COURT: Anything, counsel, before we bring the jury in?

MR. ACKER: Not on behalf of Novell, Your Honor.

MR. SINGER: Not on behalf of SCO, Your Honor.

THE COURT: Thank you.

(jury present)

THE COURT: Go ahead, Mr. Acker.

MR. ACKER: Thank you, Your Honor.

CROSS-EXAMINATION

BY MR. ACKER:

Q Good morning, Mr. Thompson. We haven't had a chance to meet. I'm Eric Acker and I represent Novell. I want to take a step back so the jury truly understands your position in this litigation. When you testified about being at Novell, the time that you were at Novell was just in 1994 to 1996. Do I have that right?

A That's correct.

Q And you were an employee at Novell during that period of time; correct?

A Yes.

Q And you had come to Novell as a result of Novell acquiring the company that you used to work for, WordPerfect; right?

A That's correct.

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Q And when Novell decided in late 2000 -- or 1995 to sell that division, you decided to leave Novell; correct? When they decided to sell WordPerfect, you decided to leave Novell?

A Yeah. You said late '95. Actually I think the decision was reached fairly early in the year.

Q And You made your decision to leave early in the year in '95?

A That's when I announced to Bob or had a discussion with Bob that it would probably be best for me to leave the company.

Q Because you didn't want to be at Novell any longer; is that right?

A Yeah, I really didn't.

Q And what time -- what time frame was that that you told Mr. Frankenberg that you no longer wanted to work for his company?

A To the best of my recollection it would have been the April, May time frame.

Q Okay. So before the negotiation and actual signing of the APA, you had already decided you were going to leave Novell?

A I had discussed with Bob that I would leave Novell.

Q And that's what you ultimately did; correct?

A Bob asked me to stay to conduct this transaction and a couple of others, and I did.

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Q Would It be fair to say that at the time of the APA, the negotiations leading up to it, and the time after the signing of the APA in September of 1995 until the end of the year, you were pretty much checked out from Novell? Isn't that accurate?

A I don't know what you refer to by checked out.

Q Well, mentally you'd already made the decision to leave; right?

A If that's what you're referring to is that I had made a decision that I would be leaving the company, then that is correct.

Q Now, after you left Novell as an employee, and after the APA transaction, you joined the board of Santa Cruz, the other side of -- the company on the other side of the APA; correct?

A I think I actually was made a member of the board of Santa Cruz while I was still an employee of Novell.

Q And then subsequently after Santa Cruz, or Tarantella at that point, transferred the assets that it acquired in the APA to Caldera, you became a board member of Caldera in 2001; right?

A Correct.

Q And since May of 2001, you have been a board member until just recently of Caldera and subsequently the new SCO; correct?

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A That is correct.

Q And it's the new SCO that is the plaintiff in this case that's suing Novell; correct?

A That is correct.

Q So fair to say for the last nine years you have been a board member for the company that is accusing Novell of slander of title; right?

A I was a member of SCO -- SCO's board, that's right.

Q And it's that board, SCO's board, that made the decision to sue Novell and accuse it of slander of title; correct?

A Yes.

Q And so in 2004 you were actually head of the litigation committee that made the decision to sue the company you used to work for; right?

A Well, could you repeat that question? I was a member of the board in 2004? Yes, I was a member of the board in 2004. Is that your question?

Q My question was were you the member of the board that decided to sue your old company in 2004?

A Was I the member of the board that made the decision?

Q Were you on the board that made the decision?

A I was on the board that made the decision.

Q Did you vote in favor of it?

A Yes.

Q And as a board member of SCO, you have an allegiance to

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SCO; correct?

A Sure. I have obligations and duties that relate to being a board member.

Q In fact you have a fiduciary obligation that requires you to act in the best interests of SCO at all times; correct?

A That is correct.

Q As a board member of that company; correct?

A For the period up -- for the total duration of the time that I was a board member of SCO, that's right.

Q Including the time the decision was made to sue your old company Novell; right?

A Yes.

Q And in addition to having a fiduciary obligation to protect SCO, you also have a financial interest in SCO; correct?

A Well, I didn't at that time, but I do now.

Q And I think you told Mr. Singer you have 100,000 shares of stock?

A I think the actual number is 110,000 shares.

Q And you also have additional stock options on top of that; correct?

A I may have. I may not. The problem with that question is whether or not those other options have expired.

Q Well, let me ask you about the stock. Now, you told Mr. Singer that that 110,000 shares of stock was only worth

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about 80 or $90,000; correct?

A I was informed today that the stock price is 70 something cents, and so I guess that's the amount.

Q But if SCO succeeds in this litigation and its stock price goes up, you stand to gain financially; correct?

A Sure.

Q So you have a financial interest in this case?

A Okay, fair to say.

Q Is that true?

A It is fair to say that I have stock in SCO.

Q And you have a financial interest in the outcome of this case; correct?

A Yes.

Q And you want SCO to win, don't you?

A Repeat your name again.

Q Eric Acker.

A Mr. Acker, I want the truth to be told.

Q You want SCO to win, don't you?

A I want the truth to be told. The transaction that I conducted in 1995 with my team, I want that transaction to be understood.

Q All right. And we'll go through that.

A That's what I want.

Q We'll go through that. But in addition to your hundred thousand shares of stock that gives you a financial obligation

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in this case, you're part of a partnership, aren't you? E-S Net? ES-Net?

A ES-Net, Yes.

Q And isn't it true that your partner is a man by the name of Dan Campbell?

A Yes.

Q And hasn't Dan Campbell recently invested $100,000 in order to fund this litigation for SCO?

A Well, I'm aware that he has done that, yes. But that's Dan Campbell. That's not my partnership.

Q But Dan Campbell, your partner in your venture group; right?

A Dan Campbell, a former director of SCO, like me, already has shares in SCO. He exercised his options the same way I exercised my options. As an individual I do not control his investments. I do not benefit from his investments. His investments are his alone.

Q And he put $100,000 in in order to fund this case; right?

A I actually don't know how much money he put in. He didn't consult with me when he made the investment, and I don't know what the number is.

Q In addition to having a fiduciary obligation to protect SCO in order to have a -- in addition to having a financial interest in the outcome of this case, in order -- in addition

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to being on the board that voted to bring this case, you also were on the litigation committee at SCO for a number of years and actually oversaw the running of this case; correct?

A Well, I didn't oversee the running of the case. The general counsel of the company oversaw the running of the Case. I interfaced between the lawyers and the rest of the board. That was my assignment.

Q And when you say the lawyers, you're talking about the lawyers that are running the SCO litigation on behalf of SCO and the board of directors of SCO?

A And the general counsel of SCO, and the board of directors.

Q That was also your role. Fair to say that of the board members of SCO, since you were on the litigation committee, that you were the person on the board that was most knowledgeable about this litigation over the last four or five years on the SCO board?

A No, I don't think that's fair. I think there are a couple of other members of the litigation committee that were just as knowledgeable.

Q Let's go back to 1995. I'm going to give you another exhibit, Exhibit A1. Now, Mr. Singer asked you some questions -- and I want this to be clear. And he used the document that was marked the SCO exhibit 1 in your binder there. And that's the APA that included both Amendment 1 and

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Amendment 2. Do you remember that series of questions from Mr. Singer this morning?

A Yes.

Q Now, what I've handed you, Novell Exhibit A1, is an APA that does not include either Amendment 1 or Amendment 2; correct?

A I'm thumbing through it right now.

Q Take your time.

A It appears to be just the APA agreement. Is that right?

Q I'm going to represent that to you, but if you don't trust me, please take a look.

A I think that's what it is. I think it's just the APA agreement.

Q Okay. So we get the chronology straight, the APA itself was signed and approved by the board of directors of Novell in September of 1995; got that right?

A That's correct, Mr. Acker.

Q And you weren't on the board; correct?

A I was not.

Q And it was the board of Novell that had to approve that deal; right?

A That is correct.

Q And the transaction, although it was approved in September of 1995, actually didn't get closed, and the bill of sale was not actually signed until December of 1995; is that

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right?

A That's correct.

Q And at the signing in December of 1995 there was an Amendment 1 that was prepared during the several months between September of '95 and December of '95; right?

A Yes. We had the technology licensing agreement, the bill of sale and the Amendment 1 that were all signed in December of 1995.

Q And you signed the Amendment No. 1; right?

A Yes.

Q And you signed the bill of sale?

A Yes.

Q And you signed the technology licensing agreement; correct?

A That's correct.

Q And just so the chronology is set, September of '95 APA is signed and approved by the board; December of 1995 Amendment No. 1 is done; correct?

A Yes.

Q And then you -- you're out of the process. You leave the company; right?

A Well, not right then, but within a couple of months I was gone.

Q But in terms of dealing with the APA, your last dealing with the APA until you were at Santa Cruz and seeing issues

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arise was in December of '95; fair?

A I think that's a fair statement, yes.

Q And fair to say that actually after the deal was signed in September of '95, you sort of became much less involved in the process because you began working on the sale of WordPerfect by Novell; correct?

A That's correct.

Q So really your real involvement in the negotiations leading up to the APA occurred sometime before September of '95. Is that fair?

A Well, by the real involvement, do you mean the majority of the time that I spent on this was prior to the signing of the APA, I would agree with that. I spent some time after the signing of the APA in continuing discussions with the team, Ed Chatlos and others, who were continuing to work on this matter to get it closed. But my time, the time in California, the time meeting with AP -- with SCO and with Alok Mohan and the others, was primarily prior to this time.

Q And can you place a time around when it was or how far in advance of September of 1995 this meeting in Palo Alto you referred to was?

A Well, there were a number of meetings. I don't mean to suggest there was a single meeting in Palo Alto. The reference I had before was to a particular meeting on the terrace of the law firm of Brobeck in which I was talking to

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Alok Mohan and Jim Wilt and Jeff Seabrook from their company, and I was there with Ty Mattingly and Ed Chatlos.

Q Can you put a date on it?

A I don't have a date. It was sometime in the Summer or late Summer, either July or August of 1995.

Q So it was --

A Could have been early September even.

Q So it was at least several weeks before the APA was completed?

A Best of my recollection, it was prior -- it was sometime in the Summer of 1995.

Q And you weren't involved in the day to day face-to-face negotiations in the APA; correct?

A Well, yeah. Occasionally I was there on a day to day basis. I'd be there for two or three days, and then I would go on to other things.

Q But Ed Chatlos --

A Ed Chatlos was there every day as far as I knew. If there was a negotiation session going on with the team, Ed Chatlos was there.

Q And you hired lawyers to assist you in this process; correct?

A Yes. We had outside counsel and inside counsel working on this project.

Q And inside counsel was Mr. Bradford; correct?

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A No. No. Actually it wasn't Dave. It was someone on his staff and someone from New Jersey, whose name I can't remember. But there was a gentleman from New Jersey that came out with Mike DeFazio, who was the executive vice-president over the Unix Group within Novell, and then there were other lawyers of the team with Novell. Dave Bradford really wasn't there very much.

Q And when you were -- when the detailed negotiations were taking place, you hired Wilson Sonsini to act as your outside counsel; correct?

A Dave Bradford -- Dave Bradford hired Wilson Sonsini. That wasn't my role. That was David's --

Q That's who represented Novell in the transaction was the outside counsel?

A Yes.

Q And Tor Braham was the lead lawyer for that team; correct?

A Tor Braham was a participant. There were a number of other parties that were draftsmen in that process.

Q And because you were not acting as a lawyer at Novell in this period of time, you relied on Novell's outside counsel at Wilson Sonsini to do the detailed drafting of the APA agreement; correct?

A Wilson Sonsini was the principal outside firm, yes.

Q And you had confidence in the Wilson lawyers, including

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Mr. Braham; correct?

A They were our lawyers.

Q And you had confidence in them; correct?

A They were our lawyers. I mean were they perfect? No. And it was -- listen. Are you asking me were they absolutely dead-on on everything they ever did? I would say they were better than average.

Q So you had confidence in them; correct?

A I had confidence in them.

Q Now, let's take a look at the APA. And let's back up. You testified --

THE COURT: Going to offer it as an amendment -- excuse me -- as an exhibit, your A1?

MR. ACKER: Yeah. I would move to have A1 admitted, Your Honor. It is A1, yes.

THE COURT: Mr. Singer?

MR. SINGER: Our only objection is that it's already in evidence as part of SCO Exhibit 1.

THE COURT: The Court will admit Exhibit A1.

(Defendant's Exhibit A1 received in evidence)

Q (BY MR. ACKER) Now, when you were describing the strategy leading up to the decision to select Santa Cruz, not SCO that's the Plaintiff in this case, but Santa Cruz to be the entity to buy portions of the Unix business, you said that you were concerned because they didn't have enough cash at some

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point. Is that right? That became a concern?

A Yeah. The Novell team, Bob, the rest of us, Jim Tolonen, understood that SCO did not have enough cash to just simply buy this outright.

Q But the initial plan was to sell the entire business outright for cash; correct?

A Well, the plan was to sell the whole business period. It wasn't a question of -- maybe that's the issue that I'm trying to suggest. There was never a provision in the instructions that I received go sell this for cash. The instruction was go sell this lock, stock and barrel. Sell the business. It was not go get cash for this business. It was go sell this.

Q And at a point during the negotiations it became clear that Santa Cruz didn't have enough cash, didn't have close to $300,000,000 in order to buy the business; right?

A That's right. They did not have $300,000,000 cash.

Q And because of that, the deal was restructured into the structure that you've described for us, where one portion of it was the payment of $6,000,000 of stock; right?

A The deal was not restructured, Mr. Acker.

Q Well, the deal became the giving of $6,000,000 -- or 6,000,000 shares of stock; correct?

A The way to pay for this was part stock, which was limited -- our original estimate was that they'd be able to pay for more of it with stock. But it was Novell's issue that

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it not be a larger amount of stock. SCO was fine giving more stock. I'm not sure that anybody is aware of that, but SCO was fine giving much more stock than they ended up giving. But it was Novell's issue that they did not want more than 19 percent of the stock because Novell did not want to have a consolidated financial reporting issue.

Q And so what Novell got was a little over 6,000,000 shares of Santa Cruz stock; correct?

A Right.

Q And then another portion of this deal was this SVRX license, which we're talking about 4.16(a) of the APA; correct?

A Yes, the royalties.

Q Now, those were royalties that before the deal, AP -- that Novell was collecting; correct?

A Yes.

Q And you said it was about 47 -- or 47 to $50,000,000 a year that Novell was collecting?

A I didn't say 47, but my recollection was that at or around the time that we were making the deal, our estimates in our mind it was around $50,000,000 a year.

Q And then after the transaction, the way it was structured, is instead of Novell collecting that money directly from licensees, Santa Cruz would collect the money and remit 95 percent of it to Novell; correct?

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A Well, that's exactly what happened, is that when Novell -- when we did the transaction, Novell, which had been the licensor under those licenses, transferred those licenses to SCO, SCO became the licensor and now began to collect those royalties.

Q And so what happened between -- before the APA and after the APA is the amount of money that Novell was collecting from those licenses decreased by five percent; correct?

A Correct.

Q And so to take a round number, for instance, if Novell had been collecting $100 for the APA for those licenses, then after the APA it would -- it would get a hundred dollars for the APA, but it had to give five bucks back to Santa Cruz?

A That's correct.

Q That was the second part. We had stock, and then we had this 4.16 SVRX license component to the deal?

A Actually, just to be precise, SCO would receive that money. SCO would collect it, all of the royalties. SCO was the party that was in touch with the clients. And SCO on a periodic basis, and it seems to me that there were a particular number of days after the collection of some of the royalties that they were to remit those royalties back to Novell.

Q But regardless of how the mechanics worked, the hundred bucks came to Santa Cruz and 95 bucks went to Novell;

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correct?

A Yes.

Q So the day before the APA, Novell was getting a hundred bucks; the day after the APA they're getting 95; right?

A That's right. Well, not after the APA, but after we closed in December, yeah.

Q And then the third part of the deal was the development of a combined product; correct?

A That's right.

Q And the combined product was Santa Cruz was supposed to go out and continue to develop UnixWare; correct?

A Well, the combined product was to combine the Unix components with the SCO OpenServer and Open Desktop components. That was the combined product.

Q And those monies, what Novell was able to get for the new network -- NetWare combined product, that -- Novell -- or Santa Cruz was entitled to those monies until they reached a certain amount of revenue, and then Novell was entitled to its share on a portion of that?

A Did you say NetWare combined product?

Q NetWare and UnixWare, yes.

A Well, okay. The combined product had elements of NetWare in it, but it wasn't a NetWare product. It was -- it was components of network enabled Unix combined with some of the technologies in UnixWare.

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By the way -- or not UnixWare. The combined technologies in OpenServer. That was SCO's product. And so which were basically interface type elements which were coming from the SCO. So yes. And there was a -- the way the schedule was set up, that until SCO hits a certain target, there were no -- there was no sharing. And after they hit another target -- well, once they hit that target, however, then they would share to a certain percentage. And then if they hit another target, they would share at a higher percentage.

Q And this product that we're talking about, this is not the old SVRX licenses. These are -- this is a new product that's going to be developed after the APA by Santa Cruz; correct?

A It was actually going to be developed by Santa Cruz with contributions from Novell, and that included people and money.

Q Okay. We'll get to that. But just so the jury is clear, the part where there wasn't going to be any payment to Novell until we hit a certain point, that's a new product that's going to be developed by Santa Cruz; correct?

A Yes.

Q And the old licensing stream that was already existing at Novell, that's the licensing stream in which Novell was actually going to receive less money after the APA closed than before; right?

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A Yes.

Q Now, let's take a look at Novell Exhibit A1, which is the APA without Amendment 1 and not Amendment 2. And if we could go to Schedule 1.1(a), please. Now, in questions -- in response to questions from Mr. Singer you said that this is a schedule -- this is an asset purchase agreement, so it's -- the lawyers need to say what's in the deal and what's out of the deal; right?

A Yes.

Q So you have a list, 1.1(a) and that's what is in the deal; correct?

A Yes.

Q And then the next couple pages after that are Schedule 1.1B, which is what's not in the deal; correct?

A Yes.

Q And the reason for having those two schedules is so that everybody knows what's being sold in 1.1(a) and what's not being sold in 1.1(b); correct?

A Yes.

Q And what we see in schedule 1.1(a) is a listing of what was included; correct?

A That's correct.

Q And you agree that what is listed in schedule 1.1(a) is what was included in that, what was sold in the APA that went from Novell to Santa Cruz in 1995; right?

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A That's what 1.1(a) is, included assets.

Q If we can take a look at section 1.1(a) paragraph Roman Numeral five. And this again is the section of the included assets that is referencing intellectual property; right?

A Yes.

Q And what it says is what is included in the deal is trademarks Unix and UnixWare to the extent held by seller, excluding any compensation seller receives with respect of the license granted in X/Open regarding the Unix trademark; right?

A Yes.

Q That's it; right?

A Well, no. That's not it.

Q In the paragraph --

A Oh, in the paragraph. But, no, that's one of many included assets.

Q In the paragraph in the included assets it says intellectual property, all that's listed is trademarks Unix and UnixWare; right?

A I see that, yes.

Q And you would agree with me that copyrights are intellectual property?

A I would agree that copyrights are intellectual property.

Q And in the APA that was executed in September of '95 and

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closed in December of '95, in the included assets section referring to intellectual property, the only intellectual property mentioned is trademarks Unix and UnixWare; right?

A In paragraph five, but all the rest of that assets provision talks about intellectual property.

Q But in the intellectual property section of 1.1(a) there's no mention of copyrights. Would you agree with that?

A I would agree that it says what it says.

Q Okay. Let's go to the corresponding section 1.1(b) paragraph five. Now, schedule 1.1(b) -- so to make it clear, this is an asset purchase agreement, and 1.1(a) is what is sold and 1.1(b) is what is not sold, that is what is retained by Novell; correct?

A Correct.

Q And there's a corresponding paragraph in section 1.1(b), again, Roman Numeral five, that says intellectual property; right?

A Yes.

Q And it reads in the first section-A what is --

MR. SINGER: Your Honor, I object. I think this should be identified as to prior or replaced language.

MR. ACKER: I'll be perfectly clear.

Q (BY MR. ACKER) We're talking about the APA that was signed -- or signed by the board of directors in September of

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1995; right? That's what we're talking about?

A That is this document, yes.

Q And we're not talking about anything that happened after. I'm focusing on September of 1995, okay?

A Okay.

Q In the intellectual property section of what was excluded, 1.1(b), in (a), what's listed there is all copyrights and trademarks, except for the trademarks Unix and UnixWare; correct?

A Yes.

Q And that was what was excluded from the sale; correct?

A Well, I see that.

Q You see those words?

A I don't agree with it.

Q I understand you don't agree with it. I heard your testimony, but you see the words, and those are the words in the deal?

A I see the words.

Q Okay. And there's some symmetry between what we saw in the included assets 1.1(a) paragraph five that said the trademarks Unix and UnixWare went with the deal and this portion of 1.1(b), the excluded assets, that say all the other copyrights and trademarks stayed, except for trademarks Unix and UnixWare, which are included in the included assets 1.1(a); right?

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A Their symmetry? Well, I see that Unix and UnixWare trademarks are mentioned in both.

Q And now you testified on direct that when you say -- when you read the words all copyrights as being excluded, you thought that just meant copyrights to NetWare; right?

A NetWare and other Novell core products, that's right.

Q Can you show me where in this section, intellectual property, paragraph 5(A) of the excluded assets, it says NetWare?

A Well, it doesn't say that.

Q I'm sorry?

A It does not say that.

Q So in the section talking about intellectual property and what's excluded from the deal, there is no mention of NetWare; right?

A Mr. Acker, if you refer to the whole previous page, the entire previous page, it mentions nothing but NetWare and TUXEDO. And so what I am -- I guess my answer to you is this. The reason that our understanding, our negotiating team's understanding, that -- on this provision is because the entire page preceding that line talks about NetWare.

Q And my question was really pretty simple. In the section of the excluded assets from the deal that talk about intellectual property, it says all copyrights, and there's no mention of NetWare?

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A And my answer is equally simple. That made no sense. I knew what the deal was. And the idea of delivering source code, the idea of delivering these mountains of documentation of this product, the entire business of Unix, to a company and to somehow then suggest that you don't own the ability to use that, just seems inconsistent. So that's my answer.

Q So it's your opinion that's inconsistent, but you don't disagree that what the document actually says is that copyrights were excluded from the deal?

A I don't disagree that this paragraph says copyrights are excluded assets, but I do disagree that that had any bearing on the transaction that we negotiated, the words that I said to SCO, the words that I heard from Bob Frankenberg, and the deal that we cut.

Q So it's your testimony that the actual language of the agreement saying what is excluded have no bearing on what was actually the deal was?

A It is not my testimony that the words have no bearing. It is my testimony that these words do not accurately reflect the transaction that I negotiated.

Q So now we're getting down to it. It's your testimony that the actual deal, what was documented, what was signed, what was approved by the board of directors, is inconsistent with what you thought the deal was?

A It is my testimony that the APA is incomplete in that

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there were a number of things that we modified in Amendment 1 and Amendment 2 to clarify this document.

Q All right. We'll ask you about Amendment 1, but you didn't have anything to do with Amendment 2, did you?

A The negotiation of Amendment 2?

Q Yes.

A I did not negotiate Amendment 2.

Q So let me go back to my question. It's your testimony that it's your opinion about what the deal was is inconsistent with the language of the deal; correct?

A Yes, it is inconsistent with this language.

Q But you're not disputing that what the actual document says that was approved by the board of directors says that copyrights were excluded, are you?

A I'm not disputing that it says what it says.

Q And this is the deal that was approved by September of 1995 by the Novell board of directors; correct?

A I don't believe that.

Q Well, were you at the meeting?

A No. A member of my staff was at the meeting.

Q Did you listen to what was said to the members of the board of directors before they approved the deal?

A A member of my staff was at the meeting.

Q My question was were you?

A No.

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Q Did you hear what was said?

A I did not hear them speaking. I was not at the meeting.

Q Did you hear the vote of the directors?

A I was not at the meeting.

Q Did you have authority to approve this deal?

A I did not.

Q Who did?

A Bob Frankenberg and the board of directors.

Q And they approved the deal; correct?

A They did.

Q At that meeting in September of '95; right?

A That's my understanding.

Q And you weren't there; correct?

A I was not there.

Q And this is the language that came out of that meeting; right?

A No. No. This was the language that was in the document that was signed by Bob Frankenberg. I have no idea -- as you properly point out, I was not at the meeting, so I don't know what language they reviewed.

Q And is it also true, isn't it, that you do not recall any specific discussion leading up to the execution of the APA in September 1995 about copyright ownership; correct?

A I do not recall parsing out copyright ownership as

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separate and apart from the rest of the business.

Q Now, you said something in response to Mr. Singer's question earlier, and I want to make sure -- I wrote it down, and I want to make sure I heard your testimony correctly. You said -- when he asked you whether the copyrights were part of the deal, you said you assumed they were because Santa Cruz was given the whole business. Was that testimony correct?

A Yes.

Q You assume they were; right?

A I did.

Q Let me show you another document, Exhibit T5. Have you had a chance to look at that, sir?

A Yes.

Q And T5 is Amendment No. 1, which is a cleanup document that was prepared between September of '95 and the closing of the deal in September of '95; correct?

A Yes.

Q And so the jurors understand, what happens is this was sort of a tight deal towards the end. There was tight negotiations and the deal got papered or documented pretty quickly; is that right?

A There was significant pressure to get it done quickly.

Q And then after it got approved on September 18th by the board, there's a period of time where the lawyers kind of go through the document to make sure that in the rush to get the

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document done there weren't mistakes made; right?

A Among other things, yeah.

Q So not only are mistakes caught, but there actually can be some substantive negotiation back and forth to actually change some of the terms?

A And to clarify some of the terms, that's right.

Q And the idea is you want to gain clarity about what the document is before it actually is closed and a bill of sale is signed that transfers -- and the assets actually get transferred; right?

A Yes.

Q And that's what this document memorializes; correct?

A This document is the first amendment to the ADA.

Q But what it is --

A The APA, sorry.

Q It's the cleanup for the APA that got signed by you in December -- on December 6th, 2005; right?

A Yes, it is.

Q So did lawyers for Novell go through the document to make sure that everything was right?

A I assume so.

Q And did lawyers for --

A I don't recall any specific discussion with any of the lawyers on that point, but I assume that that's what they were doing.

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Q And the business people at Novell, did Ed Chatlos and others go through it?

A For certain the business people did.

Q Ed Chatlos actually was in charge of this; right?

A Yes. Yes, he was.

Q And his counterpart at Santa Cruz also went through the document, the APA, the one we looked at, Exhibit A1, and they made their changes too; right?

A Yes.

Q And then they all got written down in this piece of paper, and you looked at it December 6th and you signed it; right?

A Yes.

Q Did you read it before you signed it?

A Yes.

Q All of it?

A All of it.

Q And if you take a look at -- if we could go to the signature page, please.

A I'm getting there.

Q That's your signature, sir?

A Yes.

Q Now, if you go back to I believe it's page nine, if we could highlight the middle section there. Are you there, sir, page nine?

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A Yes.

Q Now, this -- there's a letter (I) paragraph-I of this cleanup document, right, in the middle of the page?

A Yes. Isn't that (L)?

Q You're right, it is (L). The frailty of my eyes. And that (L) refers to changes that were made to the excluded asset portion of the APA; right?

A Yes.

Q And you see that in the top it says in schedule 1.1(b) item seven is amended to read as follows, and there's some changes that are made; correct?

A Yes.

Q And the changes are made to paragraph seven of the excluded assets; right?

A Yes.

Q But the paragraph about intellectual property that excluded copyrights was paragraph five; right?

A Yes.

Q So after the lawyers for Novell and Santa Cruz went through the APA, and they looked at the excluded asset portion, they didn't make any changes to the paragraph that excluded copyrights; right?

A Not at this time, that's right.

Q And you read the document in December of 2005; right?

A Yes.

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Q I'm sorry, 2000 -- '95; right?

A 1995.

Q In 1995, correct, in December?

A Yes.

Q And you signed it; right? Correct?

A Yes, I did.

Q You thought it was accurate; right?

A Yes, it was.

Q And no changes were made to the 1.1(b) of the APA that excluded copyrights; right?

A That's correct. These were the changes that were made in Amendment 1.

Q And you did not recall any issue being raised during the cleanup to the APA that resulted in Amendment No. 1 regarding ownership of the Unix copyrights?

A No.

Q So no one from Santa Cruz came to anyone at Novell and said, "Hey, the copyrights are excluded. That's not part of the deal," right?

A Not to my knowledge. No one ever reported such a discussion to me.

Q And by the way, this actually -- with the copyrights excluded is actually a better deal for Novell than if the copyrights had been included; correct?

A I don't exactly understand why it would be a better

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deal.

Q Well, they're giving up less rights; correct?

A Well, they're conveying all the business. So I guess the question is this. Was it a better deal in the sense that they got anymore money? Could they go out and resell those items? They'd already sold them once. I think it was the same deal. It wasn't a better deal. It wasn't a worse deal. It was the same deal. And I'll be very clear on that. We had already delivered source code, all copies of the source code to SCO. So they had it. They were now the licensors under the agreement. They had it. Novell was no longer the licensor. It was now simply receiving the royalties under those licenses. So I don't understand how it could be a better deal or a worse deal. It was the same deal because all the business had been sold.

Q So it's your belief that it was the same deal whether or not the copyrights were included or excluded?

A It was the same deal. All the business was sold. That's my understanding of what happened.

THE COURT: Mr. Acker, do you want me to instruct the witness to answer your question without proffering additional testimony?

MR. ACKER: No, Your Honor. We're doing fine, but I appreciate the offer.

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THE COURT: All right.

Q (BY MR. ACKER) Let me show you another document. You signed another document in December of '95, a strategic development agreement; is that right? Do you recall that? Let me hand you what we've marked as V5. Exhibit V5 is a strategic development agreement between Novell, Inc. and Santa Cruz operation, Inc. And if you go to the last page, or page 15, you see your signature there?

A Yes.

Q And you executed this document on December 6, 1995, along with the bill of sale and the other documents to close the deal?

A Yes, I did.

MR. ACKER: Your Honor, I'd move for admission of Exhibit V5.

MR. SINGER: No objection.

THE COURT: It will be admitted.

(Defendant's Exhibit V5 received in evidence)

Q (BY MR. ACKER) Now, Mr. Singer asked you some questions about the technology licensing agreement. If we could bring that up, please, SCO Exhibit 162. Do you have a copy there?

A I can see a copy on the screen.

Q I'll give you a hard copy too.

A Thanks.

Q Now, this is the document that you testified about that

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after the deal Novell was given a license back to the technology that had been included assets that were part of the deal; right?

A Yes.

Q But the only assets that were licensed back to Novell were licenses that were included in schedule 1.1(a) of the asset purchase agreement; correct?

A Yes.

Q If we could bring up SCO exhibit 90, please. This is the bill of sale; correct?

A Yes, it is.

Q And so that the jurors understand, the bill of sale is the document that actually transfers ownership from Novell to Santa Cruz; right?

A Yes.

Q And so business people and lawyers can get together and negotiate a deal and can decide we're going to transfer these assets, but until the bill of sale is actually transferred, nothing is transferred; right?

A That's my understanding, yes.

Q And you executed this document in December of 1995; right?

A Yes.

Q And if we could blow up the first two paragraphs, please. And the first paragraph just gives us some background. It

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says, "Reference hereby is made to that certain asset purchase agreement by and between the Santa Cruz operation, Inc. and Novell dated as of September 19th, 1995, as amended by Amendment No. 1," which we've looked at, "to asset purchase agreement as of December 6, 1993 together -- 1995, (together, the agreement)." Do you see that?

A Yes.

Q And it says, "Capitalized terms used in this bill of sale and not otherwise defined shall have the meanings ascribed to such terms in the agreement," right?

A Yes.

Q And that's really lawyer speak for if it's got a capital in front of it, it means you've got to find a definition for it somewhere; right?

A Yes.

Q What this is telling you is for the definition you have to go back to the asset purchase agreement; correct?

A Correct.

Q And then in the second paragraph it reads, "In accordance with article 1.1(a)," which was the included -- or excuse me -- "in accordance with article 1.1(a) of the agreement, seller, for valuable and good -- for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, does hereby transfer, convey, sell, assign and deliver to buyer, without recourse, representation or warranty

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except as otherwise expressly provided in the agreement all of the assets," right?

A Yes.

Q And what's being transferred is the assets with a capital (A); right?

A Yes.

Q And the assets with a capital (A) are what is the defined assets in the asset purchase agreement; right?

A The 1.1(a) of the --

Q Yes.

A Yes.

Q So what got transferred, the only thing that got transferred, is what was included in schedule 1.1(a) of the asset purchase agreement as it existed on September 19th, 1995; right?

A Isn't it as it existed on December 6, 1995?

Q You're absolutely right. With Amendment No. 1, as schedule 1.1(a) existed in December of 1995, as those assets were defined in schedule 1.1(a), that's what went from Novell to Santa Cruz?

A That's the way the agreement was set up, yes.

Q And that's all that went; right?

A Yes.

Q Show you another document that we've marked as zero 10. Hand a copy of that to you, sir.

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THE COURT: Mr. Acker, you said zero 10.

MR. ACKER: O-10, Your Honor.

Q (BY MR. ACKER) Have you had a chance to look at that, sir?

A Yes.

Q Exhibit O-10 is an intellectual property assignment between Santa Cruz and Caldera; correct?

A Yes.

Q And you were on the board of directors of actually both companies at this point in time in 2001; is that right?

A No. Actually I think I was on the board of directors of Santa Cruz operation only at this time.

Q Okay. And so Santa Cruz operations, so the jury follows, is the company that got the assets from Novell in the APA and then now we're six years later and they're going to turn around and they've going to assign or transfer some of those assets to Caldera, which becomes the plaintiff in this case, SCO; right?

A Yes.

Q And that's what this document is; right?

A It appears to be what this is, yes.

Q Were you involved at all -- I'd move for admission of exhibit O-10, Your Honor.

MR. SINGER: No objection.

THE COURT: It will be admitted.

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(Defendant's Exhibit O-10 received in evidence)

Q (BY MR. ACKER) And if you take a look at paragraph six of that document -- I'm sorry, paragraph eight. If we could highlight the paragraph eight-five, please.

THE COURT: Mr. Singer.

MR. SINGER: If he was not involved, I object on lack of foundation.

MR. ACKER: We haven't gotten an answer yet, so we'll see how we go.

Q (BY MR. ACKER) Now, let me lay a little background. When the assignment of certain rights are made, or in this case assets are made, the assets that Santa Cruz purchased from Novell, they're going to assign them to Caldera, Caldera wants some sort of representations from Santa Cruz that they actually own those assets; right?

MR. SINGER: Objection, lack of foundation.

THE COURT: I think we better, before you ask any questions about the agreement or the language of the agreement, would you please establish the foundation so we can admit it.

MR. ACKER: Sure. And this is background just in terms of his knowledge of how deals work, and then I'll get to his knowledge of this document.

The Court: Why don't you just focus on the deals of the document because I'm not sure the jury can distinguish

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between your background questions and --

Q (BY MR. ACKER) Okay. You know that when you were on the board of Santa Cruz they transferred the assets that they had purchased a few years earlier to Caldera; right?

A Yes.

Q And they did it by an assignment; correct?

A I wasn't clear on what the document was, the manner in which they made -- frankly I haven't seen this document. I don't remember seeing this document actually.

Q Was the board of directors involved in the decision to transfer the assets -- the board of directors of Santa Cruz involved in the decision to transfer the assets at Santa Cruz that they had bought three years earlier from Novell?

A Yes.

Q You were involved in that decision?

A Yes.

Q And when that decision was made at the board level, did you understand that those assets would be transferred by an assignment?

A I don't remember having a specific understanding of how the assets would be transferred, only that the assets would be transferred.

Q And your understanding as a member of the board of Santa Cruz was that the only assets that transferred to Caldera and that are now the plaintiff's assets in this case are the

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assets that Santa Cruz got in the APA; right?

A I'm trying to make sure I understand your question, Mr. Acker. Are you asking me whether there were any other assets that went as part of this other than those specific assets which SCO obtained from Novell?

Q Right.

A I don't know the answer to that question.

Q All right. Do you know -- are you aware of any assets being given to Caldera and now SCO other than what they obtained from Novell by Santa Cruz?

A I'm not aware of any.

THE COURT: You're not going to offer it?

MR. ACKER: Well, I would offer to move O-10, Your Honor. I think I already did. It's already admitted. I think we did that.

The Court: well, all right.

MR. ACKER: I moved. He said no objection.

THE COURT: All right. It is admitted. Mr. Singer, your question about it?

MR. SINGER: I was not questioning the document. I just had an objection to --

THE COURT: Him being asked --

MR. SINGER: -- the question without foundation.

THE COURT: Are you going to pursue discussion of zero -- O-10?

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MR. ACKER: Not with Mr. Thompson, Your Honor.

THE COURT: Thank you.

Q (BY MR. ACKER) Now, you -- on direct examination Mr. Singer showed you a Wall Street Journal article from 1995; right?

A Yes.

Q And is it your testimony to this jury that you have a distinct memory of seeing that Wall Street Journal article 15 years ago?

A Well, I remember reading this article when it was issued because it was something that my team had worked on, and we wanted to make sure -- indeed, the press release -- working out the press release is something my group had contact with and involvement in, so I remember seeing this article, yes.

Q You're certain that you saw this exact article and these exact words 15 years ago?

A My memory is that I saw the Wall Street Journal article dated May 20th, 1995.

Q And you can remember that far back, and you can remember that date, and you can remember that article?

A There are few things that I can remember that far back, but this is one of them.

Q Okay. Let's take a look at it, SCO Exhibit 133. And if we could highlight the first two paragraphs. Now, what the words say are in the second paragraph, "The deal includes the purchase by Santa Cruz Operation of most trademarks and

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intellectual property," right? Those are the words?

A That's the reporter's words; right?

Q And the reporter used the word most; correct?

A The reporter is quoting someone quote "familiar with the situation", and he says, "Most trademarks and intellectual property."

Q Doesn't say all; right?

A No, he did not say all.

Q Let me turn your attention now to when you -- after you went on the board of what -- Caldera, what became the plaintiff in this case, SCO. At some point in late 2002 and early 2003 the C.E.O., relatively new C.E.O. of SCO, Darl McBride, came to the board and asked the board to approve a SCOsource licensing campaign; correct?

A Yes, that's right.

Q And that the idea behind the SCOsource licensing campaign is that SCO was going to take what it -- the intellectual property it believed it owned and ask users of Linux to pay it royalties; is that right?

A The SCOsource licensing program was a way for SCO to license rights to users who were at that point in time using Linux.

Q And Mr. McBride's theory was that there is some violation, copyright violation, by Linux users because there is some Unix -- protected Unix in Linux; right?

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A That was the theory.

Q But at this point in time in December of 2002, SCO was actually selling the Linux product; right?

A I don't have dates in mind on that issue.

Q But it's true, isn't it, that the rest of the business at SCO was not going very well; correct?

A The company was struggling.

Q In fact the fiscal quarter ending in the end of October of 2002 SCO had lost more than $24,000,000; right?

A I don't have anything to -- the company was struggling. It was a hard time for that company, yes.

Q And this was Mr. McBride's idea of how he was going to turn the company around by using what he believed to be Unix copyrights to sue everyone who used Linux; right?

A Well, no not to sue. This was Mr. McBride's idea on how to gain some financial remuneration for intellectual property that we believed SCO owned.

Q You wanted to increase revenues; correct?

A Yes.

Q The old model wasn't working, so this was a new plan; correct?

A We wanted to increase revenues.

Q And the new plan was we'll use what we believe in Unix and we'll send letters out to a thousand fortune 100 companies and say you're using Linux. You've got to pay us money;

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right?

A Did you say a thousand fortune 100 companies?

Q If I did, I misspoke. You sent out to over 1,000 companies in the top fortune 1,000 companies?

A I don't know how many letters. They sent out a lot of letters.

Q A lot of letters; correct?

A Yes.

Q In fact they even sent a letter to Novell, didn't they?

A I do not know that.

Q But the board of directors approved this idea; right?

A We discussed and approved this initiative to try to go out and license the Unix intellectual property, that's right.

Q Fair to say this was sort of a Hail Mary for SCO?

A Your words, not mine.

Q Do you disagree with that?

A We're like every company in the United States that comes on good times and bad times, how do we improve our business? And we were looking for ways to improve our business.

Q And in fact before you -- this program was announced in January of 2003, you were actually warned, weren't you, that there would be a real problem with this because there was no way there was actually any Unix in Linux? You were warned of that concern?

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A I was warned of that concern?

Q Yes.

A Personally?

Q Yes.

A Well, if you have something that could refresh my memory on that warning and that time frame, I guess I'd take a look at that.

Q Give me a minute. Let me hand you what we've marked as G12. Have you had a chance to look at that?

A Yes.

Q It's an E-mail to you and a number of others from a Geoff Seabrook; correct?

A It is.

Q And who is Mr. Seabrook?

A Geoff Seabrook, I don't know if he worked at SCO at this time or if he had left the company at that time. Let me be clear. At this point in time the company's name was Tarantella -- Tarantella, the one down in Santa Cruz, the one that had formerly been Santa Cruz Operation. And so Geoff Seabrook had worked at that company. I don't know if he was still an employee there at this time. So it's an E-mail from Geoff Seabrook.

Q So somebody who worked there, and so we don't totally confuse the jury, this company that you went to as a board of director when you left Novell, Santa Cruz, that purchased what

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it purchased in the asset purchase agreement; correct?

A Yes.

Q And he sends it to Alok Mohan; correct?

A It appears to be directed to Doug, and I assume that means Doug Michels at Tarantella.

Q And who is Doug Michels at Tarantella?

A At that point in time Doug Michels -- well, he was a senior executive at Tarantella. He actually may have been the president at that point in time of Tarantella. He eventually became the president of Tarantella. I don't know if he was at that particular moment.

Q So the E-mail is to the president -- what you believe to be the president at the time of Tarantella, or the old Santa Cruz, as well as a number of board members?

A Yes, that's right.

Q And that includes yourself; correct?

A It does.

Q And he's giving you a warning about the SCOsource program; correct?

A Well --

THE COURT: I think before you ask anymore questions, let's see whether or not it can be admitted.

MR. ACKER: That was going to be my next question. I move for admission of G12, Your Honor.

THE COURT: Any objection?

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MR. SINGER: No objection.

THE COURT: It will be admitted.

(Defendant's Exhibit G12 received in evidence)

Q (BY MR. ACKER) He gave you a warning. This is January 13th, about a week before Darl McBride announced SCOsource; right?

A I have no recollection of this E-mail.

Q Let's take a read. Let's look at the first paragraph. If you could highlight that, please. "I thought this was a bad idea when we discussed in the days when we ran SCO, and I still think it is a bad idea. Guys who run protection rackets occasionally make a short-term profit but never build a long-term business, usually they are dead. New SCO has far few enough friends anyway without pulling this stunt." You see that?

A Yes.

Q And he's referring to SCOsource; right?

A What do you mean he's referring to SCOsource?

Q The stunt being SCOsource?

A I don't see what -- it doesn't say in this document.

Q Why don't you take a look at the -- the article that's attached to the bottom of his E-mail is actually an article that leaked out before SCOsource was actually announced; correct?

A Are you asking me a question?

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Q Yeah. I'm asking you to look at the press release or the article at the bottom of this to refresh your memory of what this E-mail is about.

A Okay. Is this an article from some publication?

Q It's the E-mail that you got. I'm just asking, it's true, isn't it, that what he's talking about is SCOsource, isn't it? Do you have any doubt about that?

A Well, it's a little hard to tell because he talks about something that says from SCO enforced patents. So I -- that doesn't ring a bell.

Q Let's go to the last paragraph of the E-mail itself. Maybe that will refresh your memory. If we could go up to the last paragraph of the E-mail, "A program".

A Yes.

Q In the last Sentence he writes, "It would alienate the whole Open Source community as well as users and potential users. The main beneficiary will be Microsoft with Sun possibly benefiting to a minor degree if they are aggressive enough." Do you see that?

A Yes.

Q And you don't have any dispute that this was an E-mail that you received before the SCOsource program was announced; correct?

A I don't remember receiving this E-mail.

Q Do you have any reason to doubt that you received it?

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A No.

Q Was that a consideration in the board before the decision to go ahead with SCOsource --

A I'm sorry. I have to answer that previous question. It has my name on it, but it doesn't necessarily mean I received it. It doesn't have my E-mail address on it. It simply has my name on it, which -- and I see here that it also has all of the other -- well, not all the other. It has some other of the SCO board members on it. But I guess what I'm trying to suggest is I don't remember seeing this.

Q Let me just ask this. In the discussion leading up to the announcements of SCOsource, was there a concern on the board that you were going to alienate the Linux community?

A Yes.

Q And why was that a concern?

A Because the reason there was some sense that this would be an irritation to the Linux community was because the Linux community viewed this software as being free, that the code, the software and everything that related to it was free.

Q Did you also understand that another problem with the SCOsource program was actually proving that there was any protected Unix in Linux? Did you understand that that was going to be an issue?

A Which part of that question do you want me to answer, that there was a problem with it or that that was one of the

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issues that had to be shown?

Q We'll start -- in the discussion about SCOsource, did the board discuss the fact that in order for this program to be successful, SCO was going to have to prove that there actually was protected Unix prevalent in Linux?

A Okay. The manner in which the issue came to the board of new SCO was, is there any Unix software, any of the copyrighted materials, any of the source code, in Linux? The discussion at the board level was show us that there is some of that code in Linux. And if there is, then this is a good idea. If there isn't, then it's not a good idea.

Q But wasn't it true that even months later, when the SCOsource program was floundering, there was still a real question at SCO, inside SCO, about whether or not there was protected Unix code that was prevalent in Linux?

A We asked for information that would lead us to conclude that there was Unix software in Linux.

Q My question wasn't that. My question was after SCOsource got going and rolling -- and you would agree with me that there was an uproar in the Linux community; correct?

A There were a lot of people that didn't like this idea.

Q And there was --

THE COURT: Mr. Thompson, that question can be answered yes or no. And Mr. Acker hasn't asked for it, but I'm going to. When a question is asked that can clearly be

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answered yes or no, answer it yes or no. If you feel that something more has to be said, Mr. Singer will have an opportunity on redirect to point that out, but I want the question answered as directly as possible.

THE Witness: Thank you.

THE COURT: Because we have to move this along.

MR. ACKER: Thank you, Your Honor.

Q (By MR. ACKER) There was an uproar in the Linux community; correct?

A Yes.

Q And many, many people in the Linux community said that there is no copyright infringement here because there is no protected Unix prevalent in Linux; right?

A Yes.

Q And that was a real problem with the SCOsource program; correct?

A The uproar was a problem?

Q No. The fact that the people that were the potential licensees, the people that were going to be asked to pay money, said there is no protected Unix in Linux?

A That was their statement, yes.

Q And that created a real problem in order for there to be any licenses taken; right?

A Yes.

THE COURT: Mr. Acker, how much more do you have?

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MR. ACKER: About three questions, one more document.

THE COURT: Okay.

Q (BY MR. ACKER) Let me show you what's marked as Q22. Sir, I'm going to ask you about a specific portion, but you can always feel free to look at any part of it. Q22 is a Form 10-K that SCO filed with the Securities and Exchange Commission for the year-ended December -- or October 31st, 2003; right?

A Yes.

Q And you as a member of the board of directors, if you take a look at the very last page of the document, your electronic signature is there. Do you see that?

A Yes.

Q And when you did that, when you allowed your electronic signature to be put there, you were certifying that the statements in the document were true; correct?

A To the best of my knowledge, yes.

Q Why don't we take a look -- I move for admission of Exhibit Q22, Your Honor.

MR. SINGER: Object on the grounds of relevancy at this point.

THE COURT: Well, the court will admit the document.

(Defendant's Exhibit Q22 received in evidence)

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Q (BY MR. ACKER) Why don't you take a look at page -- it's page 19 I believe. I'm sorry, page 41 at the bottom. And I will turn your attention to the paragraph -- no, 41. Do you have that paragraph? Turn your attention to the paragraph that begins with the word "notwithstanding".

A On page 41?

Q Yes. It's on the screen too.

A Oh, sorry, I'm looking at the page numbers on bottom left, which does not line up. There we go. Okay. Okay, I see that paragraph.

Q And to the best of your knowledge, that paragraph is true; right?

THE COURT: Go ahead and take the time you need to read it, Mr. Thompson.

THE WITNESS: Okay.

Q (By MR. ACKER) So let's walk through it. Do you believe the statement is true as of October, 2003?

A Yes.

Q So after the SCOsource program has been going for about ten months, the statements in this paragraph are still accurate; right?

A I believe they are.

Q And the first sentence reads, "Notwithstanding our assertions of full ownership of Unix-related intellectual property rights, as set forth above, including copyrights, and

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even if we are successful in our legal action against Novell, the efforts of Novell and the other Linux proponents described above may cause Linux end-users to be less willing to purchase from us our SCOsource I.P. license authorizing their use of our intellectual property contained in the Linux operating system, which may adversely affect our revenue from SCOsource initiatives. These efforts may also increase the negative view some participants in our marketplace have regarding our legal actions against IBM and Novell and our SCOsource initiatives and may contribute to creating confusion in the marketplace about the validity of our claim that the unauthorized use of our Unix source code and derivative works in Linux infringes on our copyrights. Increased negative perception and potential confusion about our claims in our marketplace could impede our continued pursuit of our SCOsource initiatives and negatively impact our business." It was true at this point, even in October of 2003, that one of the reasons the SCOsource campaign was failing was because Linux users did not believe there was Unix in Linux; isn't that right?

A Yes.

Q And so after ten months, after ten months of SCOsource, the campaign was still failing because people in the Linux community did not believe SCO's claims of infringement; right?

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A I can't answer that yes or no.

Q Well --

A Because I don't agree it was failing. I agree that there was tumult over this issue. We had licensed some of this to other parties. And so the issue for me is was it failing? Well, it wasn't a screaming success. Was there tumult in the community? Yes, there was tumult in the Linux community.

Q And part of the reason that it was failing and there was tumult in the community is because people who were using Linux didn't believe SCO's claims that there was protected Unix in Linux; right?

A I think that's correct.

Q And that has nothing to do with Novell's claim to ownership of the Unix copyrights; right?

A Well, doesn't it have something to do with it? If Novell owns those copyrights, then SCO would not have been able to assert those claims.

Q But in terms of whether there is protected Unix code prevalent in Linux, that issue has nothing to do with whether Novell claims ownership --

A Yeah. If there's -- I think if the point you're asking is if there is not Unix code in Linux, then it doesn't matter who owns the Unix copyright.

Q And because of that, if the dispute and the problem out in the Linux community is there is no protected Unix prevalent

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in Linux, that issue has nothing to do with what Novell says about who owns the copyrights; right?

A Well, Novell had said -- at first they said they owned them, then they said they didn't own them, and then they said they did own them. And that confusion had a bearing on how successful SCO was in going out and licensing these items with the Linux and the rest of the community.

Q But aside from that issue, aside from the ownership of the Unix copyrights, there was tons of response from the Linux community that we don't have to pay you a license because there is no protected Unix in Linux; right?

A Okay, that's possible.

Q And that had nothing to do with Novell's claim that they still owned the Unix copyrights; right?

A It had everything to do from SCO's point of view because they were the ones that were trying to exercise the right. So I guess the answer to the question is it may not have had anything to do from the standpoint of Linux users. That's their issue, not mine. It had everything to do from SCO's point of view because we were trying to license, as a company, license that technology into the marketplace.

Q And so the last question is from the Linux users point of view, the fact that they did not believe that there was protected Unix in Linux, that was a separate issue for them unrelated to whether Novell or Unix owned the copyrights;

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right?

A I'm not a Linux user, so this idea from the Linux users own point of view -- my only point of view was SCO's point of view. We couldn't license it with this cloud over the title. That's the question from my perspective.

Q But what the Linux users were telling you was even if you owned it, you can't -- I'm not going to pay you a license because there is no protected Unix in Linux; right?

A Well, I think that was their position.

MR. ACKER: That's all I have, Your Honor.

The Court: Thank you. We'll take a 20 minute recess and then come back for redirect.

(jury excused)

Mr. Thompson, my admonition to you worked for about three questions. Mr. Acker, I don't know whether or not you didn't request that he answer the questions more directly because you were simply being respectful or whether there's some other aim, but I have an obligation to make sure this trial proceeds. So I've got to again tell you, Mr. Thompson, that you must answer the questions, particularly those from the opposing attorney, directly and succinctly. And, again, Mr. Singer will now have an opportunity to ask you additional questions. But I don't want a repeat of everything that he has

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already given by way of his own answers to the questions posed by Mr. Acker. So I want you to be careful in what you ask him as well, Mr. Singer. In the future I would encourage counsel, especially those on cross-examination, when you think that the witness is not being responsive to your questions, you certainly have a right for me to instruct the witness to do so.

MR. ACKER: Appreciate that, Your Honor.

THE COURT: We'll take 20 minutes.

MR. SINGER: Your Honor, could I just -- I can raise it now or later. My concern with this report is that parts of it --

THE COURT: Which exhibit?

MR. SINGER: Q22, the S.E.C. report. Part of it goes into the other litigation the court has excluded on motions in limine. So before this goes to the jury, I would think that that needs to be redacted so that --

THE COURT: What I would prefer is that you could work together and only submit that part of the document that is at all pertinent here, instead of giving them a huge stack of paper with a whole bunch of black stuff in it, okay?

MR. ACKER: That's fine, Your Honor.

THE COURT: Thank you.

(Recess at 11:51 a.m.)

* * *

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***** Part 3: *****

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THE COURT: Ready, counsel?

MR. ACKER: Yes.

MR. SINGER: Yes.

THE COURT: Ms. Malley, if you would please bring the jury in.

(Jury present)

THE COURT: Go ahead, Mr. Singer.

MR. SINGER: Thank you, Your Honor. I only have a few areas.

REDIRECT EXAMINATION

BY MR. SINGER:

Q Mr. Thompson, the document that you were looking at at the end of cross-examination by Mr. Acker is something called a form 10-K filed by public companies, in this case SCO, with the Securities and Exchange Commission. You are familiar with that type of document?

A Yes.

Q Is there a section required in these documents to disclose risks of corporate action and issues that are affecting the corporation?

A Yes.

Q Is that so investors and shareholders can make an informed choice as to whether or not to buy or hold the company stock?

MR. ACKER: Object to leading, Your Honor, every

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question.

THE COURT: I'll overrule the objection.

BY MR. SINGER:

Q Is the discussion on page 41, which you were being asked about in connection with cross-examination, part of the disclosure in a context of saying that investors should be aware of risks that are involved in the company?

A Yes, it is.

Q Now specifically, and I don't think this part was shown you when you were being asked about this paragraph on page 41, is that discussion relayed back to what is said three paragraphs earlier?

MR. SINGER: And, Mr. Calvin, if you would blow up that whole section so that the jury can see it.

BY MR. SINGER:

Q Three paragraphs earlier it says, on January 20th of 2004, in response to Novell's actions, we brought suit against Novell for slander of title. Do you see that?

A I see that.

Q So the discussion that follows in connection with this very lawsuit, correct?

MR. ACKER: Objection, leading. I know that was. That end was correct.

BY MR. SINGER:

Q Does this --

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MR. SINGER: I'll reframe the question, Your Honor.

THE COURT: All right.

BY MR. SINGER:

Q Does the discussion which you were being asked three paragraphs below when it talks about legal action against Novell refer to this lawsuit?

A This is the lawsuit that's being referred to, yes.

Q And was the discussion, then, that the efforts of Novell and other Linux proponents may cause Linux ends-users to be less willing -- I don't think I've -- I'm going to ask the question again. Does the discussion that pertains to the paragraph here that Linux users may be less willing to purchase SCO IP licenses, that is saying it's due to the efforts of Novell and Linux proponents; is that correct?

MR. ACKER: Objection, is that correct.

MR. SINGER: I will reframe the question.

THE COURT: All right. Go ahead.

BY MR. SINGER:

Q What was your understanding of why the disclosure statement was talking about a possible adverse effect on SCO's IP licensing program?

A My understanding was that the action -- the conflict over the question of copyrights was causing doubt in the

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marketplace about SCO's ability to license the software.

Q This is a disclosure document in 2003, I believe. Did you anticipate it would take time for this lawsuit to be resolved?

A Actually, isn't this the document for the period ending in 2003 and actually filed in 2004?

Q Yes, but the fiscal year ended in 2003.

A Yes.

Q So this would have been filed -- this was filed in early 2004?

A Yes.

Q And it's referring to a January 2004 lawsuit that's filed?

A I see that, yes.

Q And would you anticipate and did the board anticipate that it would take some time for this lawsuit to be concluded and litigated?

A Yes.

Q Did the board and you anticipate in making this disclosure that shareholders should know that you would be -- there would be a likely adverse effect on SCOsource licensing during the time that the lawsuit is pending?

A Well, I think we were trying to say there could be an adverse effect because of this doubt and confusion, what we call the FUD factor -- fear, uncertainty and doubt -- in the

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marketplace about whether SCO owned the technology.

Q And when you say even if we are successful in our legal action against Novell, end-users may be less willing to purchase from us, did that refer to what was being said in a prior paragraph about getting the title to the copyrights cleared up?

A Actually I didn't read any of the prior paragraphs.

Q If you would look at the paragraph right before that where it says, in the lawsuit, we request preliminary and permanent injunctive relief as well as HELP. An injunction would require Novell to assign to us all copyrights that we believe Novell had wrongly registered, prevent Novell from representing any ownership interest in those copyrights, and require Novell to retract or withdraw all representations it has made regarding its purported ownership to those copyrights. Do you see that?

A Yes.

Q Then it's in the following paragraph where it says, even if we are successful in our legal action against Novell, these efforts may have had an adverse effect on the willingness of people to buy Linux -- Linux users to buy IP licenses from SCO?

A Yes, I see that.

Q So that is the context -- is that the context in which these statements were made?

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A Yes.

Q Now with respect to how Linux users feel about the program, is it true that certain Linux users have bought licenses?

A We have sold licenses. I assume that those users also have Linux within their organizations.

Q And when you were being asked questions by Mr. Acker about what Linux users feel one way or the other, is that a group that only has one voice or are there millions of people who are a potential market in this area?

A I would assume it is the later. I don't think there is any one organization for Linux. In fact, I think that's kind of the Linux community, is a community of many, many components and parties and participants.

Q In connection with the decision to pursue SCOsource licensing, was information presented to the board which convinced you that there was a basis to believe that UNIX intellectual property was contained in Linux?

A Yes.

Q That was looked at -- was that looked at by the board?

A Yes.

Q Now turning to a second topic. On section 1.1(a) of the asset purchase agreement, you were asked some questions by Mr. Acker about the fact that section V talks about intellectual property and doesn't mention copyrights. Do

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you recall that question?

A Yes.

Q If you go to the first part of schedule 1.1 -- can we go to the first page and can we blow up section one, including the part below it -- you see where it says all rights and ownership of UNIX and UnixWare?

A Yes, I see that.

Q Did you understand copyrights would be included in a statement that says all rights and ownership of UNIX and UnixWare?

A Yes.

Q And then the specific products are listed below?

A Yes.

Q Are there various parts of this schedule such that you would need to repeat that in a later section if it's covered up here?

A I would think not.

Q And do you have any understanding of any way that all rights and ownership of UNIX and UnixWare, including source code, could be conveyed to Santa Cruz without conveying copyrights?

A They were one in the same in my mind.

Q Now you were asked some questions about, well, from the Novell point of view, would it have made any sense to hold back the copyrights when you were selling the rest of the

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business, and I believe your testimony was it wouldn't make any sense. Do you recall that?

A It would not make any sense.

Q Right, because you were selling the business?

A Yes.

Q From the Santa Cruz perspective, however, would it make a difference whether they were getting a company with the copyrights as opposed to without the copyrights?

A Okay.

Q Whether they were the getting the UNIX business with the copyrights and without the copyrights?

A So are you asking me to testify what my belief was at the time we were negotiating it --

Q I'm asking --

A -- or just in general now?

Q Well, let's talk about at the time you were negotiating it.

A At the time I was negotiating it, I did not represent SCO's interest in that, I represented Novell's interest in that, and that was something we proffered as part of the sale was the entire business.

Q Did you do it on -- did you have any belief at that time that it would make any sense to offer the entire UNIX business to Santa Cruz but then say, well, you're not going to get the copyrights?

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A No.

Q In fact, can you tell me whether or not you would have gone about selling the business to Santa Cruz, the UNIX and UnixWare business, and not tell the purchaser that you are going to withhold the copyrights? Is that something that you would do?

A Well, it is an inconsistency. If there was something that we were withholding, we would have told them. We wouldn't have tried to sneak it in somehow on the last page of a document. We would have actually had that discussion. So the answer is no, I would not have the done that.

MR. SINGER: Thank you.

THE COURT: Mr. Acker.

MR. ACKER: One question, Your Honor.

THE COURT: Go ahead.

MR. ACKER: Can I do is from here?

THE COURT: You may.

RECROSS-EXAMINATION

BY MR. ACKER:

Q Sir, to your knowledge, did the lawyers and business people at Santa Cruz have the opportunity to read the included and excluded asset schedule before they agreed to the APA?

A Yes.

MR. ACKER: That's all I've got.

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THE COURT: Counsel, may Mr. Thompson be excused?

MR. ACKER: Yes, Your Honor.

MR. SINGER: Yes, Your Honor, subject to possible re-call at the end of the case.

THE COURT: So he may not be excused, then, as I've used that term?

MR. SINGER: Yes.

THE COURT: Mr. Thompson, it's possible that you may be re-called. So if you would remain available. I do have to instruct you to not discuss your testimony with any other witness in this case or in the presence of any other witness or in any way communicate with any other witness. All right?

THE WITNESS: Yes.

THE COURT: Thank you, Mr. Thompson.

MR. SINGER: Mr. Normand will present our next witness.

THE COURT: Mr. Normand, who might that be?

MR. NORMAND: Our next witness will be Ed Chatlos.

THE COURT: All right.

Mr. Normand, could I get you to do me a favor? A lot of exhibits were left up here. Would you come and retrieve those that will not be used.

MR. ACKER: Some of those are mine, Your Honor.

THE CLERK: Mr. Chatlos, do you want to come

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forward?

EDWARD CHATLOS,
Having been duly sworn, was examined
and testified as follows:

THE CLERK: If you would please state and spell your name for the Court.

THE WITNESS: Edward S. Chatlos. C-h-a-t-l-o-s.

DIRECT EXAMINATION

BY MR. NORMAND:

Q Good morning, Mr. Chatlos.

A Good morning.

Q Could you summarize your educational background?

A Yes. I have a bachelor's of science degree in electronic engineering technology. A master's of science degree in computer science from Johns Hopkins.

Q Can you briefly summarize your employment before you joined Novell?

A After my bachelor's degree, I joined Western Electric --

THE COURT: Mr. Chatlos, can I get you to scoot forward, and also make certain the microphone is closer to you.

THE WITNESS: Is that better?

THE COURT: I think so, yes.

THE WITNESS: After my bachelor's degree, I went

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to Western Electric. Stayed there for about nine months. And then left Western Electric, got my master's at John Hopkins. Came back to Western Electric, and stayed there for about nine months moving to the microprocessor product management group, department management for software systems there. Left after about a year and a half and went to the AT&T microelectronic -- I'm sorry, the UNIX group in AT&T. Stayed there until '87. Then, in '87, I moved to London and did software licensing for UNIX in Europe for three years. I came back and did business development, business planning for UNIX with AT&T.

Q When did you join Novell?

A Right after the sale of UNIX to Novell by AT&T, 1993 maybe.

Q And what position did you assume?

A Senior director of strategic relationships.

Q What were your, in brief, responsibilities?

A I managed the big company relationships, like Computer Associates, how we partnered with them.

Q How long were you at Novell?

A Through 1995, the end of 1995.

Q So when did you leave?

A Actually it was January 5th of 1996.

Q Why did you leave?

A I had an offer from AT&T and I thought it was a good

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offer, so I left for that reason.

Q Did Novell want you to leave?

A No.

Q Did you have a chance to work with a man named Duff Thompson during your time at Novell?

A Yes.

Q In what capacity?

A I worked in his organization at one time and then reported to him towards the end.

Q Over what time span did you report to Mr. Thompson?

A Since I joined Novell, which was, again, '93 through January of '96.

Q Now as of the beginning of 1995, what were the major lines of business at Novell?

A You certainly had Netware. That was the biggest one. You had UNIX. Some smaller lines of business, like documentation training, WordPerfect, and may be others.

Q Did there come a time when Mr. Thompson -- Duff Thompson spoke with you about Novell's intent to sell the UNIX and UnixWare business?

A Yes.

Q Do you recall, approximately, when that occurred?

A In the May time frame of 1995.

Q What did Mr. Thompson tell you about his intent regarding the sale of these assets?

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A He said he wanted to sell the entire UNIX business to a buyer. I am not sure if he said SCO at that time.

Q Did you have an understanding at that time as to why Novell had decided to sell this entire business?

A I think so. It really was about Novell focusing on their core NetWare products given all the competition coming around them.

Q When you say you think so, did you discuss this issue with Mr. Thompson?

A I don't believe so.

Q Did you discuss it with anyone else?

A I don't remember.

Q What role did Mr. Thompson ask you to play with respect to the sale of these assets?

A He asked me to lead the negotiations for selling the business.

Q Did you have a view at that time as to why he had asked you to play that role?

A I think it was my background. I was certainly the UNIX expert, business expert. I had done a lot of negotiation before. So I think that was the reason.

Q As of that time, late 1995, how many transactions would you estimate you were part of negotiating?

A I don't know, anywhere between 30 and 50. I'm not sure. Some small, some very big.

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Q Was there any effort within Novell around the time you learned of this intent to find a proposed purchaser?

A Yes, there was.

Q Did you come to a decision as to who an appropriate purchaser would be?

A Yes, SCO.

Q On what basis did you make that decision?

A Primarily their market reach, their experience in UNIX, their staffing. It was a really good fit. They were focused on binary sales, so that was an important thing as well.

THE COURT: Mr. Chatlos, may I ask that you slow down a little bit, primarily for the court reporter.

MR. NORMAND: Thank you, Your Honor.

BY MR. NORMAND:

Q Now did there come a time when you took Mr. Thompson up on his request and began to negotiate with this potential purchaser?

A Yeah, that began in mid June of 1995.

Q With whom from Santa Cruz did you begin and continue these negotiations?

A The daily discussions and the regular discussions were with Jeff Seabrook and Jim Wilt.

Q Over what period of time did these negotiations occur?

A We started mid June of 1995 and finished early

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September 1995, so it was throughout the summer.

Q Can you explain for me physically how you went about doing these negotiations? Where were you?

A Most of the negotiations occurred in California. I live in New Jersey, so I went out every week. I commuted actually every week. There were several hotels we used from Palo Alto, Los Gatos and Santa Cruz.

Q What was the general nature of the transaction that you were discussing with Mr. Wilt and Mr. Seabrook?

A To sell the entire business to SCO so they could continue with it fully.

Q Did you and the Santa Cruz negotiators have a nickname for this proposed transaction?

A We did. Sleigh ride.

Q Why was that the nickname?

A The first hotel we met in June of 1995, outside -- it was a Holiday Inn in Palo Alto, and outside there was a Santa Claus and a sleigh. For some reason James decided to call it sleigh ride.

Q How much of the UNIX business was to be sold in this transaction, as you recall it, during your negotiations?

A Well, the entire business.

Q Was it the sale of just UnixWare?

A No. It was definitely UNIX and UnixWare.

Q What was the relationship between UNIX and UnixWare as

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those terms sometimes get thrown around?

A UnixWare was the latest offer and it encompassed most of the previous efforts, like UNIX. So really one can use that term interchangeably.

Q As part of the deal you negotiated with Santa Cruz, were the UNIX and UnixWare copyrights to be included or excluded from the transfer?

A The deal with SCO was to include the copyrights.

Q Would holding back the copyrights have been consistent with your instructions from Mr. Thompson?

A Absolutely not.

Q Did you ever instruct anyone on the deal to hold back the copyrights?

A No.

Q Did you ever suggest to Santa Cruz that they were buying the UNIX software business but not its copyrights?

A Absolutely not.

Q When do you first recall discussing the possibility of the transaction with the Santa Cruz executives? I'm going back a little bit now.

A Sometime in May of 1995.

Q Did there, after that point, arise an issue with respect to the cash or money that Santa Cruz could pay for the transaction?

A Yes. It was going to -- in one of the meetings in late

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1995.

Q Can you briefly describe what the issue was?

A Yeah. SCO didn't have enough cash to pay up front, so we constructed a deal such that there would be three payment components. One is the customers that existed in Novell that were licensing binary copies of UNIX, that revenue would be substantially paid to Novell as one component of the compensation. Second component, stock in SCO. The third component is a share of the revenue that SCO got for any UNIX sales in the future.

Q Can you, again, briefly, but can you describe the distinction between what you described as the first component and the third component?

A Yes. The first component was the binary licenses that existed at the time the APA was signed.

Q What is a binary license?

A Binary is a machine readable software. It's like the application you buy when you buy a Microsoft operating system.

Q And the third component, the UnixWare?

A Excuse me. It's the future UnixWare offer that SCO sales, a portion of those binaries.

Q So if Santa Cruz had sold a certain amount of UnixWare licenses in the future, it's your testimony that some of that money would have gone back to Novell?

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A Correct.

Q Do you know whether that threshold was ever met?

A I don't know. I had left.

Q Was it ever your intent on behalf of Novell to hold back the copyrights because Santa Cruz couldn't pay enough cash up front?

A Absolutely not.

Q Did you form any view as to whether the payments to Novell through the ongoing binary royalties, what you described as the first component, did you form any view as to whether that would be valuable to Novell?

A Yes, and we did some modeling.

Q Again, briefly, what were the results of the modeling, if you can recall?

A Hundreds of millions of dollars.

Q Were you personally involved in the transaction up to the date that the APA was signed?

A Yes.

Q Did you ever give the lawyers authority to hold back any UNIX or UnixWare copyrights?

A Absolutely not, no.

Q Would it have bothered you if anyone had drafted the language of the APA to hold back the copyrights from UNIX and UnixWare?

A Absolutely.

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Q Why?

A The deal I negotiated with SCO included the copyrights, so we modeled it to include the copyrights. And from a personal standpoint, it would have been unethical to exclude them.

Q Now just before the APA was signed, did Novell own all of the lines of businesses that you identified earlier? I think you said NetWare, WordPerfect, UNIX, UnixWare.

A Just before the APA was signed did they own them?

Q Yes.

A I believe so, yes.

Q Were they transferring all of those lines of business to Santa Cruz?

A Certainly not.

Q Which ones were they transferring?

A Just the UNIX and UnixWare business.

MR. NORMAND: Mr. Calvin, could we look at SCO Exhibit 1.

BY MR. NORMAND:

Q Is that in front of you on your screen, Mr. Chatlos?

A Yes.

MR. NORMAND: Highlight recital A.

BY MR. NORMAND:

Q Do you see that language in from front of you, Mr. Chatlos?

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A Yes.

Q It says, quote, seller is engaged in the business of developing in the 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, the support of such products and the sale of other products which are directly related to UNIX and UnixWare, collectively, the business. Do you see that language?

A Yes.

Q How does that language compare to your understanding of the business in which Novell was engaged at the time?

A It reflects it.

MR. NORMAND: Mr. Calvin, can we have recital B?

BY MR. NORMAND:

Q This language, as you can see, Mr. Chatlos, says, the boards of directors of each of seller and buyer believe it is in the best interests of each company and their respective stockholders that buyer acquire certain of the assets and assume certain of the liabilities of seller comprising the business, the, quote, acquisition. Do you see that language?

A Yes.

Q How does that language comport with your understanding of what Novell was intending to sell Santa Cruz?

A The intent was for Novell to keep its core NetWare

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business and some other businesses and sell the UNIX and UnixWare business. That reflects it.

THE COURT: Mr. Chatlos, again, I have to ask you to please slow down.

THE WITNESS: I'm sorry.

MR. NORMAND: I will try to speak even slower and you can mimic me.

THE COURT: Mr. Chatlos, I am serious about this, that only for the court reporter, but my guess is that members of the jury are having trouble following some of your answers. It's very important that they hear what you have to say.

MR. NORMAND: Thank you, Your Honor.

MR. NORMAND: Mr. Calvin, section 1.1(a), highlight that.

BY MR. NORMAND:

Q I'm trying to save time, Mr. Chatlos. I take it you are familiar with this language, you've seen it before?

A Yes.

Q If you need time to read it, let me know. How does this language comport with your understanding of what the assets were at issue in this transfer?

A It reflects it.

Q Do you see the reference to both schedules 1.1(a) and schedule 1.1(b)?

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A Yes.

MR. NORMAND: Could we go to schedule 1.1? Let's bring out Roman numeral I.

BY MR. NORMAND:

Q Mr. Chatlos, this is from schedule 1.1(a), 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, and I'll stop there. What are copies of UNIX and UnixWare?

A The actual individual versions, and it would be the source code copies and any binary copies we had.

Q In what forms do those exist -- or did they exist at the time?

A They certainly did exist and they could have been on a disk, a tape drive.

Q Were those physical materials being sent over as part of the transfer, to your understanding?

A Yes.

Q Keep going, all technical, design, development, installation, operation and maintenance information concerning UNIX and UnixWare, including source code. I'll stop there. Remind us again what source code is.

A Source code is human readable computer code where a human can read it, understand it, modify it, and then you take the compiler and compile it into binary.

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Q You say modify it. What does that mean?

A Change aspects so it does something different than was originally intended.

Q Keep going, source documentation, source listings and annotations, appropriate engineering notebooks, test data and test results, as well as all reference manuals and support materials normally distributed by seller to end-users and potential end-users in connection with the distribution of UNIX and UnixWare, such assets to include without limitation the following. Do you see that language?

A Yes.

Q How did that language overall comport with your understanding of what assets were included in this transfer?

A It fully describes it.

Q Did you have a view at the time of the APA as to whether this description, descriptions of materials such as copies of UNIX and UnixWare, and the source code for UNIX and UnixWare included the copyrights thereto?

A Without a doubt, yes.

MR. NORMAND: Go to schedule 1.1(b). Can we bring up Roman numeral I?

BY MR. NORMAND:

Q Mr. Chatlos, you've seen this language before. Roman numeral II refers to NetWare operating system and services. Do you see that language?

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A Yes.

Q How does that language, the inclusion of that reference in the excluded asset schedule, comport with your understanding of what was intended to be excluded?

A It was Novell's desire -- our desire to not include any core business of Novell like NetWare, so we excluded it in this attachment.

Q Did you ever intend to sell Santa Cruz the NetWare business?

A No.

Q Did you ever intend to transfer to Santa Cruz any of the NetWare copyrights?

A No.

Q Do you see Roman numeral IV, Mr. Chatlos?

A Yes.

THE COURT: Mr. Normand, just for the benefit of the jury, you maybe want to indicate which page of the Exhibit A you are referring to, title of this, please?

MR. NORMAND: Thank you, Your Honor.

BY MR. NORMAND:

Q Do you recognize this Roman numeral IV, Mr. Chatlos, as from schedule 1.1(b) of the APA?

A Yes.

Q And do you have an understanding of the role that schedule 1.1(b) was designed to serve within the APA?

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A It was intended to identify the assets which did not go to SCO and for the most part address the NetWare business that would not be transferred to SCO.

Q I'm looking at the top of the screen, Roman numeral IV-A, which says NetWare and other Novell code contained in UnixWare 2.01 and Eiger. Do you see that language?

A Yes.

Q Did Novell intend to transfer NetWare and other Novell code contained in UnixWare to Santa Cruz?

A No, certainly not.

Q Do you see Roman numeral V entitled intellectual property?

A Yes.

Q Do you see the reference to all copyrights?

A Yes.

Q Did Novell intend to exclude from the transfer the UNIX and UnixWare copyrights?

A No, not at all.

Q Do you think this language can be read to refer to the exclusion of copyrights for UNIX and UnixWare?

A This language, section V, is in the NetWare schedule. So it was certainly intended to deal with just NetWare.

Q You think it says NetWare?

A It's in a Novell attachment, so it means NetWare. That was the intent of the agreement.

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Q Was it your understanding, in your review of these documents, that this referred to NetWare?

A Yes.

Q Did you have a chance to review this document before the APA was signed?

A Yes.

Q Was it ever your understanding that this Roman numeral V referred to the exclusion of UNIX or UnixWare copyrights?

A No.

MR. NORMAND: Section 1.6.

BY MR. NORMAND:

Q Mr. Chatlos, I'm going to direct your attention to section 1.6 of the APA --

A Yes.

Q -- which is titled license back of assets. I won't read this paragraph. Do you recall discussions of Novell's intent regarding this prospect of a license back?

A Yes.

Q Can you briefly describe what the point of the license back was?

A Since Novell was transferring the entire business to SCO, there were groups within Novell that were using some of the UNIX and UnixWare technology, both within labs and within product that is distributed to customers. This section covered Novell continuing to have the right to use

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some of that UNIX code and include portions in their binary products. So it's licensing from SCO to Novell the right to use the source code and create some limited derivative works.

Q Did you have a view, during the course of your negotiations, as to why it would be necessary for Novell to have a license back?

A Well, we were instructed to transfer the entire business to SCO, so Novell would have no rights to it, so this section covered giving back rights to Novell.

Q Mr. Chatlos, we're going to bring you back to schedule 1.1(b), the excluded assets schedule, and we're going to look at the old language of the APA, the language that was replaced referring to all copyrights. To your understanding, if Novell had retained the UNIX and UnixWare copyrights, would it have needed a license back?

A Absolutely not.

Q Why not?

A Retaining the copyrights is tantamount to having rights to modify the source code.

Q Now you will recall, Mr. Chatlos, we had just looked at section 1.6 of the APA which referred to a license back. We now have on the screen Exhibit 162 titled Technology License Agreement. Do you recognize this document?

A Yes.

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Q Did you have an understanding at the time as to the substance of this document?

A Yes.

Q Could you briefly describe that?

A Sure. This addressed that previous paragraph we saw. This was a license back to Novell and the terms in which they could use source code and make derivative works.

Q Do you recall whether Novell intended to agree to any restrictions on the extent to which they could use this UNIX and UnixWare technology in selling products?

A There are restrictions in this document.

Q Why?

A We didn't -- excuse me -- SCO didn't want Novell to use the technology they are getting back from SCO to create competitive offer. So the restrictions, if I remember correctly, were the source code could be used in the labs and they could create derivative works. And then the binary versions of those could be used in their NetWare product or other products, but only in a very minor way. It couldn't be considered a primary component of the developing product.

Q Were those restrictions subsequently imposed in the technology license agreement?

A Yes. They are in a subsequent section, I believe.

Q If Novell had retained the UNIX and UnixWare copyrights, wouldn't it have been able to do anything it

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wanted to do with the source code?

A Exactly right.

Q Mr. Chatlos, we're going to bring up section 1.2 of the asset purchase agreement which is titled payments, and we're going to keep it on two pages for a second. Do you see there are three subsections, (a), (b), (c), and then running down to (d)?

A Yes.

Q How does this language comport with your understanding and intent as to what consideration Santa Cruz was giving Novell for this transfer of assets?

A I think I said earlier that there were three components to Novell being compensated for selling the business to SCO. Paragraph (a) reflects the stock aspect of that. Paragraph (b) reflects the royalty payments that would go back to Novell of those existing customers. And paragraph (b), the second half, reflects the future royalty -- sorry, the future share of royalty payments SCO would receive for sales of UnixWare.

Q Did you consider both of those components part of the consideration that Novell was receiving?

A All three of those components, yes.

Q Now you are aware of Amendment No. 1 to the APA?

A Yes.

Q Were you part of the negotiation or discussion at that

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time?

A More of the discussion, correct.

Q And how did that come about that you were involved with that?

A After the APA was signed, Novell created -- we created a transition team consisting of mostly Novell people -- Novell people, but it included some SCO people. The members of this team were HR, development, support, so forth. The team was to work on how do you now effect this agreement and transfer the business to SCO.

Q What was your role with respect to that transition team?

A I was an adviser to all the individual team leaders for the subsections.

Q Do you recall when the APA closed?

A Yes.

Q What is a closing, by the way, in your experience?

A Very uneventful. It's where both parties sign the agreements in front of each other. That's it.

Q It's like signing legislation into law?

A Yes.

Q Who was at the closing?

A I don't remember everybody, but on Novell's side, it was Duff Thompson and myself. There may have been a lawyer or two and maybe a banker.

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Q On this issue of Amendment No. 1 in your transition work, did the issue of copyrights ever come up?

A No.

Q Was it ever suggested to you by anyone that Novell had retained copyrights?

A Absolutely not.

Q In your transition teamwork, did you ever tell anyone that Novell had retained the copyrights?

A No, I didn't. I didn't need to.

Q Why not?

A The whole business went. And when you are in the software business, you understand copyrights are associated with software.

Q Was it your intent to have the copyrights transferred?

A Without a doubt.

Q At the beginning of the negotiations?

A In the beginning and in the end.

Q And in the middle?

A In the middle, yes.

MR. NORMAND: Can we look at section 4.16.

BY MR. NORMAND:

Q We're looking, Mr. Chatlos, at section 4.16 of the asset purchase agreement, and I take it you are familiar with subsection (a)?

A Yes.

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Q There is reference to SVRX royalties in the third line. Do you see that?

A Yes.

Q Did you have an understanding or intent as to what SVDX royalties were and why they are referenced here?

A Yes. This was one of the compensation components I mentioned earlier, and that is the royalty stream from the existing licensees that SCO would collect and pay Novell a substantial portion of.

Q Do you see subsection (b)?

A Yes.

Q Do you see on the third line there is a sentence that begins in addition, at seller's sole discretion and direction?

A Yes.

Q Buyer shall amend, supplement, modify or waive any rights under, or shall assign any rights to, any SVRX licensee to the extent so directed and in the manner or respect by seller?

A Yes.

Q Did have you an understanding or intent as to what that provision was intended to accomplish?

A Yeah. This is dealing with the binary revenue stream mentioned in (a). And we were trying to give Novell the flexibility to modify the payment terms of that binary

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royalty stream so it could be accelerated if they wanted more cash up front. So instead of the computer companies or the resellers of the binary paying over time as they distributed the product, Novell could get them to pay up front, almost like paying off your house or paying off your car.

Q Did you have an understanding at the time as to what an SVRX license was?

A In this context, it was the binary sublicense agreement and the associated schedule for each product.

Q And, again, simply as you can, you won't offend us, what is the difference between a source code agreement or a software agreement on the one hand and on the other hand what you are describing as an SVRX license?

A There are three agreements that address the licensing of UNIX. The first one is a software licensing agreement. It gives the customer the right to modify it. Included in that language is protection of trade secret and intellectual property, so on and so forth. It doesn't address a particular product, per se. The second agreement is the software sublicensing agreement. That gives the customer the right to make binary copies and distribute binary copies. And it's the structure in which they pay for those distributions.

THE COURT: Mr. Chatlos, you do have water right

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there, if you would like to --

THE WITNESS: I'm going to put another cough drop in. Excuse me.

There is a third component which is called a schedule, and the schedule is associated with each specific product. In that schedule are the fees. I believe it includes where that source code existed. And that's it. So the sublicensing fees and where the source code existed, plus some up front fees for the source code.

Q What is sub about the sublicensing? Why sublicensing?

A I don't know. I wasn't involved in the original definition of these agreements. But what you are doing is making a derivative of a higher form, so it's sub to the original source code.

Q Let me understand this. You have got whatever entity -- and you worked at AT&T, the entity that owns the source code; is that right?

A Correct. At one point, yes.

Q They enter into source code agreements with companies who do what?

A They modify the source code.

Q After they modify that source code, what do they do with the modified source code?

A First of all, they modified it to adapt it to their needs. Then they would compile it down, which turns it into

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binary. Then they would put it on their computers, or sell it to stand alone and sell it.

Q Then they sell this third level, sublicensing agreement?

A Correct.

Q Now did you have a view at the time of the APA as to whether Novell had the right to waive Santa Cruz's rights under the source code agreements?

A No, that wasn't included in this agreement. Section (b) is waiving rights under the binary side.

Q Why did you not intend for Novell to have the right to waive Santa Cruz's rights in the source code agreements?

A The source code is really the intellectual property of the business. If Novell had a right to waive that, it could have potentially created SCO's business.

Q Last question on this topic. Why would that have hurt SCO's business?

A Well, Novell could have changed the rights of a source code licensee so they could distribute the product however they wanted to. That wouldn't have been right for us.

Q So I lied. One more question on this. Was it Novell's intent to secure for itself the right to waive any efforts Santa Cruz might make to enforce its rights in the source code agreement against a third party if that third party was infringing the source code agreement?

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A I heard part of it. I want you to say it again so I can parse it.

Q The question is whether it was Novell's intent to secure for itself the right to waive Santa Cruz's claims against a third party that Santa Cruz thought was violating the source code agreement?

A No.

Q Why not?

A It wasn't Novell's intent. Novell's intent was to provide SCO to protect those source code agreements. It was Novell's intent to allow Novell to modify the payment terms of the binary license agreement such that it could accelerate payment and get cash up front.

Q Mr. Chatlos, are you married?

A Yes.

Q How long have you been married?

A Ten years in October.

Q What is your wife's name?

A Laura.

Q When did you meet Laura?

A I first met her in 1991. She joined AT&T in the UNIX group.

Q When did you begin dating?

A After I left Novell, when I went to AT&T.

Q So Laura has been working in the UNIX and UnixWare

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business for about 20 years?

A Yes. She started at AT&T, went to USL, which is the subsidiary, then went to Novell, then went to SCO through this transaction to Caldera, then the current SCO Group.

Q So she's still at SCO?

A She is still at SCO.

Q Does she hold any stock in SCO?

A She owns very little stock. She probably owns a couple hundred shares and some options, probably less than 8,000.

Q Is that of any material value to you?

A Most of them are underwater. The strike price is above the current stock price.

Q Now if this lawsuit were to work out successfully for SCO, would that represent any material benefit to you?

A No, not really.

Q Mr. Chatlos, when you first learned in the last few years that Novell was claiming to own the UNIX and UnixWare copyrights, what was your reaction?

A I was shocked.

Q Why?

A Certainly that wasn't the deal that we did, and I thought it was not right to claim that when that wasn't the deal.

Q To your view, did the claim have any foundation?

A Correct. Correct.

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Q Did it have any foundation to you?

A No, it didn't.

MR. NORMAND: No further questions, Your Honor.

THE COURT: Mr. Acker.

MR. ACKER: Thank you, Your Honor.

CROSS-EXAMINATION

BY MR. ACKER:

Q Let me start, Mr. Chatlos, where counsel left off with you and your wife and your wife's stock ownership in SCO. Let me just be clear, your wife works at SCO now?

A Correct.

Q She owns several hundred actual pieces of stock -- shares of stock?

A I think the number is around 200.

Q She also owns options, and it's several thousands options; is that right?

A It's less than 8,000 at various strike prices.

Q So the jurors understand, an option is the ability to buy a share of stock at a given price, right?

A Correct.

Q And the strike price is the price you've got to pay to buy a share of stock, right?

A Correct.

Q So if you buy a share of stock at the strike price, say it's a dollar, and the share of stock is actually trading at

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$10, you made the $9 difference?

A Correct.

Q So if SCO would be successful in this litigation and its stock price were to go higher than the strike price of your wife's options, she could sell those and make money, right?

A Correct.

Q So if SCO was successful in this case and that results in SCO's stock price going up, your wife could make money, right?

A Correct.

Q Now, sir, your tenure at Novell, I just want to be clear on that. You left the company, sounds like, right at the end of the year in 1995 or the first day of 1996?

A It was probably the first week of 1996, correct.

Q So really this deal sounds like the last thing you did at Novell, correct?

A Yes.

Q And when I say this deal, your involvement was in the original agreement that was approved by the board of directors in September of 1995, right?

A Yes.

Q And then you also worked on this Amendment No. 1 that was worked on between September of '95 and December of '95, correct?

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A Yes.

Q That was the end of your involvement, right?

A No. I was involved in putting together the closing documents for the December signing. I didn't write them. I made sure they were all done and prepared.

Q After the deal got closed in December, you were done with the deal?

A Correct.

Q And no involvement in anything after that, correct?

A I'm sure I did some work, but certainly not major. I mean I did work at Novell at that time.

Q You worked on no amendments to this agreement after Amendment No. 1?

A Correct.

Q Now this deal took place a long time ago, right, 15 years?

A Yes.

Q And it's true, isn't it, that the first time that you had reason to focus on the intent of the meaning of the APA after 1995 was when you were approached by SCO's lawyers in 2004; isn't that right?

A Correct.

Q And so you did a deal in 1995, nine years pass, you are on to other things, correct?

A Yes.

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Q Working other places, doing other deals, right?

A Yes.

Q Then the lawyers for the plaintiff come find you in 2004 and you have a conversation with them, and that's the first time you focused on what the intent of the deal was for the prior nine years; is that right?

A Probably, yes.

Q Nine years is a long time, isn't it, sir?

A Yes, it is.

MR. ACKER: If we could bring up one more time today the schedule 1.1 of the asset purchase agreement, please.

BY MR. ACKER:

Q Now you would agree with me, sir, that if we look at paragraph V of 1.1(b), excluded assets, this is the paragraph -- this is the paragraph in the asset purchase agreement that tells us what was the intellectual property that was excluded, that is did not transfer from Novell to Santa Cruz under the asset purchase agreement, right?

MR. NORMAND: Object to the form for reasons we discussed previously.

MR. ACKER: Let me deal with that.

BY MR. ACKER:

Q As far as you knew, in 1995, September of 1995, this paragraph, paragraph V of 1.1(b), was the section that dealt

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with what intellectual property was excluded from the transfer, correct?

A Yes.

Q And as far as you knew when you left the company at the end of the year, it was still this paragraph in this form is what told both parties what intellectual property was excluded from the deal, right?

A Yes.

Q And that paragraph reads, the intellectual property paragraph of what was not transferred, in A, all copyrights and trademarks, except for the trademarks UNIX and UnixWare, correct?

A Yes, but I read this in the context of the entire schedule, page 1 and page 2, and I had in my mind the intent of what we were trying to accomplish.

Q I'm trying to focus -- and I'll get back to that in a sec. I want to focus on the words here. You would agree with me, wouldn't you, sir, this doesn't say all NetWare copyrights, correct?

A That's correct. This whole language does not say that, correct.

Q What it says is all copyrights, correct?

A Correct.

Q Now do I understand your testimony to be because there were other references to NetWare in schedule 1.1(b), you

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somehow imported the word NetWare into this exclusion? Do I have that right?

A That's the way I read it, correct.

Q Despite the fact that the word NetWare is not there?

A Not on this page. It's in the previous bullet points.

Q But when talking about what intellectual property was excluded, there is no reference to limiting it to NetWare copyrights, correct?

A Correct.

MR. ACKER: If we could go to 4.16(b), please.

BY MR. ACKER:

Q Now this is the paragraph -- there is a lot of language in there. Let me see if I can boil it down. Section 4.16(b) is a section that Novell wanted in the agreement to allow them to tell Santa Cruz they had to waive certain rights in order to protect Novell's SVRX revenue stream; is that fair?

A Yes, it was intended to protect Novell's SVRX binary royalty stream.

Q It's your testimony this was limited to simply waiver of rights regarding binary licenses; is that true?

A Correct.

Q Now can you show me in this paragraph where it says binary licenses or it's limited to binary licenses?

A It doesn't say binary explicitly, but it's in a section

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that deals with binary licensing.

Q So in this waiver provision it says buyer shall not, and shall not have the authority to, amend, modify or waive any right under or assign any SVRX license without the prior consent of seller. It says any SVRX license, right?

A It says that, yes.

Q It doesn't say any binary SVRX license, correct?

A No. But, again, you have to take the context of the section.

Q Would you think that the same context would apply to 4.16(a), that that is limited solely to -- the pass through of revenues for SVRX licenses was limited solely to binary licenses?

A It's limited to binary licenses for the most part. I can't see the top.

Q Let's go back. Let's look at 4.16(a). So if I understand your position, despite the fact that 4.16(b) doesn't say binary licenses, you are limiting it to that because it's in this 4.16 paragraph; is that right?

A Well, no. Yes, the language should say -- says that, but also I'm going back to the intent. The intent when we were sitting down around the table was for SCO to collect the royalties and pay Novell 95 percent of them, in paragraph (a), and then, in paragraph (b), to allow Novell to modify the payment terms of those sublicensees on the

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royalty payments.

Q So, again, the contract doesn't expressly say that, but you are relying on your memory of a deal you did 15 years ago?

A Without a doubt.

Q Now your working relationship with Tor Braham and the rest of the Wilson team on the asset purchase agreement was such that the lawyers drafted the APA because you did not have the legal background to draft a lot of the terms in the agreement; is that fair?

A Not completely, no. There were other lawyers involved. I don't know that Tor Braham drafted the original APA.

Q I'm really drawing a distinction from yourself and the lawyers from Wilson. The lawyers from Wilson drafted the language, correct?

A I don't believe so. I believe it was originally drafted by lawyers from Novell.

Q And then the lawyers from Wilson took over; is that right?

A Most likely, yes.

Q So you are remembering that the lawyers at Novell actually drafted the language and then the lawyers from Wilson worked on it after that?

A I think they worked on it to reflect the intent of the business relationship.

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Q So the lawyers at Novell and the lawyers from Wilson worked on the language to reflect the intent, and that is the words that are in the agreement, according to you, as of September of 1995?

A Yes.

Q It's your belief that the actual language in the agreement, as of September 1995, reflects the deal?

A Yes.

Q Because the language, as of September of 1995, reflects the deal, in your opinion, there would be absolutely no reason to want to modify that deal or alter that deal after you left the company in January of 1996, correct?

A I don't know what they would do. I think it included the deal. But just as we created Amendment No. 1, there may have been things they discovered afterwards that they wanted.

Q With respect to copyrights, you think it's clear as day that the copyrights exclusion only applies to NetWare and there would be no reason to change that language?

A I believe that was our intent. Whether the language needed to be tweaked to reflect that, that's an opportunity I'm not aware of, but that was the intent.

Q Is it your position that the actual words in the contract that don't refer to just NetWare copyrights being excluded, is it your belief that that language is

383

inconsistent with your belief of what the intent was?

A I think it's consistent. I've read it and I thought it was consistent.

Q So it's your belief that the language of the agreement is consistent with what you believe the intent was?

A As I read it, yes.

Q So given that, there would be no reason to want to amendment the agreement after you left in January of 1996?

A I can't give a view on that.

Q I'm asking you your view on that?

A I don't know the circumstances that existed when I left the company to come to a conclusion that they needed to modify.

Q When you read the agreement and you read the words at the end of 1995 and you saw that it excluded all copyrights and it didn't limit it to NetWare copyrights, did you think that language needed to be amended?

A Well, my thinking was the intent of the deal was to completely transfer the business, including the source code, the copyrights, everything, the agreements, the revenue streams. And when I read it September 15th -- 13th, I felt it covered that.

Q By the way, did you attend a board meeting in the middle of September when the deal was approved?

A No.

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Q Because you were not present at that board meeting, you obviously don't know what was discussed, right?

A Correct.

Q It was the Novell board that had the responsibility or had the authority to approve the deal, correct?

A Correct.

Q And you don't know what was communicated from the lawyers, Larry Sonsini and others from the Wilson firm or in-house lawyers from Novell about what the deal was, correct?

A I don't know what was stated in the meeting, correct.

Q Because you weren't there and you don't know what was stated in the meeting, you don't know what was in the minds of the directors when they approved the deal, correct?

A No. I have an idea as a result of what happened after the meeting, that it was in line with the intent of the agreement.

Q But you weren't in the room?

A I was not in the room, correct.

Q So you don't know what was in the minds of the directors who approved the deal?

A Correct.

MR. ACKER: That's all I have, Your Honor.

THE COURT: Mr. Normand, do you have anything else?

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MR. NORMAND: Very few, Your Honor.

REDIRECT EXAMINATION

BY MR. NORMAND:

Q Mr. Chatlos, do you recall being asked about meeting with attorneys for SCO in 2004?

A Yes.

Q By that time had you met with attorneys for IBM?

A Yes.

Q And what did you tell them about this issue of copyright transfer?

A The same thing I'm saying today, that we transferred the entire business, and that included the copyrights.

Q Did they propose that you sign a declaration?

A They did want me to sign a declaration, correct.

Q What happened?

A Well, after our meeting they said they would write up a declaration and send it to me for signature.

Q Did they do that?

A They did do that.

Q Did you sign it?

A No, I didn't.

Q Why not?

A It didn't reflect anything near my conversation.

Q Do you have a clear recollection of your intent on behalf of Novell to transfer all of the UNIX and UnixWare

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assets?

A Yes, I believe so.

Q And whether it's nine years ago or 15 years ago, would you remember something as fundamental as Novell's intent to keep the copyrights?

A That would have destroyed the value of the deal for SCO. Of course I would have remembered that.

MR. NORMAND: No further questions, Your Honor.

THE COURT: Mr. Acker.

MR. ACKER: Nothing else, Your Honor. Thank you.

THE COURT: Mr. Normand, may this witness be excused, again, meaning he need not worry about being re-called?

MR. NORMAND: Yes, Your Honor.

THE COURT: Mr. Acker?

MR. ACKER: Yes, Your Honor. Thank you.

THE COURT: Mr. Chatlos, thank you. That means you do not need to worry about being re-called in this case. You may go about your business. I will advice you to please not discuss your testimony with any other witness in this case or in the presence of any other witness or communicate your testimony to any individual who may report that, okay?

THE WITNESS: Okay.

THE COURT: Thank you.

Do you have a witness you can get done in ten

387

minutes?

MR. SINGER: I'm afraid not, Your Honor.

THE COURT: I kind of figured that would be the answer.

Ladies and gentlemen, we'll recess, then, for the afternoon. I will not repeat everything that you've been told now for several days, but I'll briefly remind you of the importance of you not making up your mind in any way, even though you have now heard two days of opening statements and testimony. And, again, I will stress that you are not to discuss this case with anyone or allow anyone to discuss it with you. You are not to read or watch or listen to anything about this case, nor are you to allow or to do any research on your own or anything similar to that.

We'll start tomorrow morning at 8:30. We'll be in recess until then.

(Jury excused)

THE COURT: I'm curious, Mr. Singer, are we on schedule as you contemplate?

MR. SINGER: We're a bit behind schedule, Your Honor. We had hoped today to get through several of the video depositions. That would mean we're about an hour and 45 minutes behind our schedule.

THE COURT: You will begin tomorrow with those video depositions; is that correct?

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MR. SINGER: We would begin with Mr. Messman's video. To break up the day, we probably will put on Mr. Davis, then --

THE COURT: As a live witness?

MR. SINGER: As a live witness, and then return to the video depos after that.

THE COURT: All right.

MR. ACKER: Your Honor, if we could inquire, will their be any live witnesses other than Mr. Davis tomorrow?

MR. SINGER: It's possible we would get to Bill Broderick, but that would only be after a number of depos. The order which we contemplate would be Mr. Messman, Mr. Davis, then going back to the Mohan, Wilt and Michels videos.

MR. ACKER: So Broderick and Maciaszek after that?

MR. SINGER: Broderick would be after that if there was time on Thursday.

MR. NORMAND: There is a travel issue. He may not be here this week.

THE COURT: Is that all you need, Mr. Acker?

MR. ACKER: If they will tell me more, I'd be happy to --

THE COURT: Well, if you want to pursue that, I'll let you do it out of my presence.

MR. ACKER: Thank you, Your Honor.

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THE COURT: Counsel, we do not have any hearings this afternoon, so you do not have to clear the desks unless you want to.

We'll be in recess until 8:30.

(Whereupon, the trial was continued to Thursday, March 11, 2010 at 8:30 a.m.)


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