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SCO v. Novell, Day 6, Monday, March 15, 2010 - as text - Madsen, McBride, Sabbath by video
Friday, September 17 2010 @ 06:38 AM EDT

Now we're cooking with gas. Here's Darl McBride on the stand at last, in the transcript of day 6 of the second SCO v. Novell trial in Utah. That makes it Monday, March 15th, the beginning of the second week of the trial, with the Hon. Ted Stewart presiding. Steve Sabbath appears by video deposition on this day too, and Kimberlee Madsen also takes a turn on the stand live, and in fact she is the first witness. And then it's Darl.

The day begins with an issue that shows up in SCO's appeal of its devastating loss at this jury trial, namely whether the jury should be allowed to hear that SCO already lost once before at an earlier trial and on summary judgment. And it ends with Darl talking about Novell issuing a press release on December 22, 2003 about registering the UNIX copyrights, but the story he tells about it doesn't match the day's events that I chronicled on Groklaw at the time. His story is that Novell deliberately chose the day of SCO's earnings results conference call to announce that they'd filed at the US Copyright Office, with devastating results to SCO's stock and business. But I'll show you from the transcript of that call that in fact it was Darl himself who announced to the world that Novell had registered the copyrights, prior to Novell saying anything about it in public. The teleconference was scheduled for 11 AM. It wasn't until late that afternoon, at around 4, that I wrote that Novell had confirmed it.

If you prefer to skip directly to the transcript itself, here's Part 1, Part 2, and Part 3. Here is Groklaw's eyewitness report from the trial for that day.

The Evidentiary Issues:

Let's look at the three evidentiary issues SCO has raised in its appeal. The very first one was this issue:

First, over SCO’s objections (A2548-49), the district court permitted Novell to tell the jury about the prior, reversed decisions the district court had issued in Novell’s favor. (A2548-50.) Novell had repeatedly sought to have the decisions introduced, beginning with its motions in limine (A400-19) and continuing throughout the first half of trial (A1117-21;A1471-75 ;A1638-72; A1734-41). The court denied all of those requests on the grounds that informing the jury of the decision would be unduly confusing and prejudicial. (A1112-16;A1334-38; A1476-79; A2363:775-76.) In so doing, the court acknowledged that the prejudicial effect to SCO of such evidence was “extremely high.” (A2628:1794.)

In the second week of trial, however, the court decided to permit Novell to quote from the prior decisions in cross-examining Dr. Christine Botosan, SCO’s damages expert, on the theory that the decisions pertained to the “but for” world of Dr. Botosan’s damages model. (A2549:1494-95.)

Botosan is not on the stand today -- she shows up on the 9th day of the trial -- but the judge opens the day by denying Novell's motion asking to tell the jury about earlier trial history. Novell pinned its request on SCO's opening statement, during which Stuart Singer said that Novell continues to slander SCO's title to this day:
And in 2003, their vice chairman stands up and says, quote, we still own UNIX. That was false, that was slander we believe you will find. And to this day Novell, on their Web site, continues to republish that slander. So there will be plenty of evidence where you will be able to conclude that Novell acted recklessly, intentionally and maliciously.
Naturally, Novell felt it was relevant that Judge Dale Kimball had ruled on summary judgment that it did own the copyrights, which might explain why it continued to say so. But when Novell's Sterling Brennan stood up to speak, he restrained himself in his opening statement by responding like this:
And we believe, and as we intend to show, the evidence will establish that Novell has not slandered, as you've heard today, the claim of ownership to the UNIX copyrights. In fact, Novell intends to show that no slander could have occurred for a number of reasons. First of all, Novell believes that to this day it owns the UNIX copyrights.
But after the day was done, Novell presented the court with a motion, asking to present evidence to defend itself. But the judge here rejected the motion, saying that while SCO should not have said what it said in the opening remarks, and shouldn't say it again, he thought the jury would be misled by hearing that information. So he warns SCO not to repeat the offense or he could reconsider, then Novell moves for a mistrial, which the judge takes under advisement, and the day moves forward. Obviously, though, it did come up again later.

Kim Madsen:

Kim Madsen is the first one on the stand, and she testifies that she was working on negotiations for the APA on behalf of Santa Cruz, under her boss, Steve Sabbath. She never says that she is a paralegal, I notice, and all during Ted Normand's questioning on direct examination, the jury might well have thought she was a lawyer if they were not paying attention, since she describes herself as manager of law and corporate affairs at Santa Cruz:

Q What was your title at Santa Cruz at that point?

A In 1995, I believe it was manager of law and corporate affairs.

In her Declaration [PDF], Ex. 21 in that collection, back in 2006, she wrote that back then she was "a Manager in the Law and Corporate Affairs Group." That doesn't sound exactly the same. She worked for Steve Sabbath, and in her testimony at trial, she says he was the only lawyer there.

Normand asks her first what her title is now at Apple, and she says she is senior contracts manager, which is consistent with a job category a paralegal with many years experience could have. But in 1995? Asked what she does at Apple, this is her answer:

Q Could you summarize your responsibilities?

A Yes. I negotiate enterprise contracts. Those are contracts where Apple is selling product directly to Fortune 100 companies for their own internal corporate use. I also negotiate reseller contracts where Apple is selling products to Fry's or Best Buy for resell to end-user customers.

Now, if you are not in the business, that might sound important indeed, almost like she is practicing law, flying solo and striking deals. But paralegals must work under a lawyer's oversight, and this is describing a Fortune 100 company wanting so many copies of MacBook Pro or iPads or whatever, and she does the paperwork. Or so it sounds to me. I would faint dead away if it turned out she was negotiating business deals, like buying a company or something like that. So, my point is just to say that Normand is trying to make her sound like she is more exalted than a paralegal. Of course, if he had me on the stand, he'd be doing the exact opposite.

Her education, she says, is that she went to college. She doesn't mention any paralegal schooling or law school. She worked for a family law firm prior to going to Santa Cruz. And it's certainly legal and it was perfectly fine, especially back then, to get your paralegal training that way, on the job. Nowadays, most companies would look for a certificate, but back then it was not uncommon for paralegals to just be trained at a law firm.

She testifies repeatedly that it was her understanding that Santa Cruz was buying from Novell all rights and interests in Unix and UnixWare and that they needed the copyrights to run the business. "I understood that SCO was acquiring all right, title and interest in UNIX and UnixWare," she says. But then she tells the courtroom that the patents didn't go to SCO. So how is that *all*? Does no one notice, but me, that this right there proves that SCO did not get all rights that Novell had in Unix and Unixware? Well, probably the judge noticed and the jury, given the outcome. SCO in its appeal complains that the judge didn't credit her testimony, but can you blame him? I don't either, because it's contradictory.

There is a sidebar, where it's explained that Wilson Sonsini represented Novell in the APA but it also represented Santa Cruz later, and it's brought out that there was a waiver by both sides to allow that to happen. I've always wondered about that, so it's nice to find out. During that sidebar, SCO lawyer Ted Normand says the following: "Part of the discussion at trial was you read the APA, it's self-evident that copyrights are not included."

Bingo. However, that is decidedly not what Boies Schiller argued for half a decade.

Ms. Madsen is asked about how Santa Cruz paid for what it got under the APA:

Q To your understanding what were the other components of this payment or compensation?

A I don't remember all of the specific details, but my general recollection is in addition to the six million shares -- 6,127,500 shares, that Novell was also retaining a portion of the binary royalties -- SVRX binary royalties, and that there were certain sales thresholds. And if those thresholds were met, additional monies would be paid to Novell.

Q Do you ever recall hearing from anyone that Novell would keep the UNIX and UnixWare copyrights because Santa Crux did not have enough cash?

A No. The binary royalties were the mechanism that we used to provide additional consideration.

That, to me, is like me sitting at a lunch counter eating my club sandwich, and you come up to me and say you would like to buy my pocketbook. You offer to give me $5, and I say that's not enough. So you offer me $5 plus my club sandwich. Am I likely to agree? I already had the sandwich, did I not? So how is that consideration? Ditto for the royalties, and by the way the APA doesn't say they retained just *binary* royalties. We have covered that earlier in some detail on Groklaw, not that SCO ever catches on, nor do their supporters even change their song. The APA just says SVRX royalties were retained, and think for a moment. What kind of license did IBM have? What about Sequent? HP? Go down the line. As for UnixWare, the amount they'd have to sell to have to pay more money to Novell under the APA was never reached. So we end up with the consideration being the stock.

Here's what the APA itself, as opposed to Ms. Madsen's testimony, says Santa Cruz would have to pay Novell and vice versa:

1.2. Payments.

(a) Consideration for Assets: Stock. On the terms and subject to the conditions set forth in this Agreement, as full payment for the transfer of the Assets by Seller to Buyer, at the Closing Buyer shall assume the Assumed Liabilities and issue to Seller 6,127,500 shares of fully paid and nonassessable shares of Common Stock of Buyer (the "Shares" or the "Purchase Price").

(b) Royalties. Buyer agrees to collect and pass through to Seller one hundred percent (100%) of the SVRX Royalties as defined and described in Section 4.16 hereof. Seller agrees to pay Buyer an administrative fee of five percent (5%) of the SVRX Royalties. Seller and Buyer further acknowledge and agree that Seller is retaining all rights to the SVRX Royalties notwithstanding the transfer of the SVRX Licenses to Buyer pursuant hereto, and that Buyer only has legal title and not an equitable interest in such royalties within the meaning of Section 541(d) of the Bankruptcy Code. For purposes of administering the collection of SVRX Royalties, the Parties acknowledge that the royalties shall continue to be recognized as royalties by Seller on an ongoing basis and the parties shall take such commercially reasonable steps as may be necessary to effectuate the foregoing for financial accounting and tax purposes. In addition, Buyer agrees to make payment to Seller of additional royalties retained by Seller in respect of the transfer of UnixWare and on account of Buyer's future sale of UnixWare products. The amounts and timing of additional royalties to be paid in connection with Buyer's sale of the UnixWare products are identified in detail on Schedule 1.2(b) hereto. Seller shall be entitled to conduct periodic audits of Buyer concerning all royalties and payments due to Seller hereunder or under the SVRX Licenses, provided that Seller shall conduct such audits after reasonable notice to Buyer and during normal business hours and shall not be entitled to more than two (2) such audits per year. The cost of any such audit shall be borne by Seller, unless such audit reveals a payment shortfall in excess of 5% of amounts due hereunder in which case the cost of such audit shall be borne by Buyer.

As you can see with your own two eyes, it says the consideration for the assets was the stock. As for the SVRX licenses, the payment there was from Novell to SCO, to compensate them for doing the collecting. SCO's consideration, if you want to call it that, was that it would do the collecting job. Novell kept the royalties. So if you look at it that way, it had the royalties 100 per cent prior to the APA, and afterward it got less, 95%. So how is it consideration if you end up with less than when you started? The only benefit to Novell was it didn't have to collect the royalties any more, leaving it to its agent, SCO, but it did also pay SCO.

Even more contradictions follow. Let's look at Amendment 1, which she claims to have worked on. SCO, according to the amendment, was to provide monthly reports to Novell, with a breakdown, and notice the elements of the breakdown, which I have highlighted for her and you:

(f) Monthly Reports. Within one (1) calendar month following each calendar month in which SVRX Royalties [and royalties from Royalty-Bearing Products as contemplated in Schedule1.2(b) hereof] are received by Buyer, Buyer shall provide to Seller, in electronic file format, a report detailing all such royalties. Such monthly reports shall be separately broken down by revenue type (i.e. source code right to use fees, gross and net binary per copy fees, and support fees), by product, by customer, by quarterly period by which distribution occurs, and by country (if provided by customer) of distribution. Each such report shall also detail, with respect to the revenues reported, any third party payments attributable to such revenues, broken down by the identity of such third parties and the applicable payments to each. Buyer shall provide Seller with a single point of contact to discuss specific additional revenue and unit information (by customer) which, in Seller's judgment, are appropriate to supplement such monthly reports. Buyer shall also provide to Seller, on a monthly basis, a report that reconciles monthly revenues reported (and accounts receivable) to cash remittances actually made to Seller by Buyer.
Madsen is a paralegal, and others testify that she was very sharp, manager of something in her department. How can she testify that it was only binary royalties, then? I simply can't explain it. But I can, as a result, explain why the judge might not have credited her testimony.

She is asked if she ever heard anyone say that SCO didn't have enough money to afford the copyrights, and she says no. But notice what she wrote in her 2006 Declaration:

My understanding was that Novell had no interest in continuing in the UNIX business at all, and if Santa Cruz could have paid the full purchase price originally proposed by Novell, Novell would not have retained the binary royalty stream or any rights to protect that royalty stream.
So, they did retain rights, then, I gather she is admitting.

Normand then asks her if she recalls working on Amendment 2:

Q Do you recall the execution of Amendment No. 2 to the asset purchase agreement?

A I have some general memory.

Q Did you draft the language of Amendment No. 2?

A I wasn't the author, but I would have reviewed and commented on it.

Q Do you have any specific recollection of any specific discussions with Mr. Sabbath about Amendment No. 2?

A No specific recollections, just general recollections....

Q Did Mr. Sabbath ever say to you that Santa Cruz had acquired only a license to the UNIX or UnixWare copyrights?

A No.

Q Now, in connection with Amendment No. 2, did Mr. Sabbath ever say to you that Santa Cruz had agreed to a process whereby Santa Cruz could ask Novell to transfer UNIX or UnixWare copyrights?

A No.

If she has no specific memory, what is she testifying about Amendment 2? Why? And if she can't remember any specifics, on what basis does she answer a question about what Sabbath said about Amendment 2? Her declaration said this about it, by the way:
If there were any ambiguity on that meaning of Section 1.2(e)(iii), Amendment No. 2 made clear, referring to the APA, that "Novell may not prevent SCO from exercising its rights with respect to SVRX source code in accordance with the Agreement."
Is she testifying in that declaration as an expert, then? Or exactly on what basis, if she has no specific recollections, what the effect was?

Maybe you are starting to grasp why the judge may not have found her testimony compelling?

Novell's Michael A. Jacobs then does cross examination, and he takes her to the dust-up about IBM's buyout, and the following exchange ensues as he shows her the IBM agreements, including the three-party one resolving the dispute:

Q. And then it says: Novell acquired AT&T rights under the related agreement.

Do you see that?

A. Yes.

Q. And then it says:

In an agreement between Novell and SCO dated September 19, 1995, the asset purchase agreement, SCO purchased and Novell retained certain rights with respect to the related agreements.

Do you see that?

A. I do.

Q. That makes clear, does it not, that Novell retained rights with respect to the supplements, the sublicensing agreement and the software agreement? Doesn't it, Ms. Madsen?

A. No, I don't believe so; because the first sentence is talking about the agreements that were entered into between IBM and AT&T, and the second sentence is saying that Novell retained certain rights with respect to the agreements, but it doesn't say which ones.

Q. Okay. So you're reading that and your understanding at the time is that it retained certain rights with respect only to some of the related agreements?

A. I don't know -- I mean, without looking at these agreements it's really hard for me to talk about the specifics of the sublicensing agreements and the software agreements and the supplements.

Hard, indeed, especially when the document says the opposite of your testimony. Jacobs then gets her to say that the excluded assets section in the APA was a mistake that she didn't notice, her boss, the lawyer, didn't notice, neither legal team noticed in the three months leading up to Amendment 1 being signed. He makes her sound a little silly, in that there is a better explanation he suggests, after eliciting from her that Santa Cruz had been selling OpenServer for 12 years without owning the copyrights:
Q. And there's two possibilities, at least in my view. One possibility is that you and your colleagues on the Santa Cruz side, leave aside the Novell people who were going to go with the business like Mr. Levine, the people on the Santa Cruz side didn't catch what you regard as a mistake in the drafting during that period.

A. Yes. I mean, mistake, the drafting, yes. It certainly could have been more clear. And we did not correct that, no. We didn't catch it.

Q. And your explanation is, everybody on the Santa Cruz side, people you had trust and confidence in, including your boss Mr. Sabbath, blew it.

A. Blew it. I don't want to say my former boss blew it. I would say that, yes, that was overlooked. But everyone understood that the copyrights were transferred. The Novell people that came over to the Santa Cruz Operation understood that the copyrights were transferred. It just wasn't in our mind to clarify the agreement.

Q. It wasn't in your mind to read the excluded assets closely?

A. Not with respect to copyrights, no.

Q. So that's your explanation, and you reject the explanation, again, trying to put all these pieces of the puzzle together and figuring out actually the relevant question in this lawsuit, what copyrights are required, you reject that explanation, that explanation being that Santa Cruz had been in the UNIX flavor business. It had not owned copyrights to the UNIX operating system. In order to be in the flavor business, now they were going to be in a second flavor, UnixWare, and the negotiators thought to themselves, we can live with this. We don't need ownership of the copyrights because we have all the permissions we need in the asset purchase agreement to carry on the business of UnixWare.

A. No, that was not my understanding at all. SCO wanted to unify UNIX. It wanted to be the UNIX company. It wanted all rights to the UNIX, and it wanted to be able to enforce and protect its intellectual property rights. The copyrights would have been essential to that. And we wanted to be able to take action such as we did with the European union with respect to Microsoft, and we needed the copyrights to do that, as well.

Q. And it was just -- to sum all of this up, then, your testimony is that as of the exclusion of the asset purchase agreement on September 19th, 1995, the execution of the closing documents including the bill of sale on December 6th, 1995, as of that period, Santa Cruz and yourself thought that the copyrights in UNIX were essential, were required for SCO to carry out, to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies, and nobody on the SCO side caught the fact that the excluded assets schedule includes all copyrights.

A. Yes.

SCO's Ted Normand tries to fix some of the damage to his witness, but in my view, he makes it worse. He reads to her from an Alok Mohan letter which states, "SCO is now the primary supplier of the UNIX technology." Jacobs has pointed out that source code is technology. Normand asks her, though, if copyrights are also UNIX technology, and she mystifyingly says yes. Then he goes on to read about how SCO supplys UNIX technology to the market, which makes her answer sound goofier and goofier, unless SCO was supplying copyrights.

Steve Sabbath:

Next up is the video of Steve Sabbaths' deposition. I don't know that it even matters what he said, because he said directly contradictory things, both of which were played to the jury. My reaction was to discount everything he said, because both declarations were under penalty of perjury, and they don't match. What can you rely on then? If SCO complains about the judge not crediting his testimony, one can only respond, which version should one credit?

Darl McBride:

And then we have Darl McBride to the stand live. It's late in the day, so he will finish his testimony on the next day. Here's what he says he did when Novell first publicly told the world on May 28, 2003 that Novell, not SCO, owned the UNIX copyrights:

Q. Now, after Mr. Messman's letter was received, what did you do?

A. Well, after we picked ourselves up and tried to figure out what was going on here, the first thing I had to do, as the CEO of a publicly traded company, is I had to go meet with our large shareholders, many of whom were in New York, on Wall Street, and I had to go settle them down and try and explain to them that, in fact, SCO did own UNIX and we did own the copyrights.

So, I got on a plane soon after this, went back to New York and spent a few days back there with them. That was the first thing that I did.

So, SCO's large shareholders were on Wall Street, according to his testimony. And he felt he had to fly to New York to calm them down and stayed for days.

He goes on to claim that he first heard about Amendment 2 at that point, when his secretary called him and told him about it. He claims it was his secretary who found it. That contradicts the story SCO told the world at the time this all happened in 2003, when we were told it was a paralegal who found it. Stephen Shankland at CNET reported, "A SCO paralegal found the amendment Thursday in a filing cabinet, Stowell said. It's titled "Amendment No. 2". Now it's Darl's secretary who allegedly found it. I don't believe either story, by the way.

Apparently neither did Jack Messman, who accused Darl of tricking him and of knowing about Amendment 2 from the start, which Darl denies in his testimony. Darl also says that he had been "trying to get clarification around a problem in an Asset Purchase Agreement from an early agreement with Novell over the previous six months". That's him telling it his way, with Novell, if you recall, saying he asked them to give him the copyrights.

The detail about whether SCO tricked Novell by holding back Amendment 2's existence is significant to me, in that we learn the following details about the phone call between Jack Messman and Darl after Darl faxed him the document and Darl told him the three things he he wanted from Messman:

A. So then we went to number three. And I said: "Jack, we need to talk about damages."

Q. What was his reaction to you raising that subject?

A. "Damages? What damages? What are you talking about? There hasn't been any damages."

And I explained to him that the day that their letter went out, on a day that our stock should have been going up because we had record revenue and record profits, in fact, instead of our stock going up that day, our stock sank significantly and that we had been damaged as a result of their letters that had gone out, his press release that had gone out.

Q. Was there any further conversation?

A. Jack was upset about the discussion of damages, and, effectively, that was the end of the call.

So let's just imagine for a moment that this was a trick. It'd be a setup to get "damages" money, looked at like that. Because what actual damages would there be to SCO from the stock going down for a couple of hours or even a day, unless the company was playing the stock market? How otherwise does that damage SCO, the company? That's what Messman would have been expressing by his question. I can see if the Wall Street backers and the SCO executives and directors felt they were personally damaged, if they were expecting that the stock was going up and then it didn't. But the company?

Here's a page we did at the time on insider trades. It's interesting to see them in March 2003 before all this happened, and then see them selling right afterward.

So to me this is a pivotal piece of testimony, because to me it fairly screams uh oh, and it makes me wonder if it hints that this whole assault on Linux, aside from whatever else it was, was a bit of a hustle. It's strikes me as very odd indeed that he'd ask for monetary compensation for what Novell had said, right off the bat like that, if it was not planned in advance and approved by his lawyer before making such a demand. To me, it feels like there was some planning, and that's how I took Messman's question.

And by the way, I noticed in my article that the stock went up on June 5, the day SCO announced the paralegal had found Amendment 2, even if it had gone down on May 28, the day Novell spoke up. In a letter from Messman to SCO made public that day, Novell pointed out damages that SCO was causing:

"SCO's actions are disrupting business relations that might otherwise form at a critical time among partners around Linux technologies and are depriving these partners of important economic opportunities," Messman stated. "We hope you understand the potential significant legal liability SCO faces for the possible harm it is causing to countless customers, developers and other Linux community members. SCO's actions, if carried forward, will lead to the loss of sales and jobs, delayed projects, canceled financing and a balkanized Linux community."
So, at a minimum, if there was damage to SCO, it was not one-sided.

If you go to Google Finance, they have a chart and you can go back in time by moving the sliders beneath it. You'll see that on May 23, the price of SCO stock was 8.66. On May 30 it was 6.70. On June 6, it was 9.05, higher than it had been prior to Novell's statement about copyright ownership. On September 19, 2003, it was 19.41. So any dip was not only temporary but completely wiped out.

And if you set the sliders to go back to a couple of days after SCO announced it was suing IBM and go through June 6, the stock was up around 264%, even after Novell claimed ownership. So unless the company was playing the stock market, essentially day trading, where are the damages in this picture?

If you set the sliders to show the entire saga, going back to 2002, the stock was trading in September 6 of that year at 1.75. It's now at 8 cents.

Here are two screen shots of the chart, to show you what I mean. First, setting the sliders for early May of 2003 and ending on June 6, what I see is that the stock started to go down on May 23, not on the 28th. SCO keeps talking about this dramatic drop on the 28th because of Novell's statement. But do you see that in the chart? I don't. If there had been some outstanding lunge downward, wouldn't it show? Take a look:

Isn't that odd? The letter H represents June 6, by the way, which you can verify by going to the chart and setting the sliders as I did and then moving your mouse over the hills and valleys. The chart doesn't find May 28 worth noting on the significant points of interest. If the downward path began on May 23, not May 28, what does that do to SCO's story?

Update: In an earlier article, I looked at May 28 in depth, if you recall. I couldn't remember which article it was, but now I have found it. Tracing the details, you find that Novell put out a press release early that morning, then SCO had its conference call at 11. At 10:41 AM, the stock was up. It wasn't until afternoon, from all I could trace, that the stock began to go down. There surely were factors that came out in the Q & A that might give one pause. So who knows what made the stock go down that day? But if Novell was a factor, it surely isn't obvious from the facts available.

Here's a screenshot of the chart showing the entire history of this SCO saga, from before it began up to the present:

I'd call that a picture of how long it took for the investing public at large to figure this all out. Wall Street, it appears, is not exactly a quick study.

Neither is Darl, because he repeats a story that he should know from reading Groklaw is not accurate:

Q. And can you tell me, Mr. McBride, whether this assertion by Novell in December, 2003, had an effect on your business?

A. It had a devastating effect on our business.

Q. Can you elaborate a bit?

A. On December 22, 2003, we had just finished up our fiscal year, so we had a full year, now, of reporting, and it was the first full year of having SCOsource licensing within one year. And the results that we announced were record breaking revenues of nearly 80 million dollars for the year and record breaking profits. I believe they were over 5 million dollars. On the day that we announced, once again, SCO was facing another attack from Novell about the question of UNIX copyright ownership.

Novell came out and announced that it had filed copyright registrations with the copyright office, it reasserted its ownership claims of UNIX, and, once again, on a day that our stock would be expected to go up -- I mean, when you have record breaking revenues, usually, as a publicly traded company, your stock goes up. Instead of our stock going up on what should have been the best day of our company's life with our record breaking earnings and revenue, our stock went down on the heaviness of yet another Novell statement that they owned UNIX.

Here's how Linux.com reported on their press release about their earnings and the teleconference set for that day, in contrast:
In other holiday news from SCO, they will hold a "listen-only" teleconference this morning to discuss their latest financial results. The refusal to take questions is interesting since the company typically uses these calls to maximize and dramatize their legal claim of the day.

In a press release ahead of the teleconference, SCO states: "Fourth quarter revenue from UNIX products and services was $14.0 million. In addition, revenue generated from the Company's SCOsource licensing initiative was $10.3 million, which was derived from licensing agreements reached with Microsoft Corporation and Sun Microsystems, Inc. earlier in fiscal 2003."

What that actually means is that revenue from normal business operations is down one million dollars from the same quarter last year, and that there are no new sales of its "licensing initiative." The two sales noted for that initiative, to Microsoft and Sun, have long been known.

Novell didn't scheme to announce anything that day, by the way. Novell announced the copyright registrations after Groklaw broke the story, and then the media called them up and asked them. A Groklaw member had noticed the copyright registrations and I did a story on his find on December 22, as you can see here, at around 9:18 in the morning Eastern time. The SCO teleconference was scheduled to begin at 11 on Monday. Novell confirmed our finding at 3:57 PM that day.

Here's the most interesting bit in SCO's earnings call, keeping the above timeline in mind:

Operator: This concludes the portion of our question and answer session. At this time I would like to turn the call back over to Mr. Darl McBride.

McBride: OK. I would like to ask one more question that is on the mind of some people out there. I know because they have called in separately, and it didn't come up here now, so I take that one head on.

That is the question about Novell and a recent action that they have taken. We found out over the last couple of weeks that Novell snuck into the copyright office and tried to file some copyrights that would be basically on top of the claims ... the copyright registrations that we have made.

Notice that this is still in the morning of December 22, 2003. This was hours before Novell said anything at all. So it was actually Darl himself who announced to the world that Novell had registered the copyrights. And he says that he was getting calls about it too, as was Novell. Yet years later, at the trial, he was portraying it that Novell deliberately picked that very day to announce the copyrights registrations because it was the day of SCO's earnings call. But he did it himself without anyone even asking him a question about it. So if that piece of news caused SCO damage, it was a self-inflicted wound.

The transcript of this day is, once again, in three parts: part 1 [PDF] [Text], part 2 [PDF] [Text] and part 3 [PDF] [Text].

These transcripts, by the way, are coming to us in HTML thanks to Python, Regexp, bash, wget, KDE Quanta and a few other pieces of software. We have transcripts as text for all days of the trial without commentary, and if you want to jump to any other day of the 15-day trial, here you go:

March 2010
M Tu W Th F
08 09 10 11 12
15 16 17 18 19
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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 15, 2010
Jury Trial

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

772


A P P E A R A N C E S

For Plaintiff: Brent Hatch
HATCH JAMES & DODGE
[Address]
Salt Lake City, Utah [Zip]

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

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

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

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

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I N D E X
Witness Examination By PAGE
Kimberlee Madsen Mr. Normand (Direct)
Mr. Jacobs (Cross)
Mr. Normand (Redirect)
Mr. Jacobs (Recross)
Stephen Sabbath Deposition
Darl McBride Mr. Singer (Direct)

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EXHIBITS RECEIVED INTO EVIDENCE: PAGE
Plaintiff's:
29
30
521
127
199
163
95
672
675
678

Defendant's:
N-5
C-6
D-11
A-24

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SALT LAKE CITY, UTAH; MONDAY, MARCH 15, 2010; 8:30 A.M.

PROCEEDINGS

THE COURT: Good morning, counsel.

I want to deal, first of all, with the motion by defendant to allow evidence responding to plaintiff's allegation that Novell's slander continues to this very day. The Court is going to deny the motion. The Court believes that the questions that were asked and the statements that were made in opening were unwise and inappropriate, but did not bring enough attention to the jury that it justify opening up the Court's prior ruling on denying the opportunity for prior Court rulings to be introduced.

The Court is concerned primarily with the fact that it would be very difficult to present to the jury in a fair and accurate fashion the legal history of this case. And to do so would, I think, become ultimately very confusing to the jury and would be very prejudicial, and the probative value to the defendants would be minimal.

The Court will, however, state that plaintiffs had better be very, very careful not to come close to the line again because this ruling could be revisited. And, secondly, the Court will try to make sure that in the jury instructions it gives to the jury that it is very, very clear to the jury that any issue of, say, scienter, has to focus on that period of time when the statements, allegedly

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evidencing malice, took place.

Are there any questions, counsel?

MR. BRENNAN: Your Honor, thank you.

Novell does move for a mistrial on the grounds set forth in the papers, Your Honor.

THE COURT: Do you wish to respond, Mr. Singer?

MR. SINGER: We believe, for all the reasons the Court has stated in denying the motion, that the motion for mistrial should be denied.

THE COURT: The Court will take the issue of mistrial under advisement and will issue a ruling at an appropriate time.

Do we have anything else, counsel, before we bring the jury in?

MR. SINGER: Your Honor, I just want to report that Mr. Jacobs and his jury instruction group and our jury instruction group met over the weekend. I think we made some progress in resolving points of disagreement between the respective sets of jury instructions. There are certain jury instructions as to which we indicated we would take a further look and some that Novell was going to take a further look. We hope that continuing process is acceptable to the Court. We hope to be able to submit a narrow set of areas of disagreement to the Court as soon as possible.

THE COURT: By when do you think, Mr. Singer?

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MR. SINGER: I think if we had a couple of days, perhaps two days, they might be in a position where we could submit those. We are in disagreement on the verdict form, and we do plan to go ahead and submit that to the Court to begin considering.

THE COURT: All right, counsel. The Court will give you until Wednesday, but no later than Wednesday because we need to do what work we'll have that remains and try to get you something by the end of the week. So you have over the weekend to look at what we consider to be the appropriate packet, and then we can deal with the further objections next week. So if you can get them to us by five o'clock, Wednesday, all right, Mr. Singer?

MR. SINGER: We'll do so. Thank you.

THE COURT: I do want to express gratitude to both sides for making this additional effort. I hope it remains your attitude throughout the remainder of this trial to, where possible, cooperate and try to solve these dilemmas.

Mr. Brennan, do you have anything before we bring the jury in?

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

THE COURT: Remind me where we're going to start today, Mr. Singer.

MR. SINGER: Your Honor, our first witness is Kim Madsen, she's a life witness, followed by deposition

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testimony of Steve Sabbath. That is approximately one hour with designations from both sides. And after that we would call Darl McBride as a life witness.

THE COURT: All right. Thank you.

Ms. Malley, if you would please bring the jury in.

Mr. Singer, what is your new Exhibit 748?

MR. SINGER: This is a document that was inadvertently omitted from the exhibit list that was used in the deposition of Mr. McBride. It is a July 2003 presentation with respect to the SCOsource program.

THE COURT: Are defendants aware of it? Are we going to have any special problem regarding it?

MR. SINGER: It was a document used in cross-examination of Mr. McBride at his deposition.

MR. ACKER: We'll see what they try to use it for. It's hearsay. We're going to object to it as we go along. In terms of surprise, we'll deal with it on an evidentiary basis, as we did.

(Jury present)

THE COURT: Good morning, ladies and gentlemen of the jury. I hope you had a pleasant weekend. I need to ask whether or not any of you violated those instructions that you have been given as to your conduct in any way or in any respect?

Good.

779

Mr. Singer, if you would, please.

MR. NORMAND: Your Honor, we call Kimberlee Madsen as our next witness.

THE CLERK: Ms. Madsen, do you want to come forward.

KIMBERLEE MADSEN,
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: My name is Kimberlee Madsen. Kimberlee, K-i-m-b-e-r-l-e-e, Madsen, M-a-d-s-e-n.

DIRECT EXAMINATION

BY MR. NORMAND:

Q Good morning, Ms. Madsen.

A Good morning.

Q Could you briefly describe your educational background?

A Yes. I attended the University of California at Santa Cruz and graduated with a bachelor's degree in politics and English literature.

Q Could you briefly describe your work experience up to the present?

A Yes. I worked for -- my senior year in college I worked for a small family law firm. And then I worked for the Santa Cruz Operation. I believe that started at the end

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of 1990. And the Santa Cruz Operation became Tarantella after it sold the UNIX assets to Caldera. I remained with Tarantella, and left there -- I believe it was in August of 2004. And I went to work for a CRM software company called Accordant. I stayed there for about a year. Then I went to work for Apple, and I am currently employed at Apple.

Q What is your title at Apple?

A I'm senior contracts manager at Apple.

Q Could you summarize your responsibilities?

A Yes. I negotiate enterprise contracts. Those are contracts where Apple is selling product directly to Fortune 100 companies for their own internal corporate use. I also negotiate reseller contracts where Apple is selling products to Fry's or Best Buy for resell to end-user customers.

Q Now you said you were at Santa Cruz in 1995?

A Yes, I was.

Q How many attorneys were in the Santa Cruz legal department in 1995?

A One.

Q Who was that?

A Steve Sabbath.

Q What was your title at Santa Cruz at that point?

A In 1995, I believe it was manager of law and corporate affairs.

Q In brief, what were your responsibilities at Santa Cruz

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at that point?

A I had a variety of responsibilities, primarily pertaining to corporate law, so preparing SEC filings, mergers and acquisitions to the extent that SCO engaged in those activities. I did a little bit of HR, legal, but it was mainly supporting SCO's corporate legal work.

Q Is that work that you did with Mr. Sabbath?

A Yes, I worked directly for Mr. Sabbath.

Q Did there come a time in 1995 when you became involved with a potential transaction between Novell and Santa Cruz?

A Yes.

Q Who was the buyer and who was the seller?

A SCO was the buyer and Novell was the seller.

Q What was the nature of your involvement in the events leading up to that transaction?

A I supported Mr. Sabbath and was involved in the negotiations with Novell.

Q Where did those discussions that you participated in take place?

A There were discussions in New Jersey at Novell's facilities. There were also discussions in Santa Cruz at SCO's facilities, and discussions at the law firms in Palo Alto. I think they were primarily at the Brobeck Phleger & Harrison law firm, but there may have been some conversations at Wilson Sonsini as well.

782

Q Who do you recall participating in those discussions?

A Oh, there was quite a cast of characters. For SCO, I remember Steve Sabbath of course, as well as Jim Wilt and Jeff Seabrook, Doug Michels.

Q Do you recall who you participated in discussions with on the Novell side?

A I remember discussions with Burt Levine, John Maciaszek, Ed Chatlos. I'm sure there were others. Their names just don't come to mind.

Q Do you recall if Novell had outside counsel in connection with this transaction?

A Yes. The Wilson Sonsini law firm represented Novell.

Q Do you recall participating in any discussions with those attorneys?

A I do.

Q Did you participate in discussions in which Steve Sabbath, the general counsel at Santa Cruz, was not present?

A I remember a couple of conversations where Steve was not present.

Q Did you develop an understanding during these discussions as to what assets Santa Cruz was acquiring?

A Yes.

Q To your understand, what were those assets?

A Apple was purchasing all of the UNIX --

Q Did you say Apple?

783

A I'm sorry. Different life. SCO was purchasing all of the UNIX and UnixWare assets.

Q Was it your intent, as a representative of Santa Cruz, to acquire the copyrights of that business?

A Yes.

Q Was it your understanding and belief after the transaction was completed that Santa Cruz had acquired those copyrights?

A Yes.

Q In any discussion in which you participated before the agreement was signed, did you ever hear any discussion about the prospect of Novell retaining any UNIX or UnixWare copyrights?

A No.

Q Before the agreement was signed, did anyone from Novell ever say to you that Novell would retain any UNIX or UnixWare copyrights?

A No.

Q Would you have remembered that if they would have said something like that?

A Yes, that would have been a significant deal point and I would have recalled that.

Q Before the agreement was signed, did anyone from Santa Cruz ever say to you that Novell would retain the UNIX or UnixWare copyrights?

784

A No.

Q Would you have remembered that if they would have said something like that?

A Yes.

Q Did you have any understanding during these discussions as to whether Novell would retain its intellectual property in NetWare?

A Yes. That was very important to Novell to retain that business.

Q Did you have an understanding as to why?

A Well, that was their crown jewels, that was their going-forward business. I don't know much more about NetWare or even what it really does.

Q Do you recall any discussion about a license back to Novell?

A Yes.

Q Just, in general, what can you recall about those discussions?

A I know that Novell wanted to retain rights to the UNIX and UnixWare technology for use in NetWare and for its own corporate use, so SCO licensed back certain rights -- use rights to Novell.

Q Do you know if there was a meeting with the Santa Cruz board of directors in which the approval of this transaction was discussed?

785

A Yes.

Q Did you attend that meeting?

A I did.

Q Did Mr. Sabbath attend the meeting?

A Yes, he did.

MR. NORMAND: Mr. Calvin, can you put SCO Exhibit 29 on the screen.

BY MR. NORMAND:

Q Is the document on the screen in front of you, Ms. Madsen?

A Yes, it is.

Q Do you recognize this document?

A Yes, I remember this.

Q Do you see your name toward the bottom half of the document?

A Yes.

Q I think you said you do recall participating in this meeting?

A I have a general recollection, yes.

MR. NORMAND: Your Honor, I move SCO Exhibit 29 into evidence.

THE COURT: Any objection?

MR. JACOBS: No objection, Your Honor.

THE COURT: It will be admitted.

(Plaintiff's Exhibit 29 was received into

786

evidence.)

MR. NORMAND: Mr. Calvin, would you show the jury the top of the document so they see what it is.

BY MR. NORMAND:

Q So, Ms. Madsen, these are the minutes of the meeting of the board of directors on September 19th, 1995. This is the meeting you at least have a general recollection of attending?

A Yes.

Q And if we look at the names identified who are part of the quorum of the board of directors, who was Doug Michels?

A Doug Michels, I believe he was -- his title was executive vice president.

Q Who was Alok Mohan?

A Alok was the CEO.

Q And do you see the next paragraph identifying who was also present at the meeting?

A Yes.

MR. NORMAND: Mr. Calvin, if we could bring up that paragraph also present.

BY MR. NORMAND:

Q Do you see the reference in the second line to the Brobeck firm, Ms. Madsen?

A Yes.

Q Who was the Brobeck firm?

787

A Brobeck represented SCO in the acquisition of the UNIX and UnixWare technology from Novell.

Q Do you see the next line down towards the right side there is a reference to Jim Wilt?

A Yes.

Q Who was Jim Wilt?

A He was the vice president of business development and one of the lead negotiators for SCO.

Q In the next line down there is a reference to Steve Sabbath. Who was Steve Sabbath again?

A Steve Sabbath was the vice president of law and corporate affairs, and my supervisor.

MR. NORMAND: Mr. Calvin, would you take that away, and let's bring out the bottom, beginning with project sleigh ride.

BY MR. NORMAND:

Q Ms. Madsen, do you see the reference to project sleigh ride?

A Uh-huh. (Affirmative)

Q What was project sleigh ride?

A Project sleigh ride was the code name. We always had code names for various projects. So it was the code name for the acquisition.

Q I see reference to Jeff Seabrook presented a detailed overview of project sleigh ride?

788

A Yes.

Q Who was Jeff Seabrook?

A Jeff Seabrook was vice president of strategic planning along with Jim Wilt, one of the lead negotiators for SCO.

Q And to your knowledge, in this discussion to the board, did Mr. Seabrook say that Novell had retained any UNIX or UnixWare copyrights?

A No.

MR. JACOBS: Objection, Your Honor, hearsay.

MR. NORMAND: It's not going in for the truth of the matter. It's going in for her recollection and opinion.

THE COURT: The Court will overrule the objection.

Ms. Madsen, if, however, during the course of your examination here while or after a question has been raised, if Mr. Jacobs, who just stood up, stands up again, I want you to not answer the question until he's had a chance to address the Court.

THE WITNESS: Okay.

BY MR. NORMAND:

Q Ms. Madsen, do you recall any discussion at all in the meeting about the prospect of Novell retaining UNIX or UnixWare copyrights?

A No.

Q During this board meeting, what did you understand that Santa Cruz was acquiring under the asset purchase agreement?

789

A I understood that SCO was acquiring all right, title and interest in UNIX and UnixWare.

Q To your understanding, at the time of this meeting, did that include UNIX and UnixWare copyrights?

A Yes.

Q Ms. Madsen, did you participate in any negotiation meetings in which representatives discussed the issue of patents?

A Yes.

Q And did you develop an understanding from those meetings as to whether Novell would sell any patents under the asset purchase agreement?

A No. Novell was very clear that it would not be selling any patents.

Q And did you have an understanding at that time as to whether patents were an important part of the UNIX or UnixWare business?

A They weren't important to SCO.

Q Why was that, to your recollection?

A Well, because there was no patent covering all of UNIX. Patent covers a specific routine. So it was really the copyrights that were fundamental to the business, not the patents. I'm not even sure that Novell had acquired all of the patents from AT&T. So it just wasn't -- it wasn't that important to SCO, but I do recall Novell being very specific

790

that it would not be transferring any patents that were associated with the technology.

Q Do you recall any discussion of copyrights in connection with the discussion of patents?

A No.

Q Is that something that you would have remembered?

A Yes.

Q Was there a transition period after the execution of the asset purchase agreement in which Novell transferred the UNIX and UnixWare business to Santa Cruz?

A Yes.

Q Did you participate in that process?

A I did. There was a transition team set up and I was a member of that team.

MR. NORMAND: Mr. Calvin, can you show the witness N-5. If you could show the witness two or three pages in. One more.

BY MR. NORMAND:

Q Ms. Madsen, do you recognize this document?

MR. JACOBS: Your Honor, are we going to receive copies of exhibits?

THE WITNESS: Yes. I remember this closing checklist.

BY MR. NORMAND:

Q Do you recall receiving it?

791

A I have a general recollection.

MR. NORMAND: Let's go back two pages, Mr. Calvin.

BY MR. NORMAND:

Q Ms. Madsen, do you see your name on the fax cover sheet?

A Yes.

MR. NORMAND: Your Honor, this is a document on Novell's list of exhibits, I would move into evidence.

MR. JACOBS: No objection, Your Honor.

THE COURT: N-5 will be admitted.

(Defendant's Exhibit N-5 was received into evidence.)

MR. NORMAND: Let's go to the first page, Mr. Calvin. Let's show the jury the top half. I'm sorry, the very first page of the document.

BY MR. NORMAND:

Q So, Ms. Madsen, this is a fax cover sheet from Wilson Sonsini. Who was Wilson Sonsini again?

A Wilson Sonsini represented Novell in the asset purchase agreement. However, Wilson Sonsini was also SCO's corporate attorneys.

Q Now what is the date of this document?

A November 22nd, 1995.

THE COURT: Just one second.

Mr. Jacobs.

792

MR. JACOBS: Could we have a quick side-bar?

THE COURT: Do you want this on the record?

MR. JACOBS: Yes, please.

(Side-bar conference held outside the hearing of the jury)

MR. JACOBS: We had a specific discussion about this in our counsel meeting yesterday. We have to be concerned there is an implication of an improper conflict here. In fact, as I believe SCO will readily agree, there was a waiver on all sides -- a written waiver by SCO there is an ethical wall internally at Wilson Sonsini to deal with the Novell representation versus the Santa Cruz representation. I'm very concerned there is going to be an implication of something improper in her answer.

MR. NORMAND: This is not what I think she was implying. Certainly not what we intended to show. Part of the discussion at trial was you read the APA, it's self-evident that copyrights are not included. Whether there was an ethical wall, I think it's relevant to show that Wilson Sonsini subsequently participated with Santa Cruz in creating documents showing the copyrights transferred. So whether the same attorneys were involved or not, I think it's of probative value.

THE COURT: I would agree, but I do believe that the jury will have heard that and immediately have the same

793

question that Mr. Jacobs just addressed. I don't know whether or not you want to deal with it with some voir dire right now or whether or not you, Mr. Normand, want to do what you must to make it clear that this was not some oversight by the law firm, that it was a clear addressing of the issues or something. I think we need to do something.

MR. NORMAND: Trying to do that without leading will be a challenge. I can try. Why don't we try for a few minutes. I really don't think the point --

THE COURT: I'm not worried about if it was her point, I'm worried about that the jury --

MR. NORMAND: My point, Your Honor, because it wasn't her point, I don't think it will take that long to clarify it.

MR. JACOBS: I believe the appropriate thing is for Mr. Normand to stand up and say the following words: Ladies and gentlemen of the jury, Ms. Madsen alluded to Novell's role in representing -- I'm sorry, Wilson Sonsini's role in representing Novell in the transaction and to the fact that it was also Santa Cruz's outside counsel. On behalf of SCO, we wish to stipulate that Wilson Sonsini had permission from both companies, a written waiver, so both companies understood the role it would play in this particular transaction.

MR. NORMAND: Whether you prefer that or whether

794

you want me to do that through the witness, Your Honor.

THE COURT: I think it would be more efficient if you would do it. All right.

MR. NORMAND: I'll make sure I get those words out.

(Side-bar conference concluded)

MR. NORMAND: Ladies and gentlemen of the jury, just to clarify, you may have heard Ms. Madsen answer a question regarding the involvement of the Wilson Sonsini firm in both negotiating and participating in negotiations of the APA on behalf of Novell and then also representing Santa Cruz in connection with its corporate work. What we want the jury to be clear about is that there is no suggestion from the witness that Wilson Sonsini was acting inappropriately in any respect in undertaking both of those representations. Is that clear?

THE COURT: There was, in fact, apparently -- it had been addressed by the parties, there was a written acknowledgment, and procedures were put in place to make certain that the same attorneys were not representing both sides, and there was a clear firewall between those who were representing Novell and those who were representing Santa Cruz.

Mr. Jacobs, does that address everything do you think?

795

MR. JACOBS: Yes, Your Honor. Thank you very much.

THE COURT: Thank you, Mr. Normand.

MR. NORMAND: Thank you, Your Honor.

BY MR. NORMAND:

Q Ms. Madsen, we were talking about the transition process after the signing of the APA in September 1995. Do you recall that?

A Yes.

Q I think you were starting to say you did participate in that transition process; is that right?

A Yes.

Q And do you recall --

MR. NORMAND: Mr. Calvin, can you pull up pages 5 and 6 of this document.

BY MR. NORMAND:

Q Do you generally recall what aspects of the transition process you were involved in?

A Is it possible to make this a little larger?

Q It is.

A Thank you. So specifically relating to the items on this checklist?

Q Well, we can do it that way, or if you generally recall, we can do it that way as well.

796

A Okay. I remember some general involvement in the HSR filing.

Q What's an HSR filing the first?

A The Hart-Scott-Rodino filings. Those are filings to make sure that -- you have to get Hart-Scott-Rodino approval to make sure there are no violations of antitrust laws. I was involved in finalizing the disclosure schedules, amending the asset purchase agreement. I may have reviewed the NetWare license. I don't have any specific recollection.

Q Were you involved, as part of this transition process, in registering the shares of Santa Cruz stock in Novell's name?

A Yes, I was.

MR. NORMAND: Mr. Calvin, if we could bring up Exhibit C-6.

BY MR. NORMAND:

Q Do you recognize this document?

A Yes.

MR. NORMAND: Mr. Calvin, could you focus in on this text of the letter for the witness.

BY MR. NORMAND:

Q Do you recall making the request referenced in the first line of this document?

A Yes.

797

MR. NORMAND: Your Honor, I move Exhibit C-6 into evidence.

MR. JACOBS: No objection, Your Honor.

THE COURT: It will be admitted.

(Defendant's Exhibit C-6 was admitted into evidence.)

BY MR. NORMAND:

Q What is the date of this document, Ms. Madsen?

A December 14th, 1995.

MR. NORMAND: Mr. Calvin, bring out the text of the letter.

Let's see the address as well, Mr. Calvin.

BY MR. NORMAND:

Q So this letter says in the first sentence, Ms. Madsen, at the request of Kim Madsen, enclosed please find original stock certificate FBU 17088 representing 6,127,500 shares of common stock of The Santa Cruz Operation, Inc. registered in the name of Novell, Inc. Do you see that language?

A Yes.

Q Did you direct that request to Ms. Zenit of the Wilson Sonsini law firm?

A Yes.

Q And why did you do that?

A The shares were a part -- were one component of the consideration under the asset purchase agreement.

798

Q To your understanding what were the other components of this payment or compensation?

A I don't remember all of the specific details, but my general recollection is in addition to the six million shares -- 6,127,500 shares, that Novell was also retaining a portion of the binary royalties -- SVRX binary royalties, and that there were certain sales thresholds. And if those thresholds were met, additional monies would be paid to Novell.

Q Do you ever recall hearing from anyone that Novell would keep the UNIX and UnixWare copyrights because Santa Crux did not have enough cash?

A No. The binary royalties were the mechanism that we used to provide additional consideration.

Q Ms. Madsen, in the course of your responsibilities at Santa Cruz, did you work on annual reports?

A Yes.

Q In general, what is an annual report?

A Well, it's just that. It's a report that's prepared annually. It is filed with the SEC. And it is sent out to the shareholders or it's incorporated by reference in the proxy statement that is sent out to all of the shareholders.

MR. NORMAND: Mr. Calvin, could we show the witness SCO Exhibit 30. //

799

BY MR. NORMAND:

Q It's not the best resolution, Ms. Madsen, but do you recognize this document?

MR. NORMAND: Why don't we page a couple pages in, Mr. Calvin.

THE WITNESS: Yes.

BY MR. NORMAND:

Q Did you have any involvement in reviewing this document before it was made public?

A Yes. I would have reviewed, you know, commented, edited the document, or at least portions of it.

MR. NORMAND: Your Honor, I move SCO Exhibit 30 into evidence.

MR. JACOBS: No objection, Your Honor.

THE COURT: It will be admitted.

(Plaintiff's Exhibit 30 was received into evidence.)

BY MR. NORMAND:

Q So the jury is now looking at the document, Ms. Madsen. At the top, do you see the language, the Santa Cruz Operation, Inc. 1995 annual report? Do you see that language?

A Yes.

Q I wanted to direct your attention to page 3 of the document.

800

MR. NORMAND: Let's bring out that middle paragraph in the middle column, Mr. Calvin.

BY MR. NORMAND:

Q Do you see the language, looking into the future, SCO will play a more central role in the UNIX market. In addition to our well established packaged product market for UNIX Business Critical Servers, the acquisition of the UNIX technologies and UnixWare business places us in a much more strategic position to license technology to the computer manufacturers and system providers. Do you see that language?

A Yes.

Q How does that reference to the acquisition of the UNIX technologies and UnixWare business compare to your understanding of the assets that Santa Cruz had acquired under the asset purchase agreement?

THE COURT: Mr. Jacobs.

MR. JACOBS: Lacks foundation. It doesn't establish any relationship between this witness and this letter.

THE COURT: I will sustain the objection.

BY MR. NORMAND:

Q The question, Ms. Madsen, is how does this language compare to your understanding of the assets that had been acquired?

801

THE WITNESS: Can I answer?

THE COURT: You may. Go ahead.

THE WITNESS: This reflects the transaction in the asset purchase agreement. This language reflects that.

BY MR. NORMAND:

Q Did you draft this language? Do you recall drafting that language?

A No, I don't recall drafting this language.

Q Did there come a time in 1996 when you learned of a dispute between Novell and Santa Cruz concerning the scope of Novell's rights under the asset purchase agreement?

A Yes.

Q In general, to the best of your recollection, what was the dispute?

A The dispute involved some expanded UNIX rights that Novell had offered to IBM that were contrary to the rights that SCO had acquired under the asset purchase agreement.

Q Do you recall any discussions with Novell about that issue?

A Yes.

Q What, in general, was your recollection of those discussions? Who did you speak with?

A I remember speaking with Larry Bufford of Novell and Allison -- I think her last name was Lisbon. She was an attorney at Novell. And we subsequently entered into an

802

amendment to the asset purchase agreement to clarify SCO's rights.

Q Now to your recollection, at any time during that dispute as a defense to what it had done with respect to IBM, did Novell ever assert that it owned the UNIX or UnixWare copyrights?

A No, it did not.

Q Is that something you would remember?

A It's something that I would remember, yes.

Q Did you remember any discussions with Novell about UNIX or UnixWare copyrights at all during the course of this dispute?

A No.

Q Do you recall the execution of Amendment No. 2 to the asset purchase agreement?

A I have some general memory.

Q Did you draft the language of Amendment No. 2?

A I wasn't the author, but I would have reviewed and commented on it.

Q Do you have any specific recollection of any specific discussions with Mr. Sabbath about Amendment No. 2?

A No specific recollections, just general recollections.

Q Did you have a view, as of 1996, as to what copyrights were required for Santa Cruz to operate its UNIX and UnixWare business?

803

A We would have acquired all the copyrights.

Q Now how long did you remain at Santa Cruz after Amendment No. 2 had been signed?

A Well, the history of SCO is a little bit confusing because SCO sold -- subsequently sold the UNIX business to Caldera. Caldera then assumed the name SCO, but the legal entity remained the same and changed its name to Tarantella. So I remained with Tarantella. So, you know, SCO -- I stayed with SCO until it sold the technology in 2001 -- I can't remember the specific date, and then I stayed with Tarantella until 2004.

Q And during the time when you were at Santa Cruz, when it was called Santa Cruz, did you have occasion to work with any form 10-Ks?

A Yes. I would have reviewed and edited those.

Q To the best your recollection, what is a form 10-K?

A A form 10-K is an annual financial filing with the SEC.

Q What is SEC?

A The Securities and Exchange Commission.

MR. NORMAND: And, Mr. Calvin, could you put SCO Exhibit 521 up for the witness.

BY MR. NORMAND:

Q It may be a little hard to see, but do you recall seeing this document before, Ms. Madsen?

A Yes, I'm sure that I did.

804

Q Is this Santa Cruz's form 10-K for the fiscal year ended September 30th, 1996?

MR. NORMAND: I think that's reflected on the next page, Mr. Calvin.

THE WITNESS: Yes. Yes.

BY MR. NORMAND:

Q Now would you have reviewed this document before it was filed with the Securities and Exchange Commission?

A Yes, I would have.

MR. NORMAND: Your Honor, I move SCO Exhibit 521 into evidence.

MR. JACOBS: Your Honor, we don't object as a reflection of Santa Cruz's state of mind. We do object on hearsay grounds for the truth of the matter asserted.

THE COURT: All right. The Court will allow the document to be introduced, but I think on cross-examination you perhaps need to explore that a little bit, Mr. Jacobs.

(Plaintiff's Exhibit 521 was received into evidence.)

MR. NORMAND: So, Mr. Calvin, let's show the jury the top half of the document and see what it is.

BY MR. NORMAND:

Q Do you see the reference at the top, Ms. Madsen, for the fiscal year ending September 30th, 1996?

A Yes.

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Q What does that mean?

A Well, we would report on the year ending, we would report on our financials for the year ending in September 30th, 1996.

MR. NORMAND: Mr. Calvin, on page 2, I think it's toward the bottom -- next page -- previous page, Mr. Calvin, at the bottom -- very bottom.

BY MR. NORMAND:

Q Do you see the bottom line, quote, as of December 16th, 1996?

A Yes.

Q So was this document filed after December 16th, 1996?

A Yes.

Q Now let's go to page 57.

A Can I clarify something?

Q Of course.

A While the financial report concerns the time period ending September 30th, 1996, my recollection of the SEC requirements is that if there is something material that occurs subsequent to that, you would include that in the financial filing as well. So that's why you would see a date that is subsequent to the time period of the filing.

Q Thank you. We're going to show you and the jury, Ms. Madsen, page 57. I think it's the bottom paragraph. This is the

806

language saying, quote, UNIX business in December 1995, the company -- who's the company being referred to here?

A SCO, or the Santa Cruz Operation.

Q The company acquired certain assets related to the UNIX business including the core intellectual property from Novell, end quote. Do you see that language?

A Yes.

Q How does that statement compare with your understanding, as of this time, as to the intellectual property that Santa Cruz had acquired from Novell under the agreement?

A That is my understanding. That's what the asset purchase agreement was to accomplish.

Q To your understanding, did the core intellectual property of the UNIX business include the UNIX and UnixWare copyrights?

A Yes.

Q Now did an outside law firm represent Santa Cruz in connection with this transaction?

A In connection with the asset purchase agreement or in connection with this filing?

Q With this filing. I'm sorry.

A Yes. Wilson Sonsini would have represented us and assisted in the preparation of this filing.

Q Now, to the best of your understanding, was it

807

appropriate for Wilson Sonsini to be representing Santa Cruz at that time?

A Yes.

Q After October 1996 when Amendment No. 2 was signed, did any dispute arise between Santa Cruz and Microsoft?

A Yes.

Q And can you recall the general nature of that dispute? Did it concern royalties?

A Yes, it did. Microsoft was imposing a royalty on SCO and a compatibility requirement that all versions of UNIX remain compatible with some ancient version of -- I can't remember the technology specifically, but there was this ongoing compatibility requirement. And in order to maintain that compatibility, we also had to always remit a royalty to Microsoft.

Q Were you involved in any discussions about what actions Santa Cruz would take with respect to Microsoft?

A Yes, I was.

MR. NORMAND: Now, Mr. Calvin, can we bring up SCO Exhibit 127.

BY MR. NORMAND:

Q Ms. Madsen, do you recognize this document?

A Yes, I do.

Q In general terms, what is this document?

A This was an application with the European Union's

808

anticompetition division.

Q And did you have occasion to review this petition in the course of your job responsibilities?

A I did.

MR. NORMAND: Your Honor, I would move SCO Exhibit 127 into evidence.

MR. JACOBS: Your Honor, objection on hearsay grounds. Again, if they are offering this to prove that something occurred during the asset purchase agreement as a matter of fact, then it's hearsay. If they want to have another document in to show Santa Cruz's state of mind, that would be different.

MR. NORMAND: Your Honor, of course the document goes to the parties' course of performance which, under Mr. Jacobs' definition, would all be stricken because it's hearsay. It's course of performance.

MR. JACOBS: It is not course of performance, Your Honor. It's a unilateral statement made by Santa Cruz to a regulatory body in Europe with no showing that Novell had anything to do with it whatsoever.

MR. NORMAND: There is no requirement for course of performance that the parties' conduct be bilateral, Your Honor.

THE COURT: The Court will overrule the objection and allow the admission of the document.

809

(Plaintiff's Exhibit 127 was received into evidence.)

BY MR. NORMAND:

Q Now I think the jury can see the document, Ms. Madsen, so we'll go through briefly what it is. It says in the front, application for the initiation of proceedings pursuant to Article 3 of Regulation 17/62 to establish the existence of infringements Articles 85 and 86 of the Treaty of Rome. Sounds important. What was your recollection about where this was filed?

A This was filed with the anticompetition division of the European union.

MR. NORMAND: Mr. Calvin, show the jury the middle part of the document on the front.

BY MR. NORMAND:

Q When was this document filed?

A January 31st, 1997.

Q So how long after Amendment No. 2 is this being filed?

A I think it was just a couple months.

Q Let's go to Section 3.4. First sentence of section 3.4, it says, as a result of the chain of transactions described below, SCO has now acquired ownership of the UNIX program itself so that it no longer requires a license from anyone to produce UNIX products. Do you see that language?

A That's right.

810

Q Is that language consistent with your understanding of what SCO had acquired under the asset purchase agreement?

A Yes, it is.

Q Let's look at section 4.9. The next sentence of section 4.9 says, quote, because it has acquired ownership of the copyrights to UNIX from AT&T, SCO should be free to develop new UNIX based works without the necessity of a license from anybody. Do you see that language?

A Yes.

Q How does that assertion compare with your understanding of what Santa Cruz had acquired under the asset purchase agreement?

A That matches my understanding.

MR. NORMAND: Let's go to the top of page 12, Mr. Calvin.

BY MR. NORMAND:

Q There is a reference in the top paragraph in the second sentence, quote, whereas Microsoft is free to innovate and change its Windows product line as it sees fit and price them as it chooses, the copyright owner of UNIX is required to include unnecessary features for a common product that no longer exists and bear a royalty charge for the required inclusion of such features. The reference to the copyrights owner of UNIX, who is that referring to?

811

A That's referring to SCO.

MR. NORMAND: Now, Mr. Calvin, let's look at the last page of this document. We can bring out all of that text.

BY MR. NORMAND:

Q You see the reference on the bottom left, Ms. Madsen, to Brobeck Phleger & Harrison?

A Yes.

Q Is that the same firm that represented Santa Cruz in connection with the asset purchase agreement?

A That's correct.

Q Let's go back to section 4.9. We had look before, Ms. Madsen, at the statement, because it has acquired ownership of the copyrights to UNIX from AT&T. Do you see that language?

A Yes.

Q Is this statement consistent with your understanding of Santa Cruz's ownership rights just after the execution of Amendment No. 2?

A Yes, it is.

Q Do you know if Santa Cruz and Microsoft came to enter into a settlement concerning the dispute reflected in this petition?

A Yes, we did.

MR. NORMAND: Mr. Calvin, can we bring up SCO

812

Exhibit 199.

BY MR. NORMAND:

Q Ms. Madsen, do you recognize this document entitled settlement agreement?

A Yes, I do.

Q Are you familiar with the settlement referenced in this agreement, when it occurred?

A Yes.

Q Did you have occasion to review this settlement agreement in the course of your job responsibilities?

A Yes, I did.

MR. NORMAND: Your Honor, I move SCO Exhibit 199 into evidence.

MR. JACOBS: Your Honor, same objection. This is unilateral statements by SCO out of court about something they claim there is probative value here, but this is not showing Novell had anything to do with this.

MR. NORMAND: Your Honor, it goes to the same argument I made before, and really the same as the document we just went through and that was admitted into evidence.

THE COURT: The Court will overrule the objection and admit Exhibit 199.

(Plaintiff's Exhibit 199 was received into evidence.)

//

813

BY MR. NORMAND:

Q Ms. Madsen, the jury can see the document.

MR. NORMAND: Mr. Calvin, let's bring out the title in the first paragraph of the document. Let's start at the very stop, Mr. Calvin, so they see what this is.

BY MR. NORMAND:

Q This document is titled Settlement Agreement, and it is made on what date, Ms. Madsen?

A May 29th.

Q Which year?

A 1998.

MR. NORMAND: Let bring that down, Mr. Calvin, and look at the recitals. Down to the paragraph B.

BY MR. NORMAND:

Q Now do you see, Ms. Madsen, among the recitals in paragraph B stating, quote, SCO has acquired AT&T's ownership of the copyright in the UNIX System V operating system program and is the successor in interest of AT&T and the Centaur agreement, as subsequently amended?

A Yes, I do.

Q How does this language compare with your understanding at the time as to what assets Santa Cruz had acquired under the asset purchase agreement?

A It matches my understanding.

MR. NORMAND: Can we look at the last page of the

814

document, Mr. Calvin. Let's bring out the signature blocks.

BY MR. NORMAND:

Q Do you see the signature block for the Santa Cruz Operation, Inc., Ms. Madsen?

A Yes.

Q Whose signature is that?

A Steve Sabbath's.

Q What was Mr. Sabbath's position as of the asset purchase agreement?

A He was the senior vice president of law and corporate affairs.

Q Did you ever have any discussion with Mr. Sabbath at any time about the prospect that Novell had retained any UNIX or UnixWare copyrights?

A No, I did not.

Q Did Mr. Sabbath ever say to you that Santa Cruz had acquired only a license to the UNIX or UnixWare copyrights?

A No.

Q Now, in connection with Amendment No. 2, did Mr. Sabbath ever say to you that Santa Cruz had agreed to a process whereby Santa Cruz could ask Novell to transfer UNIX or UnixWare copyrights?

A No.

Q In 1995, was it your understanding and intent that Santa Cruz had acquired the UNIX and UnixWare copyrights?

815

A Yes, it was.

Q Did your understanding or intent ever change?

A No.

MR. NORMAND: No further questions, Your Honor.

THE COURT: Mr. Jacobs.

CROSS-EXAMINATION

BY MR. JACOBS:

Q The thickness is not representative of how long.

A Thank you.

Q But I do want you to have your deposition transcript in case we have to refer to it.

A Okay. Thank you.

Q Ms. Madsen, good morning. I'm Michael Jacobs. I'm one of the counsel for Novell in this action.

A Good morning, Mr. Jacobs.

Q So let's start at the beginning. You joined Santa Cruz in the early '90s?

A Yes. I think it was 1990.

Q At that time Santa Cruz was already in the UNIX business, wasn't it?

A It was.

Q It had a product called Open Server?

A I don't think Open Server was available when I first started in 1990, but it did develop Open Server, yes.

Q There was a UNIX product available in 1990?

816

A Yes.

Q Santa Cruz developed that product as a flavor of UNIX, correct?

A Yes.

Q It did so under a license originally from AT&T?

A Yes. I'm sorry.

Q Go ahead.

A And it also had a license from Microsoft.

Q The license from AT&T transferred to Novell when Novell bought the UNIX subsidiary of AT&T, correct?

A I believe so.

Q Isn't that kind of key to your understanding of the whole chain of transactions here, Ms. Madsen, that Novell acquired the UNIX business originally from AT&T?

A Yes.

Q So at that point Santa Cruz was a licensee of Novell under the original AT&T, Santa Cruz license, correct?

A Yes.

Q Santa Cruz was developing its flavor of UNIX under a license from Novell?

A SCO had a license with Novell. It also had a license from Microsoft. It developed its flavor of UNIX pursuant to those agreements.

Q Santa Cruz had developed a pretty substantial business around its flavor of UNIX at that time, correct?

817

A Yes.

Q And it had -- I think we've been told in court that Santa Cruz had about a thousand employees at that point?

A That sounds right.

Q Doing about $200 million a year in business?

A 200 million was what it probably did at its peak.

Q It did so insofar as the UNIX product -- the UNIX flavor was concerned, it did so under a license from AT&T-Novell and a license from Microsoft, correct?

A Yes.

Q So at that point there was no issue that Santa Cruz didn't own the copyrights to the underlying UNIX code, did it?

A Not at that time, no.

Q Now you have said, as have many witnesses in this trial so far, that you understood that Santa Cruz was acquiring the whole UNIX business from Novell; is that right?

A Yes.

Q Let me ask you to take a look at an internal Santa Cruz announcement from the time of the asset purchase agreement.

THE COURT: What is this identified as, Mr. Jacobs?

MR. JACOBS: This is SCO Exhibit 163, Your Honor.

THE COURT: SCO 163. //

818

BY MR. JACOBS:

Q Take a look at the first -- as much as you want, but take a look at the first two pages of that, Ms. Madsen. I don't know that you've seen it recently, so take a moment. The highlighting, by the way, Ms. Madsen, comes from Santa Cruz. Ms. Madsen, were you at Santa Cruz on September 19th, 1995?

A Yes.

Q You were an employee of Santa Cruz?

A I was.

Q And you likely received this announcement by Alok Mohan, the CEO of Santa Cruz, in connection with the acquisition of the UNIX business from Novell, correct?

A I have no specific recollection of receiving this, but I have no reason to doubt that I did.

MR. JACOBS: Your Honor, we move SCO Exhibit 163 into evidence.

THE COURT: Mr. Normand.

MR. NORMAND: No objection, Your Honor.

THE COURT: It will be admitted.

(Plaintiff's Exhibit 163 was received into evidence.)

BY MR. JACOBS:

Q So just to review, Ms. Madsen, this is a message from

819

Alok Mohan, the CEO of Santa Cruz, correct?

A Yes.

Q It's dated September 19th, 1995, and the subject is the acquisition of the UNIX business from Novell and relationship announcement to all SCO employees. Do you see that?

A Yes.

Q I would like to focus your attention on the portions that SCO, when it marked the exhibits, has highlighted. So let's look at the first box there, Ms. Madsen. Do you see Mr. Mohan represents to the company, today, we announced the purchase of the UNIX business from Novell? Do you see that?

A Yes.

Q So I'm just going to try my hand at a little drawing, Ms. Madsen, to see if we can help the jury understand this. If we imagine there is a UNIX business, that announcement suggests that that whole business -- or that portion of the announcement suggests that whole business is going to Santa Cruz, right?

A Yes.

Q So we announced the purchase of the UNIX business from Novell. That would be a pretty simple transaction. We bought the whole UNIX business. Here's the pie. The business goes from Novell to Santa Cruz, correct?

A Yes.

820

Q But, in fact, the transaction was more complicated than that, wasn't it?

A It was.

Q So let's look at what Mr. Mohan says in the next portion that SCO highlighted when they marked this exhibit, and let's take it literally word by word, Ms. Madsen. SCO has signed an agreement with Novell whereby we become the owner of the UnixWare product line and UnixWare licensing to OEMs. Do you see that?

A Yes.

Q Then he says, in addition, we will manage the licensing business for UNIX prior to UnixWare 1.0 (SVRX). Do you see that?

A I do.

Q Mr. Mohan, as he gets a little more detailed, is now dividing up our pie, isn't he, Ms. Madsen? Isn't he really dividing the pie between UNIX and UnixWare?

A No, I don't think that is a fair characterization.

Q Doesn't he say that we're acquiring the UnixWare business, it looks like that portion of the business is going to go to Santa Cruz under this announcement, but as to UNIX, Mr. Mohan is saying, we get a little sliver of it because we're going to manage the licensing business, but we're not doing anymore than that as to UNIX? Doesn't it say that, Ms. Madsen?

821

A No, that's not my understanding of what he's trying to convey.

Q Ms. Madsen, isn't he going to say we're going to manage the licensing business much as you might hire a manager for a piece of property to rent out apartments to potential tenants?

A No, that's not my understanding of the intent of what he's trying to say here.

Q Isn't it true that Santa Cruz was, with respect to the System V Release X UNIX product licenses from Novell, merely Novell's agent in managing that property?

A No.

Q Let's take a look, please, Ms. Madsen, at Exhibit D-11. This is a different Securities and Exchange Commission filing, the form 10-K from right around the time -- I'm sorry. This is from Caldera after the acquisition under its agreement with Santa Cruz. So this is a form 10-K filed by Caldera, the plaintiff in this action. Do you see that, Ms. Madsen?

A Yes.

Q Take a look at page --

MR. JACOBS: Let's move this exhibit into evidence, Your Honor.

THE COURT: Any objection?

MR. NORMAND: I am not sure we've layed a

822

foundation yet.

THE COURT: Let's have a few more questions.

BY MR. JACOBS:

Q You conveyed to Caldera, that is you, Mr. Sabbath and others at Santa Cruz, your understanding of the relationship between Santa Cruz and Novell under the asset purchase agreement, didn't you, Ms. Madsen?

A I am not sure I understand the question.

Q Did you have discussions with Caldera, which became SCO, the plaintiff in this action, did you have discussions with them about your understanding of the asset purchase agreement and how it worked?

A Yes.

Q So let's turn to page 42 of this form 10-K. After all, Caldera wasn't there in 1995 and 1996, correct?

A Correct.

Q So what they learned, they learned from the documents and from what you and others at Santa Cruz told them about the asset purchase agreement?

A We would have been one source of knowledge. I can't say that we would have been their only source.

MR. JACOBS: Your Honor, this is a 10-K filed by the plaintiff in this action. We would move it into evidence as an admission of a party opponent, Exhibit D-11.

823

MR. NORMAND: I'm not sure a foundation has been laid with this witness. She hasn't testified to any personal involvement.

MR. JACOBS: I don't believe we need a foundation for an admission by a party opponent, and I could ask her whether this admission comports with her understanding, such as Mr. Normand did with documents that Santa Cruz filed.

MR. NORMAND: Your Honor, if we have that understanding going forward, that's okay, but we've been trying to lay foundation with witnesses to date.

THE COURT: Were you still with -- after Caldera obtained the assets from Santa Cruz, were you with -- did you go with Caldera or did you stay with what remained of Santa Cruz?

THE WITNESS: I stayed with what remained of Santa Cruz.

THE COURT: Do you have any other witness that will be able to have -- if you can tell me you will be able to establish a foundation for this subsequently, I'm going to allow you to go ahead. Will you be able to do that?

MR. JACOBS: We will, Your Honor. We'll establish it.

THE COURT: I'll allow the admission of D-11 based upon the representation that a better foundation will be laid in the future.

824

(Defendant's Exhibit D-11 was received into evidence.)

BY MR. JACOBS:

Q Do you see the discussion on page 42 of this exhibit, Ms. Madsen, about the arrangement with Novell?

A Which section in particular are you referring to.

Q It's called restricted cash and royalty payable to Novell, Inc.?

A Yes.

Q It says, the company has an arrangement with Novell in which it acts as an administrative agent in the collection of royalties for customers who deploy SVRX technology. Do you see that?

A I do see that.

Q It says, under the agency agreement, the company collects all customer payments and remits 95 percent of the collected funds to Novell and retains five percent as an administrative fee. Do you see that?

A I see those words.

Q And the agency agreement that's been referred to is the asset purchase agreement, correct?

A I don't know. I am unaware of any agency relationship.

Q So when Mr. Mohan -- back to 163 -- said, in addition, we will manage the licensing business for UNIX prior to UnixWare 1.0 (SVRX), you didn't understand that that was

825

managing as Novell's agent?

A I didn't understand that there was an agency relationship, no.

Q You understood that -- are you disputing the truth of that sentence, Ms. Madsen?

A I'm not disputing it, I'm just saying I have no knowledge --

THE COURT: Which sentence? The one in the agreement or the one in the 10-K?

MR. JACOBS: Sorry, Your Honor.

BY MR. JACOBS:

Q In addition, we'll manage the licensing business for UNIX prior to UnixWare 1.0. Are you disputing the truth of that sentence, Ms. Madsen, the accuracy of it?

A I think you were saying two different things. You keep talking about an agency relationship, of which I have no specific knowledge, or general knowledge. With respect to Mr. Mohan's statement, he sent out a memo to all employees, so he is giving a general overview of the transaction for that audience. This wasn't prepared for attorneys review or executives review, but for all employees.

Q So it's a simplification?

A I wouldn't disagree with that.

Q As is the sentence we're purchasing the UNIX business from Novell a simplification?

826

A Simplification, sure. It's one sentence that is describing a complicated transaction.

Q A complicated transaction documented in a lot of complicated transactional documents, isn't it, Ms. Madsen?

A I'm sorry. What was the question?

Q It's a complicated transaction documented in complicated transactional documents, the asset purchase agreement?

A It is a complicated transaction, yes, I'll agree with that.

Q So I'm going to hand you SCO Exhibit 1, Ms. Madsen. SCO Exhibit 1 is the asset purchase agreement with its two amendments, Amendment No. 1 and Amendment No. 2. I'll hand to you the last piece of paper in this stack.

A Okay.

Q I would like to -- if we go back to the pie chart a little bit, I would like to start with your understanding of the transaction as refreshed by the asset purchase agreement, or whatever else you have in mind. Let's start with the UNIX portion of this and the portion that was simplified by Mr. Mohan in his sentence, in addition, we will manage the licensing business for UNIX prior to UnixWare?

A Uh-huh. (Affirmative)

Q So if you turn to section 4.16(b) in particular,

827

Ms. Madsen --

A I'm sorry. 4.16(b) of what?

Q Of SCO Exhibit 1, the asset purchase agreement?

A I'm sorry. I thought you had referred me to Amendment No. 2.

Q No. I was just describing the package.

A Oh, okay. Yes.

Q This is about SVRX licenses, correct?

A Yes.

Q And Mr. Mohan, in his message to the troops, refers to managing the licensing business for UNIX prior to UnixWare 1.0 (SVRX)? Do you recall that?

A Yes.

Q 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 written consent of seller. Do you see that?

A I do.

Q Then it says, in addition, at seller's sole discretion and direction, buyer shall amend, supplement, modify or waive any rights under, or shall assign any rights to, any SVRX license to the extent so directed in any manner or respect by seller. Do you see that?

A I do.

828

Q And you've worked on a lot of transactional documents, you had some experience in '95 and '96, you understand the meaning of the words sole discretion and direction, correct?

A I understand what those words mean.

Q They mean that, here, seller, Novell, in its sole discretion and direction, can tell buyer, SCO, what to do under these licenses, doesn't it?

MR. NORMAND: Your Honor, this is calling for a legal conclusion, which is not something I asked.

BY MR. JACOBS:

Q That was your understanding at the time, wasn't it, Ms. Madsen, when your eyes passed over these words?

THE COURT: I will overrule the objection.

THE WITNESS: No, that was not my understanding of the transaction. It was so that it could modify or amend the royalties related to the SVRX license.

BY MR. JACOBS:

Q Do you see that word reflected here, Ms. Madsen?

A No.

Q So are you relying, for your understanding, on the language of the asset purchase agreement or on something else?

A I'm relying on the intent of the agreement.

Q The intent from where? Intent isn't in the air, is it, Ms. Madsen? It comes from somewhere, doesn't it?

829

What are you basing that on? You are in court and you're telling this jury, you are explaining that you think there is an intent to the agreement that's different than these words, right?

A Yes, I'm relying on conversations that were held internally among SCO personnel as well as conversations with Novell.

Q What specific conversations are you relying on with Novell in which somebody said to you, Ms. Madsen, this language is limited -- this language is limited to the binary royalty stream?

A I remember conversations with Novell where Novell was concerned about SCO's financial viability and therefore needed to protect the binary royalty stream as a way to protect its interests in the event that SCO became insolvent.

Q That was a very important concern of Novell, correct?

A It was a concern of Novell's. I can't say how important it was.

Q But in connection with this language, Ms. Madsen -- I want to distinguish, you've been in a lot of negotiations, right? You're an experienced negotiator, yes?

A I have been in a lot of negotiations.

Q Negotiators can talk to each other about what is bothering them at a particular moment, what is of concern to

830

them in a particular moment as a way of explaining to the other side what's going on in their head at that time, right?

A Yes.

Q That may reflect at that moment an intent behind a particular provision?

A Sure.

Q Of course, the language itself may be broader than that specific intent reflected at that particular moment, correct?

A Yes.

Q It's the language that the negotiators intend to control, right, not what they say to each other across the table at that moment? Based on your experience, isn't that right, isn't that what you do with your contracts?

A I'm sorry. I've lost track of what the question was.

Q The question is this: Isn't there -- don't you understand, as a negotiator of contracts, that what somebody says as a concern that may be reflected in some language is different from what the deal is, the deal is what is in the language, isn't it, Ms. Madsen?

A The deal is is what is in the contract. But you have to -- I think you have to look at the contract in the context.

Q Ms. Madsen, just to review where we were on 4.16(b),

831

the language includes, if you truncate it a little bit, in addition, at seller's sole discretion and direction, buyer shall assign any rights to any SVRX license to the extent so directed in any manner or respect by seller. Do you see that?

A I see it.

Q That language, you understood, as your eyes passed over that language in 1995, that that language meant that Novell could direct Santa Cruz to assign rights under an SVRX license to someone else?

A That is not how I understood it in 1995.

Q That's not how you understood the words, Ms. Madsen? That's not how you understood the words of this contract?

A No, that isn't how I understood it.

Q You have a specific recollection of 1995, 15 years ago, you have a specific recollection of your eyes passing over this language and thinking something different from what I just read and said to you?

A I have no specific recollection. I have a general recollection of not understanding the intent to mean how you have interpreted it.

Q So you have no specific recollection of understanding these words differently than the way I just articulated it?

A That's correct.

Q Because the words say that Novell, for whatever reason

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it wants, in its sole discretion, can tell the buyer, Santa Cruz, assign the rights under the SVRX licenses to someone else, that's what the words say?

A Is that a question?

Q Yes.

A That's what the words say.

Q Terrific. That's like an agency, isn't it, Ms. Madsen? That's like when you hire a real estate agent, you know what, you are fired. I don't like the way you are selling my house. I'm going to assign the right to sell my house on my behalf to someone else. Isn't that right, Ms. Madsen?

A No. I really don't know very much about agency relationships, so I couldn't make that statement one way or the other.

Q You never had any relationship with a property manager? Let's say, it's like a property manager, isn't it, Ms. Madsen, where you say to the property manager, you're not doing a good job with these apartments, I'm going to assign your right to be my property manager to someone else? Isn't it like that, Ms. Madsen?

A That's not what I understood this provision to mean.

Q Then if we go back to SCO Exhibit 163, Mr. Mohan's memo to the troops, he says, in addition, Santa Cruz will manage the licensing business for UNIX prior to UnixWare?

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A Yes.

Q That's consistent with the language of section 4.16(b), or 4.16(a), for that matter, if you want to take a look at it, that buyer shall administer the collection -- let's look at (a) for a minute, buyer shall administer the collection of all royalties, fees and other amounts due under all SVRX licenses. Do you see that?

A Yes.

Q Administer, that's pretty close to the word Mr. Mohan used, isn't it, manage?

A Yes.

Q So, in fact, in this particular sentence, you haven't seen anything that's inconsistent in the language of the asset purchase agreement with Mr. Mohan's nice simple sentence, we will manage the licensing business for UNIX prior to UnixWare, correct?

A No, I haven't seen anything inconsistent.

Q Let's turn to the other half of the pie. Let's turn to the UnixWare side of things. Here, Ms. Madsen, I think I'm going to agree with you that this is a simplification from UnixWare, we signed an agreement with Novell whereby we become the owner of the UNIX product line and the UnixWare license for the OEMs. Do you recall that sentence from Mr. Mohan's e-mail?

A I'm sorry, where is that?

834

Yes, I see that.

Q So let's talk about -- let's walk through your understanding of Santa Cruz's role with respect to UnixWare at the time of the asset purchase agreement. Let's see if we can work through this. There are some provisions in the asset purchase agreement. With your knowledge of the APA, I think we can help the jury understand how this works. So let's turn first to 1.2(b) of the asset purchase agreement, SCO Exhibit 1, section 1.2(b). Section 1.2(b), the first half of it is about SVRX royalties. Do you see, Ms. Madsen?

A 1.2(b), yes.

Q Then there's transition about -- I don't know, about ten lines down, in addition, buyer agrees to make payment to seller. Do you see that? It's on the screen.

A Yes. Thank you.

Q Mr. Lee knows the asset purchase agreement intimately by now. It says, on account of buyer's future sale of UnixWare products. Do you see that?

A Yes.

Q So buyer is going to make payments to seller -- Santa Cruz is going to make payments to Novell on account of Santa Cruz's future sale of UnixWare products, that's consistent with your understanding of the agreement, correct?

835

You said if they hit the royalty threshold or the sale threshold, there will be royalty payments, right?

A Yes.

Q It says, that seller is going to sell -- I'm sorry, buyer, Santa Cruz, is going to sell UnixWare products, doesn't it?

A Yes.

Q So there is no doubt under the asset purchase agreement that Santa Cruz was given the right to sell UnixWare, is there?

A No.

Q Then in the next sentence it says, the amounts and timing of additional royalties to be paid in connection with buyer's sale of the UnixWare products are identified in detail on schedule 1.2(b) hereto. Do you see that?

A Yes.

Q Let's go to schedule 1.2(b). In fact, here is the royalty schedule, correct?

A Yes.

Q And down at the bottom below, I think (b) of this schedule, is all the discussion of the various thresholds that have to be met, the forecasts, before the royalties are due. Do you see that?

A No. Where is the forecast?

Q Amount of royalties, including an annual forecast by

836

seller.

A Yes.

Q But if we go up into (a), we understand what the royalty-bearing products that Santa Cruz is going to sell are. Do you see that?

A Yes, I see that.

Q It says, royalties shall be paid on sales of the following products by buyer, buyer's inventory?

A That's correct.

Q It refers to UnixWare, for example, right?

A Yes.

Q So Santa Cruz is going to make payments for its sales of UnixWare, isn't it, in accordance with the schedule?

A Yes.

Q And then down in (v) it says, any derivative, upgrades, updates or new releases of little (i) through Roman (iv) above. Do you see that?

A Yes.

Q So the royalty-bearing products are UnixWare -- among others, are UnixWare and any derivatives, upgrades, updates or new releases of UnixWare, right?

A I see this, but I don't have any specific recollection of what the understanding of this language was at the time. So, I mean, I can read this and say, yes, I see this. But if you're asking me about my knowledge about it, I just

837

don't recall much discussion about this particular provision.

Q But in some cases you have an understanding of the parties' intent that's different from the words as I'm reading them to you. In this case, that is consistent with your understanding of the parties' intent, or at least not inconsistent, correct, Ms. Madsen?

A I just don't remember what the intent was, so I have no reason to believe it's inconsistent.

Q The language, as you see it and as you recall your understanding of the overall intent of the parties, is pretty clear that Santa Cruz is going to be making derivatives, upgrades, updates or new releases of UnixWare, right?

A Yes, that was the intent.

Q Now let's go a little more deeply for just a few minutes so that the jury gets a sense of the overall structure of this agreement. Take a look at section 4.18. Part of the intent of the parties to the asset purchase agreement was that Santa Cruz was actually going to develop a product that was jointly specified by Novell and Santa Cruz, correct?

A Jointly specified by?

Q Yes. The merged product, the specifications for the merged product Novell and Santa Cruz had agreed to, correct?

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A I don't know.

Q Do you see that -- you see the merged product there, right?

A Yes.

Q You had an understanding that there was going to be a merged product developed by Santa Cruz, correct?

A Yes.

Q And it's pretty clear that in this provision, that's what Santa Cruz is going to do, develop the merged product, right?

A Yes.

Q It's given both the right and the obligation to take the assets it's acquiring under the asset purchase agreement and develop a merged product, right?

A Yes.

Q And then it says, in the second sentence, buyer shall use its commercially reasonably efforts to complete the merged product. Do you see that?

A Yes.

Q And the merged product is going to be defined into yet another document that I don't think the jury has seen yet called the operating agreement. Do you see that?

A Yes.

Q Then it sells, buyer shall be entitled to modify the specifications of the merged product. Do you see that?

839

A Yes.

Q It refers to this architecture board that is going to review the specifications of the merged product?

A I do.

Q So although what is happening here, consistent with your understanding of the asset purchase agreement, Ms. Madsen, is that actually the road map, the product road map for Santa Cruz as it relates to the assets its acquiring relevant to UnixWare, that product road map is agreed to by the parties, isn't it?

A I have no knowledge of the product road map.

Q And no knowledge of this part of the asset purchase agreement?

A I remember reviewing this part of the asset purchase agreement, but the details behind this would have been supplied by other groups.

Q There was a road map?

A Okay.

Q You agree with that. It was supplied by others?

A The details to support this provision would have been supplied by others. I have no knowledge of a road map. I don't recall seeing a road map.

Q Fair enough.

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

MR. JACOBS: I have about 25 minutes, Your Honor.

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THE COURT: Okay. Why don't we go ahead and take a recess now.

Ms. Malley.

(Jury excused)

THE COURT: We'll take 15 minutes.

(Recess)

***** Part 2 *****

THE COURT: Are you ready, counsel?

MR. JACOBS: Yes, Your Honor.

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

THE COURT: Where did our witness go?

Go ahead, Mr. Jacobs.

Q. BY MR. JACOBS: Ms. Madsen, over the course of your time at Santa Cruz, various internal issues would arise in which people were needing advice about how to apply the asset purchase agreement day to day; correct?

A. Yes.

Q. And you were involved in the rendering of that advice to the individuals who asked questions; correct?

A. From time to time.

Q. So you had occasion during your time at Santa Cruz to actually sit down with the asset purchase agreement, sort through the provisions, many of which we're discussing today, and figure out how they actually apply to the day-to-day business of Santa Cruz; correct?

A. From time to time, yes.

Q. Let me ask you about, I mentioned this before the break, the operating agreement, Exhibit X5. If you turn to the signature page, Ms. Madsen, you'll see that the agreement was executed by the CEO of Santa Cruz. Do you see that?

A. I do.

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MR. JACOBS: Your Honor, we would move X5 into evidence.

MR. NORMAND: No objection.

THE COURT: X5 will be admitted.

(Whereupon, Defendant's Exhibit X5 was received.)

Q. BY MR. JACOBS: So as I mentioned, Ms. Madsen, I don't think the jury has seen this piece of the package of APA related agreements. But you had seen this around the time of the asset purchase agreement; correct?

A. Yes. I have a general recollection of seeing this.

Q. And the operating agreement is referred to in the asset purchase agreement as one of the other pieces of the transactional arrangement; correct?

A. I believe so.

Q. And in particular, Ms. Madsen, take a look with me -- well, let's go to just the introductory paragraph. Do you see, this operating agreement is made by and between Santa Cruz Operation and Novell?

A. Yes.

Q. And the effective date is the closing date, do you see that?

A. Yes.

Q. And the closing date is the defined term in the asset purchase agreement, but it was actually, I'll represent to you, December 6th, 1995; correct, Ms. Madsen?

842

A. That sounds right.

Q. So now let's look at, product and channel strategy, on Page 5 of X5. And we're talking in the operating agreement about, in this section in particular, about UnixWare. Do you see that?

A. In which section? I'm sorry?

Q. Product and channel strategy, B(i), as the closing date.

A. Yes.

Q. It says: SCO will begin to distribute, offer, promote and market UnixWare through the channel, the distributorship channel that's there.

Do you see that?

A. Yes.

Q. And it says:

Novell will cease distributing UnixWare

product through its indirect channel and cease

signing the distribution agreement.

Do you see that?

A. I do.

Q. So the contract is pretty clear as of the closing date and it is consistent with your understanding that as of the closing date Santa Cruz would be the UnixWare business in terms of actually selling UnixWare products; right?

A. Yes.

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Q. And Novell would, through the mechanisms set forth in the asset purchase agreement and the operating agreement transfer that sales relationship, those customer relationships, to Santa Cruz; correct?

A. Yes.

MR. JACOBS: May I, Mr. Hatch, borrow this for a second?

MR. HATCH: Sure.

Q. BY MR. JACOBS: And when we're talking about UnixWare we are talking about something like this; right, Mrs. Madsen?

A. Wow. I haven't seen this in a long time. Yes.

Q. It's a disk; right?

A. Yep, it is.

Q. So when we talk about distributing UnixWare, we're not talking about anything much more than distributing these packages; right? These disks?

A. I'm sorry. I lost the question.

Q. This is how UnixWare was distributed in 1995-1996, on a disk; right?

A. Umm, you know what, I don't know that that was the only way that it was distributed. We may have -- we may have distributed it electronically. I'm not sure.

Q. Okay. So let's go on and see if this refreshes your recollection about how all of this was going to occur.

844

This specifies, first of all, as we began that Santa Cruz is, in fact, going to distribute and market UnixWare; correct?

A. Yes.

Q. And that was your understanding at the time?

A. That was my understanding at the time.

Q. And it is clear in the contract, isn't it, that that's one of the rights and obligations of Santa Cruz, to distribute the UnixWare software?

A. Yes.

Q. And so there's no -- you don't see any -- you didn't have any at the time, there was never any issue, Santa Cruz had permission from Novell to distribute UnixWare?

A. That's right. That was one of the fundemental pieces of the asset purchase agreement. We were acquiring all right, title and interest in UnixWare.

Q. Now, if you look at little (b) little iv, Roman iv.

A. Yes.

Q. It says:

SCO will continue to offer OpenServer Release V in conjunction with the UnixWare 2x after the closing date.

Do you see that?

A. I do.

Q. So that was the legacy, the older Santa Cruz

845

product, and now it's going to be -- and this is making clear and this is your understanding that both products would be in distribution after the closing date?

A. Yes.

Q. You know what, Ms. Madsen. I don't believe in trick questions. So if I'm going to ask you a trick question, I'll raise my hand and warn you in advance, okay? So for the moment I just want to walk you through your understanding of the asset purchase agreement at the time and how the contract worked, okay?

A. Okay.

Q. So in the next sentence:

Additionally SCO will begin offering Eiger binary and source offerings.

Do you see that?

A. Yes.

Q. So there is explicit grant or permission for SCO to offer the Eiger release. Do you see that?

A. You know, I'm uncomfortable with the word permission. But it does reflect the intent that SCO would be offering Eiger binary. I don't know that we needed permission.

Q. But it certainly could be understood as both a right and obligation under the contract to do that; right? To agree to offer Eiger binary and source offerings?

846

A. It was SCO's intent to offer Eiger binary and source offerings, yes.

Q. And then in the next sentence we're talking about the merge product. Do you see that?

SCO will also offer a binary and source offering of the merged products.

A. Right.

Q. So at the time in the first half of 1997?

A. Yes.

Q. So that's an explicit permission about SCO's offering of the merged product; right?

A. Again, I don't -- I'm not comfortable with the word permission. I don't see where this is permission. It's stating what SCO intends to do. It will offer binary and source offerings of the merged product.

Q. And Novell is agreeing that that's what Santa Cruz will do.

A. Yes.

Q. Now, if you turn to Page 6 of the operating agreement, product packaging.

A. Uh-huh (affirmative).

Q. This is back to our disk package.

A. Uh-huh (affirmative).

Q. Commencing after the closing date, SCO plans to sell the UnixWare 1.1 and the

847

UnixWare 2.x product and may use existing Novell inventory with the SCO sticker on it.

Do you see that?

A. I do.

Q. So that's how the distribution will occur right after the closing date; right?

A. I see that, yes. Again, I really don't have any specific knowledge about our distribution processes.

Q. You recall the operating agreement?

A. I recall the operating agreement.

Q. You recall picking up the operating agreement from time to time to understand the party's rights and obligations under the asset purchase agreement?

A. I do.

Q. Next sentence, Ms. Madsen.

A. Yes.

Q. Once this stock is exhausted, SCO will be responsible for manufacturing all products in the UnixWare 1.1 and UnixWare 2.x product family.

Do you see that?

A. Yes. Yes.

Q. And so once again, the operating agreement is quite clear at this moment in time, that is, once the stock is exhausted, SCO is going to manufacture; right?

A. Yes.

848

Q. SCO is going to take these, re-using this distribution mechanism, SCO is going to cut the disks; right?

A. Yes.

Q. The contract is clear that SCO has both the right and obligation to do that, isn't it?

A. Yes.

Q. No issue ever came up between the parties with respect to this question of whether SCO would actually have a right to make disks of UnixWare, did it?

A. Not that I'm aware of, no.

Q. Mr. Normand asked you about Amendment X. Do you recall this question on that subject?

MR. NORMAND: Your Honor, that's not true.

THE WITNESS: No. I don't recall any discussion of Amendment X.

Q. BY MR. JACOBS: Do you recall Amendment X?

A. I do.

Q. That was the amendment between Santa Cruz, Novell and -- Santa Cruz and Novell that resolved the dispute about the IBM buyout; correct?

A. Yes.

Q. And you were involved in that dispute?

A. Yes.

Q. And you were involved in some way in Amendment X; correct?

849

A. Yes.

Q. And Mr. Normand is correct. I'm refreshed, my recollection is refreshed. We didn't talk specifically about Amendment X. You didn't talk with Mr. Normand about that, but you did talk about the IBM dispute; correct? The buyout dispute?

A. I do remember that giving rise to Amendment 2.

Q. Do you recall it giving rise to Amendment X, also?

A. I do, yes.

Q. So let me hand you this. This is O8.

And if you'll turn to the signature page for Santa Cruz you'll see that Steve Sabbath signed this agreement. Do you see that?

A. Yes.

MR. JACOBS: Your Honor, we offer O8 into evidence.

MR. NORMAND: No objection, Your Honor.

THE COURT: It will be admitted.

(Whereupon, Defendant's Exhibit O8 was received.)

Q. BY MR. JACOBS: Now, Ms. Madsen, if you look at the top of this document, you'll see it's, International Business Machines Corporation, The Santa Cruz Operation, Novell. Do you see that?

A. I do.

Q. And then if you look at the next several lines, it says:

850

Amendment Number X to software agreement SOFT-00015.

Do you see that?

A. I do.

Q. You became familiar with the structure of the old AT&T UNIX licensing system that applied to companies like IBM that were in the business of creating their own flavor of UNIX; correct?

A. Marginally familiar. I relied on other people who had greater familiarity to inform me about those agreements.

Q. Were you familiar with what a software agreement SOFT-00015 would contain? Let me help you.

A. At that time, yes, I would have. But as I sit here today, I have no specific knowledge of the contents of that agreement.

Q. Do you recall that the software agreement SOFT-00015 is kind of a master agreement in that the sublicensing agreement and the supplements are part of a package with the software agreement?

A. I remember that there was a master, and then there was a supplement, but I don't remember which was which.

Q. So you don't recall which agreement was the software agreement, the sublicensing agreement and the agreement, do you?

A. No. Not as I sit here today, no.

851

Q. So in conjunction with the asset purchase agreement, if we go back to 4.16(b) or 4.16(a), when it refers to SVRX licenses in the asset purchase agreement, you don't have an opinion one way or another whether it's referring to the entire package of agreement, the software agreement, the supplement and the schedule or pieces of those agreements, do you?

A. It was my understanding that it related to a subsection of the agreement relating to the distribution of binary royalties.

Q. And that was your understanding as you worked at Santa Cruz?

A. That's correct.

Q. In the legal department of Santa Cruz?

A. Correct.

Q. Under Steve Sabbath?

A. Yes.

Q. The lawyer at Santa Cruz?

A. Yes.

Q. Who signed the agreement?

A. Yes.

Q. Hand up. Take a look at Recitals on O8.

A. Yes.

Q. Do you see there the Recitals, the first sentence of the recitals?

852

A. Uh-huh (affirmative).

Q. AT&T and IBM entered into various software license agreements concerning the software product UNIX System V Release 3.2.

Do you see that?

A. I see that language.

Q. Which are software agreement, SOFT-00015 as amended.

A. Uh-huh (affirmative).

Q. That's the software agreement; right?

A. Yes.

Q. Sublicensing agreement SOFT-00015 as amended. Do you see that?

A. Yes.

Q. And then software agreement SOFT-00015 Supplement Number 170 as amended.

Do you see that?

A. Yes.

Q. Or any other supplements that pertain to --

THE COURT: Mr. Jacobs, will you slow down when you start reading?

MR. JACOBS: Sure.

Q. BY MR. JACOBS: Or any other supplements that pertain to prior versions or releases of the software product.

853

Do you see that?

A. Yes.

Q. And substitution agreement XFER-00015B.

A. Yes.

Q. And then that's all the defined terms in related agreement.

Do you see that?

A. I do.

Q. And then it says: Novell acquired AT&T rights under the related agreement.

Do you see that?

A. Yes.

Q. And then it says:

In an agreement between Novell and SCO dated September 19, 1995, the asset purchase agreement, SCO purchased and Novell retained certain rights with respect to the related agreements.

Do you see that?

A. I do.

Q. That makes clear, does it not, that Novell retained rights with respect to the supplements, the sublicensing agreement and the software agreement? Doesn't it, Ms. Madsen?

A. No, I don't believe so; because the first sentence is talking about the agreements that were entered into between IBM and AT&T, and the second sentence is saying that Novell

854

retained certain rights with respect to the agreements, but it doesn't say which ones.

Q. Okay. So you're reading that and your understanding at the time is that it retained certain rights with respect only to some of the related agreements?

A. I don't know -- I mean, without looking at these agreements it's really hard for me to talk about the specifics of the sublicensing agreements and the software agreements and the supplements.

Q. All right. Fair enough, Ms. Madsen.

Let's go back, then, to SCO Exhibit 1.

You testified in your direct examination as to your role in the original asset purchase agreement. Do you recall that back and forth with Mr. Normand?

A. Yes.

Q. And by the original asset purchase agreement meaning the version that was signed on September 19th, 1995.

A. Yes.

Q. Do you recall that back and forth?

A. Yes.

Q. There is a section in this agreement, Section 1 in Article One that defines what's going to Santa Cruz and what's being kept by Novell; right?

A. Yes.

Q. It's the purchase of asset section; right?

855

A. Yes.

Q. And you understood that at the time?

A. Yes.

Q. So my hand is up again. You have a specific recollection as you sit here today of understanding that 1.1(a) was the purchase and sale of assets provision that governed the -- what Novell would sell to Santa Cruz and what Novell would retain?

A. Well, I think the entire agreement talks about what is being conveyed. So, I mean, I hesitate to just pluck out one sentence and say that captures in its entirety what assets are being transferred.

Q. My question was a little different. I'm trying to figure out what exactly you remember about 1995, 15 years ago, versus what looking at the agreements, trying to understand the general context, you're trying to think what must have happened --

A. Yes.

Q. -- back in 1995?

A. Yes.

Q. That's the thrust of my question.

A. Yes.

Q. So is it more the former or more the latter? What you specifically remember or what you're able to reconstruct and say must have happened based on the documents and the few

856

things that you do actually remember?

A. It's both. And it would be hard for me, you know, to draw a bright line between the two. But it's both.

Q. All right. Then let's go through this a little bit. You understood that Section 1.1(a) says that Novell is going -- in a nutshell it says that Novell is going to sell to Santa Cruz the assets identified on Schedule 1.1(a), but there's a Schedule 1.1(b). And Schedule 1.1(b) is controlling as to what is excluded; correct, Miss Madsen? You understood that?

A. Well, I understood that the two worked together.

Q. Well, that you understood that the language, not withstanding the foregoing, means that the excluded asset sentence, if you will, is more powerful than the included asset sentence; right?

A. No, I would disagree with that characterization. The excluded assets might modify, but more powerful? No, I wouldn't agree with that characterization.

Q. In your understanding and belief, sometimes lawyers talk about one provision trumping another provision? Isn't it true that the excluded asset schedule trumps the included asset schedule if there's a disagreement between the two?

A. I don't know.

Q. You don't know what, not withstanding the foregoing, meant or means?

857

A. I understand what that means, yes.

Q. Notwithstanding the foregoing, because now you do a lot of contracts, so now you know when somebody writes, notwithstanding the foregoing, the mean --

A. However.

Q. However, or, forget what came before because if this next sentence says something different, it's this next sentence that applies; right?

A. That is my understanding of the clause, not withstanding the foregoing. It's making an exception to what was previously stated. But I wouldn't use that statement to say something blatantly contradictory.

Q. You don't think, notwithstanding the foregoing, means, I mean -- let's go back to 1995. What did you understand, then, when your eyes passed over this provision about the words, not withstanding the foregoing?

A. That the excluded assets is modifying the including. So there's a however. You get this, however, there might be, you know, an exception.

Q. And you don't get what's in the exception?

A. Right.

Q. Okay. So now let's look at the excluded assets schedule as the agreement was signed on September 19th, 1995.

A. Okay.

Q. You testified that you were present at meetings

858

between Santa Cruz representatives and Novell representatives?

A. Yes.

Q. You were present at business level meetings involving people like Ed Chatlos and Mr. Wilt and other business level negotiators. You were actually at those meetings?

A. I was. I can't say that I was at all of them, but I was present at some of them.

Q. And you were also present when the legal teams met to negotiate the final change of the asset purchase agreement; correct?

A. Correct.

Q. And in those meetings, it was really legal team to legal team, wasn't it, Ms. Madsen?

A. No, not exclusively. The business team was also present during many of those meetings.

Q. Let's talk about the week leading up to the signing of the asset purchase agreement. Do you recall those meetings?

A. Yes.

Q. Those were at the Brobeck, Phleger & Harrison office in Palo Alto?

A. Yes.

Q. And the legal teams met face to face; correct?

A. They did.

859

Q. And drafts were exchanged back and forth.

A. Yes, they were.

Q. Including drafts of the excluded assets schedule?

A. I don't remember specifically the excluded asset schedule, but, yes, I'm sure that it was.

Q. And that's a classic example of, you don't have a specific recollection, but surely they must have been exchanged back and forth; right?

A. Well, I remember, you know, the agreement being exchanged back and forth. I don't remember when a specific schedule was exchanged. But I remember the contract packet being exchanged.

Q. Do you have a specific recollection of your eyes passing over the excluded asset schedule before the agreement was signed?

A. I have a general recollection, but not a specific recollection.

Q. So general recollection that you're present in the room, the drafts are flying back and forth, people are working hard because there's deadline, isn't there --

A. Yes.

Q. -- to sign it?

By the way, where did the deadline come from?

A. I believe that we needed to get the transaction finalized prior to a scheduled board meeting --

860

Q. Of --

A. -- that Novell had.

Q. That's your recollection?

A. That's my recollection.

Q. It didn't come from the Santa Cruz side as you recall? The time pressure?

A. I know that the Santa Cruz operation was anxious to get the deal done, but I don't remember them setting the specific timeline.

Q. So the Santa Cruz side wants to get the deal done and is anxious to do so?

A. Absolutely.

Q. The excluded asset schedule goes back and forth between the parties, yes?

A. I believe so.

Q. But you don't have a recollection as you sit here today of looking at the excluded asset schedule and in particular the intellectual property section that so much of this case revolves around; correct?

A. No.

Q. So you don't recall as you sit here today that you read and thought, oh, this must be related to NetWare?

A. I don't have that specific recollection, no.

Q. Do you have a general -- I'm not sure -- we'll have to figure out what we mean by specific versus general. But do

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you have a general recollection of that? And I should put my hand up again.

A. I have a general recollection of reading this asset schedule, but I cannot recall what I thought about it in 1995.

Q. You had occasion to look at this excluded asset schedule again well before this dispute arose; correct? The dispute between -- this dispute in this courtroom.

A. Yes.

Q. Did you look at it in connection with the negotiations around Amendment Number 2?

A. Yes.

Q. Did you look at it and did you conclude that when it was referring to intellectual property and all copyrights and trademarks it must be referring -- it was referring -- I'll withdraw the must be and ask was -- it was referring to network copyrights?

A. I'm sorry. I'm not sure I understand your question.

Q. It wasn't a very good one. Let me start over.

When you looked at the excluded asset schedule in the period following the exclusion of the asset purchase agreement for whatever purpose in your business role --

A. Uh-huh (affirmative).

Q. -- at Santa Cruz and you came across Roman V, intellectual property, all copyrights and trademarks except

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for the trademarks UNIX and UnixWare, did you conclude, did your mind go, oh, that's excluding the NetWare copyrights?

A. I don't know. I know that we modified this, but I don't recall saying, oh -- I don't know.

Q. No recollection as you sit here today in this courtroom of reading this provision and thinking, this is referring to NetWare?

A. SCO understood that the copyrights were being transferred, so I wasn't looking at this provision in that context. I mean, I just don't have any specific recollection of thinking, oh, you know, this is NetWare. It's the copyrights for UNIX and UnixWare were being transferred as part of the asset purchase agreement.

Q. Well, sort of actually, your last fragment there is relevant to the next question I was going to ask, which is, you see it says, except for the trademarks in UNIX and UnixWare; right? Do you see that?

A. Uh-huh (affirmative).

Q. Now the trademarks in UNIX, that doesn't have anything to do with NetWare, does it?

A. No. I have no reason to think so. No.

Q. So when we're talking about excluding all copyrights and trademarks except for the UNIX and UnixWare, we must be talking about UNIX -- we must be talking at least in part about intellectual property relating to UNIX; correct?

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A. I'm sorry.

Q. When it says except for the trademarks UNIX --

A. Yes.

Q. -- that's referring to UNIX intellectual property; right?

A. It's referring to the trademark UNIX.

Q. And that's UNIX intellectual property, not NetWare intellectual property; correct?

A. Yes.

Q. So this section must be dealing with, at least in part UNIX intellectual property; correct?

A. At least in part, yes.

Q. So when it says, all copyrights and trademarks, it just doesn't make any sense to have understood it as your eyes were passing over it in 1995 or 1996 as referring to NetWare, does it?

A. This provision doesn't make any sense, is the problem.

Q. Can you answer my question? It doesn't make any sense that when your eyes passed over this in 1995 or 1996, you would have understood it as NetWare copyrights and trademarks?

A. I didn't say that it did.

Q. And it wouldn't have made any sense to you, would it?

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A. I don't know. I mean, I just -- I don't know how I was thinking about NetWare at that time.

Q. Let me approach the topic this way. At the end of your direct examination, Mr. Normand asked you whether over the course of your tenure at Santa Cruz you understood that the UNIX copyrights were required for Santa Cruz to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies?

A. Yes.

Q. I may have reformulated a little bit from the way he asked it.

A. Yes.

Q. And I believe I heard that you said in response, we acquired the UNIX copyrights. Do you recall that answer?

A. That sounds right.

Q. So let me ask his question again. Over the course of your tenure at Santa Cruz, did you understand that Santa Cruz required the UNIX copyrights to exercise its rights with respect to the acquisition of the UNIX and UnixWare technologies?

A. Yes.

Q. Did you understand that requirement to exist when you were sitting there at the negotiating table in connection with the asset purchase agreement as originally signed on September 19th, 1995?

865

A. Yes.

Q. So let's see if we can set the stage. You're there at the negotiating table. There are lawyers from both sides, Wilson Sonsini lawyers; right?

A. Yes.

Q. Brobeck, Phleger & Harrison lawyers; right?

A. Yes.

Q. The Brobeck lawyers representing Santa Cruz; right?

A. Yes.

Q. The Wilson lawyers representing Novell?

A. Correct.

Q. You never had any doubt about the legal team in that transaction?

A. No.

Q. Brobeck lawyers were well recognized as outstanding lawyers in the mid '90s in Silicon Valley; right?

A. I believe so.

Q. And you're sitting there and you're thinking, we require the UNIX copyrights in order for this UNIX, UnixWare business to be successful.

A. Yes.

Q. And a schedule comes across the table, and the schedule says it excluded assets, intellectual property, all copyrights, and no one catches it. You don't catch it, the Brobeck lawyers don't catch it, Steve Sabbath doesn't catch

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it, nobody catches it. You're sitting there thinking it's required --

A. Yes.

Q. -- but you don't catch it; right?

A. Yes; because the entire asset purchase agreement is contrary to this one statement. So we were looking at this in its entirety, and we just didn't notice that this statement really didn't make sense. It's an asset purchase agreement, not a license agreement.

Q. It's a complicated transaction; right, Ms. Madsen?

A. It is a complicated transaction, yes.

Q. And what's included in the included asset schedule is superceded if there's a disagreement by what's excluded by the excluded asset schedule.

A. Well, we just talked about this a little bit. It modifies it. You wouldn't put, I'm giving you this and then I'm taking the exact same thing away, in two different schedules. It would be, I'm giving you this. However, you know, there's an exception to this.

Q. So let's see what we were giving on the included assets, Roman V, on the included asset. Schedule 1.1(a), Roman V.

So here's a specific provision in the included asset governing intellectual property; right, Ms. Madsen?

A. Yes.

867

Q. And copyrights aren't listed there?

A. Correct.

Q. Trademarks UNIX and UnixWare are listed.

A. Yes.

Q. Now, if we put the included assets sort of back to back against the excluded assets, they mesh quite well, don't they, Ms. Madsen? That is, copyrights aren't listed under intellectual property in V, and copyrights are excluded on the excluded asset schedule. The trademarks UNIX and UnixWare are entirely consistent between the two provisions; right?

A. Yes.

Q. So let me ask you the same question again. It's 1995. You have in your head that copyrights are required, essential, not optional, not nice to have, not a good thing to keep around in case you have to go file a lawsuit, required to exercise your rights. And you look at the included assets under intellectual property, and no one on the Santa Cruz legal team notices copyrights aren't on the included assets, either?

A. Yes. Copyrights -- because copyrights were always understood to be transferred. And I have a specific recollection that the reason why this statement was inserted was because of the transaction between Novell and X/Open regarding the trademark UNIX. So they wanted to clarify that.

Q. Let me offer you --

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A. There was no need to clarify that the copyrights were transferring because everybody understood they were transferring.

Q. Let me offer an alternative explanation. We've talked a little bit about memory, Ms. Madsen, and how you can be in the courtroom and you're trying to think what happened back 15 years ago, and it's a mix of specific recollections and general recollection and what must have happened.

A. Right.

Q. So let me offer you an alternative explanation. You've been in the business of UNIX, the company Santa Cruz, for I think 12 years without owning the underlying UNIX copyrights but successfully selling OpenServer; right?

A. Yes.

Q. And you're now going to get, an important part of what you're going to get is another flavor of UNIX, UnixWare; right? According to Mr. Mohan in his summary, we're going to own UnixWare product line.

A. Yes.

Q. So UnixWare is another flavor of UNIX; right?

A. Yes.

Q. And so we're going to be in the flavor business again. We don't need ownership of the UNIX copyrights in order to be in the flavor business.

Isn't that a more plausible explanation,

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Ms. Madsen, of how legal teams on both sides could have left the asset purchase agreement the way it was?

A. No.

Q. Well, you know, Mr. Sabbath disagrees with you in a sworn declaration; right?

MR. NORMAND: Your Honor, obvious hearsay.

THE COURT: Sustained.

Q. BY MR. JACOBS: Ms. Madsen, are you aware of a declaration that Mr. Sabbath, your superior, signed under oath under penalties of perjury --

MR. NORMAND: Same objection, Your Honor.

Q. BY MR. JACOBS: -- in December of 2003?

THE COURT: The Court will sustain the objection.

Q. BY MR. JACOBS: Ms. Madsen, who was Mr. Sabbath again?

A. Mr. Sabbath was the senior vice-president law in corporate affairs and my boss.

Q. And so he's the actual lawyer, the in-house lawyer on the deal; right?

A. He is.

Q. And he has many years at that time of software and software licensing and copyright experience; right?

A. Yes.

Q. And he's an experienced lawyer in dealing with UNIX-related issues because SCO has had this OpenServer

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business for a while.

A. Yes.

Q. And Mr. Sabbath did not speak up during the asset purchase agreement negotiations and say, wait a minute, why is Novell retaining all copyrights under the excluded asset schedule? You have no memory of that; right?

A. I have no memory of that.

Q. By the way, the same is true for the next three months, isn't it, Ms. Madsen, after the asset purchase agreement is signed?

A. Because we believed that the copyrights were transferring, there would have been no need to speak up.

Q. So, Ms. Madsen, there's now a team of lawyers again on both sides. They have all the time in the world compared to the closing of the asset purchase agreement -- I'm sorry -- the signing of the asset purchase agreement; right? They have three months to look at this document?

A. No. That's an unfair characterization because during that three months, we were conducting all of the transition activities as well as that closing check list that Mr. Normand showed. So, I mean, there was still a lot of activity and not a lot of leisure to reflect on missed language in an agreement.

Q. If you go to Amendment Number 1 as part of SCO's Exhibit Number 1, and you've seen this before, Miss Madsen, I

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believe, you know that, in fact, the excluded asset schedule was modified?

A. Yes.

Q. And the included asset schedule was modified?

A. Yes.

Q. And so attention was paid to the included asset schedule during the follow three months.

A. It was.

Q. And there were adjustments made to make it; right?

A. Yes.

Q. And this specific exclusion, all copyrights and trademarks, was not adjusted; correct?

A. Correct.

Q. So surely you would agree with me that there was more time that one could spend on the asset purchase agreement and, if I will, its details over the months after the asset purchase agreement than during the week just before signing.

A. Yes. I agree that there was more time.

Q. And yet --

A. That's the question.

Q. -- in that period of time Mr. Sabbath didn't raise his hand and say, there's a bug here. We meant to get the copyrights, but it excludes all copyrights.

A. No, he didn't.

Q. He didn't do that?

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A. No, he didn't.

Q. And you agree with me there is a bug.

A. I agree that that language is unclear.

Q. And so I'll ask you my question again. Here's an experienced software lawyer. He's been in the business for years and years. He's been in the UNIX business, and there are two possibilities. He along with everybody else blew it or their eyes passed over it. They understood it, and they said, we're going to be in the UNIX flavor business. We don't need to own the UNIX copyrights. And your testimony is that the former is the better explanation.

A. I lost the question in that.

Q. And I loved it. So I'm sorry. I'll have to try it again.

We have Mr. Sabbath looking at the asset purchase agreement in Amendment Number 1 and not catching the bug in the period leading up to Amendment Number 1; right?

A. Correct.

Q. And in that period the lawyers and Mr. Sabbath and yourself all have additional time to focus on the excluded asset schedule.

A. We had a lot of things that we were working on. But, yes, we did have some time to create Amendment 1.

Q. And there's two possibilities, at least in my view. One possibility is that you and your colleagues on the Santa

873

Cruz side, leave aside the Novell people who were going to go with the business like Mr. Levine, the people on the Santa Cruz side didn't catch what you regard as a mistake in the drafting during that period.

A. Yes. I mean, mistake, the drafting, yes. It certainly could have been more clear. And we did not correct that, no. We didn't catch it.

Q. And your explanation is, everybody on the Santa Cruz side, people you had trust and confidence in, including your boss Mr. Sabbath, blew it.

A. Blew it. I don't want to say my former boss blew it. I would say that, yes, that was overlooked. But everyone understood that the copyrights were transferred. The Novell people that came over to the Santa Cruz Operation understood that the copyrights were transferred. It just wasn't in our mind to clarify the agreement.

Q. It wasn't in your mind to read the excluded assets closely?

A. Not with respect to copyrights, no.

Q. So that's your explanation, and you reject the explanation, again, trying to put all these pieces of the puzzle together and figuring out actually the relevant question in this lawsuit, what copyrights are required, you reject that explanation, that explanation being that Santa Cruz had been in the UNIX flavor business. It had not owned

874

copyrights to the UNIX operating system. In order to be in the flavor business, now they were going to be in a second flavor, UnixWare, and the negotiators thought to themselves, we can live with this. We don't need ownership of the copyrights because we have all the permissions we need in the asset purchase agreement to carry on the business of UnixWare.

A. No, that was not my understanding at all. SCO wanted to unify UNIX. It wanted to be the UNIX company. It wanted all rights to the UNIX, and it wanted to be able to enforce and protect its intellectual property rights. The copyrights would have been essential to that. And we wanted to be able to take action such as we did with the European union with respect to Microsoft, and we needed the copyrights to do that, as well.

Q. And it was just -- to sum all of this up, then, your testimony is that as of the exclusion of the asset purchase agreement on September 19th, 1995, the execution of the closing documents including the bill of sale on December 6th, 1995, as of that period, Santa Cruz and yourself thought that the copyrights in UNIX were essential, were required for SCO to carry out, to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies, and nobody on the SCO side caught the fact that the excluded assets schedule includes all copyrights.

A. Yes.

875

Q. And your testimony to that effect is not in any way called into question in your mind by what you understand Mr. Sabbath believes to have been as stated in a sworn declaration.

MR. NORMAND: Same objection, Your Honor.

MR. JACOBS: Your Honor, I believe I can impeach with an out-of-court statement. And I can show the witness the declaration, and I can ask her whether it affects her understanding.

MR. NORMAND: I don't think that's right, Your Honor.

MR. JACOBS: And it will be referred to in Mr. Sabbath's videotaped deposition. SCO isn't calling him live, but it will be in the videotape.

MR. NORMAND: Same objection, Your Honor.

THE COURT: I will sustain the objection.

Q. BY MR. JACOBS: Ms. Madsen, just to clarify a few things about the exhibits Mr. Normand asked you about. So he asked you about SCO Exhibit 30, and in particular he asked you about a paragraph that the SCO side had put a bracket around on Mr. Mohan's letter. Do you recall that?

A. Yes.

Q. 1456, Mr. Lee.

It refers to the acquisition of UNIX technologies.

A. Yes.

876

Q. Now, you understood that, in fact, Santa Cruz was acquiring UNIX source code from Novell; correct?

A. Yes.

Q. And you know enough about this dispute that's arisen to know that there's never been any question that Santa Cruz rightfully acquired the actual physical source code; correct?

A. I haven't heard that there's been any dispute with respect to source code, no.

Q. So when it refers to acquisition of the UNIX technologies, that could simply be referring to the acquisition of UNIX source code, couldn't it?

A. It could. That wasn't my understanding of the transaction, but it's not rendered inaccurate by that.

Q. So now let's look back at the asset purchase agreement just for a minute, and let's look at the provision governing the technology license agreement, which is in 1.6. And this is a license back of assets. Do you see that?

A. Yes.

Q. Concurrent with the closing, buyer shall execute a license agreement under which it shall grant to seller a royalty free perpetual worldwide license to all of the technology including the assets.

Do you see that?

A. Yes.

877

Q. Now there was technology included in the assets; right? There was source code included in the assets.

A. Yes.

Q. And this license, then, would license Novell to have access to and use the source code; right, Ms. Madsen?

A. Correct. However, if it retained the copyrights, it wouldn't have needed such a license.

Q. Well, are you aware, Ms. Madsen, that Novell has actually written to SCO and said under the technology licensing agreement, we have a right to access the source code because we have a license back, we retained a license to the technology included in the assets, and that Novell actually asked to get a copy of the source code under that provision? Are you aware of that?

MR. NORMAND: Your Honor, I think that's both hearsay and best evidence problem.

MR. JACOBS: I'm asking her if she's aware, Your Honor.

THE COURT: I'll overrule the objection.

THE WITNESS: To which letter are you referring and what's the time frame and --

Q. BY MR. JACOBS: You're not aware of it, are you, Ms. Madsen?

A. Well, you haven't given me enough detail about the letter to say one way or another.

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Q. Fair enough.

It again then goes on, let's stay on with this for a minute:

All derivatives of this technology included in the assets including the Eiger product release.

Do you see that?

A. Yes.

Q. And such licensed back technology to be referred to collectively as licensed technology.

Do you see that?

A. Yes.

Q. Now for the terms of the Eiger product release, that was one of the evolving products that Santa Cruz was supposed to pursue; correct?

A. Yes.

Q. And Santa Cruz would, as you understand the way the mechanics of ownership works in the software business, you understood that at the very least Santa Cruz would own the copyright in the code that Santa Cruz wrote; correct?

A. It would own a copyright in the new product that it created, yes.

Q. And so this provision makes sense as you sit here today or as you looked at it in 1995, this provision makes sense even if Novell owns the underlying UNIX copyrights because the derivatives Santa Cruz would own, and Novell would

879

get a license of the derivatives.

A. But that's not what this provision states.

Q. It says, all derivatives of the technology included in the assets, doesn't it?

A. It does. But it also says, all technology included in the assets.

Q. And if we want to know what technology was included in the assets as of the asset purchase agreement of September 1995 --

A. Right.

Q. -- we should go look at the included assets and throw out what's in the excluded assets; correct?

A. No.

Q. We shouldn't do that? Isn't that how assets is defined in this agreement, Ms. Madsen?

A. I'm sorry. I'm really trying to understand your question here. I'm not trying to be obtuse. But I'm not sure what you're asking me.

Q. I'm asking you for your understanding because you've testified that you have to look at this as a whole.

A. Yes.

Q. You have to make it all work.

A. Yes.

Q. And I'm just asking you, can you make it all work under my alternative explanation?

880

A. No, I can't.

Q. Because you reject the idea that Novell would want a license to all of the technology included in the assets when the technology includes the source code, Ms. Madsen?

A. Yes.

Q. And you reject the idea that Novell would want a license to all derivatives of the technology included in the assets --

A. No. It's not that I reject that. It's just that this gives them broader rights than what they would have needed if they retained the copyrights. So it would make sense if they said, we want, you know, future versions, we want the derivatives. But here they're talking about they want a license back of all technology. But if they retained the copyrights, they wouldn't need that.

Q. And that's because as a legal matter, Ms. Madsen, your understanding is that the word technology equals the word copyrights?

A. Well, it's a portion of that.

Q. So if we go to the included assets and we go to the excluded assets to see under the plain language of the asset purchase agreement of September 1995, isn't it true, Ms. Madsen, that all of the technology included in the assets included the source code to UNIX?

A. Well, if I could look at that provision again.

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But, yes, I believe that's correct.

Q. So at the very least, Novell got a license back to the source code in UNIX; right, Ms. Madsen?

A. I believe so.

Q. Now, a couple of other exhibits that Mr. Normand asked you about.

The settlement agreement between Santa Cruz Operation and Microsoft, SCO Exhibit 199.

A. Yes.

Q. Novell had no role in that; correct?

A. I don't know. I have a general recollection that SCO may have apprised Novell of this. Certainly Duff Thompson who was Novell's representative on SCO's board, would have known about this.

Q. By the 29th of May, 1998, Duff Thompson was no longer a Novell representative; correct, Ms. Madsen?

A. I don't know when Duff departed the board. But discussions regarding this were prior to that, so I'm not sure when he left.

Q. Let me sharpen up my question. No one at Novell legal reviewed Recital B, SCO has acquired AT&T ownership of the copyright.

A. Not that I'm aware of, no.

Q. And same question with respect to SCO Exhibit 127, the filing with the European union, which Mr. Normand asked

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you about. No one in Novell legal reviewed that document; correct?

A. No, not to my knowledge.

MR. JACOBS: No further questions, Ms. Madsen.

THE COURT: Mr. Normand?

REDIRECT EXAMINATION

BY MR. NORMAND:

Q. Thank you for your patience, Mrs. Madsen.

Mr. Jacobs finished or nearly finished by asking about the technology license agreement. Do you recall that?

A. Yes.

Q. And he showed you repeatedly the word license in that document.

A. Yes.

Q. Do you recall there being the word license in the asset purchase agreement with respect to Santa Cruz' rights?

A. No.

Q. Mr. Jacobs asked you about a bug, as he called it, in the excluded assets provision in the APA. Do you recall that question and answer?

A. Yes.

Q. To your understanding, was the bug subsequently fixed?

A. Yes.

Q. In what form?

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A. Amendment Number 2.

Q. Did Mr. Sabbath ever express to you any dissatisfaction with the way the bug had been fixed?

A. No.

Q. Did Santa Cruz shortly after Amendment Number 2 represent that it owned the UNIX copyright?

A. It did in the Microsoft filing -- or the filing with the European union.

Q. And was that representation consistent with your understanding of what assets Santa Cruz had acquired?

A. Yes.

Q. Now, do you recall questions about this box and this disk?

A. Yes.

Q. Is there intellectual property in here to your understanding?

A. Yes.

Q. And do you recall being asked a hypothetical about contract interpretation?

A. Yes.

Q. Do you recall being asked about whether copyrights are required?

A. Yes.

Q. Let me give you a hypothetical. Let's say you're Santa Cruz in the hypothetical, and I'm a licensee. In that

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hypothetical do I have to have a contract with you?

A. Yes.

Q. In order to acquire this I need to execute a contract?

A. Correct.

Q. Let's say I give this to Mr. Hatch. He's not a licensee. Just a good citizen of Utah.

A. Yes.

Q. Can you sue me for breach of contract?

A. Yes, I can.

Q. Can you sue him for breach of contract? Do you have a contract with him?

A. No, I don't.

Q. On what basis could you enforce rights against him? Would you need intellectual property to do that?

A. I would. I would need to look to copyright law.

Q. Is that what's happening in connection with the Microsoft dispute? You were exercising intellectual property rights that were required in your view to operate the business?

A. Yes.

Q. Now, do you recall being asked about the operating agreement that was signed in 1995?

A. I do.

Q. Mr. Calvin, can we pull that up?

885

THE COURT: Which exhibit is it again?

MR. NORMAND: It's X5, Your Honor.

THE COURT: Thank you.

Q. BY MR. NORMAND: And let's go to Paragraph 7, Mr. Calvin, and let's bring up the paragraph at the bottom.

You see, Ms. Madsen, in the operating agreement it states, quote:

It is the intent of the parties to transfer the agreements and associated rights and obligations which relate to Novell's UNIX system business to SCO.

A. I do.

Q. Did Mr. Jacobs show you that language?

A. No. I don't remember him showing me that language.

Q. Should he have raised his hand?

A. Shame on you, Mr. Jacobs.

Q. Let's look at SCO's Exhibit 163.

You recall questions and answers about this e-mail, Ms. Madsen, when it comes up? This is the Alok Mohan e-mail.

A. I do.

Q. And let's look at the top box, Mr. Calvin, if you could pull up that paragraph.

Do you see here, Ms. Madsen, that Mr. Mohan says:

We announce the purchase of the UNIX business from Novell?

A. Yes.

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Q. Did you understand the UNIX business to include the UNIX copyrights?

A. Yes.

Q. Did you understand it to include the UnixWare copyrights?

A. Yes.

Q. And could you compare that, Mr. Calvin, to the language at the very bottom of the e-mail, very bottom.

And here Mr. Mohan explains that, quote:

SCO is now the primary supplier of the UNIX technology.

Do you see that language?

A. I do.

Q. To your understanding, was UNIX technology part of the UNIX business?

A. Yes.

Q. To your understanding, was the copyrights for UNIX and UnixWare part of the UNIX technology?

A. Yes.

Q. Now, Mr. Jacobs asked you a series of questions about the license that Santa Cruz had before the asset purchase agreement was signed. Do you recall that?

A. Yes.

Q. Now, looking at the top paragraph, before the asset purchase agreement, was Santa Cruz the principal provider of

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UNIX products and technology to the entire computer industry?

A. No.

Q. And before the asset purchase agreement was signed, was SCO the, looking at the bottom paragraph, primary supplier of UNIX technology to most OEMs?

A. No.

Q. Now, this exhibit also contains a press release.

And, Mr. Calvin, if you could bring up the first page of the press release.

At the bottom, Ms. Madsen, we'll bring that up for you and the jury. This is a press release with the title, SCO Acquires Unix Business From Novell and Licenses of NetWare Technology.

Do you see that?

A. Yes.

Q. Does the title say that SCO licenses UNIX business from Novell?

A. No.

Q. Now let's go to the next page of that press release.

And let's bring up, Mr. Calvin, the paragraph beginning, according.

This press release states:

According to the terms of the agreement, SCO will acquire Novell's UnixWare business and UNIX

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intellectual property.

Do you see that statement?

A. I do.

Q. Is that statement consistent with your understanding of the assets that Santa Cruz acquired?

A. Yes.

Q. Mr. Jacobs showed you Exhibit D11.

And, Mr. Calvin, can we pull that up?

And you were shown Page 42 of this Caldera document. And I think its the restricted cash and royalty payable to Novell paragraph, Mr. Calvin.

THE COURT: What page is that on?

MR. NORMAND: Page 42, Your Honor.

THE COURT: Thank you.

Q. BY MR. NORMAND: And these were the series of questions and answers about agency. Do you recall that, Miss Madsen?

A. Yes.

Q. Now, does this document speak to the fact that Santa Cruz had acquired all copies of the UNIX source code under the asset purchase agreement?

A. Yes.

Q. Show me where it says that.

In other words, does it speak to anything other than agency?

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A. Well, I'm not comfortable with the word agency.

Q. I'm asking you to just look at the words on the page. Do you see anything other than agency discussed in this paragraph of this document?

A. Well, what I see is a royalty stream where we're going to collect the royalties, and we're going to remit a portion of those royalties to Novell.

Q. Do you read this paragraph to be a complete description of the assets Santa Cruz had acquired?

A. No.

Q. Now, Mr. Jacobs showed you Section 4.16(b) of the original APA.

Can you pull that up, Mr. Calvin? And why don't you bring up Paragraph B for now.

And Mr. Jacobs asked you about whether the reference to SVRX license in this paragraph refers only to royalties. Do you recall all of those questions and answers?

A. Yes.

Q. Mr. Calvin, could you bring up Paragraph A of 4.16(b)?

And I'm looking at the language, Ms. Madsen, in the first sentence, which says:

Following the closing, buyer, Santa Cruz,

shall administer the collection of all royalties,

fees and other amounts due under all SVRX

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licenses.

A. Right.

Q. As listed in detail under Item 6 of Schedule 1.1(a) hereof and referred to herein as SVRX royalties.

A. Yes.

Q. Do you see that?

How does that language compare as to your understanding of what payment Santa Cruz will be making to Novell after the APA?

A. Well, I'm not sure I understand the question.

Q. What was your understanding of what payments Santa Cruz would be making to Novell after the APA?

A. Well, there were three components that I recall. There were the stock, which we talked about earlier; there was the royalty stream; and then I remember that there were certain thresholds, revenue thresholds, that if we met those, there would be additional monies transferred to Novell.

Q. And when Mr. Jacobs was asking you about Subsection B in his questions about royalties, did he show you the reference to royalties in Subsection A?

A. No, I don't recall that.

Q. Now, Mr. Jacobs asked you a series of questions based on your experience as a contracts person. Do you remember those questions?

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A. Yes.

Q. Are contracts sometimes ambiguous?

A. Yes. Unfortunately, you know, they are not perfect documents. And in mind sight we wish we could perfect them.

Q. Do provisions of contracts sometimes contradict each other?

A. Unfortunately sometimes they do.

Q. Are contracts sometimes amended?

A. Yes.

Q. And when they're amended, is the only language in the contract in your view relevant anymore?

A. No.

Q. Now, Mr. Jacobs asked you about Section 4.16(b). That's still on the screen. And he asked about the second sentence. Let's read it again.

As sellers, Novell's, sole discretion, buyer, Santa Cruz, shall amend, supplement, modify or waive any rights under or shall assign any rights to any SVRX license to the extent so directed in any manner with respect to seller.

Do you recall questions and answers about that provision?

A. Yes.

Q. And then Mr. Jacobs referred to what he called the master agreement, which he called the software agreement. Do

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you remember that?

A. Yes.

Q. Do you have a view as a contracts person as to the consequences if Novell could waive all of Santa Cruz' rights under all of the master agreements it had just acquired under the APA?

A. Well, that would have rendered this asset purchase agreement meaningless.

Q. How so?

A. Well, they could -- they could give away, they could waive confidentiality requirements. They could, you know, essentially resell the Brooklyn Bridge.

Q. Ms. Madsen, have you seen anything today that is inconsistent with your view that Santa Cruz acquired UNIX and UnixWare copyrights under the asset purchase agreement?

A. No.

MR. NORMAND: No further questions, Your Honor.

THE COURT: Mr. Jacobs?

MR. JACOBS: Your Honor, could we have a brief side bar or maybe use this as a break to talk about possibly recalling Ms. Madsen?

THE COURT: Let's do it with a side bar.

(Whereupon, the following proceedings were held outside the hearing of the jury:)

MR. JACOBS: Mr. Sabbath executed a declaration

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that directly contradicts her testimony today. It is a statement like many of the statements that Mr. Normand showed Ms. Madsen that is completely inconsistent with her testimony. It will be introduced by way of deposition testimony in the next segment of the trial. Mr. Normand asked Mr. Sabbath about that declaration as did I. We will offer it into evidence in conjunction with that deposition. We would then like to -- we would like to be able to recall Ms. Madsen and ask her about how her understanding is affected by Mr. Sabbath's declaration.

MR. NORMAND: Your Honor, we object to the use of the declaration in the way that Mr. Jacobs proposes. And I suppose if it rises to this level of gravity we should address the issue in writing to Your Honor.

THE COURT: The Court is not going to allow the use of the declaration with no foundation. And if she has to be recalled, then she'll have to be recalled. So --

MR. NORMAND: Okay.

THE COURT: The dilemma I have is that in effect what she would be asked to do would then to comment on the testimony of another witness, which is prohibited.

MR. NORMAND: For what it's worth, Your Honor, Mrs. Madsen was asked about that declaration in her deposition, and her answer was, this is not my understanding of Mr. Sabbath's understanding of the transaction. So she

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offered no explanation one way or the other. I think it's of a tiny probative value in terms of the substance of her testimony, and its massively prejudicial hearsay with respect to the remainder of the trial.

THE COURT: Again, the Court is not going to allow her to be questioned at this time. I'm going to have to see how the declaration is treated in the video deposition of Mr. Sabbath, and then we'll have to revisit it at that time.

MR. NORMAND: But in the interim you'd like us to not close testimony with Ms. Madsen?

THE COURT: Yes.

MR. NORMAND: Thank you.

(Whereupon, the following proceedings were held in open court:)

THE COURT: Mr. Jacobs, do you have anything else at this time?

MR. JACOBS: No, Your Honor. Thank you very much.

THE COURT: All right.

Ms. Madsen, I've been informed that you may be recalled. So if you would be available to return, if necessary, at some subsequent point. Is that going to be a great inconvenience to you?

THE WITNESS: It would be a great inconvenience to me. I have two children back in Santa Cruz, California, that I don't have child care arrangements for. They are missing

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school today. And I have an infant child outside waiting for me. Plus my employer would be most aggrieved if I were to miss additional work.

THE COURT: The decision as to whether to recall you will be made very carefully by the Court, but I still think it's possible that it could happen. So you just need to be aware of that.

THE WITNESS: Okay.

THE COURT: But it will not be till many days have passed by, so you certainly should be able to return to California now.

THE WITNESS: Okay. Thank you.

MR. NORMAND: Your Honor, I'm sorry. Could we have one brief side bar on this issue, having heard what Ms. Madsen just said?

THE COURT: Yes.

(Whereupon, the following proceedings were held outside the hearing of the jury:)

MR. NORMAND: And I apologize, Your Honor. I started to speak to that issue, and I should have completed the thought. At a maximum her deposition testimony when she was asked about what Mr. Sabbath said would come in. Of course, we object to it coming in, but we don't need her back live. She was asked at deposition, and she gave an answer. And I know Mr. Jacobs would like to do a more extensive cross,

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but under the circumstances we object whole-heartedly. But if anything could come in perhaps that portion of the deposition where she's asked about that prior deposition.

MR. JACOBS: I have an alternative proposal. Let's see what happens with Sabbath. And if we need to recall her, we will discuss it after Sabbath, and we'll do it today.

MR. BRENNAN: Sabbath is the next witness through designations. And it would be a sufficient time to hear what Mr. Sabbath has to say before the Court concludes testimony for the day. And if the decision is then made at that time, then we would reexamine her. That could all happen today.

MR. NORMAND: I do believe she has a 3 o'clock flight today. I just feel we're treading on her.

THE COURT: My inclination is not to allow her to be directly examined on the testimony of Mr. Sabbath. I would agree that the Court will consider, ought to consider whether the deposition testimony should be permitted, but I want to see the deposition testimony. So if any of you could get that for me so I could look at it during the next break.

Well, try to make -- let's just proceed. But it's highly unlikely I'm going to make her stay if that's all we're going to do.

MR. NORMAND: So we should keep her?

THE COURT: Keep her in the witness room until --

MR. NORMAND: Okay.

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THE COURT: If she had a 3 o'clock flight, she'll have plenty of time once we finish and it is done.

(Whereupon, the following proceedings were continued in open court:)

THE COURT: You have a 3 o'clock flight today?

THE WITNESS: I do.

THE COURT: We will try to deal with anything we need to with you before you leave today. So just make yourself, keep yourself available throughout the remainder of this trial time today, which should be 1:30.

THE WITNESS: Okay. Thank you.

THE COURT: Thank you, Ms. Madsen.

Mr. Singer, Mr. Norman, call your next witness.

MR. SINGER: Thank you, Your Honor. We call Steve Sabbath by his deposition.

(Whereupon, the following excerpts were played by video deposition of Steven Sabbath:)

Q. And how long were you at Santa Cruz?

A. Well, I was there almost 13 years. I believe 12 1/2, 13 years.

Q. And you were the general counsel throughout that time?

A. That's correct.

Q. Did you understand in 1995 that there were negotiations between Novell and Santa Cruz regarding this

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potential acquisition?

A. Sure.

Q. And who did you understand on the Santa Cruz side was leading those negotiations?

A. Well, we had two corporate development vice-presidents or senior vice-presidents, I can't recall. Jim Wilt or James Wilt and Geoff Seabrook.

Q. And did those individuals have occasion to speak with you regarding progress of the negotiations?

A. Yes. I mean, once we engaged with Novell, I worked with those two individuals constantly.

Q. Did you develop an understanding during these negotiations as to whether Santa Cruz would be acquiring UNIX intellectual property?

A. Sure. I mean, sure. We were buying the entire business including the intellectual property.

Q. And what was your basis for that understanding?

A. I'm not sure I understand the question.

Q. How did you develop that understanding?

A. Well, I mean, that is what the corporate development guys told me. As we started meeting with the Novell people and their attorneys, that was the discussion. We were buying the entire business. Novell didn't want to keep any part of it so that they could go off and do other things, mainly focus on NetWare.

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Q. Did you have occasion during the negotiations regarding this potential transaction to deal with folks on the Novell side?

A. Oh, sure. Sure.

Q. And who did you personally deal with, if you can recall?

A. Well, their chief negotiator, their counterpart to our Geoff and Jim, was a fellow named Ed Chatlos who was stationed in New Jersey, worked for Novell out of New Jersey. He was their project manager.

There were a few others from Utah that I met from time to time. I can't recall their names or their titles. To some extent David Bradford, their general counsel, was involved. He did appear in California at least once that I can recall and worked on the deal with us. And then, of course, there was Wilson Sonsini, outside counsel.

Q. Can you recall any of the attorneys from Wilson Sonsini that you dealt with?

A. Well, Tor Braham was their lead. He was Ed Leonard's counterpart. Tor Braham, and I think his Number 2 might have been Aaron Alter, who would have been Scott Lester's counterpart on the Wilson side.

Q. Was it ever your understanding during the negotiations leading up to the APA or thereafter that copyrights in the UNIX business were being excluded from the

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assets transfer?

A. No. Copyrights were going with the assets.

Q. Do you have a view as you sit here as to whether the parties to the APA intended that UNIX or UnixWare copyrights would be retained by Novell?

A. Well, no. The intent was clearly to me that the copyrights for the UNIX and UnixWare were to be transferred to Santa Cruz Operation. This Schedule 1.1(b) looks to me like it pertains to NetWare.

Q. Did you have a view at the time the APA was executed as to whether in order to improve upon and give better performance to UNIX technology Santa Cruz would have to copy and distribute the UNIX source code?

A. Well, certainly. It would have to do that.

Q. Did you have a view at the time of the execution of the APA of what the source of Santa Cruz' rights to copy and reproduce the UNIX source code would be?

A. It would be limitless. Santa Cruz Operation, you know, would -- you know, owned the source code, owned the technology, owned everything, and it could do as it saw fit.

Q. Since the execution of the APA, has it come to your attention that Novell was claiming to own the UNIX and UnixWare copyrights?

A. I'm sorry. Can you say that again?

Q. Has it come to your attention that Novell is now

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claiming to own the UNIX and UnixWare copyrights?

A. Yes, it has come to my attention.

Q. And how did that come to your attention?

A. Umm, I believe somebody from your law firm explained that to me.

Q. Do you have a view as to the merit of that claim?

A. Well, I just -- I can't see where Novell is coming from, to be honest with you. I mean, no offense to Novell, but I just don't see what they base that position on.

Q. Do you recall whether at sometime in 1996 the issue of UNIX and UnixWare copyrights with respect to the APA arose between the parties?

A. Copyright issue? No, I don't ever recall any discussion between Novell and Santa Cruz Operation regarding copyrights.

Q. In your view as of the execution of the APA, what copyrights were required for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies?

A. (No answer.)

Q. At any time after the execution of Amendment Number 2, did Santa Cruz ever have occasion to ask Novell to transfer any UNIX or UnixWare copyrights to Santa Cruz?

A. Not that I recall.

Q. Did you ever have an understanding during your tenure at Santa Cruz that Santa Cruz was obligated to ask

902

Novell to transfer particular UNIX and UnixWare copyrights?

A. No.

Q. No one from Santa Cruz ever told you that that was a process in place that needed to be pursued with Novell?

A. I don't recall that.

Q. Do you know whether after the execution of the APA, Santa Cruz had occasion to enter into source code licenses with any third parties in which Santa Cruz licensed UNIX or UnixWare source code to those third parties?

A. Well, I mean, we routinely licensed source code to customers who needed it for development purposes, for supporting their own customer base, what have you.

Q. And at the time did you have a view as to what gave Santa Cruz the right to enter into such licenses?

A. We owned the technology, lock, stock and barrel.

Q. During the negotiations of the APA that we discussed earlier, did anyone from Santa Cruz ever say to you that -- I'm sorry -- did anyone from Novell ever say to you that Novell intended to retain any UNIX or UnixWare copyrights?

A. No.

Q. After the execution of Amendment Number 2 that we referred to earlier, did anyone from Novell ever say to you that Novell believed SCO would have to come back to Novell and ask for the transfer of any particular UNIX or UnixWare

903

copyrights in this case?

A. No.

Q. Did Santa Cruz have occasion to sell its UNIX and UnixWare business at any time in your tenure at Santa Cruz?

A. Yes. The business that we had bought from Novell was subsequently sold to Caldera based out of Utah, which now goes by the name of SCO Group.

Q. Do you recall when that transaction occurred?

A. I don't.

Q. What role, if any, did you play with respect to that transaction?

A. Very similar to the role I played when we acquired the technology. It was just the flip side, and again, I worked with the corporate development people and outside counsel, et cetera.

Q. With respect to the UNIX and UnixWare business, what did Santa Cruz intend to transfer to Caldera?

A. The entire UNIX business, exactly what we had purchased from Novell.

Q. In your view at the time of the Santa Cruz/Caldera transaction, did that UNIX business include UNIX and UnixWare copyrights?

A. Yes, of course.

Q. The language in Paragraph D5 of Amendment Number 2 says, quote:

904

This amendment does not give Novell the right to increase any SVRX licensee's rights to SVRX source code nor does it give Novell the right to grant new SVRX source code licenses. In addition, Novell may not prevent SCO from exercising its rights with respect to SVRX source code in accordance with the agreement.

How does that language comport with your understanding of what a parties had -- how the parties had resolved the issue that you referred to earlier?

A. Well, it clarifies the fact that Santa Cruz Operation owned the source code, all UNIX source code including SVRX, that Novell could not give any future SVRX source code licenses to anybody, and that Novell couldn't prevent us from exercising from whatever -- from taking whatever actions we wanted with regard to that source code.

Q. You say in Paragraph 4, based on my involvement with the APA, I understand what the parties' intent and purpose in executing the APA was to transfer to Santa Cruz Novell's entire UNIX-related business, including all rights to UNIX and UnixWare and UNIX copyrights. But the parties agreed to permit Novell to retain an interest in the future System 5 binary royalties to enable SCO to afford the asset purchase and that the parties never intended to give Novell any right

905

with respect to any Santa Cruz' future source code interests in UNIX and UnixWare including the SVRX licenses, end quote.

Do you see that language?

A. Yes, I do.

Q. Are those statements accurate?

A. Yes, they are.

Q. You say in Paragraph 5:

I understand that IBM has argued that Section 4.136(b) of the APA gave Novell the right to acquire Santa Cruz to waive any breach of the intellectual property protections provided in the SVRX licenses. That argument is contrary to the intent of Paragraph 4.16(b) as I understood it. Indeed, Santa Cruz would never have agreed to give Novell the right under the APA to waive such protections under the SVRX licences because such a right could have eviscerated the entire purpose of the APA and the value of the assets transferred to Santa Cruz under the APA, end quote.

Do you see that language?

A. I do.

Q. Are those statements accurate?

A. Yes. I believe them to be true.

Q. When you say that such a rate could have eviscerated the entire purpose of the APA and the value of the

906

assets transferred to Santa Cruz under the APA, would you elaborate on that?

A. Yes. I think I explained before, if IBM or any other hardware OEM were to get expanded rights, it would have been far less likely that Santa Cruz would have been able to convert them to future versions of UNIX, and that was the purpose of purchasing the UNIX business from Novell and then spending a lot of money in trying to come up with future enhanced versions of UNIX in an attempt to unify UNIX.

Q. Mr. Sabbath, during your tenure at Santa Cruz, did you have occasion to work with Kim Madsen?

A. Yes, I did. She reported to me.

Q. And do you recall approximately what Ms. Madsen's tenure was at Santa Cruz?

A. I got to Santa Cruz in January of '91, and she was already there. So she had arrived at least some time in 1990. And when I departed the company the end of '03, she was still there.

Q. And I think you said that she reported to you. Do you recall what the scope of her responsibilities were in reporting to you?

A. She was more or less the department's chief paralegal, the most senior paralegal we had. And, I mean, over the years, we're talking 12, 13 years, she had various duties. But when it came to M and A work, for example, she

907

was always on the M and A team typically working with the documents such as the APA and the related documents. As a matter of fact, I mean, she was pretty senior and pretty darn sharp. So any major project she normally got sucked into and asked to play a major role, sometimes lead role.

Q. Do you recall what role, if any, she played in the connection with the negotiation of the APA?

A. Yeah. She was really my Number 2 in doing the APA and the related documents.

Q. And when you say, she was my Number 2, what do you mean?

A. Well, she sat in in many, if not all, of the meetings. She would review the documents, whether I reviewed them or not. Sometimes she reviewed them. I didn't even need to review them. Really played a -- you know, just like Jim Wilt and Geoff Seabrook were partnered up in the corporate development side, Kim Madsen and I were partnered up in the in-house legal side.

Q. Do you recall what role, if any, Ms. Madsen played in connection with the events that culminated in Amendment X and Amendment Number 2 that we reviewed earlier?

A. Again, she played a very important role as the Number 2 or in some cases taking the lead on pieces of these documents.

Q. Do you know whether Ms. Madsen's title changed

908

during her tenure at Santa Cruz?

A. Well, I'm sure she got promoted and got bumped up in pay and the like, but I can't remember what her titles were.

Q. Did her responsibilities change during the course of her work --

A. Oh --

Q. -- of reporting to you?

A. Yes. Her responsibilities broadened considerably as well as the number of the people that reported to her from time to time.

Q. And how did they change considerably?

A. Well, as she gained experience and, you know, it became obvious to myself and the other executives in the company that she was exceptionally good at what she did, she got more and more responsibility, taking on more important projects, working more independently, managing the work of others.

Q. IBM didn't compensate you for your work on that declaration, did they?

A. Absolutely not.

Q. What compensation are you receiving from SCO in connection with your ongoing work on the litigation?

A. They bought them lunch today.

Q. Are you being paid an hourly fee?

909

A. I'm not being paid a nickel.

Q. You were not retained as a consultant to SCO at all?

A. I wish.

Q. So you've not been paid any compensation by SCO or its law firm in connection with litigation?

A. No. Haven't been paid a nickel by anybody.

Q. Do you have any ongoing financial interest in SCO?

A. I do not.

Q. No stock?

A. No stock.

Q. Any relatives work at SCO?

A. Not that I'm aware of.

Q. Any close friends?

A. No.

Q. So in your 19th November 2004 declaration, you say Amendment Number 2 was intended to confirm, among other things, the parties' intent that SCO would obtain ownership of the UNIX copyrights under the APA.

Do you see that?

A. Let's see.

Q. Right in the middle of the Paragraph 6.

A. Was intended to confirm among other things, the parties' intent. Yeah, correct.

Q. And did you review and approve that sentence?

910

A. I suspect so.

Q. You understood in saying the UNIX copyrights that you were talking about the entirety of the copyright rights in UNIX System V?

A. I'm sorry. Ask that question again.

Q. When you were referring to the UNIX copyrights there, what did you mean?

A. I meant that when we bought the UNIX business from Novell, all copyrights pertaining to that business came with the product, and Amendment Number 2 was meant to confirm that.

Q. And when you said -- so when you were using the expression, the UNIX copyrights, you meant all UNIX copyrights?

A. Yes.

Q. And, the UNIX copyrights, or, all UNIX copyrights, is a simple way of saying all the copyrights relating to UNIX that Novell had at the time; correct?

A. That's correct.

Q. It's not hard to say "all" or "the" --

MR. NORMAND: Objection to form.

Q. -- to mean that, to get -- to convey that intent; right?

A. I suppose so.

Q. And if you look at Amendment Number 2 it doesn't say that, does it?

911

A. Well, if you're saying the word "all" isn't there, you're absolutely right.

Q. And a simple expression like, the UNIX copyrights, isn't there, either.

A. No. The UNIX copyrights.

Q. I'm sorry. I'm looking at Amendment Number 2, sir.

A. Oh. With respect to -- well, it says, all copyrights and trademarks.

Q. That's the exclusionary part.

A. Let me read it. Oh, except for the copyrights and trademarks covered by Novell. Yeah. It doesn't say, except for all the copyrights and trademarks, true.

Q. And when it says, the copyrights necessarily to carry on the business, do want to read that expression again?

A. Umm, okay. Except for the copyrights and trademarks owned by Novell as of the date of the agreement required for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technology.

Q. So it referred to the exercise of rights; correct?

A. Yes.

Q. And up until the time that you left Santa Cruz/Tarantella, what copyright rights in UNIX did Santa Cruz need in order to carry on the business contemplated by the asset purchase agreement?

A. Well, once we sold the business to Caldera now the

912

SCO Group and became Tarantella, we didn't need those rights. Up till then you would need all rights to run your business. You don't know what you're going to be doing day to day, what kind of situations you'll find yourself in with the potential partners, with the potential customers. So you want all rights to do anything that you deem fit with the technology.

Q. SCO wasn't going to enter into new SVRX licenses; correct?

A. Right. We didn't want to do that, anyway.

Q. So you didn't need the copyright necessary to enter into new SVRX licenses?

A. But we did need to protect the technology. We didn't want somebody to be able to go off and pirate, for example. So we needed the copyright in order to defend the property.

THE COURT: Mr. Singer, Mr. Normand, if you would stop it there, we are going to go ahead and take a break.

MR. NORMAND: Your Honor, could I ask if I could read two of the designations that did not make their way into the video but that the parties did agree to be played? I propose to read those to the jury now with Your Honor's permission.

MR. BRENNAN: No objection, Your Honor.

THE COURT: All right. Go ahead.

MR. NORMAND: Question. If anyone on either side

913

of this transaction had proposed that Novell would retain the UNIX and UnixWare copyrights, do you think that's something you would have heard about in the course of negotiations?

MR. BRENNAN: Excuse me. Excuse me. Mr. Normand, where are you?

MR. NORMAND: Page 31.

Answer. Yes, of course, I would have heard about it. I doubt the deal would have been consummated. I don't know how you could sell a software business and not pass copyrights. It just didn't make sense.

Question. Why in your view doesn't that make sense?

Answer. Well, then the buyer's not really buying the business. So I'm not sure what the buyer would get. What could he do? What would be his purpose to buy the business without the copyrights?

Question. In your view as of the execution of the APA, what copyrights were required for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies?

Answer. Well, you would need all of the copyrights.

Question. And why do you say that?

Answer. To do the future development, you would need the copyrights. To license the technology the way you

914

saw fit you would need the copyrights. My gosh, if you didn't own the copyrights, how could you even go after somebody that is pirating your software? How could you enforce your right to the technology? So you would need all the copyrights and binaries and source code.

Thank you, Your Honor.

THE COURT: All right. We will go ahead and take our recess at this time.

Miss Malley?

(Whereupon, the jury left the court proceedings.)

THE COURT: I was looking for -- I have a copy of Mr. Sabbath's deposition here, and I was looking for what you might be giving me. I couldn't find it, so I hope you have been able to. And I would also appreciate a copy of the declaration that you would be questioning him about during the course of the deposition. If you could get those and get them to me. And we'll take 20 minutes.

(Recess.)

915

STATE OF UTAH )

) ss. COUNTY OF SALT LAKE )

I, KELLY BROWN HICKEN, do hereby certify that I am a certified court reporter for the State of Utah;

That as such reporter, I attended the hearing of the foregoing matter on March 15, 2010, and thereat reported in Stenotype all of the testimony and proceedings had, and caused said notes to be transcribed into typewriting; and the foregoing pages number from 841 through 915 constitute a full, true and correct report of the same.

That I am not of kin to any of the parties and have no interest in the outcome of the matter;

And hereby set my hand and seal, this ____ day of _________ 2010.

______________________________________

KELLY BROWN HICKEN, CSR, RPR, RMR

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***** Part 3 *****

THE COURT: Counsel, as to recalling Ms. Madsen, as I understand it, you want to recall her to have her comment on Mr. Sabbath's declaration, which he has already disowned in his own testimony. The Court sees nothing to be gained by having her come and disown it as well. And, for that reason, I think we are just going to release her and let her go.

MR. JACOBS: I understand, Your Honor, but can we spend a little more time on the declaration --

THE COURT: Yes.

MR. JACOBS: -- before the next segment of depositions? There are two ways one could look at declarations. One could look at them as relatively trivial, frivolous things that people sign casually, or one could look at them as sworn statements under penalty of perjury that are given in court and should have the same weight as testimony given in court.

In this case, this is a declaration signed by a lawyer, a member of the bar, who, although he says he was lazy and says in some ways it doesn't completely comport with his recollection, it is still his statement under penalty of perjury.

And it is flatly inconsistent with the portions -- with the evidence and with the testimony that SCO introduced in their portion of his deposition.

916

THE COURT: Correct.

MR. JACOBS: We're a little surprised they brought Mr. Sabbath in any capacity here because that declaration so rebuts the testimony they have offered, but they have done that. To use an expression we may grow fond of in this lawsuit, they have opened the door. And what they have opened the door to specifically is for the jury to hear the paragraphs of Mr. Sabbath's declaration that he offered, under penalty of perjury, that directly contradict the testimony that they played in their portion of his videotape deposition.

Had he been here live, there is no question that we could have read those segments of his declaration to him, and we could have asked for his live testimony on them.

And so, when we get to that portion of the declaration, particularly because we now can't ask Ms. Madsen about those portions, what I would like to do is to be able to read to the jury the portions of his declaration, signed under penalty of perjury, that directly contradict what he testified to in SCO's presentation of his testimony.

THE COURT: And the way you do it is, when you come to those questions, you would stop, and you would personally read those portions of the declaration and

917

then proceed with the question regarding it?

MR. JACOBS: I think that I would flip it slightly. I will have him testify that -- there is a brief segment of our designations, Your Honor, where he says that he provided this declaration to Ron Lauderdale in 2003. And I would stand up, and I would say:

With Your Honor's permission, I would now like to read portions of Mr. Sabbath's December, 2003, declaration.

THE COURT: Okay.

MR. NORMAND: Your Honor, there are multiple problems with this proposal, Your Honor. The first is that the general rule is extraneous testimony, testimony from outside court, whether it's read to a witness for impeachment or not, does not come in as evidence. That's the general rule.

Second. The fact that we called Mr. Sabbath as a witness doesn't open the door to controverting that rule. Every other witness that we've called, parties could have addressed them by trying to get in prior testimony. No one has tried to do that. It's improper.

Third, Your Honor, if we're going to get into a little mini trial about what Mr. Sabbath was thinking or doing when he signed this prior declaration, we would need to explore his deposition testimony in the IBM case.

918

We did not designate that because we did not understand there to be a prospective fight about the circumstances under which that declaration was signed. That would be incredibly collateral, confusing to the jury, and prejudicial.

And, for all those reasons, Your Honor, we don't see any reason to change the general rule that, one, when you have a witness by deposition designation, you don't make special rules for the witness just because they haven't shown up in person; and, two, the general rule, which Mr. Jacobs' proposal would controvert, that impeachment evidence somehow comes in and should be given special consideration by the jury.

THE COURT: Mr. Jacobs?

MR. JACOBS: I think we're mixing apples and oranges a little bit. The witness has the declaration in front of him when he is testifying in the deposition.

THE COURT: And I did not get all the way through that which you gave me at the beginning of that break, which are your designated portions, which it is clear you did examine him on it, correct?

MR. JACOBS: That is true, Your Honor.

THE COURT: So, I'm not inclined to supplement what has been designated by you, by an actual reading. I wish I had been able to get through it all, but I simply

919

did not have the time, but I have to assume that you effectively brought out the contradictions between the testimony as heard by the plaintiff's designations and that which you cross examined him on, showing the inconsistencies. And I think that we better just leave it at that.

MR. JACOBS: So the other alternative, Your Honor, is, rather than reading it to the jury, we should be able to put on the screen the portion of the declaration, and they should be able to look at it as the witness is looking at it. He had it in front of him at the time. They need to know what he's talking about when he's talking about that declaration. Otherwise --

THE COURT: Don't you ask him to read those parts of it that you then cross examine him on?

MR. JACOBS: Candidly, Your Honor, not all of them. There are some portions of his declaration that go specifically to the logic and structure of the transaction, that go to Amendment Number 2. We did not want to waste valuable deposition time just reading portions of a deposition -- of a declaration into the record.

THE COURT: I'm sorry, Mr. Jacobs, but I don't believe I ought to make up for your unwillingness to take the time during the deposition to have him read it,

920

recognizing that you would be possibly using that deposition testimony in this fashion, by now allowing you to bring undue attention to that declaration. So, again, the Court will not allow that to happen either.

MR. JACOBS: And the last point, Your Honor, to make in this connection is that there is really not that much difference between this declaration and the other out-of-court statements that, for example, SCO has used to question witnesses and say:

Is this consistent with your understanding or not?

They are all out-oF-court statements. This happens to be under penalty of perjury.

THE COURT: But you have -- you're going to be cross examining him on it in the designated portions of the deposition, so you have in fact been allowed to use it in that fashion in the deposition, but what you're asking for is something well beyond that now, and the Court believes that the appropriate way to deal with this is just to rely on what you did at the deposition with those designated portions that the jury will now hear

MR. JAOCBS: So, just so we don't have to do this in front of the jury, Your Honor, we would move to strike Mr. Sabbath's testimony that SCO has offered in their portion of Mr. Sabbath's testimony on the grounds

921

that it's flatly contradicted by a sworn declaration he gave under penalty of perjury that we now cannot effectively impeach him on because he is not here live.

THE COURT: But you were able to cross examine him in the deposition, and you will now show those designated portions of that deposition; is that correct?

MR. JACOBS: We will be doing that, Your Honor, absent a grant of the motion to strike.

THE COURT: The Court will deny the motion to strike.

MR. JACOBS: Thank you, Your Honor.

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

MR. NORMAND: No, Your Honor.

THE COURT: All right.

MR. JACOBS: I'm sorry, Your Honor, one quick question.

THE COURT: Yes.

MR. JACOBS: There are portions that we're asking him about during the deposition testimony. Can we put those portions on the screen as we're doing so?

MR. NORMAND: Your Honor, I thought that was the third of Mr. Jacobs' four proposals.

THE COURT: That was my understanding as well. You may not show anything that does not occur in the

922

actual deposition. If you have the running words below it, as you have in the banner, then you may certainly focus their attention -- or the jury will focus their attention as they read that, but nothing supplemental to that which will appear in the designated portions of the deposition of Mr. Sabbath.

MR. JACOBS: Thank you, Your Honor.

MS. MALLEY: All rise for the jury, please.

(Jury brought into the courtroom.)

THE COURT: Mr. Norman, let me clarify. Have you now shown everything of Mr. Sabbath that you intended?

MR. NORMAND: We have, Your Honor. Thank you.

THE COURT: Mr. Jacobs.

MR. JACOBS: We would offer testimony of Mr. Sabbath as well, Your Honor.

THE COURT: Thank you.

Designated portions of the deposition
testimony of Mr. Sabbath were read as follows:

Q. Did Santa Cruz have occasion to retain outside counsel in connection with the potential transaction?

A. Yes. We retained the Brobeck law firm, Brobeck Phleger and Harrison, I believe it was. It doesn't exist

923

anymore, but at the time they were one of the large Silicon Valley San Francisco law firms.

Q. And who were the attorneys at Brobeck with whom you dealt with respect to this potential transaction?

A. Sure. Ed Leonard was the lead attorney, the most senior of the Brobeck attorneys. I believe he was even the managing partner at that time; if not of the entire firm, at least of the Palo Alto office, very experienced in M&A work. Scott Lester was either a senior associate or more junior partner on the team. And then there were, I don't know, three or four others, maybe a Jeff Higgins, I seem to kind of recall, but I may be confusing law firms at this point.

But, anyway, it was Ed Leonard and Scott Lester, the leads, and they had several attorneys, maybe some paralegals as backup.

Q. Paragraph A of Amendment Number 2 --

A. Yeah, paragraph A I didn't recall being here in this Amendment A, but it looks to me like a clarification of some sort to the APA.

Q. Is paragraph A a part of Amendment Number 2 that you recall negotiating to any extent?

A. I don't recall that, but I don't know.

Q. And, to the best of your recollection, who, at Santa Cruz, would have been involved in negotiating the

924

language of paragraph A of Amendment Number 2?

A. I don't know.

Q. Can you recall, prior to signing Amendment Number 2, focusing on paragraph A to any extent?

A. I don't.

Q. You have the APA among the documents in front of you?

A. Uh-huh.

Q. And I wanted to direct your attention to one section in particular, Section 1.2(b), which begins on the page with the Bates number ending 901. In the language I read into the record, there's a reference to equitable interest within the meaning of Section 541(d) of the Bankruptcy Code. Do you see that language?

A. Yes. Yes.

Q. Do you recall having an understanding of that provision at the time the APA was executed?

A. Well, when we were writing this paragraph, we being the business guys, the Wilson Sonsini guys, the Brobeck guys; Tor Braham, the Wilson lead outside counsel felt that he wanted to run this issue by his bankruptcy specialist, secure transaction specialist.

The fear of Novell was that Santa Cruz would go bankrupt and then what would happen to this revenue stream that could become the property of the bank or bank

925

or lenders, some sort of creditor? And they would lose the right to collect that 95 percent.

So, his bankruptcy secure transaction specialist came back with this kind of language, which doesn't make a lot of sense to me and I suspect to everybody else in the room that was handed the language, but that's what we plugged in there to make those people happy.

Q. I want to ask you, Mr. Sabbath, about the declaration you've previously signed. And I'm handing you that declaration marked Exhibit 1049. It's a declaration dated December 22, 2003, in the SCO Group vs. IBM case.

And if you want to take a minute to review the document. Let me know if you recognize it.

A. Okay. Yes.

Q. Do you recall executing this declaration?

A. I do, yes.

Q. Would you say that you reviewed this declaration very carefully before you signed it?

A. Well, I mean I read it through. I have to say I didn't really read the documents it refers to.

Q. Why not?

A. It's just -- I mean, you know, this is just the Asset Purchase Agreement, and there were other documents

926

I believe here that were referred to, and, you know, I don't have any skin in the game. I wasn't that interested. Okay? I was being lazy.

Q. You say in paragraph 11 of the declaration.

"Under the Asset Purchase Agreement novell retained significant UNIX-related assets following the sale. For example, Schedule 1.1(b) of the Asset Purchase Agreement provided that much of the UNIX System V intellectual property would not be transferred to Santa Cruz by listing the following items as excluded assets."

And then the paragraph 11 quotes from the Schedule 1.1(b) of the APA. Do you see that language?

A. I do.

Q. How does the content of that paragraph 11 comport what your understanding today regarding any UNIX System V intellectual property that was not transferred to Santa Cruz?

A. Well, you mean -- the easy answer is this language would be correct if it said -- instead of UNIX System V it said Netware, which is really what the language below refers to.

Q. But, in your declaration, it doesn't refer to Netware, does it?

A. No. No. I just -- I missed that. They missed it or I missed it or both.

927

Q. If you look at paragraph 29 of your declaration, you say:

"It is my understanding, based upon my review of plaintiff's Amended Complaint that plaintiff claims to have acquired all right, title and interest in and to UNIX System V operating system source code, software and sublicensing agreements together with copyrights, additional licensing rights in and to UNIX System V and claims again all parties breaching such agreements. I understand that plaintiff also claims to control the right of all UNIX vendors to use and distribute UNIX System V. I believe that these claims are incorrect. As described above in relation to the related agreements and Amendment Number 2, Novell retained certain rights under the UNIX System V licensing agreements as well as certain UNIX System V intellectual property, as described above."

Do you see that language?

A. I do.

Q. As you sit here today, are you satisfied that this declaration accurately reflects your views regarding the issues we've discussed?

A. Well, I mean, this declaration was a quick and dirty, you know, done before the holidays, over the phone, with an associate in -- somewhere in the East Coast and me. And, I mean, it's, you know, close enough

928

for government work, if you want to use that phrase, but it's a hundred percent accurate? No. Not at all.

Q. The work you did on the Asset Purchase Agreement occurred over -- between Novell and Santa Cruz occurred about 11 -- about 11 and a half years ago, now, didn't it?

A. Yes.

Q. And it's hard to remember the specifics of negotiations that occurred that many years ago, isn't it?

A. It sure is.

Q. It's hard, in part, because it's a long time?

A. Yeah.

Q. It's hard, in part, because a lot of negotiations occurred after that negotiation in which you were closely involved?

A. Right.

Q. We know that you had considerable experience dealing with transactions in the software industry?

A. That's true.

Q. We know that you retained highly skilled outside counsel to assist you in the negotiation of the Asset Purchase Agreement?

A. That's true.

Q. We know that you considered an agreement like the Asset Purchase Agreement to be an agreement that

929

would have a major impact on SCO's business?

A. Yes.

Q. Specifically, that the Asset Purchase Agreement would have a major impact on SCO's business?

A. Sure.

Q. And that it was, therefore, an important document?

A. Yes.

Q. You knew, as a skilled attorney, that while you might have an understanding going into the negotiations of the parties' intent, ultimately, if a dispute arose, the first thing people would do is pick up the contract itself?

A. Sure.

Q. You do recall, you do acknowledge that there was a three-month period or so during which the Asset Purchase Agreement was subject to further review by the parties and an amendment was prepared?

A. Sure.

Q. Now, we also know that, as of 1995, you understood software licensing?

A. Yes.

Q. And that you held yourself out to your colleagues as somebody who could handle the legal intricacies of software licensing?

930

A. For the most part, yes.

Q. You understood that -- what role copyrights played in computer software?

A. Sure.

Q. And you understood what role patents were evolving to play in computer software?

A. Sure.

Q. Now take a look at Section 1.1(a) of the Asset Purchase Agreement, please.

A. 1.1(a)? Purchase and Sale of Assets?

Q. Yes.

A. Uh-huh.

Q. You understood that the -- really the meat of the agreement, in a way, in Schedule 1.1(a), the list of included assets, and Schedule 1.1(b), the list of excluded assets when you reviewed this agreement, correct?

A. Yes.

Q. As a skilled attorney, you understood that an an agreement like this, as a layperson might say, the devil is in the details?

A. Yes.

Q. And, even though, in your answer to your question to Mr. Normand, you said that the UNIX business was being sold lock, stock and barrel. In fact, exactly

931

what was being sold by Novell was shown in Schedule 1.1(a) and what was not being sold was shown in shown in Schedule 1.1(b), correct?

A. I can't really agree with you. It is what is here and in the clean up amendments.

Q. Fair enough. So in here and in the clean up amendments is -- documents what is included in the assets that were transferred to SCO?

A. That's right.

Q. Now, let's turn to Section 1.6.

A. License Back?

Q. That's the provision that anticipated the technology license agreement, correct?

A. Yes. That's right.

Q. And let me -- let's just break this down a little bit. It states:

"License Back of Assets. Concurrent with the closing, buyer shall execute a license agreement under which it shall grant to seller a royalty-free, perpetual worldwide license to, small little i, all of the technology included in the, capital A, Assets and, two little i, all derivatives of the technology included in the Assets, including Eiger product release, such licensed-back technology to be referred to collectively as, capital L, license, capital T, Technology."

932

Do you see that, sir?

A. I do.

Q. And SCO, as the employer of the coders, under your understanding of the way law worked with respect to software, SCO would own the copyrights and the code that it wrote?

A. That's true.

Q. And so the license back of derivatives of the technology included in the assets would grant Novell a right to license back SCO-developed code in which SCO owned the copyrights, correct?

A. That's correct.

Q. So, did you tell Allison Lisbonne, later Allison Amadia --

A. Uh-huh.

Q. -- that the copyrights were specifically excluded from the Asset Purchase Agreement?

A. I don't recall that, no.

Q. Would you -- if she testified that you said that to her, would you be able to contradict her?

A. No. I just don't recall that discussion.

Q. You understood one of the deal points of the Asset Purchase Agreement was that SCO, generally, was not going to be in the SVRX licensing, new licensing business, correct?

933

A. That is absolutely correct.

Q. You described how you came to provide a declaration at the request of the Ron Lauderdale?

A. Yes.

Q. And that declaration was provided in 2003?

A. I think so.

Q. It was -- at the time you looked at it, it was your best recollection of the topics it covered?

A. In general, yes. Overall, yes. You know, keep in mind, I thought what I was really doing is helping them understand the history and the overall facts of the transaction.

Q. You understood that you were providing it under penalty of perjury?

A. Sure.

Q. And you could explain to the jury what penalty of perjury means?

A. I think so, yeah.

Q. Could you do that, please?

A. Well, I think it means that under oath you're bound to tell the truth and, if you don't, you're committing a crime, either a serious misdemeanor or a felony.

Q. Well, in your response to Mr. Normand earlier, you said you were being lazy about it?

934

A. Yeah. I was being lazy.

Q. Do you really think that's what happened, that you were lazy on an important legal document you were signing under penalty of perjury?

A. At that point in time, I wasn't concerned with min -- what I thought was minutia. You know, I didn't realize that a case -- that your case could turn on one word being different from what I think that -- you know, a better word would be.

Q. When you prepared the declaration at the request of Mr. Lauderdale, you did have the Asset Purchase Agreement in front of you?

A. I'm sorry. I did not prepare it. I was sent a bunch of documents from Lauderdale's outside law firm that must have been several inches thick. I looked at them, scanned them just to see what they were. I did not read all the documents.

Q. IBM didn't compensate you for your work on that declaration, did they?

A. Absolutely not.

Q. The Asset Purchase Agreement limits SCO's rights to license SVRX code, doesn't it?

A. Yes, it does.

Q. And SVRX is part of UNIX, isn't it?

A. Yes.

935

Q. The Asset Purchase Agreement, even under your interpretation, allows Novell to direct SCO to take certain actions with respect to SVRX licenses, correct?

A. Yes.

Q. By the way, that section, that Section 4.16(b), it doesn't say anything about limiting Novell's right to direct SCO to take action to the CPU's or the number of CPU's on which the source code is residing, does it?

A. It is not that specific.

Q. In fact, it says "any," in several places, doesn't it?

A. I think.

Q. And it says "in Novell's sole discretion," doesn't it?

A. I don't know.

Q. Take a look.

A. Where is it? 416?

Q. Right?

A. 416 where?

Q. B.

A. B? Yes. At seller's sole discretion and direct.

Q. And by sole discretion, you understand that to mean that Novell can really do it for any reason it wants, correct?

936

A. That's correct.

Q. And it is correct, is it not, that Novell had the right to veto new source code SVRX licenses that SCO wished to enter into pursuant to the terms of Amendment Number 1?

A. That's correct.

Q. And so Novell did have a right with respect to Santa Cruz's future source code interests in UNIX, as particularly with respect to SVRX, didn't it?

A. Novell had that limited right, yes.

Q. So the parties intended to give Novell at least a limited right with respect to Santa Cruz's future source code interests in UNIX as it pertained to SVRX?

A. Yes.

Q. And when you have said -- so when you were using the expression "the UNIX copyrights," you meant all UNIX copyrights?

A. Yes.

Q. And the UNIX copyrights or all UNIX copyrights is a simple way of saying all the copyrights relating to UNIX that Novell had at the time, correct?

A. That's correct.

Q. It's not hard to say "all" or "the" to mean that -- to get -- to convey that intent, right?

A. I suppose so.

937

Q. And if you look at Amendment Number 2, it doesn't say that, does it?

A. If you are saying the word "all" isn't there, you're absolutely right.

Q. And a simple expression like "the UNIX copyrights" isn't there either?

A. The UNIX copyrights?

Q. I'm sorry. I'm looking at Amendment Number 2, sir.

A. Oh, with respect -- well, it says, "all copyrights and trademarks."

Q. That's the exclusionary part.

A. Oh. Let me read it. Oh. Except for the copyrights and trademarks covered by Novell. Yeah. It doesn't say, "except for all the copyrights and trademarks," true.

Q. And when it says, "the copyrights necessary to carry on the business," you want to read that expression again?

A. Okay. "Except for the copyrights and trademarks owned by Novell as of the date of the agreement required for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies," period.

Q. So it refers to the exercise of rights,

938

correct?

A. Yes.

Q. And with respect to the code that you developed at UnixWare, we established that the UnixWare code that Santa Cruz developed, we established earlier that you would own that by virtue of the operation of copyright law, correct?

A. Yeah. It may not be that simple, but if what You're getting at is anything we developed we would hold the copyright in, true, but there might be some other UNIX, older UNIX code in it, okay, which could be a problem if you don't own the copyright to it.

Q. But the specific right you need in order to effectuate that, based upon your knowledge and experience in the software industry, is the right to create a derivative work, correct?

A. You definitely need that, but you could do that as a licensee.

Q. After Amendment Number 2 was executed, did you write any memos or create any communications internally in which you said something to the effect that now that we have the rights we need, we can go for it, guys.

A. I have no idea.

(Whereupon the reading of the designated portions of the deposition were concluded.)

939

MR. JACOBS: That concludes the portions of the testimony we wished to present to the Court, Your Honor.

THE COURT: Thank you, Mr. Jacobs.

Mr. Singer, your next witness.

MR. SINGER: Our next witness is Darl McBride.

DARL MC BRIDE,
the witness hereinbefore named, being first duly
cautioned and sworn or affirmed to tell the truth, the
whole truth, and nothing but the truth, was examined and
testified as follows:

THE CLERK: Would you please state and spell your name for the Court.

THE WITNESS: My name is Darl McBride. That's D-a-r-l. M-c, capital B-r-i-d-e,

THE CLERK: Thank you.

THE WITNESS: There's a Charles in the middle, if you want that.

THE CLERK: Thank you.

DIRECT EXAMINATION

BY MR. SINGER:

Q. Good afternoon, Mr. McBride. Can you begin by telling us a little bit about your background.

A. Okay. I grew up in Ephraim, Utah, a couple hours south of here, graduated from Manti High School, went to Snow College, eventually graduated from Brigham

940

Young University and then, after that, went to graduate school at University of Illinois, back in Urbana-Champaign.

Q. Can you tell the jury a little bit about your employment before you joined SCO Group?

A. Sure. After graduating from University of Illinois, I was recruited to go work at Texas Instruments down in Dallas. I went down there for a couple of years, later moved back to Utah, worked at Novell from 1988 to 1996 and kind of grew up the ranks from manager level. Eventually, in '96, I was vice-president of one of their operating divisions.

From there I was recruited out of Novell, went and worked for a company back east, helped them build a network systems integration business, about a half-billion-dollar business over a couple-year period and then, from there, did a couple of startups where I was chief executive and president of a couple of startup operations during the internet boom years.

And, eventually, from there, went and worked for Franklin Covey as the president of one of their online planner operations, worked there a couple years and was there when I was recruited to go work at SCO as their president and CEO. That was in, I believe, June of 2002 when I went to SCO.

941

Q. June of 2002 is when you joined SCO?

A. Correct.

Q. And did you join as chief executive officer?

A. Yes, I did.

Q. Were you the chief executive officer of SCO in May of 2003?

A. Yes, I was.

Q. Do you recall, Mr. McBride, how SCO's business did in the quarter ending April of 2003?

A. It was a good quarter. It was a record quarter for the company in terms of both revenues and in terms of profits.

Q. I'd like to hand you a book of exhibits that we're going to be using in connection with your examination.

A. Okay. Are we going to use these two?

Q. You can put those on the side. We won't be using those.

A. Okay.

Q. I'd like to ask you to take a look at what is SCO Exhibit 94, which is in evidence.

A. Right.

Q. Did you receive this letter from Jack Messman, the CEO of Novell, on May 28, 2003?

A. Yes, I did.

942

Q. This was sent in the case by fax and certified mail?

A. Yes. That's correct.

Q. And if you turn to page 2 --

A. Right.

Q. -- did you see his statement in the last paragraph, that SCO is not the owner of the UNIX copyrights?

A. Yes. I see that.

Q. What was your reaction to that?

A. I was shocked, quite frankly.

Q. Why were you shocked?

A. I had been trying to get clarification around a problem in an Asset Purchase Agreement from an early agreement with Novell over the previous six months, and, ultimately, what the word had come down to me from Novell management was that upper management at Novell didn't want to get involved with that old UNIX stuff, and they were not involved. Then, to have them come out in this letter and say not only were they not going to be involved, but to step up and say that they were the owner of the UNIX copyrights was really surprising.

Q. Did you learn that Novell issued this letter as a press release to the general public?

A. Yes, I did. I think they had a press release,

943

and this was attached to the release as -- the letter was part of the content of the release as I recall.

Q. Could you turn to SCO Exhibit 525, which is in evidence, and it's the next document in your binder.

A. Okay.

Q. And was this the press release that you're referring to?

A. That's the one.

Q. Before they reproduced your letter, do you see in the second paragraph of the press release, it says first, Novell challenged SCO's assertion that it owns the copyrights and the patents in the UNIX System V, pointing out that the Asset Purchase Agreement entered into between Novell and SCO in 1995 did not transfer these rights to SCO? Do you see that?

A. Yes. I see that.

Q. Do you see, in the second paragraph -- not the second, it's the third paragraph.

A. Okay.

Q. Where it says:

"To Novell's knowledge, the 1995 agreement concerning SCO's purchase of UNIX from Novell does not convey to SCO the associated copyrights," as has been said in the letter.

Do you see that?

944

A. Yes. I see that.

Q. And then, if we turn to the next page of the press release, is this now a copy of the letter that Mr. Messman sent to you?

A. Yes, it is.

Q. And do you see that in the third paragraph from the bottom, it says:

"Importantly, and contrary to SCO's assertions, SCO is not the owner of the UNIX copyrights."

A. Yes. I see that.

Q. So, in this press release, Novell said three times that SCO didn't own the UNIX copyrights?

A. Yes.

Q. And Novell did?

A. Yes.

Q. What was the effect of Novell having sent this out as a press release, claiming that SCO did not own the copyrights?

A. It had a very damaging effect on SCO that very day.

Q. Did it get a lot of play in the press?

A. Yes. It got a lot of play.

Q. Did it have an effect on SCO's stock?

A. Yes. SCO's stock dropped, I want to say somewhere on the order of 25 to 30 percent in that single

945

day.

Q. Was it particularly important to you that it was Novell, as opposed to some other company, that was making this claim?

A. Yeah. It was a big deal that it was Novell.

Q. Why is that?

A. Well, we had bought the property from Novell. It would be like somebody -- you buy a house from somebody and then that owner of the house comes out later and tries to say, "I never sold you the house."

It was stunning.

Q. Now, after Mr. Messman's letter was received, what did you do?

A. Well, after we picked ourselves up and tried to figure out what was going on here, the first thing I had to do, as the CEO of a publicly traded company, is I had to go meet with our large shareholders, many of whom were in New York, on Wall Street, and I had to go settle them down and try and explain to them that, in fact, SCO did own UNIX and we did own the copyrights.

So, I got on a plane soon after this, went back to New York and spent a few days back there with them. That was the first thing that I did.

Q. Did there come a time when you called Jack Messman directly about this?

946

A. Yes, I did.

Q. When was that?

A. That happened on -- so, May 28 was the date of this. It would have been June 5, the following week.

Q. Would you please tell the jury about that conversation?

A. Sure. So, after I had gone to Wall Street and I tried to settle these guys down, explaining to them that we actually did own the copyrights, I received a call from my secretary indicating she had something that I probably wanted to see.

Q. And what was that?

A. It was something called Amendment Number 2.

Q. And was this before your conversation with Mr. Messman?

A. Yes, it was.

Q. Did you then call Mr. Messman?

A. Yes. So, I -- come to find out what Amendment Number 2 was, I read it. It cleared up the problems that I had been struggling with before around some odd language in the Asset Purchase Agreement. This made it clear that we did own the UNIX copyrights and so, at that point in time, I picked up the phone and called Jack.

Q. Tell us about that conversation, please.

A. So, on the afternoon of June 5, then, I called

947

Jack. He got on the phone, and we talked for a few moments. And then he said:

"What's up?"

And I said: "Well, Jack, I've got a real problem with this letter that you sent not only me but broadcast around the world saying that you still owned UNIX and the copyrights."

And he said: "Well, Darl, we do."

And I said: "Well, Jack, that's a point of contention. I totally disagree with that, but if there was ever any doubt before, it's certainly cleared up when you read Amendment Number 2 to the purchase agreement."

Q. What did he say to that?

A. He got pretty excited and said: "Amendment Number 2? What are you talking about? What's Amendment Number 2?"

Q. And what did you tell him?

A. I explained to him that this clarifies that SCO in fact does own the UNIX copyrights.

Q. What happened next?

A. He said: "Darl, is this a trick? Are you trying to trick me?"

Q. And I said: "Trick you into what? What are you talking about?"

"Did you trick me into sending out the letter

948

and now you're coming out afterwards? You had this all the time, didn't you? You knew?"

I said: "Jack, I didn't even know you were sending a letter. That was a shock to me. There's no trick here. My secretary just found this letter. A few hours after finding it, I came back. I came and looked at it. I verified it, and the first thing I did is I called you."

Q. What did he say then?

A. "Well, I don't know what you're talking about, but send it over to me."

Q. Did you do that?

A. I said: "Okay. I'll get it over to you. And then maybe we can talk tomorrow."

He said: "I want you to send it right now. Fax it to me."

So I faxed it to him.

Q. What happened next?

A. About ten minutes later, Jack called me back.

Q. What did he say?

A. He said: "Okay, Darl, you got the copyrights. What do you want?"

Q. Did you -- what did you say in response to that?

A. I said: "Jack, there are three things that we

949

want."

Q. What were the three things?

A. "The first thing is we want you to send out a retraction letter with respect to the letter you just sent out saying you own UNIX. You need to retract that."

Q. What did he say to that?

A. He said: "Okay. What else?"

I said: "The second thing is, I want you to disclose to me, right now, whether IBM was involved in your communications in sending this letter out."

Q. How did he respond to that?

A. He was evasive. He didn't say yes. He didn't say no. So I pressed him on it further. I pressed him two or three times on the issue about whether he had coordinated with IBM, and then finally he said: "I don't want to talk about this topic anymore until I have an attorney with me."

Q. What else occurred in the conversation?

A. So then we went to number three. And I said: "Jack, we need to talk about damages."

Q. What was his reaction to you raising that subject?

A. "Damages? What damages? What are you talking about? There hasn't been any damages."

And I explained to him that the day that their

950

letter went out, on a day that our stock should have been going up because we had record revenue and record profits, in fact, instead of our stock going up that day, our stock sank significantly and that we had been damaged as a result of their letters that had gone out, his press release that had gone out.

Q. Was there any further conversation?

A. Jack was upset about the discussion of damages, and, effectively, that was the end of the call.

Q. I'd like you to take a look at Exhibit 95. Is this a letter which you sent Mr. Messman on June 6, 2003?

A. Yes, it is.

MR. SINGER: I move the admission of Exhibit 95.

MR. ACKER: No objection.

MR. SINGER: I'm sorry?

MR. ACKER: No objection.

THE COURT: It will be admitted.

(SCO Exhibit 95 received in evidence.)

Q. BY MR. SINGER: Mr. McBride, is this a letter which you caused to be sent to Mr. Messman by fax and certified mail on June 6, 2003?

A. Yes, it is.

Q. This was -- was this the day following the conversation on the phone that you have just been telling

951

the jury about?

A. That's correct.

Q. Can we walk through the letter?

A. Sure.

Q. In the first paragraph, you state: "In a well orchestrated press release on May 28, 2003, entitled Novell Challenges SCO's Position, Reiterates Support For Linux, you stated: 'Importantly and contrary to SCO's assertions, SCO is not the owner of the UNIX copyrights.'"

Did you then say: "As you know, your accusation that SCO does not own the UNIX copyrights was false and without a good faith basis for belief."

A. Yes. That's correct.

Q. Did you then proceed to say: "The documents clarifying this issue have been in your possession for nearly seven years."

A. Yes.

Q. Was that referring to Amendment Number 2 as well as the APA?

A. Yes. All of the documents, including Amendment Number 2.

Q. "Any question of whether the UNIX copyrights transferred to SCO under the September, 1995 -- 19, 1995, Asset Purchase Agreement was clarified in Amendment

952

Number 2 to the Asset Purchase Agreement dated October 16, 1996, you either knew or should have known of Amendment Number 2 prior to issuing your press release attack against SCO's ownership rights of the UNIX copyrights on May 28, 2003."

"Therefore your conduct in this matter was either maliciously or recklessly intended to harm SCO's share value and customer relations."

Did you believe that when you wrote it on June 6, 2003?

A. Yes. Absolutely.

Q. It then says: "As to the question of whether your conduct was malicious or reckless, we have a direct statement that Chris Stone, an executive employee working closely with you on this matter, stated that the timing of your May 28, 2003, press release was intended to coincide with our earnings announcement that occurred later that day."

Did you have information that led you to say that Mr. Stone had timed the press release to coincide with the release of your earnings?

A. Yes, we did.

MR. ACKER: Objection, Your Honor. Calls for hearsay.

THE COURT: I'll sustain the objection.

953

Q. BY MR. SINGER: Did this part of the letter reflect your belief at the time?

MR. ACKER: Same objection, Your Honor.

THE WITNESS: Yes, sir.

MR. ACKER: Just a back door to the last question.

THE COURT: I'll overrule the objection. You may answer.

THE WITNESS: Yes. This was my belief at that point in time.

Q. Did the next sentence also reflect your belief when you stated: "I am also concerned that IBM may have possibly been involved in your decision to issue this groundless press release based upon statements that you made in our telephone conversation on June 5."

A. Yes, based on the previous statement he had made to me when we were on the phone.

Q. And are those the statements that you relayed earlier in your testimony today?

A. Yes. Point number 2, the phone call I had with Jack.

Q. If you go back -- if you go down the letter a little bit further to the next paragraph where it says: "SCO will hold a press call at 11 a.m., eastern standard time, to clear up this matter so that our shareholders

954

and customers are fully aware of SCO's rights with respect to the UNIX copyrights. You have time before that call to take the following corrective action in order to possibly mitigate any liability on the part of you, Jack Messman, and Novell, to SCO and to your own shareholders for your false and groundless accusations."

And did you then set forth in the letter what you had asked Mr. Messman to do on the phone call?

A. Yes, I did.

Q. And, following this letter, did you learn that Mr. Messman authorized a press release to be issued by Novell with respect to these claims?

A. Yes, I did.

Q. I'd like to turn to SCO Exhibit 96, which I believe is already in evidence. This was a letter to you on the same day, June 6, by fax; is that right?

A. That's correct.

Q. Was Mr. LaSala an executive of Novell?

A. Yes. He was their general counsel.

Q. Did you understand that this was a response to the letter we have just been looking at?

A. Yes. That was my understanding.

Q. And you see where, in the second paragraph of the letter, it says: "For your information, Novell has to date issued a press release with respect to Amendment

955

Number 2, and a copy is attached."

A. Yes. Correct.

Q. And was there a copy attached to this?

A. Yes.

Q. And if we turn to SCO Exhibit 97, which I believe is also in evidence, is this, in fact, a press release that Novell issued on June 6, 2003?

A. Yes. That's right.

Q. Did you read it when it was issued?

A. Yes, I did.

Q. Did you see that it stated that in a May 28 letter to SCO, Novell challenged SCO's claims to UNIX patent and copyright ownership and demanded that SCO substantiate its allegations that Linux infringes SCO's intellectual property rights. "Amendment Number 2 to the 1995 SCO/Novell Asset Purchase Agreement was sent to Novell last night by SCO."

Did you understand that to refer to what you had sent to Mr. Messman?

A. Yes. That's right.

Q. "To Novell's knowledge, this Amendment is not present in Novell's files."

Did you have any way of knowing, at that time, whether that was true or not?

A. I didn't know what was in their files.

956

Q. "The Amendment appears to support SCO's claim that ownership of certain copyrights for UNIX did transfer to SCO in 1996."

A. Right.

Q. Then it says: "The Amendment does not address ownership of patents, however, which clearly remain with Novell."

What was your reaction, Mr. McBride, to Novell's press release of June 6?

A. I was very pleased that Jack not only gave us a retraction letter as I had requested of him, but he did it inside of the 24-hour window.

Q. Now, is it -- had SCO brought a lawsuit against IBM for breach of contract in March of 2003?

A. Yes, we had.

Q. And during this time, in June, were you in discussions with IBM regarding whether their license rights should be terminated?

A. Yes, we were.

Q. Can you tell us whether those had started in March?

A. We had started discussions with them in March. Per our contract with IBM, we had a hundred-day cure period where we needed to work through and try and resolve the issues. In June, we were getting towards the

957

latter end of that hundred-day period. I believe the period expired the middle of June in order for them to get square with us so we wouldn't be terminating their AIX license

Q. Three days after the June 6 letter and press release from Novell, did you receive SCO Exhibit 672, which is another letter from Jack Messman, this one dated June 9, 2003?

A. Yes, I did.

MR. SINGER: I move the admission of Exhibit 672.

MR. ACKER: No objection.

THE COURT: It will be admitted.

(SCO Exhibit 672 received in evidence.)

Q. BY MR. SINGER: Did you understand that this letter had to do with the discussions that you were having with IBM and the issue of terminating IBM's license rights?

A. Yes. I did understand that.

Q. Why were you engaged in a discussion about terminating IBM's license rights?

A. Well, that was part of the contract requirement, that we would sit down and try and work through that and try and come to a resolution to the problem.

958

Q. Was there a particular concern that you had had with what IBM had done that would give you reason to terminate those license rights?

A. Yes. There was a big concern we had.

Q. Can you briefly summarize what that concern was?

A. The concern was, IBM had taken their version of UNIX, called AIX. They had taken significant portions of that, and they had moved that technology over to this upstart operating system called Linux to help Linux grow up to be a business-worthy, business-qualified operating system, and that was against the rights that they had with respect to their AIX contract and license

Q. Had you provided, in March, 2003, a notice of intent to terminate your license because of that?

A. Yes, we did.

Q. And did that begin a period of discussion between SCO Group and IBM?

A. Yes, it did.

Q. Can you look at the last paragraph of Mr. Messman's letter of June 9, 2003.

A. Okay.

Q. Where it says: "Accordingly, pursuant to Section 4.16(b) of the Asset Purchase Agreement, Novell hereby directs SCO to waive any purported right SCO may

959

claim to terminate IBM's SVRX licenses enumerated in Amendment X or to revoke any rights thereunder, including any purported rights to terminate asserted in SCO's letter of March 6, 2003, to IBM. Novell directs SCO to take this action by noon, mountain daylight time, June 12, 2003, and to notify Novell it has done so by that time."

Did you understand this to be basically a three-month -- three-day ultimatum to waive your rights?

A. Yes. That's right.

Q. Did you do so?

A. No, we did not.

Q. I'd like to turn to Exhibit 675. Is this another letter from Mr. Messman, dated June 12, 2003 that was sent to you?

A. Okay.

MR. SINGER: I move the admission of Exhibit 675.

MR. ACKER: No objection, Your Honor.

THE COURT: It will be admitted.

(SCO Exhibit 675 received in evidence.)

Q. BY MR. SINGER: Mr. McBride, can you read for the jury, after it refers to the various agreements, what Mr. Messman told you in his letter of June 12, 2003?

A. Do you want me to read that?

960

Q. Please.

A. "In its June 9 letter to the SCO Group, Novell directed SCO to waive any purported right SCO may claim to terminate IBM's SVRX licenses enumerated in Amendment X or to revoke any rights thereunder, including any purported rights to terminate asserted in SCO's letter of March 6, 2003, to IBM. Novell directed SCO to take this action by noon, mountain daylight time, June 12, 2003."

Q. Can you read the next paragraph. I think there's a paragraph at the bottom of the page, Mr. Calvin (sic). Please continue, Mr. Messman -- or, Mr. McBride, with Mr. Messman's letter.

A. Okay.

Q. The last --

A. Oh, okay: "SCO has failed to take the action directed by Novell."

Q. And then, can you read the paragraph on page 2?

A. Okay: "Accordingly, pursuant to Section 4.16(b) of the Asset Purchase Agreement, Novell, on behalf of the SCO Group, hereby waives any purported right SCO may claim to terminate IBM's SVRX licenses enumerated in Amendment X or to revoke any rights thereunder, including any purported rights to terminate asserted in SCO's letter of March 6, 2003, to IBM."

Q. Did you understand this to be Novell seeking to

961

act to force SCO to waive its rights?

A. Yes. That's exactly the way I viewed it.

THE COURT: Mr. Singer, Mr. Acker has not objected, but I've got to instruct you to not ask leading questions.

MR. SINGER: Yes, Your Honor.

Q. BY MR. SINGER: Did Novell change its position with respect to the UNIX copyright ownership after June 6?

A. Yes, it did.

Q. And I'd like you to look at Mr. LaSala's letter of June 26, SCO Exhibit 678. I move the admission -- is this a letter from Mr. LaSala to you dated June 26, 2003?

A. Yes, it is.

MR. SINGER: I move the admission of Exhibit 678.

MR. ACKER: No objection, Your Honor.

THE COURT: It will be admitted.

(SCO Exhibit 678 received in evidence.)

Q. BY MR. SINGER: Do you -- would you go down to the second paragraph of this letter?

A. Okay.

Q. Do you see where it says: "SCO's statements are simply wrong."

A. Yes.

962

Q. And can you read the balance of that paragraph for the jury, please.

A. "SCO's statements are simply wrong. We acknowledge, as noted in our June 6 public statement, that Amendment Number 2 to the Asset Purchase Agreement appears to support a claim that the Santa Cruz Operation had the right to acquire some copyrights from Novell."

Q. Can you stop there, Mr. McBride?

A. Yes.

Q. Is that what your view of the June 6 public statement by Novell said?

A. No. That's not what it said at all.

Q. Can you explain the difference?

A. Well, if you look at the word "acquire" in here, that's not what Jack said in the statement that went out. He said "transfer." He didn't use the word "acquire." He said "transfer."

Q. What was the significance of that, to you?

A. He admitted, when he saw the thing come through, and the first statement he came out with was that, in fact, copyrights had transferred to SCO.

Q. Can we look back at the June 6 press release for a moment. That would be Exhibit Number 97.

A. Okay.

Q. Are you referring to the statement that appears

963

in the first paragraph -- can you show what you're referring to in this paragraph?

A. Let me find it here. Let's see. Yes. So if you go down to the second-to-the-last sentence, it says very clearly: "The Amendment appears to support SCO's claim that ownership of certain copyrights for UNIX did transfer to SCO in 1996".

Q. Can we turn back, now, to SCO Exhibit 678. And can you pick up with your reading of the second paragraph of Mr. LaSala's letter of June 26?

A. Yes. So we got down to the part where they did some wordsmithing to change what was actually in the letter. Then we go to the next part. Then he says: "Upon closer scrutiny, however, Amendment Number 2 raises as many questions about copyright transfers as it answers. Indeed, what is most certainly not the case is that any question whether UNIX copyrights were transferred to SCO as part of the Asset Purchase Agreement was clarified in Amendment Number 2 as SCO stated in its June 6 press release, and there is no indication whatsoever that SCO owns all the patents associated with UNIX or UnixWare."

Q. How did you regard Mr. LaSala's letter of June 26?

A. Well, it was flipflopping, to use the term from

964

the political world. They had gone out publicly and said we own UNIX. We had come back and produced Amendment Number 2, and right on the phone, Jack said to me: "Okay. You got the copyrights. What do you want?"

And the first thing I said is: "We want a retraction letter."

And within 24 hours they sent a retraction letter. Now, several weeks later, they were reversing their position again. It was getting dizzying to figure out which direction they were. Did they own them or did they not own them?

Q. Can you turn to Exhibit 105, which I believe has already been admitted into evidence. This is a letter from Mr. LaSala, now, August 4, 2003. Did you receive this letter?

A. Yes, I did.

Q. And did you regard this -- in your judgment, was this a change in Novell's position?

MR. ACKER: Objection. Leading, Your Honor.

THE COURT: Sustained.

Q. BY MR. SINGER: Can you explain how you viewed this letter of August 14, 2003?

A. Yeah. And it's not coming up on my screen. Which Exhibit Number is it?

Q. It's Exhibit 105.

965

A. 105?

THE COURT: It has been admitted, so it should be on the screen.

THE WITNESS: It stops at "Dear Mr. McBride." There. Thank you. If you blow it up so I can read it. There. Thank you.

Q. BY MR. SINGER: Can you turn to the second paragraph.

A. Okay.

Q. Do you see where it says: "We dispute SCO's claim to ownership of these copyrights."

A. Yes, I do.

Q. And can you turn to the third paragraph.

A. Okay.

Q. What was your reaction to the letter of August 4, 2003?

A. Well, it was -- again, this -- the flipflopping mentality comes to mind, that Jack had clearly told me: "You got the copyrights." They had sent out the retraction letter. Then, the end of June, they send a letter trying to modify what we had said. Now, in August, they are coming out with another story. It just appeared they were trying to make up stories to create a claim for ownership, when in fact they had told me -- he had told me over the phone: "You've got the copyrights.

966

What do you want?"

Q. Could you turn to the last paragraph of the letter and read that to the jury, please.

A. Okay: "Unless and until SCO is able to establish that some particular copyright right is required for SCO to exercise its rights under the APA, SCO's claim to ownership of any copyrights in its UNIX technologies must be rejected and ownership of such rights, instead, remains with Novell."

Q. We will talk about this in more detail later, but, in general, what effect did Novell's statements claiming that it owned the copyrights, that SCO did not own the UNIX copyrights have on SCO's business?

MR. ACKER: Objection. Compound. Which statement?

THE COURT: Sustained.

Q. BY MR. SINGER: Let's start with, what effect did the statement that SCO did not own the UNIX and UnixWare copyrights have on SCO's business?

MR. ACKER: Same objection. Statements. He's got to identify which statements, Your Honor.

MR. SINGER: I think that this is --

MR. ACKER: Some are public and some are private, and he's talking -- he's glumping them all together. He needs to break it out. It's a compound

967

question.

THE COURT: Why don't you reask the question, Mr. Singer.

Q. BY MR. SINGER: At this point in time, you were aware of -- were you aware of statements that we had looked at in June of 2003 --

A. Yes.

Q. -- including a press release which had retracted the May 28 press release?

A. Yes.

Q. This letter of August 4, 2003, do you know if this was published at this time?

A. At this time, to my knowledge, it was not published publicly.

Q. Do you know whether it was published at a later time?

A. Yes, it was, eventually.

Q. Do you know approximately when that was?

A. Yes. It was later published on our earnings call, two quarters later, on December 22, 2003.

Q. And can you tell me, Mr. McBride, whether this assertion by Novell in December, 2003, had an effect on your business?

A. It had a devastating effect on our business.

Q. Can you elaborate a bit?

968

A. On December 22, 2003, we had just finished up our fiscal year, so we had a full year, now, of reporting, and it was the first full year of having SCOsource licensing within one year. And the results that we announced were record breaking revenues of nearly 80 million dollars for the year and record breaking profits. I believe they were over 5 million dollars. On the day that we announced, once again, SCO was facing another attack from Novell about the question of UNIX copyright ownership.

Novell came out and announced that it had filed copyright registrations with the copyright office, it reasserted its ownership claims of UNIX, and, once again, on a day that our stock would be expected to go up -- I mean, when you have record breaking revenues, usually, as a publicly traded company, your stock goes up. Instead of our stock going up on what should have been the best day of our company's life with our record breaking earnings and revenue, our stock went down on the heaviness of yet another Novell statement that they owned UNIX.

Q. Would you look at Exhibit 134, which I believe is later in your book. I'm sorry. It's A-24.

A. A-24?

Q. Yes. It should be near the end of the book.

969

A. Got it.

Q. Was this SCO's announcement at the end of 2003, specifically on December 22, 2003, regarding financial results?

A. Yes. That's right. This is the one we were just talking about.

MR. SINGER: I move the admission of A-24.

MR. ACKER: No objection.

THE COURT: It will be admitted.

(Defendant's Exhibit A-24 received in evidence.)

Q. BY MR. SINGER: And can you read out loud the first paragraph of the report.

A. Sure: "The SCO Group, owner of the UNIX operating system and the leading provider of UNIX based solutions today reported revenue of 24.3 million for the fourth quarter of its fiscal year ended October 31, 2003, a 57 percent increase of revenue over 15.5 million for the comparable quarter a year ago."

Q. And this press release was issued, you said, on December 22?

A. Correct.

Q. Could you turn to the exhibit that's right before this in your book, Exhibit 517. Is this a press release by Novell dated December 22, 2003?

A. Yes. Correct.

970

Q. I believe this is already in evidence. Can you read out loud the one paragraph of this press release.

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

Q. Do you know what correspondence -- whether the correspondence being referred to in its press release included the letters we've been looking at in August and June?

A. That was my assumption.

Q. The letter of June 26 from Mr. LaSala, was that published, at the time, as a press release?

A. No, it was --

MR. ACKER: Objection. Vague as to which time. September 22 or in December?

Q. BY MR. SINGER: At the time it was written, in June, 2003, was that published as a press release?

A. It was not published in June, no.

Q. Was the -- did you come to learn that Novell

971

had registered copyrights in its name in 2003 for UNIX and UnixWare?

A. Yes.

Q. Was that publicly made known at that time by Novell?

A. No.

MR. ACKER: The question misstates facts. There is no copyright registrations for UnixWare.

Q. BY MR. SINGER: We're talking about UNIX and UnixWare. Are you aware of whether or not any of the copyrights registered by Novell were for UNIX technology?

MR. ACKER: Calls for speculation -- oh, for UNIX technology? I have no objection to that.

THE WITNESS: Yes. I was aware that they had registered copyright notices on UNIX back in the October time frame.

Q. BY MR. SINGER: Are you aware of whether or not those copyrights covered the same technology which you had obtained copyrights on from AT&T through Novell?

A. Yes, they did.

Q. Did -- was that publicly announced by Novell prior to December 22, 2003?

A. No, it was not.

Q. Can you summarize what the effect of the press

972

release on December 22, 2003 had on your SCOsource business?

MR. ACKER: Objection. Asked and answered, Your Honor.

THE COURT: Overruled.

THE WITNESS: It had the effect of killing off our SCOsource business over the period of time from when that was announced, going forward. Eventually, because of the statements that Novell had made, we were unable to complete anymore SCOsource licensing deals. "Anymore" is not the right word. Eventually it got to the point we could not complete SCOsource transactions because people kept pointing to the Novell public statements that were out there that they still owned UNIX.

MR. SINGER: Your Honor, I am at a breaking point before going on to a different topic. I can start that or --

THE COURT: No. I think it's best that we just go ahead and recess for the afternoon. That is what you're asking me, correct?

MR. SINGER: Yes, Your Honor.

THE COURT: Ladies and gentlemen, I will not repeat what you have been told to do. Because I don't repeat it doesn't mean it doesn't still apply to you. All right. We will be in recess until 8:30 in the

973

morning.

Ms. Malley.

MS. MALLEY: All rise for the jury.

(Jury leaves the courtroom.)

THE COURT: Mr. McBride, I do need to caution you not to discuss your testimony with any other witnesses in this case.

THE WITNESS: Understood.

THE COURT: Or in the presence of any other witnesses.

THE WITNESS: Okay.

THE COURT: And we will have you back on at 8:30 in the morning.

Do you have anything, counsel, before we recess?

MR. SINGER: Your Honor, is Mr. McBride able to discuss the case with counsel, since he is still under direct examination?

THE COURT: Mr. Acker?

MR. ACKER: That's fine.

THE COURT: I know of no reason why he couldn't.

MR. ACKER: No objection. He can continue to get down.

THE COURT: Counsel, we do have hearings this

974

afternoon, so if you would not mind clearing off the desks.

MR. JACOBS: Your Honor, because the colloquy among us about Ms. Madsen and her recall and what's in the declaration refers to documents such as some deposition testimony and the declaration itself, and because I think we need to make a record on this, we would propose to submit a proffer or offer of proof, maybe tomorrow, that contains the declaration, the deposition testimony, etc., so that there's a clear record.

THE COURT: So that you have a record. I see. That will be appropriate, certainly.

MR. JACOBS: Thank you.

THE COURT: If there's nothing else --

MR. NORMAND: Your Honor, there is one other issue.

THE COURT: Mr. Normand.

MR. NORMAND: There are, respectively, three sets of deposition designations that relate to depositions that were taken in the IBM case, and SCO is still contemplating using them. My understanding is that Novell objects to them, among other reasons, on the grounds that they were taken in the IBM case and not this case. If that objection stands, we would propose to put

975

in a resubmission to the Court on that issue.

THE COURT: All right.

MR. JACOBS: The objection stands, Your Honor.

THE COURT: All right. You better put in a submission, then.

MR. NORMAND: Thank you, Your Honor.

MR. SINGER: Thank you, Your Honor.

THE COURT: We will be in recess until 8:30.

(Whereupon the proceedings were concluded for the day.)

976


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