Free Transcript - District Court of Arizona - Arizona

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA _________________ ) ) ) ) Plaintiff, ) ) ) vs. ) ) PETER THIMMESCH, et al., ) ) Defendants. ) ______________________________) BILTMORE ASSOCIATES, as Trustee for the Visitalk, Creditors' Trust,

CV 02-2405-PHX-HRH Phoenix, Arizona March 4, 2008 8:29 a.m.

BEFORE:

THE HONORABLE H. RUSSEL HOLLAND, JUDGE

REPORTER'S TRANSCRIPT OF PROCEEDINGS BENCH TRIAL DAY #2 Pages 139 to 361, Inclusive

Official Court Reporter: Elizabeth A. Lemke, RDR, CRR, CPE Sandra Day O'Connor U.S. Courthouse, Suite 312 401 West Washington Street, SPC. 34 Phoenix, Arizona 85003-2150 (602) 322-7247 Proceedings Reported by Stenographic Court Reporter Transcript Prepared by Computer-Aided Transcription

Case 2:02-cv-02405-HRH

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1 2 For the Plaintiff: 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

A P P E A R A N C E S

TIFFANY & BOSCO By: Christopher Reed Kaup, Esq. Andrew M. Ellis, Esq. Tracy Shelden Morehouse, Esq Robert A. Royal, Esq. 2525 East Camelback Road, 3rd Floor Phoenix, AZ 85016 For the Defendants: MARISCAL, WEEKS MC INTYRE & FRIEDLANDER, PA By: Gary L. Birnbaum, Esq. Timothy J. Thomason, Esq. Scot L. Claus, Esq. 2901 North Central Avenue, Suite 200 Phoenix, AZ 85012

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1 2 3 4 5 6 7 8 9 10 Exhibit No. 391 11 Exhibit No. 508 12 Exhibit No. 513 13 14 15 16 17 18 19 20 21 22 23 24 25 Exhibit Exhibit Exhibit Exhibit No. No. No. No. 747 748 750 752 Exhibit No. 522 Exhibit No. 562 Exhibit No. 566 EXHIBIT NO.: WITNESSES JOHN FALLON RICHARD ROTHWELL

INDEX OF WITNESSES Direct 150 211 Cross 186 258 Redirect 204

INDEX OF EXHIBITS

DESCRIPTION:

RECEIVED: 182 235 312 148 360 148 296 148 326 330 333 338 343

Exhibit No. 165 Exhibit No. 304

Exhibit No. 753

Kettle Consultant Rep. Series F Preferred Stock Purchase Agreement Joint Motion of Accredited Trustees Unanimous Consent of Board of Directors dated 9-12-98 Minutes of Special Stockholders' Meeting 12-2-98 Visitalk.com advertising brochure 11-24-99 Minutes, Special Meeting 12-13-99 Release of Claims of Mark Cardwell 11-4-00 Rick Rothwell e-mail 11-6-00 Rick Rothwell e-mail String of e-mails dated 12-1-00 12-30-00 "Investor Letter" from Rick Rothwell 12-20-00 "Investor Letter" from Rick Rothwell

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P R O C E E D I N G S (Called to the order of court at 8:29 a.m.) THE COURT: Please be seated. This is the continuation of trial in Biltmore Associates V. Thimmesch, case No. 02-2405. The Court has pending a motion on the part of the defense for a Rule 52(c) judgment as a matter of law. We've Good morning, ladies and gentlemen.

received and reviewed the supplemental memoranda that you all submitted yesterday. I realize I suggested that we have some further proceedings on this, but quite frankly, I don't think it's necessary in light of the memoranda that you have filed. authorities that the plaintiff has relied on make it quite clear to me that this motion has to be denied. The case that I'm relying upon -Just hold your peace, Mr. Birnbaum. The motion is, as I say, one for a judgment as a matter of law. The case of Roland v. Bernstein, which is I'm The

relied upon by the -- you might as well sit down, sir. going to finish this and then I will hear from you. MR. BIRNBAUM: THE COURT: Thank you.

Roland v. Bernstein, which the plaintiff

relies upon, is in my view controlling in this situation. That case holds that Section 12-204, which is the UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 501 Filed 04/22/2008 Page 4 of 223

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Arizona statute which the defense relies upon, says that section was passed as a part of a statute regulating contribution, therefore is not obviously applicable to a situation where there is no right of contribution. In this case the plaintiff has pleaded a number of tort actions against Snell & Wilmer. several claims against Snell & Wilmer. They are pleaded as Plaintiff has not And

pleaded any intentional tort claim against Snell & Wilmer. in the Joint Pretrial Statements, Snell & Wilmer expressly seeks allocation of fault which comes under 12-2506, not contribution.

This is simply not a contribution case, and therefore, Section 12-2504 does not apply. MR. BIRNBAUM: a brief comment to make. Now -And I just have

Thank you, Your Honor.

Your Honor, we've reviewed the

authorities cited by the plaintiff as well, and here is how we view the case and it's a little bit different. THE COURT: Mr. Birnbaum. MR. BIRNBAUM: Well, Your Honor, I'm not going to We accept the Court's ruling. I'm not going to hear you on this motion,

address the Randall case.

The only thing I want to address, Judge, is that if it's a several liability case -- we accept that it is. We

accept their representation that that's what's intended and we accept the Court's ruling. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 501 Filed 04/22/2008 Page 5 of 223

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If it's a several liability case, then what I'm afraid they have ignored and none of us have addressed because we didn't know that was the issue until last night, then the question is what is the significance of Mr. Schweigert's admissions in court? I'm accepting that it's several liability. I'm

accepting that Randall is controlling with respect to the statute. But here is what happened in court. Mr. Schweigert is the only representative of the plaintiff Biltmore Associates. He is the only listed witness.

He comes into court and he is asked the question -- assuming it's several liability. We're not touching that. What's the total damages

He is asked the question: you've suffered?

Well, that's 17 million or whatever in their theory. And I even asked him: What's the total amount of

money that Visitalk ever raised from any source? And he says 43 million. Then we asked him about these individual settlements, the judgments. Now, the judgments do not offset that under a We understand that. We accept that.

several liability theory.

But then he is asked, for example, with respect to Cynthia Thimmesch: Is the $55 million judgment against Cynthia A plaintiff's fair

Thimmesch a fair and reasonable estimate?

and reasonable estimate of the damages caused by that UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 501 Filed 04/22/2008 Page 6 of 223

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particular defendant. And he says, Yes. defendants. And therefore, he has admitted the allocation of the damages, and there are no damages left to allocate to Snell. And the last thing I will say is just to give you an analogy, because I do think this is helpful -- it's helpful to me in understanding this. Let's say we have a case with three tortfeasors, an automobile case where there's two drivers and the City is alleged to have done something wrong. by the plaintiff are $10,000. Admission. And you say: And the damages claimed And that's true of each of the

And you send out a Request for

Admit that party A was at fault and

that the damages allocable to party A caused by party A is $7,500 and that comes in an admission and it says I admit that. Then you say: Admit that party B was at fault and And

admit that the allocable damages to party B are $2,500. the plaintiff admits that.

At that point in the case, in a several liability case, party C is entitled to judgment as a matter of law, because the admissions are binding on the plaintiff and there are no damages left to allocate to the parties. And that's why, I think, Your Honor -- and the reason I have stood up to speak, is because the parties are a little bit ships passing in the night. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 501 Filed 04/22/2008 Page 7 of 223

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 too, sir.

If it's joint and several liability, the statute controls; but it's not, because it's not. and they say it's not. But if it's several liability, then you have to look at the admissions of the plaintiff. My last comment, Judge, if you were to not adopt these admissions as binding upon the plaintiff, I just ask rhetorically: What are we going to try? They don't allege it

We're going to try a case about whether or not you should allocate fault, if you find any, and damages in a fashion different than the fashion that the plaintiff admits is the proper and reasonable allocation. The whole purpose of judicial admissions, discovery, interrogatories, et cetera, is to allow the parties to define the issues. And Mr. Schweigert has clearly defined them here. He allocated the fault among the

He defined the damages. parties.

He entered into settlement agreements that he said And there are no

are fair, reasonable, and proper allocations.

damages left and Mr. Schweigert has to live with those admissions. Thank you very much, Your Honor, for hearing me. appreciate it. THE COURT: You're welcome. You can hold your seat I

That's an interesting theory.

It's one that I'm sure

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I will hear some more about.

It's one that I wish I had heard

something about before we all gathered and started this trial. I don't know right now what I would have done with it had I heard the argument before we started the trial. the middle of trial we're going to finish. But in

And then we will

wrestle with this question of whether or not there is any fault to allocate to Snell & Wilmer, if indeed, the Court finds that there is some fault on that side of the case. There are a couple of housekeeping things that are left over from yesterday that I want to mention to you. Toward the end of Mr. Schweigert's testimony I'm afraid I lost my focus a bit on making sure that we had a clear record as far as what exhibits were offered and which were admitted. Some or all of you dealt with Exhibit 508 which was a Consent Board Meeting minute, I believe, from 9/12. not offered and I don't think has been admitted. 566, we're in the same situation. Release of Claims. Exhibit 522 was the plaintiff's -- or the former plaintiff's advertising brochure. Is there objection to the Court receiving and considering any of those exhibits? MR. BIRNBAUM: admission of all three. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 501 Filed 04/22/2008 Page 9 of 223 No, Your Honor. We would move the It's the Cardwell That was

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MR. KAUP:

Only as to the advertising brochure, Your

Honor, they haven't laid any foundation for authentication as to that document. THE COURT: Exhibit 508 and 566 are deemed admitted. Your Honor, we can lay additional

MR. BIRNBAUM:

foundation, but Mr. Schweigert said that he assembled the corporate records of Visitalk. exhibit. He reviewed them. He saw that

It's a corporate record of Visitalk. THE COURT: I've looked at it and it certainly looks I'm going to admit it. And if we

like a corporate record.

need to hear something further about it, we certainly can. MR. KAUP: THE COURT: 522 are admitted. (Exhibits No. 508, 566, and 522 admitted into evidence.) THE COURT: The other housekeeping thing that I want Thank you, Your Honor. But for right now, Exhibits 508, 566 and

to call to your attention has to do with that clarification order that was entered by the Bankruptcy Court and which is, I believe, Exhibit 658. I'm going to want to see the underlying motion papers that lead to that clarification order. I don't know whether But one way

they are included in the prefiled exhibits or not.

or the other, I want to see -- I want to see the underlying motion that lead to that order. MR. KAUP: Your Honor, we will provide that to you. I

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will have my assistant print a copy and we will have it brought to you later this afternoon. THE COURT: Okay. next witness. MR. KAUP: Fallon. Your Honor, my next witness is James He's probably about five Thank you.

That brings us to today and you may call your

We have spoken to him.

minutes away from the courthouse at this moment and I expect him to be here very shortly. So if we could just have a brief

adjournment, I do know he is on his way. THE COURT: witness is here. MR. KAUP: THE COURT: Thank you, Your Honor. Please let's try and have your witnesses Okay. We will be in recess until the

here when you need them. We will be in recess. (Recess taken from 8:42 a.m. until 8:55 a.m.) THE COURT: witness, sir. MR. KAUP: Honor. THE CLERK: Please come forward. State your name for I call James Fallon to the stand, Your Please be seated. You may call your

the record and spell your last name, please. THE WITNESS: THE COURT: My name is James Fallon. Please have a seat. F-A-L-L-O-N.

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150 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A Q A Q Q A Q BY MR. KAUP: Good morning. Thank you for coming this morning. What do you do for a living, sir? I'm currently a research analyst for Aztore' Capital. How long have you done that, sir? Approximately, one year. Were you ever employed by a company known as visitalk.com, MR. BIRNBAUM: Your Honor, Mr. Claus will be

conducting the cross-examination, so he will be making the objections. THE COURT: Thank you.

JAMES FALLON, WITNESS, SWORN, DIRECT EXAMINATION Good morning, Mr. Fallon.

Inc.? A Q A Q A Q Yes, sir. When did you first become employed by Visitalk? I became -- I started as a contractor in November of 1999. Are you aware that Visitalk filed for bankruptcy? Yes, sir. Were you -- did you ever actually become employed by

Visitalk? A Q A Yes, sir. When did you first become employed by Visitalk? It was in December or January -- December '99 or January UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 12 of 223

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151 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 2000, right in that time frame. Q Were you employed by Visitalk through the date of its

bankruptcy? A Q Yes, sir. Describe -- what was the capacity in which you were

employed by Visitalk? A As I said, I was initially hired as a contractor to fix Then I was hired as

some reliability issues with the servers.

an employee to further address reliability and connectivity issues and to work on some scalability problems that they had. Q When you became an employee of Visitalk, did you have a

particular job position? A Q I was a senior engineer. What were your duties as the senior -- as a senior engineer

with Visitalk? A My specific duties were to improve the reliability of the

servers themselves. Q What were your duties when you were an independent

contractor working for Visitalk, starting in November of 1999? A I was hired as a contractor because the servers would crash When too many users logged onto a server and

frequently.

started doing applications or using the communications services, the servers would just stop functioning. was to figure out what the problem was and fix it. Q And did you do that? UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 13 of 223 And my job

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152 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A Q Yes, sir. In November of 1999 when you were hired by Visitalk as an

independent contractor to work on the matters you described, did the problems you described impair the performance of Visitalk's technology? A Q Yes, sir. How did it impair -- how did those problems impair the

performance of Visitalk's technology? A The servers would become unreliable. People would be using If anybody has ever

the Web site and it would just lock up.

had that happen to them before, you know what I'm talking about. Well, at Visitalk what they would do is reboot the servers on approximately an hourly basis in order to just get a fresh start for each one of the servers. But it meant all the

work was lost that any user was doing at that time, so it was a frustrating experience for the users and it was a lot of work on the backend too. Q A Q A Who were the users of Visitalk at that time? Customers. Consumers? Yes, sir. Businesses? Mostly consumers at that time. There was a lot

of business interest from the "possibility" point of view, but most of the users at that time were consumers. Q You mentioned three types of matters that you were working UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 14 of 223

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153 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 on; reliability, connectivity, and scalability. A Q A Yes. Could you describe for the Court what those issues were. The reliability issue is pretty much what I have described.

The server needs to stay functioning correctly in order for the user to be able to perform the task they are trying to do. needs to do that in a consistent fashion. problem that I addressed. The second problem would be connectivity. And that's It

That was the first

how a server connects to the database or to some other part of the system. And if that isn't done correctly, then you end up

with a bunch -- with a lot of dead connections laying around in the system, and it's like a clogged pipe. Nothing can get

through if you have all these dead connections there. That was the second issue that I addressed was to correctly clean up those connections so they didn't clog up the pipes so that only good connections were being used. The third issue was scalability, which is the ability of a server to continue to function as more and more users and more and more loads are put on the system. Q When you first began working for Visitalk, was it

Visitalk's -- did Visitalk present to the public that it's scalability was massive? MR. CLAUS: Objection, Your Honor. Foundation. Lacks

personal knowledge and it calls for hearsay. UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 15 of 223

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154 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q Q THE COURT: BY MR. KAUP: Sustained.

Did you, as an independent contractor working

at Visitalk, look at Visitalk's Web site? A Q Yes, sir. What did Visitalk's Web site make statements about the

technology's scalability? MR. CLAUS: time and hearsay. THE COURT: BY MR. KAUP: Let's get the time. Objection, Your Honor. Foundation as to

In November of 1999, did Visitalk's Web site

make any statements about the scalability? A I honestly don't recall whether the Web site had any claim

on there at that time. Q Did you come to have knowledge in November of 1999 whether

Visitalk viewed its product as being scalable? MR. CLAUS: Objection, Your Honor. Foundation. And

how he gained the knowledge calls for hearsay and suggests he lacks personal knowledge. THE COURT: I will listen to it. If he has some personal knowledge of this, But that which he has picked up just from

other employees or wherever, the objection is valid, I think. Q BY MR. KAUP: Did you ever gain any personal knowledge

about whether the representations regarding the -- about any of the statements to the public by Visitalk regarding the product's scalability? UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 16 of 223

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155 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. CLAUS: Same objection, Your Honor. It calls for

hearsay in the question itself. THE COURT: I think you've got to put him in a job

category where he knows the area that you're talking about. He's apparently hired and employed as an engineer. Q BY MR. KAUP: Has the -- you were hired as a senior

engineer -- you've testified you were hired as a senior engineer. What did -- as part of -- did you have an

understanding as to what your task was as to scalability? Where were you supposed to take the scalability? A Yes, sir. My job was to continue to develop the system in such a way it would be able to handle millions and millions of users. That was the goal. Q In November of 1999 could Visitalk's technology handle

millions and millions of users? A Q No, sir. How many users could Visitalk handle at one time in

November of 1999 when you first started working for the company? A Q A Maybe a few thousand. What did you say? I'm sorry.

Maybe a few thousand in November because the servers would

crash. Q The -- and the servers crashed -- what was the reason the UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 17 of 223

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156 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 servers were crashing? A The servers were crashing because there was some software

programs that were improperly written that run on the server to process the Web page and get information. Those servers would

consume the memory of the machine and wouldn't release memory when they were finished. And so eventually they would consume The

all OF the resources of the machine and would crash. machine would stop functioning.

It was just a -- the wrong

techniques were used in writing the software. Q And that's the scalability problem that you testified

about? A Q That was the original reliability problem. And why did -- were -- in November of 1999 what was the

problem with Visitalk's technology that only allowed a couple thousand people to use the server -- to use the system at the same time? A That reliability problem had a side effect of consuming the

resources of the machine, and therefore, not enough users would be able to log on before the machine was -- had already eaten itself up. Q A And was that then the scalability problem? That was a scalability problem at that time, but that was

not the ultimate scalability problem that did the -- did the -that became a problem later. I mean that problem didn't even

become apparent until the initial reliability problems were UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 18 of 223

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157 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 solved. Q When was it that you resolved the reliability problem with

Visitalk's technology? A The initial reliability problem was resolved during

December. Q A Q December of 1999? Yes, sir. Was it then that the -- what you put it, the ultimate

scalability problem became manifest? A The -- after the initial reliability problem was fixed,

then it became apparent that there was a connectivity problem. It was -- there was dead connections to the database that then became apparent because the servers were now able to stay on long enough for that to be a problem. That we fixed in January

and February and March and it took a couple months to really attack that and fix that. Once that was fixed and the system could stay on and the connections were being cleaned up correctly, then it became very apparent that there was a design problem with scalability. Those two things had to be fixed first before we could get to that point. Q So when did the design problem with scalability become

apparent? A Q It became really apparent in February and March. Of 2000? UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 19 of 223

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158 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A Q Yes, sir. Were you the employee at Visitalk charged with fixing that

scalability problem? A Q Yes, sir. When you worked at Visitalk from November of 1999 through

February of 2000 when this ultimate scalability problem became apparent, did you gain knowledge regarding Visitalk's technology? A Q A Q Oh, yes, sir. Was this a full-time job for you? Yes, sir. About how many hours a day were you working on these --

resolving these problems? A At that time, as my wife will attest, I was working about

60, 70 hours a week. Q What was -- could you describe the design issues which

created the ultimate scalability problem. A The initial design called for two types of databases; one Any

is a static database which everybody is familiar with. time you log into most computer systems and it calls up

reference data, Wikipedia , MSN News, those types of things are all static databases. Even though they get updated from time

to time, they're not taking a constant beating from users. The other type of database is a dynamic database, which is more like your cell phone system which keeps track of UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 20 of 223

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159 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 where your phone is as you're traveling through the city or going down the highway or going into the airport. That's a lot of activity on a computer to keep track of where that phone is, as opposed to Wikipedia keeping track of, you know, what Hugo Chavez did last week. Those two databases had to be married together, kind of like a phone book, where the static database is the name and the address and the town that the person lives in, but the dynamic database is the phone number. In the IP world, particularly at that time, that phone number kept changing, sometimes several times an hour, sometimes once a day hours when the person logged in and stayed the same until they logged out. was going to be. So there was an application on the individual's computer, the user's computer that would constantly pull. was like a little phone call that it was making over the Internet to say "I'm alive. This is my IP address. And I'm It But you never knew which that

running NetMeeting or MeetingPoint or whatever.

Just a couple

pieces of information that the system needed to know how to contact the person on that computer and whether or not they were actually there. That was originally running about once every minute, once every 90 seconds from each computer out in the system. would connect to the server, send that information, and then UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 21 of 223 It

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160 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 close down. And then a timer would go and check those records When the time expired, they

to see which ones were expiring. would say that person is offline.

So in order to increase the number of users who could be on that system, they had to keep lengthening that time. Eventually, we had it up to about three minutes, which starts to lessen the usability of that as a reliable indicator as to whether or not somebody is really online or not. That system, because of its polling nature, and that to have me be able to tell whether each person on the system is online, as if it's one group of people, was limited by the database that the system was attached to. I don't know if I'm making sense to everybody, but that becomes the choke point, because all of those servers, all of those computers, thousands of people across trying to say "I'm online and this is my IP address and I'm using NetMeeting" was all going to one single database server. could not handle the traffic. scalability. Q You mentioned, sir, that you got the timing up to three And that server

It was a limitation to the

minutes. A Q Yes. And you had said it started around one minute,

one-and-a-half minutes? A It started at like ten seconds in the early days, but that UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 22 of 223

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161 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 was clearly unsustainable. But they had it at a minute for a

while, and then as more users signed on the system, they gradually decreased that polling rate so that it was about three minutes. Q And just so I'm clear, sir, because I'm just a lawyer and I

use the Internet, but I don't have a lot of knowledge about this background stuff, Mr. Fallon, the polling point and this time interval, how does that affect the usability when I'm just a user online? A If you're using your server or you're using your desktop

and it says that you're online and you turn it off right after it polled, it's going to tell me that you're online for another three minutes. And you could be down the elevator and in the

parking garage and I'm still trying to call you thinking that you're online. So at 30 seconds or a minute, it's a push. at three minutes it starts to be annoying. You know,

But to increase

that time beyond that, then the system, the usability of the system is severely tainted at that point. Q And I just want to be clear, Mr. Fallon, what was it that

lead to the extension of time from ten seconds to three minutes? A It was that database server. We could not have -- the

server is limited as to the amount of traffic that it can handle. So if we have a certain number of users that we can UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 23 of 223

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162 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 have at one minute, I can increase that threefold by increasing that time to three minutes because the servers are -- the servers are -- the desktops are connecting one-third less time, one-third of the time, if that makes sense. Q So the -- the fewer users that you have, the shorter time

interval can you have? A Q Yes. What happens when you add more users but have that short

time interval? A Q A The system would just stop responding. And then the product couldn't be used by a user? No, sir. It would be unreliable. It would be meaningless.

The indication as to whether or not someone was online, the ability to send somebody an instant message, which were two of the core components of the system, would stop functioning once that system stopped. Q Do I understand correctly that then the solution was to

extend the time up to what you did, the three minutes? A Q Yes, sir. At three minutes how many concurrent users could be And now I'm

utilizing the Visitalk technology at one time?

talking the February time -- February 2000 time period when you said you first learned about this problem? A At three minutes we were limited -- and this was based on

empirical data -- to around 10,000 users online at one time. UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 24 of 223

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163 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Beyond that, the system would become unreliable. Q After February of 2000, was -- prior to November 29, 2000,

when Visitalk filed for bankruptcy -A Q Uh-huh. -- did the number of concurrent users which could be

serviced by the Visitalk technology change? A Q No, sir. What was -- was there any solution that you contemplated to

the problem about which you have just testified between February of 2000 and the end of November of 2000? A Yes, sir. There were a couple of ways of attacking the

problem.

One was to expand the existing system which would

involve adding a series of -- there was a Sun E4500 was the database server that we were using at the time. And they were very expensive boxes. approximately $250,000 each. primary and a backup. They were

And we had a pair of those; a

And so the solution -- the immediate

solution would be to add more servers, to spread the array or to build an array to spread the load across several databases. The problem with that is that those servers would have to connect to each other in order to make it appear to the outside users that it was one unified database. Because if I'm

online on computer A and you are online on computer B, I want to know if you are online. I don't care which one of the database servers at UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 25 of 223

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164 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Visitalk you're logged into. as one unified directory. To do that consumes some of the resources of the server itself. So if I can have 5,000 users on server A and I They have to present themselves

add another server to run next to that server, not as a backup but to spread the load, just for easy math, I would be reduced to 4,500 users per server. So I don't go to 10,000 users. I go to 9,000 users in

total, because a significant amount of the resources of the server are used to communicate between each other to make that seem like it's one database. Does that make sense? THE COURT: Yeah, but I don't see how that's a

solution if you lose ground. THE WITNESS: Exactly. That is the point. And if you only had to get up

But it is a solution.

to maybe 50,000 users or 100,000 users, then that might be a workable solution. But that would not get you to a million

users or millions of users, because every time you add a server, the capacity of all of the servers goes down, because instead of now it's not connecting to one server, it has to connect to two or to three or to four or to five. And so that type of a server array has what's called a "scaling penalty." The more users that are on the system, the

more expensive per user it gets. UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 26 of 223

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165 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Did other solution which took several months to develop was to put small servers in a matrix. solution that we worked on. That was a

It does not have a scaling

penalty, but at that time it was mostly theoretical. Q The second solution, the matrix solution about which you

just testified, who came up with that idea? A Q A Q A I did. What was that, sir? I did. When did you come up with that idea? It wasn't like -- it didn't happen all at once, but I

finally figured it out in June or July of 2000. Q Was that matrix solution ever actually implemented by

Visitalk prior to the end of November of 2000? A Q A No, sir. And why was that? Well, nobody was doing anything like it at the time, for The other problem was we had to build a prototype

one thing.

and there was not enough money to purchase the servers to build a prototype. We ended up using old servers that weren't usable for anything else. And there -- we were entering a time of limited

resources for the company, and the company had to make a choice to pursue a thing called a Corporate Private Directory, which was a business focus for Visitalk, or to pursue the scalability UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 27 of 223

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166 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 concept. issue of what we called at that time PDS, Presence Detection System. It was that array I was talking about, the matrix I

was talking about. Q The company -- did Visitalk even build a prototype of this

matrix or PDS solution prior to its bankruptcy? A Yes, sir. We had a -- an array of about 20 old Intel

servers -- web servers that we had converted to use for that. It was an internal -- it was more of a proof of I wouldn't even say it was a prototype, because we

never actually had Visitalk's service running on it. It was more of a -- it was a proof of concept to make sure -- to work out the logic and to make sure that the math all worked and that the matrix was consistent, you have to be able to resolve to the same point in the matrix every time. Q So was it then, Mr. Fallon, the first solution about which

you testified where you had the servers in an array in which the total number in which the scalability was reduced, the solution that was implemented after February of 2000? A Q No solution was implemented. The -- how was the Visitalk technology then running

after -- beginning in February of 2000 to the date of its bankruptcy? A It was running on the same dynamic and static systems that There were some improvements.

it was running on in February. There were some changes.

But the core infrastructure of the

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167 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q static database and the dynamic database was the same. Q A Q Have you heard of the phrase "economically scalable"? Yes, sir. What does that phrase mean? MR. CLAUS: THE COURT: BY MR. KAUP: Foundation, Your Honor. Let's get the foundation.

Sir, in connection with your duties as the --

as a senior engineer at Visitalk, did you learn about the phrase "economically scalable"? A Q Yes, sir. Based upon your work as a senior engineer at Visitalk, what

did you learn about the phrase "economically scalable"? A First, I would like to make a minor correction. By the time I was doing this work, I was the Director of Engineering, so economic scalability was a part of my job. If you have a server that costs a quarter of a million dollars and you're getting 5,000 users on that server, the cost per user is $50 a user. If you add another server and you are only getting 4,500 users, then the cost has now gone up per user. And so

every time you add a server, that cost per user goes up. That is not economically scalable. It's the opposite

of what we learn in college about the economies of scale for any industry. Pick an industry. We all, I think, know what

economy of scale is.

The more you're building, the more

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168 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 efficient it is supposed to become, and therefore, you have an economically viable business. If it costs more per user every time you add users to the system, eventually the system -- the company would eat itself alive, because it will never gain any economy of scale. And so that's why that solution was never implemented, because Visitalk's goal was to add millions of users. And by

adding quarter-of-a-million-dollar servers at an increase in cost per user every time was not a solution. have done the company in. Q Was Visitalk's system technology ever economically scalable It clearly would

prior to the date of its bankruptcy? A Q No, sir. Did you ever discuss with -- did Peter Thimmesch ever ask

you whether the Visitalk technology was economically scalable? A Q No, sir. Did you ever discuss with Mr. Thimmesch the problems about

which you've just testified regarding the Visitalk technology? A Q No, sir, that wasn't. Did Mr. O'Donnell ever ask you about the problems regarding

Visitalk's technology? A Q No, sir. Did you ever make a presentation to the officers of

Visitalk during the year 2000 regarding the problems of Visitalk's technology? UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 30 of 223

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169 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A I did not make a presentation to them of the problems. I

did make a presentation to them about the proposed solution, so I would assume that they were aware of the problems. Otherwise, they wouldn't have tolerated my presentation of the solution. Q A When did you make the presentation regarding the solution? That would have -- it would have had to have been in

August, because it was prior to hiring the patent attorney. Q A Q A Q A Q That would have been August of 2000? Yes, sir. I have to remember to put the years in.

But the -- which solution was your presentation about? It was about the matrix solution. The solution you developed? Yes, sir for PDS. And that solution was never adopted by the company before

its bankruptcy? A Q No, sir. As a direct -- as the Director of Engineering at Visitalk,

did you have a conclusion -- did you reach a conclusion prior to Visitalk's bankruptcy about whether Visitalk's technology was commercially viable? MR. CLAUS: Objection, Your Honor. Foundation. More

importantly, an undisclosed and unqualified expert opinion. And if not that, then an improper lay opinion. MR. KAUP: Your Honor, he's not being asked to give an

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170 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 expert opinion. He is being asked whether, as a matter of And he has testified -- this

fact, he reached that conclusion. is not surprise. deposition.

He testified on that issue during his

So, you know, I think he's absolutely qualified as a fact witness to discuss what his conclusion was as the Director of Engineering. He said this was part of his job. I will hear the testimony. Based on the scaling penalty of the

THE COURT: THE WITNESS:

dynamic database system, the technology was not economically viable. Q A BY MR. KAUP: I'm sorry. Not?

It was not economically viable, because it would just

consume the company's financial resources. Q Do you remember something at Visitalk called the Million

Member March? A Q Yes, sir. I mean Million Member March -- it was called the Million

Member March? A Q A Yes, sir. What was the Million Member March, sir? It was a drive to have a million registered users on the

system. Q Was it realistic concerning -- considering Visitalk's

technology limitations to -- for Visitalk to have a million UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 32 of 223

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171 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 members? MR. CLAUS: THE COURT: THE WITNESS: Foundation, Your Honor. I will hear the testimony. The static side of the system could

handle a million users and it did easily. The dynamic side was not capable of handling that many users online, but it was not really a factor at that time. Q A BY MR. KAUP: It was not what? It was a matter

It was not really a factor at that time.

of usage patterns.

We had a peak time during lunch which the There were just too many users

system just became unreliable. on the system.

You have to remember in 1999, most of the users were using their computers at work instead of at home. like it is today where everybody has one. It wasn't

So the system was --

would falter at lunch time and we would just deal with the rest of it during the day. Q As an employee of Visitalk, did you -- did you have an

understanding of what Visitalk's ultimate goals were? A Q was? A Q A Oh, yes, sir. A what? IPO. Initial Public Offering. UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 33 of 223 It was the IPO. Yes, sir. Did you have an understanding what Visitalk's exit strategy

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172 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q Q Q And what was that supposed to do for the company? MR. CLAUS: or calls for hearsay. THE COURT: I think we have probably pushed an Objection, Your Honor. Lacks foundation

engineer about as far as we can. MR. KAUP: He was also an employee, Your Honor. I

will just ask that question. THE COURT: BY MR. KAUP: As the Director of Engineering.

As the Director of Engineering and an

employee of the company, did you have an understanding as to what the IPO was supposed to do for the company as an exit strategy? MR. CLAUS: Objection, Your Honor. The understanding

would come from hearsay and demonstrates his lack of personal knowledge. THE COURT: MR. KAUP: THE COURT: BY MR. KAUP: Sustained. I will move on, Your Honor. Thank you.

While you were employed by Visitalk, how many

other engineers were working at the company? A Q Approximately 60. While you were employed by Visitalk before its bankruptcy,

did you ever meet any engineers hired by investors to evaluate Visitalk's technology? A Yes, sir. UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 34 of 223

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173 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A Q Q Q A Do you recall when that was? I don't remember exactly when it was. I would say perhaps

August, maybe September. THE COURT: THE WITNESS: BY MR. KAUP: Of what year? 2000. I'm sorry, Your Honor.

Mr. Fallon, you have a folder in front of you It is Exhibit Notebook 2, Your

which has Exhibit 78 in it. Honor.

I apologize for not getting this earlier. Do you have that, Mr. Fallon?

Yes, sir. Do you see at the top of Exhibit 78 there is an e-mail with

the sender being Michael Cooney and the recipient being you, sir? A Q A Q Yes, sir. Do you see that's dated November 16 of 2000? I stand corrected. Yes, sir.

Would this have been about the time that you would have met

the engineers hired by the investors? A Q A Yes, sir. Do you remember receiving this e-mail from Mr. Cooney? I remember receiving the list of questions that came with

it more specifically that had some tasks revolving around that. Q And do you see this e-mail to you has e-mails under it

which were part of the e-mail sent to you by Mr. Cooney? A Yes, sir. UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 35 of 223

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174 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q Q Do you see the word "subject" on the left-hand side of the

page about a quarter of the way down? A Q Yes, sir. And do you see -MR. CLAUS: objecting. I'm sorry to interrupt. Your Honor, I'm

Now he is going to start reading from an e-mail

that hasn't been introduced into evidence, and when it is, it's objectionable because it's hearsay. MR. KAUP: Your Honor. I wasn't going to start reading from it,

I was going to simply identify the -- in essence

the "R-E" line, the forward line, so I could tie it to the next exhibit. THE COURT: BY MR. KAUP: Go ahead. Questions for a

You see the letters "FW:

technical review at Visitalk." It's next to the word "subject" on the left-hand side of the first page of Exhibit 78. MR. CLAUS: We'll stipulate that the language is there

at the top of the page. THE WITNESS: Yes, I see it. Q BY MR. KAUP: Could you look, sir, at the folder in front Are you there, sir? Oh, up at the top it says F-W. Yes.

of you which has Exhibit 75 in it. A Q Yes, sir.

Could you turn to the third page, sir.

Are you there?

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175 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A Q Yes, sir. You referred to a list of questions just a minute ago in Is this the list of questions you were

your testimony. referring to? A Q

Yes, sir, it is. Did you actually receive this list of questions when -- in

November of 2000 when you were an employee of Visitalk? A Q A Q Yes, sir. Did you review this list of questions? Yes, sir. Did you receive this list of questions through the e-mail

which is at Exhibit 78? A I would assume. You know, I'm not familiar with your

format, but I was e-mailed this list of questions and I printed it out to study them and to prepare for the gentlemen to come and talk. Q What did you do with this list of questions after you

received it? A I prepared myself for these gentlemen to come and

investigate our system. Q Who were the gentlemen that were -- for whom you were

preparing that were going to investigate the Visitalk system? A They were two contractors that were hired by one of the And if their names are in here, I will look for it. Fox, I think, perhaps.

investors.

I don't remember their names.

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UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 37 of 223

176 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q Do you want me to go and find the name? Could you look back at Exhibit 78. Do you see in the

middle of the first page of Exhibit 78 the words "Mike and Lance"? A Q Oh, yes. So it would be Steve Cox and John Hoffman.

Does that refresh your recollection about the names of

those individuals? A Q A Q Yes, sir. Did you actually meet with Mr. Cox and Mr. Hoffman? Yes, sir. What did you -- and you met with them at some point after

November 16 of 2000? A Q Yes, sir. When you met with them, was the date of your meeting before

Visitalk filed bankruptcy? A Q Yes, sir. What did you tell Mr. Cox and Hoffman about the Visitalk

system? A Well, I -- I was responsible for discussing with them the

technical issues regarding our current system and the matrix system that we were designing. And I had that proof of concept

that I talked to you about, that was functioning on an internal basis. So I explained to them in theory how it would work and how far we had progressed and we talked about the existing UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 38 of 223

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177 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 system, both the static and the dynamic side. They understood

the problems regarding the dynamic side of the database. We talked about reliability issues. I toured them

through the Data Center which was -- you know, had redundancy and two pipes to the Internet and the generator, and so what you would expect the Director of Engineering to show to contractors who were investigating your company's technology. That's what I did. Q Looking back at Exhibit 75, the third page, the questions.

Are you there, sir? A Q Yes, sir. The first question -MR. CLAUS: moved into admission. Your Honor, same problem. It hasn't been We don't

There's a foundation problem.

know who wrote the questions.

There's a hearsay problem

because somebody wrote the questions. THE COURT: otherwise. Q BY MR. KAUP: Did you tell Mr. Cox and Mr. Hoffman anything I think we can probably deal with this

about Visitalk's proof of scalability? A They were -- they were very competent consultants. They

knew what they were there to ask and they understood the basic design of the matrix system that we were putting together. However, since no one else was doing this at the time, their first question was, Well, have you done this out on the UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 39 of 223

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178 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q Internet? Does it survive out on the Internet? Does it work,

in other words? We had no idea. It was only working internally at

Visitalk, and half of it was on my desk at the time. And they understood the limitations of the current system very quickly. As soon as I described how the system was I

set up, they asked how many users do you get on at a time. told them. They knew.

They were competent in that field, so

it didn't take very long for me to explain to them the current limitations that the system had. Does that answer your question? Yes, it does. Thank you.

Did those -- did Mr. Cox and Mr. Hoffman -- let me ask it this way. Did you and Mr -- did you discuss with Mr. Cox and Mr. Hoffman whether there were any other directory services in existence who -- or which had better scalability than Visitalk? A I did not discuss that with them, whether there were other That was probably their job to investigate that for

systems.

comparative purposes. Q A Q A Q Did Mr. Cox and Mr. Hoffman ever prepare a report -Yes, sir. Let me just finish. I'm sorry. -- about their findings regarding the technology? UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 40 of 223

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179 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 with it. Q When you say you weren't happy about it, why weren't you A Q A Q A Q Yes, sir. Did you receive a copy of that report? Yes, sir, I did. There's a folder -And, Your Honor, this is going to be in Exhibit Notebook 5. It's your slip there of your folder.

Do you see Exhibit 165, Mr. Fallon? Yes, sir. Mr. Fallon, Exhibit 165, is this the report from Mr. Cox

and Mr. Hoffman? A Q Yes, it is. When you read this report, was there anything in this

report with which you disagreed? A No, sir. I wasn't happy about some of it, but I didn't disagree

happy about some of it? A Well, because I had invented that matrix system. And

although they understood it, they were very blatant, very blunt about that it had not been proven. They said they had no way

of knowing whether or not it would really work. Which was true. actually make it work. Q On the first page of this exhibit, sir, the -UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 41 of 223 It took another four years to

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180 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q Do you see the line: scalability?" A Yes, sir. MR. CLAUS: Objection, Your Honor. Again, this is a "What proof do we have of

nonoffered, nonadmitted, through the questioning, obviously hearsay exhibit that contains opinions for which there is absolutely no foundation and Mr. Cox and Mr. Hoffman are not even going to testify in this trial. It's an end run around an expert opinion that was never disclosed and not offered in this trial. THE COURT: MR. KAUP: How do we deal with it? Your Honor, I would move to admit this

document into evidence simply as -- and Mr. Fallon has authenticated it -- we can move to have it admitted into evidence. And what I'm going to do is just ask questions about whether his knowledge about particular items in this report is consistent with these particular conclusions. is appropriate. THE COURT: Will he know who at Visitalk, other than And I think that

himself, received and saw this? MR. KAUP: THE COURT: BY MR. KAUP: I believe he will. Let's find out. Mr. Fallon, do you know what other employees

of Visitalk received this report prepared by Mr. Cox and UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 42 of 223

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181 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Hoffman? A Well, for certain, Lance Booth and all of the officers of

the company would have received it because it was requested by an investor. Q A Q A Q A Q Who was Lance Booth? Lance Booth was the Chief Technology Officer. And, again, we're talking about November of 2000? Yes, sir. Did you report to Mr. Booth? Yes, sir. And did you discuss this report from Mr. Cox and

Mr. Hoffman with Mr. Booth? A Q A Q Yes, sir, extensively. You said "extensively"? Extensively, yes, sir. Did -- who was the President of Visitalk at the middle of

November of 2000? A The time frame was kind of -- there was a lot of changes I believe it was still Mike O'Donnell.

going on at the time. Q A

Did you discuss Exhibit 165 with Mr. O'Donnell? No, sir. MR. KAUP: Your Honor, again, we would move for the I think he has properly authenticated the

admission of 165. document. MR. CLAUS:

Your Honor, my objection wasn't to

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UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 43 of 223

182 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q authentication. authenticity. It's a hearsay document containing out-of-court statements by currently unknown individuals. Neither -- if I don't have a question about the

they are Mr. Cox and Mr. Hoffman, we don't even have that foundation. Mr. Cox and Mr. Hoffman aren't even going to Mr. Booth isn't going to testify in

testify in this trial. this trial.

We don't know who wrote the document. But the point is this was conveyed to

THE COURT:

officers of Visitalk and it's admitted for purposes of some evidence of what they knew about what was going on. MR. KAUP: THE COURT: Thank you, Your Honor. 165 is admitted.

(Exhibit No. 165 admitted into evidence.) BY MR. KAUP: Mr. Fallon, the first sentence, do you see

the words "Regarding our Corporate (Private) Directory Services." A Q Yes, sir. First, what was the -- I guess what were the corporate

directory (private) services? A The corporate directory service, the private directory was

a special version of the public Visitalk Web site that had an set of security and permission barriers built around it. So that a corporation would be able to have access to the public via the IP communications network and present a UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 44 of 223

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183 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 slice of their information that they wanted to be made public; but then for their internal directory, be able to present more information like job title and area of expertises and maybe some snippets from their resume. All of those things could be made available inside the private world of the corporation, but to anybody who was not a member of the corporation, they would just see this as John Smith at Company X and this is how to get ahold of them. So to have a single directory system that had a minimal public presence, but a full-featured internal presence for inside of the corporation. Q Prior to Visitalk's bankruptcy, did Visitalk ever have a

working corporate private directory services system? A Q Yes, sir. It was about 90 percent there, actually.

When did Visitalk first have a working corporate (private)

directory services aspect to its product? A Excuse me for just a second. I don't remember specifically when that system came online, but the focus of the company changed to -- in that direction in July or August and we had the first version of that probably in September. Q A Q Of 2000? Of 2000, I'm sorry. Under -- right under the words I just read there's a The

paragraph which begins -- or the first sentence is:

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184 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A Q current approach is to handle 25,000 concurrent users. To date

there has been a maximum of around 9,000 concurrent users. Do you see that language? Yes, sir, I do. And is that statement -- was that statement accurate as of

the middle of November of 2000? A Q A Yes, but it lacks some detail. What detail is it lacking? In order to get to 25,000 concurrent users, that was a -We would have had to reduce that

that was an extrapolation.

polling rate that we talked about earlier to 7 minutes, at which point we deemed the system to be really unusable. That's why we kept the polling rate down around three minutes, which -- the entire time the system was in operation, the limitation was around 10,000. I'll go with 9,000, if

that's what they wrote, but that's the working number that we had. Q A Q A Q Could you turn to the last page of this exhibit, sir. Sure. Are you there? Yes, sir. Do you see the paragraph, the middle of the page, which has

the numeral "12" on the left-hand side? A Q Yes, sir. The last two sentences in that paragraph read: UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 46 of 223

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185 JAMES FALLON - DIRECT EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 "The presentation was good but lacked current projections and a delivery schedule. It was also very obvious

after a few questions that the revenue projections were swags." First, my question to you is were you among the persons who provided the presentation to Mr. Cox and Mr. Hoffman? A Q Yes, sir. Is it accurate that that presentation lacked current

projections and a delivery schedule? A Q A Yes, sir. And why is that? The existing product -- even the corporate (private)

directory wasn't completely finished, but the scalability issue was not resolved. And so we had no idea of what our member

cost was going to be, how much it was going to cost to maintain each user on the system. So without that fundamental piece of information, you can't project what your profitability is going to be. Q A Mr. Fallon, do you know what a swag is? I was in the Marines. I know exactly what it

Yes, sir.

means. Q A Q And what does it mean, sir? It's a scientific wild-assed guess. Is it true, sir, that Visitalk's revenue projections

provided as part of this presentation were swags? UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 47 of 223

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186 JOHN FALLON - CROSS EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A Okay? UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 48 of 223 Q BY MR. CLAUS: witness. THE COURT: MR. CLAUS: You may cross examine. Yes, Your Honor. CROSS EXAMINATION Good morning, Your Honor. Good morning, A That would be my opinion. I was not in the Accounting

Department, so I can't say whether or not it was a fact, but given that I know that we could not figure out what the cost was going to be, and therefore, how much money would be left over to pursue other things, it becomes very difficult to arrive at a revenue projection. MR. KAUP: I have no further questions for this

Mr. Fallon. A Q

How are you?

Good morning, sir. You were asked, Mr. Fallon, if Visitalk in November of 1999 Do

had the ability to handle millions and millions of users. you remember that? A Q Yes, sir. Visitalk in November of 1999 didn't have millions and

millions of users, did it? A Q No, sir. Could you do me a favor, sir. Could you pull that

microphone just a little bit more? Thank you very much.

Case 2:02-cv-02405-HRH

187 JOHN FALLON - CROSS EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q By the time you started at Visitalk, it had a beta site

that was already up and running, is that right? A Q Yes, sir. In other words, Visitalk customers were actually using the

site? A Q A Q A Q A Q A Q Yes, sir. They could make long distance phone calls, correct? Yes, sir. For free? Yes, sir. They could video conference? Yes, sir. They had interactive contact lists? Yes, sir. And that contact list -- I don't think we went through this

with the Judge -- the contact lists would enable Visitalk customers to look up any other Visitalk customer and see if they were online and place a long distance or video conference call to them, correct? A Q A Q Yes, sir. Using something called a PCN; is that right? Yes, sir. And then you could look up the Visitalk customer by their

name or their PCN or their address; is that right? A Yes, sir. UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 49 of 223

Case 2:02-cv-02405-HRH

188 JOHN FALLON - CROSS EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q Now, we never talked about -- or you never talked about Was the PCN the Internet or the Visitalk

what the PCN was.

analog of a phone number? A That's a technical question that's going to require some

explanation if you have a minute. Q Well, I guess for ease of simplification, when a customer

was assigned their personal communications number -- that's what "PCN" stood for? A Q Yes, sir. They could take that PCN with them, just like you would

take your phone number on your cell phone with you? A Q Yes. Okay. Yes. That's correct.

And so when you started at Visitalk, would you agree

that you believed that it was a good idea what Visitalk was doing? A Q A Q Oh, yeah. And had a lot of promise? Yes, sir, absolutely. As a matter of fact, you believed both at the time you

started and at the time you worked there that the idea behind Visitalk, free Internet phone calls, this marrying of the static and dynamic directory was dead on; is that right? A Yes, sir. MR. KAUP: Objection, Your Honor. Relevance. What he

believed has no relevance to this issue -- to the matters here. UNITED STATES DISTRICT COURT Document 501 Filed 04/22/2008 Page 50 of 223

Case 2:02-cv-02405-HRH

189 JOHN FALLON - CROSS EXAMINATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: Considering that he is an engineer, I will

accept the answer and view it in that context. Q BY MR. CLAUS: As an engineer, sir, you believed that

Visitalk was way ahead of its time, correct. A Q Yes, sir, it