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,

No.

CV 02-2405-PHX-HRH Phoenix, Arizona March 6, 2008 8:34 a.m.

BEFORE:

THE HONORABLE H. RUSSEL HOLLAND, JUDGE

REPORTER'S TRANSCRIPT OF PROCEEDINGS BENCH TRIAL VOLUME 4 Pages 585 to 804

Official Court Reporter: Candy L. Potter, RMR, CRR Sandra Day O'Connor U.S. Courthouse, Suite 312 401 West Washington Street, Spc 36 Phoenix, Arizona 85003-2151 (602) 322-7246 Proceedings Reported by Stenographic Court Reporter Transcript Prepared by Computer-Aided Transcription

Case 2:02-cv-02405-HRH

Document 486

Filed 03/17/2008

Page 1 of 220

586

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 UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 2 of 220 For the Defendants: Mariscal Weeks McIntyre & Friedlander By: Gary L. Birnbaum, Esq. Timothy J. Thomason, Esq. Scot L. Claus, Esq. 2901 North Central Avenue, Suite 200 Phoenix, Arizona 85012 For the Plaintiff: Tiffany & Bosco By: Christopher Reed Kaup, Esq. 2525 East Camelback Road, 3rd Floor Phoenix, Arizona 85016 A P P E A R A N C E S

587

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 UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 3 of 220 MIKE DONAHEY By Mr. Kaup 708 WITNESS: RAYMOND GASTON By Mr. Kaup By Mr. Claus By Mr. Kaup By Mr. Claus By Mr. Kaup I N D E X DIRECT 593 656 657 659 700 CROSS REDIRECT RECROSS

588

1 2 3 4 5 6 9 7 8 9 11 10 11 12 47 13 14 15 56 16 17 58 18 19 20 66 21 22 23 70 24 25 UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 4 of 220 E-mail from R. Gaston to Mike Re check 645 646 67 E-mail from R. Gaston to S. Best Re payment to Snell E-mail from R. Gaston to S. Best Re payment to Snell 643 642 644 642 61 E-mail from R. Gaston to Michael Donahey re financials 638 638 640 E-mail from R. Gaston to Michael Donahey re June financials & cap table 637 637 53 E-mail from Ray Gaston re payment of Snell bills E-mail from R. Gaston to M Cooney re Cardwell stock 647 634 634 12 Credit Card Processing Service Agreement E-mail to Ray Gaston re cash flow statements 695 599 601 10 July through December 1999 Chart of Expenditures January through __ 1999 Chart of Expenditures 624 624 626 626 EXHIBIT NO. 8 DESCRIPTION January through June 1999 Chart of Expenditures 624 626 INDEX OF EXHIBITS IDENT RECEIVED

Confidential Information Statement re 30 units at $100,000 per unit 639

589

1 2 3 4 5 6 7 100 8 9 101 10 11 12 13 103 14 15 16 105 17 18 112 19 20 21 22 23 118 24 25 UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 5 of 220 S&W Office Memo re Visitalk.com, Inc., Securities and related issues 758 759 114 115 117 Letter from M. Donahey re Founder's Warrants Office Memo Office Memo S&W Office Memo re Founder's Warrants 727 741 743 748 Unanimous Consent of the Board of Directors in Lieu of Organizational Meeting 722 104 E-mail from Cindy Thimmesch re current spreadsheets on common Term Sheet for stock purchase $2,000,000 713 716 102 Spreadsheet authorized to issue 110,000,000 shares of stock of which 100,000,000 shares are common stock, no par value Audited financial statements period ended 1-2-99 Unanimous Consent of Board of Directors in Lieu of Organizational Meeting 732 EXHIBIT NO. 73 DESCRIPTION E-mail from R. Gaston to M. Donahey and M. Stoleson re draft of Visitalk PPM with final Visitalk input INDEX OF EXHIBITS IDENT RECEIVED

646

646

733 708

590

1 2 3 4 5 6 7 8 123 9 10 11 126 12 13 127 14 15 128 16 17 142 18 19 20 154 21 22 168 23 24 25 UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 6 of 220 E-mail from R. Gaston to P. Thimmesch, Michael O'Donnell G. Somerville and S. Best re Mark Cardwell Audited Financial Statements period ended 1-2-99 and year ended 12-31-99 608 609 144 Visitalk.com, Inc. general 35854.0001 billing correspondence Fax from R. Gaston to B. Hayward re draft of audit report 792 601 793 603 Recission Offer 2,400,000 shares of Series A Preferred Stock, $0.125 to 0.25 per share 655 701 S&W Office Memo re registration of Visitalk.com, Inc. as broker/dealer 783 788 Updated Confidential Information Statement re 4,241,230 shares of Series C Preferred Stock 781 125 Letter from A. Kaplan to S. Cole Letter from C. Thimmesch to A. Adler 774 781 122 EXHIBIT NO. 121 DESCRIPTION Minutes of Special Meeting of the Board of Directors of Visitalk.com, Inc. E-mail from M. Donahey to M. Turley re meeting minutes INDEX OF EXHIBITS IDENT RECEIVED

763 768

768 768

620

622

591

1 2 3 4 5 6 7 8 367 9 10 11 377 12 570 13 14 606 15 16 17 18 19 20 21 22 23 24 25 UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 7 of 220 Goldman Sachs and Wit Soundview information sheet 691 12-13-99 letter from Visitalk to Allen and Catherine Adler and attachments 682 684 Judgment Against Ray Gaston 604 376 Agreement for gift, sale and assignment of Founder's Warrants Stipulation for Entry of Judgment Against Ray Gaston 611 603 615 215 EXHIBIT NO. 197 DESCRIPTION E-mail from R. Gaston to Peter and Steve re Snell & Wilmer bill E-mail from R. Gaston re rent on new building INDEX OF EXHIBITS IDENT RECEIVED

626 622

627 624

592

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:

Good morning, ladies and gentlemen.

This

is a continuation of trial in Biltmore versus Thimmesch and others. We have the next -- we are having a witness out of

order, I guess. MR. KAUP: Yes, Your Honor, thank you. We're going to
08:34:37

call Ray Gaston next. And Your Honor, as a preliminary matter, a housekeeping matter, we're going to be submitting the -- our designated portions of the depositions of witnesses who we know are not going to be appearing, and to allow Your Honor to rule on the objections. And then there are going to be two
08:34:55

of -- there are two among them that I understand may appear through Mr. -- what Mr. Birnbaum said yesterday at -- Mr. Best and a Mr. Herberg. the depositions. But these are our designated portions of The two of them, Mr. Best, Mr. Thimmesch, we So whenever Your Honor does rule
08:35:17

have videotapes for as well.

on the preserved objections, then we'd be in a position to play those videotapes. THE COURT: with that. Okay. There's some logistics problems
08:35:35

Let's don't delay things for that this morning. Would you please raise your right hand?

THE CLERK:

(RAYMOND GASTON, PLAINTIFFS' WITNESS, SWORN) THE CLERK: Would you please come up here and state

your name for the record and spell your least name? THE WITNESS: Raymond Gaston, G-A-S-T-O-N.
08:36:09

UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 8 of 220

DIRECT EXAMINATION - RAYMOND GASTON

593

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 sir.

THE CLERK:

Go ahead and have a seat right over here,

DIRECT EXAMINATION BY MR. KAUP: Q. Good morning, Mr. Gaston. Thank you for coming all the way
08:36:36

from Texas to join us today. Could you tell the Court about your undergraduate and any graduate degrees that you have, sir? A. I have an undergraduate degree in accounting, BBA in
08:36:55

accounting from the University of Texas at Austin, and then I have a juris doctor also from the University of Austin, Texas also. Q. A. Q. A. Q. A. Did you ever work as an accountant? Yes, I did. Did you ever work as a lawyer? Yes, I did. For how many years did you work as an accountant? I worked at Arthur Andersen for seven or eight years, And I was with a law firm in

08:37:07

and -- in their tax department.

San Antonio for about two-and-a-half years. Q. A. Q. A. Q. Were you ever a CPA? Yes. And are you a currently licensed lawyer? I am not practicing. Now, you've heard of a company known as Visitalk? UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 9 of 220

08:37:30

08:37:58

DIRECT EXAMINATION - RAYMOND GASTON

594

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. A. Q. A.

Yes. You are -- were you ever employed by Visitalk? Yes, I was. In what capacity? I was the vice president of accounting and controller. When did you first work -- begin working for Visitalk? I started doing consulting work for them in mid February of
08:38:10

1999, and became an employee around the first of April 1999. Q. A. Q. When did you cease being an employee of Visitalk? Mid January 2001. When you were a consultant, what type of work did you do
08:38:38

for the company? A. I was helping organize their accounting infrastructure. I

was also helping put together some of the first confidential information statements and private placement memorandums. Q. A. What are confidential information statements? They're information that's provided to potential investors
08:39:08

in a company. Q. Is there a difference between Confidential Information
08:39:34

Statement and a Securities Offering Memorandum? MR. CLAUS: THE COURT: THE WITNESS: Foundation, Your Honor. Overruled. I'm not sure. Technically I believe --

I mean, in my own mind a Confidential Information Statement is a less formal document than a security filing such as an SS1 or UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 10 of 220
08:39:54

DIRECT EXAMINATION - RAYMOND GASTON

595

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

2 or -BY MR. KAUP: Q. A. Q. A. Q. You've heard of Peter Thimmesch? Yes, I have. And you know someone named Cynthia Thimmesch? Yes, I do. Do you have any relation -- familial relationship with
08:40:09

Cynthia Thimmesch? A. Q. A. My wife is Cynthia Thimmesch's second cousin. How did you first hear about Visitalk? My wife in the Fall of 1998 came to Phoenix on business,
08:40:23

stayed with Cynthia Thimmesch and Peter Thimmesch, and Peter and Cynthia told them -- told her about what was going on at Visitalk. Q. And she came back and told me.
08:40:52

When you became a regular employee of Visitalk -- well, can

you describe your duties at Visitalk after you became a regular employee of the company? A. I oversaw the accounting function, I assisted in putting in

the accounting system and a billing system that we were planning to use. Q. As part of those duties did you review -- did you regularly
08:41:23

review Visitalk's financial information? A. Q. Yes, I did. As part of your duties did you regularly prepare financial
08:41:39

statements for the company? UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 11 of 220

DIRECT EXAMINATION - RAYMOND GASTON

596

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, I did. Were you the person at Visitalk who was most knowledgeable

about the company's financial condition? MR. CLAUS: THE COURT: THE WITNESS: Speculation. Overruled. I believe I knew more about the
08:41:55

day-to-day operation of the accounting and financial condition resulting from that than anybody else. BY MR. KAUP: Q. Did you discuss with Mr. Thimmesch during 1999 Visitalk's
08:42:15

financial condition? A. I met with Peter generally daily when he was in the office, It would

as well as the other senior officers of the company.

have been normal to talk about what was going on in the financial accounting part of the business with them. Q. Would "them" also -- when you said "senior officers of the
08:42:54

company," would that have included Michael O'Donnell? A. Q. Yes. Do you know what Mr. O'Donnell's role was with Visitalk
08:43:15

during the time you were employed with the deposit? A. Q. During most of the time he was president of the company. Did you discuss with Mr. O'Donnell during 1999 the

financial condition of Visitalk? A. Yes, I specifically worked with him on a weekly basis to go
08:43:34

over a cash flow of the company. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 12 of 220

DIRECT EXAMINATION - RAYMOND GASTON

597

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.

Did you -- do you know who Visitalk's lawyer -- lawyers

were in -- beginning in July of 1999 through the date of its bankruptcy? A. I'm not sure exactly -- Bryan Cave was the -- were the I'm not sure exactly at what time But July sounds fairly
08:44:11

attorneys when I started.

Snell & Wilmer became the attorneys. close. Q.

But you understand -- do you know whether Snell & Wilmer

represented the company in 1999? A. Q. Yes. Did you have meetings with Snell & Wilmer lawyers after
08:44:38

they began representing the company relating to the offerings of securities? A. Q. Yes. In connection with those meetings with the lawyers at
08:44:56

Snell & Wilmer regarding the offerings of securities, did you provide them with financial information regarding Visitalk? MR. CLAUS: Foundation as to time, foundation as to

contents of any financial information. THE COURT: THE WITNESS: BY MR. KAUP: Q. In 1999 did you discuss the Visitalk financial information You may answer as a preliminary question. Yes, I did.
08:45:22

with lawyers at Snell & Wilmer which you had provided to them? MR. CLAUS: Foundation as to time and content.
08:45:45

UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 13 of 220

DIRECT EXAMINATION - RAYMOND GASTON

598

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

THE COURT:

I'm sorry, I didn't under the question.

Would you try it again? MR. KAUP: BY MR. KAUP: Q. Mr. Gaston, during just the period of time in 1999 -- let
08:45:52

Sure.

Apologize.

me, I'll be more specific. During the period -- do you recall there was an updated Series C Confidential Information Statement which was prepared in connection with a Series C Preferred Stock Offering? A. Q. Yes. And did you meet with lawyers at Snell & Wilmer relating to
08:46:22

work being done on the updated Series C Updated Confidential Information Statement? A. Q. Yes. Did you -- did you provide lawyers at Snell & Wilmer with
08:46:39

financial information regarding Visitalk in connection with the work being performed on the updated Series C Confidential Information Statement? A. Q. Yes, I did. During your meetings with lawyers at Snell & Wilmer on the
08:46:55

work being done on the updated Series C Confidential Information Statement, did you discuss with them the financial information regarding the company which you had provided to them? UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 14 of 220
08:47:15

DIRECT EXAMINATION - RAYMOND GASTON

599

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 know that we had several meetings at Snell & Wilmer's

office with myself, representatives from Ernst & Young, our accountants, and Snell & Wilmer, to review the financial information that I was providing, as well as some additional information on stock options, officers, officer's salaries, et cetera, information that was going into that Updated Confidential Information Statement. Q. Mr. Gaston, there is a -- there is a series of exhibits in Could you look at the one which is
08:48:14 08:47:37

file folders before you. numbered 12?

Are you there, sir? A. Q. A. Q. Yes, I am. Do you see it's a three-page document? Yes. Did you prepare the e-mail which is the first page of this
08:48:49

Exhibit 12? A. did. Q. A. Q. Could you look at the third page of this exhibit, sir? Yes. Do you see at the top upper left-hand side it says Cash
08:49:19

It's been quite a while, but it certainly appears that I

Flow Schedules? A. Q. Yes. Did you prepare this document which is the third page of
08:49:32

Exhibit 12? UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 15 of 220

DIRECT EXAMINATION - RAYMOND GASTON

600

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, I believe so. Did you prepare this document, Exhibit 12, as part of your

duties at Visitalk? A. Q. Yes, I did. And what was the reason for preparing this document? MR. CLAUS: Your Honor, relevance. The date of the
08:49:49

document is April 1999, it has no relevance to this case, because according to the admissions in the case Snell's retention didn't begin until July of 1999. MR. KAUP: Your Honor, it does, because it does have And
08:50:06

information regarding the company's financial condition.

it also addresses issues related to the issuance of the stock and the receipt of the money from the investors, which is part of this exhibit. And all I want to do is just lay the
08:50:25

foundation and authenticate it so that we can move for its admission. THE COURT: It seems to me that it may be an

appropriate starting point, the document, as far as financial information. You may proceed. THE WITNESS: question? MR. KAUP: Thank you. (Record read from line 5) UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 16 of 220
08:50:52 08:50:38

I'm sorry, would you repeat the

Could you just read back the last question?

DIRECT EXAMINATION - RAYMOND GASTON

601

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 hearsay.

THE WITNESS:

I'm not sure of the exact reason for I prepared Cash Flow

preparing this specific document.

Schedules for Mr. O'Donnell and other officers on a regular basis. I can't tell from the e-mail who it was sent to.
08:51:17

BY MR. KAUP: Q. Now, when you prepared the Cash Flow Schedules which were

Exhibit 3, the financial information was accurate? A. To the best of my knowledge. MR. KAUP: Exhibit 12. MR. CLAUS: Again, Your Honor, objection to relevance, Your Honor, we'd move for the admission of
08:51:41

And the witness just testified that he has no idea And we know that he

why he prepared it, to whom he sent it.

sent it to whomever he sent it prior to Snell & Wilmer's retention. THE COURT: Mr. Gaston, was this prepared in the
08:51:59

ordinary course of Visitalk's business? THE WITNESS: THE COURT: MR. KAUP: BY MR. KAUP: Q. A. Q. Mr. Gaston, there's an exhibit folder for 144 before you. Yes. Do you see -- can you tell me what the first page of
08:53:16

Yes, sir. Exhibit 12 is admitted.

Thank you, Your Honor.

08:52:06

Exhibit 144 is, sir? UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 17 of 220

DIRECT EXAMINATION - RAYMOND GASTON

602

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.

It's an e-mail or a memorandum to Bob Hayward from myself

regarding some financial statements. Q. And if you look on the second page of this document, do you

see there's a fax cover page? Are you there? A. Q. Yes, I am. And on the third page, can you tell the Court what the
08:54:27

document beginning on the third page is? A. Q. A. Q. It's a draft of the 1999 audited financial statements. Who were the auditors for Visitalk? Ernst & Young. Did the document beginning on the third page of Exhibit 144
08:54:46

come from Ernst & Young? A. Yes, it appears that it came from Kevin McHolland, who was
08:55:12

an audit manager for Ernst & Young. Q. Did you receive that document from Ernst & Young in the

regular course of the business of Visitalk? A. Q. To the best of my knowledge, yes. The -- you understood Mr. Hayward was a lawyer at Snell &
08:55:50

Wilmer? A. I don't remember that specifically. THE COURT: MR. KAUP: THE COURT: MR. KAUP: I'm sorry, the name was what? I'm sorry, Your Honor? The name was what? Bob Hayward.

08:56:00

UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 18 of 220

DIRECT EXAMINATION - RAYMOND GASTON

603

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

BY MR. KAUP: Q. Do you recall why you transmitted this document to

Mr. Hayward? A. Q. No, I don't. The e-mail on the first page of -- or the fax cover page
08:56:23

rather, which is the first page of Exhibit 144, did you prepare that as part of your -- the ordinary course of your duties at Visitalk? A. Q. I believe so. Did you send it to Mr. Hayward as part of the ordinary
08:56:57

course of your duties at Visitalk? MR. CLAUS: in. MR. KAUP: on my list. I apologize, Your Honor. I didn't see that
08:57:10

Your Honor, we've stipulated this exhibit

But that's fine. It's there. While we're at it, 144 is

THE COURT:

admitted by stipulation. BY MR. KAUP: Q. Mr. Gaston, could you look at Exhibit 376, please? MR. CLAUS: And again, Your Honor, to save time, I
08:57:57

think 376 and 377 are already in evidence. THE WITNESS: MR. CLAUS: BY MR. KAUP: Q. Do you recognize Exhibit 376, sir? UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 19 of 220
08:58:28

Yes. I take that back, Your Honor, 377 is.

DIRECT EXAMINATION - RAYMOND GASTON

604

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, I do. Could you look at -- are you looking at Exhibit 377, sir? He's bringing it up.

Could you look at that one now, please? Thank you. A. Q. Yes.

08:59:13

Do you recall agreeing to the entry of a judgment against

you in these proceedings? A. Q. Yes, I do. Did you read Exhibit 377 before it was submitted to the
08:59:42

Court? A. Q. A. Yes, I did. The information in Exhibit 377 is true? Yes, to the best of my knowledge. MR. CLAUS: Your Honor, there's a stipulation by

counsel in this case that the findings of facts that comprise all these be judgments would not be used at findings against Snell & Wilmer, so if we're going to go along that road I want to lodge now. MR. KAUP: Your Honor, there's a stipulation

09:00:03

that -- stipulation may be -- as stated by him, may be overbroad. When we get to briefing on the case, obviously that I think we agreed it would not be res judicata We left open the issue of

09:00:20

will come in.

or collateral estoppel as to them.

the evidentiary basis for this material. THE COURT: That is not the way I remember it, sir.
09:00:45

UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 20 of 220

DIRECT EXAMINATION - RAYMOND GASTON

605

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

But we'll take it up on the briefing. MR. CLAUS: BY MR. KAUP: Q.

So let's move on.

Thank you, Your Honor.

Mr. Gaston, on page 2 of Exhibit 377, do you see paragraph
09:01:14

number 6? A. Q. Yes. Do you see it reads that Visitalk -MR. CLAUS: talking about. THE COURT: document? document. MR. KAUP: THE COURT: Okay. I'll move on, Your Honor. You're asking him to repeat what's in the Your Honor, this is exactly what I'm

09:01:27

I see no utility in his repeating what's in the

For my notes, Mr. Claus, do you have a
09:01:54

handle on exactly where that stipulation is in the record? MR. CLAUS: I'm sorry, I do not. I will get it for

you during the break or at lunch time. THE COURT: BY MR. KAUP: Q. Mr. Gaston, as an accountant and a person who's worked as a
09:02:05

Thank you.

I appreciate it.

CPS, do you understand the concept of insolvency of a corporation? A. Q. Yes, I believe I do. When -- you understood that during the period of time that
09:02:42

you were the controller of Visitalk that there came a time when UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 21 of 220

DIRECT EXAMINATION - RAYMOND GASTON

606

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 was insolvent? MR. CLAUS: Objection, Your Honor, it is leading, its

calls for a nondisclosed and noncompetent expert opinion. THE COURT: BY MR. KAUP: Q. Did there come a time, Mr. Gaston, when the -- you began to Sustained.
09:03:00

have concerns regarding Visitalk's financial condition? A. Q. A. Yes, I did. When was that? Certainly by March 2000, thereafter, there
09:03:21

were -- there -- we started having some issues of being able to pay our expenses as they became due. Q. A. Q. A. Did you discuss those concerns with Mr. Thimmesch? Yes, I did. What did Mr. Thimmesch tell you about that matter? That we were in discussions with Goldman Sachs and other
09:04:07

third parties, and that significant funds would be coming in soon, and that I should manage the cash flow until such time as that money came in. Q. A. Q. Did that money ever come in? No, it didn't. Did you ever discuss with Mr. O'Donnell those concerns
09:04:34

regarding Visitalk's financial condition? A. Q. Yes. Probably not as often.
09:04:53

What was Mr. O'Donnell's response to your expression of UNITED STATES DISTRICT COURT

Case 2:02-cv-02405-HRH

Document 486

Filed 03/17/2008

Page 22 of 220

DIRECT EXAMINATION - RAYMOND GASTON

607

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

those concerns? A. Q. The same as Mr. Thimmesch. Did you ever express to Mr. Thimmesch any concerns

regarding the rate of expenditures by Visitalk? A. Yes. Our monthly expenditures were significant relative to
09:05:21

the cash that we had on hand. Q. A. Q. A. Are you familiar with the phrase "monthly burn rate"? Yes, I am. What does the phrase "monthly burn rate" mean to you? The excess of cash expenditures both for expenses in the
09:05:42

ordinary course of business and capital expenditures over cash inflows from sources such as revenues. cover it. Q. What was Visitalk's monthly burn rate during the summer of
09:06:16

That would pretty much

1999? A. I'm not sure if I remember specifically the summer of '99.

By then it well could have been half a million to something around a million dollars negative a month. significantly after that and into 2000. Q. A. What was Visitalk's monthly burn rate in December of 1999? It had gone up from the summer. We were probably running But I don't remember
09:06:47

It went up

at least a million and a half negative. specifically. Q.

A million and a half negative for what period of time, is
09:07:11

that a month? UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 23 of 220

DIRECT EXAMINATION - RAYMOND GASTON

608

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.

A month, yes. What was Visitalk's monthly burn rate in February of 2000? It had probably increased to a negative two, maybe

two-and-a-half million per month. Q. What was Visitalk's revenue during the summer of 1999 from
09:07:34

business operations? A. Q. A. Negligible, something less than 5 or $6,000. What was Visitalk's revenue in December of 1999? Again, still negligible at that point in time, a few
09:08:16

thousand at most. Q. Could you look at Exhibit 154 in front of you? And it's

volume 5 of plaintiffs' exhibits. A. Q. A. Yes. Can you tell the Court what Exhibit 154 is? It appears to be the audited financial statements for 1998
09:08:54

and 1999. Q. A. Q. For Visitalk? For Visitalk, yes. Do you have an understanding as to who -- as to who
09:09:21

prepared Exhibit 154? A. The exhibit itself was prepared by Ernst & Young from

information that Visitalk provided to them. Q. Did you review this document, Exhibit 154, while you were

the controller for Visitalk? A. Yes, I did. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 24 of 220
09:09:54

DIRECT EXAMINATION - RAYMOND GASTON

609

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.

Did you review this document 154 in the ordinary course of

your duties for Visitalk? A. Q. Yes, I did. Did Visitalk receive this document in the ordinary course
09:10:09

of its business? A. Yes, it did. MR. KAUP: Exhibit 154. MR. CLAUS: THE COURT: BY MR. KAUP: Q. Could you turn to the fifth page of this exhibit, sir? It No objection. 154 is admitted. Your Honor, we move for the admission of

09:10:16

has the words Income Statement at the top. Are you there? A. Q. Yes, I am. Just to give the Court perspective, what's an Income
09:10:35

Statement? A. It's a statement of revenues and expenses for a company

coming down to a net income or a net loss for a certain period of time. Q. Do you see the column, current year to date ending December
09:11:00

1999? A. Q. A. Yes, I do. Do you see the row "net revenues"? Yes, I do. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 25 of 220
09:11:11

DIRECT EXAMINATION - RAYMOND GASTON

610

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

Q. A. Q.

Could you read the numbers there? $5,702. Now would that have been -THE COURT: Is that stated in thousands of dollars or
09:11:28

flat dollars? THE WITNESS: BY MR. KAUP: Q. Would that have been the -- was that number of net revenues That was flat dollars, Your Honor.

generated by Visitalk during 1999 accurate? A. Q. Yes, I believe that it was. Do you see next to that it has -- there's a column, prior
09:11:52

year to date ending December 1999? A. Q. A. Q. A. Q. Yes, I do. And there's a zero there? Yes. Is that accurate? Yes, I believe it is. Did you ever express to Peter Thimmesch at any time during
09:12:06

the fall of 1999 about the imbalance between the company's expenditures or burn rate and the amount of revenues the company was generating in operations? MR. CLAUS: THE COURT: else. Relevance. I'm sorry, I was focusing on something
09:12:42

Would you ask the question again?
09:12:59

BY MR. KAUP: UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 26 of 220

DIRECT EXAMINATION - RAYMOND GASTON

611

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.

Did you ever express to Mr. Thimmesch during the fall of

1999 your concern about the imbalance between the burn rate, about which you testified, and the company's revenues? MR. CLAUS: THE COURT: THE WITNESS: Relevance. You may answer. No. At that point in time revenues Our website had just come up in
09:13:24

really weren't important.

September or October of '99, so we had just barely begun having revenues. What was important was the burn rate to the relative
09:13:44

cash that we had on hand. BY MR. KAUP: Q. A. Q. You had a concern about that? Yes, I did. And you did express a concern regarding that to

Mr. Thimmesch and Mr. O'Donnell? A. Q. Yes, as well as other senior officers. There's a folder for Exhibit 369 before you. Could you

09:14:03

look at that, please? A. Q. A. Q. A. Q. 369? I may have the wrong number. I have 367 and then go to 376. I apologize, it's 367. Yes, I have that in front of me. Did you see Exhibit 367 during the period of time you were
09:15:24 09:14:46

employed by Visitalk in November of 1999? UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 27 of 220

DIRECT EXAMINATION - RAYMOND GASTON

612

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: MR. KAUP: MR. CLAUS: THE WITNESS: December 13th, 1999. working on it. BY MR. KAUP: Q.

Did you say -- I'm sorry. I corrected myself, 367. I apologize. This particular document is dated I'm sure that in November of '99 we were
09:15:49

And I apologize, I did misspeak on that issue as well, Do you recall having seen Exhibit 367 in December
09:16:01

Mr. Gaston.

of 1999 in the course of your duties as the controller for Visitalk? A. Q. A. Yes, I do. And can you tell the Court what Exhibit 367 is? It's an Updated Confidential Information Statement covering

Visitalk's Series C Preferred Stock Offering. Q. Do you -- did you work on this document in the course of

09:16:16

your duties as the controller for Visitalk? A. Q. Yes, I did. Is this the Updated Confidential Information Statement for
09:16:58

the Series C offering on which you worked with the lawyers at Snell & Wilmer in their office about which you testified earlier? A. Q. It was one of the offerings that we worked on, yes. When you would work on -- but do you specifically recall

working on the Updated Series C Confidential Information UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 28 of 220

09:17:24

DIRECT EXAMINATION - RAYMOND GASTON

613

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

Statement with lawyers at Snell & Wilmer? A. Q. Yes, I do. When you would work with lawyers at Snell & Wilmer on this

document, Exhibit 367, how would you do it; telephonically, would you be in their office, your office? A. Really both. We would have meetings in their offices. We
09:17:45

would sometimes have meetings at Visitalk's offices.

Not that

often at Visitalk's because it was fairly crowded, our offices at that point in time. A lot of telephone calls, a lot of
09:18:08

e-mails going back and forth. Q. How many times did you meet with Snell & Wilmer lawyers

regarding Exhibit 367? A. I can't give you an exact amount after this period of time.

I know -- or I seem to recollect two or three meetings in their office, larger meetings including Ernst & Young, and then smaller meetings coming up to look at current drafts, just meeting with -- coming up at night, pick up the draft, deliver information. Q. So there were numerous meetings involved.
09:18:36

When you met in Snell & Wilmer's offices, what was the
09:19:05

duration of these meetings? A. It would vary. I mean, it could be something fairly short

to something lasting several hours. Q. Was this document, Exhibit 367, this Updated Confidential

Information Statement, prepared in the ordinary course of Visitalk's business? UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 29 of 220
09:19:33

DIRECT EXAMINATION - RAYMOND GASTON

614

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. 367? A.

It was prepared in the ordinary course of raising capital. For Visitalk? For Visitalk. Did you participate in drafting portions of this Exhibit
09:19:56

I'm sure that I drafted some portions of it.

Specifically

portions involving financial information, information such as officer salaries, stock options, and providing all of the financial number information. Q. Could you look at the page which is numbered at the lower
09:20:23

right-hand corner, VT019935? A. Q. A. Q. A. Q. A. Q. I'm sorry, could you -The number is VT019935. Okay. And it's page 22 of the document. Okay. Do you see up the top it has the dilution? Yes. Underneath that it has text in a paragraph beginning with Do you see that?
09:21:09 09:20:48

the words October 1, 1999. A. Q. sir. A. Q. Yes. In October, yes.

Just take a minute to read that paragraph to yourself,

Does that paragraph contain financial information regarding UNITED STATES DISTRICT COURT

09:21:49

Case 2:02-cv-02405-HRH

Document 486

Filed 03/17/2008

Page 30 of 220

DIRECT EXAMINATION - RAYMOND GASTON

615

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? A. Q. Yes, it does. Did you provide that financial information to be

incorporated into this exhibit? A. Q. I don't remember specifically, but I'm sure that I did. Do you see that the -- it reflects that Visitalk's net
09:22:10

tangible book value was negative $4,499,620? A. Q. A. Yes, it does. That information was accurate as of that date? To the best of my knowledge. MR. KAUP: 367. MR. CLAUS: Your Honor, we have no objection to the The only issue is, I think it's
09:22:55 09:22:35

Your Honor, we'd move for the admission of

document that's in the folder. misidentified on the list.

And I don't want three weeks from

now there's -- there to be a belief that the document identified on the list has been admitted into evidence. The

document identified on the list is something called agreement for gift, sale and assignment of Founder's Warrants, and that's not what this document. THE COURT: MR. CLAUS: Understood. So we have no objection -- I mean, I think
09:23:15

we've actually already admitted this. THE COURT: I thought so, but it's not on my list.
09:23:28

But at any rate, it's admitted now if it wasn't admitted UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 31 of 220

DIRECT EXAMINATION - RAYMOND GASTON

616

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

before. MR. KAUP: And we'll correct the list for the record.

Thank you, Your Honor. BY MR. KAUP: Q. Did -- for the work you were doing on Visitalk's securities
09:23:49

offerings, did you rely on Snell & Wilmer to provide you with legal information, accurate legal information as it had a bearing on the work you were doing as to the financial matters of the company for those offerings? MR. CLAUS: Objection, Your Honor, relevance. This
09:24:20

was not a director of the corporation. is irrelevant. THE COURT: BY MR. KAUP: Q. Sustained.

Therefore, his reliance

Mr. Gaston, when you would prepare financial information

09:24:35

for, let's just talk about this Updated Series C Confidential Information Statement, did you have an understanding that legal problems relating to the company could have a bearing on the financial information which you were preparing to incorporate into the securities offering? MR. CLAUS: Relevance of his understanding and
09:25:20

undisclosed, incompetent and irrelevant opinion of it. THE COURT: BY MR. KAUP: Q. Did you -- in connection with your work on the series -UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 32 of 220
09:25:35

Sustained.

DIRECT EXAMINATION - RAYMOND GASTON

617

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

Updated Series C Confidential Information Statement, did you, Mr. Gaston, have a -- believe that you needed to know about whether there were any -- about all of the liabilities of the company in order to prepare accurate financial information? MR. CLAUS: Objection, Mr. Gaston's belief was
09:26:05

irrelevant and still is irrelevant. THE COURT: BY MR. KAUP: Q. As part of your duties did you -- was it your duty as the
09:26:23

Sustained.

controller of Visitalk to prepare accurate financial information for the company? A. Q. Yes, it was. And was it your duty as a controller for Visitalk to

prepare accurate financial information for the company to be incorporated into the Series C Confidential Information Statement? A. Q. Yes, it was. In order to perform that duty, sir, did you need to know
09:26:42

about all of the liabilities of the company to perform your obligation to prepare accurate financial information? MR. CLAUS: for speculation. THE COURT: I don't think so. Objection, Your Honor, relevance, calls
09:27:03

You may answer. THE WITNESS: I'm sorry, Your Honor, I was coughing, I
09:27:13

UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 33 of 220

DIRECT EXAMINATION - RAYMOND GASTON

618

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

missed your -THE COURT: the question. THE WITNESS: question? (Record read from page 618, lines 18 to 20) THE WITNESS: BY MR. KAUP: Q. If -- in order to perform your duties at the controller at
09:27:58

I said you may answer.

If you remember

I apologize, would you repeat the
09:27:23

Yes.

Visitalk and to prepare accurate financial information, did you need to know whether there were potential claims against the company? MR. CLAUS: Your Honor, foundation, calls for

speculation, lack of competence, call for a conclusion that was not disclosed and its incompetent. MR. KAUP: THE COURT: I'm just asking whether he -Overruled.
09:28:18

You may answer. THE WITNESS: I would want to know about everything And
09:28:28

relevant to the calculation of the financial information. certainly legal -- potential legal liabilities would be relevant to that. BY MR. KAUP: Q. A. As the controller of Visitalk -Pardon me. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008

09:28:47

Page 34 of 220

DIRECT EXAMINATION - RAYMOND GASTON

619

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

Q. A. Q.

Would you like a cup of water? No, I think I'm about over it. Thank you.

As the controller of Visitalk preparing financial

information to be included in the company's securities offerings, where were -- what was the source of your information regarding the legal liabilities of the company? MR. CLAUS: Objection, Your Honor -- excuse me,
09:29:01

objection, Your Honor, foundation. THE COURT: I'm not sure that I understand what you
09:29:27

mean when you say "legal liabilities of the company." MR. KAUP: witness used. BY MR. KAUP: Q. Mr. Gaston, in the performance of your duties as the I was just using the phrase that the

I can restate the question, Your Honor.

controller of Visitalk for purposes of preparing financial information to be included in its securities offerings, what was the source for information regarding claims against the company or liabilities of a legal nature? MR. CLAUS: THE COURT: THE WITNESS: BY MR. KAUP: Q. And who were those company's attorneys for the Objection, Your Honor, foundation. You may answer. The company's attorneys.

09:29:43

09:30:08

purpose -- during November of 1999? A. Snell & Wilmer. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 35 of 220
09:30:28

DIRECT EXAMINATION - RAYMOND GASTON

620

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.

And who were the company's attorneys during all of the

subsequent securities offerings by Visitalk prior to the bankruptcy of Visitalk on November 29, 2000? A. Primarily Snell & Wilmer. I know that we did Gibson Dunn &
09:30:54

Crutcher was involved in some of the business transactions, but I don't believe they were involved in any of the securities offerings. Q. So between the lawyers at Snell & Wilmer and Gibson Dunn &

Crutcher, which of those law firms were you expecting to provide the information regarding the legal liabilities for -- in connection with your duties in preparing the securities offerings in 2000? MR. CLAUS: Objection, Your Honor, this witness was He had no relationship with
09:31:39 09:31:20

not on the board of directors. Snell & Wilmer. irrelevant. MR. KAUP: with them.

His reliance is irrelevant, his belief is

And, Your Honor, he had direct interaction

And all I'm asking is where he was getting the

information, not whether the Board was relying on that information. THE COURT: THE WITNESS: BY MR. KAUP: Q. Could you look at the folder with Exhibit 168 in it,
09:32:18 09:31:55

You may answer. Snell & Wilmer.

please, sir? UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 36 of 220

DIRECT EXAMINATION - RAYMOND GASTON

621

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

THE COURT: MR. KAUP:

I'm sorry, which exhibit? 168, Your Honor, and it's exhibit notebook

THE WITNESS: BY MR. KAUP: Q.

Yes.
09:32:47

The first page of Exhibit 128, do you recall who prepared

that -- this e-mail? MR. CLAUS: MR. KAUP: BY MR. KAUP: Q. A. Q. A. Q. Did you prepare the first page of Exhibit 168, sir? It certainly appears that way. Who is Martha Smith? To be honest with you, I don't remember. Did you prepare Exhibit 168 in connection with the ordinary
09:33:25

Did you say 128? 168.
09:33:09

course of your duties at Visitalk? MR. KAUP: Your Honor, I realize this is in. I'm sorry, I'm just doing a quick read

THE WITNESS:

Yes, I believe so. BY MR. KAUP: Q. Do you recall that Mr. Cardwell was fired by Visitalk in

09:34:01

2000? A. Q. Yes, I do. Did you have any discussions with -- and this e-mail was UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 37 of 220
09:34:08

DIRECT EXAMINATION - RAYMOND GASTON

622

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

being transmitted in connection with your work as a controller relating to Mr. Cardwell's termination? A. Q. Yes. Now, did you speak with Mr. Thimmesch about Mr. Cardwell's
09:34:36

termination? A. Probably only in passing. I don't know that I had any

detailed discussions, other than confirming that it had happened, and perhaps some of the circumstances surrounding it. Q. A. Did Mr. Thimmesch tell you what those circumstances were? Not in any detail. I think there was some general
09:35:07

knowledge at Visitalk that Mr. Cardwell's actions as CTO, Chief Technology Officer, were inadequate. Q. A. Q. Did you ever discuss with Mr. Cardwell his termination? No, I did not. Would you look at the exhibit in folder 215? THE COURT: Before we go on, Exhibit 168 has been
09:35:38

admitted by stipulation? MR. CLAUS: THE WITNESS: THE COURT: MR. KAUP: BY MR. KAUP: Q. Do you see, Mr. Gaston, that Exhibit 215 is a series of Yes, Your Honor. I have it. That number again was what? It's 215.
09:36:17

e-mails to and from you? A. Yes. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 38 of 220
09:36:36

DIRECT EXAMINATION - RAYMOND GASTON

623

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.

Did you -- do you recall that Visitalk moved into a new

facility in the early part of 2000? A. Q. Yes, I do. As the controller for Visitalk, do you have any knowledge
09:36:59

regarding the amount of money that Visitalk spent with respect to the build out of that facility? A. I did at the time. I only have kind of a general I know it was several million

recollection at the moment. dollars. Q.

At that time, did you have any concern about whether

09:37:18

Visitalk could afford to spend that money on a new facility? A. Q. A. Q. A. Yes, I did. Did you express that concern to anyone? Yes, I did. To whom did you express that concern? To Peter Thimmesch, Mr. O'Donnell, and I'm sure also to
09:37:40

other senior officers. Q. At the bottom of this page, sir, do you see you wrote to

Marcia O'Donnell and Stephen Best that you had received an invoice for March rent on the new building in the amount of $23,000? A. Q. Yes. Was that the amount of monthly rent for which Visitalk was
09:38:10

obligated to pay in its new facility? A. Yes, I believe so. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 39 of 220
09:38:32

DIRECT EXAMINATION - RAYMOND GASTON

624

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.

As the controller of Visitalk, is that an amount that

Visitalk could afford to pay in the Spring of 2000? A. Q. No, I don't believe so. Did you prepare this document, Exhibit 215, in the ordinary
09:39:02

course of your duties with Visitalk? A. Yes, I did. MR. KAUP: Exhibit 215. MR. CLAUS: Your Honor, I don't see how this is Your Honor, we'd move for the admission of

relevant to the issues litigated in this case against Snell & Wilmer, it has to do with rent of the building. THE COURT: MR. KAUP: BY MR. KAUP: Q. There are three exhibit folders in front of you, sir, It's admitted. Thank you, Your Honor.

09:39:12

09:39:34

Exhibit 8, 9 and 10. A. Q. A. Q. Yes. First as to Exhibit 8, sir. Yes. Or I guess take a look at all of those, all three of those,
09:40:00

8, 9 and 10, please. A. Q. A. Okay. Could you tell the Court what Exhibits 8, 9 and 10 are? They appear to be printouts from our Oracle accounting
09:40:31

system. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 40 of 220

DIRECT EXAMINATION - RAYMOND GASTON

625

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.

Did you prepare Exhibits 8, 9 and 10? THE COURT: THE WITNESS: The machine did. The machine did, yes, sir.

I oversaw the input of the information from my department into the computer. I don't recall being the person
09:40:50

that requested the computer to print them out. BY MR. KAUP: Q. But you -- did you review Exhibits 8, 9 and 10 after they

were printed out? A. Q. I would normally have done that, yes. And what's the purpose of these documents, Exhibits 8, 9
09:41:06

and 10? A. They're trial balances of the general ledger that would

show the account balances of the different accounts in our system. I'd print this out to have an overview of the
09:41:46

accounts, and then be able to go back in and identify what looked like potential problems or errors, and go back and do a more detailed review as necessary. I'd also use the

information to prepare financial statements at different times. Q. Did you ever tell anyone that any of the financial
09:42:15

information in Exhibit 8 was in error? A. Q. Not that I recall. Did you ever tell anyone that any of the financial

information in Exhibit 9 was in error? A. Again, not that I recall. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 41 of 220
09:42:55

DIRECT EXAMINATION - RAYMOND GASTON

626

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.

Did you ever tell anyone that any of the financial

information in Exhibit 10 was in error? A. Q. Again, not that I recall. Looking at Exhibit 9, sir, if the Court wanted to look at
09:44:04

this document, Exhibit 9, and see what the burn rate of the company was during one of the quarters, say quarter four 1999, where would the Court look? A. Well, you would start with -- and I'm sorry, I can't read But you'd look at the appropriate

these headings very well.

heading, go to the revenues less the expenses, add in capital expenditures, and that would give you the burn rate at that period of time. Q. Could you look at -And, Your Honor, these three documents have been stipulated in. We'd ask that they be admitted. They're admitted.

09:44:39

09:45:16

THE COURT: BY MR. KAUP: Q. A. Q.

Do you see a folder there, sir, for a -- for Exhibit 197? Yes. Do you see that Exhibit 197 is a one-page exhibit with two
09:46:04

e-mails on it? A. Q. Yes. The e-mail, it's about in the middle, do you see it's an

e-mail from you to Robert Corry dated Tuesday May 30, 2000? A. Yes. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 42 of 220
09:46:27

DIRECT EXAMINATION - RAYMOND GASTON

627

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

Q. A.

Who is Robert Corry? Robert Corry at that point in time was the CFO, Chief

Financial Officer of Visitalk. Q. Do you see that you recite in this e-mail that you had
09:46:48

received a call from Dick Mallery at Snell & Wilmer wishing to pick up the March and April payments to the firm which total about $100,000. And then you state further on in that

paragraph that you would delay until we have some additional financing. MR. CLAUS: it's stipulated in. Your Honor, objection, it's leading and The document says what the document says.
09:47:11

We're burning daylight here. THE COURT: BY MR. KAUP: Q. Mr. Gaston, what did you and Mr. Mallery discuss on May
09:47:28

197 is admitted by stipulation.

30th? MR. CLAUS: MR. KAUP: May 3rd or May 30th? May 30th. I'm sorry on May 3rd or May 30?
09:47:46

THE WITNESS: MR. KAUP:

May 30, 2000. Payment of some outstanding legal bills

THE WITNESS: for Snell & Wilmer. BY MR. KAUP: Q.

Had you ever -- had you received any other calls from
09:48:03

Mr. Mallery regarding your work as a controller at Visitalk UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 43 of 220

DIRECT EXAMINATION - RAYMOND GASTON

628

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

before May 30? MR. CLAUS: MR. KAUP: May 30th? May 30. Not to my recollection.
09:48:18

THE WITNESS: BY MR. KAUP: Q.

What did Mr. Mallery express to you about the reasons he

was -- he wanted to pick up a check for the March and April payments due to Snell & Wilmer? A. Well, the amounts were substantial, and they were actively,
09:48:42

as I recall at that point in time, working on various legal matters for Visitalk. So not only were those bills

substantial, additional bills were being incurred at the same time. Q. Did Mr. Mallery express to you concern regarding the amount
09:49:11

of the outstanding invoices? A. I don't recall the conversation exactly. I know that the

amount was one of the considerations that he had in wanting to get the bills paid. Q. Was there a certain approval process by which bills to
09:49:46

vendors such as Snell & Wilmer had to go through before payment was made during the Spring of 2000? MR. CLAUS: talking about. THE COURT: THE WITNESS: Overruled. Legal bills were always approved by Foundation as to vendors, who we're

09:50:00

UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 44 of 220

DIRECT EXAMINATION - RAYMOND GASTON

629

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

Stephen Best, who was our legal counsel.

Somewhere around that

time, because we were having cash flow difficulties, I was working more directly with Steve Best on which bills would be paid at what time. BY MR. KAUP: Q. Now, your e-mail refers to an approval form. Was there an
09:50:35

approval form that needed to be paid -- or prepared for the payment of bills at this time? A. I'm trying to recall exactly what that was. There was a
09:51:01

form that -- an approval form for legal bills for some time. At that point in time I believe I was preparing a list of bills to be paid. And Mr. Best was either initialing, checking off,

doing something to indicate that I could go on and send a bill out -- or a payment for a bill out. Q. Would payment of Snell & Wilmer in response to
09:51:35

Mr. Mallery's phone call for the March and April bills have been contrary to the process for the approval of payment of legal bills by Visitalk in May of 2000? MR. CLAUS: Objection, Your Honor, leading, calls for
09:52:01

speculation, lacks foundation because we don't know that that happened. THE COURT: I didn't really understand the question,

so let's try it again. BY MR. KAUP: Q. Did -- when you prepared this e-mail on May 30, was the UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 45 of 220
09:52:12

DIRECT EXAMINATION - RAYMOND GASTON

630

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

payment of the bills for Snell & Wilmer for April and May of 2000 in response to Mr. Mallery's phone call to you contrary to the process then in place for the payment of legal bills at Visitalk? MR. CLAUS: in evidence. Objection, Your Honor, assumes facts not
09:52:50

There is no testimony in this case yet that the

legal bill was paid as a result of this phone call. THE COURT: approach to this. MR. KAUP: THE COURT: I don't -- I don't understand your

Would you try and run at it another way? Okay. The -09:53:09

I'm not clear that I understand what

the -- what the standard process was. MR. KAUP: THE COURT: BY MR. KAUP: Q. What was the standard process for paying legal bills at Okay. So the follow-up question is -09:53:29

Visitalk in May and June of 2000? A. Well, there was really a two-prong process. One was just

the standard approval of the legal bill from Stephen Best for putting it in the -- in the cue to pay. And then there was the
09:53:52

secondary process of that bill versus other bills that needed to be paid at that point in time, determining and getting approval to send out checks to pay bills as a whole. Q. When you wrote this e-mail on May 30, 2000, had the Snell &
09:54:31

Wilmer March and April invoices been approved for payment by UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 46 of 220

DIRECT EXAMINATION - RAYMOND GASTON

631

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

Stephen Best? A. Q. No, they had not. In the next to the last sentence of this e-mail you write,

in fact, I would delay until we have some additional financing in. Mr. Gaston, why were you proposing to Mr. Corry to delay paying Snell & Wilmer until Visitalk obtained additional financing? A. Because we were having cash flow difficulties at the time.
09:55:22 09:55:00

I was trying to marshal cash to pay other bills. Q. The -- were some of the other bills that you needed to pay

bills for the company's operating expenses, such as payroll? A. Q. Payroll would have been part of the expenses, yes. What was the -- above this e-mail you sent an e-mail Is it -- to whom did you
09:56:10

to -- it begins, Peter and Steve.

send the e-mail immediately above this, the e-mail to Mr. Corry? A. Q. It looks like to Peter Thimmesch and Steve Best. Did Mr. Thimmesch ever speak to you about the matters
09:56:32

contained in these two e-mails? A. I don't recall specifically. I don't recall in any

respect, specifically or not, if he did. Q. Did -- you wrote to Mr. Thimmesch and Mr. Best that, Bob

wants everyone to get together to review the legal bills and sign off on them. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 47 of 220
09:56:59

DIRECT EXAMINATION - RAYMOND GASTON

632

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. Yes.

The Bob that was referred to, was that Robert Corry?

Did -- and who was the everyone? I would assume that it would be Mr. Thimmesch, Mr. Best, I'm not sure who else would
09:57:15

Mr. Corry and myself at a minimum. have attended. Q.

Did you and those other gentlemen ever get together to

review those legal bills? A. We regularly got together to review bills. I don't
09:57:36

specifically recall getting together to review just the legal bills. Q. Did the bills referenced in the first e-mail to Mr. Corry

for March and April, were they ever paid by Visitalk? A. I believe that they were. I don't specifically recall
09:58:07

anymore. Q. Now, you referred to cash flow difficulties in testifying Had you had discussions with

about the e-mail to Rob Corry.

lawyers at Snell & Wilmer in -- earlier in May of 2000 regarding Visitalk's cash flow difficulties? A. I don't have a specific recollection of talking to them I know that we were working
09:58:43

about cash flow difficulties.

closely with them and pushing to get documents finished to raise additional funds. additional funds. We were always discussing raising

They had a lot of contact with Stephen Best But I don't specifically recall doing it
09:59:14

and Peter Thimmesch.

UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 48 of 220

DIRECT EXAMINATION - RAYMOND GASTON

633

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

in those terms. Q. You refer to raising additional funds. You mean raising

additional funds through securities offerings? A. Q. Yes. As the former controller for Visitalk, do you know whether
09:59:37

it was necessary for Visitalk to raise additional funds from securities offerings in the fall of 1999 in order to be able to continue to operate? A. Q. Yes, it was. As the former controller for Visitalk, do you know whether
10:00:10

it was necessary for Visitalk to raise additional funds through securities offerings in the -- from January of 2000 through April of 2000 in order to be able to continue to operate? A. Q. Yes, it was. Do you know, as the former controller for Visitalk, whether
10:00:36

it was necessary for Visitalk to raise additional funds through the offerings -- offering of securities from May of 2000 through September of 2000 in order to be able to continue to operate? MR. CLAUS: leading. THE COURT: One more time won't make much difference. Your Honor, I've held my tongue, but
10:01:02

You may answer. THE WITNESS: BY MR. KAUP: UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 49 of 220 Yes, it was.
10:01:13

DIRECT EXAMINATION - RAYMOND GASTON

634

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.

Did you discuss with lawyers at Snell & Wilmer the fact

that Visitalk needed to raise additional funds from the sale of securities in order to be able to continue to operate during the year 2000? A. I don't remember a specific discussion in those terms. It
10:01:47

was obvious that Visitalk did not have substantial revenues, and that it depended upon raising funds from securities offerings in order to meet its cash flow obligations and continue development of its product. Q. There is an exhibit in front of you for Exhibit 53. MR. CLAUS: Your Honor, if this saves time, we had
10:02:14

lodged an objection on the pretrial, but we waive that objection and will stipulate in this exhibit. THE COURT: MR. KAUP: All right. Thank you. Yes, I see it. 53 is admitted by stipulation.
10:03:25

THE WITNESS: BY MR. KAUP: Q.

Did -- you're aware that there was a dispute -- was there a

dispute with Mr. Cardwell at any time in 2000? A. Q. A. Yes, regarding -- well, yes. How did you become aware of that dispute? We were not a very big group. I know that after his firing
10:03:55

there were some issues with Mr. Cardwell being one of the early owners and founders of the company. Q. You're aware that -- do you know whether there was ever a UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 50 of 220
10:04:32

DIRECT EXAMINATION - RAYMOND GASTON

635

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

settlement with Mr. Cardwell of that dispute? A. As I recall there was a settlement. I don't believe that I

ever saw a copy of it, although I might have. Q. Did you ever play any type of role in any sales of stock by
10:05:15

Mr. Cardwell in the year 2000? A. Q. A. Q. None other than trying to account for it. Account for what, sir? The proceeds from the sale of the stock. Are you aware that there was a transaction involving the

sale of Mr. Cardwell's stock in which Visitalk played a role? A. I recall -- I remember that there was a sale of the stock.

10:05:38

As I recall it was being handled by Mr. Best and Snell & Wilmer. Q. Could you look again at Exhibit 53. Have you had a chance
10:06:10

to reread it? A. Q. A. Q. No, I haven't. Please do so. Okay. Now, you mentioned before about accounting for certain Could you explain what you meant by that?

stock sales. A.

10:07:27

Well, this was different than equity coming in from the I mean, this was stock that It was sold

issuance of stock by the company.

was already outstanding, owned by Mr. Cardwell. for an amount.

Of that amount a certain amount -- a certain
10:08:03

part of that amount was due to Mr. Cardwell, and the balance UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 51 of 220

DIRECT EXAMINATION - RAYMOND GASTON

636

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 to be retained by the company from the sale. Q. Did you understand that Mr. Donahey was participating in

some manner in the -- in this transaction? MR. CLAUS: competence. competence. MR. KAUP: THE COURT: BY MR. KAUP: Q. Mr. Gaston, did you discuss with Mr. Donahey the
10:08:52

Objection, Your Honor, relevance and
10:08:38

And I have two questions of voir dire on

Your Honor, I'll restate the question. All right.

transaction about which you just testified? A. I'm sure we had telephone conversations, more to discuss

the specifics of how the money was going to be handled, how the transaction was going to be carried out, as opposed to my input or a discussion on what was being done. Q. During those -- based on the discussions with Mr. Donahey
10:09:35

about, in your words, how the transaction was being carried out, did you understand from him whether he was doing anything in connection with the transaction? MR. CLAUS: Objection, Your Honor, competence,
10:09:58

relevance, and again permission to voir dire, two questions. THE COURT: BY MR. KAUP: Q. What did Mr. Donahey tell you about his role in the
10:10:15

Rephrase the question.

transaction? UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 486 Filed 03/17/2008 Page 52 of 220

DIRECT EXAMINATION - RAYMOND GASTON

637

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.

Mr. Donahey didn't really discuss his role in the There were substantial bad feelings So I

transaction with me.

between Mr. Cardwell and Mr. Thimmesch and Mr. O'Donnell. believe that Mr. Donahey was acting as a third person that Mr. Cardwell and Mr. Cardwell's attorney trusted in the

10:10:45

transaction to see that Mr. -- see that the provisions of the settlement agreement were carried out. Q. In the last paragraph of this e-mail you write, I got

copies from Mike, some of the purchase agreement, but I can't find them. Mike who? A. Q. I believe it refers to Mr. Donahey. Did you have an understanding regarding what Mike Donahey
10:11:13

was doing with these stock purchase agreements? A. Q. I'm not sure if I understand your question. Did you have an understanding as to why it was that
10:11:49

Mr. Donahey was the one who had the stock purchase agreements relating to the Cardwell stock sales? A. I believe that -- it was my understanding at the time that
10:12:26

he had drafted or negotiated the purchase agreements. Q. A. Could you look at Exhibit 56, sir? Yes. MR. CLAUS: THE COURT: MR. KAUP: Again, Your Honor, there's no objection. 56 is admitted. Thank you, Your Honor.

10:13:09

UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Docu