John Bryan Tolbert — Direct/Cross/Redirect/Recross
1,261 linesDIRECT EXAMINATION BY MR. SCHENK:
MR. SCHENK: MR. TOLBERT, IF YOU ARE FULLY VACCINATED, AND WITH THE COURT'S PERMISSION, YOU MAY TESTIFY WITHOUT A MASK ON. I WILL ALSO REMOVE MINE. THANK YOU. MR. TOLBERT, DO YOU WORK CURRENTLY FOR A COMPANY CALLED HALL GROUP?
JOHN BRYAN TOLBERT: I DO.
MR. SCHENK: HOW LONG HAVE YOU WORKED FOR HALL GROUP?
JOHN BRYAN TOLBERT: SINCE 1999.
MR. SCHENK: DURING YOUR WORK AT HALL, DID YOU BECOME FAMILIAR WITH ANOTHER COMPANY CALLED THERANOS?
JOHN BRYAN TOLBERT: I DID.
MR. SCHENK: AND THROUGH YOUR WORK AT HALL GROUP, DID YOU MAKE AN INVESTMENT IN THERANOS IN LATE 2013?
JOHN BRYAN TOLBERT: WE DID.
MR. SCHENK: WAS THE INVESTMENT ABOUT $5 MILLION?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: WE'LL COME BACK TO THAT IN A MOMENT. I WONDER IF WE CAN NOW TURN TO YOUR EDUCATIONAL BACKGROUND. WOULD YOU DESCRIBE FOR THE JURY YOUR UNDERGRADUATE AND ANY GRADUATE DEGREES THAT YOU HAVE?
JOHN BRYAN TOLBERT: SURE. I DID AN UNDERGRADUATE AND A BACHELOR'S OF SCIENCE IN PSYCHOLOGY AT THE UNIVERSITY OF GEORGIA. AND THEN AFTER THAT I WENT TO BYU, BRIGHAM YOUNG UNIVERSITY, AND GOT A MASTER'S IN BUSINESS.
MR. SCHENK: OKAY. AND WHAT DO YOU CURRENTLY DO AT HALL GROUP?
JOHN BRYAN TOLBERT: SO I WORK IN FINANCE AND INVESTMENTS, SO I DO SOME CORPORATE FINANCE FUNCTIONS, AS WELL AS OVERSEE OUR INVESTMENTS IN OTHER COMPANIES.
MR. SCHENK: WHERE IS HALL LOCATED?
JOHN BRYAN TOLBERT: WE'RE LOCATED IN DALLAS, TEXAS.
MR. SCHENK: WHAT IS YOUR CURRENT TITLE?
JOHN BRYAN TOLBERT: VICE PRESIDENT OF FINANCE.
MR. SCHENK: HAVE YOU HAD THAT TITLE, THE VICE PRESIDENT OF FINANCE, SINCE YOU STARTED AT HALL?
JOHN BRYAN TOLBERT: I HAVE NOT. SO I STARTED AS A FINANCIAL ANALYST AND HAVE BEEN VICE PRESIDENT OF FINANCE MAYBE FOR TEN YEARS.
MR. SCHENK: WHAT ARE THE RESPONSIBILITIES THAT YOU HAVE WITH YOUR CURRENT JOB, THE VICE PRESIDENT OF FINANCE?
JOHN BRYAN TOLBERT: SO, LIKE I SAID, I DO SOME CORPORATE FINANCE WORK, SO BUDGETS AND CASH FLOWS, CORPORATE FINANCE. AND THEN I ALSO OVERSEE OUR INVESTMENT OF -- OR OUR PORTFOLIO OF INVESTMENTS IN PRIVATE COMPANIES.
MR. SCHENK: AND WHAT ARE THE CIRCUMSTANCES UNDER WHICH HALL MAKES INVESTMENTS IN PRIVATE COMPANIES?
JOHN BRYAN TOLBERT: SO THERE ARE TIMES WHEN WE BECOME AWARE OF DIFFERENT OPPORTUNITIES TO INVEST IN PRIVATE COMPANIES. WE LOOK AT, YOU KNOW, THOSE OPPORTUNITIES AS THEY COME UP AND ARE PRESENTED TO US. AND, YOU KNOW, WE DO THAT REGULARLY I GUESS. BUT -- SO I GUESS WE, WE HAVE A REGULAR FLOW OF DEALS THAT WE LOOK AT TO POTENTIALLY INVEST IN.
MR. SCHENK: OKAY. WOULD YOU SAY THAT THAT IS THE MAIN BUSINESS OF HALL, INVESTMENT IN PRIVATE COMPANIES?
JOHN BRYAN TOLBERT: IT IS NOT.
MR. SCHENK: WHAT IS THE MAIN BUSINESS?
JOHN BRYAN TOLBERT: SO THE MAIN BUSINESS OF HALL GROUP IS INVESTING IN REAL ESTATE, OWNING AND DEVELOPING REAL ESTATE, AS WELL AS A BUSINESS OF MAKING LOANS, CONSTRUCTION LOANS TO DIFFERENT REAL ESTATE RELATED PROJECTS.
MR. SCHENK: IS THE REAL ESTATE THAT HALL INVESTS IN OR WORKS WITH LOCATED IN TEXAS OR IN OTHER PLACES?
JOHN BRYAN TOLBERT: IT'S ALL OVER THE COUNTRY.
MR. SCHENK: OKAY. LET'S TURN TO THE PRIVATE COMPANY INVESTMENTS. ARE THERE TIMES WHEN YOU, YOURSELF, MAKE THE DECISION ON BEHALF OF HALL TO INVEST?
JOHN BRYAN TOLBERT: YOU KNOW, THAT DECISION WOULD BE MADE PRIMARILY BETWEEN ME AND MY BOSS, MR. HALL. TOGETHER THAT DECISION WOULD BE MADE.
MR. SCHENK: OKAY. AND IS IT THROUGH THIS PROCESS, THE INVESTMENTS IN PRIVATE COMPANIES, THAT YOU BECAME FAMILIAR WITH THERANOS?
JOHN BRYAN TOLBERT: IT IS.
MR. SCHENK: WHEN DID YOU FIRST BECOME FAMILIAR WITH THERANOS IF YOU RECALL?
JOHN BRYAN TOLBERT: IT WOULD BE -- IT WOULD HAVE BEEN IN THE FALL OF 2006.
MR. SCHENK: AND HOW DID YOU FIRST BECOME FAMILIAR WITH IT?
JOHN BRYAN TOLBERT: YOU KNOW, AS I RECALL, MR. HALL CAME TO ME ONE DAY AND SAID THAT, YOU KNOW, HE HAD BECOME -- HE HAD RECEIVED SOME INFORMATION ABOUT A POTENTIAL INVESTMENT IN A COMPANY ABOUT A COMPANY CALLED THERANOS AND ASKED ME IF I WOULD TAKE A LOOK AT IT. SO WE DISCUSSED IT WHEN HE BROUGHT IT TO MY ATTENTION.
MR. SCHENK: SO MR. HALL TASKED YOU WITH BEGINNING A PROCESS, IS IT CALLED DUE DILIGENCE?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: AND WHAT DID YOU DO AT THIS TIME?
JOHN BRYAN TOLBERT: EXCUSE ME?
MR. SCHENK: WHAT DID YOU DO? WHAT WERE YOUR FIRST STEPS?
JOHN BRYAN TOLBERT: SO, YOU KNOW, OUR FIRST STEPS WERE TO DO A GOOGLE SEARCH TO SEE IF THERE WAS ANYTHING THAT WE COULD LEARN ABOUT IT. THERE WASN'T MUCH AT THAT TIME. AND SO WE SET UP A PHONE CALL, OR A SERIES OF PHONE CALLS, TO HAVE SOME DISCUSSIONS ABOUT WHAT THE OPPORTUNITY WAS AND THE PREMISE OF THE UNDERLYING COMPANY.
MR. SCHENK: AND THESE EARLY CALLS, DID YOU SPEAK WITH SOMEONE AT THERANOS?
JOHN BRYAN TOLBERT: I DID.
MR. SCHENK: AND WHO DID YOU SPEAK WITH?
JOHN BRYAN TOLBERT: I SPOKE WITH ELIZABETH.
MR. SCHENK: OKAY. YOUR HONOR, MAY I APPROACH?
JUDGE DAVILA: YES.
MR. SCHENK: (HANDING.)
MR. SCHENK: MR. TOLBERT, I'VE HANDED YOU A BINDER OF DOCUMENTS, AND I'LL ASK YOU TO OPEN THE BINDER AND NOW TURN TO TAB 3790. DO YOU RECOGNIZE THIS DOCUMENT?
JOHN BRYAN TOLBERT: I DO.
MR. SCHENK: WHAT IS THIS?
JOHN BRYAN TOLBERT: THIS IS AN EMAIL THAT I SENT TO MR. HALL IN OCTOBER OF 2006 REFERENCING SOME NOTES FROM A CONFERENCE CALL THAT WE HAD HAD ABOUT THERANOS.
MR. SCHENK: AND THERE'S A COUPLE OF PAGES AFTER THE EMAIL. WHAT ARE THOSE?
JOHN BRYAN TOLBERT: THOSE WOULD HAVE BEEN MY NOTES THAT WERE ATTACHED TO THAT EMAIL.
MR. SCHENK: AND IS THIS THE CALL THAT YOU MENTIONED A MOMENT AGO WITH MS. HOLMES?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: YOUR HONOR, THE GOVERNMENT OFFERS 3790.
MR. DOWNEY: YOUR HONOR, OBJECTION UNDER 801.
JUDGE DAVILA: 801 OBJECTION. ARE YOU OFFERING THIS FOR THE TRUTH?
MR. SCHENK: I AM, YOUR HONOR, YES.
JUDGE DAVILA: CAN YOU LAY A FOUNDATION?
MR. SCHENK: YES, YOUR HONOR.
MR. SCHENK: WHEN YOU ARE PERFORMING YOUR DUE DILIGENCE, IS ONE OF THE THINGS THAT YOU DO IN THAT PROCESS, AS IN THIS CASE, SPEAK TO INDIVIDUALS THAT WORK AT THE COMPANY THAT YOU MAY INVEST IN?
JOHN BRYAN TOLBERT: IT IS.
MR. SCHENK: AND DO YOU TAKE NOTES ON THOSE CALLS?
JOHN BRYAN TOLBERT: I DO. SOMETIMES I DO.
MR. SCHENK: AND IN THIS INSTANCE, DID YOU TAKE NOTES?
JOHN BRYAN TOLBERT: YOU KNOW, I DID. SO THIS WOULD REPRESENT -- SO THIS DOCUMENT WOULD REPRESENT NOTES THAT I TOOK WHILE I WAS ON THE CALL, AS WELL AS ADDITIONAL INFORMATION THAT HAD BEEN SENT TO US. SO KIND OF A COMBINATION OF THOSE TWO SOURCES.
MR. SCHENK: I'M SORRY. MULTIPLE SOURCES OF DUE DILIGENCE?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: AND WOULD YOU PUT THAT ALL INTO ONE DOCUMENT?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: AND THEN WOULD YOU MAKE SURE THAT THE CONTENT OF THAT DOCUMENT ACCURATELY SUMMARIZED THE ORIGINAL SOURCES OF INFORMATION?
JOHN BRYAN TOLBERT: I WOULD.
MR. SCHENK: AND THEN YOU WOULD SEND THE DOCUMENT, AS IN THIS CASE, TO MR. HALL?
JOHN BRYAN TOLBERT: THAT'S CORRECT.
MR. SCHENK: AND WHY WOULD YOU SEND IT TO MR. HALL?
JOHN BRYAN TOLBERT: SO THAT, SO THAT HE AND I COULD REVIEW IT AND WALK THROUGH THE THINGS THAT I HAD HEARD ON THE CALL, OR THE SOURCES OF INFORMATION AS A BASIS TO UNDERSTAND ABOUT THE COMPANY IF IT WAS SOMETHING THAT WE WANTED TO INVEST IN.
MR. SCHENK: AND THEN DID YOU USE THIS TYPE OF DOCUMENT AS A BASIS TO INFORM YOUR DECISION WHETHER OR NOT TO INVEST?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: WAS THIS DOCUMENT ALSO SAVED OR PRESERVED BY HALL SO THAT YOU COULD GO BACK AND LOOK AT THE DOCUMENT IN THE FUTURE IF YOU HAD ADDITIONAL QUESTIONS?
JOHN BRYAN TOLBERT: I DON'T KNOW -- I MEAN, I'M SURE IT WAS. BUT IF WE WOULD HAVE REFERENCED TO THIS, IT WOULD HAVE JUST BEEN A REFERENCE TO WHATEVER WAS ATTACHED TO THAT EMAIL.
MR. SCHENK: THE ATTACHMENT?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: THANK YOU. YOUR HONOR, THE GOVERNMENT OFFERS 3790.
JUDGE DAVILA: I'LL ALLOW IT UNDER 803(6).
MR. SCHENK: AND PERMISSION TO PUBLISH.
JUDGE DAVILA: YES.
(GOVERNMENT'S EXHIBIT 3790 WAS RECEIVED IN EVIDENCE.)
BY MR. SCHENK:
MR. SCHENK: MR. TOLBERT, FIRST THE FROM LINE. IS THAT YOUR EMAIL?
JOHN BRYAN TOLBERT: THAT IS.
MR. SCHENK: AND THE TO LINE, IS THAT THE BEGINNING OF THE EMAIL ADDRESS FOR MR. HALL?
JOHN BRYAN TOLBERT: IT IS.
MR. SCHENK: SO IN OCTOBER OF 2006, YOU WROTE, "ATTACHED ARE MY NOTES FROM THE CONFERENCE CALL RE: THERANOS YESTERDAY." YOU'RE WAITING ON ADDITIONAL INFORMATION FROM THEM. IS THE "THEM" THERANOS?
JOHN BRYAN TOLBERT: YOU KNOW, THAT "THEM" WOULD REFERENCE A COMBINATION OF THERANOS AND CHRIS LUCAS, BOTH OF WHOM HAD SERVED AS SOURCES OF INFORMATION ABOUT THE INVESTMENT.
MR. SCHENK: AND WHO IS CHRIS LUCAS?
JOHN BRYAN TOLBERT: SO CHRIS LUCAS, HE WAS AN INVESTOR IN THERANOS AND HE HAD A FUND THAT WE INVESTED THROUGH. WE WERE PART OF HIS FUND.
MR. SCHENK: AND WHEN YOU SAY THAT "WE INVESTED THROUGH," WHO IS THE "WE"?
JOHN BRYAN TOLBERT: I MEAN THE HALL GROUP WOULD HAVE INVESTED THROUGH CHRIS LUCAS'S FUND.
MR. SCHENK: AND WHEN WAS THAT INVESTMENT MADE?
JOHN BRYAN TOLBERT: THAT WOULD HAVE BEEN IN -- THAT WOULD HAVE BEEN THE INVESTMENT THAT WE MADE IN LATE 2006.
MR. SCHENK: SO HALL MADE AN INVESTMENT IN 2006, AND ALSO ONE IN 2013?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: THE ONE IN 2006, THAT WAS THROUGH THIS INDIVIDUAL CHRIS LUCAS?
JOHN BRYAN TOLBERT: IT WAS THROUGH ONE OF HIS INVESTMENT FUNDS.
MR. SCHENK: HOW ABOUT THE ONE IN 2013, WAS THAT ALSO THROUGH ONE OF MR. LUCAS'S INVESTMENT FUNDS?
JOHN BRYAN TOLBERT: IT WAS NOT. IN 2013 WE HAD HAD SOME DISCUSSIONS WITH BOTH CHRIS AND ELIZABETH TO SAY THAT OUR PREFERENCE WAS TO INVEST DIRECTLY IN THERANOS AND NOT THROUGH A THIRD PARTY, AND SO IN 2013 WE BECAME A DIRECT INVESTOR.
MR. SCHENK: OKAY. LET'S TURN NOW TO THE ATTACHMENT, PAGE 2 OF THE EXHIBIT. THERE ARE SOME CONTACTS AT THE TOP. IF WE CAN FIRST JUST HAVE YOU EXPLAIN TO THE JURY WHO THESE INDIVIDUALS ARE. THE FIRST IS MS. HOLMES; IS THAT RIGHT?
JOHN BRYAN TOLBERT: SO THE FIRST NAME IS ELIZABETH HOLMES. THE SECOND NAME IS GARY NORDHEIMER. GARY IS A FRIEND OF MR. HALL, AND I THINK IS THE FIRST ONE THAT, THAT MADE MR. HALL AWARE OF AN OPPORTUNITY TO INVEST IN THERANOS. SO THEY'RE FRIENDS. AND HE HAD REACHED OUT TO MR. HALL, I BELIEVE, AND HAD INDICATED THAT THERE WAS A POTENTIAL INVESTMENT OPPORTUNITY. AS I UNDERSTAND IT, MR. NORDHEIMER WAS AN INVESTOR THROUGH CHRIS LUCAS, AND HIS INVESTMENT FUND AS WELL, AND THAT'S THE THIRD NAME ON THE LIST IS CHRIS LUCAS.
MR. SCHENK: AND THAT'S THE GENTLEMAN THAT WE JUST SPOKE ABOUT WHO OWNED THE FUND THAT THE 2006 INVESTMENT WAS MADE THROUGH?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: NOW, IF WE CAN LOOK A LITTLE FURTHER DOWN, THERE'S A LIST OF INVESTORS. UNDER DONALD LUCAS, TOWARDS THE END OF THAT LINE, WE SEE HE'S THE UNCLE OF CHRIS LUCAS WHO OWNS BLACK DIAMOND VENTURES. FIRST, DO YOU KNOW WHO DONALD LUCAS IS?
JOHN BRYAN TOLBERT: I DO.
MR. SCHENK: AND WHO IS HE?
JOHN BRYAN TOLBERT: SO DONALD LUCAS WAS ONE OF THE, I THINK, ORIGINAL INVESTORS IN THERANOS, WAS THE CHAIRMAN OF THE BOARD, AND WAS A WELL-KNOWN VENTURE CAPITALIST IN CALIFORNIA.
MR. SCHENK: AND THE REFERENCE HERE, CHAIRMAN OF THE BOARD, THAT'S OF THERANOS; IS THAT RIGHT?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: OKAY. AND CHRIS LUCAS OWNS BLACK DIAMOND VENTURES. WHAT IS BLACK DIAMOND VENTURES?
JOHN BRYAN TOLBERT: SO BLACK DIAMOND VENTURES IS THE NAME OF THE FUND OR THE COMPANY THAT CHRIS LUCAS OWNED THAT MADE THE INVESTMENT IN THERANOS. WE INVESTED IN BLACK DIAMOND VENTURES, WHO INVESTED IN THERANOS.
MR. SCHENK: IN 2006?
JOHN BRYAN TOLBERT: IN 2006, CORRECT.
MR. SCHENK: I SEE. BUT THE 2013 INVESTMENT WAS NOT INTO BLACK DIAMOND VENTURES?
JOHN BRYAN TOLBERT: CORRECT. THE 2013 INVESTMENT WAS DIRECTLY INTO THERANOS.
MR. SCHENK: I SEE. OKAY. AND THEN THERE'S A FURTHER LIST OF INVESTORS, AND IF WE GO DOWN TO THE PARAGRAPH AT THE BOTTOM -- FIRST, BEFORE I READ YOU PARTS OF IT, I'M WONDERING WHAT WAS THE SOURCE, IF YOU RECALL, OF THIS INFORMATION, THE PARAGRAPH THAT BEGINS "FIRST RAISE"?
JOHN BRYAN TOLBERT: SO THIS PARAGRAPH WOULD REFERENCE MY NOTES FROM THAT CONFERENCE CALL.
MR. SCHENK: THE CONFERENCE CALL THAT MS. HOLMES WAS ON?
JOHN BRYAN TOLBERT: CORRECT. THE LIST OF INVESTORS ABOVE, I'M NOT A FAST ENOUGH TYPIST TO HAVE GATHERED ALL OF THAT FROM THE CALL, SO AS I REMEMBER, CHRIS LUCAS WOULD HAVE, OR SOMEBODY WOULD HAVE SENT INFORMATION THAT WOULD HAVE LISTED WHO THE INVESTORS WERE AND I WOULD HAVE CUT AND PASTE THAT LIST INTO THESE NOTES.
MR. SCHENK: OKAY.
JOHN BRYAN TOLBERT: BUT THE PARAGRAPH ON THE BOTTOM REPRESENTED MY NOTES FROM THAT CALL.
MR. SCHENK: IT READS, "THE FIRST RAISE WAS $16 MILLION. THIS ROUND IS $30 MILLION WITH A $125 MILLION PRE-MONEY VALUATION. EXPECTS THIS TO BE FINAL RAISE PRE-IPO." WHAT DOES THAT MEAN?
JOHN BRYAN TOLBERT: SO THAT MEANS ON THE CALL THERE WAS DISCUSSION ABOUT THE FACT THAT THERE WOULD BE AN IPO LIKELY THAT WOULD COME AND THAT THIS ROUND OF INVESTMENT WOULD BE ENOUGH TO CARRY THE COMPANY THROUGH IPO.
MR. SCHENK: AND WHAT IS AN IPO?
JOHN BRYAN TOLBERT: AN INITIAL PUBLIC OFFERING WHERE A COMPANY WOULD FILE TO GO PUBLIC ON ONE OF THE PUBLIC STOCK EXCHANGES.
MR. SCHENK: OKAY. HE -- IT CONTINUES, "THE IPO IS ANTICIPATED IN THE FIRST QUARTER OF 2008. EXPECT THE IPO TO BE VALUED AROUND $1 BILLION." WAS THAT COMMUNICATED DURING THIS CALL?
JOHN BRYAN TOLBERT: THAT WOULD HAVE BEEN.
MR. SCHENK: PARDON ME?
JOHN BRYAN TOLBERT: THAT -- CORRECT, IT WOULD HAVE BEEN NOTED ON THE CALL.
MR. SCHENK: OKAY. "$30 MILLION TO BE USED FOR 1) MANUFACTURING - MOVING FROM A MANUAL ASSEMBLY INFRASTRUCTURE TO A FULLY AUTOMATED SYSTEM AND 2) CONTINUE TO FUND SUCCESSIVE ITERATIONS OF THE TECHNOLOGY INCLUDING DECREASING AMOUNT OF BLOOD REQUIRED IN THE PINPRICK AND NUMBER OF ASSAYS IN THE CARTRIDGE." WHAT WAS YOUR UNDERSTANDING OF WHAT THERANOS DID? WHAT WAS THE TECHNOLOGY AT THIS POINT?
JOHN BRYAN TOLBERT: SO MY UNDERSTANDING AT THIS TIME WAS THAT, YOU KNOW, THERE WAS AN ABILITY TO TAKE A FINGER PRICK OF BLOOD AND PUT THAT DROP OF BLOOD IN A CARTRIDGE. IT WOULD HAVE BEEN PUT IN A READER. THAT READER COULD THEN GO AND DO DIFFERENT TESTS ON THE BLOOD AND RETURN RESULTS. YOU KNOW, THE EXPECTATION AT THIS TIME, AS THIS NOTES, THAT PART OF THE INVESTMENT PROCEEDS WOULD BE USED TO KIND OF FURTHER ADVANCE WHAT THAT TECHNOLOGY WAS ABLE TO DO, THE NUMBER OF TESTS IT WOULD BE ABLE TO BE PERFORMED, OR, YOU KNOW, THE AMOUNT OF BLOOD THAT WOULD BE REQUIRED. IT WAS ALSO TO BE USED FOR MANUFACTURING. AS I UNDERSTOOD IT IN THESE EARLY DAYS, YOU KNOW, THERE WAS A MANUFACTURING SYSTEM THAT THINGS WERE PUT TOGETHER BY HAND, AND THAT THE INTENT WAS TO SCALE UP AND MEET WHAT WAS EXPECTED TO BE LARGE DEMAND, THAT THERE WOULD HAVE TO BE SOME KIND OF AUTOMATED MANUFACTURING SYSTEM BUILT.
MR. SCHENK: WHAT DID YOU UNDERSTAND THERANOS MANUFACTURED?
JOHN BRYAN TOLBERT: SO THERANOS MANUFACTURED THE CARTRIDGES THAT THE BLOOD WOULD BE PLACED INTO, AS WELL AS THE READER THAT WOULD PERFORM THE ACTUAL TESTS ON THE BLOOD ON THE CARTRIDGE.
MR. SCHENK: IS "DEVICE" ANOTHER WORD FOR "READER" AS YOU'RE USING IT?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: AND DID YOU HAVE AN UNDERSTANDING OF WHETHER, IN 2006, THE DEVICE WAS A MATURE TECHNOLOGY OR WHETHER IT WAS STILL GROWING, DEVELOPING DIFFERENT GENERATIONS?
JOHN BRYAN TOLBERT: YOU KNOW CERTAINLY, CERTAINLY MY UNDERSTANDING WAS THAT IT WORKED AT THIS TIME. YOU KNOW, THERE WERE PROJECTIONS THAT WE HAD SEEN ABOUT DIFFERENT TRIALS AND DIFFERENT PHARMACEUTICAL TRIALS THAT WOULD BE UNDERTAKEN, AND IN ORDER FOR THOSE TO BE DONE, THERE HAD TO BE SOME KIND OF FUNCTIONING, YOU KNOW, DEVICE OR READER SYSTEM. THE EXPECTATION WAS THAT THAT WOULD CONTINUE TO ADVANCE AND GET, YOU KNOW, MORE ROBUST OVER TIME. BUT THERE WAS AT THIS TIME A FUNCTIONING PRODUCT.
MR. SCHENK: IF YOU'LL TURN NOW TO THE NEXT PAGE, PAGE 3 OF THE EXHIBIT. AT THE TOP THERE'S A SUMMARY OF MS. HOLMES'S BACKGROUND. DO YOU RECALL, WAS THAT DISCUSSED ON THE CALL?
JOHN BRYAN TOLBERT: IT WAS.
MR. SCHENK: AND THEN BELOW THAT THERE'S A SECTION CALLED FINANCIALS, AND IT READS, "THE CURRENT BURN RATE $1 MILLION PER MONTH." WHAT DOES THAT MEAN?
JOHN BRYAN TOLBERT: THAT MEANS THAT THE COMPANY WAS SPENDING AROUND A MILLION DOLLARS A MONTH IN OVERHEAD COSTS.
MR. SCHENK: "$3 MILLION IN REVENUES SHOULD BE RECEIVED FOR 2 CONTRACTS WHICH HAVE ALREADY BEEN SHIPPED. "HAS SIGNED/IN NEGOTIATIONS CONTRACTS THROUGH 2007 FOR $30-$50 MILLION. "EXPECTS TO BE CASH FLOW POSITIVE BY THE FOURTH QUARTER OF 2007." EXPLAIN TO ME THE SIGNIFICANCE OF THESE SIGNED CONTRACTS, OR IN NEGOTIATION CONTRACTS AND CASH FLOW POSITIVE.
JOHN BRYAN TOLBERT: CERTAINLY. SO, YOU KNOW, AS WE HAD LOOKED AT FINANCIAL PROJECTIONS AT THIS TIME, YOU KNOW, THAT WERE ANTICIPATED, YOU KNOW, OUR UNDERSTANDING WAS THAT THERE WAS A SIGNIFICANT AMOUNT OF REVENUES THAT WERE ALREADY IN PLACE BASED ON CONTRACTS THAT HAD PRODUCT OUT THE DOOR TO THOSE COMPANIES, AS WELL AS, YOU KNOW, SIGNIFICANT CONTRACTS THAT WERE SIGNED OR IN NEGOTIATIONS, WHICH FELT LIKE, YOU KNOW, THAT WAS AN EXTREMELY EXCITING PROSPECT. AND THE LAST NOTE I MADE, "EXPECTS TO BE CASH FLOW POSITIVE BY 4TH QUARTER 2007," SO THAT MEANS THAT THE CONTRACTS THAT WOULD HAVE BEEN SHIPPED OR REVENUE WOULD HAVE BEEN RECEIVED ON WOULD HAVE BEEN FOR MORE THAN ENOUGH CASH TO COVER ALL OF THE OPERATIONAL EXPENSES SO THE COMPANY WOULD BE PROFITABLE AT THAT POINT.
MR. SCHENK: WERE THE STATEMENTS THAT YOU RECEIVED ABOUT GENERATION OF REVENUE AND GOING CASH FLOW POSITIVE IN THE FOURTH QUARTER OF 2007 RELEVANT TO YOUR DUE DILIGENCE PROCESS?
JOHN BRYAN TOLBERT: THEY WERE.
MR. SCHENK: WHY?
JOHN BRYAN TOLBERT: YOU KNOW, AS WE LOOK TO EVALUATE ANY INVESTMENT OPPORTUNITY, YOU KNOW, THERE NEEDS TO BE A SYSTEM OR A BUSINESS IN PLACE THAT CAN GENERATE ENOUGH MONEY TO MAKE THAT INVESTMENT WORTHWHILE TO MAKE, AND, YOU KNOW, THESE PROJECTIONS WERE SUCH THAT IT MEANT THAT OUR INVESTMENT WOULD INCREASE AND BE WORTH SOMETHING MORE THAN WE INVESTED INTO IT IN THE FIRST PLACE. AND SO THAT'S WHY THESE ARE IMPORTANT NUMBERS TO LOOK AT.
MR. SCHENK: YOU RECEIVED THIS INFORMATION AROUND OCTOBER OF 2006; IS THAT RIGHT?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: AND THE PROJECTIONS WERE FOR 2007, THE NEXT YEAR?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: IS THAT CLOSE IN TIME SO YOU WOULD EXPECT THEM TO BE MORE ACCURATE, OR IS THAT FAR INTO THE FUTURE SO THAT YOU APPRECIATE THAT THERE IS A LACK OF CERTAINTY?
JOHN BRYAN TOLBERT: WELL, AND I GUESS MAYBE TO CLARIFY, AS I REMEMBER, AND I DON'T -- AS I REMEMBER, THOSE PROJECTIONS WERE FOR 2007 AND 2008, SO FOR TWO YEARS. AND, YOU KNOW, CERTAINLY THE FARTHER OUT IN THE FUTURE THE PROJECTIONS ARE, THE MORE VARIABILITY THERE MAY BE INTO HOW THOSE ARE ACTUALLY RECEIVED. BUT WE FELT SOME COMFORT OR SOME EXCITEMENT AROUND, YOU KNOW, THE FACT THAT THE 2007 PROJECTIONS REPRESENTED WHAT WE BELIEVED WERE CONTRACTS THAT HAD BEEN SIGNED OR WERE DEEP IN NEGOTIATIONS. IN FACT, I BELIEVE THERE WAS ACTUALLY A LIST OF WHAT THOSE, YOU KNOW, DIFFERENT CONTRACTS WERE. SO IT FELT LIKE THERE WAS SOME MEASURE OF CERTAINTY AROUND THOSE.
MR. SCHENK: BECAUSE THE CONTRACTS ACTUALLY WERE SIGNED?
JOHN BRYAN TOLBERT: SOME PORTION OF THEM HAD BEEN SIGNED.
MR. SCHENK: OKAY. IF YOU'LL TURN IN YOUR BINDER NOW TO 4871. YOUR HONOR, THE GOVERNMENT OFFERS THIS BY STIPULATION.
MR. DOWNEY: THAT'S CORRECT, YOUR HONOR.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 4871 WAS RECEIVED IN EVIDENCE.)
BY MR. SCHENK:
MR. SCHENK: MR. TOLBERT, I'M GOING TO ASK YOU SOME QUESTIONS ABOUT THE INFORMATION ON PAGE 8 OF THE DOCUMENT, BUT IF YOU COULD JUST TAKE A MOMENT AND LOOK THROUGH THIS EXHIBIT AND EXPLAIN TO THE JURY WHAT THIS EXHIBIT IS, 4871.
JOHN BRYAN TOLBERT: SO THIS DOCUMENT REPRESENTS INFORMATION THAT WOULD HAVE BEEN GIVEN TO US IN THAT DUE DILIGENCE PROCESS IN 2006. IT WOULD HAVE CONTAINED SOME DETAILED INFORMATION ABOUT, YOU KNOW, WHO THE OFFICERS AND DIRECTORS OF THE COMPANY WERE, KIND OF WHAT THE COMPANY DID, AS WELL AS THE FINANCIAL PROJECTIONS THEN.
MR. SCHENK: YOU RECEIVED THIS INFORMATION BEFORE YOU MADE A DECISION TO INVEST IN 2006?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: IF YOU'LL LOOK AT PAGE 8, THERE ARE SOME CHARTS AND THE ONE THAT WE'RE LOOKING AT NOW, THE TOP IS CALLED THERANOS PLAN '06, BASE FORECAST, AND THEN THERE IS INCOME STATEMENT WITH A LINE FOR REVENUE. DO YOU SEE THAT?
JOHN BRYAN TOLBERT: I DO SEE THAT.
MR. SCHENK: AND THEN WE SEE TIME GOING ACROSS THE COLUMNS ALONG THE RIGHT. IS THAT CORRECT?
JOHN BRYAN TOLBERT: THAT IS CORRECT.
MR. SCHENK: FROM THE THIRD QUARTER OF 2006 THROUGH THE FOURTH QUARTER OF 2008?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: IF YOU COULD EXPLAIN TO THE JURY, WHAT IS HAPPENING TO THE REVENUE OVER THAT PERIOD OF TIME?
JOHN BRYAN TOLBERT: SO THE REVENUE IN, YOU KNOW, Q4 OF '06 WHEN WE WERE HAVING THESE DISCUSSIONS WAS ZERO, BUT, YOU KNOW, IT STARTS IN THE BEGINNING OF 2007 TO BE -- I CAN'T TELL IF THAT'S A -- 4.6 MILLION IN THE FIRST QUARTER GROWING TO 67 MILLION IN THE FOURTH QUARTER OF '08, SO A SIGNIFICANT INCREASE IN REVENUE OVER THAT PERIOD OF TIME.
MR. SCHENK: YOU SAID THAT THE NUMBER FOR Q1 2007 IS ABOUT $4.6 MILLION; IS THAT RIGHT?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: AND CNA YOU EXPLAIN TO THE JURY THE CONVENTION THAT'S USED FOR REVENUE AND IF THE ZEROS ARE ADDED?
JOHN BRYAN TOLBERT: SO TYPICALLY ON THESE STATEMENTS, IN ORDER TO MAKE THE NUMBERS EASY TO READ AND DEAL WITH, YOU TAKE OFF THE LAST THREE ZEROS. SO YOU DIVIDE IT BY 1,000. SO THESE NUMBERS WOULD ALL HAVE HAD, YOU KNOW, THREE ZEROS, OR HAVE BEEN IN THE MILLIONS OF DOLLARS.
MR. SCHENK: OKAY. AND NOW IF WE'LL LOOK AT THE BOTTOM OF THIS CHART THAT YOU'RE LOOKING AT NOW, THE ROW CALLED NET INCOME, IT BEGINS IN 2006 WITH NUMBERS THAT ARE IN PARENTHETICALS, BUT THEN IT STOPS THAT AS WE MOVE ALONG IN TIME. WHAT IS THAT INDICATING?
JOHN BRYAN TOLBERT: SO THAT NET INCOME LINE REPRESENTS WHAT THE REVENUE AND INCOME WAS, MINUS THE EXPENSES. AND SO WHEN WE WERE ANTICIPATING THIS INVESTMENT IN 2006, YOU CAN SEE THAT FOR THE FOURTH QUARTER, THE COMPANY EXPECTED TO SPEND $5 MILLION MORE THAN IT MADE. SO THE NET INCOME WAS NEGATIVE $5 MILLION. BUT OVER TIME, BASED ON WHAT THE PROJECTIONS FOR THEIR REVENUE WAS, MINUS THOSE EXPENSES, GREW TO ABOUT $12 MILLION A QUARTER.
MR. SCHENK: AND WE SEE THE NUMBER BECOMING POSITIVE IN THE FOURTH QUARTER OF 2007?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: AND WAS THAT REFLECTED IN THE NOTES THAT WE LOOKED AT A MOMENT AGO?
JOHN BRYAN TOLBERT: CORRECT. SO THAT WAS, THAT WAS WHAT THE DISCUSSION HAD BEEN THAT -- AND IN '07 IS WHEN THINGS TURNED INTO A POSITIVE CASH FLOW POSITION.
MR. SCHENK: IN ADDITION TO THE PHONE CALL THAT YOU TALKED ABOUT AND REVIEWING DOCUMENTS, AS PART OF DUE DILIGENCE, DID YOU ALSO GO FROM TEXAS TO CALIFORNIA AT SOME POINT?
JOHN BRYAN TOLBERT: I DID MAKE A TRIP TO CALIFORNIA.
MR. SCHENK: DO YOU REMEMBER GENERALLY WHEN THAT WAS?
JOHN BRYAN TOLBERT: I BELIEVE IT WAS EARLY NOVEMBER OF 2006.
MR. SCHENK: WAS THAT BEFORE A DECISION REGARDING AN INVESTMENT WAS MADE?
JOHN BRYAN TOLBERT: IT WAS.
MR. SCHENK: AND WHAT DID YOU DO IN CALIFORNIA?
JOHN BRYAN TOLBERT: SO AS PART OF MY TRIP, I WENT TO DINNER WITH DON LUCAS AND CHRIS LUCAS AND ELIZABETH HOLMES AND, YOU KNOW, WE SPENT, AS I REMEMBER, A FEW HOURS AT DINNER THAT NIGHT TALKING ABOUT WHAT THERANOS DID, TALKING ABOUT ELIZABETH'S VISION FOR THE COMPANY. YOU KNOW, WE ALSO, I'M SURE, HEARD SOME FUN STORIES FROM DON LUCAS, YOU KNOW, ABOUT HIS INVESTMENT CAREER. BUT IT WAS MOSTLY FOCUSSED ON THERANOS AND WHAT THE OPPORTUNITY WAS.
MR. SCHENK: DID MS. HOLMES DESCRIBE TO YOU THE TECHNOLOGY?
JOHN BRYAN TOLBERT: SHE DID.
MR. SCHENK: AND DID THAT DESCRIPTION CHANGE YOUR UNDERSTANDING? YOU DESCRIBED EARLIER THINKING THAT THEY HAD A READER THAT TESTED BLOOD ON A CARTRIDGE DRAWN FROM A FINGERSTICK. WAS THE DESCRIPTION THAT YOU RECEIVED DURING DINNER CONSISTENT WITH THAT, OR DID YOU LEARN SOMETHING DIFFERENT?
JOHN BRYAN TOLBERT: YEAH, I WOULD SAY IT DIDN'T, IT DIDN'T CHANGE IT THAT MUCH. IT AMPLIFIED IT. I CAME AWAY WITH A MUCH BETTER UNDERSTANDING OF WHAT IT WOULD DO AND WHAT THE VISION WAS FOR WHERE IT MAY GO. BUT THE BASIC THESIS WAS THE SAME.
MR. SCHENK: AND DID YOU ALSO VISIT THERANOS HEADQUARTERS DURING THIS TRIP?
JOHN BRYAN TOLBERT: YOU KNOW, AS I RECALL I DID. IT WAS EITHER THAT DAY BEFORE DINNER OR MAYBE THE NEXT MORNING. I DON'T REMEMBER.
MR. SCHENK: DID YOU LOOK AT ANY OF THE DEVICES THAT THERANOS MANUFACTURED?
JOHN BRYAN TOLBERT: YOU KNOW, I DON'T RECALL KIND OF TAKING A TOUR AND SEEING THE DEVICES. I DO KNOW -- I MAY HAVE. I JUST DON'T REMEMBER. I DID COME HOME FROM THAT TRIP WITH A CARTRIDGE, AN EARLY VERSION OF THE CARTRIDGE THAT HAD A PLACE WHERE THE FINGERSTICK BLOOD WOULD GO IN. SO AT SOME POINT, YOU KNOW, I SAW SOMETHING THAT WOULD HAVE BEEN RELATED TO THOSE DEVICES. BUT I, I DON'T REMEMBER TAKING A TOUR.
MR. SCHENK: DID MS. HOLMES GIVE YOU THAT CARTRIDGE?
JOHN BRYAN TOLBERT: I DON'T REMEMBER IF SHE DID OR IF SOMEBODY ELSE DID WHILE I WAS THERE.
MR. SCHENK: WHEN YOU THEN RETURNED TO TEXAS, DID YOU MAKE A RECOMMENDATION REGARDING AN INVESTMENT IN THERANOS?
JOHN BRYAN TOLBERT: YOU KNOW, AT SOME POINT AFTER THAT I WOULD HAVE RECOUNTED, YOU KNOW, THE EXPERIENCE THAT I HAD AND MY TAKEAWAYS FROM THAT, AND AT SOME POINT AFTER THAT MR. HALL AND I MADE A DECISION TO INVEST.
MR. SCHENK: AND HOW MUCH DID YOU DECIDE TO INVEST?
JOHN BRYAN TOLBERT: SO OUR INVESTMENT IN 2006 WAS $2 MILLION.
MR. SCHENK: AND, AGAIN, THAT WAS THROUGH BLACK DIAMOND VENTURES; IS THAT RIGHT?
JOHN BRYAN TOLBERT: CORRECT. SO IN ESSENCE WE JOINED CHRIS LUCAS'S FUND. WE COMMITTED $2 MILLION TO THAT FUND THAT WAS ULTIMATELY AGGREGATED WITH OTHER INVESTORS, I BELIEVE, AND INVESTED INTO THE COMPANY.
MR. SCHENK: OKAY. AND WAS THAT LATE 2006, OR SOMETIME AFTER THE EVENTS THAT WE HAVE TALKED ABOUT IN 2006?
JOHN BRYAN TOLBERT: YES, IT'S AFTER -- IT'S AFTER MY TRIP OUT.
MR. SCHENK: I'D LIKE TO NOW TAKE A CHUNK OF TIME ALL AT ONCE WITH YOU. FROM THIS TIME IN 2006 WHEN THIS INVESTMENT WAS MADE UNTIL 2013, HOW MUCH, IF ANY, COMMUNICATION DID YOU HAVE WITH MS. HOLMES DURING THAT PERIOD OF TIME?
JOHN BRYAN TOLBERT: NONE THAT I RECALL.
MR. SCHENK: HOW ABOUT WITH ANYBODY FROM THERANOS?
JOHN BRYAN TOLBERT: YOU KNOW, I DON'T RECALL ANY, ANY DIRECT COMMUNICATION WITH ANYBODY AT THE COMPANY OVER THAT PERIOD OF TIME.
MR. SCHENK: DID YOU RECEIVE ANY UPDATES AT ALL ABOUT YOUR INVESTMENT IN THERANOS?
JOHN BRYAN TOLBERT: I DID. BECAUSE WE HAD INVESTED THROUGH CHRIS LUCAS'S, THROUGH BLACK DIAMOND VENTURES, I HAD REGULAR CONVERSATIONS WITH MR. LUCAS ABOUT, YOU KNOW, ABOUT OUR INVESTMENT, ABOUT HOW THINGS WERE GOING. YOU KNOW, AS I UNDERSTOOD, MR. LUCAS WAS A PRETTY REGULAR VISITOR AT THE COMPANY HEADQUARTERS AND, YOU KNOW, MAY HAVE HAD SOME PROJECTS THAT HE WAS WORKING ON. ANYWAY, HE WAS A REGULAR SOURCE OF INFORMATION FOR US THROUGH THOSE YEARS.
MR. SCHENK: OKAY. WERE THERE ANY OTHER SOURCES OF INFORMATION DURING THAT PERIOD OF TIME? DID YOU LOOK ON THE INTERNET OR ANY OTHER PUBLIC SOURCES?
JOHN BRYAN TOLBERT: YOU KNOW, CERTAINLY I WOULD HAVE LOOKED AT GOOGLE OR THE INTERNET. YOU KNOW, DURING THAT TIME, AS I RECALL, THERE WAS NOT MUCH PUBLIC INFORMATION THAT WAS PUBLICLY AVAILABLE. YOU KNOW, IN MY CONVERSATIONS WITH CHRIS, I THINK THAT WAS BY DESIGN, OR I UNDERSTOOD IT WAS BY DESIGN, THAT THE COMPANY DIDN'T WANT TO LOSE A COMPETITIVE ADVANTAGE BY HAVING, YOU KNOW, LOTS OF INFORMATION OUT IN THE PUBLIC DOMAIN.
MR. SCHENK: YOU WEREN'T SURPRISED THAT THERE WASN'T MORE IN THE PUBLIC DOMAIN?
JOHN BRYAN TOLBERT: NO. IN FACT, I WAS ENCOURAGED BECAUSE IT FELT LIKE A -- IT DID FEEL LIKE A REVOLUTIONARY TECHNOLOGY THAT YOU WANTED TO KIND OF PRESERVE AN ADVANTAGE.
MR. SCHENK: OKAY. WE SAW IN YOUR NOTES FROM 2006 THE IPO, AND I THINK IT WAS THE FIRST QUARTER OF 2008. DID YOU KNOW WHETHER THAT HAPPENED?
JOHN BRYAN TOLBERT: IT DID NOT HAPPEN.
MR. SCHENK: OKAY. WE SAW IN YOUR NOTES THAT THE COMPANY WAS GOING TO BECOME CASH FLOW POSITIVE AT ONE POINT. DID YOU RECEIVE ANY INFORMATION ABOUT WHETHER THAT HAPPENED?
JOHN BRYAN TOLBERT: YOU KNOW, CHRIS AND I WOULD HAVE HAD SOME CONVERSATIONS ABOUT THAT. I DON'T RECALL WITH SPECIFICS, YOU KNOW, KNOWING IF OR WHEN THE COMPANY BECAME CASH FLOW POSITIVE.
MR. SCHENK: OKAY. LET'S NOW TURN TO 2013, AND IF YOU'LL LOOK IN THAT BINDER AT 3940. MR. TOLBERT, IS THIS AN EMAIL FROM CHRIS LUCAS TO YOU ABOUT THERANOS?
JOHN BRYAN TOLBERT: IT IS.
MR. SCHENK: YOUR HONOR, THE GOVERNMENT OFFERS 3940.
MR. DOWNEY: NO OBJECTION, YOUR HONOR.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 3940 WAS RECEIVED IN EVIDENCE.)
MR. SCHENK: THANK YOU.
MR. SCHENK: FIRST LET'S NOTE THE TIME. IT'S JULY NOW, THE END OF JULY 2013. CHRIS LUCAS SENDS YOU AN EMAIL AND THE SUBJECT IS THERANOS NEW BOARD MEMBERS. DO YOU SEE THAT?
JOHN BRYAN TOLBERT: I DO.
MR. SCHENK: "THERANOS LAUNCHED THEIR NEW WEBSITE THIS MORNING AND ANNOUNCED NEW BOARD MEMBERS. "SHE IS CLEARLY ASSEMBLING AN IMPRESSIVE GROUP. "HOPEFULLY, THIS ALSO MEANS THAT WE WILL START RECEIVING MORE COMMUNICATION FROM THE COMPANY." FIRST, IS THIS THE TYPE OF INFORMATION THAT YOU WOULD RECEIVE FROM MR. LUCAS OVER THE YEARS?
JOHN BRYAN TOLBERT: CERTAINLY THIS KIND OF INFORMATION, OR ANYTHING THAT FELT LIKE IT WAS NEWS OR DEVELOPMENT I FELT LIKE HE WOULD RELAY TO ME. SO, YOU KNOW, WE HAD HAD SOME CONVERSATIONS IN ADVANCE OF JULY ABOUT, YOU KNOW, THE POSSIBILITY THAT THERE WOULD BE AN ANNOUNCEMENT OF A BOARD. AND SO, YOU KNOW, HE WAS, AS I REMEMBER, EXCITED TO HAVE SOMETHING TO SEND TO ME THAT WAS PUBLIC THAT, YOU KNOW, EVIDENCED SOME GREAT MOMENTUM ON THE COMPANY'S PART.
MR. SCHENK: MR. LUCAS WROTE THAT, HOPEFULLY, THIS MEANS THAT WE WILL START RECEIVING MORE INFORMATION FROM THE COMPANY. WHAT DID YOU TAKE THAT TO MEAN?
JOHN BRYAN TOLBERT: YOU KNOW, CHRIS AND I HAD HAD LOTS OF CONVERSATIONS OVER THOSE INTERVENING YEARS ABOUT, YOU KNOW, JUST WANTING INFORMATION, MORE FINANCIAL INFORMATION, AND MORE VISIBILITY AS TO WHAT WAS GOING ON. SO AS I RECALL, WE HAD SOME SPECIFIC CONVERSATIONS AROUND THIS TIME THAT MAYBE THIS MEANT THERE WAS A DAY THAT THAT CONVERSATION WOULD BECOME MORE FREQUENT, MORE OPEN.
MR. SCHENK: AND DID YOU AGREE WITH THIS SENTIMENT, THAT THE COMPANY HADN'T PROVIDED A LOT OF INFORMATION AND HOPEFULLY THEY WOULD START TO PROVIDE MORE?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: AND IS AN EXAMPLE OF THEM PROVIDING MORE INFORMATION A PHONE CALL, FOR INSTANCE, BETWEEN YOU AND MS. HOLMES WHERE YOU COULD LEARN MORE ABOUT THE COMPANY? IS THAT THE KIND OF THING THAT YOU WANTED?
JOHN BRYAN TOLBERT: YOU KNOW, CERTAINLY THAT WOULD HAVE WELCOMED. BECAUSE WE WEREN'T A DIRECT INVESTOR AT THIS POINT, I WOULDN'T HAVE EXPECTED THAT KIND OF DIRECT COMMUNICATION FROM THE COMPANY. YOU KNOW, I WOULD HAVE EXPECTED SOME DIRECT COMMUNICATION WITH CHRIS, WHO THEN WOULD HAVE KIND OF REFLECTED THAT TO US.
MR. SCHENK: I SEE. IF YOU'LL NOW TURN TO EXHIBIT 949. IS THIS AN EMAIL CHAIN FROM AN EMPLOYEE AT CHRIS LUCAS'S FUND, AND YOU, CONTAINING INFORMATION ABOUT THERANOS?
JOHN BRYAN TOLBERT: THAT'S CORRECT.
MR. SCHENK: YOUR HONOR, THE GOVERNMENT OFFERS 949.
MR. DOWNEY: NO OBJECTION.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 949 WAS RECEIVED IN EVIDENCE.)
BY MR. SCHENK:
MR. SCHENK: LET'S ACTUALLY START AT THE TOP OF THIS DOCUMENT, MR. TOLBERT. FIRST, THIS IS FROM SOMEONE NAMED ANA QUINTANA. DO YOU KNOW WHO THAT IS?
JOHN BRYAN TOLBERT: I DO. SHE WORKS WITH CHRIS LUCAS AT BLACK DIAMOND VENTURES.
MR. SCHENK: SO SHE'S WRITING TO YOU IN AUGUST, SO A FEW DAYS LATER FROM THAT EMAIL FROM MR. LUCAS, "PLEASE FIND THE SHAREHOLDER LETTER BELOW. THE SUBJECT LINE IS BLACK DIAMOND VENTURES THERANOS SHAREHOLDER LETTER. DO YOU SEE THAT?
JOHN BRYAN TOLBERT: YES, I DO.
MR. SCHENK: AND BELOW THIS EMAIL NOW, AT THE BOTTOM OF THIS FIRST PAGE, MS. QUINTANA IS FORWARDING TO YOU ANOTHER EMAIL THAT SAYS, "BELOW PLEASE FIND A SHAREHOLDER UPDATE LETTER FROM THERANOS CEO ELIZABETH HOLMES." DO YOU SEE THAT?
JOHN BRYAN TOLBERT: I DO SEE THAT.
MR. SCHENK: SO THAT'S AT THE VERY BOTTOM OF THIS FIRST PAGE. NOW, IF YOU'LL TURN WITH ME TO PAGE 2. THERE'S AN EMAIL FROM AND TO THERANOS FROM JULY OF 2013, "DEAR SHAREHOLDER. "IT IS WITH GREAT PLEASURE THAT I WRITE TO INFORM YOU OF OUR UPCOMING CONSUMER LAUNCH." DID YOU KNOW WHAT THAT WAS A REFERENCE TO?
JOHN BRYAN TOLBERT: AT THIS TIME THERANOS WAS UNDERTAKING A CONSUMER LAUNCH WHERE, IN PARTNERSHIP WITH DIFFERENT RETAIL ESTABLISHMENTS, TO BE ABLE TO TAKE THEIR TECHNOLOGY DIRECTLY TO THE CONSUMER AND PUT IT IN CLOSE PROXIMITY TO WHERE THE CONSUMERS WERE.
MR. SCHENK: DO YOU KNOW IF, AT THIS TIME, YOU KNEW WHICH STORES OR WHICH COMPANIES THERANOS WAS IN PARTNERSHIP WITH?
JOHN BRYAN TOLBERT: YOU KNOW, AT THIS TIME IN JULY I DON'T BELIEVE THAT I KNEW SPECIFICALLY. CHRIS AND I HAD HAD SEVERAL CONVERSATIONS OVER THE YEARS. I SAY "OVER THE YEARS." IN THOSE CONVERSATIONS THAT CHRIS AND I WOULD HAVE HAD, I KNEW THAT THERE WAS A BUILDOUT BY SOME MAJOR RETAIL CHAINS. I THINK I KNEW THAT SAFEWAY WAS ONE OF THOSE. YOU KNOW, AND THERE WAS SPECULATION ABOUT WHO THE OTHERS WOULD HAVE BEEN. BUT I DON'T, I DON'T RECALL IF I KNEW KIND OF WHO AND WHERE EXACTLY AT THIS POINT.
MR. SCHENK: OKAY. THE EMAIL CONTINUES. "AS YOU ALL KNOW, WE HAVE BEEN WORKING IN STEALTH MODE FOR SEVERAL YEARS TO PREPARE FOR THIS." WHAT IS STEALTH MODE A REFERENCE TO, IF YOU KNOW?
JOHN BRYAN TOLBERT: YOU KNOW, I ASSUME IT'S, YOU KNOW, TRYING TO WORK BELOW THE RADAR SO THAT YOU DON'T LOSE A COMPETITIVE ADVANTAGE BY HAVING, YOU KNOW, OTHER PEOPLE KNOW THAT THE TECHNOLOGY IS COMING AND IT'S GOING TO BE ROLLED OUT. AND SO, YOU KNOW, IN PART THAT'S WHY I THINK -- OR AT LEAST THAT'S WHY I HADN'T BEEN AS CONCERNED THROUGH THOSE YEARS AT THE LACK OF INFORMATION THAT WE HAD BECAUSE IT FELT LIKE THERE WAS A SPECIFIC PURPOSE THAT, YOU KNOW, WAS BEING ANTICIPATED. BUT TO ANSWER YOUR QUESTION, WORKING IN STEALTH MODE WAS TO TRY TO DO IT SO THAT THEY COULD CAPITALIZE ON THE MARKET WITHOUT A LOT OF COMPETITION AT THE MOMENT WHEN THEY LAUNCHED.
MR. SCHENK: SO WAS THE LACK OF INFORMATION THAT YOU RECEIVED FROM AT LEAST 2006 TO 2013 SOMETHING THAT YOU THOUGHT WAS INTENTIONAL, INTENTIONAL BY THERANOS?
JOHN BRYAN TOLBERT: I CERTAINLY THOUGHT THAT IT WAS INTENTIONAL THAT THEY WERE TRYING TO KEEP THINGS UNDER WRAPS.
MR. SCHENK: THE NEXT SENTENCE IS, "WITH THIS LAUNCH, WE WILL BEGIN SENDING INFORMATION TO OUR SHAREHOLDERS THROUGH EMAIL BRIEFS." WHAT DID THAT MEAN TO YOU?
JOHN BRYAN TOLBERT: YOU KNOW, IT MEANT THAT, YOU KNOW, BECAUSE THEY HAD COME TO A POINT IN TIME WHERE THEY ANTICIPATED BEING MORE PUBLIC ABOUT THE PROGRESS THE COMPANY WAS MAKING WITH THE SHAREHOLDERS, THAT THEY WOULD SEND OUT EMAILS DIRECTLY TO THE SHAREHOLDERS WITH UPDATED INFORMATION.
MR. SCHENK: AND IT CONTINUES. OUR FIRST WEBSITE CONTENT IS UP TODAY. THE BOARD IS PUBLICLY LISTED AND THEY DID THEIR COMPANY'S FIRST PRESS RELEASE. DO YOU SEE THAT?
JOHN BRYAN TOLBERT: I DO.
MR. SCHENK: AND THEN ON THE NEXT PAGE AT THE BOTTOM, DO YOU SEE INFORMATION REGARDING THE ADDITION OF MEMBERS OF THE BOARD OF DIRECTORS?
JOHN BRYAN TOLBERT: I DO.
MR. SCHENK: "THERANOS ANNOUNCED TODAY THAT RICHARD KOVACEVICH AND GENERAL JAMES MATTIS WERE APPOINTED TO ITS BOARD OF DIRECTORS." DO YOU SEE THAT?
JOHN BRYAN TOLBERT: I DO SEE THAT.
MR. SCHENK: AND THEN FURTHER DOWN THERE'S SOME PRESS LINKS, A MARKET WATCH AND A CNBC. DO YOU SEE THAT?
JOHN BRYAN TOLBERT: I DO.
MR. SCHENK: WERE THERE OCCASIONS WHEN THERANOS SENT INFORMATION TO YOU THAT INCLUDED LINKS TO ARTICLES IN THE PRESS?
JOHN BRYAN TOLBERT: YOU KNOW, JUST TO BE CLEAR, THEY DIDN'T SEND IT TO ME BECAUSE WE WERE NOT A DIRECT INVESTOR. BUT THEY WOULD HAVE SENT IT TO MR. LUCAS, AND MR. LUCAS WOULD HAVE FORWARDED IT TO ME AND SO I WOULD HAVE RECEIVED THE LINKS.
MR. SCHENK: YOU RECEIVED THIS THROUGH YOUR INVESTMENT IN BLACK DIAMOND VENTURES?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: AND DID YOU THINK THE CONTENT OF THESE ARTICLES THAT WAS SENT ALONG TO INVESTORS WOULD BE ACCURATE?
JOHN BRYAN TOLBERT: I DID.
MR. SCHENK: IF YOU'LL NOW TURN TO EXHIBIT 4030, EXHIBIT 4030. MR. TOLBERT, WHAT IS THIS DOCUMENT?
JOHN BRYAN TOLBERT: THIS IS AN EMAIL THAT WE WOULD HAVE GOTTEN FROM MR. LUCAS'S BLACK DIAMOND VENTURES ABOUT AN ANNUAL MEETING THAT THEY WERE HAVING TO REVIEW THE INVESTMENTS THAT WERE MADE IN THEIR FUND.
MR. SCHENK: AND THEN THERE'S AN ATTACHMENT BEGINNING ON PAGE 3. DO YOU RECOGNIZE THAT ATTACHMENT?
JOHN BRYAN TOLBERT: CORRECT. SO ONE OF THEIR PORTFOLIO INVESTMENT COMPANIES WAS OBVIOUSLY THERANOS, AND SO THIS WAS A, YOU KNOW, AN UPDATE ON THEIR INVESTMENT AT THERANOS THAT THEY FORWARDED ALONG IN ANTICIPATION OF THEIR SHAREHOLDER MEETING.
MR. SCHENK: YOUR HONOR, THE GOVERNMENT OFFERS 4030.
MR. DOWNEY: NO OBJECTION, YOUR HONOR.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 4030 WAS RECEIVED IN EVIDENCE.)
BY MR. SCHENK:
MR. SCHENK: MR. TOLBERT, THE EMAIL IS FROM AN INDIVIDUAL NAMED YASMIN IBARRA. DO YOU KNOW WHO THAT IS?
JOHN BRYAN TOLBERT: SHE WAS AN EMPLOYEE AT BLACK DIAMOND VENTURES.
MR. SCHENK: AND ALSO LOOK AT THE ATTACHMENT STARTING ON PAGE 6. ON PAGE 6 AT THE BOTTOM OF THE SLIDE, WELL, AT THE TOP IT READS "NEWLY DEVELOPED WEBSITE." DID YOU UNDERSTAND THAT THERANOS HAD RECENTLY UPDATED OR DEVELOPED ITS WEBSITE?
JOHN BRYAN TOLBERT: I DID. I WOULD HAVE -- AS SOON AS THE WEBSITE WOULD HAVE BEEN AVAILABLE, I WOULD HAVE LOOKED AT IT.
MR. SCHENK: AT THE BOTTOM IT READS, "FOR THE FIRST TIME, THERANOS IS INTRODUCING CLIA-CERTIFIED LABORATORY SERVICES WITH THE ABILITY TO RUN ITS TEST ON MICRO-SAMPLES." IS THAT CONSISTENT WITH YOUR UNDERSTANDING OF THE THERANOS TECHNOLOGY?
JOHN BRYAN TOLBERT: IT IS.
MR. SCHENK: AND IS THAT ALSO CONSISTENT WITH THE WAY THAT MS. HOLMES EXPLAINED THE TECHNOLOGY TO YOU?
JOHN BRYAN TOLBERT: YEAH. I MEAN, I WILL SAY THAT WHEN -- SO WHEN THIS -- BEAR WITH ME. WHEN THIS WAS SENT, THIS WAS NOVEMBER OF 2013, SO THE LAST TIME I TALKED WITH MS. HOLMES AS I REMEMBER WAS IN 2006, SO THAT WOULD HAVE BEEN A LOT OF YEARS BEFORE. BUT THIS WAS CERTAINLY THE VISION THAT I FELT HAD BEEN LAID OUT IN THE BEGINNING.
MR. SCHENK: IN 2006, DID MS. HOLMES DESCRIBE THE TECHNOLOGY TO YOU?
JOHN BRYAN TOLBERT: SHE DID.
MR. SCHENK: AND ALSO HER VISION?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: AND WAS THIS CONSISTENT WITH BOTH HER DESCRIPTION OF THE TECHNOLOGY AND THE VISION?
JOHN BRYAN TOLBERT: YEAH. I MEAN, I DON'T REMEMBER HOW SPECIFICALLY IT LINED UP, BUT I KNEW DIRECTIONALLY IT WAS.
MR. SCHENK: AND DID YOU READ THIS AND WERE YOU SURPRISED THAT -- DID THIS STRIKE YOU AS INCONSISTENT?
JOHN BRYAN TOLBERT: NO. I MEAN, IT CERTAINLY MADE SENSE, AND SO THAT'S WHERE THINGS WERE HEADED.
MR. SCHENK: OKAY.
JOHN BRYAN TOLBERT: AND IN MY CONVERSATIONS WITH MR. LUCAS THROUGH THE YEARS, THAT EVOLUTION OF WHERE THE TECHNOLOGY WAS HEADED, THIS MADE PERFECT SENSE.
MR. SCHENK: IF YOU'LL TURN NOW TO PAGE 7, THE NEXT PAGE. THIS SLIDE IN THE MIDDLE SAYS "THE LAB TEST, REINVENTED." DO YOU SEE THAT?
JOHN BRYAN TOLBERT: I DO.
MR. SCHENK: AND THERE'S AN IMAGE OF A DEVICE CALLED A NANOTAINER. DO YOU SEE THAT?
JOHN BRYAN TOLBERT: I DO.
MR. SCHENK: IS THAT ALSO CONSISTENT WITH THE WAY THAT YOU UNDERSTOOD THAT THE THERANOS TECHNOLOGY TO BE BASED ON MS. HOLMES'S STATEMENTS TO YOU AND HER DESCRIPTION OF THE VISION?
JOHN BRYAN TOLBERT: IT IS.
MR. SCHENK: IF YOU'LL NOW TURN TO PAGE 8. UNDER "WELCOME TO THERANOS," THERE'S SOME LANGUAGE. IS THAT CLEAR ENOUGH FOR YOU TO READ? CAN YOU SEE IT?
JOHN BRYAN TOLBERT: I CAN.
MR. SCHENK: "THERANOS'S LABORATORY CAN ANALYZE SMALLER SAMPLES THAN PREVIOUSLY POSSIBLE WITH SPEED AND THE HIGHEST LEVELS OF ACCURACY. IT'S EASIER ON YOUR PATIENTS AND HELPS YOU MAKE THE BEST DIAGNOSIS AS FAST AS POSSIBLE." I'M GOING TO ASK YOU, ACTUALLY, IF THIS IS CONSISTENT WITH SOMETHING THAT YOU LEARNED A LITTLE BIT LATER. BUT FOR NOW, DID I READ THAT CORRECTLY?
JOHN BRYAN TOLBERT: YOU DID.
MR. SCHENK: IF YOU'LL NOW TURN TO 1346. IS 1346 ANOTHER EMAIL FROM MS. QUINTANA REGARDING YOUR INVESTMENT IN THERANOS THROUGH BLACK DIAMOND VENTURES?
JOHN BRYAN TOLBERT: IT IS.
MR. SCHENK: YOUR HONOR, THE GOVERNMENT OFFERS 1346.
MR. DOWNEY: NO OBJECTION, YOUR HONOR.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 1346 WAS RECEIVED IN EVIDENCE.)
BY MR. SCHENK:
MR. SCHENK: FIRST, AT THE VERY TOP WE SEE YOUR NAME ABOVE THE BLACK LINE. DO YOU SEE THAT?
JOHN BRYAN TOLBERT: I DO.
MR. SCHENK: AND EVEN THOUGH ON THE TO LINE IT JUST SAYS ANA QUINTANA, DID YOU RECEIVE THIS EMAIL?
JOHN BRYAN TOLBERT: CORRECT. SHE SENT IT TO SEVERAL INVESTORS I THINK AND I WAS ONE OF THOSE WHO WAS COPIED ON THAT.
MR. SCHENK: THE DATE IS DECEMBER 18TH, 2013. SO WE'RE COMING UP TOWARDS THE END OF THE YEAR. SHE WRITES, "DEAR BLACK DIAMOND INVESTOR. AN INVESTOR CONFERENCE CALL HAS BEEN SCHEDULED FOR THIS FRIDAY, DECEMBER 20TH, PROMPTLY STARTING AT 10:15 A.M. PACIFIC. THE CONFIDENTIAL UPDATE CALL WILL BE PRESENTED BY THERANOS'S CEO, ELIZABETH HOLMES." WAS THERE A CONFERENCE CALL ON DECEMBER 20TH?
JOHN BRYAN TOLBERT: THERE WAS.
MR. SCHENK: AND DID YOU PARTICIPATE IN THAT CALL?
JOHN BRYAN TOLBERT: I DID.
MR. SCHENK: AND WAS MS. HOLMES ALSO ON THE CALL?
JOHN BRYAN TOLBERT: SHE WAS.
MR. SCHENK: THE NEXT PARAGRAPH TALKS ABOUT THE THERANOS LAUNCH TO CONSUMER HEALTH CARE THIS YEAR, THEY ARE RAPIDLY SCALING TO ESTABLISH A NATIONAL FOOTPRINT AND CAPTURE THE OPPORTUNITY WE HAVE TO SERVE AS THE ONLY CERTIFIED NATIONAL LABORATORY CAPABLE OF RUNNING ANY OF ITS LABORATORY TESTS FROM A FEW TINY DROPLETS OF BLOOD. WAS THAT SOMETHING THAT WAS DISCUSSED ON THE CALL TWO DAYS AFTER THIS EMAIL?
JOHN BRYAN TOLBERT: IT WAS.
MR. SCHENK: THE NEXT PARAGRAPH READS, "AS PART OF THIS INITIATIVE, THEY'RE COMPLETING A SERIES OF FINANCIAL TRANSACTIONS WITH STRATEGIC PARTNERS THAT PROVIDE ACCESS TO ADDITIONAL CAPITAL IN ORDER TO ACCELERATE THEIR GROWTH." AND THEN A SENTENCE OR TWO DOWN IT CONTINUES, "THE PRICE PER SHARE OF THERANOS SERIES C-1 PREFERRED STOCK IN THE TRANSACTIONS CLOSING BETWEEN NOW AND DECEMBER 31ST, 2013 IS $75 PER SHARE (PRE-SPLIT)." DID YOU EVENTUALLY SEND MONEY TO THERANOS TO INVEST AT THE END OF THIS YEAR?
JOHN BRYAN TOLBERT: WE DID. SO ON DECEMBER 31ST, WE DID MAKE AN INVESTMENT OF $5 MILLION AT THE $75 SHARE LEVEL.
MR. SCHENK: THAT'S MY QUESTION. YOU BOUGHT AT $75 PER SHARE?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: AND WERE THEY THE SERIES C-1?
JOHN BRYAN TOLBERT: THEY WERE.
MR. SCHENK: IN 2016, DO YOU RECALL WHAT THE SHARE PRICE WAS?
JOHN BRYAN TOLBERT: YOU KNOW, SO THE 2 MILLION WE INVESTED WAS A LITTLE LESS THAN $3 A SHARE.
MR. SCHENK: AND NOW THEY'RE SELLING SHARES AT $75?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: AND DID YOU UNDERSTAND THAT BETWEEN NOW -- IT READS THE TRANSACTIONS CLOSING BETWEEN NOW AND DECEMBER 31ST, 2013, MEANT THAT FROM THE CALL, WHICH WAS DECEMBER 20TH, YOU HAD ABOUT 10 OR 11 DAYS TO MAKE THE INVESTMENT?
JOHN BRYAN TOLBERT: CORRECT. AS I UNDERSTOOD IT, THE INVESTMENT WINDOW CLOSED ON DECEMBER 31ST, AND SO THERE WAS A LIMITED AMOUNT OF TIME TO REACT AND TO MAKE AN INVESTMENT DECISION.
MR. SCHENK: OKAY. SO YOU MENTIONED A MOMENT AGO THAT THERE WAS A CALL, THE CALL HAPPENED ON DECEMBER 20TH; IS THAT RIGHT?
JOHN BRYAN TOLBERT: THERE WAS A CALL.
MR. SCHENK: AND DID YOU PARTICIPATE IN THIS CALL?
JOHN BRYAN TOLBERT: I DID.
MR. SCHENK: AND DID YOU RECORD THE CALL?
JOHN BRYAN TOLBERT: I DID RECORD THE CALL.
MR. SCHENK: AND WHEN DID YOU MAKE THE DECISION TO RECORD THE CALL?
JOHN BRYAN TOLBERT: THE MORNING OF THE CALL, OR I GUESS AS THE CALL WAS GETTING READY TO START.
MR. SCHENK: WHY? WHY DID YOU DECIDE TO RECORD THE CALL?
JOHN BRYAN TOLBERT: YOU KNOW, SO MR. HALL AND I, THROUGH CONVERSATIONS THAT I HAD HAD WITH CHRIS LUCAS, WE KNEW THAT THERE WAS A POTENTIAL INVESTMENT OPPORTUNITY AND, YOU KNOW, WE HAD KIND OF DISCUSSED THERANOS AND THE PROGRESS THAT THEY HAD MADE AND, YOU KNOW, KIND OF ANTICIPATED WHAT A FURTHER INVESTMENT WOULD LOOK LIKE. WE HAD ALSO HAD SOME FRUSTRATION THAT WE HADN'T, YOU KNOW, THROUGH THOSE YEARS, HAD THE KIND OF FINANCIAL INFORMATION THAT WE WOULD HAVE HAD FROM A NORMAL INVESTMENT. AND SO MR. HALL AND I DISCUSSED DIFFERENT QUESTIONS THAT WE WANTED TO ASK ELIZABETH, OR HEAR ASKED ON THIS CALL. AND MR. HALL WAS GOING TO BE TRAVELLING POTENTIALLY, OR NOT HAVE AN ABILITY TO BE ON THE CALL AND SO, YOU KNOW, THAT MORNING, AS I THOUGHT ABOUT HOW TO CAPTURE THE INFORMATION ON THE CALL, I'M NOT A VERY FAST TYPIST, AND SO I ELECTED TO RECORD THE CALL TO MAKE SURE THAT I COULD RELAY TO MR. HALL ALL OF THE PERTINENT INVESTMENT INFORMATION THAT WAS ON IT.
MR. SCHENK: AND WHERE WERE YOU WHEN YOU WERE PARTICIPATING IN THE CALL?
JOHN BRYAN TOLBERT: I WAS IN MY OFFICE IN FRISCO, TEXAS.
MR. SCHENK: DO YOU KNOW WHETHER MR. HALL -- WHERE WAS MR. HALL? DO YOU KNOW?
JOHN BRYAN TOLBERT: DO YOU KNOW, HE WAS TRAVELLING, AND SO WHEN THE CALL STARTED, I DIDN'T KNOW WHERE HE WAS OR EVEN IF HE WOULD BE ON THE CALL.
MR. SCHENK: DURING THE CALL, DID YOU LEARN WHETHER MR. HALL MADE IT TO PARTICIPATE IN THE CALL?
JOHN BRYAN TOLBERT: I DO. HE ASKED A QUESTION, SO I ANTICIPATED HE WAS ON.
MR. SCHENK: OKAY. WHEN YOU HEARD HIM ASK A QUESTION ON THE CALL, DID YOU SAY, WELL, I DON'T NEED THE TAPE ANYMORE, AND TURN OFF THE TAPE?
JOHN BRYAN TOLBERT: NO. AT THAT POINT I WAS RECORDING AND I JUST CONTINUED TO TYPE AND MAKE MY NOTES OF THE CALL, BUT CONTINUED TO RECORD IT.
MR. SCHENK: AND AFTER THE CALL WAS OVER, DID YOU SAVE OR PRESERVE THE TAPE?
JOHN BRYAN TOLBERT: I DID. I PUT THE TAPE IN MY DESK DRAWER AND THAT'S WHERE IT STAYED.
MR. SCHENK: AND AT SOME POINT, DID YOU THEN PRODUCE THAT TAPE TO THE FEDERAL GOVERNMENT?
JOHN BRYAN TOLBERT: I DIDN'T PRODUCE IT TO THE FEDERAL GOVERNMENT. AT SOME POINT A FEW YEARS LATER WHEN I REMEMBERED I HAD IT, I GAVE IT TO MY ATTORNEY AND I ASSUME THAT MY ATTORNEY MUST HAVE PRODUCED IT.
MR. SCHENK: AND HAVE YOU LISTENED TOD THAT RECORDING?
JOHN BRYAN TOLBERT: I HAVE.
MR. SCHENK: AND IN 2006, YOU SAID YOU HAD DINNER WITH MS. HOLMES?
JOHN BRYAN TOLBERT: I DID.
MR. SCHENK: AND DID YOU HAVE AN OPPORTUNITY TO OBSERVE HER VOICE AT THAT DINNER?
JOHN BRYAN TOLBERT: I DID.
MR. SCHENK: AND WHEN YOU LISTENED TO THE RECORDING, DID YOU ALSO HAVE AN OPPORTUNITY TO HEAR HER VOICE?
JOHN BRYAN TOLBERT: I HEARD HER ON THE CALL.
MR. SCHENK: AND DID YOU RECOGNIZE THE VOICE AS THE VOICE OF MS. HOLMES?
JOHN BRYAN TOLBERT: I DID.
MR. SCHENK: DO YOU -- WHEN YOU LISTENED TO THE RECORDING, DO YOU RECOGNIZE IT AS A RECORDING OF THIS DECEMBER 20TH, 2013 CALL?
JOHN BRYAN TOLBERT: I DO.
MR. SCHENK: AND DO YOU THINK THAT IT ACCURATELY RECORDS OR CAPTURES THE CALL AS YOU HEARD IT THAT DAY?
JOHN BRYAN TOLBERT: IT DOES.
MR. SCHENK: SO THE RECORDING IS EXHIBITS 1348 AND 1349. YOUR HONOR, AT THIS TIME THE GOVERNMENT WOULD OFFER 1348 AND 1349.
MR. DOWNEY: NO OBJECTION, YOUR HONOR.
JUDGE DAVILA: THOSE EXHIBITS ARE ADMITTED.
(GOVERNMENT'S EXHIBITS 1348 AND 1349 WERE RECEIVED IN EVIDENCE.)
JUDGE DAVILA: WHAT DO YOU INTEND TO DO WITH THOSE EXHIBITS?
MR. SCHENK: YOUR HONOR, I'VE TALKED TO THE DEFENSE ABOUT 106 ISSUES. WE'VE AGREED ON CLIPS TO PLAY. SO WITH THE COURT'S PERMISSION, I WOULD LIKE TO PLAY A HANDFUL OF CLIPS FROM 1348 AND 1349.
JUDGE DAVILA: THANK YOU. DO YOU HAVE -- ARE YOU GOING TO OFFER TRANSCRIPTS AT ALL OF THESE CALLS?
MR. SCHENK: NO, YOUR HONOR.
JUDGE DAVILA: ALL RIGHT. THANK YOU. LADIES AND GENTLEMEN, WE'RE GOING TO -- YOU'RE NOW GOING TO HEAR CLIPS, AS MR. SCHENK SAYS, FROM PHONE CALLS. AND I'LL ASK YOU, MR. SCHENK, TO AUTHENTICATE THESE BEFORE THE CLIP IS PLAYED, JUST THE DATE AND TIME, AND IF THEY RELATE TO THE TESTIMONY THAT WE JUST HEARD. YOU WILL NOT HAVE A TRANSCRIPT TO FOLLOW OF THESE, SO PLEASE, LADIES AND GENTLEMEN, PLEASE LISTEN CLOSELY TO THE CONVERSATIONS AND THE CONTENTS OF THE TAPES. AND WHICH ONE WILL YOU PLAY FIRST? GO AHEAD, MR. SCHENK.
MR. SCHENK: THANK YOU.
MR. SCHENK: MR. TOLBERT, ON THE FIRST CALL -- I'M SORRY, THE FIRST EXHIBIT, 1348, I HAVE SEVEN CLIPS THAT I'D LIKE TO PLAY FOR YOU, SO I'LL REFER TO THEM AS 1348-1 THROUGH 1348-7, AND THEN I HAVE ONE CLIP ON 1349, SO THAT WILL JUST BE 1349-1. JUST A COUPLE OF QUESTIONS BEFORE WE GET STARTED ON THAT. DID MS. HOLMES KNOW THAT YOU WERE RECORDING?
JOHN BRYAN TOLBERT: SHE DID NOT.
MR. SCHENK: ON THE RECORDING WE CAN HEAR SOME TYPING. HAVE YOU NOTICED THAT?
JOHN BRYAN TOLBERT: I HAVE.
MR. SCHENK: WHO IS THAT?
JOHN BRYAN TOLBERT: THAT'S ME TYPING.
MR. SCHENK: THAT'S YOU TAKING NOTES DURING THE CALL?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: OKAY. SO THEN AGAIN WITH YOUR PERMISSION, YOUR HONOR, WE'LL START WITH 1348-1.
JUDGE DAVILA: ARE YOU ASKING THAT THESE RECORDINGS NEED NOT BE RECORDED BY THE COURT REPORTERS?
MR. SCHENK: YES, I THINK THAT THAT'S FINE, BUT I THINK I PROBABLY WOULD THEN APPEND TO THE TRANSCRIPT, APPEND TO THE TRAIL TRANSCRIPT A TRANSCRIPT OF THE RECORDINGS, BUT I CAN MEET AND CONFER WITH THE DEFENSE ON THAT.
JUDGE DAVILA: IF YOU'LL AGREE TO THAT, AN AGREED TRANSCRIPT THAT COULD BE APPENDED, THAT WOULD BE ACCEPTABLE. THEN OUR COURT REPORTERS NEED NOT TRANSCRIBE THESE CALLS.
MR. SCHENK: YES, THANK YOU.
JUDGE DAVILA: DO YOU AGREE WITH THAT, MR. DOWNEY?
MR. DOWNEY: WELL, I WOULD RATHER CONFER. I HAD ASKED IF THEY WOULD HAVE A TRANSCRIPT IN ADVANCE AND THEY SAID NO, SO I GUESS IF IT'S AN ISSUE OF THE COURT REPORTERS RECORDING THE TRANSCRIPT NOW. I'M GOING TO TURN TO THE COURT REPORTER AND SEE IF IT'S POSSIBLE TO RECORD THEM NOW.
(DISCUSSION OFF THE RECORD.)
JUDGE DAVILA: OUR COURT REPORTER SAYS SHE CAN TAKE THESE DOWN. I DON'T KNOW HOW FAST THE SPEAKING IS, BUT IF THERE'S A PROBLEM WITH THIS, THE COURT REPORTER WILL LET US KNOW AND OR WE CAN STOP OR WE CAN REPLAY IT.
MR. SCHENK: YES.
MR. DOWNEY: I SHOULD SAY ALSO, WE'LL HAVE NO OBJECTION AT THE TIME THE JURY DELIBERATES TO RELISTENING TO THE RECORDING.
JUDGE DAVILA: ALL RIGHT. THANK YOU. OKAY. GO AHEAD, MR. SCHENK.
MR. SCHENK: THANK YOU VERY MUCH. SO, MS. HOLLIMAN, IF WE COULD START WITH 1348-1.
MR. SCHENK: I'LL PLAY THE WHOLE CLIP FOR YOU, AND SOMETIMES I MIGHT HAVE SOME FOLLOW-UP QUESTIONS, AND SOMETIMES WE MIGHT JUST MOVE TO THE NEXT CLIP.
JUDGE DAVILA: I'M SORRY, MR. SCHENK. CAN YOU TELL US, HOW LONG ARE THESE CLIPS?
MR. SCHENK: THE LONGEST IS EIGHT MINUTES, BUT MOST OF THEM ARE CLOSER TO TWO TO FOUR MINUTES.
JUDGE DAVILA: THAT'S HELPFUL. THANK YOU.
MR. DOWNEY: YOUR HONOR, MAY I JUST TALK TO MR. SCHENK?
JUDGE DAVILA: YES, OF COURSE.
(DISCUSSION OFF THE RECORD.)
MR. DOWNEY: YOUR HONOR, JUST THE APPROACH OF PLAYING IT, I THOUGHT THAT OUR AGREEMENT WAS THAT WE WOULD PLAY THE ENTIRE TAPE AND NOT BREAK IT UP, WHICH WAS THE SUBJECT OF OUR 106 DISCUSSIONS. I THINK MR. SCHENK HAD A DIFFERENT UNDERSTANDING, SO WE'RE AT A LITTLE BIT OF A -- WE'LL NEED SOME GUIDANCE.
JUDGE DAVILA: OH.
MR. SCHENK: YOUR HONOR, MY UNDERSTANDING IS THAT THE DEFENSE IS REQUESTING THAT WE PLAY ALL -- THERE ARE EIGHT TOTAL CLIPS, WE PLAY ALL EIGHT CLIPS, AND THEN I GO BACK AND PLAY EACH ONE SEPARATELY AND ASK FOLLOW-UP QUESTIONS. IN OUR MEET AND CONFER, MY UNDERSTANDING WAS THAT THE DEFENSE WANTED TWO OF THE CLIPS TO BE PLAYED CONSECUTIVELY BECAUSE IT CARRIES OVER. THE LAST ONE OF 1348 AND THE FIRST ONE OF 1349 ARE ABOUT THE SAME TOPIC. SO I INTENDED TO DO THAT AND TO NOT SEPARATE THOSE TWO. SO MY INTENTION WAS NOT TO PLAY ALL OF THEM AND THEN REPLAY ALL OF THEM, BUT RATHER TO CAPTURE JUST THAT ONE. BUT I MIGHT HAVE MISUNDERSTOOD DURING OUR MEET AND CONFER.
MR. DOWNEY: YES, I APOLOGIZE. I THINK WE DID NOT CONNECT ON THAT. I THINK WE VIEW THE ENTIRE CONVERSATION AS RELEVANT FOR THE CONTEXT, AND I UNDERSTAND THAT, LIKE A DOCUMENT, THERE MAY BE INDIVIDUAL PIECES OF IT THAT MR. SCHENK WANTS TO QUESTION ABOUT, AND THAT'S OBVIOUSLY FAIR GAME. AND HE'S GIVEN US SOME CLIPS WITH WHICH HE INTENDS TO DO THAT. SO I JUST WOULD HAVE THE RECORD REFLECT THAT I DIDN'T CONSENT TO KIND OF SPLITTING THE TAPE UP AS IT'S PLAYED.
JUDGE DAVILA: ALL RIGHT. BUT IT SOUNDS LIKE THE 1348 AND 1349 WILL BE PLAYED CONSECUTIVE FOR 106 PURPOSES AT LEAST AS TO THAT.
MR. SCHENK: YES.
JUDGE DAVILA: AND YOU DON'T HAVE ANY PROBLEM WITH THAT OF COURSE.
MR. DOWNEY: THAT'S FINE.
JUDGE DAVILA: ALL RIGHT. WELL, THANK YOU FOR THIS. I THINK, MR. SCHENK, WHY DON'T YOU PLAY THEM THE WAY THAT YOU'VE INDICATED THAT YOU INTEND TO. YOU'LL PLAY AND THEN YOU'RE GOING TO EXAMINE, AND THEN PLAY AND THEN EXAMINE; IS THAT RIGHT.
MR. SCHENK: YES, YOUR HONOR.
JUDGE DAVILA: I THINK THAT MAKES SENSE TO PROCEED THAT WAY.
MR. DOWNEY: FAIR ENOUGH.
JUDGE DAVILA: THANK YOU.
MR. SCHENK: PERMISSION TO PUBLISH?
JUDGE DAVILA: YES, PLEASE.
MR. SCHENK: SO, MS. HOLLIMAN, IF WE COULD START WITH 1348-1.
(AUDIO PLAYED IN OPEN COURT ON THE RECORD.) "MS. HOLMES: ABSOLUTELY. IT'S WONDERFUL TO SPEAK WITH YOU ALL. AND IT'S WONDERFUL TO -- TO BE IN A PLACE IN WHICH WE CAN BEGIN TO TALK ABOUT THIS. AS YOU ALL KNOW, WE HAVE BEEN WORKING VERY HARD FOR A LONG TIME TO BUILD UP THIS INFRASTRUCTURE. "AND WHEN I STARTED THE COMPANY, WE KNEW THAT IT WOULD TAKE US A LONG TIME TO BE ABLE TO ESTABLISH AN INFRASTRUCTURE THAT COULD DO ANY LAB TEST THAT IS RUN IN A TRADITIONAL LAB FROM A MICRO SAMPLE OR THESE TINY DROPLETS THAT WE TAKE NOW FROM THE FINGER. "AND WE THUS BUILT A BUSINESS AROUND OUR PARTNERSHIPS WITH PHARMACEUTICAL COMPANIES AND OUR CONTRACTS WITH THE MILITARY WHEREIN WE COULD DEPLOY OUR FRAMEWORK IN THE ONE CASE FOR HELPING TO ACCELERATE CLINICAL TRIALS AND IN THE OTHER FOR EXTREME USE CASE SITUATIONS IN TRAUMA AND OTHER AREAS WHERE THERE WAS A VERY COMPELLING VALUE PROPOSITION.
"IN ORDER TO BUILD OUT OUR TEST MENU AND OUR INFRASTRUCTURE TO BE ABLE TO GET TO THIS POINT, SEVERAL YEARS AGO WE REALIZED THAT WE HAD CREATED AN INFRASTRUCTURE THAT COULD, IN FACT, MAKE IT POSSIBLE TO GET RID OF PHLEBOTOMY OR THE BIG TUBES OF BLOOD THAT ARE DRAWN FROM THE ARM IN ITS ENTIRETY. "AND WE BEGAN THIS WORK TO BE ABLE TO CREATE A FRAMEWORK WHEREIN WORKING WITH INSURANCE COMPANIES, WORKING WITH MEDICARE, WORKING WITH MEDICAID, WORKING WITH PHYSICIAN AND HOSPITALS GROUPS, AND NOW RETAIL, WE COULD ESTABLISH WHAT HAS THE OPPORTUNITY TO BE ULTIMATELY THE LARGEST LAB IN THE COUNTRY. "AND MOST IMPORTANTLY, TO CHANGE THE REALITY IN LAB TESTING TODAY, WHICH IS THAT IT'S VERY PAINFUL AND 50 PERCENT OF THE POPULATION DOESN'T DO IT IN TERMS OF COMPLIANCE WITH THE REQUISITION FROM A PHYSICIAN TO DO A TEST BECAUSE THE FEAR OF NEEDLES IS SUCH A GREAT PHOBIA. AND EQUALLY THE FEAR OF HAVING TO WAIT LONG PERIODS OF TIME FOR THE RESULTS DETERS MANY PEOPLE FROM GETTING TESTED IN THE FIRST PLACE BECAUSE THEY DON'T WANT TO BE SITTING AROUND WORRYING WHETHER THEY'RE POSITIVE WITH SOMETHING OR NOT, FOR EXAMPLE."
MR. SCHENK: THAT'S THE END OF 1348-1. YOUR HONOR, I WONDER IF IT WOULD BE HELPFUL TO PROVIDE THE COURT REPORTER A COPY OF THE TRANSCRIPT, EVEN IF WE'RE NOT ATTACHING IT.
JUDGE DAVILA: IT WOULD BE. I THINK IT WOULD BE, YES, IF YOU HAVE ONE.
MR. SCHENK: YES.
(DISCUSSION OFF THE RECORD.)
MR. SCHENK: I HAVE A COPY FOR THE COURT.
JUDGE DAVILA: THAT WOULD BE HELPFUL. THANK YOU. I HAVE JUST BEEN INFORMED THAT OUR OVERFLOW ROOM, THE REMOTE CONNECTION WE HAVE SOMEHOW IS DISCONNECTED, AND THEY'RE ATTEMPTING TO REESTABLISH THAT. SO MAYBE WE'LL TAKE OUR BREAK NOW, IF THAT'S CONVENIENT TO EVERYONE. WE'LL TAKE OUR BREAK. LET'S TAKE 30 MINUTES. THE OVERFLOW ROOM HAS A ZOOM CONNECTION. APPARENTLY THE ZOOM HAS DROPPED, AND IN FAIRNESS TO THE PUBLIC WHO ARE WATCHING THIS TRIAL -- I AM INFORMED THERE ARE MEMBERS OF THE PUBLIC IN THAT ROOM, AND IN FAIRNESS TO THEM, I THINK WE SHOULD TRY TO GET THAT CONNECTION STARTED. SO WE'LL TAKE OUR BREAK NOW. 30 MINUTES, I BELIEVE, 30 MINUTES, AND WE'LL SEE IF WE CAN GET THAT RESOLVED. THANK YOU. WE'LL BE IN RECESS FOR 30 MINUTES.
COURT CLERK: COURT IS IN RECESS. (RECESS FROM 1:33 P.M. UNTIL 2:02 P.M.).
(JURY IN AT 2:02 P.M.)
JUDGE DAVILA: THANK YOU. PLEASE BE SEATED. WE'RE BACK ON THE RECORD. WE'LL GET OUR WITNESS BACK.
MR. SCHENK: YES, YOUR HONOR.
JUDGE DAVILA: BEFORE WE CONCLUDE FOR THE DAY, I'VE GONE OVER OUR SCHEDULE AND I WANTED TO OFFER SOME CHANGES TO OUR SCHEDULE AT THE END OF THE DAY TODAY FOR EVERYONE'S BENEFIT AND ASK OUR JURY TO DO SOME RESEARCH WITH THEIR SCHEDULES OVER THE WEEKEND. BUT WE'LL SHARE THAT AT THE END OF THE DAY TODAY.
MR. SCHENK: THANK YOU.
(PAUSE IN PROCEEDINGS.)
JUDGE DAVILA: WE'RE BACK ON THE RECORD. ALL COUNSEL ARE PRESENT. MS. HOLMES IS PRESENT. OUR JURY IS PRESENT. MR. TOLBERT IS BACK ON THE STAND. MR. SCHENK.
MR. SCHENK: THANK YOU VERY MUCH.
MR. SCHENK: MR. TOLBERT, I'LL REMIND YOU THAT YOU'RE STILL UNDER OATH. BEFORE WE BROKE, I PLAYED FOR YOU THE FIRST CLIP. IT'S LABELLED 1348-1. DO YOU RECALL THAT?
JOHN BRYAN TOLBERT: I DO.
MR. SCHENK: THE VOICE ON THE TAPE, DO YOU RECOGNIZE THAT VOICE?
JOHN BRYAN TOLBERT: THAT WAS MS. HOLMES.
MR. SCHENK: ON THAT, ON THAT SECTION, MS. HOLMES SAYS THAT WHEN SHE STARTED THE COMPANY, SHE KNEW IT WOULD TAKE A LONG TIME TO ESTABLISH AN INFRASTRUCTURE THAT COULD DO ANY LAB TESTS THAT COULD DO ANY LAB TEST THAT IS RUN IN A TRADITIONAL LAB WITH A MICRO SAMPLE OR THESE TINY DROPLETS THAT WE NOW TAKE FROM A FINGER. WHEN WE HEARD THAT, DID YOU DRAW ANY CONCLUSIONS ABOUT THE CURRENT CAPABILITIES OF THE THERANOS TECHNOLOGY?
JOHN BRYAN TOLBERT: WELL, MY UNDERSTANDING WAS THAT, YOU KNOW, WHEN THINGS HAD STARTED IN 2006 OR WHEN WE HAD, YOU KNOW, THAT OPPORTUNITY TO EXPLORE THINGS IN 2006, THAT WAS TRUE THAT THERE HAD BEEN A PROGRESSION OF THINGS IN 2013 WHEN THE INVESTOR CALL WAS MADE. SO MY UNDERSTANDING WAS THAT OVER THE YEARS THE TECHNOLOGY, THEY HAD PERFECTED IT OR IMPROVED IT AND MADE LOTS OF ADVANCES FROM BEING ABLE TO DO, YOU KNOW, SOME TEST, AND BEING ABLE TO DO LOTS AND LOTS OF TESTS ON THE SAME DROP OF BLOOD.
MR. SCHENK: WAS THAT REPRESENTATION IMPORTANT TO YOU AND YOUR DECISION TO INVEST LATER IN DECEMBER OF 2013?
JOHN BRYAN TOLBERT: IT WAS.
MR. SCHENK: WHY?
JOHN BRYAN TOLBERT: WELL, YOU KNOW, IF THEY HAD SPENT SEVEN YEARS WORKING ON BUILDING A DEVICE THAT COULD DO TESTS AND THEY COULDN'T DO ANY MORE TESTS THAN THEY DID SEVEN YEARS PRIOR, THEN IT WOULD HAVE BEEN CONCERNING BECAUSE THERE WOULDN'T HAVE BEEN A LOT OF PROGRESS THAT WOULD HAVE BEEN MADE. BUT MY UNDERSTANDING WAS THAT THINGS REALLY PROGRESSED AND IT REALLY PRESENTED AN OPPORTUNITY TO ENGAGE IN THIS CONSUMER ROLLOUT WHERE ANYBODY COULD GO TO THEIR DOCTOR AND GET AN ORDER TO HAVE THE TEST DONE AND THAT TEST COULD BE DONE ON THIS DEVICE.
MR. SCHENK: LATER IN THAT SAME CLIP WHEN MS. HOLMES SAYS, "WE HAVE THUS BUILT A BUSINESS AROUND OUR PARTNERSHIPS WITH PHARMACEUTICAL COMPANIES AND OUR CONTRACTS WITH THE MILITARY WHEREIN WE CAN DEPLOY OUR FRAMEWORK IN THE ONE CASE FOR HELPING TO ACCELERATE CLINICAL TRIALS AND IN THE OTHER FOR EXTREME USE CASE SITUATIONS IN TRAUMA AND OTHER AREAS WHERE THERE WAS A VERY COMPELLING VALUE PROPOSITION." DID YOU UNDERSTAND MS. HOLMES TO BE MAKING STATEMENTS ABOUT THE WORK THAT THERANOS HAD DONE FIRST WITH PHARMACEUTICAL COMPANIES AND SECOND WITH THE MILITARY?
JOHN BRYAN TOLBERT: I DID.
MR. SCHENK: AND WERE THOSE REPRESENTATIONS IMPORTANT WHEN YOU DECIDED TO INVEST LATER THAT MONTH?
JOHN BRYAN TOLBERT: THEY WERE.
MR. SCHENK: WHY?
JOHN BRYAN TOLBERT: WELL, IT REPRESENTED BUSINESS THAT THERANOS NEEDED TO HAVE TO GENERATE REVENUE. IF THEY HAD NOT HAD, YOU KNOW, AN ABILITY TO DO WHAT THEY SET OUT TO DO, THEN THERE WOULDN'T HAVE BEEN A REASON TO INVEST.
MR. SCHENK: LATER ON IN THAT CLIP MS. HOLMES SAYS, "WE COULD ESTABLISH WHAT HAS THE OPPORTUNITY TO BE ULTIMATELY THE LARGEST LAB IN THE COUNTRY." DID YOU UNDERSTAND THAT AT THIS TIME IN DECEMBER OF 2013 THERANOS WAS NOT YET THE LARGEST LAB IN THE COUNTRY?
JOHN BRYAN TOLBERT: OH, I DIDN'T -- YOU KNOW, IN MY MIND I DIDN'T REALLY THINK ABOUT THERANOS AS ITS OWN LAB. I THOUGHT THAT THERE WERE THESE, YOU KNOW, DEVICES THAT A DROP OF BLOOD WOULD BE, YOU KNOW, KIND OF TESTED ON SITE AND SO, YOU KNOW, I GUESS MAYBE THINKING ABOUT ALL OF THOSE DEVICES AS BEING CONNECTED AS A LABORATORY THAT WOULD HAVE MADE SENSE, BUT I DIDN'T REALIZE, YOU KNOW, EXACTLY WHAT THAT -- I DIDN'T THINK ABOUT THERANOS AS ONE BIG LAB. I THOUGHT ABOUT IT AS THIS DISTRIBUTED NETWORK OF, YOU KNOW, TESTING CAPABILITIES, IT COULD KIND OF BE DEPLOYED ANYWHERE.
MR. SCHENK: AND WHEN MS. HOLMES SAID THAT THEY HAD THE OPPORTUNITY TO ULTIMATELY BE THE LARGEST LAB, DID YOU UNDERSTAND HER TO, IN THAT INSTANCE, TO BE FORWARD LOOKING, SOMETHING THAT THEY HAD NOT YET ACCOMPLISHED, BUT THAT THEY COULD ACCOMPLISH POTENTIALLY IN THE FUTURE?
JOHN BRYAN TOLBERT: WELL, I CERTAINLY THOUGHT THAT THERE WOULD BE CONTINUED GROWTH OF CAPABILITIES, YOU KNOW, WELL INTO THE FUTURE. I DIDN'T THINK THAT THE TECHNOLOGY HAD FINISHED EVOLVING OR WAS AT A PERFECT STATE. YOU KNOW, I THOUGHT THAT IT REPRESENTED AN OPPORTUNITY TO GO HAVE TESTS DONE, YOU KNOW, BY ANY, ANY CONSUMER OR BY, YOU KNOW, ON THOSE PHARMACEUTICAL TRIALS OR IN MILITARY APPLICATIONS. SO, YOU KNOW, MY UNDERSTANDING WAS THAT THERE WAS SIGNIFICANT CAPABILITY AT THIS MOMENT IN TIME, BUT THAT IT WOULD CONTINUE TO PROGRESS AND BE PERFECTED.
MR. SCHENK: OKAY. YOUR HONOR, WITH PERMISSION I'LL NOW PUBLISH 1348-2.
JUDGE DAVILA: YES.
BY MR. SCHENK:
MR. SCHENK: MR. TOLBERT, THE VOICE THAT WE'RE GOING TO HEAR IS ALSO MS. HOLMES'S VOICE?
JOHN BRYAN TOLBERT: I ASSUME IT WILL BE.
MR. SCHENK: OKAY. I'LL ASK YOU THAT WHEN THE CLIP IS OVER.
JOHN BRYAN TOLBERT: OKAY.
MR. SCHENK: THANK YOU.
(AUDIO PLAYED IN OPEN COURT ON THE RECORD.) "MS. HOLMES: AND SO NOW IN THIS FRAMEWORK THAT WE HAVE CREATED, WE'VE BUILT AN OPPORTUNITY FOR PEOPLE TO BE ABLE TO DO THEIR TEST IN A WHOLE NEW WAY AND BECOME MORE COMPLIANT WITH BEING ABLE TO GET ACCESS TO THIS LABORATORY DATA, WHICH IS INCREDIBLY POWERFUL INFORMATION THAT DRIVES SO MUCH OF CLINICAL DECISION MAKING AND IN DOING SO CREATES A RICHER DATA FRAMEWORK FOR THE PURPOSE OF BEING ABLE TO BETTER CHARACTERIZE THE PROGRESSION OF CERTAIN CONDITIONS BY VIRTUE OF THE FACT THAT NOT ONLY ARE WE HELPING TO GET PEOPLE TESTED -- BECAUSE IT'S A SMALL SAMPLE, WE CAN GET PEOPLE TESTED AT THE NEEDED FREQUENCIES. "AND BECAUSE NOW THE SAMPLE IS FRESH AND IT'S NOT, YOU KNOW, A BIG SERIES OF TUBES OF BLOOD THAT ARE SITTING ON A COUNTER AND EXPOSED TO TEMPERATURE, WE DON'T SUFFER THE RATES OF DECAY OF KEY ANALYTES THAT HAPPEN WHEN YOU SHIP SAMPLES OFF TO A CENTRAL LAB.
"AND THEN BY VIRTUE OF THE FACT THAT OUR ANALYTICAL INFRASTRUCTURE IS STANDARDIZED SO WE DON'T HAVE THE VARIABILITY THAT IS ASSOCIATED WITH TRADITIONAL LABORATORY TESTING. MEANING, TODAY IF YOU GO TO A LAB IN SAN FRANCISCO AND YOU GO TO A LAB IN L.A. ON THE SAME DAY FOR THE SAME VALUE, ONE COULD REPORT A RESULT THAT IS, FOR EXAMPLE, ON A TEST LIKE HDL CHOLESTEROL, PLUS OR MINUS 30 PERCENT FROM SOME STANDARD AND BE CONSIDERED ACCURATE IN THE EYES OF REGULATORS. "WHICH MEANS ON THE SAME DAY FOR A SINGLE TEST, BASED ON THE FACT THAT EACH LAB IS CENTRALIZED AND HAS ITS OWN LAB DIRECTOR AND HAS ITS OWN REFERENCE RANGE AND USES ITS OWN EQUIPMENT WHICH IS DIFFERENT FROM WHAT OTHER LABS USE, YOU COULD SEE A 60 PERCENT VARIANCE IN DATA. "AND IF YOU START TO THINK ABOUT HOW THAT COMPOUNDS OVER TIME, IT MAKES IT VERY DIFFICULT TO LOOK LONGITUDINALLY AT THE PROGRESSION OF A CONDITION BY VIRTUE OF THE FACT THAT THERE'S SO MUCH NOISE BETWEEN TIME POINTS.
"AND HERE BECAUSE THIS IS A SINGLE FRAMEWORK AND WE HAVE BUILT THIS OUT IN SUCH A WAY IN WHICH WE HAVE A LESS THAN 5 PERCENT VARIANCE ON OUR TESTS, IF WE BEGIN TO SEE A CHANGE OF 30 PERCENT IN PATIENT VALUES OVER TIME, IT'S BECAUSE IT'S CLINICAL. "AND THIS IS A RICHNESS OF DATA FOR THE PHYSICIAN COMMUNITY THAT HAS NOT BEEN ACCESSIBLE BEFORE. AND IT ALLOWS THE PHYSICIAN TO BEGIN LOOKING AT LABORATORY DATA IN THE SAME WAY THAT PEOPLE TALK ABOUT LOOKING AT A TEST FOR PSA, FOR CANCER, PROSTATE CANCER, CALLED PSA, WHICH THEY FOCUS MORE ON THE RATE OF RANGE OR ITS VELOCITY THAN THEY DO ON ITS ABSOLUTE CONCENTRATION AT ANY GIVEN POINT IN TIME. "AND WE'RE GOING TO BE ABLE TO START PRESENTING THIS LABORATORY INFORMATION IN THAT WAY SO THAT IT CAN BE USED MORE TOWARDS EARLY DETECTION."
BY MR. SCHENK:
MR. SCHENK: MR. TOLBERT, THAT'S THE END OF 1348-2. DID YOU RECOGNIZE THE VOICE ON THAT RECORDING?
JOHN BRYAN TOLBERT: I DID. THAT WAS MS. HOLMES.
MR. SCHENK: IN THAT PORTION WHEN MS. HOLMES SAYS THAT "BECAUSE NOW THE SAMPLE IS FRESH AND IT'S NOT, YOU KNOW, A BIG SERIES OF TUBES OF BLOOD THAT ARE SITTING ON A COUNTER AND EXPOSED TO TEMPERATURE, WE DON'T SUFFER THE RATES OF DECAY OF KEY ANALYTES THAT HAPPEN WHEN YOU SHIP SAMPLES OFF TO A CENTRAL LAB." WHEN MS. HOLMES SAYS IT'S NOT "A BIG SERIES OF TUBES OF BLOOD," DID YOU UNDERSTAND THAT TO BE A REPRESENTATION ABOUT THE WAY THERANOS, AND THE VOLUME OF BLOOD THAT THERANOS COLLECTS?
JOHN BRYAN TOLBERT: I DID.
MR. SCHENK: WHAT DID YOU UNDERSTAND THAT TO MEAN?
JOHN BRYAN TOLBERT: WELL, WHEN I GO TO THE DOCTOR AND HAVE A LAB TEST, THEY DRAW LOTS OF VIALS OF BLOOD AND THOSE GET SHIPPED OFF TO A CENTRAL LABORATORY SITE WHERE THEY GET TESTED. YOU KNOW, MY UNDERSTANDING OF THERANOS IS THAT I WOULD POTENTIALLY GO TO THE DOCTOR, OR WHEREVER, AND GIVE A FINGER PRICK OF BLOOD AND THEY CAN RUN THOSE TESTS ON SITE WITHOUT HAVING TO BE SHIPPED OFF BECAUSE BEING SHIPPED OFF CAUSE SOME VARIABILITY IN THE RESULTS. AND SO, YOU KNOW, IT FELT LIKE IT WAS A BIG ADVANTAGE TO BE ABLE TO DO THAT TESTING KIND OF IN HOUSE OR ON SITE.
MR. SCHENK: AND HOW ABOUT THE VOLUME ALSO? FOR INSTANCE, WHEN YOU GO TO YOUR DOCTOR AND YOU GET BLOOD DRAWN FROM THE VEIN IN YOUR ARM, IS THE VOLUME DIFFERENT THAN WHAT YOU UNDERSTOOD THERANOS TO BE OFFERING?
JOHN BRYAN TOLBERT: SURE. THAT'S ONE OF THE REASONS WHY I WAS SO EXCITED ABOUT IT. I -- WHEN I SEE THOSE FOUR OR FIVE VIALS OF BLOOD COMING OUT, I START FEELING A LITTLE -- THE EFFECTS OF THAT. THE IDEA OF BEING ABLE TO HAVE MY FINGER STUCK AND GIVE THAT SAMPLE AND HAVE THOSE TESTS RUN FROM THAT SMALL SAMPLE SIZE WAS INTRIGUING, AND, YOU KNOW, CERTAINLY SEEMED TO SPEAK TO WHAT -- TO THE REFERENCE THAT HAD BEEN MADE THAT MORE AND MORE PEOPLE WOULD DO MORE AND MORE TESTS BECAUSE IT WOULD BE MUCH LESS INVASIVE.
MR. SCHENK: IF THERANOS DREW THOSE BIG TUBES OR VIALS OF BLOOD FROM THE VEIN IN THE ARM, WOULD YOU LOSE THIS ADVANTAGE THAT YOU JUST DESCRIBED TO ME?
JOHN BRYAN TOLBERT: CERTAINLY.
MR. SCHENK: FURTHER ON IN THIS PORTION MS. HOLMES SAYS, "BECAUSE THIS IS A SINGLE FRAMEWORK AND WE HAVE BUILT THIS OUT IN SUCH A WAY IN WHICH WE HAVE A LESS THAN 5 PERCENT VARIANCE ON OUR TESTS, IF WE BEGIN TO SEE A CHANGE OF 30 PERCENT IN PATIENT VALUES OVER TIME, IT'S BECAUSE IT'S CLINICAL." DID YOU UNDERSTAND MS. HOLMES TO BE MAKING REPRESENTATIONS ABOUT THE VARIANCE IN THERANOS TEST RESULTS DEVICE TO DEVICE BEING LESS THAN THE VARIANCE IN, LET'S SAY, ONE LAB TO ANOTHER LAB WITH TRADITIONAL PHLEBOTOMY?
JOHN BRYAN TOLBERT: I DID.
MR. SCHENK: AND WAS THAT REPRESENTATION SIGNIFICANT IN YOUR DECISION TO INVEST?
JOHN BRYAN TOLBERT: IT WAS. CERTAINLY IF, YOU KNOW, IF A NORMAL LAB COMPANY HAD A 30 PERCENT OR GREATER VARIANCE AND I COULD GO IN AND HAVE A LOT MORE CONFIDENCE THAT THE RESULTS DIDN'T HAVE THAT KIND OF VARIANCE, I WOULD -- YOU KNOW, IT WOULD BE A MUCH MORE VALUABLE TEST. MY UNDERSTANDING FROM THE BEGINNING HAD ALSO BEEN THAT ONE OF THE ADVANTAGES TO THE PHARMACEUTICAL COMPANIES IS WHEN THEY DO THOSE DRUG TRIALS THAT, YOU KNOW, SOMEBODY TAKES A DRUG AND THEN THEY MAY BE TESTED ONCE A WEEK OR ONCE A DAY. BUT IF WE COULD NOW TEST, BECAUSE IT WAS IN A LOT LESS INVASIVE WAY, THOSE TESTS COULD BE PERFORMED MUCH MORE FREQUENTLY THAN WE -- I SAY "WE" -- THAT THERANOS WOULD HAVE BEEN ABLE TO, YOU KNOW, CAPITALIZED ON DOING SOMETHING THAT HADN'T BEEN DONE BEFORE.
MR. SCHENK: OKAY. WITH PERMISSION, YOUR HONOR, I WOULD NOW PLAY 1348-3.
JUDGE DAVILA: YES.
(AUDIO PLAYED IN OPEN COURT ON THE RECORD.) "MS. HOLMES: WE HAVE LAUNCHED OUR RETAIL INFRASTRUCTURE. WE ARE OPERATING NOW IN CALIFORNIA AND IN ARIZONA. AND WE HAVE OPENED OUR FIRST STORES AND HAVE PATIENTS COMING IN LIVE EVERY DAY. AND WE ARE WORKING TO EXPAND THAT AS FAST AS POSSIBLE. THE SPEED WITH WHICH WE EXPAND IS CRITICAL IN THE CONTEXT OF CAPTURING THE MARKET OPPORTUNITY THAT WE HAVE CREATED. "AND WE'RE PUTTING A LOT OF RESOURCES INTO ESTABLISHING A NATIONAL FOOTPRINT AS FAST AS WE CAN. BUT THAT STARTS WITH EXCELLENCE IN EACH LOCAL MARKET AND CAPTURING MARKET SHARE IN EACH LOCAL MARKET, WHICH IS WHERE WE ARE FOCUSSED NOW. AND AS WE DO THAT, WE'RE LEVERAGING CAPITAL FROM OUR STRATEGIC PARTNERS AND ALSO FROM EQUITY OPPORTUNITIES THAT WE HAVE ON THE TABLE TO BE ABLE TO GROW VERY FAST. "AND AS YOU ALL KNOW, WE HAVE RECENTLY ISSUED SHARES AT $75 A SHARE. AND FOR REFERENCE, THE INITIAL INVESTMENT IN THERANOS THAT YOU ALL MADE WAS AT 82 CENTS.
AND SO WE ARE ALREADY CREATING SIGNIFICANT VALUE. AND OF COURSE, WE'RE -- WE'RE JUST GETTING STARTED IN THE CONTEXT OF BEING ABLE TO ESTABLISH AND ROLL OUT THIS INFRASTRUCTURE. AS WE GO FORWARD INTO 2014, IN ADDITION TO THE SPEED OF SCALE PUTTING THE RESOURCES INTO THE BUSINESS TO BE ABLE TO BUILD THE ORGANIZATIONS THAT ARE REQUIRED TO HANDLE THIS TYPE OF CONSUMER TYPE BUSINESS IS ANOTHER CORE AREA OF FOCUS FOR US. OBVIOUSLY, A GREAT CONTRAST IN THE CONTEXT OF A PHARMACEUTICAL DEAL COULD BE VERY GREAT FINANCIALLY, BUT IT WAS VERY SMALL RELATIVELY SPEAKING IN THE CONTEXT OF VOLUME. AND NEXT TO WHAT WE'RE FACING NOW, THERE'S, YOU KNOW, 7 MILLION PEOPLE IN THE BAY AREA, 39 MILLION IN CALIFORNIA. AND THAT SCALE IS VERY DIFFERENT FROM THE SCALE ON WHICH WE'VE OPERATED IN THE PAST. "SO WE'RE VERY FOCUSSED ON BEING ABLE TO ESTABLISH THE OPERATIONAL FRAMEWORK TO BE ABLE TO HANDLE THAT TYPE OF VOLUME. AND IT'S -- IT'S AN AREA THAT WE'RE SPENDING A LOT OF TIME ON NOW.
"THE RETAIL INFRASTRUCTURE IS THE FOUNDATION FOR BEING ABLE TO REACTIVATE A LOT OF THE PHARMACEUTICAL PROGRAMS THAT WE DID THAT ALLOWED US TO BUILD THE BUSINESS FROM CASH FROM OPERATIONS SINCE WE DID OUR SERIES C ROUND IN 2006. AND THERE'S A VERY STRONG SYNERGY BETWEEN THE ABILITY TO RUN CLINICAL TRIALS AT RETAIL AND THE ABILITY TO SPEED AND ROLL IT AND BETTER DEMONSTRATE THAT IT'S POSSIBLE TO DELIVER THERAPIES IN A NEW WAY BY VIRTUE OF THE FACT THAT THIS TESTING CAN BE DONE PRACTICALLY INSIDE A RETAIL PHARMACY WHERE THE DRUG IS DELIVERED IN AND OF ITSELF. "SO -- AND THE FOCUS ON THE PHARMACEUTICAL BUSINESS IS STILL A SIGNIFICANT FOCUS FOR US AND WILL CONTINUE EFFECTIVELY AS A BUSINESS UNIT AS WE NOW GROW AND WILL BE VERY SYNERGISTIC WITH WHAT WE HAVE ESTABLISHED IN RETAIL. "SO MAYBE -- CHRIS, LET ME PAUSE THERE AND JUST SEE OUT OF WHAT I HAVE SAID SO FAR IF THERE'S ANY QUESTIONS ON ANYTHING WE HAVE COVERED UP TO NOW."
BY MR. SCHENK:
MR. SCHENK: MR. TOLBERT, THAT WAS THE END OF 1348-3. WAS THAT MS. HOLMES VOICE?
JOHN BRYAN TOLBERT: YES, IT WAS.
MR. SCHENK: AND WHEN MS. HOLMES SAYS "WE'RE LEVERAGING CAPITAL FROM OUR STRATEGIC PARTNERS AND ALSO FROM EQUITY OPPORTUNITIES THAT WE HAVE ON THE TABLE TO BE ABLE TO GROW VERY FAST," WHAT DID YOU UNDERSTAND THAT TO BE SPEAKING TO?
JOHN BRYAN TOLBERT: IF I REMEMBER RIGHT, THE WALGREENS PARTNERSHIP HAD BEEN ANNOUNCED AND THERE WAS A POTENTIAL OF 8,000-PLUS RETAIL LOCATIONS THAT NEEDED TO BE OUTFITTED, YOU KNOW, WITH EQUIPMENT BUILDOUT AND PEOPLE, AND THAT THE PROCEEDS OF THIS FUND RAISE THAT WAS UNDERWAY WOULD BE USED TO SCALE THAT OPPORTUNITY AGAIN SO THAT, YOU KNOW, SO THAT THERE WEREN'T OTHER COMPETITORS THAT WOULD COME IN AND TAKE ADVANTAGE OF UNDERSTANDING WHAT THERANOS WAS DOING.
MR. SCHENK: WHEN YOU JUST SAID THE PROCEEDS OF THIS FINANCIAL RAISE, THIS FUND RAISING, DID YOU MEAN IF YOU INVESTED, THIS IS HOW YOUR MONEY WOULD BE SPENT?
JOHN BRYAN TOLBERT: CORRECT. I THOUGHT THE INVESTMENT CASE, THE USE OF THE PROCEEDS FROM OUR INVESTMENT THAT WE ULTIMATELY WOULD MAKE, AS WELL AS OTHERS THAT WERE REFERENCED THERE BY STRATEGIC, BY OTHER NOT JUST INVESTORS LIKE US, BUT BY RETAIL PARTNERS AND OTHERWISE WOULD BE TO, YOU KNOW, TO SPEED THAT ROLLOUT AND TO MAKE IT GO FASTER AND, YOU KNOW, KIND OF ACCOMPLISH WHAT IT WAS DESIGNED TO ACCOMPLISH.
MR. SCHENK: AND ARE YOU NOW DRAWING A DISTINCTION BETWEEN YOUR MONEY BEING SPENT ON THE RETAIL ROLLOUT AS OPPOSED TO R&D AT THERANOS, RESEARCH AND DEVELOPMENT TO ACTUALLY CREATE THE TECHNOLOGY NECESSARY TO DO THE BLOOD TESTING?
JOHN BRYAN TOLBERT: CORRECT. IT FELT LIKE THE PROCEEDS OF THIS FUND RAISE WERE NOT ABOUT PERFECTING THE TECHNOLOGY, ALTHOUGH I'M CONFIDENT THAT THAT WOULD HAVE CONTINUED TO EVOLVE, BUT IT WAS NOW AT A PLACE, RIGHT, WHERE THE COMPANY WAS OUT OF STEALTH MODE, THEY ANNOUNCED THIS PARTNERSHIP, AND WE'RE GOING TO PUT THESE, THIS CAPABILITY IN ALL OF THESE LOCATIONS JUST COSTS A LOT OF MONEY TO PHYSICALLY DO THAT, AND SO THE POINT OF RAISING THIS MONEY WAS TO BE ABLE TO ACCELERATE THAT DEPLOYMENT.
MR. SCHENK: WAS THIS IMPORTANT IN YOUR DECISION TO INVEST, AND BY THIS I MEAN THAT YOUR MONEY WOULD BE SPENT TO ACCELERATE THE DEPLOYMENT THAT YOU JUST DESCRIBED?
JOHN BRYAN TOLBERT: THAT'S CORRECT. YOU KNOW, IF IT FELT TO US LIKE THE TECHNOLOGY STILL WAS IN ITS INFANCY OR DIDN'T WORK THE WAY IT SEEMED TO, YOU KNOW, OUR INVESTMENT CONSIDERATION WOULD HAVE BEEN A LOT DIFFERENT.
MR. SCHENK: AND THAT SAME PORTION WHERE MS. HOLMES SAYS, "THE RETAIL INFRASTRUCTURE IS THE FOUNDATION FOR BEING ABLE TO REACTIVATE A LOT OF THE PHARMACEUTICAL PROGRAMS THAT WE DID THAT ALLOWED US TO BUILD THE BUSINESS FROM CASH FROM OPERATIONS SINCE WE DID OUR SERIES C ROUND IN 2006." WHAT DID YOU UNDERSTAND THAT TO BE A REFERENCE TO, BUILDING THE BUSINESS FROM CASH FROM OPERATIONS?
JOHN BRYAN TOLBERT: WELL, MY UNDERSTANDING FROM THE TIME WE MADE OUR FIRST INVESTMENT WAS THE BACKBONE OF THE BUSINESS HAD BEEN THESE PHARMACEUTICAL TRIALS THAT THERANOS WAS ABLE TO HELP, AND SO THERE WAS A LOT OF VALUE FOR THE PHARMACEUTICAL COMPANIES TO DO THAT. SO I HAD, YOU KNOW, ANTICIPATED FROM THAT FIRST INVESTMENT THAT THE COMPANY HAD BEEN ABLE TO RECOGNIZE SIGNIFICANT AMOUNTS OF CASH, PROFIT, TO BE ABLE TO REINVEST NOT ONLY IN R&D, BUT TO KIND OF COVER ITS OWN OPERATIONAL BURN RATES. AND THAT, YOU KNOW, WE WERE NOW AT A POINT WHERE THE RETAIL FOCUS WOULD TAKE OVER. BUT STILL, EVEN FROM DAY ONE AS I UNDERSTOOD IT, IT STILL REPRESENTED A GREAT ADVANCEMENT FOR THESE PHARMACEUTICAL COMPANIES BECAUSE NOW INSTEAD OF HAVING TO RECRUIT PATIENTS FOR DRUG TRIALS TO COME TO SPECIFIC LOCATIONS, THEY COULD ENROLL PEOPLE IN TRIALS THAT COULD JUST GO TO THEIR DOCTOR'S OFFICE OR LOCAL PHARMACY. AND SO IT REPRESENTED A GREAT GAIN AND EFFICIENCY FOR THESE PHARMACEUTICAL COMPANIES TO CONTINUE AS WELL.
MR. SCHENK: OKAY. AND I WANT TO BE CLEAR, YOU SAID THAT YOU HAD AN UNDERSTANDING THAT THERANOS WAS DOING SOME OF THIS PHARMACEUTICAL WORK FROM BACK IN YOUR 2006 INVESTMENT AND ON, SOMETIME AFTER THAT. DID YOU GET THAT UNDERSTANDING IN PART FROM CHRIS LUCAS?
JOHN BRYAN TOLBERT: CORRECT. SO THOSE CONVERSATIONS THAT I HAD WITH CHRIS OVER THE YEARS SUGGESTED THAT THOSE PHARMACEUTICAL TRIALS, YOU KNOW, CONTINUED TO BE SOMETHING THAT THERANOS HAD AS A STAPLE OF BUSINESS.
MR. SCHENK: AND NOW ON THIS CALL, IS MS. HOLMES CONFIRMING THAT FOR YOU, THAT THE PHARMACEUTICAL WORK WAS GENERATING CASH FOR OPERATIONS?
MR. DOWNEY: EXCUSE ME, YOUR HONOR. OBJECTION, YOUR HONOR, TO THOSE TWO STATEMENTS. I THINK HE CAN CERTAINLY COMMENT ON HIS UNDERSTANDING, WHICH HE HAS. I THINK TO LINK STATEMENTS FROM TWO PEOPLE TOGETHER AND TRY TO GET A CONFIRMATION IS INAPPROPRIATE.
JUDGE DAVILA: OVERRULED.
MR. SCHENK: YOUR HONOR, WITH PERMISSION, I'LL NOW TURN TO -- OH, I'M SORRY. ONE MORE QUESTION.
MR. SCHENK: ON 1348-3, WHAT WE HAVE JUST LISTENED TO, WHEN MS. HOLMES SAYS "THE FOCUS ON THE PHARMACEUTICAL BUSINESS IS STILL A SIGNIFICANT FOCUS FOR US," WHAT DID YOU TAKE THAT TO MEAN?
JOHN BRYAN TOLBERT: JUST THAT FROM THE VERY BEGINNING, LIKE I DESCRIBED, I THOUGHT PHARMACEUTICAL, THE PHARMACEUTICAL BUSINESS, YOU KNOW, WAS A PROFITABLE OR A FOUNDATIONAL PART OF WHAT THERANOS WAS DOING AND SO, YOU KNOW, I HAD NO INDICATION THAT THAT HAD NEVER BEEN THE CASE.
MR. SCHENK: AND WHEN SHE SAID IT IS STILL A SIGNIFICANT FOCUS AND YOU HAD THIS CALL IN DECEMBER OF 2013 --
JOHN BRYAN TOLBERT: DECEMBER OF 2013.
MR. SCHENK: YES, I'M SORRY. DID YOU THINK THAT THAT PHARMACEUTICAL BUSINESS WAS STILL, IN DECEMBER OF 2013, A SIGNIFICANT FOCUS?
JOHN BRYAN TOLBERT: I DID.
MR. SCHENK: YOUR HONOR, WITH YOUR PERMISSION, I'LL NOW PLAY 1348-4.
JUDGE DAVILA: YES.
MR. SCHENK: THANK YOU.
(AUDIO PLAYED IN OPEN COURT ON THE RECORD.) "QUESTIONER: THANK YOU. HI, ELIZABETH. I GUESS I HAVE A TWO-PART QUESTION. FIRST OF ALL, IF YOU COULD JUST COVER GENERALLY THE CURRENT CAPITALIZATION IN TERMS OF WHAT THE -- WHAT THE $75 A SHARE, WHAT THE CAPITALIZATION WOULD BE AND WHAT YOU'RE LOOKING TO RAISE AND WHAT THE -- I TAKE IT FROM WHAT YOU'VE SAID, BUT MAYBE YOU COULD GO INTO A LITTLE MORE OF THE USE. IS IT -- IS IT HEAVILY WEIGHTED TOWARD THE RETAIL BUILD OUT WHICH YOU'RE LOOKING TO DO ON A NATIONAL BASIS AND HOW LONG DO YOU EXPECT THE TIME-WISE TO DO THE BUILD OUT OF THE RETAIL SIDE OF IT? "MS. HOLMES: ABSOLUTELY. SO AND -- SO WHEN YOU ALL CAME IN IN THE SERIES B AT PRE MONEY WAS ABOUT $20 MILLION VALUATION OF THE COMPANY AND THAT WAS -- IT WAS PREVIOUSLY ASSOCIATED WITH THE SERIES A PRICE OF 75 CENTS A SHARE. NOW THE VALUATION OF THE COMPANY IS -- IS JUST OVER $7 BILLION AND THAT'S AT THE $75 A SHARE.
"AND THE RETAIL IS EXACTLY WHERE WE'RE FOCUSSING OUR INVESTMENT AND THE -- IT'S REALLY NOW A QUESTION OF HOW FAST DO WE SCALE, YOU KNOW, WHAT -- THE FACT THAT WE WILL SCALE IS A GIVEN. OUR RETAIL PARTNERS HAVE INVESTED HUNDREDS OF MILLIONS OF DOLLARS IN BUILDING OUT THIS FRAMEWORK. AND WE TOO HAVE BEEN PREPARING FOR THIS FOR MANY YEARS NOW. AND THE GOAL IS TO BE ABLE TO BE NATIONAL VERY, VERY, VERY QUICKLY. "SO THE IMMEDIATE FOCUS IS CALIFORNIA AND ARIZONA. CERTAINLY, YOU KNOW, AS WE GO INTO 2014, ONE OF OUR GOALS FOR 2014 IS TO HAVE THOSE MARKETS AND BEACH HEADS IN TERMS OF REALLY OWNING THE MARKETPLACE AND BEING ABLE TO EXPAND FROM THEM. "BUT THE ABILITY TO EXPAND THROUGHOUT RETAIL, ONCE YOU'VE OPERATIONALIZED A GIVEN MARKET, IT IS -- IT'S NOT VERY COMPLICATED. AND, YOU KNOW, COMPANIES LIKE WALGREENS HAVE DONE THIS VERY WELL IN AREAS LIKE THE FLU SHOT OR VACCINATION BUSINESS WHERE THEY TRAINED ALL OF THEIR PHARMACISTS AND HAD IT DEPLOYED NATIONALLY WITHIN, I THINK, ABOUT AN 18-MONTH PERIOD. "AND THERE'S -- THERE'S A PARALLEL TO WHAT CAN BE DONE HERE AND WE'RE WORKING TO DO THAT."
BY MR. SCHENK:
MR. SCHENK: MR. TOLBERT, I'VE PLAYED FOR YOU NOW 1348-4. DO YOU RECOGNIZE TWO INVOICES ON THIS PORTION?
JOHN BRYAN TOLBERT: I DO.
MR. SCHENK: AND WHO ARE THOSE INDIVIDUALS?
JOHN BRYAN TOLBERT: THE FIRST INDIVIDUAL WAS CRAIG HALL, WHO IS MY BOSS, AND THE SECOND WAS ELIZABETH HOLMES.
MR. SCHENK: SO WAS THIS THE MOMENT YOU REALIZED MR. HALL DID MAKE IT TO THE CALL?
JOHN BRYAN TOLBERT: IT WAS.
MR. SCHENK: AND I THINK YOU SAID YOU DIDN'T STOP THE RECORDING?
JOHN BRYAN TOLBERT: I DID NOT.
MR. SCHENK: AND DESCRIBE FOR THE JURY FOR A MOMENT THE STRUCTURE OF THE CALL. THE FIRST CLIPS WE HEARD MS. HOLMES TALKING, AND THIS TIME WE HEARD A QUESTION.
JOHN BRYAN TOLBERT: SO AT THE BEGINNING OF THE CALL, CHRIS LUCAS HAD JUST HAD AN INTRODUCTORY COMMENT OR TWO AND THEN TURNED IT OVER TO ELIZABETH. YOU KNOW, SHE KIND OF WALKED THROUGH AN UPDATE OF WHERE THE COMPANY WAS AND WHAT WAS GOING ON. AND THEN AT THIS POINT, OR AT SOME POINT AROUND THIS TIME ON THE CALL, IT OPENED UP FOR Q AND A, AND THIS WAS ONE OF THE FIRST QUESTIONS.
MR. SCHENK: SO THE FIRST PORTION THAT I'VE PLAYED FOR YOU BEFORE MR. HALL, WAS THAT MS. HOLMES SPEAKING NOT IN RESPONSE TO QUESTIONS, BUT RATHER GIVING, AS YOU SAID, I THINK AN OVERVIEW?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: AND THEN THE INDIVIDUALS ON THE CALL HAD THE OPPORTUNITY TO ASK QUESTIONS?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: AND WHEN SHE RESPONDS TO MR. HOLMES'S QUESTION BY SAYING, "IT'S REALLY NOW A QUESTION OF HOW WE SCALE. YOU KNOW, THE FACT THAT WE WILL SCALE IS A GIVEN." WHAT DID YOU UNDERSTAND THAT TO MEAN?
JOHN BRYAN TOLBERT: WELL, WE KNEW THAT WALGREENS WAS A BIG OPPORTUNITY WITH SOMETHING OVER 8,000 LOCATIONS. I THINK AT THE TIME OF THIS CALL THERE MAY HAVE BEEN, YOU KNOW, A DOZEN LOCATIONS OPENED OR SOMETHING. AND SO THE NEED TO GO FROM, YOU KNOW, 10 TO 8,000 IS PRETTY SUBSTANTIAL. SO IT FELT LIKE IT WAS GOING TO HAPPEN, IT'S JUST HOW FAST CAN WE MAKE IT HAPPEN? HOW FAST CAN WE GET IN ALL OF THESE LOCATIONS?
MR. SCHENK: AND WAS THAT SIGNIFICANT OR IMPORTANT IN YOUR DECISION TO INVEST?
JOHN BRYAN TOLBERT: IT WAS. I MEAN, THAT -- YOU KNOW, THE OPPORTUNITY TO DO THAT VOLUME OF TESTS, RIGHT, IF IT'S IN 8,000 LOCATIONS AND REPRESENTED A SIGNIFICANT OPPORTUNITY, AND SO, YOU KNOW, CERTAINLY IF, IF WE HAD THOUGHT THAT THOSE LOCATIONS WOULD NOT BECOME OPERATIONAL, IT WOULD HAVE BEEN A BIG NEGATIVE FOR THE INVESTMENT.
MR. SCHENK: YOUR HONOR, WITH PERMISSION I'LL PLAY 1348-5.
JUDGE DAVILA: YES.
(AUDIO PLAYED IN OPEN COURT ON THE RECORD.) "MEETING OPERATOR: THANK YOU. THE NEXT QUESTION COMES FROM LARRY (INAUDIBLE). PLEASE GO AHEAD. LARRY, ARE YOU THERE? "QUESTIONER: YES, I AM. "HI ELIZABETH, THIS IS LARRY (INAUDIBLE). "MS. HOLMES: HI LARRY, HOW ARE YOU? "QUESTIONER: GOOD. GOOD. CONGRATULATIONS ON ALL OF THIS PROGRESS. "MS. HOLMES: WELL, THANK YOU. "QUESTIONER: NOW, ELIZABETH, YOU MENTIONED THAT YOU MIGHT HAVE SOME ADDITIONAL EQUITY ROUNDS THAT ARE COMING UP. CAN YOU GIVE ANY INDICATION OF HOW MUCH MONEY YOU WANT TO RAISE AND WHAT MARKET CAPS YOU WOULD LIKE TO SEE YOURSELF ACHIEVE IN THOSE ROUNDS? "MS. HOLMES: SURE. ABSOLUTELY. SO WE -- THIS RECENT TRANSACTION AT $75 A SHARE IS ACTUALLY PART OF CONTRACTS THAT WE HAVE WITH STRATEGIC ENTITIES AND PARTNERS WHO PREVIOUSLY HAD AN EQUITY RELATIONSHIP WITH THERANOS AND HAD AN OPTION TO EXERCISE TO INVEST ADDITIONAL CAPITAL BEFORE THE END OF 2013, WHICH THEY LITERALLY JUST EXERCISED.
AND SO WE'RE WORKING THROUGH THAT NOW, AS MANY OF YOU ALL KNOW IN SOME OF THE RECENT SHAREHOLDER CONSENT AND -- AND THAT VALUATION THAT I PREVIOUSLY MENTIONED IS ASSOCIATED WITH THOSE TRANSACTIONS. "WE DO HAVE OFFERS ON THE TABLE RIGHT NOW FROM FINANCIAL INSTITUTIONS THAT ARE IN THE SEVERAL HUNDRED MILLION DOLLAR RANGE IN TERMS OF THE AMOUNT OF CAPITAL AND WE'RE CONSIDERING THAT IN THE CONTEXT OF HOW WE -- HOW WE INVEST. AND ALSO WE'RE AWARE THAT CERTAIN SHAREHOLDERS HAVE SOME LIQUIDITY NEEDS. AND SO THE ABILITY TO PUT A LARGE AMOUNT OF CAPITAL INTO THE COMPANY AND THEN WHEREIN AS RELEVANT AND AT THE RIGHT TIME FOR THE BUSINESS ADDRESS THAT. LIQUIDITY IS -- IS HOW WE'RE LOOKING AT THAT AND THERE'S A VERY HIGH LIKELIHOOD THAT WE WILL -- WE WILL DO TRANSACTIONS THAT ARE IN THE SEVERAL HUNDRED MILLION DOLLAR RANGE. "INSOFAR AS THE VALUATION, WE KNOW THAT IT IS HIGHER THAN $75 A SHARE. WE ARE HAVING NEGOTIATIONS RIGHT NOW ABOUT EXACTLY WHAT PRICE WE PICK AND MORE IMPORTANTLY WHO WE PICK AS, YOU KNOW, THE INVESTOR BASE HERE. "AND SOME OF THIS IN TERMS OF WHAT THE ACTUAL PRICE PER SHARE AND THEREFORE THE ASSOCIATED EQUITY CAPITALIZATION OF THE COMPANY WILL BE IS GOING TO DEPEND ON HOW THAT PLAYS OUT, BUT THAT'S SOMETHING THAT -- THAT IS GOING ON AS WE SPEAK AND -- AND WILL LIKELY BE EFFECTED EARLY IN Q1."
MR. SCHENK: THAT'S THE END OF 1348-5.
MR. SCHENK: MR. TOLBERT, DID WE HEAR A QUESTION AND MS. HOLMES'S VOICE IN RESPONSE?
JOHN BRYAN TOLBERT: WE DID.
MR. SCHENK: AND MS. HOLMES MAKES A STATEMENT ABOUT THE AMOUNT OF MONEY SHE INTENDED TO RAISE AND SHARE PRICE. WAS THAT STUFF THAT WAS ALSO IMPORTANT TO YOU IN YOUR DECISION TO INVEST?
JOHN BRYAN TOLBERT: THEY WERE. CERTAINLY TO THE EXTENT LIKE WE FELT LIKE IF WE INVESTED, THERE WERE SEVERAL HUNDRED MILLION DOLLARS ADDITIONAL INVESTMENT THAT WOULD COME THAT WOULD HELP ACCOMPLISH THE DESIGNS OF THIS ROLLOUT THAT, YOU KNOW, IT WOULD MAKE IT A LOT MORE CERTAIN THAT THERE WOULD BE A POSITIVE OUTCOME TO IT.
MR. SCHENK: SO IF THE -- AS YOU TESTIFIED A MOMENT AGO, IF THE INVESTOR MONEY WOULD BE SPENT FOR THE WALGREENS ROLLOUT, IT WAS IMPORTANT TO YOU THAT THERE WAS MORE MONEY COMING IN, NOT JUST YOUR 5 MILLION?
JOHN BRYAN TOLBERT: CORRECT. YOU KNOW, THE ADDITIONAL MONEY THAT WOULD COME IN JUST REPRESENTED ADDITIONAL SPEED AND CAPABILITY AND MORE MARKETS THAT COULD BE SERVICED, PUT INTO SERVICE SOONER.
MR. SCHENK: THANK YOU.
MR. SCHENK: YOUR HONOR, WITH YOUR PERMISSION I'LL NOW PLAY 1348-6.
JUDGE DAVILA: YES. "QUESTIONER: HI, ELIZABETH. ALSO CONGRATULATIONS FROM US. THAT'S REMARKABLE WHAT YOU HAVE ACCOMPLISHED. "AND JUST TO FOLLOW ON WHAT YOU WERE JUST DISCUSSING, I ASSUME THAT WOULD ALL BE PRIVATE AND I'M WONDERING IF YOU SEE A PUBLIC LIQUIDITY EVENT AT SOME POINT WHERE YOU GO OUT WITH AN IPO. I'M WONDERING ABOUT THAT. "AND AS LONG AS I'M SPEAKING, I WAS -- I WAS ALSO CURIOUS IF THERE'S A MILITARY ASPECT THAT YOU'RE GOING TO PURSUE. "AND, AGAIN, SINCE I HAVE THE FLOOR, WITH REGARD TO COMPETITION, CHRIS HAD MENTIONED THAT THERE DOESN'T APPEAR TO BE ANY OUT THERE. I'M WONDERING IF YOUR PATENT SIDE IS LOOKING AT ANY CONCERNS THERE OR IF YOU THINK THERE'S ANY POSSIBILITY FOR PATENT INFRINGEMENT OR -- OR OTHERS DOING SOMETHING SIMILAR AND COMPETING WITH YOU. "MS. HOLMES: ABSOLUTELY. AND I WILL START WITH THE FIRST ONE. SO THESE IMMEDIATE TRANSACTIONS WHEN WE'RE TALKING IN DECEMBER, JANUARY, EARLY Q1 TIMEFRAME ARE ALL PRIVATE TRANSACTIONS.
"WE HAVE PUT A CORPORATE STRUCTURE IN PLACE THAT POSITIONS US TO BE ABLE TO PROCEED WITH FUTURE EQUITY RELATED EVENTS AND RETAIN THE CONTROL TO REALIZE THE LONG-TERM VISION THAT WE HAVE. AND AS YOU KNOW, THIS COMPANY IS ABOUT BEING ABLE TO CHANGE THE HEALTH CARE INDUSTRY. AND THAT'S SOMETHING THAT, YOU KNOW, WE PLAN ON DOING FOR THE NEXT 10, 20, 30, 40, 50, 60 YEARS. "WE HAVE THE OPPORTUNITY TO CREATE AN INDUSTRY HERE AND THAT'S WHAT THIS IS ABOUT. SO WE HAVE ALWAYS BEEN VERY LONG-TERM IN OUR MINDSET. AND THE POTENTIAL FOR SOME TYPE OF PUBLIC TRANSACTION, A PUBLIC OFFERING TRANSACTION DOWN THE ROAD IS THERE.
"RIGHT NOW WE THINK THERE'S A LOT OF ADVANTAGES TO CONTINUING TO OPERATE AS A PRIVATE COMPANY, ESPECIALLY IN THE CONTEXT OF WHAT WE'VE JUST DONE WHERE WE MADE SOME VERY DIFFICULT DECISIONS WHEN WE SIGNED OUR RETAIL CONTRACTS TO EFFECTIVELY AGREE TO CONTRACTS THAT SAID WE COULDN'T TALK ABOUT THIS BECAUSE THESE COMPANIES WERE PUTTING HUNDREDS OF MILLIONS OF DOLLARS INTO THE INFRASTRUCTURE AND THEY HADN'T ANNOUNCED IT TO THE STREET AND IT WAS MATERIAL AND PUBLIC INFORMATION AND SOME OF IT STILL IS. "AND SO -- AND SO WHAT WE GOT OUT OF THAT IS WE GOT A LEAD TIME AND WE WERE ABLE TO LAUNCH AND -- AND REALLY SURPRISE THE MARKET IN TERMS OF THE EXISTENCE OF THIS CAPABILITY AND THERE'S A LOT OF POWER IN THAT FROM A MARKET OWNERSHIP STANDPOINT. BUT WE ARE -- WE ARE LOOKING AT LIQUIDITY OPTIONS AND AN IPO WOULD BE ONE OF THEM. "IN TERMS OF THE MILITARY ASPECT OF THIS, MILITARY IS A BIG DEAL FOR US AND I CAN TELL YOU CONFIDENTIALLY A COUPLE OF THE AREAS WHICH WE HAVE BEEN FOCUSSED THERE.
"ONE IS IN THE CONTEXT OF WORK IN THE MIDDLE EAST AND SPECIFICALLY IN AFGHANISTAN. THE SURVIVAL RATE OF OUR MEN AND WOMEN IN THE FIELD WHEN THEY'RE HIT IS 98 PERCENT IF THEY GET THROUGH THE DOORS OF AN EMERGENCY ROOM WITHIN 60 MINUTES FROM THE POINT OF INJURY. AND IF WE MISS THAT WINDOW THAT'S WHERE THE BULK OF OUR FATALITIES OCCUR. "AND SO THE ABILITY TO TAKE A TECHNOLOGY LIKE THIS AND PUT IT IN FLIGHT, SPECIFICALLY ON A MEDEVAC, HAS THE POTENTIAL TO CHANGE SURVIVAL RATES. AND WHAT IT DOES IS IT MAKES IT POSSIBLE TO BEGIN TRANSFUSION AND STABILIZATION IN PLACE. AND SO WE'RE BEEN DOING A LOT OF WORK THERE. "WE HAVE ALSO BEEN DOING A LOT OF WORK FOR SPECIAL OPERATIONS COMMAND IN THE CONTEXT OF MISSIONS IN REMOTE AREAS WHERE NOT ONLY IS THERE NO CAPABILITY TO DO TESTING FOR CERTAIN THINGS THAT NEED TO BE MEASURED, BUT IF SITUATIONS ARISE IN WHICH THOSE TESTS ARE WARRANTED, THE MISSION IS ABORTED AND PEOPLE ARE EVACUATED GENERALLY OUT OF CONTINENT.
AND SO WE'VE, YOU KNOW, CREATED A DISTRIBUTED SYSTEM THAT CAN BE USED IN REMOTE AREAS AND THAT IS -- THAT IS ANOTHER VENUE AND FOCUS FOR US. AND AS WE NOW REACH THIS STAGE IN OUR BUSINESS AND GOING BACK TO THE COMMENT THAT I MADE EARLIER ON ORGANIZATION THAT REALLY IS ANOTHER BUSINESS UNIT. "AND SO THAT, THE PHARMACEUTICAL BUSINESS AND RETAIL ARE THESE THREE UNITS THAT WE HAVE. OBVIOUSLY TO BE ABLE TO DO WHAT WE'VE JUST DONE, WE HAD TO PAUSE A LARGE NUMBER OF OUR ONGOING PHARMACEUTICAL AND MILITARY PROGRAMS SO THAT WE COULD FOCUS LIKE A LASER ON THIS AND EXECUTING ON THIS.
JUDGE DAVILA: "AND THE SCALE OF THIS RETAIL INFRASTRUCTURE NOW IS WHERE WE WILL CONTINUE TO FOCUS LIKE A LASER. BUT AS WE GET THE RESOURCES AND ORGANIZATIONS TO CAPTURE SOME OF THESE ADDITIONAL OPPORTUNITIES IN PARALLEL, WE WILL PROCEED WITH THE PHARMACEUTICAL AND MILITARY BUSINESS IN LEVERAGING SOME OF THIS INFRASTRUCTURE AND THE RESOURCES FROM IT THAT WE'RE BUILDING OUT NOW. SO THAT, FOR THE LONG-TERM, WILL BE AN IMPORTANT THING FOR US. AND IT'S ALSO VERY SYMBOLIC BECAUSE IT'S OUR WAY OF BEING ABLE TO HELP MAKE A DIFFERENCE IN WHATEVER SMALL WAY WE CAN THERE."
MR. SCHENK: THAT'S THE END OF 1348-6. WITH THE COURT'S PERMISSION, I'LL CONTINUE PLAYING 1348-7 AND THEN 1349-1. IT'S ALL A CONTINUATION.
JUDGE DAVILA: YES, PLEASE.
(AUDIO PLAYED IN OPEN COURT ON THE RECORD.) "QUESTIONER: INSOFAR AS COMPETITION IS CONCERNED, EXACTLY THE REASON THAT WE WERE SO AGGRESSIVE ABOUT BEING IN SELF-MODE WAS TO PRESERVE THE WINDOW FOR CAPTURING AS MUCH MARKET SHARE AS POSSIBLE WITHOUT DIRECT COMPETITION. WE HAVE NOT SEEN OTHER COMPANIES DOING THIS THAT --"
MR. SCHENK: AND THEN THAT'S THE END OF 1348-7.
MR. SCHENK: MR. TOLBERT, DOES THE RECORDING CUT OFF AT THAT POINT?
JOHN BRYAN TOLBERT: IT DOES.
MR. SCHENK: AND THEN WHAT DID YOU DO?
JOHN BRYAN TOLBERT: AND THEN I FLIPPED THE TAPE OVER AND STARTED RECORDING ON THE SECOND SIDE OF THE TAPE.
MR. SCHENK: OKAY. MS. HOLLIMAN NOW, WITH THE COURT'S PERMISSION, IF WE CAN PLAY 1349-1.
JUDGE DAVILA: YES.
(AUDIO PLAYED IN OPEN COURT ON THE RECORD.) "MS. HOLMES: -- LIKE, FOR EXAMPLE, THE ABILITY TO USE THE CLOUD TO CONTROL A HEALTH DEVICE OR THE ABILITY TO RUN ANY COMBINATION OF LAB TESTS ON, YOU KNOW, THESE DISTRIBUTED DEVICES. AND, OBVIOUSLY, WE HAVE COMPLIMENTED THOSE WITH A VERY BROAD PORTFOLIO OF VERY NARROW CLAIMS, YEAH, BUT -- BUT WE HAVE BEEN PREPARING FOR LITIGATION IN THE CONTEXT OF BEING ABLE TO PROTECT THEM AND INTEND TO PROTECT THEM VERY AGGRESSIVELY. "IN OUR CASE, IP LITIGATION IS NOT ABOUT LICENSING -- OR IP PROSECUTION IS NOT ABOUT LICENSING, BUT IT'S ABOUT BEING ABLE TO MAINTAIN OUR OWNERSHIP OF THIS SPACE. WE HAVE A GREAT LAWYER, DAVID BOIES, WHO JOINS US AT ALL OF OUR BOARD MEETINGS WHO ALSO DOES OUR IP LITIGATION. AND WE DID FILE A LAWSUIT ABOUT A YEAR AND A HALF AGO OR TWO YEARS AGO AGAINST A PATENT TROLL WHO HAD GONE TO SOME ELABORATE MEANS TO ATTEMPT TO STEAL FROM AN INTELLECTUAL PROPERTY.
"AND OUR MAIN POINT THERE IS WE WILL NOT SETTLE ON ANY INTELLECTUAL PROPERTY VIOLATION. IN THAT CASE, THE SPECIFIC PATENT IN QUESTION WAS -- WAS NOT -- WE HAVE THAT CONTENT COVERED BY OTHER OF OUR PATENTS, BUT -- BUT SETTING THE PRECEDENT THAT WE HAVE A ZERO TOLERANCE APPROACH TO INTELLECTUAL PROPERTY VIOLATIONS OR PEOPLE TRYING TO THREATEN US OR TRYING TO GET US TO SETTLE AND PAY THEM MONEY. IT'S JUST NOT SOMETHING THAT WE'RE GOING TO DO. "AND I THINK ULTIMATELY AS WE GO FORWARD, OBVIOUSLY CONTINUING TO BUILD OUT THE PORTFOLIO AND DEFENDING IT AGGRESSIVELY ARE GOING TO BE TWO VERY IMPORTANT THINGS WHICH WE WILL DO IN A BIG WAY. BUT ULTIMATELY, OUR REAL STRATEGY HERE IS THE SPEED OF EXECUTION AND THE WAY WE PRICE IN THE MARKET WHICH IS A BIG DEAL. "WE HAVEN'T TALKED ABOUT THIS DIRECTLY ON THIS CALL, BUT WE ARE CHANGING THE COST STRUCTURE OF LABORATORY TESTING. AND THAT, YOU KNOW, ALSO HAS A COMPETITIVE ASPECT TO IT IN TERMS OF WINNING AND OWNING THIS SPACE.
AND THEN DOING WHAT -- WHAT WE LOVE AND TRY TO DO BEST, WHICH IS BEING ON VERSION 12 OF THIS TYPE OF SYSTEM BY THE TIME ANYBODY ELSE CAN TRY TO BE ON VERSION 1. AND THAT'S A -- THAT'S AN ONGOING FOCUS FOR US INTERNALLY." "MEETING OPERATOR: THERE ARE NO FURTHER QUESTIONS AT THIS TIME. "MR. LUCAS: WELL, IF THERE'S ANYONE, PLEASE QUEUE UP WITH DAWN IF THERE'S ANY OTHER QUESTIONS. "ELIZABETH, JUST AS -- AS, YOU KNOW, AS AN OBSERVATION, WHEN YOU PUBLISHED YOUR PRICES ON THE WEBSITE THAT ARE SIGNIFICANTLY CLEARLY LOWER THAN -- THAN WHAT TYPICALLY LABS CHARGE, HOW DOES THAT STRATEGY EVOLVE AND AS IT RELATES TO MEDICAID OR MEDICARE AND SO FORTH? "MS. HOLMES: ABSOLUTELY. AND I -- SO -- SO THERE'S -- THERE'S MULTIPLE ASPECTS OF THIS.
ONE IS OUR BELIEF THAT ACCESS TO THIS LABORATORY INFORMATION, THIS BIOCHEMICAL INFORMATION WHICH DRIVES MOST OF CLINICAL DECISIONS, IS A BASIC HUMAN RIGHT AND IT SHOULD COST THE SAME NO MATTER WHO YOU ARE, IF YOU'RE INSURED, YOU'RE UNINSURED, YOU'RE MEDICARE, YOU'RE MEDICAID. AND THAT -- THAT IS VERY DIFFERENT THAN THE WAY THAT OTHER COMPANIES OPERATE IN THIS SPACE." "MR. LUCAS: OH, GOOD. THANK YOU, ELIZABETH. "MS. HOLMES: WE ALSO BELIEVE THAT THE ABILITY TO CREATE A TECHNOLOGY DRIVEN BUSINESS MODEL WHERE WE'RE GOING AFTER VOLUME IN A BIG WAY AND MAKE THESE TESTS AVAILABLE AT REALLY LOW COSTS AT THE SAME TIME HAS A GREAT POTENTIAL. "AND IT'S ALSO DIFFERENT FROM WAYS PEOPLE HAVE OPERATED IN THIS SPACE. BECAUSE GENERALLY THE CONVERSATION IS, OH, WE'VE -- YOU INVENTED THIS NEW TEST AND IT'S GOING TO BE REALLY GOOD SO WE'RE GOING TO GO TRY TO CONVINCE MEDICARE TO PAY $5,000 FOR THE TEST. WE'RE TAKING THE SAME TESTS AND MAKING THEM AVAILABLE FOR $30 AND WE'LL CONTINUE TO DO THAT.
WE ARE THE FIRST COMPANY WHO HAS BILLED MEDICARE AND MEDICAID AT A FRACTION OF WHAT THEY'RE WILLING TO REIMBURSE. AND THAT'S VERY INTERESTING BECAUSE WHAT HAPPENS AS A RESULT IS THAT THEY SURVEY EVERY YEAR WHAT THEY'RE BEING BILLED AND REDUCE THEIR REIMBURSEMENT THRESHOLDS ACCORDINGLY. "AND SO IN THE CONTEXT OF THIS LOWER PRICING, THEIR REIMBURSEMENT THRESHOLD WILL FALL AND WILL BE REDUCED OVER TIME. AND THE SAVINGS TO MEDICARE AND MEDICAID ARE SIGNIFICANT AT -- IT'S PROJECTED TO BE AT LEAST $160 BILLION IN DIRECT OUT OF POCKET SAVINGS OVER THE COURSE OF THE NEXT TEN YEARS. "AND THERE ARE ADDITIONAL SAVINGS THAT COME WITH THE WAY THAT IT CHANGES THE CARE PROCESS, MEANING WHAT'S HAPPENING RIGHT NOW IN PALO ALTO IS THAT UNLIKE IN THE PAST WHERE I WOULD GO SEE MY DOC. THE DOC WOULD SAY, ELIZABETH, I HAVEN'T SEEN YOU FOR A YEAR AND GO DO A TEST.
"I WOULD GO AND DO MY TEST AND COME BACK. AND THE DOC SAYS, OH, YOU KNOW, YOUR HEMOGLOBIN WAS SEVEN AND THAT MEANS YOU'RE REALLY ANEMIC. I DON'T KNOW WHAT KIND OF ANEMIA IT IS SO I'M GOING TO PUT YOU ON THIS ANEMIA DRUG IMMEDIATELY AND GO DO ANOTHER TEST SO I CAN FIGURE OUT WHAT KIND OF ANEMIA IT IS. "SO I GO GET MY PRESCRIPTION, THE HEAVY DUTY DRUG. AND IN THE MEANTIME I DO MY SECOND LAB TEST AND I COME BACK FOR MY THIRD OFFICE VISIT. AND THE DOC SAYS, OH, IRON DEFICIENCY. GET OFF THE DRUG AND TAKE SOME IRON PILLS. "AND YOU HAVE THIS SIX-WEEK PROCESS WITH THREE OFFICE VISITS, TWO LABS, ONE UNNECESSARY PRESCRIPTION.
AND BECAUSE WE HAVE MADE IT POSSIBLE TO RUN ANY COMBINATION OF LAB TESTS FROM THESE TINY SAMPLES, THE PHYSICIAN CAN NOW SAY ON THE LAB FORM IF, IN MY EXAMPLE, HEMOGLOBIN IS LOW, AUTOMATICALLY RUN IRON AND B12 AND OTHER TESTS ON THE SAME SAMPLE BECAUSE BIG DEDICATED TUBES OF BLOOD ARE NO LONGER REQUIRED TO RUN EACH OF THOSE DIFFERENT ASSAY METHODOLOGIES WHICH REQUIRE THEIR OWN BIG ANALYZERS IN A TRADITIONAL LAB. "AND SO WE GET THESE LAB FORMS THAT SAY, OKAY, YOU KNOW, IF THIS IS OUT OF RANGE, THEN RUN THIS. AND ON THE SAME SAMPLE IN THAT SAME WINDOW WHEN WE'RE PROCESSING THE SAMPLE, WE CAN DO WHAT WE CALL THIS AUTOMATED REFLEX TO THOSE ADDITIONAL TESTS AND THEN SEND THE DATA BACK TO THE DOC. AND BECAUSE WE'VE GENERATED THE DATA SO FAST, NAMELY, WITHIN HOURS, I, AS A PATIENT, THEN COULD GO SEE MY DOC THAT AFTERNOON AND THE DOC ALREADY HAS THE DATA. "SO WE'RE STARTING TO SEE A SHIFT IN THE WORKFLOW WHERE, FOR PEOPLE WHO HAVE PHYSICIANS, THEY'RE SENDING THE TESTS AHEAD OF TIME AND THEN THEY'RE SEEING THE PATIENT. AND THAT SIGNIFICANTLY CHANGES SOME OF THE REDUNDANCY IN COSTS AROUND VISITS THAT ARE ASSOCIATED WITH FOLLOW UP LAB TESTS AND/OR NOT HAVING THE INFORMATION THAT IS NEEDED AT THE TIME A DIAGNOSIS IS MADE. "SO FROM A SAVINGS PERSPECTIVE TO MEDICARE AND MEDICAID THAT IS A MUCH BIGGER DEAL THAN THE DIRECT OUT OF POCKET SAVINGS THAT I PREVIOUSLY REFERENCED AND ULTIMATELY WILL LEAD TO -- TO BETTER CARE IS THE GOAL."
BY MR. SCHENK:
MR. SCHENK: MR. TOLBERT, FOR THE RECORD I'VE JUST PLAYED FOR YOU 1348-6, 1348-7, AND 1349-1. ON EACH OF THOSE, DID YOU HEAR AND RECOGNIZE MS. HOLMES'S VOICE?
JOHN BRYAN TOLBERT: I DID.
MR. SCHENK: AND IF WE COULD WORK THROUGH THEM BACKWARDS, SO THE MOST RECENT ONE, 1349-1, DID YOU HEAR A GENTLEMAN ASK A QUESTION?
JOHN BRYAN TOLBERT: I DID.
MR. SCHENK: DID YOU RECOGNIZE THAT VOICE?
JOHN BRYAN TOLBERT: I BELIEVE IT WAS CHRIS LUCAS.
MR. SCHENK: IN MS. HOLMES'S RESPONSE SHE SAYS, "AND BECAUSE WE HAVE MADE IT POSSIBLE TO RUN ANY COMBINATION OF LAB TESTS FROM THESE TINY SAMPLES." DID YOU BELIEVE -- WHAT DID YOU TAKE THAT TO MEAN?
JOHN BRYAN TOLBERT: WELL, I TOOK IT AT FACE VALUE, RIGHT? THAT THERE WAS AN OPPORTUNITY OUT OF A FINGERSTICK OF BLOOD TO RUN MULTIPLE TESTS ON IT, AND TO RUN REFLECTS OF TESTS SO THAT IF TEST A SAID I HAD A CERTAIN RESULT, THEN TEST B OR TEST C OR TEST D COULD BE RUN.
MR. SCHENK: AND WHEN SHE SAID THAT IT WAS POSSIBLE TO RUN ANY COMBINATION OF THESE LAB TESTS, YOU SAID YOU TOOK IT AT FACE VALUE. DID YOU TRUST THAT SHE WAS TELLING YOU SOMETHING THAT THERANOS CURRENTLY COULD DO, IT WAS A PRESENT CAPABILITY?
JOHN BRYAN TOLBERT: I BELIEVE IT WAS A CAPABILITY THAT THEY HAD AT THAT POINT.
MR. SCHENK: WHEN SHE SAID THAT "BIG DEDICATED TUBES OF BLOOD ARE NO LONGER REQUIRED," WHAT DID YOU TAKE THAT TO MEAN?
JOHN BRYAN TOLBERT: THAT THE TECHNOLOGY WAS AT A PLACE THAT A FINGERSTICK OF BLOOD COULD BE USED TO DO THOSE TESTS AND THAT, YOU KNOW, IT NEGATED THE NEED FOR THE BIG TUBES OF BLOOD.
MR. SCHENK: AND SHE TALKED ABOUT SOMETHING THAT SHE CALLED AUTOMATED REFLEX. DID YOU UNDERSTAND WHAT SHE WAS TALKING ABOUT THERE?
JOHN BRYAN TOLBERT: I DID.
MR. SCHENK: AND WHAT DID YOU TAKE THAT TO MEAN?
JOHN BRYAN TOLBERT: WELL, IF TEST A GIVES A CERTAIN RESULT, THEN TEST B OR TEST C OR TEST D COULD HAVE BEEN RUN, AND, YOU KNOW, IN RESPONSE TO WHAT TEST A SHOWED.
MR. SCHENK: AND WHEN SHE SAID "WE CAN DO WHAT WE CALL THIS AUTOMATED REFLEX," DID YOU UNDERSTAND THAT SHE WAS DESCRIBING REFLEX TESTING AS A PRESENT CAPABILITY?
JOHN BRYAN TOLBERT: I DID.
MR. SCHENK: IF WE TURN BACK TO 1348-6. DO YOU RECALL MS. HOLMES MAKING SOME STATEMENTS ABOUT THE MILITARY?
JOHN BRYAN TOLBERT: I DO.
MR. SCHENK: AND I'D LIKE TO ASK YOU SOME QUESTIONS ABOUT THAT. SHE SAYS, "IN TERMS OF A MILITARY ASPECT OF THIS, MILITARY IS A BIG DEAL FOR US AND I CAN TELL YOU CONFIDENTIALLY A COUPLE THE AREAS IN WHICH WE HAVE BEEN FOCUSSED THERE." WHEN SHE SAID THE WORD THERE THAT SHE COULD TELL YOU CONFIDENTIALLY, WHAT DID YOU TAKE THAT TO MEAN?
JOHN BRYAN TOLBERT: THAT THIS IS INFORMATION THAT WASN'T PUBLIC AND THAT WASN'T TO BE SHARED PUBLICLY, BUT THAT IT REPRESENTED CAPABILITIES THAT THERANOS AND THE COMPANY HAD DEVELOPED AND WERE, YOU KNOW, WERE OPERATIONAL AT THAT POINT.
MR. SCHENK: AND WHEN SHE SAID, "ONE IS IN THE CONTEXT OF WORK IN THE MIDDLE EAST AND SPECIFICALLY AFGHANISTAN," DID YOU TAKE THAT TO MEAN THAT THERANOS HAD DONE WORK IN AFGHANISTAN?
JOHN BRYAN TOLBERT: I DID.
MR. SCHENK: AND SO WHEN SHE SAID "THE ABILITY TO TAKE A TECHNOLOGY LIKE THIS AND PUT IT IN FLIGHT, SPECIFICALLY ON A MEDEVAC, HAS THE POTENTIAL TO CHANGE SURVIVAL RATES," WHAT DID YOU TAKE THAT TO MEAN?
JOHN BRYAN TOLBERT: YOU KNOW, MY UNDERSTANDING FROM WHAT WE LISTENED TO WAS THAT THE SOONER A TEST COULD BE ADMINISTERED TO FIGURE OUT, YOU KNOW, HOW TO ADDRESS WHATEVER TRAUMATIC SITUATION THAT HAPPENED, THAT SURVIVAL RATES WENT UP EXPONENTIALLY. YOU KNOW, THIS IS SOMETHING THAT REALLY RESONATED WITH ME. I HAVE A BROTHER WHO IS IN THE MARINES, AND HE DID A TOUR IN AFGHANISTAN, SO THE THOUGHT THAT OUR SERVICE MEN AND WOMEN, IF THEY GOT HURT, THERE WAS AN ABILITY TO, YOU KNOW, DO EVERYTHING THAT WE COULD TO HELP THEM WAS SOMETHING THAT I THOUGHT THERANOS WAS DOING.
MR. SCHENK: SHE CONTINUES. "AND WHAT IT DOES IS IT MAKES IT MAKES IT POSSIBLE TO BEGIN TRANSFUSION AND STABILIZATION IN PLACE. AND SO WE HAVE BEEN DOING A LOT OF WORK THERE." WHAT DID YOU UNDERSTAND THAT TO MEAN?
JOHN BRYAN TOLBERT: SO I UNDERSTOOD THAT THERE HAD BEEN SIGNIFICANT WORK BEING DONE TO DEPLOY THE THERANOS SYSTEM IN THEATRE AS IT WERE.
MR. SCHENK: SHE SAYS, "WE HAVE ALSO BEEN DOING A LOT OF WORK FOR SPECIAL OPERATIONS COMMAND IN THE CONTEXT OF MISSIONS IN REMOTE AREAS WHERE NOT ONLY IS THERE NO CAPABILITY TO DO TESTING FOR CERTAIN THINGS THAT NEED TO BE MEASURED, BUT IF SITUATIONS ARISE IN WHICH THOSE TESTS ARE WARRANTED, THE MISSION IS ABORTED AND PEOPLE ARE EVACUATED GENERALLY OUT OF CONTINENT." WHAT DID YOU TAKE HER STATEMENTS ABOUT SPECIAL OPERATIONS COMMAND?
JOHN BRYAN TOLBERT: MY UNDERSTANDING WAS THAT THERANOS HAD BEEN, YOU KNOW, WORKING WITH SPECIAL OPERATIONS COMMAND AND IT REPRESENTED A PORTION OF THE BUSINESS THAT THEY HAD BEEN ENGAGED IN. AND LIKE WE HEARD EARLIER, IT WASN'T THE PRIMARY FOCUS AT THIS MOMENT IN TIME, BUT IT CERTAINLY REPRESENTED A CAPABILITY AND A BUSINESS THAT THEY HAD PURSUED.
MR. SCHENK: SHE SAYS, "AND SO WE'VE, YOU KNOW, CREATED A DISTRIBUTED SYSTEM THAT CAN BE USED IN REMOTE AREAS AND THAT IS -- THAT IS ANOTHER VENUE AND FOCUS FOR US." WHAT DID YOU TAKE THAT TO MEAN?
JOHN BRYAN TOLBERT: THAT THESE, YOU KNOW, DEPLOYMENTS IN MILITARY KIND OF SITUATIONS WAS ONE OF THE THREE, YOU KNOW, BUSINESS UNITS THAT HAD BEEN REPRESENTED TO KIND OF COMPLEMENT, YOU KNOW, THE PHARMACEUTICAL BUSINESS AND THE CURRENT BIG RETAIL OPPORTUNITY THAT WAS THE GENESIS FOR THIS CALL.
MR. SCHENK: DID MS. HOLMES'S STATEMENTS ABOUT THE MILITARY PLAY A ROLE IN YOUR DECISION TO INVEST?
JOHN BRYAN TOLBERT: CERTAINLY THEY WOULD HAVE BEEN SUPPORTIVE TO AN INVESTMENT DECISION TO PROCEED.
MR. SCHENK: WHY?
JOHN BRYAN TOLBERT: WELL, IF -- YOU KNOW, THIS WAS A SITUATION WHERE THERE WAS AN INVESTMENT OPPORTUNITY THAT REPRESENTED A POTENTIAL TO MAKE MONEY ON OUR INVESTMENT, BUT IT'S ALSO ONE THAT REPRESENTED AN OPPORTUNITY TO DO GOOD AND TO, YOU KNOW, TO HELP CHANGE AN INDUSTRY FOR THE BETTER. AND SO, YOU KNOW, UNDERSTANDING THAT THERE WAS AN ABILITY FOR, FOR WORK TO BE DONE WITH THE MILITARY TO HELP SERVICE MEN AND WOMEN WHO WERE INJURED REPRESENTED, YOU KNOW, SOMETHING THAT WAS AN EXCITING PART OF THE INVESTMENT BASIS FOR US.
MR. SCHENK: AND MS. HOLMES SAYS, "AND IT'S ALSO VERY SYMBOLIC BECAUSE IT'S OUR WAY TO HELP MAKE A DIFFERENCE IN WHATEVER SMALL WAY WE CAN THERE." DID YOU TAKE HER TO BE AGREEING WITH THE SENTIMENT THAT YOU JUST EXPRESSED THAT YOU CAN MAKE MONEY, BUT YOU CAN ALSO DO GOOD?
JOHN BRYAN TOLBERT: YOU KNOW, CERTAINLY THAT'S WHAT I TOOK AWAY FROM THOSE COMMENTS IS THAT, YOU KNOW, THERANOS WASN'T JUST ABOUT AN OPPORTUNITY TO MAKE MONEY, BUT THAT IT WAS ABOUT -- IT WAS ABOUT AN OPPORTUNITY TO MAKE MONEY, BUT TO DO SO IN A WAY THAT WAS BENEFICIAL FOR LOTS AND LOTS AND LOTS OF PEOPLE.
MR. SCHENK: AND THEN ON THE WHOLE OR IN GENERAL, WAS THIS CALL IMPORTANT IN YOUR DECISION TO INVEST $5 MILLION?
JOHN BRYAN TOLBERT: IT WAS.
MR. SCHENK: WHY?
JOHN BRYAN TOLBERT: WELL, YOU KNOW, LIKE I DESCRIBED BEFORE, AS WE, YOU KNOW, HAD MADE AN INITIAL INVESTMENT AND HAD OVER TIME LEARNED ABOUT WHAT THE COMPANY WAS DOING AND HAD SEEN THE PROGRESS THAT WE FELT ALONG THE WAY, THIS FELT LIKE VALIDATION OF WHAT THAT PROGRESS WAS. BUT IT ALSO REPRESENTED A GREAT FUTURE OPPORTUNITY. YOU KNOW, THERE WOULD BE AN ABILITY TO SEE THIS ROLLOUT HAPPEN AND TO HAVE, TO HAVE THE BENEFITS COME OUT OF THAT. AND SO IT -- AND THIS CALL WAS CENTRAL TO, YOU KNOW, TO OUR DECISION TO INVEST FURTHER FUNDS.
MR. SCHENK: MR. TOLBERT, NOW, IF YOU'LL GO BACK TO THE BINDER IN FRONT OF YOU AND TURN TO 3530. 3530. YOUR HONOR, THE GOVERNMENT OFFERS 3530 BY STIPULATION.
MR. DOWNEY: THAT'S CORRECT, YOUR HONOR.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 3530 WAS RECEIVED IN EVIDENCE.)
MR. SCHENK: THANK YOU, YOUR HONOR.
MR. SCHENK: MR. TOLBERT, DO YOU RECOGNIZE THE DOCUMENT LOCATED AT 3530?
JOHN BRYAN TOLBERT: I DO.
MR. SCHENK: WHAT IS THIS DOCUMENT?
JOHN BRYAN TOLBERT: THIS IS THE STOCK PURCHASE AGREEMENT THAT REPRESENTED THE ABILITY TO PURCHASE STOCK IN 2013.
MR. SCHENK: OKAY. AND WAS THIS AN AGREEMENT THAT YOU ENTERED INTO AFTER THAT CALL WHEN YOU INVESTED THE 5 MILLION THAT WE'VE BEEN TALKING ABOUT?
JOHN BRYAN TOLBERT: IT WAS.
MR. SCHENK: AND DID YOU BUY IN SERIES C-1?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: AND IF YOU'LL LOOK AT PAGE 5 OF THE EXHIBIT AT THE TOP IN THAT FIRST PARAGRAPH. IT SAYS, "AMENDED AND RESTATED SERIES C-1 PREFERRED STOCK PURCHASE AGREEMENT." SO DID YOU THINK THAT WHEN YOU WERE SIGNING THIS DOCUMENT, YOU WERE BUYING THE SHARES OF SERIES C-1 STOCK WE'VE TALKED ABOUT?
JOHN BRYAN TOLBERT: I DID.
MR. SCHENK: IF YOU WILL TURN TO PAGE 11 AT THE BOTTOM, 4.4, AND THEN IT WILL CARRY ON OVER TO THE NEXT PAGE. 4.4 READS, "SPECULATIVE NATURE OF INVESTMENT. SUCH INVESTOR UNDERSTANDS AND ACKNOWLEDGES THAT THE COMPANY HAS A LIMITED FINANCIAL AND OPERATING HISTORY AND THAT AN INVESTMENT IN THE COMPANY IS," AND THEN IT CONTINUES ON THE NEXT PAGE, "HIGHLY SPECULATIVE AND INVOLVES SUBSTANTIAL RISKS. SUCH INVESTOR CAN BEAR THE ECONOMIC RISK OF SUCH INVESTOR'S INVESTMENT AND IS ABLE, WITHOUT IMPAIRING SUCH INVESTOR'S FINANCIAL CONDITION, TO HOLD THE SHARES AND THE CONVERSION SHARES FOR AN INDEFINITE PERIOD OF TIME AND TO SUFFER A COMPLETE LOSS OF SUCH INVESTOR'S INVESTMENT." THIS SECTION HAS SOME REPRESENTATIONS ABOUT YOU OR HALL'S GROUP ABILITY TO BEAR THE LOSS. WERE THOSE ALL TRUE AT THE TIME YOU SIGNED THIS?
JOHN BRYAN TOLBERT: THEY WERE TRUE.
MR. SCHENK: AND EARLIER ON IN THIS SECTION IT TALKS ABOUT LIMITED FINANCIAL AND OPERATING HISTORY. DID YOU ALSO UNDERSTAND THAT TO BE TRUE?
JOHN BRYAN TOLBERT: I DID.
MR. SCHENK: AND DID YOU UNDERSTAND THAT ONE OF THE RISKS, OR ONE OF THE SPECULATIVE ASPECTS OF THIS INVESTMENT WAS THAT INFORMATION THAT MS. HOLMES WOULD PROVIDE TO YOU WOULD BE INACCURATE? WAS THAT A RISK THAT YOU UNDERSTOOD?
JOHN BRYAN TOLBERT: THAT IS NOT.
MR. SCHENK: 4.5, ACCESS TO DATA IS JUST BELOW THE SECTION I READ TO YOU. IT SAYS THAT YOU HAD, "SUCH INVESTOR HAS HAD AN OPPORTUNITY TO ASK QUESTIONS OF, AND RECEIVE ANSWERS FROM, THE OFFICERS OF THE COMPANY CONCERNING THE AGREEMENTS, THE EXHIBITS AND SCHEDULES," AND IT CONTINUES. DID YOU HAVE THE OPPORTUNITY TO ASK MS. HOLMES QUESTIONS?
JOHN BRYAN TOLBERT: WE DID ON THAT CALL.
MR. SCHENK: WE LISTENED TO THE CALL; IS THAT RIGHT?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: WERE THE ANSWERS THAT SHE GAVE ON THAT CALL PUT INTO THIS AGREEMENT?
JOHN BRYAN TOLBERT: THE ANSWERS WERE NOT APPENDED TO THIS AGREEMENT, NO.
MR. SCHENK: SO DID YOU UNDERSTAND THAT WHEN IT TALKS ABOUT YOU HAD THE OPPORTUNITY TO ASK QUESTIONS, YOU RECEIVED ANSWERS TO THOSE, AND THAT'S ALSO WHAT CAUSED YOU TO INVEST?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: 4.6 SAID ACCREDITED INVESTOR. THAT'S JUST BELOW THE SECTION THAT I JUST READ TO YOU. "THE INVESTOR IS AN ACCREDITED INVESTOR WITHIN THE MEANING OF REGULATION D." HAVE YOU HEARD THAT PHRASE, AN ACCREDITED INVESTOR?
JOHN BRYAN TOLBERT: I HAVE.
MR. SCHENK: AND WERE YOU AND HALL GROUP AN ACCREDITED INVESTOR AT THE TIME THAT YOU SIGNED?
JOHN BRYAN TOLBERT: THEY WERE. WE WERE.
MR. SCHENK: WOULD YOU NOW TURN TO PAGE 24 OF THIS EXHIBIT. ABOVE THE NAME ELIZABETH HOLMES, CHIEF EXECUTIVE OFFICER, IS THERE A SIGNATURE?
JOHN BRYAN TOLBERT: THERE IS.
MR. SCHENK: AND IF YOU WILL TURN TO PAGE 32. ON PAGE 32 UNDER SOMETHING CALLED HALL BLACK DIAMOND, IS THAT YOUR SIGNATURE?
JOHN BRYAN TOLBERT: THAT IS MY SIGNATURE.
MR. SCHENK: AND ALSO DID YOU WRITE IN YOUR NAME AND DATE IT?
JOHN BRYAN TOLBERT: I DID.
MR. SCHENK: AND WHAT IS HALL BLACK DIAMOND?
JOHN BRYAN TOLBERT: HALL BLACK DIAMOND IS THE ENTITY THAT WE USED TO INVEST THE $5 MILLION.
MR. SCHENK: AND JUST TO BE CLEAR, THE ADDRESS THAT WE'RE SEEING, THAT'S NOT YOUR PERSONAL ADDRESS, THAT'S HALL GROUP'S ADDRESS; IS THAT RIGHT?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: AND THEN THERE'S A SIGNATURE ON THAT SAME PAGE ABOVE ELIZABETH HOLMES, CHIEF EXECUTIVE OFFICER. DO YOU SEE THAT?
JOHN BRYAN TOLBERT: I DO.
MR. SCHENK: THIS IS DATED 12/31/2013. IS THAT THE DATE THAT YOU SIGNED AND SENT A WIRE TRANSFER TO PURCHASE THESE SHARES?
JOHN BRYAN TOLBERT: THAT IS THE DATE.
MR. SCHENK: YOUR HONOR, WE WOULD ADMIT 4845, PAGE 20, THE CUSTODIAN FROM THE FEDERAL RESERVE BANK.
JUDGE DAVILA: YES.
BY MR. SCHENK:
MR. SCHENK: I THINK IT IS ALSO IN YOUR BINDER IF IT'S EASIER FOR YOU TO SEE, MR. TOLBERT.
JOHN BRYAN TOLBERT: IF YOU BLOW IT UP I CAN SEE IT.
MR. SCHENK: OKAY. IF WE COULD -- THAT'S GREAT. ARE YOU FAMILIAR WITH TEXAS CAPITAL BANK?
JOHN BRYAN TOLBERT: I AM.
MR. SCHENK: AND THEN THERE IS, UNDER AMOUNT, 4,875,000. DOES THAT AMOUNT LOOK FAMILIAR TO YOU?
JOHN BRYAN TOLBERT: THAT IS. THAT IS THE AMOUNT THAT WE SENT IN.
MR. SCHENK: WE'VE BEEN TALKING, YOU AND I, ABOUT $5 MILLION. THE WIRE TRANSFER IS FOR A LITTLE OVER 4.8 MILLION. CAN YOU EXPLAIN THAT?
JOHN BRYAN TOLBERT: I CAN. SO, YOU KNOW, OUR FIRST INVESTMENT HAD BEEN THROUGH CHRIS LUCAS'S INVESTMENT FUND, BLACK DIAMOND VENTURES. YOU KNOW, OUR DESIRE WAS TO BE A DIRECT INVESTOR INTO THE COMPANY SO THAT WE WOULD HAVE ACCESS OF THE DIRECT COMMUNICATION FROM THE COMPANY TO ITS SHAREHOLDERS AND NOT RELY ON CHRIS TO BE OUR SOLE SOURCE OF INFORMATION. AND SO OUR AGREEMENT, THE AGREEMENT WE CAME TO WITH CHRIS AND ELIZABETH AROUND THIS INVESTMENT WAS THAT WE WOULD PAY CHRIS A COMMISSION TO BE A DIRECT INVESTOR AND TO NOT BE INVESTED THROUGH HIS FUND. AND SO THE $125,000 DIFFERENCE HERE REPRESENTS THE CASH THAT WE PAID TO CHRIS FOR HIS COMMISSION ON THAT INVESTMENT.
MR. SCHENK: I SEE. A LITTLE FURTHER DOWN ON THIS DOCUMENT, THERE'S SOMETHING CALLED HALL PHOENIX INWOOD LTD. DO YOU SEE THAT?
MR. SCHENK: AND WHAT IS THAT?
JOHN BRYAN TOLBERT: SO HALL PHOENIX INWOOD IS THE PRIMARY OPERATING COMPANY OF HALL GROUP, AND HALL PHOENIX INWOOD WOULD HAVE WIRED THIS MONEY ON BEHALF OF HALL BLACK DIAMOND TO --
MR. SCHENK: TO WHERE? WHERE DID THE WIRE GO?
JOHN BRYAN TOLBERT: THE WIRE WOULD HAVE GONE TO THERANOS. IT SAYS HERE ON THE LINE IT WENT TO THEIR ACCOUNT AT COMERICA BANK.
MR. SCHENK: OKAY. I UNDERSTAND MULTIPLE PEOPLE WORK AT HALL GROUP. DID YOU PUT IN PLACE OR INITIATE THE WIRE TRANSFER?
JOHN BRYAN TOLBERT: I GAVE AUTHORIZATION FOR THE WIRE TO BE INITIATED, AND THEN ONCE IT HAD BEEN INITIATED, I APPROVED IT.
MR. SCHENK: OKAY. AND HOW ABOUT THE AMOUNT, THE DOLLAR AMOUNT? DID YOU DECIDE THE AMOUNT THAT HALL GROUP WOULD INVEST IN THERANOS?
JOHN BRYAN TOLBERT: I DID. MR. HALL AND I HAD DISCUSSIONS ABOUT WHAT THAT AMOUNT WOULD BE, AND, YOU KNOW, THE $5 MILLION THAT WE SETTLED ON IS THE ONE THAT I INDICATED WE WOULD SEND, AND SO WE SENT THAT AMOUNT.
MR. SCHENK: OKAY. AND DO YOU KNOW WHETHER ULTIMATELY MR. HALL LEFT IT UP TO YOU TO DECIDE THE EXACT AMOUNT, OR MAYBE EVEN WHETHER YOU INVESTED?
JOHN BRYAN TOLBERT: HE DID.
MR. SCHENK: OKAY. YOUR HONOR, MAY I JUST HAVE ONE MOMENT?
JUDGE DAVILA: YES.
(DISCUSSION AMONGST GOVERNMENT COUNSEL OFF THE RECORD.)
MR. SCHENK: THANK YOU, YOUR HONOR. NO FURTHER QUESTIONS AT THIS TIME.
JUDGE DAVILA: CROSS-EXAMINATION?
MR. DOWNEY: YES, YOUR HONOR.
JUDGE DAVILA: FOLKS, FEEL FREE TO STAND UP AND STRETCH WHILE WE DO THE TRANSITION IF YOU WOULD LIKE. SAME WITH YOU, MR. TOLBERT, IF YOU WOULD LIKE TO STAND AND STRETCH.
JOHN BRYAN TOLBERT: THANK YOU, YOUR HONOR.
(STRETCHING.)
CROSS-EXAMINATION BY MR. DOWNEY:
MR. DOWNEY: GOOD AFTERNOON, MR. TOLBERT. MY NAME IS KEVIN DOWNEY, AND I REPRESENT MS. HOLMES. I WANT TO START BY ASKING YOU ABOUT HOW THE RELATIONSHIP WITH THERANOS BEGAN IN VERY SUMMARY FORM, BECAUSE I THINK WE'VE HEARD ABOUT IT DURING THE COURSE OF YOUR DIRECT. AS I UNDERSTAND IT, MR. HALL GOT A PHONE CALL FROM SOMEBODY THAT INFORMED HIM ABOUT THERANOS AND A POTENTIAL OPPORTUNITY TO INVEST; IS THAT RIGHT?
JOHN BRYAN TOLBERT: I BELIEVE THAT'S CORRECT.
MR. DOWNEY: AND THAT TELEPHONE CALL CAME FROM DON LUCAS, DIDN'T IT?
JOHN BRYAN TOLBERT: THAT -- I DON'T BELIEVE THAT'S CORRECT.
MR. DOWNEY: OKAY. WELL, DO YOU KNOW -- DID THE TELEPHONE CALL COME FROM GARY NORDHEIMER?
JOHN BRYAN TOLBERT: I BELIEVE THAT'S CORRECT.
MR. DOWNEY: AND GARY NORDHEIMER WAS AN INDIVIDUAL WHO WAS AN INVESTOR IN THERANOS; CORRECT?
JOHN BRYAN TOLBERT: YOU KNOW, I DON'T KNOW IF HE WAS A PRIOR INVESTOR, BUT I KNOW HE WAS CONTEMPLATING AN INVESTMENT IN 2006.
MR. DOWNEY: OKAY.
JOHN BRYAN TOLBERT: AND SO HE CALLED MR. HALL TO PUT THE OPPORTUNITY ON HIS RADAR SCREEN.
MR. DOWNEY: OKAY. AND DID HE SUGGEST TO MR. HALL OR TO YOU THAT YOU SPEAK WITH DON LUCAS ABOUT THE POTENTIAL OPPORTUNITY TO INVEST?
JOHN BRYAN TOLBERT: HE MAY HAVE. HE MAY HAVE REFERENCED THAT WITH MR. HALL. I NEVER TALKED WITH MR. NORDHEIMER DIRECTLY AT THAT POINT.
MR. DOWNEY: SO THE CONVERSATION THAT MR. HALL WOULD HAVE HAD WITH MR. LUCAS YOU'RE PERSONALLY NOT AWARE OF?
JOHN BRYAN TOLBERT: I AM NOT.
MR. DOWNEY: SO MR. HALL GOT IN TOUCH WITH YOU AND ASKED YOU TO DO DUE DILIGENCE; CORRECT?
JOHN BRYAN TOLBERT: CORRECT.
MR. DOWNEY: AND THAT WOULD INVOLVE GETTING AS MUCH INFORMATION ABOUT THE COMPANY AS YOU COULD GET; CORRECT?
JOHN BRYAN TOLBERT: CORRECT.
MR. DOWNEY: DID YOU KNOW AT THE OUTSET THAT THE ARRANGEMENT WOULD BE ONE THAT WOULD HAVE TO GO THROUGH, THROUGH A THIRD PARTY, OR DID YOU THINK THIS MIGHT BE AN OPPORTUNITY WHERE YOU COULD INVEST DIRECTLY IN THERANOS?
JOHN BRYAN TOLBERT: NO. MY UNDERSTANDING WAS THAT IT WAS AN INVESTMENT THROUGH CHRIS LUCAS, YOU KNOW, THROUGH THAT SERIES OF CONVERSATIONS THAT HE'S THE ONE THAT PRESENTED THE OPPORTUNITY TO US AND SO THE INVESTMENT WOULD GO THROUGH THAT, THROUGH HIS VEHICLE.
MR. DOWNEY: OKAY. SO SOMEHOW THE OPPORTUNITY BECAME NOTICED -- THE HALL GROUP BECAME AWARE OF THE OPPORTUNITY, MR. HALL SPOKE TO SOMEONE ABOUT THE OPPORTUNITY, HE ASKED YOU TO DO DUE DILIGENCE, AND YOU CALLED CHRIS LUCAS; IS THAT RIGHT?
JOHN BRYAN TOLBERT: CORRECT.
MR. DOWNEY: AND THEN YOU HAD A -- I BELIEVE YOU HAD AT LEAST ONE OR TWO TELEPHONE CONVERSATIONS WITH -- INVOLVING MR. LUCAS BEFORE YOU WENT TO THERANOS?
JOHN BRYAN TOLBERT: BEFORE I MADE THE TRIP TO THERANOS?
MR. DOWNEY: YES.
JOHN BRYAN TOLBERT: CORRECT.
MR. DOWNEY: AND YOU TALKED ABOUT THOSE CONVERSATIONS THUS FAR, EITHER -- MS. HOLMES WAS EITHER ON ONE OR TWO OF THOSE CALLS; IS THAT RIGHT?
JOHN BRYAN TOLBERT: CORRECT.
MR. DOWNEY: AND THEN YOU TOOK THE TRIP TO THERANOS AND YOU HAD THE DINNER THAT YOU DESCRIBED; CORRECT?
JOHN BRYAN TOLBERT: CORRECT.
MR. DOWNEY: AND IN ADDITION TO YOURSELF, MS. HOLMES, DON LUCAS, AND CHRIS LUCAS WERE AT THAT DINNER; CORRECT?
JOHN BRYAN TOLBERT: THEY BOTH WERE.
MR. DOWNEY: OKAY. AND DID YOU, AT THAT DINNER, ASK FOR INFORMATION FROM ALL THREE ABOUT THERANOS?
JOHN BRYAN TOLBERT: YOU KNOW, CERTAINLY IN THE DISCUSSIONS WE HAD THAT NIGHT ALL THREE OF THEM PARTICIPATED.
MR. DOWNEY: DID YOU LEARN THAT DON LUCAS WAS THE CHAIR OF THE BOARD OF THERANOS?
JOHN BRYAN TOLBERT: I DID.
MR. DOWNEY: AND DID YOU UNDERSTAND THAT CHRIS LUCAS WAS HIS NEPHEW?
JOHN BRYAN TOLBERT: I DID.
MR. DOWNEY: AND DID YOU ASK, AT ANY POINT, YOURSELF TO SPEAK WITH DON LUCAS TO HAVE A ONE-ON-ONE CONVERSATION ABOUT INFORMATION THAT HE KNEW ABOUT THERANOS?
JOHN BRYAN TOLBERT: I DID NOT.
MR. DOWNEY: OKAY. DO YOU KNOW IF MR. HALL HAD THAT TYPE OF A CONVERSATION?
JOHN BRYAN TOLBERT: I DON'T REMEMBER.
MR. DOWNEY: OKAY. SO YOU HAD A COUPLE OF CALLS, THE DINNER, AND THEN YOU VISITED THE FACILITY THE NEXT MORNING; CORRECT?
JOHN BRYAN TOLBERT: I BELIEVE THAT'S CORRECT.
MR. DOWNEY: OKAY. AND THEN FROM THAT TIME FOR THE FOLLOWING SIX YEARS, YOU'VE NEVER HAD ANY DIRECT CONTACT WITH THERANOS; IS THAT RIGHT?
JOHN BRYAN TOLBERT: CORRECT.
MR. DOWNEY: AND THEN YOU PARTICIPATED IN THE PHONE CALL, A PORTION OF WHICH WE'VE HEARD THIS AFTERNOON; CORRECT?
JOHN BRYAN TOLBERT: CORRECT.
MR. DOWNEY: AND THEN YOU MADE YOUR SECOND INVESTMENT DIRECTLY IN THERANOS; CORRECT?
JOHN BRYAN TOLBERT: THAT'S CORRECT.
MR. DOWNEY: SO THE ONLY CONTACTS THAT YOU HAD WITH MS. HOLMES DURING THOSE SIX YEARS WERE -- SEVEN YEARS, WERE THOSE LIMITED OCCASIONS; CORRECT?
JOHN BRYAN TOLBERT: THAT'S CORRECT.
MR. DOWNEY: OKAY. LET ME ASK YOU ABOUT THE CONTACT THAT YOU HAD WITH MR. LUCAS IN THE INTERVENING PERIOD. HOW OFTEN WOULD YOU TALK TO CHRIS LUCAS DURING THAT PERIOD ABOUT THERANOS?
JOHN BRYAN TOLBERT: YOU KNOW, AS I RECALL, I WOULD PROBABLY TALK TO HIM THREE OR FOUR TIMES A YEAR.
MR. DOWNEY: OKAY. SO YOU HAD A QUARTERLY CALL, LET'S SAY, WITH MR. LUCAS?
JOHN BRYAN TOLBERT: SOMETHING LIKE THAT.
MR. DOWNEY: AND YOUR CONVERSATIONS WITH CHRIS LUCAS WERE BECAUSE YOUR INVESTMENT WAS THROUGH HIM; CORRECT?
JOHN BRYAN TOLBERT: THAT'S CORRECT.
MR. DOWNEY: AND, IN FACT, YOU WERE PAYING HIM TO MANAGE THAT INVESTMENT; CORRECT?
JOHN BRYAN TOLBERT: CORRECT, WE DID HAVE A MANAGEMENT FEE THAT WE WERE PAYING TO HIM.
MR. DOWNEY: AND SO A PERCENTAGE OF THE MONEY THAT YOU INVESTED WITH THERANOS EACH YEAR YOU WERE PAYING TO HIM; CORRECT?
JOHN BRYAN TOLBERT: WELL, YOU KNOW, TO BE CLEAR ABOUT IT, WE PAID HIM A MANAGEMENT FEE FOR A CERTAIN PERIOD OF TIME, FOR TWO YEARS. AND SO AS I RECALL, IT WAS TWO YEARS, AND SO THAT MANAGEMENT FEE WE PAID TWO YEARS. AND THEN AN ADDITIONAL SEVEN OR SIX YEARS, WHATEVER IT WOULD BE, WE DID NOT PAY A MANAGEMENT FEE.
MR. DOWNEY: AND THE FEE THAT YOU PAID HIM IN THE FIRST TWO YEARS WAS A PERCENTAGE OF THE AMOUNT THAT YOU HAD INVESTED; CORRECT?
JOHN BRYAN TOLBERT: I BELIEVE THAT'S CORRECT.
MR. DOWNEY: AND DID YOU AT ANY TIME TRY TO CONTACT MS. HOLMES DURING THAT PERIOD?
JOHN BRYAN TOLBERT: NOT DIRECTLY TO MY RECOLLECTION.
MR. DOWNEY: OKAY. DID YOU TRY TO CONTACT ANY THERANOS EMPLOYEE DURING THAT TIME PERIOD?
JOHN BRYAN TOLBERT: I DID NOT.
MR. DOWNEY: OKAY. DID YOU ASK, THROUGH MR. LUCAS, FOR ANY FINANCIAL STATEMENTS THAT THERANOS HAD GIVEN HIM?
JOHN BRYAN TOLBERT: I DID.
MR. DOWNEY: AND DID HE PROVIDE YOU ANY FINANCIAL STATEMENTS?
JOHN BRYAN TOLBERT: WELL, AS I RECALL, HE HAD NOT RECEIVED ANY FINANCIALS, SO I NEVER RECEIVED ANY FROM HIM DURING THOSE INTERVENING YEARS.
MR. DOWNEY: AND HE TOLD YOU HE HAD NOT RECEIVED THEM?
JOHN BRYAN TOLBERT: YOU KNOW, THAT WAS MY RECOLLECTION. WHEN I WOULD ASK HIM FOR FINANCIALS, HE WOULD SAY, I HAVEN'T RECEIVED ANYTHING SPECIFICALLY FROM THE COMPANY.
MR. DOWNEY: OKAY. DID HE TELL YOU WHETHER HE HAD BEEN GIVEN ANY ACCESS TO INFORMATION FROM THE COMPANY FOR PURPOSES OF PREPARING REVENUE PROJECTIONS?
MR. SCHENK: OBJECTION. HEARSAY.
JUDGE DAVILA: OVERRULED. IF YOU KNOW.
JOHN BRYAN TOLBERT: OH, CAN YOU --
BY MR. DOWNEY:
MR. DOWNEY: I'M ONLY ASKING WHAT YOU WERE TOLD. DID MR. LUCAS TELL YOU THAT HE HAD BEEN GIVEN FINANCIAL INFORMATION ABOUT THE COMPANY FOR PURPOSES OF PREPARING FINANCIAL PROJECTIONS?
JOHN BRYAN TOLBERT: I DON'T KNOW IF -- I DON'T RECALL HIM SAYING THAT HE HAD RECEIVED INFORMATION TO PREPARE PROJECTIONS. I KNEW THAT MR. LUCAS HAD TOLD ME THAT HE WAS, YOU KNOW, AT THE COMPANY HEADQUARTERS A LOT, THAT HE WAS -- THERE WERE SOME KIND OF PROJECTS THAT HE WAS INVOLVED IN THAT GAVE HIM ACCESS TO INFORMATION, BUT I DIDN'T KNOW SPECIFICALLY WHAT THAT WAS OR FOR WHAT PURPOSE IT WAS.
MR. DOWNEY: DID HE EVER TELL YOU SPECIFICALLY THAT I, CHRIS LUCAS, HAVE PREPARED FINANCIAL PROJECTIONS FOR THE COMPANY?
JOHN BRYAN TOLBERT: HE DID NOT.
MR. DOWNEY: DID YOU EVER, DURING THAT PERIOD, HAVE ANY FURTHER CONTACT WITH MR. DON LUCAS?
JOHN BRYAN TOLBERT: NOT DIRECTLY I DID NOT.
MR. DOWNEY: DID THE FACT THAT MR. LUCAS, MR. DON LUCAS WAS INVOLVED IN THE INVESTMENT PLAY ANY ROLE IN THE HALL GROUP'S INITIAL DECISION TO MAKE AN INVESTMENT?
JOHN BRYAN TOLBERT: IT CERTAINLY WAS A POSITIVE. YOU KNOW, WE -- YOU KNOW, I BECAME AWARE OF WHO MR. LUCAS WAS AND OF HIS, YOU KNOW, INVESTMENT BACKGROUND, AND SOME OF THE THINGS -- SOME OF THE OPPORTUNITIES THAT HE HAD HELPED CULTIVATE ALONG, AND SO THAT WAS, THAT WAS A POSITIVE.
MR. DOWNEY: YOU KNEW THAT HE HAD A REPUTATION AS A SAVVY INVESTOR IN TECHNOLOGY; CORRECT?
JOHN BRYAN TOLBERT: I DID.
MR. DOWNEY: AND YOU KNEW THAT HE HAD EXPERIENCE WITH A NUMBER OF TECHNOLOGY COMPANIES THAT HAD GROWN FROM STARTUPS INTO WELL RESPECTED NATIONAL COMPANIES; CORRECT?
JOHN BRYAN TOLBERT: THAT'S CORRECT.
MR. DOWNEY: AND YOU KNEW THAT HE WAS AN INVESTOR IN THERANOS; CORRECT?
JOHN BRYAN TOLBERT: I DID.
MR. DOWNEY: AND YOU KNEW THAT CHRIS LUCAS WAS AN INVESTOR IN THERANOS?
JOHN BRYAN TOLBERT: I DID.
MR. DOWNEY: YOU WERE TASKED WITH PERFORMING DUE DILIGENCE DURING THIS PERIOD; CORRECT?
JOHN BRYAN TOLBERT: THAT'S CORRECT.
MR. DOWNEY: PRIOR TO THE FIRST INVESTMENT; CORRECT?
JOHN BRYAN TOLBERT: CORRECT.
MR. DOWNEY: DID DON LUCAS TALK TO YOU AT ALL ABOUT THE DUE DILIGENCE THAT HE HAD PERFORMED BEFORE HIS DECISION TO MAKE AN INVESTMENT?
JOHN BRYAN TOLBERT: NO, I HAD NO CONVERSATIONS WITH DON LUCAS, SO HE WOULDN'T HAVE HAD AN OCCASION TO.
MR. DOWNEY: OKAY. WELL, I THOUGHT YOU SAID HE WAS AT THE DINNER WITH YOU.
JOHN BRYAN TOLBERT: OH, AT THE DINNER.
MR. DOWNEY: IN 2006?
JOHN BRYAN TOLBERT: OH, I THOUGHT YOU WERE TALKING ABOUT SUBSEQUENT OR AFTER THAT.
MR. DOWNEY: NO. I'M ASKING YOU NOW ABOUT YOUR INITIAL INVESTMENT DECISION --
JOHN BRYAN TOLBERT: OH, OKAY.
MR. DOWNEY: -- IN 2006. DID HE PROVIDE ACCESS TO ANY OF THE DUE DILIGENCE THAT HE HAD DONE?
JOHN BRYAN TOLBERT: NO, HE DID NOT. THERE WAS -- HE DIDN'T COMMUNICATE ANYTHING TO ME OTHER THAN AT THE DINNER. HE DIDN'T SEND ME ANY ADDITIONAL INFORMATION.
MR. DOWNEY: OKAY. DID HE TELL YOU, FOR EXAMPLE, THAT HE HAD PERFORMED DUE DILIGENCE ON THE PATENT PORTFOLIO OF THE COMPANY?
JOHN BRYAN TOLBERT: HE DID NOT.
MR. DOWNEY: NOW, AFTER SIX YEARS, I THINK YOU TESTIFIED ABOUT THE CONTACT THAT HAD LED YOU TO WANT TO MAKE THE SECOND INVESTMENT, AND THAT'S IN CONNECTION WITH THIS CALL AND YOUR CONVERSATIONS WITH CHRIS LUCAS AROUND THAT TIME PERIOD; CORRECT?
JOHN BRYAN TOLBERT: CORRECT.
MR. DOWNEY: HAD CHRIS LUCAS SAID TO YOU AT ANY POINT IN 2013, THE OPPORTUNITY TO INVEST MIGHT PRESENT ITSELF DURING THE COURSE OF THIS YEAR?
JOHN BRYAN TOLBERT: AS I RECALL, IN SOME OF OUR -- IN SOME OF OUR PHONE CALLS EARLIER IN THAT YEAR -- AND IT WASN'T JUST IN THAT YEAR, AT OTHER TIMES OVER THAT PERIOD OF TIME HE HAD REFERENCED THAT THERE MAY BE A FURTHER INVESTMENT OPPORTUNITY. BUT CERTAINLY IN 2013 HE DID INDICATE THAT THERE WOULD LIKELY BE ANOTHER INVESTMENT OPPORTUNITY COMING.
MR. DOWNEY: OKAY. AND WHEN YOU HEARD THAT, DID YOU ASK ANY QUESTIONS OF HIM ABOUT, YOU KNOW, WHAT THE OPPORTUNITY WOULD BE AND THE STATE OF THERANOS'S BUSINESS?
JOHN BRYAN TOLBERT: YEAH, CERTAINLY. I WAS ALWAYS ASKING HIM ABOUT THE STATE OF THERANOS'S BUSINESS BECAUSE IT FELT LIKE HE HAD ACCESS TO INFORMATION AND I WAS TRYING TO ELICIT THAT FROM HIM.
MR. DOWNEY: OKAY. SO THE STATE OF THE RELATIONSHIP UP UNTIL REALLY THAT TELEPHONE CALL WAS YOU PERCEIVED HIM TO KNOW A LOT ABOUT THERANOS; CORRECT?
JOHN BRYAN TOLBERT: THAT'S CORRECT.
MR. DOWNEY: AND YOU WOULD ASK HIM QUESTIONS; CORRECT?
JOHN BRYAN TOLBERT: THAT'S CORRECT.
MR. DOWNEY: AND HE WOULD PROVIDE YOU INFORMATION; CORRECT?
JOHN BRYAN TOLBERT: THAT'S CORRECT.
MR. DOWNEY: AND THAT WOULD BE IN THESE QUARTERLY CALLS?
JOHN BRYAN TOLBERT: YEAH, THAT WOULD BE IN THESE CALLS, THAT'S CORRECT.
MR. DOWNEY: OKAY. DID HE PROVIDE ANY INFORMATION ABOUT THE TECHNOLOGY OF THERANOS DURING THAT PERIOD IN THE NATURE OF ANY KIND OF AN ANALYSIS OR WRITTEN PRESENTATION OF HOW THERANOS WAS PLANNING TO ROLL OUT ITS TECHNOLOGY?
JOHN BRYAN TOLBERT: NOT THAT I RECALL.
MR. DOWNEY: WOULD YOU HAVE BELIEVED THAT WAS RESPONSIVE TO YOUR REQUEST FOR THE INFORMATION THAT YOU WERE SEEKING?
JOHN BRYAN TOLBERT: I WOULD HAVE.
MR. DOWNEY: YOU HAD HEARD, I THINK, DURING THE COURSE OF THAT SEVEN YEAR PERIOD SOME INFORMATION ABOUT THE PROSPECT THAT THERE WOULD BE RETAIL PARTNERSHIPS WITH SOME LARGE RETAILERS; CORRECT?
JOHN BRYAN TOLBERT: THAT'S CORRECT.
MR. DOWNEY: AND IS THAT INFORMATION THAT YOU LEARNED THROUGH CHRIS LUCAS AS WELL?
JOHN BRYAN TOLBERT: THAT'S WHERE I WOULD HAVE LEARNED THAT.
MR. DOWNEY: AND IS IT FAIR TO SAY THAT IN THE TELEPHONE CALL THAT YOU HAD IN DECEMBER OF 2013 THAT MS. HOLMES INDICATED THAT DURING THAT PERIOD THAT WOULD FOLLOW THE INVESTMENT, THAT THE COMPANY WOULD BE FOCUSSED INTENSELY ON THAT RETAIL OUTLET?
JOHN BRYAN TOLBERT: I DID --
MR. DOWNEY: RETAIL ROLLOUT?
JOHN BRYAN TOLBERT: THAT'S CORRECT. I MEAN, THAT WAS THE CENTRAL FOCUS OF WHAT THAT ADDITIONAL INVESTMENT OPPORTUNITY WAS ABOUT.
MR. DOWNEY: INDEED, MR. SCHENK PLAYED YOU SOME TAPES IN WHICH THERE WERE REFERENCES TO THE PHARMACEUTICAL BUSINESS AND THE MILITARY BUSINESS. DO YOU RECALL THAT?
JOHN BRYAN TOLBERT: I DO.
MR. DOWNEY: BUT DURING THE COURSE OF THE CALL, MS. HOLMES TOLD YOU THAT, IN FACT, THERANOS WAS GOING TO PAUSE ITS WORK ON THOSE BUSINESSES IN ORDER TO FOCUS ON THE RETAIL BUSINESS ROLLOUT; CORRECT?
JOHN BRYAN TOLBERT: YEAH. I DON'T REMEMBER THE EXACT LANGUAGE, BUT I DO REMEMBER THAT REFERENCE.
MR. DOWNEY: WELL, LET ME PLAY THAT PORTION OF THE TAPE FOR YOU.
JOHN BRYAN TOLBERT: OKAY.
MR. DOWNEY: YOUR HONOR, I'VE DIVIDED OUR CLIPS BY LETTER JUST TO AVOID CONFUSION IN THAT REGARD. SO I WILL OFFER 1348F. "OBVIOUSLY TO BE ABLE TO DO."
JUDGE DAVILA: I BEG YOUR PARDON. MR. SCHENK?
MR. SCHENK: IS THIS SOMETHING THAT HAS ALREADY BEEN PLAYED?
MR. DOWNEY: THIS HAS ALREADY BEEN PLAYED.
JUDGE DAVILA: THAT WAS MY UNDERSTANDING. CAN YOU JUST IDENTIFY FOR THE PARTIES WHERE IT IS?
MR. DOWNEY: ON THE TRANSCRIPT I HAVE, IT'S ON PAGE 6. I DON'T HAVE THE TRANSCRIPT THAT THE GOVERNMENT PREPARED.
JUDGE DAVILA: OH, I SEE.
MR. DOWNEY: YEAH.
JUDGE DAVILA: CAN YOU JUST TAKE A MOMENT TO SHARE YOUR TRANSCRIPTS? IS THAT POSSIBLE.
(DISCUSSION OFF THE RECORD.)
MR. DOWNEY: ACTUALLY, I THINK I CAN IDENTIFY IT, YOUR HONOR.
JUDGE DAVILA: SURE.
(PAUSE IN PROCEEDINGS.)
MR. DOWNEY: MAY I CONFER WITH MR. SCHENK? THIS DOESN'T MATCH.
JUDGE DAVILA: YES, PLEASE.
(DISCUSSION OFF THE RECORD.)
MR. DOWNEY: YOUR HONOR, I JUST WANT TO RETRIEVE MINE.
JUDGE DAVILA: SURE.
(PAUSE IN PROCEEDINGS.)
MR. DOWNEY: YOUR HONOR, I DON'T SEE IT ON THIS TRANSCRIPT EITHER, SO LET ME JUST HAVE ONE MORE MOMENT.
JUDGE DAVILA: OF COURSE.
(PAUSE IN PROCEEDINGS.)
(DISCUSSION OFF THE RECORD.)
MR. DOWNEY: YOUR HONOR, THIS WILL BE ON THE TRANSCRIPT THAT WE GOT FROM THE GOVERNMENT ON PAGE 18 OF SIDE A, STARTING AT LINE 19.
JUDGE DAVILA: THANK YOU. AND YOU'D LIKE TO PLAY THAT NOW?
MR. DOWNEY: I'D LIKE TO PLAY IT.
MR. DOWNEY: BUT JUST TO REORIENT US TO WHERE WE WERE, MY QUESTION TO YOU IS, MS. HOLMES TOLD YOU DURING THE COURSE OF THIS CALL THAT THERANOS WOULD BE PUTTING A PAUSE ON ITS RETAIL AND MILITARY BUSINESSES; CORRECT?
JOHN BRYAN TOLBERT: I BELIEVE ON THE PHARMACEUTICAL AND RETAIL -- PHARMACEUTICAL AND MILITARY BUSINESSES.
MR. DOWNEY: OKAY. I'D LIKE TO JUST PLAY THAT SECTION OF THE TAPE.
JUDGE DAVILA: SURE. "MS. HOLMES: OBVIOUSLY, TO BE ABLE TO DO WHAT WE JUST HAVE DONE, WE HAD TO PAUSE A LARGE NUMBER OF OUR ONGOING PHARMACEUTICAL AND MILITARY PROGRAMS SO THAT WE COULD FOCUS LIKE A LASER ON THIS AND EXECUTING ON THIS. "AND THE SCALE OF THIS RETAIL INFRASTRUCTURE NOW IS WHERE WE WILL CONTINUE TO FOCUS LIKE A LASER. BUT AS WE GET THE RESOURCES AND ORGANIZATIONS TO CAPTURE SOME OF THESE ADDITIONAL OPPORTUNITIES IN PARALLEL, WE WILL PROCEED WITH THE PHARMACEUTICAL AND MILITARY BUSINESS IN LEVERAGING SOME OF THIS INFRASTRUCTURE AND RESOURCES FROM IT THAT WE'RE BUILDING OUT NOW. SO THAT, FOR THE LONG-TERM, WILL BE AN IMPORTANT THING FOR US. AND IT'S ALSO VERY SYMBOLIC BECAUSE IT'S OUR WAY OF BEING ABLE TO HELP MAKE A DIFFERENCE IN WHATEVER SMALL WAY WE CAN THERE."
BY MR. DOWNEY:
MR. DOWNEY: WAS THAT MS. HOLMES'S VOICE THAT YOU JUST HEARD?
JOHN BRYAN TOLBERT: IT WAS.
MR. DOWNEY: AND MAY I ASK YOU, DID YOU ASK ANY QUESTIONS DURING THE CALL?
JOHN BRYAN TOLBERT: I DID NOT.
MR. DOWNEY: DID YOU FOLLOW UP AT ALL ON THAT COMMENT TO FIND OUT WHAT THE PAUSE WOULD BE OR HOW LONG IT WOULD BE?
JOHN BRYAN TOLBERT: I DIDN'T. I MEAN, AS I JUST LISTENED TO IT, IT DIDN'T SOUND LIKE IT WAS A COMPLETE PAUSE. IT SOUNDED LIKE IT WAS A PAUSE THAT -- I DON'T REMEMBER THE EXACT WORDING -- BUT IT WASN'T COMPLETE. BUT, NO, I DID NOT FOLLOW UP WITH ANY SPECIFIC QUESTIONS ABOUT THAT.
MR. DOWNEY: OKAY. DID YOU FOLLOW UP AFTER THE CALL TO ASK TO SEE ANY CONTRACTS OR OTHER AGREEMENTS BETWEEN THERANOS AND THE MILITARY?
JOHN BRYAN TOLBERT: I DID NOT.
MR. DOWNEY: DID YOU FOLLOW UP AFTERWARDS TO SEE ANY CONTRACTS OR OTHER ARRANGEMENT THAT WERE IN PLACE WITH PHARMACEUTICAL COMPANIES?
JOHN BRYAN TOLBERT: I DID NOT.
MR. DOWNEY: OKAY. DURING THE COURSE OF THE CALL, MR. HALL DID ASK SOME QUESTIONS; CORRECT?
JOHN BRYAN TOLBERT: CORRECT.
MR. DOWNEY: DID ANY OF THE QUESTIONS THAT MR. HALL ASKED RELATE TO THE MILITARY ASPECT OF THERANOS'S BUSINESS?
JOHN BRYAN TOLBERT: YOU KNOW, I DON'T BELIEVE SO. I MEAN, I'D HAVE TO LOOK BACK AT THE TRANSCRIPT TO KNOW FOR SURE.
MR. DOWNEY: OKAY.
JOHN BRYAN TOLBERT: BUT I DON'T BELIEVE.
MR. DOWNEY: DID, DID, DID -- DID MR. HALL, TO YOUR KNOWLEDGE, DO ANY FOLLOWUP TO ASK FOR FURTHER INFORMATION FROM THERANOS AFTER THE CALL ABOUT THOSE TWO BUSINESS UNITS?
JOHN BRYAN TOLBERT: YOU KNOW, I -- HERE'S -- LET ME ANSWER YOUR QUESTION THIS WAY. SO PRIOR TO THIS CALL --
MR. DOWNEY: WELL, LET ME JUST GET AN ANSWER TO THE QUESTION I'VE ASKED. DO YOU KNOW -- AND IF YOU DON'T, IT'S FINE. DID MR. HALL FOLLOW UP TO ASK FOR MORE INFORMATION ABOUT THOSE TWO BUSINESS UNITS?
JOHN BRYAN TOLBERT: SO I KNOW MR. HALL HAD A FOLLOW-ON CONVERSATION WITH ELIZABETH A FEW DAYS LATER.
MR. DOWNEY: OKAY.
JOHN BRYAN TOLBERT: I DON'T KNOW IF HE SPECIFICALLY ASKED THOSE QUESTIONS OR NOT.
MR. DOWNEY: OKAY. AND WAS -- IS THE RECORDING OF THE CALL THE FIRST TIME THAT YOU HAVE ANY RECORDED COMMUNICATION WITH THERANOS OR ANYONE ELSE REFERENCING A MILITARY BUSINESS AT THERANOS?
JOHN BRYAN TOLBERT: THAT'S THE FIRST RECORDING THAT I HAVE, PERIOD.
MR. DOWNEY: WELL, DID YOU HAVE ANY -- DID YOU RECEIVE ANY WRITTEN INFORMATION IN ADVANCE OF THIS CALL ABOUT A MILITARY BUSINESS AT THERANOS?
JOHN BRYAN TOLBERT: NOT THAT I REMEMBER.
MR. DOWNEY: OKAY. DID YOU KNOW THE PARTICULAR PHARMACEUTICAL COMPANIES THAT THERANOS HAD WORKED WITH PRIOR TO 2013?
JOHN BRYAN TOLBERT: NOT BY NAME.
MR. DOWNEY: OKAY. DID YOU UNDERSTAND FROM MR. CHRIS LUCAS THAT THERE HAD BEEN REFINEMENT AND DEVELOPMENT OF THE TECHNOLOGY PRIOR TO 2013?
JOHN BRYAN TOLBERT: I DID.
MR. DOWNEY: AND DID HE GIVE PERIODIC UPDATES ON THAT DURING THE COURSE OF THOSE YEARS?
JOHN BRYAN TOLBERT: YOU KNOW, CERTAINLY IN OUR CONVERSATIONS I WOULD HAVE ASKED HIM, OR WE WOULD HAVE HAD DISCUSSIONS ABOUT THE STATE OF THE TECHNOLOGY.
MR. DOWNEY: OKAY. AND DO YOU RECALL IF HE MENTIONED THAT THERE WERE VARIOUS SERIES OF THE TECHNOLOGY THAT THERANOS HAD DEVELOPED?
JOHN BRYAN TOLBERT: I DON'T REMEMBER SPECIFIC CONVERSATIONS ABOUT SERIES.
MR. DOWNEY: OKAY. DO YOU RECALL WHEN THERE WAS A FIRST CONVERSATION THAT THERE HAD BEEN A REFERENCE TO A THERANOS 1.0 DEVICE?
JOHN BRYAN TOLBERT: I REMEMBER SEEING 1.0 --
MR. DOWNEY: YEAH.
JOHN BRYAN TOLBERT: -- IN SOME OF THOSE EARLY MATERIALS THAT WE RECEIVED.
MR. DOWNEY: OKAY. AND DO YOU KNOW WHAT SERIES THERANOS HAD DEVELOPED TO BY 2013?
JOHN BRYAN TOLBERT: I DON'T KNOW THE SPECIFICS SERIES NUMBER.
MR. DOWNEY: OKAY. YOU DIDN'T HAVE THE DETAILED INFORMATION ABOUT WHERE THEY WERE IN THE DEVELOPMENT OF THEIR TECHNOLOGY?
JOHN BRYAN TOLBERT: WELL, I KNEW THE TECHNOLOGY HAD STARTED FROM A LIMITED SET OF TESTS, OR A SMALL SET OF TESTS TO, YOU KNOW, I THINK AROUND THIS 2013 TIMEFRAME THERE WERE THOUSANDS OF TESTS THAT COULD BE RUN AND SO THAT REPRESENTED A SUBSTANTIAL IMPROVEMENT. SO I DON'T KNOW IF IT WENT FROM 1.0 TO 12.0 OR 10.0, BUT THERE WAS --
MR. DOWNEY: DID MS. HOLMES MAKE REFERENCE IN THE RECORDING WE JUST HEARD TO THOUSANDS OF TESTS?
JOHN BRYAN TOLBERT: SHE DID NOT.
MR. DOWNEY: DID SHE ASSOCIATE THERANOS'S DEVICE AT THAT TIME WITH THOUSANDS OF TESTS?
JOHN BRYAN TOLBERT: NOT ON THAT CALL.
MR. DOWNEY: OKAY. NOW, YOU WERE ASKED QUESTIONS ABOUT THE PORTION OF THIS CONVERSATION THAT RELATED TO QUESTIONING OF MS. HOLMES; CORRECT?
JOHN BRYAN TOLBERT: I'M SORRY, I DON'T UNDERSTAND.
MR. DOWNEY: WELL, THE PORTIONS OF THE CALL THAT HAVE BEEN PLAYED THUS FAR ARE PORTIONS OF A CALL WHERE MS. HOLMES IS PRESENT ON THE CALL; CORRECT?
JOHN BRYAN TOLBERT: CORRECT.
MR. DOWNEY: BUT THEN THE TAPE CONTINUED; CORRECT?
JOHN BRYAN TOLBERT: THAT'S CORRECT.
MR. DOWNEY: AND INDIVIDUALS ON THE CALL HAD THE OPPORTUNITY TO ASK QUESTIONS OF CHRIS LUCAS; CORRECT?
JOHN BRYAN TOLBERT: CORRECT.
MR. DOWNEY: AND DID YOU ASK ANY QUESTIONS OF CHRIS LUCAS DURING THAT TIME?
JOHN BRYAN TOLBERT: NOT ON THAT CALL.
MR. DOWNEY: DID MR. HALL ASK QUESTIONS OF CHRIS LUCAS DURING THAT PERIOD?
JOHN BRYAN TOLBERT: I THINK HE MAY HAVE ASKED A FOLLOWUP.
MR. DOWNEY: LET ME ASK THAT THE FOLLOWING SEGMENT OF 1349 BE PLAYED. 1349-A.
MR. SCHENK: I'M SORRY. IS THIS SOMETHING THAT HAS BEEN PREVIOUSLY PUBLISHED?
MR. DOWNEY: WELL, IT'S WITHIN THE RECORDING THAT HE HAS ALREADY AUTHENTICATED, YES.
JUDGE DAVILA: OKAY. THAT'S FINE. THAT CAN BE PLAYED NOW. "MEETING OPERATOR: THANK YOU. THE NEXT QUESTION COMES FROM CRAIG HALL. PLEASE GO AHEAD."
MR. SCHENK: I'M SORRY, YOUR HONOR. OBJECTION. THIS IS NOT SOMETHING THAT WAS PREVIOUSLY PLAYED FOR THE JURY. THIS IS A DIFFERENT PART OF 1349. HEARSAY.
MR. DOWNEY: IT'S PART OF THE SAME RECORDING. THIS IS JUST A SEGMENT THAT WE WISH TO PLAY FOR THE BENEFIT OF THE JURY.
JUDGE DAVILA: WELL, LET'S SEE. ALL RIGHT. LET'S IDENTIFY THIS SO I CAN FIND IT. THIS IS IN 1349. THIS IS SIDE B THEN?
MR. SCHENK: YES, YOUR HONOR.
JUDGE DAVILA: AND DO YOU HAVE -- MR. DOWNEY, DO YOU HAVE THE GOVERNMENT'S TRANSCRIPT THAT YOU COULD GUIDE ME TO?
MR. DOWNEY: I DO, YOUR HONOR, AND IT WILL BE TOWARDS THE BACK OF THE TRANSCRIPT.
MR. SCHENK: YOUR HONOR, I BELIEVE IT'S ON PAGE 18, LINE 6.
JUDGE DAVILA: YES. THIS WAS NOT PLAYED PREVIOUSLY.
MR. DOWNEY: IT WAS NOT PLAYED PREVIOUSLY, BUT IT IS PART OF THE SAME RECORDING THAT MR. SCHENK PLAYED.
MR. SCHENK: YOUR HONOR, WE MET ON 106 AND THIS WAS NOT PRESENTED TO THE GOVERNMENT.
MR. DOWNEY: I BEG YOUR PARDON, I THOUGHT IT WAS.
JUDGE DAVILA: LET ME LET YOU MEET AND CONFER FOR JUST A MOMENT ABOUT THIS WHILE I LOOK AT THIS. THANK YOU.
(DISCUSSION OFF THE RECORD.)
MR. SCHENK: YOUR HONOR, WE STILL OBJECT ON HEARSAY, AND I'M NOT SURE -- THIS HAS NOT BEEN PREVIOUSLY PLAYED FOR THE JURY. IT HASN'T BEEN MOVED INTO EVIDENCE YET, SO I THINK WE HAVE TO GET OVER THAT HURDLE BEFORE IT COMES IN.
JUDGE DAVILA: IT ALSO SEEMS TO BE A DIFFERENT PARTY SPEAKING.
MR. SCHENK: YES, YOUR HONOR.
MR. DOWNEY: IT IS THE PARTY THROUGH WHOM MR. TOLBERT HAS TESTIFIED HE INVESTED AND RECEIVED INFORMATION ABOUT THE COMPANY FOR THE PRIOR SEVEN YEARS, AND IT'S AN EXCHANGE THAT COMPLETES THE CALL AND PURPORTS TO EXPLAIN PORTIONS OF THE CALL THAT HAVE PREVIOUSLY -- IN WHICH MS. HOLMES PREVIOUSLY PARTICIPATED AND --
JUDGE DAVILA: I SEE THAT. BUT THE SPEAKER IS NOT MS. HOLMES. IT'S SOMEBODY ELSE ANSWERING A QUESTION --
MR. DOWNEY: THAT'S CORRECT.
JUDGE DAVILA: -- THAT'S POSED ABOUT A DIFFERENT TOPIC.
MR. DOWNEY: THAT'S CORRECT.
JUDGE DAVILA: AND I DON'T SEE THE 106 CONNECTION THERE. THAT'S MY PROBLEM.
MR. DOWNEY: WELL, THIS WITNESS HAS BEEN TESTIFYING ABOUT WHAT'S IMPORTANT TO HIS ENTITY AS AN INVESTOR. THE QUESTION IS THE ONLY QUESTION THAT HIS ENTITY ASKS, OTHER THAN THE ONE THAT HAS BEEN PLAYED.
JUDGE DAVILA: WELL, THE QUESTION IS TO -- AS I READ THE TRANSCRIPT, MR. DOWNEY, I JUST DON'T SEE THE RELATIONSHIP BETWEEN THAT AND THE QUESTION THAT HE'S PREVIOUSLY ASKED. I JUST DON'T SEE IT IN THE 106 CONTEXT. MAYBE YOU CAN ASK SOME MORE QUESTIONS ABOUT THIS FOR FOUNDATION.
MR. DOWNEY: SURE.
JUDGE DAVILA: WELL, MR. LOOBY IS GOING TO GIVE YOU A LIFELINE HERE.
MR. DOWNEY: YOUR HONOR, IF THERE ARE PORTIONS OF THIS -- WELL, LET ME EXPLAIN AGAIN FOR JUST ONE MOMENT. I THINK THE WITNESS ALREADY TESTIFIED THAT THE ENTIRE TAPE IS A TAPE RECORDING OF THE SAME CONVERSATION. THE ONLY VARIATION IS PARTICIPANTS GOING IN AND OUT. THERE'S ONLY A PORTION OF THE TAPE FOR MS. HOLMES IS A PARTICIPANT. THE TAPE THEN CONTINUES AND THEN THERE'S A DISCUSSION, WHICH IS A DISCUSSION OF INFORMATION THAT IS IMPORTANT TO POTENTIAL INVESTORS, INCLUDING THE WITNESS'S GROUP, AS TO WHETHER TO INVEST OR NOT AT THIS TIME. I WOULD CERTAINLY THINK IT GOES TO MATERIALITY. THERE'S NOT -- I DON'T KNOW IF THERE'S A HEARSAY CONCERN OR WHAT THE CONCERN IS. IT'S NOT A 106 CONCERN CERTAINLY.
JUDGE DAVILA: WELL, THE RELEVANCE OF THIS IS YOU'RE TRYING TO SEE WHETHER OR NOT THIS INFORMATION WAS MATERIAL TO THIS WITNESS'S INVESTMENT?
MR. DOWNEY: THAT'S CORRECT.
JUDGE DAVILA: AND MAYBE YOU SHOULD HAND THE WITNESS THE TRANSCRIPT AND SEE IF THAT ANSWER -- HE READS THE TRANSCRIPT AND THEN YOU CAN ASK THE QUESTION, AND IF IT WAS, THEN MAYBE YOU PLAY IT.
MR. DOWNEY: SURE. IS THERE A REASON, YOUR HONOR, WE CAN'T -- I DON'T UNDERSTAND THE BASIS ON WHICH WE WOULDN'T BE ABLE TO PLAY PORTIONS OF THE SAME CALL WHERE THE DISCUSSION IS ALL RELATED TO THE SAME THING.
JUDGE DAVILA: WELL, WHAT YOU'VE TOLD ME IS THAT THE BASIS OF THIS COMING IN IS THAT YOU THINK IT'S MATERIAL TO THAT. BUT IF IT'S NOT MATERIAL, THEN IT'S NOT RELEVANT, IS IT?
MR. DOWNEY: THAT'S RIGHT. BUT THE GOVERNMENT WAS ALLOWED TO PLAY THE ENTIRE TAPES AND THEN HAVE THE DISCUSSION AFTER THE TAPE WAS PLAYED.
JUDGE DAVILA: RIGHT. BUT YOU'RE OFFERING THIS FOR -- I GUESS I'M JUST SAYING, SHOULDN'T WE FIND OUT WHETHER OR NOT THIS WAS MATERIAL TO HIS DECISION?
MR. DOWNEY: WELL, IT'S NOT ENTIRELY DEPENDENT ON HIS TESTIMONY. IT'S CONTEMPORANEOUS EVIDENCE OF WHAT WAS IMPORTANT.
JUDGE DAVILA: WELL, THEN WE'RE BACK TO THE 106 THEN. WE'RE KIND OF GOING IN A CIRCLE HERE.
MR. DOWNEY: I DON'T THINK IT'S A 106 ISSUE. MR. SCHENK HAS HAD THE OPPORTUNITY TO, TO REVIEW IT. I MEAN, WE CAN PLAY THE ENTIRE TAPE, WHICH I SUGGESTED BEFORE, BUT I JUST DON'T -- WE'VE ALREADY HEARD THE ONE QUESTION THAT THIS ENTITY ASKED. I JUST WANT TO PLAY THE OTHER ONE.
JUDGE DAVILA: AND YOU'D LIKE TO PLAY FROM LINE 6 -- PAGE 18, LINE 6, THROUGH PAGE 20, LINE 22? OR LESS THAN THAT?
MR. DOWNEY: YES -- PAGE 18, LINE 6, THROUGH PAGE 20, LINE 25.
JUDGE DAVILA: DOWN TO THE BOTTOM. AND YOU HAVE QUESTIONS FOR THIS WITNESS REGARDING THIS COLLOQUY?
MR. DOWNEY: I DO.
JUDGE DAVILA: SO IS IT POSSIBLE -- CAN YOU FRAME YOUR QUESTION AND THEN PLAY THE TAPE AND ASK HIM IF IT ANSWERS THE QUESTION.
MR. DOWNEY: WELL, I THINK I HAVE A SERIES OF QUESTIONS. THE FIRST QUESTION WILL BE WHETHER THE VOICE THAT IS ASKING THE QUESTION IS, IN FACT, MR. HALL TO WHOM HE REPORTS. BUT THEN THE SECOND QUESTION WILL -- I DON'T PLAN TO QUESTION IN DETAIL HERE. THIS WAS THE QUESTION --
JUDGE DAVILA: I'M NOT TRYING TO GIVE YOU TROUBLE HERE.
MR. DOWNEY: YES.
JUDGE DAVILA: WE'RE DISCUSSING WHETHER THIS IS AN 8 TRACK TAPE, A CASSETTE, OR A MICROCASSETTE. BUT -- WELL, I'LL ALLOW THIS TO BE PLAYED. IT'S LINE 6 THROUGH -- ON PAGE 18, THROUGH PAGE 20, LINE 25. DO YOU HAVE THAT CUED UP ALREADY?
MR. DOWNEY: YES.
JUDGE DAVILA: AND YOU'D LIKE TO PLAY THE ENTIRETY? YOU HAVE THE EXAMINATION FOLLOWING THAT?
MR. DOWNEY: YES.
JUDGE DAVILA: ALL RIGHT. THANK YOU. WE'LL PLAY THAT. THANK YOU. "MEETING OPERATOR: THANK YOU. OUR NEXT QUESTION COMES FROM CRAIG HALL. PLEASE GO AHEAD. "QUESTIONER: HI, CHRIS. I'M CONFUSED A LITTLE BIT ON THE SHARE PRICING. ELIZABETH TALKED FAIRLY QUICKLY ABOUT 13.4 OR 5 MILLION AND UP TO THAT NUMBER AT $15 A SHARE. AND THEN 225 MILLION AT HIGHER SHARE PRICES ALL RELATED TO SOME STRATEGIC PARTNER AGREEMENT. AND THEN SHE TALKED ABOUT A SHARE SPLIT AND EARLIER SHE TALKED ABOUT $75 IN SHARE. SO IS THE $15 THE SAME THING AS THE $75 AFTER THE MULTIPLE OR -- HOW DOES IT ALL RELATE TO THE CAPITALIZATION AND KIND OF WHERE WE ARE NOW AT WHAT IS BEING OFFERED HERE? IT'S A LITTLE HARD FOR ME TO FOLLOW THE BOUNCING BALL. "MR. LUCAS: SO, CRAIG, THANKS. HI. SO, YES, SHE RAN THROUGH THOSE NUMBERS QUICKLY AND -- I WAS DOING THE MATH ALSO IN MY HEAD. SO TO BE CLEAR, WHEN THE -- WE'VE INVESTED TWICE IN THERANOS, SERIES B AND SERIES C. SERIES B WE INVESTED AT ABOUT 90 CENTS A SHARE.
SERIES C WAS A LITTLE UNDER $3 PER SHARE. OKAY? AND THAT RELATES TO THE $75 VALUE. SO THAT'S ALL PRE-SPLIT SHARES. SO, IF YOU PAID $3, YOU KNOW, IN SERIES C, THAT $3 IS NOW WORTH $75. "WHAT THEY EFFECTED, AND THESE ARE IN SOME OF THE DOCUMENTS I'VE SIGNED, IS A FIVE FOR ONE FORWARD SPLIT. SO THERE ARE FIVE TIMES AS MANY SHARES THAT THE COMPANY HAS AND THAT WE OWN AND SO NOW THE PRICE IS AT $15 PER SHARE. SO THAT'S THE PRICE THAT SHE'S TALKING ABOUT. "GOING FORWARD -- NOW, IF I WAS DOING THE MATH CORRECTLY, SHE SAYS THERE'S ABOUT 13 MILLION SHARES THAT CAN BE EXERCISED THIS YEAR. AND SO IF YOU MULTIPLY 15 TIMES 13 THAT'S, YOU KNOW, CLOSE TO $200 MILLION THAT SHE TALKED ABOUT. THEN IF WE GO FORWARD, SHE SAID NEXT YEAR THERE ARE A COUPLE HUNDRED MILLION SHARES THAT ARE AUTHORIZED. "SO I SHOULD SAY THAT ACTIONS THAT SHE'S TAKING JUST COOPERATE-WISE IN THE DOCUMENTS THAT I HAVE BEEN SIGNING RECENTLY, FIRST OFF, I SHOULD SAY SHE -- SHE HAS CONTROLLING INTERESTS OF THE COMPANY.
SHE HAS A FIRM GRASP ON THE COMPANY. OKAY? LET THERE BE NO MISTAKE, BOTH IN HOW SHE LEADS IT AND THEN LEGALLY AND CONTRACTUALLY. "SHE HAS DONE SOME THINGS IN THOSE DOCUMENTS THAT ALLOWS HER TO MAINTAIN CONTROL BECAUSE SHE IS CONCERNED ABOUT SOME FOLKS THAT MAY END UP INVESTING IN THE COMPANY, A PARTNER AND SO FORTH, WHERE, GEE, THEY AREN'T ACTING RESPONSIBLY AS A PARTNER AND SO MAYBE SHE WOULD WANT TO CASH THEM OUT. SO SHE WOULD HAVE THE RIGHT TO DO THAT. "SO LET THERE BE NO MISTAKE, JUST LIKE SOME OF THE OTHER HIGH FLYING COMPANIES IN SILICON VALLEY, THE STRUCTURE IS IN PLACE THAT EVEN AFTER THE COMPANY GOES PUBLIC -- AND THAT IS WHY THE SPLIT AND SO FORTH AND DIFFERENT CLASSES OF STOCK -- THAT EVEN AFTER THE COMPANY GOES PUBLIC, SHE WILL MAINTAIN THE ESSENTIAL CONTROL, WHICH HAS BEEN BRILLIANTLY PLANNED BY THEMSELVES AND THEIR LAW FIRM. AND HAVING SAID THAT, FOLLOWING THE SAME PLAY BOOK AS SOME OF THE OTHER NOTABLE COMPANIES. "I WOULD MAKE ANOTHER COMMENT JUST IN THIS FINANCING, AS SHE SAID, THERE ARE A HOST OF HIGH PROFILE COMPANIES THAT ARE INTERESTED IN INVESTING AT THAT HIGHER DOLLAR AMOUNT. SO IT GIVES ME CONFIDENCE THAT THIS IS BEING WELL-VETTED BY THE VERY SOPHISTICATED MONEY. AND AS YOU CAN IMAGINE, THE TOP TIER BANKS AROUND THE COUNTRY ARE ALL OVER WANTING TO PARTICIPATE IN THIS. "SO HOPEFULLY, CRAIG, THAT ANSWERS WHAT YOU'RE ASKING. AND IF NOT, PLEASE, YOU KNOW, ASK OR CALL ME, CERTAINLY."
BY MR. DOWNEY:
MR. DOWNEY: MR. TOLBERT, DO YOU RECOGNIZE THE VOICE OF THE PERSON WHO ASKED THAT QUESTION AS CRAIG HALL?
JOHN BRYAN TOLBERT: I DO.
MR. DOWNEY: AND DO YOU RECOGNIZE THE VOICE OF THE PERSON WHO ANSWERED THAT QUESTION AS CHRIS LUCAS?
JOHN BRYAN TOLBERT: I DO.
MR. DOWNEY: AND IN SUMMARY FORM, DID MR. HALL'S QUESTION RELATE TO THE AMOUNT OF MONEY THAT THE HALL GROUP WOULD HAVE REALIZED ON THE PROFIT IT HAD MADE THUS FAR?
JOHN BRYAN TOLBERT: I THINK HIS QUESTION RELATED TO WHAT THE VALUE WAS THAT WE WERE INVESTING, THAT OUR 2013 POTENTIAL INVESTMENT WOULD BE MADE AT.
MR. DOWNEY: OKAY. BUT HE DID NOT ASK ANY QUESTION OF MR. LUCAS EITHER ABOUT THE PHARMA BUSINESS; CORRECT?
JOHN BRYAN TOLBERT: NOT IN THAT INTERCHANGE.
MR. DOWNEY: AND HE DID NOT ASK MR. LUCAS ANY QUESTIONS ABOUT WHAT MS. HOLMES HAD JUST SAID ABOUT THE MILITARY BUSINESS; CORRECT?
JOHN BRYAN TOLBERT: NOT IN THAT INTERCHANGE.
MR. DOWNEY: AND ARE THERE ANY OTHER QUESTIONS THAT YOU ARE AWARE OF THAT MR. HALL ASKED DURING THE COURSE OF THAT TAPE OR CONVERSATION?
JOHN BRYAN TOLBERT: I DON'T BELIEVE THERE'S ANY OTHERS.
MR. DOWNEY: OKAY. HOW SOON AFTER THAT CONVERSATION DID THE HALL GROUP DECIDE TO MAKE AN INVESTMENT IN THERANOS?
JOHN BRYAN TOLBERT: SO I BELIEVE THAT PHONE CALL WAS ON DECEMBER 20TH. WE MADE THE INVESTMENT AND WIRED THE FUNDS ON DECEMBER 31ST, SO THAT WOULD HAVE BEEN 11 DAYS.
MR. DOWNEY: DO YOU KNOW IN THAT INTERIM WHEN THE DECISION WAS MADE?
JOHN BRYAN TOLBERT: NOT SPECIFICALLY.
MR. DOWNEY: AND AGAIN, BETWEEN THE 20TH OF DECEMBER AND THE 31ST OF DECEMBER, DID YOU REQUEST ANY FURTHER INFORMATION -- YOU PERSONALLY REQUEST ANY FURTHER INFORMATION OF THERANOS?
JOHN BRYAN TOLBERT: NOT DIRECTLY.
MR. DOWNEY: WHEN YOU SAY "NOT DIRECTLY," DID YOU ASK FOR INFORMATION INDIRECTLY?
JOHN BRYAN TOLBERT: I THINK I PROBABLY HAD A CONVERSATION WITH CHRIS LUCAS -- WELL, I KNOW I HAD SEVERAL CONVERSATIONS WITH CHRIS AFTER THIS PHONE CALL ON THE 20TH AND BEFORE THE 31ST, AND SO I WOULD HAVE ASKED HIM FOR -- WE WOULD HAVE HAD ADDITIONAL DISCUSSION AND THERE WOULD HAVE BEEN THINGS THAT I ASKED HIM FOR.
MR. DOWNEY: DID YOU ASK HIM TO GO AND GET DOCUMENTS, FOR EXAMPLE, FROM THERANOS?
JOHN BRYAN TOLBERT: I DON'T REMEMBER SPECIFICALLY.
MR. DOWNEY: OKAY. DID YOU ASK HIM TO GET ANY OF THE CONTRACTS THAT THERANOS HAD IN PLACE WITH RETAILERS, FOR EXAMPLE?
JOHN BRYAN TOLBERT: I DID NOT ASK HIM THAT.
MR. DOWNEY: YOU HEARD DURING THE COURSE OF THE CALL SEGMENTS THAT MR. SCHENK PLAYED TO YOU THAT THERE WAS REFERENCE TO STRATEGIC PARTNERS MAKING AN INVESTMENT. YOU HEARD THAT? DO YOU RECALL THAT?
JOHN BRYAN TOLBERT: I DID, YEP.
MR. DOWNEY: AND DO YOU KNOW WHAT HAD HAPPENED TO CHANGE THE TERMS OF THOSE RELATIONSHIPS AND LED TO AN INVESTMENT AT THE END OF 2013?
JOHN BRYAN TOLBERT: WELL, MY UNDERSTANDING FROM THOSE PERIODIC PHONE CALLS WITH MR. LUCAS IS THAT THE COMPANY WAS MAKING GREAT PROGRESS AND IT WAS EVIDENCED BY COMING OUT OF STEALTH MODE AND THE ANNOUNCEMENT OF THE PARTNERSHIP WITH WALGREENS. SO THOSE WERE THE THINGS THAT I THOUGHT KIND OF INDICATED THAT THERE WAS MOMENTUM AROUND THOSE RELATIONSHIPS.
MR. DOWNEY: DID YOU KNOW ANYTHING ABOUT AGREEMENTS THAT WERE SIGNED IN THAT WINDOW BETWEEN DECEMBER 20TH AND DECEMBER 31ST BETWEEN RETAILERS AND THERANOS?
JOHN BRYAN TOLBERT: I HADN'T SEEN SPECIFIC CONTRACTS.
MR. DOWNEY: AND YOU HADN'T ASKED FOR SPECIFIC CONTRACTS; RIGHT?
MR. DOWNEY: AND DID YOU IN THAT PERIOD GO TO ONE OF THE WALGREENS STORES WHERE, YOU KNOW, THE THERANOS OPERATION WAS IN PLACE?
JOHN BRYAN TOLBERT: NOT IN 2013.
MR. DOWNEY: OKAY. YOU WENT AT A LATER TIME; CORRECT?
JOHN BRYAN TOLBERT: I DID GO AT A LATER TIME.
MR. DOWNEY: AND WHEN YOU WENT AT A LATER TIME, DID YOU HAVE AN ORDER FROM YOUR PHYSICIAN FOR A BLOOD TEST?
JOHN BRYAN TOLBERT: I DID.
MR. DOWNEY: AND WHEN YOU GAVE THAT ORDER TO THE PHLEBOTOMIST OR TO THE PERSON AT WALGREENS, THEY TOLD YOU THAT YOUR BLOOD WOULD HAVE TO BE DRAWN BY VENOUS DRAW; CORRECT?
JOHN BRYAN TOLBERT: WELL, ON THE ORDER -- JUST TO BE CLEAR, ON THE ORDER THERE WERE TWO OR THREE DIFFERENT TESTS THAT WERE NOTED, AND THEY TOLD ME THAT FOR ONE OF THE TESTS THERE WOULD HAVE TO BE A VENOUS DRAW DONE.
MR. DOWNEY: OKAY. AND DID YOU THEN HAVE THE VENOUS DRAW DONE?
JOHN BRYAN TOLBERT: I DID NOT. I HAD THE FINGERSTICK DONE FOR THE PORTION THAT I COULD DO THAT WAY. BUT I DID NOT HAVE THE VENOUS DRAW DONE.
MR. DOWNEY: SO YOU CANCELLED OUT ESSENTIALLY ONE OF THE ORDERS THAT YOUR DOCTOR HAD FILLED OUT IN THE FORM FOR YOU; IS THAT RIGHT?
JOHN BRYAN TOLBERT: CORRECT.
MR. DOWNEY: NOW, I THINK YOU HAD TESTIFIED THAT YOUR UNDERSTANDING IN THIS CALL IN 2013 WAS THAT, YOU KNOW, THERANOS HAD MADE VENOUS DRAWS NO LONGER NECESSARY. IS THAT THE ESSENCE OF WHAT YOU SAID TO MR. SCHENK?
JOHN BRYAN TOLBERT: THAT'S WHAT I BELIEVED IN 2013.
MR. DOWNEY: AND SO WERE YOU SHOCKED WHEN YOU WENT IN 2015 AND HAD TO HAVE A VENOUS DRAW?
JOHN BRYAN TOLBERT: I WAS SURPRISED.
MR. DOWNEY: AND DID YOU CONTACT MR. CHRIS LUCAS AT THAT TIME?
JOHN BRYAN TOLBERT: YOU KNOW, I DIDN'T -- I BELIEVE I DID HAVE A CONVERSATION WITH CHRIS WHERE I REFERENCED THAT EXPERIENCE.
MR. DOWNEY: OKAY. AND DID YOU CONTACT MS. HOLMES ABOUT THAT EXPERIENCE?
JOHN BRYAN TOLBERT: I DID NOT CALL MS. HOLMES.
MR. DOWNEY: AND DID YOU CALL ANYONE ELSE AT THERANOS ABOUT THAT EXPERIENCE?
JOHN BRYAN TOLBERT: I DID NOT.
MR. DOWNEY: I'D LIKE TO SHOW YOU A DOCUMENT THAT IS MARKED AS EXHIBIT 1393.
JOHN BRYAN TOLBERT: IS THAT ONE IN THE BINDER THAT I CURRENTLY HAVE OR IS THAT IN THE --
MR. DOWNEY: IT SHOULD BE IN THE BINDER THAT YOU CURRENTLY -- LET ME -- ACTUALLY, I DON'T THINK I'VE GIVEN YOU YOUR BINDER YET, SO -- YOUR HONOR, MAY I APPROACH THE WITNESS?
JUDGE DAVILA: YES.
(PAUSE IN PROCEEDINGS.)
JUDGE DAVILA: MR. DOWNEY, LET ME JUST ASK YOU, SIR, HOW MUCH LONGER DO YOU THINK YOU HAVE?
MR. DOWNEY: MAYBE 15 TO 20 MINUTES.
JUDGE DAVILA: AND I'M JUST TRYING TO TIME THIS. AND I THINK THIS IS AN OUT OF TOWN WITNESS. IS THAT RIGHT?
MR. DOWNEY: I BELIEVE IT IS, YES.
MR. SCHENK: YES.
JUDGE DAVILA: AND THEN, MR. SCHENK, WHAT DO YOU THINK -- I'M TRYING TO SEE HOW MUCH TIME WE HAVE LEFT WITH THIS WITNESS AND THEN I CAN ASK THE JURY WHETHER OR NOT IT'S, THEY'RE WILLING TO STAY TO COMPLETE THIS WITNESS'S TESTIMONY JUST BECAUSE OF THE TRAVEL.
MR. SCHENK: MR. DOWNEY SAID 15 TO 20 MINUTES? I THINK IF WE WENT TO THE BOTTOM OF THE HOUR -- ONE QUESTION REMAINS THAT WE HAD DISCUSSED THIS MORNING ABOUT TIMING AND WHETHER DOCUMENTS AFTER A CERTAIN DATE WOULD COME IN, AND THAT'S STILL UNKNOWN TO ME AND SO THAT MIGHT AFFECT IT.
MR. DOWNEY: I DON'T THINK THAT WILL BE -- I DON'T THINK THAT WILL EVENTUATE, YOUR HONOR.
JUDGE DAVILA: IT SOUNDS LIKE THAT'S NOT GOING TO BE AN ISSUE.
MR. SCHENK: I WOULD THINK I HAVE 15 MINUTES IN REDIRECT, MAYBE LESS.
JUDGE DAVILA: IT SOUNDS LIKE WE WOULD BE GOING BEFORE 5:00 O'CLOCK, IF I WERE TO ASK THIS GOOD JURY IF THEY WOULD STAY UNTIL 5:00 O'CLOCK.
MR. DOWNEY: I THINK FOR CERTAIN, YOUR HONOR, YES.
JUDGE DAVILA: OKAY. LET ME TURN TO THE JURY. LADIES AND GENTLEMEN, I -- I WANT TO KNOW IF I CAN PRESS ON YOU THIS AFTERNOON FOR ANOTHER 40 MINUTES OR SO TO FINISH THIS WITNESS. DOES ANYONE HAVE AN ISSUE WITH THAT? THANK YOU SO MUCH. I DON'T SEE ANY HANDS. THAT'S VERY GENEROUS OF YOU.
MR. DOWNEY: AND I'LL TRY TO GO THROUGH IT QUICKLY.
JOHN BRYAN TOLBERT: YOUR HONOR, CAN I SAY THANK YOU AS WELL?
(LAUGHTER.)
JUDGE DAVILA: TO OUR JURY, YES.
MR. DOWNEY: YOUR HONOR, I'VE PASSED UP THROUGH MS. KRATZMANN A COPY FOR THE COURT.
MR. DOWNEY: MR. TOLBERT, CAN I ASK YOU TO LOOK AT EXHIBIT 1393 IN THAT NOTEBOOK?
MR. SCHENK: YOUR HONOR, I DON'T HAVE THAT DOCUMENT.
JOHN BRYAN TOLBERT: I DON'T SEE THAT ONE.
JUDGE DAVILA: IT DIDN'T GET IN HERE YET.
MR. DOWNEY: I'M SORRY. IT'S NUMBERED TWICE, BUT IT'S 7384.
JUDGE DAVILA: THANK YOU.
COURT CLERK: SO FOR THE RECORD, COUNSEL, THE EXHIBIT IS 7384?
MR. DOWNEY: THAT'S CORRECT.
(PAUSE IN PROCEEDINGS.)
BY MR. DOWNEY:
MR. DOWNEY: HAVE YOU HAD AN OPPORTUNITY TO REVIEW THAT?
JOHN BRYAN TOLBERT: I HAVE.
MR. DOWNEY: DO YOU RECOGNIZE THIS AS AN EMAIL EXCHANGE RELATED TO THE INVESTMENT THAT THE HALL GROUP MADE IN THERANOS BETWEEN YOURSELF AND OTHERS?
JOHN BRYAN TOLBERT: I DO.
MR. DOWNEY: YOUR HONOR, I MOVE THE ADMISSION OF 7384.
MR. SCHENK: YOUR HONOR, TWO OBJECTIONS. FIRST, IT'S HEARSAY. SECOND, IT IS AFTER THE DATE WE DISCUSSED, 12-31-2013.
MR. DOWNEY: YOUR HONOR, I THINK THE EMAIL IS FROM 2014. THE DATE WE DISCUSSED WAS THE END OF 2015.
JUDGE DAVILA: AND IS IT HEARSAY?
MR. DOWNEY: WELL, I -- LET ME SEE.
JUDGE DAVILA: SURE.
BY MR. DOWNEY:
MR. DOWNEY: IS THIS AN EMAIL THAT WAS EXCHANGED DURING THE COURSE OF BUSINESS OF THE HALL GROUP RELATED TO ITS INVESTMENTS IN COMPANIES?
JOHN BRYAN TOLBERT: IT WAS.
MR. DOWNEY: AND IS THERE A SYSTEM IN PLACE AT THE HALL GROUP TO PRESERVE THE EMAILS THAT IT SENDS?
JOHN BRYAN TOLBERT: THERE IS.
MR. DOWNEY: AND WAS THIS EMAIL -- EXCHANGE OF EMAILS, ARE THOSE EMAILS, WHEN THEY ARE EXCHANGED, DO THEY -- ARE THEY GENERALLY MADE AT OR NEAR THE TIME OF THE EVENTS THAT THEY REFER TO?
JOHN BRYAN TOLBERT: YEAH, I GUESS I DON'T -- I DON'T UNDERSTAND THAT QUESTION, SO --
MR. DOWNEY: WELL, DO THEY RELATE TO EVENTS THAT ARE CURRENT AT THE TIME THAT IS EXCHANGED IN THE EMAIL?
MR. DOWNEY: AND DO PERSONS AT THE HALL GROUP STRIVE FOR THE EMAILS TO ACCURATELY REFLECT WHAT IS GOING ON?
JOHN BRYAN TOLBERT: I BELIEVE SO.
MR. DOWNEY: OKAY.
MR. DOWNEY: YOUR HONOR, I MOVE THE ADMISSION OF 7384.
MR. SCHENK: YOUR HONOR, SAME OBJECTION. IT'S FROM MR. HALL'S AOL TO SOMEONE WHO DOESN'T WORK AT HALL, AND THE INDIVIDUAL THAT IT'S SENT TO I THINK WAS NOT PART OF THE ORDINARY BUSINESS OF THE HALL GROUP. I THINK IT HAD TO DO WITH A SPECIAL ARRANGEMENT THAT MR. HALL MADE WITH SOME OTHER INDIVIDUAL. THIS IS NOT A BUSINESS RECORD.
MR. DOWNEY: YOUR HONOR, I WOULD JUST SAY COUPLE OF THINGS. FIRST, THIS WITNESS HAS ACTUALLY HIMSELF SIGNED AN AUTHENTICATION OF DOCUMENTS THAT HAVE BEEN PRODUCED AS BUSINESS RECORDS. SECOND, THIS EMAIL GOES TO THIS WITNESS AT THE BUSINESS ADDRESS, I BELIEVE, OF THE HALL GROUP. AND SO IT WAS PRINTED, I THINK, THERE.
JUDGE DAVILA: WELL, THERE'S -- LET ME JUST SAY, I THINK THERE'S A FEW GAPS HERE AS FAR AS 803(6). BUT -- AND THE QUESTION IS RELIABILITY. WHY DON'T YOU JUST ASK -- I'LL ALLOW THIS TO COME IN BASED ON YOU --
MR. DOWNEY: WELL, I DON'T HAVE TO PUBLISH IT, YOUR HONOR, IF THAT'S THE ISSUE.
JUDGE DAVILA: SURE. WHY DON'T YOU JUST PROBE THIS AND GET WHAT YOU NEED OUT OF IT. MINE IT FOR WHAT YOU NEED AND THEN WE CAN MOVE ON.
MR. DOWNEY: OKAY.
MR. DOWNEY: DO YOU RECALL THAT MR. HALL LEFT TO TAKE A TRIP DURING THE LATTER PART OF 2013 WHEN THIS INVESTMENT WAS UNDER CONSIDERATION?
JOHN BRYAN TOLBERT: I DO.
MR. DOWNEY: AND DO YOU RECALL THAT WHEN HE LEFT, THE HALL GROUP HAD NOT YET MADE A DECISION AS TO WHETHER OR NOT TO INVEST?
JOHN BRYAN TOLBERT: I DO.
MR. DOWNEY: AND DO YOU RECALL THAT HE ADVISED YOU THAT THERE WAS A RANGE OF INVESTMENT AMOUNT AND YOU COULD SELECT THAT WHEN THE INVESTMENT DECISION WAS MADE?
JOHN BRYAN TOLBERT: THAT'S CORRECT.
MR. DOWNEY: AND DO YOU RECALL THAT HE TOLD YOU YOU COULD EVEN CHOOSE NOT TO INVEST IF YOU THOUGHT THAT WAS APPROPRIATE?
JOHN BRYAN TOLBERT: CORRECT.
MR. DOWNEY: AND SO WAS IT THE CASE THAT YOU PERSONALLY ULTIMATELY MADE THE DECISION TO INVEST IN THERANOS?
JOHN BRYAN TOLBERT: YEAH. YOU KNOW, SO WE -- MY DISCUSSIONS WITH MR. HALL HAD BEEN THAT WE WERE, THAT WE WERE GOING TO INVEST UP TO $5 MILLION. WHEN HE LEFT, HE ANTICIPATED THAT WE WERE GOING TO MAKE AN INVESTMENT. SO HE WOULD HAVE BEEN SURPRISED IF WE HAD NOT INVESTED ANYTHING. BUT I THINK YOU'RE ACCURATE THAT, YOU KNOW, IF I WOULD HAVE CHOSEN NOT TO MAKE AN INVESTMENT, THAT WOULD HAVE BEEN OKAY.
MR. DOWNEY: AND DO YOU RECALL THAT HE HAD A TECHNICAL ISSUE RELATED TO -- THAT RAISED A CONCERN FOR HIM IN CONNECTION WITH THE INVESTMENT?
JOHN BRYAN TOLBERT: I'M NOT AWARE OF IT. I MEAN, MY DISCUSSIONS WITH MR. HALL HAD BEEN PRIMARILY AROUND THE FACT THAT WE WANTED TO BE A DIRECT INVENTOR WITH THERANOS, AND SO I THINK THAT THE TECH ISSUE THAT HE REFERS TO HERE IS A TECHNICAL ISSUE, AN ISSUE OF WANTING TO MAKE SURE THAT WE WOULD BE A DIRECT INVESTOR OF THE COMPANY.
MR. DOWNEY: DO YOU RECALL DISCUSSING WITH MR. HALL HIS VIEW OF ANALYZING AND DILIGENCE THAT COULD BE DONE ON THE INVESTMENT?
JOHN BRYAN TOLBERT: CERTAINLY WE HAD HAD LOTS OF DISCUSSIONS ABOUT HOW TO ANALYZE THE OPPORTUNITY THAT, YOU KNOW, EXISTED.
MR. DOWNEY: OKAY. DID HE TELL YOU THAT HE THOUGHT IT WAS A DEAL THAT HAD HUGE POTENTIAL?
JOHN BRYAN TOLBERT: CERTAINLY. YEAH, IN THOSE DISCUSSIONS WE BOTH FELT LIKE THERE WAS POTENTIAL.
MR. DOWNEY: OKAY. AND DO YOU THINK THAT HE -- DO YOU RECALL HIM HAVING THE VIEW THAT THE DEAL WAS REALLY HARD TO ANALYZE OR UNDERSTAND?
JOHN BRYAN TOLBERT: YOU KNOW, I KNOW HE REFERENCES THAT HERE. YOU KNOW, I KNOW THAT WE BOTH, OVER THOSE LOTS OF YEARS LIKE WE TALKED ABOUT, HAD WISHED WE HAD MORE CONCRETE FINANCIAL INFORMATION. AND, YOU KNOW, SO IT'S HARD TO -- I MEAN, I KNOW HE SAYS HERE THAT IT'S HARD TO UNDERSTAND OR ANALYZE. I DON'T KNOW SPECIFICALLY WHAT THINGS HE WAS TALKING ABOUT. BUT I WOULD AGREE THAT IT WAS HARD TO ANALYZE.
MR. DOWNEY: BUT YOUR BEST UNDERSTANDING AT THE TIME THAT YOU MADE THE INVESTMENT WAS THAT THERANOS -- FIRST, THAT THERANOS WAS IN RETAIL PARTNERSHIPS AND THOSE STORES WOULD ROLL OUT; CORRECT?
JOHN BRYAN TOLBERT: CORRECT.
MR. DOWNEY: AND THEN IF THAT WAS SUCCESSFUL, THEY MIGHT RETURN TO OTHER AREAS OF THEIR BUSINESS, INCLUDING THE PHARMACEUTICAL BUSINESS AND THE MILITARY BUSINESS; CORRECT?
JOHN BRYAN TOLBERT: WELL, LIKE I SAID, I DIDN'T REALIZE THAT WAS A COMPLETE PAUSE, AND FROM THE LANGUAGE WE READ EARLIER, IT DIDN'T SEEM LIKE A COMPLETE PAUSE. BUT, YOU KNOW, I DID KNOW THAT RETAIL REPRESENTED A LARGE ENOUGH OPPORTUNITY AND A LARGE ENOUGH INVESTMENT OF TIME AND CAPITAL THAT IT WAS THE PRIMARY OPPORTUNITY AT THE MOMENT.
MR. DOWNEY: AND YOU THOUGHT THE FACT THAT WALGREENS HAD MADE A DECISION TO ENTER INTO A RETAIL PARTNERSHIP WITH THERANOS WAS SIGNIFICANT; CORRECT?
JOHN BRYAN TOLBERT: I DID THINK IT WAS VERY SIGNIFICANT.
MR. DOWNEY: AND YOU THOUGHT THAT WALGREENS HAD LIKELY DONE A FAIR AMOUNT OF DUE DILIGENCE IN CONNECTION WITH ITS DECISION TO DO THAT; CORRECT?
JOHN BRYAN TOLBERT: I WOULD HAVE BELIEVED THAT.
MR. DOWNEY: AND THAT WOULD HAVE BEEN IMPORTANT TO YOU IN MAKING YOUR DECISION; CORRECT?
JOHN BRYAN TOLBERT: IT WOULD HAVE FACTORED INTO IT.
MR. DOWNEY: AND YOU ALSO KNEW DURING THE PERIOD IN BETWEEN YOUR TWO INVESTMENTS THAT DON LUCAS AND CHRIS LUCAS HAD SOME INVOLVEMENT IN CONNECTION WITH THERANOS; CORRECT?
JOHN BRYAN TOLBERT: I DID.
MR. DOWNEY: AND I THINK AS WE DISCUSSED BEFORE, DON LUCAS WAS A VERY SOPHISTICATED INVESTOR AND A PERSON WITH A SUBSTANTIAL REPUTATION AS A TECHNOLOGY INVESTOR; CORRECT?
JOHN BRYAN TOLBERT: CORRECT.
MR. DOWNEY: AND THAT WAS IMPORTANT TO YOU IN MAKING YOUR DECISION; CORRECT?
JOHN BRYAN TOLBERT: THAT FACTORED INTO IT.
MR. DOWNEY: AND I THINK WE SAW DURING YOUR --
JOHN BRYAN TOLBERT: NOW, LET ME SAY THIS. SO, YOU KNOW, DON'S INVOLVEMENT FACTORED IN A BIG WAY INTO OUR FIRST INVESTMENT. AND TO THIS 2013 INVESTMENT, I DON'T REMEMBER WITH CLARITY. I KNOW AT SOME POINT HE STEPPED AWAY FROM THE COMPANY, OR AT LEAST STEPPED FARTHER AWAY, AND SO I DON'T REMEMBER EXACTLY WHEN IN THE TIMEFRAME, BUT CERTAINLY HIS INVOLVEMENT -- OR HIS INVOLVEMENT I DON'T THINK WAS AS MUCH AROUND THIS SECOND INVESTMENT AS IT WAS AROUND THE FIRST.
MR. DOWNEY: BUT YOU ASSUMED IN CONNECTION WITH THE RELATIONSHIP THAT HALL GROUP HAD WITH THERANOS THROUGH THOSE YEARS THAT HE HAD DONE -- HE HAD THE ABILITY TO EVALUATE THERANOS; CORRECT?
JOHN BRYAN TOLBERT: I -- CORRECT.
MR. DOWNEY: AND YOU KNEW HE WAS CHAIRMAN OF THE BOARD; CORRECT?
JOHN BRYAN TOLBERT: CORRECT.
MR. DOWNEY: AND YOU ASSUMED THE BOARD OF DIRECTORS HAD REGULAR MEETINGS, FOR EXAMPLE; CORRECT?
JOHN BRYAN TOLBERT: I DID ASSUME THAT.
MR. DOWNEY: AND THAT WOULD HAVE INFLUENCED YOU AS TO WHETHER THERANOS WOULD HAVE CONTINUED ITS DEVELOPMENT THROUGH THOSE YEARS; CORRECT?
JOHN BRYAN TOLBERT: CORRECT.
MR. DOWNEY: AND I THINK MR. SCHENK SHOWED YOU A RELEASE THAT THERANOS PUT OUT IN THE MIDDLE OF 2013 RELATED TO ITS BOARD; CORRECT?
JOHN BRYAN TOLBERT: CORRECT.
MR. DOWNEY: AND IS IT SAFE TO SAY THAT RECOGNIZING THAT THEY HAD A BOARD WITH PEOPLE WHO WERE WELL REGARDED WAS -- INFLUENCED YOU IN CONNECTION WITH MAKING YOUR 2013 INVESTMENT?
JOHN BRYAN TOLBERT: THAT CERTAINLY WOULD HAVE BEEN A POSITIVE, NOT A NEGATIVE.
MR. DOWNEY: OKAY. IS THAT SOMETHING THAT YOU TYPICALLY EVALUATE IN CONNECTION WITH MAKING INVESTMENTS?
JOHN BRYAN TOLBERT: YOU KNOW, CERTAINLY WE LOOK AT MANAGEMENT TEAMS AND BOARD OF DIRECTORS AND EXPERTISE THAT THEY HAVE.
MR. DOWNEY: OKAY. AND IS IT FAIR TO SAY THAT YOU UNDERSTOOD THAT THERANOS HAD A VERY SUBSTANTIAL PATENT PORTFOLIO?
JOHN BRYAN TOLBERT: I DID.
MR. DOWNEY: AND DID THAT INFLUENCE YOUR DECISION TO MAKE AN INVESTMENT IN 2013?
JOHN BRYAN TOLBERT: YOU KNOW, I DON'T KNOW IN 2013. IT CERTAINLY DID IN 2006.
MR. DOWNEY: OKAY. DID YOU GAIN ANY MORE INFORMATION THAT YOU RECALL IN THE PERIOD 2006 TO 2013 ABOUT THE PATENT PORTFOLIO?
JOHN BRYAN TOLBERT: YOU KNOW, I BELIEVE IN MY CONVERSATIONS WITH CHRIS WE WOULD HAVE REFERENCED ONCE OR TWICE THAT THERE WOULD HAVE BEEN ONGOING PATENTS THAT WOULD HAVE BEEN APPLIED FOR AND GRANTED, OR THAT THERE WERE -- THERE WAS A LOT OF WORK RELATIVE TO THE INTELLECTUAL PROPERTY THAT WAS ONGOING. IN FACT, I THINK IT WAS EVEN REFERENCED ON ONE OF THE TAPES, ONE OF THE SEGMENTS OF THE TAPE THAT WE LISTENED TO.
MR. DOWNEY: OKAY. BUT IT'S FAIR TO SAY THAT YOU, YOU -- IN MAKING THE INVESTMENT, YOU VIEWED THIS AS A COMPANY THAT HAD A LOT OF POTENTIAL FOR THE FUTURE; CORRECT?
JOHN BRYAN TOLBERT: THAT'S CORRECT.
MR. DOWNEY: AND YOU WERE ATTRACTED TO ITS MISSION; CORRECT?
JOHN BRYAN TOLBERT: I WAS, CORRECT.
MR. DOWNEY: AND YOU FELT THAT THE -- AS A RESULT OF ALL OF THE INFORMATION THAT YOU HAD BEEN ABLE TO GATHER OVER THE YEARS, THE INVESTMENT MADE SENSE; CORRECT?
JOHN BRYAN TOLBERT: I DID.
MR. DOWNEY: AND YOU HAD THE ABILITY TO PARTICIPATE OR NOT PARTICIPATE IN THE INVESTMENT; CORRECT?
JOHN BRYAN TOLBERT: CORRECT.
MR. DOWNEY: MR. SCHENK SHOWED YOU THE LANGUAGE IN THE LEGAL DOCUMENTS RELATED TO ACTUALLY MAKING THE INVESTMENT; CORRECT?
JOHN BRYAN TOLBERT: THAT'S CORRECT.
MR. DOWNEY: ARE THOSE THE ONLY DOCUMENTS THAT YOU RECEIVED FROM THERANOS IN THE WINDOW BETWEEN DECEMBER 20TH AND DECEMBER 31ST?
JOHN BRYAN TOLBERT: I BELIEVE THEY ARE.
MR. DOWNEY: DID THOSE DOCUMENTS ACCURATELY DESCRIBE THE SOPHISTICATION OF THE HALL GROUP AS INVESTORS?
JOHN BRYAN TOLBERT: THEY DID.
MR. DOWNEY: AND WAS IT THE CASE THAT YOU HAD ASKED ALL OF THE QUESTIONS THAT YOU WANTED TO ASK PRIOR TO THE TIME THAT YOU MADE THE INVESTMENT?
JOHN BRYAN TOLBERT: YOU KNOW, CERTAINLY WE HAD LOTS OF ADDITIONAL QUESTIONS THAT WE WOULD HAVE LIKED TO HAVE ASKED, BUT WE FELT SATISFIED THAT WE HAD ENOUGH INFORMATION TO MOVE FORWARD WITH THE INVESTMENT.
MR. DOWNEY: OKAY. YOUR HONOR, I THINK I MIGHT BE DONE, BUT ONE MOMENT?
JUDGE DAVILA: SURE.
(DISCUSSION AMONGST DEFENSE COUNSEL OFF THE RECORD.)
MR. DOWNEY: YOUR HONOR, THAT'S ALL FOR CROSS-EXAMINATION.
JUDGE DAVILA: ALL RIGHT. THANK YOU VERY MUCH. THANK YOU, MR. DOWNEY. MR. SCHENK.
MR. SCHENK: YES. THANK YOU.
REDIRECT EXAMINATION BY MR. SCHENK:
MR. SCHENK: MR. TOLBERT, MR. DOWNEY ASKED YOU SOME QUESTIONS AND PLAYED A PORTION OF A RECORDING THAT I PLAYED FOR YOU. IT WAS -- YOUR HONOR, FOR THE RECORD, IT'S AT LINE 22 ON PAGE 18 OF SIDE A. AND IN THIS SECTION I WANT TO GIVE YOU AN OPPORTUNITY TO EXPAND. YOU SAID, I DON'T THINK THAT THEY WERE PAUSING EVERYTHING, ALL MILITARY AND ALL PHARMACEUTICAL WORK. MS. HOLMES SAYS, "OBVIOUSLY, TO BE ABLE TO DO WHAT WE HAVE JUST DONE, WE HAD TO PAUSE A LARGE NUMBER OF OUR ONGOING PHARMACEUTICAL AND MILITARY PROGRAMS SO THAT WE COULD FOCUS LIKE A LASER ON THIS AND EXECUTING ON THIS." IS THERE MORE YOU WANTED TO TESTIFY ABOUT FOR THAT CONCEPT?
JOHN BRYAN TOLBERT: WELL, YOU KNOW WE, WE -- MY UNDERSTANDING WAS THAT THERE WERE LOTS OF PHARMACEUTICAL CONTRACTS AND WORK GOING ON AND THERE WAS A LARGE NUMBER OF, YOU KNOW, MILITARY DEPLOYMENT APPLICATIONS. AND SO WHEN IT SAID WE'RE PAUSING -- WHAT WAS THE LANGUAGE AGAIN?
MR. SCHENK: A LARGE NUMBER.
JOHN BRYAN TOLBERT: -- A LARGE NUMBER, YOU KNOW, I DIDN'T TAKE THAT TO MEAN A MAJORITY OR ALL OF THEM. I JUST THOUGHT IT MEANT IF THERE WAS 100 GOING ON, MAYBE WE WOULD PAUSE 30 OR 40, OR WHATEVER THE CASE MAY BE. SO, YOU KNOW, I DIDN'T -- WHEN I HEARD THAT, I DIDN'T THINK, OH, EVERYTHING HAS STOPPED EXCEPT FOR RETAIL.
MR. SCHENK: WHEN MS. HOLMES SAID THAT THEY HAD TO PAUSE ONGOING PHARMACEUTICAL WORK, DID YOU THINK THAT THERANOS HAD ONGOING PHARMACEUTICAL WORK IN DECEMBER OF 2013?
JOHN BRYAN TOLBERT: I BELIEVE THEY DID.
MR. SCHENK: WHEN MS. HOLMES SAID THAT SHE HAD TO PAUSE ONGOING MILITARY PROGRAMS, DID YOU THINK THAT THEY HAD ONGOING MILITARY PROGRAMS IN DECEMBER OF 2013?
JOHN BRYAN TOLBERT: I DID.
MR. SCHENK: MR. DOWNEY ALSO ASKED YOU IF THERE WAS A TIME DURING THE CALL WHERE MS. HOLMES SAID THAT THE TECHNOLOGY COULD DO THOUSANDS OF TESTS. DO YOU REMEMBER THAT QUESTION?
JOHN BRYAN TOLBERT: I DO.
MR. SCHENK: AND DO YOU RECALL MS. HOLMES SAYING, "AND BECAUSE WE HAVE MADE IT POSSIBLE TO RUN ANY COMBINATION OF LAB TESTS FROM THESE TINY SAMPLES, THE PHYSICIAN CAN NOW SAY ON THE LAB FORM IF IN MY EXAMPLE HEMOGLOBIN IS LOW, AUTOMATICALLY RUN IRON AND B12 AND OTHER TESTS ON THE SAME SAMPLE BECAUSE BIG DEDICATED TUBES OF BLOOD ARE NO LONGER REQUIRED TO RUN EACH OF THOSE DIFFERENT ASSAY METHODOLOGIES WHICH REQUIRE THEIR OWN BIG ANALYZERS IN A TRADITIONAL LAB." DO YOU RECALL MS. HOLMES SAYING THAT?
JOHN BRYAN TOLBERT: I DO.
MR. SCHENK: AND INSTEAD OF MS. HOLMES SAYING THEY COULD RUN THOUSANDS OF TESTS, THE QUESTION THAT MR. DOWNEY ASKED YOU, DID SHE SAY THAT THEY COULD RUN ANY COMBINATION OF LAB TESTS FROM THESE TINY SAMPLES?
JOHN BRYAN TOLBERT: CORRECT.
MR. SCHENK: THANK YOU. NO FURTHER QUESTIONS, YOUR HONOR.
JUDGE DAVILA: MR. DOWNEY?
RECROSS-EXAMINATION BY MR. DOWNEY:
MR. DOWNEY: JUST TWO QUESTIONS I THINK. YOU RECALL THE QUESTION AND ANSWER BETWEEN MR. HALL AND MS. HOLMES THAT APPEARED ON THE TAPE? YOU HAVE TO GIVE A VERBAL AUDIBLE ANSWER.
JOHN BRYAN TOLBERT: YES, I DO REMEMBER.
MR. DOWNEY: AND DO YOU RECALL THAT MR. HALL ASKED, REALLY WHAT IS THE PURPOSE OF THESE INVESTMENTS? DO YOU RECALL THAT?
JOHN BRYAN TOLBERT: I DO.
MR. DOWNEY: AND DO YOU RECALL THAT MS. HOLMES ANSWERED BY DESCRIBING DEVELOPMENTS THAT WOULD TAKE PLACE IN CONNECTION WITH THE RETAIL PROJECTS OF THERANOS?
JOHN BRYAN TOLBERT: I DO.
MR. DOWNEY: THAT'S ALL I HAVE, YOUR HONOR.
JUDGE DAVILA: THANK YOU.
MR. SCHENK: NO FURTHER QUESTIONS.
JUDGE DAVILA: MAY THIS WITNESS BE EXCUSED?
MR. SCHENK: YES.
MR. DOWNEY: YES, YOUR HONOR.
JUDGE DAVILA: YOU'RE EXCUSED, SIR. THANK YOU.
JOHN BRYAN TOLBERT: THANK YOU.
JUDGE DAVILA: YOU'RE WELCOME. JUST LEAVE THAT THERE. THANK YOU. ALL RIGHT. THANK YOU, LADIES AND GENTLEMEN. WE'LL NOW TAKE OUR WEEKEND BREAK. THANK YOU FOR YOUR GENEROSITY OF GOING OVER THIS. THIS WITNESS WAS FROM OUT OF TOWN AND, AS HE SAID, HE WAS GRATEFUL ALSO FOR THE ABILITY TO LEAVE ON A FRIDAY. I DO WANT TO, BEFORE WE ADJOURN, I DID WANT TO TALK TO YOU ABOUT A SCHEDULE CHANGE FOR -- THIS IS FOR EVERYONE'S BENEFIT. I'D LIKE TO CAPTURE SOME TIME. I'VE TALKED TO YOU ABOUT OUR DEFAULT NOW IS 3:00 O'CLOCK. I'M GOING TO THINK ABOUT 4:00 O'CLOCK. I'LL ASK YOU TO CONSIDER THAT, PLEASE. BUT I ALSO WANT TO ASK YOU TO WRITE THESE DATES DOWN BECAUSE THIS MIGHT -- I'M GOING TO ASK YOU IF WE CAN MEET ON THESE DATES IN ADDITION. NEXT WEEK, THE 28TH. WE DON'T MEET ON THURSDAYS, AS YOU KNOW, AND WE'RE NOT MEETING ON THE 29TH. I'M CURIOUS IF WE CAN MEET ON THE 28TH AT SOME TIME.
THAT SOME TIME WOULD BE AFTER -- I THINK I HAVE SOME MATTERS IN THE MORNING FROM 9:00 TO MAYBE 10:00 O'CLOCK, MAYBE 11:00 O'CLOCK, SO IF WE CAN MEET MAYBE AT NOON FOR SOME TIME, I THINK THAT MIGHT INTERFERE WITH ONE OF OUR JUROR'S TRAVEL TIME, THOUGH. SO LET ME MOVE TO THE NEXT MONTH. THAT IS NOVEMBER. WE HAVE -- WE'RE NOT IN SESSION ON MONDAYS, AND I THINK I TOLD YOU I HAVE AN AFTERNOON CALENDAR, TYPICALLY MONDAY AFTERNOONS. BUT I DO HAVE MONDAY MORNINGS AVAILABLE. IF YOU CAN CHECK WITH WHATEVER YOU NEED TO, YOUR EMPLOYERS AND OTHERS, IF THERE'S A POSSIBILITY OF MEETING ON MONDAY MORNINGS. AND THIS WOULD BE THE -- WE HAVE FIVE MONDAYS IN NOVEMBER, AND IF YOU CAN CHECK YOUR SCHEDULES TO SEE IF IT'S PERMITTED FOR YOU TO COME MONDAY MORNING FROM 9:00 TO NOON, THAT WOULD BE HELPFUL. I THINK 9:00 TO 1 :00. COUNSEL, THIS IS FOR YOU ALSO OF COURSE. I'M ALSO -- CURRENTLY WE'RE SCHEDULED TO BE HERE ON NOVEMBER 24TH. AS YOU ALL KNOW, NOVEMBER 25TH IS THE THANKSGIVING HOLIDAY.
I'M WONDERING IF YOU WOULD AGREE TO SWAP NOVEMBER 18TH FOR NOVEMBER 24TH. THAT MIGHT BE SOMETHING THAT WOULD BE HELPFUL. THAT IS, WE'LL MEET ON THE 18TH. WE'RE NOT SCHEDULED TO MEET ON THE 18TH NOW, BUT I CAN MAKE OURSELVES AVAILABLE, THIS COURT AVAILABLE, FOR THE 18TH IF PARTIES WISH TO. WE DON'T HAVE TO MEET ON THE 24TH IF THAT'S CONVENIENT FOR FOLKS. I JUST WANT TO OFFER THOSE DATES OUT, AND THEN WE'LL THINK ABOUT THAT OVER THE WEEKEND, AND COUNSEL AS WELL, YOUR TEAMS. AND MONDAY WE'LL TAKE THOSE UP TO SEE IF WE CAN CAPTURE SOME ADDITIONAL TIME. I ALSO HAVE TO SAY ON THE 17TH, I THINK I'VE TOLD YOU THIS -- MAYBE NOT -- THE 17TH OF NOVEMBER I'M UNAVAILABLE FOR AN HOUR FROM 10:30 TO 11:30. SO HOPEFULLY WE CAN GET A BREAK. NOVEMBER 17TH, THAT'S A WEDNESDAY. AND I BELIEVE THAT'S ALL THE CHANGES THAT I HAVE TO SUGGEST NOW. SO PLEASE THINK ABOUT THOSE THINGS. WE'LL TALK ABOUT THOSE MONDAY. BEFORE YOU LEAVE, PLEASE DO NOT DISCUSS THIS CASE, DO NOT FORM ANY OPINIONS ABOUT ANYTHING ON THIS CASE UNTIL YOU HAVE BEEN ASSIGNED TO THAT TASK FOR YOUR FINAL DELIBERATIONS. DO NOT WATCH, DO ANY INVESTIGATION, WATCH OR LISTEN TO ANY NEWS CASTS, DO NOT READ ANYTHING OR DO ANYTHING THAT MIGHT CAUSE YOU ANY INFORMATION ABOUT THE CASE, EXCEPT WHAT YOU HEAR IN THE COURTROOM. THANK YOU VERY MUCH. HAVE A GOOD WEEKEND. I THINK IT'S GOING TO BE -- I THINK IT'S GOING TO BE RAINY SUNDAY, RIGHT? THAT'S WHAT I HEAR. SO PLEASE USE CAUTION WHEN YOU'RE DRIVING. MR. CLINE?
MR. CLINE: YOUR HONOR, I APOLOGIZE. THIS MAY BE ONLY MY CONFUSION, BUT YOU MENTIONED POSSIBLY MEETING ON MONDAY, AND THEN YOU SAID JUST NOW THAT YOU WOULD TALK WITH US ON MONDAY. IS THERE SESSION ON MONDAY?
JUDGE DAVILA: THERE'S NO SESSION ON MONDAY, NO. WE'RE GOING TO TALK ABOUT -- MONDAYS WOULD BE IN NOVEMBER, NOVEMBER 1ST. WE'RE GOING TO TALK ABOUT IT -- EXCUSE ME. WE'LL TALK ABOUT IT ON TUESDAY. YES, WE'LL TALK ABOUT IT AT OUR NEXT SESSION. IT'S THE END OF THE WEEK, MR. CLINE. GIVE ME A BREAK HERE.
(LAUGHTER.)
JUDGE DAVILA: ALL RIGHT. THANKS EVERYONE. HAVE A GOOD WEEKEND. WE'LL SEE YOU. COUNSEL, IF YOU WOULD JUST REMAIN FOR A MOMENT.
(JURY OUT AT 4:25 P.M.)
JUDGE DAVILA: PLEASE BE SEATED. THANK YOU. THE RECORD SHOULD REFLECT THAT OUR JURY HAS LEFT FOR THE WEEKEND. ALL COUNSEL AND MS. HOLMES ARE PRESENT. I JUST WANT TO ASK, ANYTHING ELSE BEFORE WE LEAVE FOR THE WEEKEND, MR. SCHENK, FROM YOUR TEAM?
MR. SCHENK: YOUR HONOR, I'M NOT SURE IF THIS WAS UNCLEAR OR NOT. I JUST WANT THE RECORD TO REFLECT THAT THE RECORDINGS THAT I PLAYED TODAY, I PROVIDED ALL OF THEM TO THE DEFENSE BEFORE TODAY, AND I ONLY PLAYED RECORDINGS THAT I PROVIDED TO THEM, I THINK IT WAS SEPTEMBER 23RD. WE SENT A LIST OF WHAT WE INTENDED TO PLAY. AND THE DEFENSE, ABOUT A WEEK OR SO AGO, SENT US THEIR 106 ADDITIONS. WE INCORPORATED EVERYTHING THAT THEY ASKED, AND THEN THAT IS WHAT WAS PLAYED TODAY. I THINK THAT THAT WAS CLEAR ON THE RECORD, BUT I JUST WANT TO MAKE CLEAR.
JUDGE DAVILA: THANK YOU. MR. DOWNEY.
MR. DOWNEY: LET ME SAY TO MR. SCHENK, I APOLOGIZE TO MR. SCHENK IF THAT IS THE CASE. MY UNDERSTANDING IS THAT I PLAYED ONE CLIP WHICH WAS NOT PART OF HIS TAPE AND WHICH OBVIOUSLY CAUSED SUBSTANTIAL CONFUSION AND DELAY. I BELIEVE IT IS THE CASE THAT WE SENT IT, BUT IF HE SAYS IT IS NOT, I ACCEPT HIS WORD AND I APOLOGIZE.
JUDGE DAVILA: THANK YOU. THANK YOU. I APPRECIATE IT. IT DID CAUSE A LITTLE HICCUP, BUT THIS JURY IS WONDERFUL ABOUT GETTING DONE WHAT WE NEED TO GET DONE. THANK YOU. MR. DOWNEY, ANYTHING ELSE FROM YOUR TEAM? MR. WADE?
MR. WADE: I JUST WANT TO FLAG AND GET SOME GUIDANCE FROM THE COURT. THE MEMBERS OF OUR TEAM HAVE INDICATED THAT THE ECF IS DOWN THIS WEEKEND, WHICH IS --
JUDGE DAVILA: WHAT'S WRONG WITH THAT?
(LAUGHTER.)
MR. WADE: WHICH IS WELCOME NEWS TO I'M SURE MANY IN THE COURTROOM. WE INTEND TO MEET AND CONFER WITH THE GOVERNMENT ON THE WITNESSES COMING UP. I ASSUME IF THERE'S SOME MOTION THAT COMES UP, SHOULD WE EMAIL IT THROUGH MS. KRATZMANN THIS WEEKEND? OUR HOPE IS THAT THERE ISN'T, BUT IN THE EVENT THAT WE NEED TO PUT THE COURT ON NOTICE OF A PLEADING, SHOULD WE -- HOW SHOULD WE DO THAT? SHOULD WE DO IT ON THE WEEKEND AND FILE IT WHEN THE ECF IS BACK UP?
JUDGE DAVILA: YEAH, I DON'T KNOW WHAT -- I CAN'T REMEMBER IF IT'S DOWN ALL WEEKEND OR NOT.
COURT CLERK: IT IS ALL WEEKEND.
MR. WADE: AND OBVIOUSLY IF WE DO IT, WE WANT TO GET IT TO THE COURT AS QUICKLY AS WE CAN TO GIVE AS MUCH NOTICE AS POSSIBLE. THERE MAY NOT BE ISSUES. WE'RE GOING TO MEET AND CONFER.
JUDGE DAVILA: I'M VERY CONFIDENT THERE WON'T BE.
(DISCUSSION OFF THE RECORD.)
COURT CLERK: 6:00 A.M. SATURDAY, OCTOBER 23RD, TO 6:00 A.M. MONDAY, OCTOBER 25TH.
(PAUSE IN PROCEEDINGS.)
JUDGE DAVILA: WELL, I DON'T THINK THERE'S ANYTHING ELSE WE CAN DO. ECF IS DOWN, SO YOU WON'T BE ABLE TO FILE IT, ANYTHING ELSE YOU HAVE. I THINK WE'RE AT THE MERCY OF ECF. IF YOU FILE IT AT 6:00 A.M., YOU KNOW, WE'LL DO THE BEST WE CAN. THAT'S ALL I CAN TELL YOU. YOU KNOW, WE'RE NOT IN SESSION ON MONDAY, SO SHOULD IT BE NECESSARY, WE'LL JUST, WE'LL JUST -- JUST FILE IT WHEN YOU CAN AND WE'LL DO WHAT WE CAN DO.
MR. WADE: WOULD YOU LIKE US TO SEND A COURTESY COPY TO THE COURT IF IT'S AVAILABLE BEFORE ECF GOES BACK UP?
JUDGE DAVILA: IS THERE -- LET ME ASK, IS THERE AN EMAIL? DO WE HAVE A GENERAL EMAIL THAT I CAN ACCESS?
(DISCUSSION OFF THE RECORD.)
JUDGE DAVILA: THANK YOU. I THINK YOU CAN SEND IT TO OUR COURT REPORTER AND SHE'LL GET IT TO ME. IT SOUNDS LIKE THAT. BUT WHY DON'T YOU STICK AROUND AND SPEAK WITH HER. THE CONDITION IS THAT YOU'RE GOING TO HAVE TO BE WITH HERE AT 5:00 A.M.
MR. WADE: THAT'S THE CONDITION WITH A LOT OF AUDIOTAPES. HOPEFULLY THAT WILL BE AN INCENTIVE WITHOUT HAVING TO BURDEN ANYONE. THANK YOU, YOUR HONOR.
JUDGE DAVILA: ALL RIGHT. THANK YOU VERY MUCH.
MR. DOWNEY: AS FOR NEXT WEEK, DO WE KNOW THAT THE JUROR'S SCHEDULE WILL INCLUDE A THURSDAY SITTING OR --
JUDGE DAVILA: I'M SORRY. SAY AGAIN?
MR. DOWNEY: I THINK YOUR HONOR HAD BEGUN TO SAY TO CHECK OUR SCHEDULE FOR THE AVAILABILITY OF THURSDAY, AND THEN YOU COMMENTED ABOUT THE POTENTIAL TRAVEL SCHEDULE, AND I UNDERSTAND WHY WE DID IT THAT WAY. I JUST WANTED TO SEE IF WE ALREADY KNOW.
JUDGE DAVILA: I THINK WE DO. ONE OF OUR JURORS WHO'S TRAVELLING, WHO HAS THE FUNERAL OUT OF TOWN, SIGNALLED THAT SHE WAS NOT AVAILABLE. I THINK SHE'S FLYING OUT THURSDAY. SO THAT'S NOT AVAILABLE.
(DISCUSSION OFF THE RECORD.)
JUDGE DAVILA: AND I'M ALSO INFORMED THAT THAT JUROR IS NOT AVAILABLE MONDAY, THE 1ST, FOR A POSSIBLE MONDAY MEETING. SO WE'VE GOT FOUR OTHER MONDAYS TO WORK WITH.
MR. DOWNEY: GOOD ENOUGH. THANK YOU, YOUR HONOR.
JUDGE DAVILA: ALL RIGHT. HAVE A GOOD EVENING.
MR. SCHENK: THANK YOU, YOUR HONOR.
COURT CLERK: COURT IS ADJOURNED.
(COURT ADJOURNED AT 4:31 P.M.)