Christopher Lucas — Direct/Cross/Redirect/Recross
1,958 linesSAN JOSE, CALIFORNIA NOVEMBER 4, 2021 P R O C E E D I N G S
(COURT CONVENED AT 9:38 A.M.)
(JURY IN AT 9:38 A.M.)
JUDGE DAVILA: WE'RE BACK ON THE RECORD IN THE HOLMES MATTER. ALL COUNSEL ARE PRESENT. MS. HOLMES IS PRESENT. THE JURY IS PRESENT. GOOD MORNING, LADIES AND GENTLEMEN. BEFORE WE START, LET ME ASK THAT QUESTION AGAIN. THANKS FOR YOUR ENDURANCE. DURING THE RECESS, DID YOU, ANY MEMBERS OF THE JURY, HAVE CAUSE TO COME ACROSS ANY INFORMATION, COMMUNICATION -- AND SPEAK INTO THE MIKE -- WITH ANYONE OR ANYTHING TO DO WITH THIS CASE? IF SO, PLEASE LET ME SEE YOUR HANDS, PLEASE. I SEE NO HANDS. THANK YOU VERY MUCH. BEFORE I ASK ABOUT THE NEXT WITNESS, MR. LEACH, LET ME JUST INQUIRE OF THE PARTIES. DID EVERYTHING GO WELL THIS MORNING, WHATEVER THAT TRANSACTION WAS? IS THERE ANYTHING THAT EITHER SIDE NEEDS TO DISCUSS ON THAT?
MR. DOWNEY: I THINK THERE IS ONE ITEM, YOUR HONOR. MAYBE WE CAN JUST TAKE THAT UP --
JUDGE DAVILA: AT A BREAK?
MR. DOWNEY: YEAH.
JUDGE DAVILA: SURE. DOES THE GOVERNMENT HAVE A WITNESS TO CALL?
MR. BOSTIC: YES, YOUR HONOR. THE UNITED STATES CALLS CHRIS LUCAS.
JUDGE DAVILA: GOOD MORNING, SIR. IF YOU WOULD PLEASE WALK OVER HERE AND FACE OUR COURTROOM DEPUTY WHILE YOU RAISE YOUR RIGHT HAND, SHE HAS A QUESTION FOR YOU.
CHRISTOPHER LUCAS: SURE.
COURT CLERK: GOOD MORNING.
CHRISTOPHER LUCAS: GOOD MORNING.
(GOVERNMENT'S WITNESS, CHRISTOPHER LUCAS, WAS SWORN.)
CHRISTOPHER LUCAS: YES.
COURT CLERK: THANK YOU.
JUDGE DAVILA: PLEASE HAVE A SEAT HERE, SIR. LET ME INVITE YOU TO MAKE YOURSELF COMFORTABLE.
CHRISTOPHER LUCAS: THANK YOU.
JUDGE DAVILA: YOU'RE WELCOME. FEEL FREE TO ADJUST THE CHAIR AND MICROPHONE AS YOU NEED, AND I'LL ENCOURAGE YOU TO SPEAK DIRECTLY INTO THE MICROPHONE. WHEN YOU ARE COMFORTABLE, WOULD YOU PLEASE STATE YOUR NAME, AND THEN SPELL IT, PLEASE.
CHRISTOPHER LUCAS: SURE. MY NAME IS CHRISTOPHER LUCAS. C-H-R-I-S-T-O-P-H-E-R, LUCAS, L-U-C-A-S.
JUDGE DAVILA: THANK YOU. COUNSEL.
MR. BOSTIC: THANK YOU, YOUR HONOR.
DIRECT EXAMINATION BY MR. BOSTIC:
MR. BOSTIC: MR. LUCAS, IF YOU ARE FULLY VACCINATED AND COMFORTABLE DOING SO, I UNDERSTAND THE COURT WILL ALLOW YOU TO TESTIFY WITHOUT A MASK.
CHRISTOPHER LUCAS: OKAY. THANK YOU.
MR. BOSTIC: I'LL REMOVE MY MASK AS WELL. MR. LUCAS, WERE YOU AN INVESTOR IN A COMPANY CALLED THERANOS?
CHRISTOPHER LUCAS: YES, I WAS.
MR. BOSTIC: I'LL ASK YOU SOME QUESTIONS ABOUT THAT, BUT FIRST LET ME ASK YOU SOME QUESTIONS ABOUT YOUR BACKGROUND. CAN YOU SUMMARIZE FOR US YOUR EDUCATION, PLEASE?
CHRISTOPHER LUCAS: SURE. I HAVE A BACHELOR'S IN ENGINEERING FROM UCLA AND AN MBA FROM U.S.C.
MR. BOSTIC: AND AFTER YOU OBTAINED THOSE DEGREES, CAN YOU SUMMARIZE YOUR WORK HISTORY, YOUR CAREER FOR US, PLEASE?
CHRISTOPHER LUCAS: SURE. AFTER MY MBA, I WORKED IN STARTUPS FOR QUITE SOME TIME, BOTH AS CFO, AS WELL AS SOME SALES POSITIONS. AND THEN IN 1998 -- AND I'VE BEEN AROUND VENTURE INVESTMENTS ALL OF MY LIFE. I STARTED OUR FIRM, BLACK DIAMOND VENTURES, IN 1998.
MR. BOSTIC: AND WHAT IS BLACK DIAMOND VENTURES?
CHRISTOPHER LUCAS: SO WE'RE A VENTURE CAPITAL FIRM. WE INVEST IN TECHNOLOGY COMPANIES, PRIMARILY SEMICONDUCTOR SOFTWARE, MEDICAL, AND MEDICAL DEVICE.
MR. BOSTIC: AND HAVE YOU BEEN AFFILIATED WITH BLACK DIAMOND VENTURES SINCE 1998?
CHRISTOPHER LUCAS: YES.
MR. BOSTIC: WHAT IS YOUR TITLE AT BLACK DIAMOND VENTURES?
CHRISTOPHER LUCAS: MANAGING DIRECTOR.
MR. BOSTIC: AND IN PLAIN TERMS, WHAT DOES THAT MEAN ABOUT YOUR ROLE AT BLACK DIAMOND?
CHRISTOPHER LUCAS: SO I FOUNDED THE FIRM IN '98, AND OBVIOUSLY BACK -- WELL, NOT OBVIOUSLY, BUT BACK THEN I DID MOST OF THE RESEARCH, ANALYSIS, AND SO FORTH. AND THEN AS WE HAD OTHER FOLKS COME INTO THE FIRM, THEY DID MORE OF THAT, AND I WAS MORE IN A MANAGING ROLE.
MR. BOSTIC: AS MANAGING DIRECTOR, ARE YOU THE SENIOR MOST PERSON AT BLACK DIAMOND VENTURES?
CHRISTOPHER LUCAS: YES.
MR. BOSTIC: AND IN THAT CAPACITY, HAVE YOU WORKED ON A NUMBER OF VENTURE INVESTMENTS AT BLACK DIAMOND VENTURES?
CHRISTOPHER LUCAS: YES.
MR. BOSTIC: I'D LIKE TO TALK ABOUT HOW YOU APPROACH A POTENTIAL INVESTMENT. FIRST OF ALL, CAN YOU GIVE US AN OVERVIEW OF THE PROCESS, IF THERE IS ONE, THAT BLACK DIAMOND VENTURES USES IN EVALUATING A POSSIBLE INVESTMENT?
CHRISTOPHER LUCAS: SURE. SO GENERALLY MOST OF OUR INVESTMENTS COME FROM REFERRALS, EITHER FROM EITHER VC FIRMS OR FOLKS THAT WE KNOW. AND THEN WE START OUR PROCESS OF -- OBVIOUSLY WE MEET THE CEO AND ANY OF THE FOUNDING MANAGEMENT TEAM. AND GENERALLY THEY PUT TOGETHER MATERIALS THAT WE THEN REVIEW. TO THE EXTENT SOMETIMES THEY PUT TOGETHER WHAT IS CALLED A DATA ROOM WHERE THEY PUT ALL OF THE RELEVANT DOCUMENTS INTO THAT PLACE ON A HARD DRIVE.
MR. BOSTIC: AND WHEN BDV IS DECIDING WHETHER TO INVEST IN A COMPANY -- WELL, LET ME ASK, WHERE IS THE -- WHERE ARE THE FUNDS COMING FROM THAT ACTUALLY MAKE UP THE INVESTMENT IN A TYPICAL CASE?
CHRISTOPHER LUCAS: SO UNIQUELY, OUR FIRM IS COMPRISED OF ALL INDIVIDUALS, SO IT'S FOLKS WHO HAVE THE CAPACITY AND ARE ACCREDITED INVESTORS SO THAT THEY CAN INVEST IN DEALS LIKE THIS.
MR. BOSTIC: AND --
CHRISTOPHER LUCAS: AND I MAKE THE DISTINCTION THAT WE DO NOT HAVE ANY INSTITUTIONAL INVESTORS.
MR. BOSTIC: UNDERSTOOD. SO THE FIRM IS MANAGING AND IMPLEMENTING THE INVESTMENT ON BEHALF OF THOSE INDIVIDUALS?
CHRISTOPHER LUCAS: THAT'S CORRECT.
MR. BOSTIC: WHEN -- CAN I CALL BLACK DIAMOND VENTURES BDV FOR SHORT? DO YOU EVER USE THAT ABBREVIATION?
CHRISTOPHER LUCAS: YES.
MR. BOSTIC: WHEN BDV IS EVALUATING A POTENTIAL INVESTMENT, DO YOU CATEGORIZE COMPANIES BASED ON HOW LONG THEY'VE BEEN AROUND AND HOW FAR ALONG THEY ARE?
CHRISTOPHER LUCAS: WE DO. AND IT GOES FROM SOMEONE MAY HAVE AN IDEA FOR A COMPANY VERY EARLY STAGE, KIND OF THE DREAM STAGE, AND THEN UP FROM THERE EARLY STAGE, MEDIUM STAGE, LATE STAGE WHERE LATE STAGE IS YOU'RE ROLLING WHATEVER IT IS YOU'RE DOING OUT TO THE MARKETPLACE AND YOU'RE NOW RAISING CAPITAL JUST TO CONTINUE THAT PROCESS.
MR. BOSTIC: AND HOW DOES THAT FACTOR, THE STAGE OF GROWTH THAT A COMPANY IS IN, HOW DOES THAT FACTOR AFFECT YOUR EVALUATION OF A POTENTIAL INVESTMENT?
CHRISTOPHER LUCAS: SO CLEARLY EARLIER STAGE COMPANIES, IT'S MORE RISKY AND IT'S MORE UNCERTAIN, SO WHEN YOU EVALUATE IT, YOU HOPE TO BE -- YOU HOPE TO GET A LARGER RETURN FOR THAT. AS YOU'RE FARTHER UP THE CHAIN, MAYBE IT'S MORE CERTAIN THAT YOU'RE GOING TO MAKE A RETURN, AND YOU AREN'T SURE HOW MUCH, BUT YOU ARE GOING TO MAKE A RETURN AND UNLIKELY THAT YOU'RE GOING TO LOSE MONEY. AND SO SUBSEQUENTLY THE RETURNS ARE GENERALLY NOT AS GREAT THAN IF YOU HAD INVESTED IN AN EARLY STAGE.
MR. BOSTIC: SO IN DETERMINING WHETHER TO INVEST IN EVALUATING A POTENTIAL COMPANY, WHAT ARE YOUR PRIMARY SOURCES OF INFORMATION?
CHRISTOPHER LUCAS: CERTAINLY INITIALLY MEETING WITH THE MANAGEMENT TEAM AND UNDERSTANDING THE CAPABILITY OF THEM, ANALYZING THE POTENTIAL OF WHATEVER IT IS THAT THEY'RE GOING TO DO, AND THE SIZE OF THE MARKET, AND IS THIS WORTHWHILE AND SO FORTH. AND THEN HOW MUCH MONEY IS IT GOING TO TAKE TO GET THE COMPANY TO FRUITION.
MR. BOSTIC: I'D LIKE TO TALK ABOUT YOUR EXPERIENCE WITH THERANOS SPECIFICALLY. HOW WERE YOU FIRST INTRODUCED TO THE COMPANY, OR HOW DID YOU BECOME AWARE OF THERANOS?
CHRISTOPHER LUCAS: MY UNCLE, DON LUCAS, HAS BEEN A VENTURE CAPITALIST A LONG TIME IN THE VALLEY, AND HE HAD MET ELIZABETH EARLY ON THROUGH ONE OF HIS FRIENDS, AND SO HE INTRODUCED HER TO ME SUBSEQUENTLY.
MR. BOSTIC: DO YOU RECALL APPROXIMATELY WHEN YOU FIRST BECAME AWARE OF THE COMPANY?
CHRISTOPHER LUCAS: APPROXIMATELY 2005, I BELIEVE, 2005, 2006.
MR. BOSTIC: AND AROUND THAT TIME PERIOD, DO YOU RECALL WHAT DON LUCAS'S CONNECTION TO THERANOS WAS?
CHRISTOPHER LUCAS: WELL, AS I SAY, HE WAS INTRODUCED TO ELIZABETH, AND HE STARTED SPENDING CONSIDERABLE TIME WITH HER, AND HE WAS VERY EXCITED ABOUT THE OPPORTUNITY, AND THAT WAS PRETTY MUCH THE INVOLVEMENT. AND THEN HE TOOK IT FROM THERE.
MR. BOSTIC: DID DON LUCAS INVEST IN THERANOS TO YOUR KNOWLEDGE?
CHRISTOPHER LUCAS: HE DID.
MR. BOSTIC: AND WAS THERE A TIME WHEN DON LUCAS WAS ON THE BOARD OF DIRECTORS FOR THERANOS?
CHRISTOPHER LUCAS: HE WAS ON THE BOARD CERTAINLY IN THE BEGINNING, AND FOR SOME TIME HE WAS CHAIRMAN OF THE BOARD.
MR. BOSTIC: MAY I APPROACH, YOUR HONOR?
JUDGE DAVILA: YES.
BY MR. BOSTIC:
MR. BOSTIC: (HANDING.) MR. LUCAS, I'VE HANDED YOU A BINDER OF DOCUMENTS. I'VE PROVIDED THE COURT AND DEFENSE COUNSEL WITH COPIES AS WELL. I'LL ASK YOU TO TURN TO TAB 5016 IN THAT BINDER IF YOU COULD. DO YOU HAVE 5016 IN FRONT OF YOU?
CHRISTOPHER LUCAS: I DO.
MR. BOSTIC: DO YOU RECOGNIZE THAT DOCUMENT?
CHRISTOPHER LUCAS: I DO.
MR. BOSTIC: IS THIS AN EMAIL FROM JANUARY 2006 TO YOU ABOUT AN INVESTMENT IN THERANOS?
CHRISTOPHER LUCAS: DID YOU SAY JANUARY 6TH?
MR. BOSTIC: JANUARY 2006.
CHRISTOPHER LUCAS: MAYBE I'M IN THE WRONG ONE. THIS IS --
MR. BOSTIC: ARE YOU AT TAB 50 --
CHRISTOPHER LUCAS: OH, JANUARY 2006. I'M SORRY. YES, YES. JANUARY 30TH. YEP.
MR. BOSTIC: YOUR HONOR, I OFFER EXHIBIT 5016.
MR. DOWNEY: NO OBJECTION.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 5016 WAS RECEIVED IN EVIDENCE.)
BY MR. BOSTIC:
MR. BOSTIC: AND, MR. LUCAS, WE SEE HERE AN EMAIL HERE FROM SOMEONE NAMED NICOLE HARPER AT FENWICK & WEST. DO YOU SEE THAT?
CHRISTOPHER LUCAS: YES.
MR. BOSTIC: AND IS THAT YOUR EMAIL AT THE TOP, CHRIS@BDVENTURES AT THE TOP?
CHRISTOPHER LUCAS: IT IS.
MR. BOSTIC: CAN YOU DESCRIBE FOR US WHAT WAS HAPPENING AS REFERENCED IN THIS EMAIL IN JANUARY 2006?
CHRISTOPHER LUCAS: THIS IS REFERRING TO A SERIES B FINANCING, WHICH WE INVESTED SOME MONEY BACK THERE AT THAT TIME.
MR. BOSTIC: SO THIS IS IN CONNECTION WITH AN INVESTMENT BY BDV IN THERANOS?
CHRISTOPHER LUCAS: CORRECT.
MR. BOSTIC: DO YOU RECALL THE APPROXIMATE AMOUNT OF THAT INVESTMENT IN EARLY 2006?
CHRISTOPHER LUCAS: I DO. I BELIEVE IT WAS ABOUT 400,000.
MR. BOSTIC: APPROXIMATELY?
CHRISTOPHER LUCAS: APPROXIMATELY.
MR. BOSTIC: AND THOSE FUNDS, GENERALLY SPEAKING, WHAT WAS THE SOURCE OF THOSE FUNDS? DID THEY COME FROM THE INDIVIDUAL CLIENTS OF BDV, OR WERE YOUR PERSONAL FUNDS INCLUDED IN THAT?
CHRISTOPHER LUCAS: THERE MAY HAVE BEEN SOME OF MY PERSONAL FUNDS, BUT THE MAJORITY FROM OUR INVESTORS.
MR. BOSTIC: AROUND THIS TIME IN JANUARY 2006, DID YOU HAVE OCCASION TO HAVE CONVERSATIONS WITH MS. HOLMES?
MR. BOSTIC: WOULD THIS HAVE BEEN AROUND THE TIME WHEN YOU FIRST MET MS. HOLMES?
CHRISTOPHER LUCAS: YES. IF I'M RECOLLECTING PROPERLY, IT MAY HAVE BEEN A LITTLE BIT BEFORE. I'M JUST NOT RECALLING.
MR. BOSTIC: WE TALKED A LITTLE BIT BEFORE ABOUT BDV'S PROCESS FOR EVALUATING INVESTMENTS. FOR THIS INVESTMENT IN JANUARY OF 2006, WHAT WERE YOUR SOURCES OF INFORMATION ABOUT THERANOS GENERALLY SPEAKING?
CHRISTOPHER LUCAS: GENERALLY IT WOULD HAVE BEEN EARLY ON THAT I MET ELIZABETH AND -- BUT THE MAJORITY OF THE INFORMATION AT THAT TIME WAS COMING FROM MY UNCLE, AND I THINK AT THAT TIME THERE WAS ANOTHER INVESTOR AS WELL THAT WAS PROVIDING INFORMATION. BUT BACK THEN IT WAS, AGAIN, WOULD HAVE BEEN ON A REFERRAL BASIS, AND YOU WANT TO CLEARLY INVEST IN WONDERFUL OPPORTUNITIES, AND SOMETIMES YOU DO GET THE SENSE THAT THIS IS A GREAT OPPORTUNITY. AND SO, YEAH, YOU'RE BEING INVITED TO COME INTO A DEAL AND INVEST.
MR. BOSTIC: AND IN YOUR MIND, WHAT MADE THERANOS A WONDERFUL OPPORTUNITY IN 2006?
CHRISTOPHER LUCAS: CERTAINLY WITH ELIZABETH, AND AGAIN, IF I HAD MET HER AROUND THAT TIME AND SO FORTH, SHE WAS VERY PASSIONATE ABOUT THE PROJECT, VERY SINCERE WHAT SHE WAS TRYING TO DO, WORKED ALL OF THE TIME. IT WAS ALL THERANOS ALL THE TIME FOR ELIZABETH.
MR. BOSTIC: AND IN CONNECTION WITH THAT INVESTMENT, DID YOU HAVE THE OPPORTUNITY TO REVIEW ANY DOCUMENTATION PROVIDED BY THE GOVERNMENT?
CHRISTOPHER LUCAS: I MAY HAVE, AND IT WAS -- AGAIN, IF IT WAS AT THIS TIME -- A RUDIMENTARY DISCUSSION OF WHAT THE COMPANY WAS TRYING TO ACHIEVE WITH A DROP OF BLOOD AND ALL OF THE TESTS AND SO FORTH.
MR. BOSTIC: TELL US MORE ABOUT THAT. BASED ON THE INFORMATION THAT YOU HAD AT THAT TIME, WHAT WAS YOUR UNDERSTANDING OF WHERE THE COMPANY WAS, WHAT ITS PRODUCT WAS, THINGS LIKE THAT?
CHRISTOPHER LUCAS: YEAH. SO, SO THIS WAS AT THE TIME VERY EARLY STAGE. ELIZABETH WAS SPENDING ALL THE TIME WITH SOME OF THE FOLKS. SO IT IS TRULY AT THAT STAGE, YOU DON'T KNOW IF THE COMPANY IS GOING TO BE ABLE TO COME UP WITH IT OR NOT. YOU TAKE A SHOT, IT SOUNDS VERY INTERESTING AND EXCITING, AND IF IT ALL WORKED OUT, WONDERFUL. AND IF THEY WERE NOT ABLE TO DEVELOP THE TECHNOLOGY, GIVEN THAT THIS WAS SO EARLY STAGE, YOU KNOW, YOU TOOK YOUR CHANCE, AND IF IT DIDN'T WORK OUT, YOU MOVE ON.
MR. BOSTIC: AND AS YOU UNDERSTOOD IT AT THE TIME, WHAT WAS THE TECHNOLOGY THAT THE COMPANY WAS TRYING TO DEVELOP?
CHRISTOPHER LUCAS: SO FROM A SMALL AMOUNT OF BLOOD, A VERY SMALL AMOUNT OF BLOOD, FINGERSTICK, THAT THE COMPANY'S TECHNOLOGY WOULD ULTIMATELY BE ABLE TO EVALUATE AND TEST THE BLOOD CERTAINLY WITH THE MOST OF THE GENERAL TESTS THAT WOULD BE ADMINISTRATED BY A QUEST OR A LABCORP. BUT THE ULTIMATE VISION WAS TO HAVE ALL TESTS BE ABLE TO TEST WITH A SMALL AMOUNT OF BLOOD.
MR. BOSTIC: AND BASED ON THE INFORMATION THAT YOU WERE GETTING FROM MS. HOLMES AND THERANOS AT THIS TIME, WHAT WAS YOUR UNDERSTANDING OF HOW FAR ALONG THAT TECHNOLOGY WAS? WAS IT A VERY ROUGH CONCEPT? A DRAWING ON A NAPKIN? WAS IT A FULLY FINISHED PRODUCT? OR SOMEWHERE IN BETWEEN?
CHRISTOPHER LUCAS: IT WAS CERTAINLY BEYOND A DRAWING ON A NAPKIN, BUT WE CERTAINLY DIDN'T BELIEVE AT THAT TIME THAT IT WAS FULLY FUNCTIONAL AND DEVELOPED.
MR. BOSTIC: AND FINALLY, HOW DID THAT UNDERSTANDING RELATE TO YOUR ASSESSMENT OF THE AMOUNT OF RISK INVOLVED IN THE INVESTMENT?
CHRISTOPHER LUCAS: AT THAT POINT IT WOULD HAVE BEEN VERY HIGH RISK.
MR. BOSTIC: WAS THE 2006 INVESTMENT THE ONLY TIME THAT BDV INVESTED IN THERANOS?
CHRISTOPHER LUCAS: WE INVESTED LATER THAT YEAR AS WELL, AND AGAIN IN 2013.
MR. BOSTIC: AND DO YOU RECALL THE AMOUNT OF THE SECOND INVESTMENT IN 2006?
CHRISTOPHER LUCAS: I BELIEVE IT WAS AROUND A MILLION AND A HALF.
MR. BOSTIC: AND THEN YOU SAID THERE WAS AN INVESTMENT AFTER THAT AS WELL?
MR. BOSTIC: AND WHEN DID THAT OCCUR?
CHRISTOPHER LUCAS: THAT OCCURRED IN DECEMBER OF 2013.
MR. BOSTIC: OKAY. LET'S TALK ABOUT THE TIME PERIOD LEADING UP TO THAT 2013 INVESTMENT, IF WE COULD. FIRST, DO YOU RECALL THE APPROXIMATE AMOUNT OF THAT 2013 INVESTMENT?
CHRISTOPHER LUCAS: YES. ABOUT 5.4 MILLION.
MR. BOSTIC: SO APPROXIMATELY FIVE TO TEN TIMES THE AMOUNT OF THE INVESTMENT IN 2006?
CHRISTOPHER LUCAS: ABOUT FOUR TIMES.
MR. BOSTIC: THREE TO FOUR TIMES?
MR. BOSTIC: FOLLOWING YOUR INITIAL CONVERSATIONS WITH MS. HOLMES IN 2006, DID YOU REMAIN IN CONTACT WITH HER?
MR. BOSTIC: AND DURING THOSE FURTHER CONTACTS, DID YOU RECEIVE ADDITIONAL INFORMATION FROM HER ABOUT THERANOS?
MR. BOSTIC: CAN YOU GIVE US A SENSE OF HOW FREQUENTLY YOU WERE IN TOUCH WITH MS. HOLMES DURING THAT TIME PERIOD? AND AGAIN, WE'RE TALKING GENERALLY FROM 2006 TO 2013.
CHRISTOPHER LUCAS: CERTAINLY BY, BY PHONE QUITE OFTEN, AND WHEN I WOULD BE UP HERE IN THE BAY AREA WE WOULD GET TOGETHER, AND THAT COULD HAVE BEEN FOUR OR FIVE TIMES A YEAR.
MR. BOSTIC: IN-PERSON MEETINGS APPROXIMATELY FOUR TO FIVE TIMES A YEAR?
CHRISTOPHER LUCAS: I WOULD SAY SO, AND, YES, IN PERSON.
MR. BOSTIC: AND AS FAR AS THE PHONE CONTACT, HOW FREQUENT WAS THAT?
CHRISTOPHER LUCAS: I'M REALLY NOT REMEMBERING, BUT I COULD IMAGINE ONCE A MONTH, SOMETHING LIKE THAT.
MR. BOSTIC: AND DURING THAT TIME PERIOD, THOSE YEARS LEADING UP TO THE 2013 INVESTMENT, WERE THERE OTHER INDIVIDUALS AT THERANOS WITH WHOM YOU WERE ALSO IN CONTACT?
CHRISTOPHER LUCAS: GENERALLY ELIZABETH, CERTAINLY SOME OF HER ASSISTANTS, AND THEN I'M JUST FORGETTING THE TIMEFRAME WHEN I THEN GOT TO KNOW HER BROTHER, CHRISTIAN, AND SOME OF THE OTHER FOLKS. BUT PRIMARILY IT WAS DIRECTLY WITH ELIZABETH.
MR. BOSTIC: DOES THAT MEAN THAT MS. HOLMES WAS THE PRIMARY SOURCE OF INFORMATION ABOUT THERANOS IN THE TIME LEADING UP TO THAT 2013 INVESTMENT?
CHRISTOPHER LUCAS: YES. YES.
MR. BOSTIC: YOU MENTIONED THAT YOUR UNCLE, DON LUCAS, HAD BEEN ON THE BOARD OF DIRECTORS AT THERANOS; IS THAT CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. BOSTIC: AND DID YOU ALSO HAVE CONVERSATIONS WITH HIM ABOUT THE COMPANY DURING THAT TIME PERIOD?
MR. BOSTIC: WAS HE THEN A SECONDARY SOURCE OF INFORMATION FOR YOU ABOUT THE COMPANY?
CHRISTOPHER LUCAS: ABSOLUTELY.
MR. BOSTIC: WHEN YOU WERE IN TOUCH WITH MS. HOLMES DURING THIS TIME PERIOD, WAS IT ONLY IN BUSINESS SETTINGS OR DID YOU ALSO HAVE SOCIAL CONTACT WITH MS. HOLMES?
CHRISTOPHER LUCAS: WELL, WE WOULD A NUMBER OF TIMES GO HAVE DINNER OR HAVE LUNCH, AND IF THAT'S CONSIDERED A SOCIAL SETTING, THEN ABSOLUTELY. I FELT THAT SHE AND I GOT TO KNOW EACH OTHER QUITE WELL.
MR. BOSTIC: DURING THOSE CONVERSATIONS WITH MS. HOLMES -- AND I'LL ASK YOU FOR SOME MORE DETAILS IN A MOMENT -- WAS THE NEWS THAT YOU GOT ABOUT THERANOS GENERALLY POSITIVE, OR DID YOU EVER RECEIVE NEGATIVE NEWS ABOUT THE COMPANY?
CHRISTOPHER LUCAS: GENERALLY POSITIVE, AND I DON'T RECOLLECT, IF ANY, NEGATIVE NEWS.
MR. BOSTIC: AS FAR AS THE AMOUNT OF INFORMATION THAT YOU RECEIVED ABOUT THE COMPANY, DID YOU FEEL THAT THERE WAS A HIGH DEGREE OF TRANSPARENCY AT THERANOS? DID YOU GET A LOT OF INSIGHT INTO WHAT WAS HAPPENING AT THE COMPANY DURING THAT TIME PERIOD?
CHRISTOPHER LUCAS: THERE WAS NOT A LOT OF TRANSPARENCY. HOWEVER, WE FELT, AND I FELT WITH MY RELATIONSHIP WITH ELIZABETH, THAT I WAS CERTAINLY BEING TOLD THE INFORMATION THAT I NEEDED IN MAKING ANY DECISIONS.
MR. BOSTIC: WHEN YOU SAY THERE WAS NOT A HIGH DEGREE OF TRANSPARENCY, WHAT MAKES YOU SAY THAT?
CHRISTOPHER LUCAS: WELL, TYPICALLY WE WOULD RECEIVE FINANCIAL STATEMENTS AND ACTUALLY SEE EVERYTHING WORKING IN THE LABORATORY AND SO FORTH, AND A LOT OF THAT WAS -- WE WERE NOT PROVIDED THE OPPORTUNITY.
MR. BOSTIC: DID THERE COME A TIME DURING THAT TIME PERIOD WHEN YOUR UNCLE, DON LUCAS, STEPPED AWAY FROM INVOLVEMENT WITH THERANOS?
CHRISTOPHER LUCAS: YES. OFFICIALLY IN 2012 HE RESIGNED FROM THE BOARD.
MR. BOSTIC: AND WHAT EFFECT, IF ANY, DID THAT HAVE ON HOW YOU RECEIVED INFORMATION ABOUT THE COMPANY?
CHRISTOPHER LUCAS: CERTAINLY AFTER THAT TIME HE HAD NO -- NOTHING MORE TO BE ABLE TO CONTRIBUTE BECAUSE HE WAS NOT WITH THE COMPANY. BUT AT THAT TIME I HAD A GREAT RELATIONSHIP WITH ELIZABETH, AND WE TALKED, AND I RECEIVED THE INFORMATION MAINLY FROM HER.
MR. BOSTIC: I'LL ASK YOU TO TURN TO TAB 5095 IN THE BINDER. IT SHOULD BE THE NEXT ONE. DO YOU HAVE THAT EMAIL IN FRONT OF YOU?
CHRISTOPHER LUCAS: I DO.
MR. BOSTIC: ARE YOU LOOKING AT AN EMAIL FROM JULY OF 2013 FROM THERANOS TO A NUMBER OF INDIVIDUALS, INCLUDING YOURSELF?
MR. BOSTIC: AND IS THIS MESSAGE ADDRESSED "DEAR SHAREHOLDER" AT THE TOP?
CHRISTOPHER LUCAS: IT IS.
MR. BOSTIC: YOUR HONOR, THE GOVERNMENT OFFERS EXHIBIT 5095.
MR. DOWNEY: NO OBJECTION.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 5095 WAS RECEIVED IN EVIDENCE.)
BY MR. BOSTIC:
MR. BOSTIC: AND, MR. LUCAS, WE'VE REDACTED A MAJORITY OF THE EMAIL ADDRESSES HERE. DO YOU SEE AT THE TOP THAT YOU WERE INCLUDED ON THIS EMAIL?
CHRISTOPHER LUCAS: YES, I WAS.
MR. BOSTIC: AND DO YOU SEE MS. HOLMES WAS BCC'ED AS WELL?
MR. BOSTIC: LET'S ZOOM IN ON THE TEXT OF THE MESSAGE ITSELF. AND THIS EMAIL SAYS, "DEAR SHAREHOLDER. "IT IS WITH GREAT PLEASURE THAT I WRITE YOU TO INFORM YOU OF OUR UPCOMING CONSUMER LAUNCH." DO YOU SEE THAT?
MR. BOSTIC: AND THE LINE BELOW SAYS, AS YOU ALL KNOW, WE HAVE BEEN WORKING IN STEALTH MODE TO PREPARE FOR THIS. DO YOU RECALL AT THIS TIME IN 2013 WHEN YOU WERE INFORMED BY THERANOS ABOUT THEIR UPCOMING CONSUMER LAUNCH?
MR. BOSTIC: AND WHAT WAS YOUR REACTION TO THIS AS AN INVESTOR?
CHRISTOPHER LUCAS: VERY EXCITING.
MR. BOSTIC: WHY?
CHRISTOPHER LUCAS: IT'S EXCITING BECAUSE THIS IS WHAT ELIZABETH AND HER DEDICATED TEAM HAD BEEN WORKING ON FOR SO LONG, AND THEY FELT IT WAS NOW READY FOR PRIMETIME, TO BE TAKEN OUT TO THE MARKET.
MR. BOSTIC: AND -- APOLOGIES.
CHRISTOPHER LUCAS: NO, I'M SORRY. THAT'S IT.
MR. BOSTIC: AND FROM THE PERSPECTIVE OF SOMEONE WHO HAS INVESTED IN THE COMPANY, WHY WOULD THIS BE EXCITING OR GOOD NEWS?
CHRISTOPHER LUCAS: WELL, IT WOULD INDICATE THAT ALL OF THEIR EFFORTS HAD NOW STARTED TO COME TO FRUITION. THAT ALLOWED THEM, AS I SAID, TO TAKE IT TO MARKET. AND, OF COURSE, IN DOING SO, THE VALUE OF THE COMPANY AND OUR INVESTMENT WAS CERTAINLY INCREASING.
MR. BOSTIC: DO YOU SEE TWO PARAGRAPHS DOWN FROM WHERE WE WERE JUST LOOKING IN THAT EMAIL, THERE'S A LINE THAT SAYS, "WE HAVE BEEN PREPARING A NEW WEBSITE IN ANTICIPATION OF THE LAUNCH"?
MR. BOSTIC: DO YOU REMEMBER EVENTUALLY REVIEWING THE THERANOS WEBSITE WHEN IT BECAME PUBLIC?
MR. BOSTIC: TURN NOW, PLEASE, TO TAB 1102, PLEASE, IN YOUR BINDER.
CHRISTOPHER LUCAS: I'M SORRY. SAY THE NUMBER AGAIN.
MR. BOSTIC: 1102.
CHRISTOPHER LUCAS: 1102.
MR. BOSTIC: IT SHOULD BE THE --
CHRISTOPHER LUCAS: OH, IT'S BACK. SORRY.
MR. BOSTIC: AND DO YOU HAVE THAT ONE IN FRONT OF YOU?
CHRISTOPHER LUCAS: I DO.
MR. BOSTIC: AND DO YOU SEE AN EMAIL DATED SEPTEMBER 7TH, 2013?
MR. BOSTIC: YOUR HONOR, THE GOVERNMENT OFFERS EXHIBIT 1102.
MR. DOWNEY: NO OBJECTION, YOUR HONOR.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 1102 WAS RECEIVED IN EVIDENCE.)
BY MR. BOSTIC:
MR. BOSTIC: AND, MR. LUCAS, WERE YOU INCLUDED ON THIS EMAIL TO THERANOS SHAREHOLDERS? I'LL DIRECT YOUR ATTENTION TO THE TOP QUARTER OF THE PAGE ON THE LEFT-HAND SIDE THERE IS AN EMAIL IS CHRIS@BDVENTURES.COM? I PUT A MARK NEXT TO IT IF THAT HELPS.
MR. BOSTIC: ALL RIGHT. LET'S ZOOM OUT AND THEN ZOOM IN ON THE CONTENT OF THIS EMAIL. SO ON SEPTEMBER 7TH, 2013, THERANOS SENT THIS MESSAGE. IT SAYS, "TO OUR SHAREHOLDERS. "I AM DELIGHTED TO SHARE THAT WE HAVE NOW BEGUN THE COMMERCIAL LAUNCH OF THE NEW PRODUCTS AND SERVICES WE HAVE BEEN WORKING ON FOR THE PAST YEARS." DO YOU SEE THAT?
CHRISTOPHER LUCAS: I DO.
MR. BOSTIC: AND DO YOU RECALL RECEIVING THIS ANNOUNCEMENT, THAT THE COMMERCIAL LAUNCH OF THERANOS'S SERVICES HAD BEGUN?
MR. BOSTIC: AND WHAT WAS YOUR REACTION TO THIS?
CHRISTOPHER LUCAS: I'M SORRY. AGAIN, VERY EXCITING. THIS IS WHAT YOU WOULD HOPE FOR AND EXPECT FOR IN INVESTING IN A COMPANY THAT HAD WORKED SO HARD TO GET TO THIS POINT.
MR. BOSTIC: AND SPECIFICALLY FROM THE PERSPECTIVE OF AN INVESTOR, WAS THIS GOOD NEWS ABOUT THE STATUS OF AN INVESTMENT?
CHRISTOPHER LUCAS: IT IS INDEED GOOD NEWS.
MR. BOSTIC: DO YOU SEE THAT BELOW THE HIGHLIGHTED LANGUAGE THERE, THIS EMAIL ANNOUNCES THE NEW WEBSITE AT WWW.THERANOS.COM?
MR. BOSTIC: AND IS THAT THE WEBSITE THAT YOU REVIEWED AS AN INVESTOR IN THE COMPANY?
MR. BOSTIC: BELOW THAT THIS EMAIL PROVIDES A LINK TO A STORY IN "THE WALL STREET JOURNAL." DO YOU SEE THAT?
CHRISTOPHER LUCAS: I DO.
MR. BOSTIC: IF YOU CAN TURN THE TAB TO 1106. DO YOU SEE THERE "THE WALL STREET JOURNAL" STORY THAT IS REFERENCED IN THE EMAIL THAT WE WERE JUST LOOKING AT?
CHRISTOPHER LUCAS: I DO.
MR. BOSTIC: YOUR HONOR, I BELIEVE THIS IS IN EVIDENCE ALREADY. PERMISSION TO PUBLISH?
MR. DOWNEY: IT IS IN EVIDENCE.
JUDGE DAVILA: YES, IT MAY BE PUBLISHED. THANK YOU.
BY MR. BOSTIC:
MR. BOSTIC: MR. LUCAS, DID YOU READ THIS "WALL STREET JOURNAL" ARTICLE IN SEPTEMBER OF 2013?
MR. BOSTIC: AND THE TITLE IS "ELIZABETH HOLMES: THE BREAKTHROUGH OF INSTANT DIAGNOSIS." AND I'D LIKE TO DRAW YOUR ATTENTION TO FURTHER DOWN THAT PAGE, THE FIRST INDENTED PARAGRAPH.
CHRISTOPHER LUCAS: OKAY.
MR. BOSTIC: THANK YOU, MS. HOLLIMAN. AND DO YOU SEE LANGUAGE IN THE PARAGRAPH THAT BEGINS "THE SECRET"? IT SAYS, "THE SECRET THAT HUNDREDS OF EMPLOYEES ARE NOW REFINING INVOLVES DEVICES THAT AUTOMATE AND MINIATURIZE MORE THAN 1,000 LABORATORY TESTS FROM ROUTINE BLOOD WORK AND ADVANCED GENETIC ANALYSES." DO YOU SEE THAT?
CHRISTOPHER LUCAS: I DO.
MR. BOSTIC: AND IT SAYS, "THERANOS'S PROCESSES ARE FASTER, CHEATER AND MORE ACCURATE THAN CONVENTIONAL METHODS AND REQUIRE ONLY MICROSCOPIC BLOOD VOLUMES, NOT VIAL AFTER VIAL OF THE STUFF." DO YOU REMEMBER READING THAT LANGUAGE IN 2013?
CHRISTOPHER LUCAS: I'M SURE I READ THE ARTICLE. I DON'T SPECIFICALLY REMEMBER THAT LANGUAGE, BUT CERTAINLY THERE IT IS.
MR. BOSTIC: THAT CLAIM, THAT THE THERANOS PROCESSES WERE FASTER, CHEAPER, AND MORE ACCURATE THAN CONVENTIONAL METHODS, WAS THAT IMPORTANT TO YOU AS AN INVESTOR IN THE COMPANY?
CHRISTOPHER LUCAS: YES, AND IT WAS VERY IMPORTANT TO THE COMPANY. THAT WAS THE WHOLE ESSENCE OF THE COMPANY.
MR. BOSTIC: AND YOUR UNDERSTANDING THAT THAT WAS THE ESSENCE OF THE COMPANY, WHERE DID THAT UNDERSTANDING COME FROM?
CHRISTOPHER LUCAS: WELL, CERTAINLY NOW AT THIS POINT, BEING AROUND THE COMPANY FOR ABOUT SEVEN YEARS AND AROUND ELIZABETH, I MEAN, THAT'S ITS MISSION CLEARLY.
MR. BOSTIC: AND WHY WAS THAT IMPORTANT TO YOU AS AN INVESTOR, THE CLAIM THAT THE COMPANY'S PROCESSES WERE FASTER, CHEAPER AND MORE ACCURATE THAN CONVENTIONAL METHODS?
CHRISTOPHER LUCAS: BECAUSE IT WOULD ALLOW THE COMPANY TO EFFECTIVELY COMPETE IN THE LAB SPACE, THE LAB TESTING SPACE.
MR. BOSTIC: AND HOW ABOUT THE FACT THAT THOSE METHODS OR THE PROCESSES OF THERANOS REQUIRED ONLY MICROSCOPIC BLOOD VOLUMES, NOT VIAL AFTER VIAL OF THE STUFF? WAS THAT IMPORTANT TO YOU AS WELL?
CHRISTOPHER LUCAS: WELL, IT WAS IMPORTANT IN THE SENSE THAT SINCE ELIZABETH STARTED THE COMPANY, HER -- AS SHE HAS SAID AND SAID TO ME OFTEN, SHE HERSELF IS AFRAID OF NEEDLES AND OTHER PEOPLE ARE AFRAID OF NEEDLES AND THE AMOUNT OF BLOOD, AND THIS WAS GOING TO ALLOW MANY FOLKS TO JUST HAVE A PIN PRICK AND BE ABLE TO -- ALL OF THE TESTS COULD BE RUN JUST ON, ON THAT.
MR. BOSTIC: AND IN YOUR VIEW, WAS THAT ABILITY OF THERANOS IMPORTANT TO THE LIKELIHOOD OF SUCCESS OF THE COMPANY?
MR. BOSTIC: LET'S GO TO PAGE 2 OF THIS ARTICLE. ABOUT HALFWAY DOWN THE PAGE, THERE'S A PARAGRAPH THAT SAYS, "THERANOS'S TECHNOLOGY ELIMINATES." DO YOU SEE THAT?
MR. BOSTIC: AND IT READS, "THERANOS'S TECHNOLOGY ELIMINATES MULTIPLE LAB TRIPS BECAUSE IT CAN 'RUN ANY COMBINATION OF TESTS, INCLUDING SETS OF FOLLOW-ON TESTS' AT ONCE VERY QUICKLY, ALL FROM A SINGLE MICRO-SAMPLE." DO YOU SEE THAT LANGUAGE?
CHRISTOPHER LUCAS: I DO.
MR. BOSTIC: WAS THE ABILITY OF THE THERANOS TECHNOLOGY TO RUN MULTIPLE TESTS AN IMPORTANT FACT FOR YOU AS AN INVESTOR?
MR. BOSTIC: LET'S GO DOWN TO THE PARAGRAPH THAT BEGINS "ANOTHER THERANOS ADVANCE" AT THE BOTTOM OF THE PAGE THERE. AND, MS. HOLLIMAN, IF WE CAN ZOOM BACK IN ON THAT? IT SAYS, "ANOTHER THERANOS ADVANCE IS ITS TESTING ACCURACY." AND THEN THERE'S SOME LANGUAGE ABOUT CONVENTIONAL LABORATORY CHAIN OF CUSTODY INTRODUCING OPPORTUNITIES FOR ERROR. DO YOU SEE THAT?
CHRISTOPHER LUCAS: I DO.
MR. BOSTIC: AT THE BOTTOM OF THIS PAGE, IT SAYS, "THERANOS'S TECHNOLOGY IS AUTOMATED, STANDARDIZED, AND ATTEMPTS TO SUBTRACT HUMAN ERROR," LET'S GO TO PAGE 3 AND ZOOM IN ON THE TOP, "ATTEMPTS TO SUBTRACT HUMAN ERROR FROM THE PROCESS. IT CAN THUS ACHIEVE MUCH LOWER VARIANCE RANGES FOR A GIVEN TEST." DO YOU SEE THAT?
CHRISTOPHER LUCAS: I DO.
MR. BOSTIC: AS AN INVESTOR IN THE COMPANY, WAS THE ACCURACY OF THERANOS'S TESTING AN IMPORTANT FACTOR FOR YOU?
CHRISTOPHER LUCAS: ABSOLUTELY.
MR. BOSTIC: WHY IS THAT?
CHRISTOPHER LUCAS: WELL, WHAT THEY ARE SHOWING IS THAT THEY CAN DO SOMETHING AT A HIGHER -- IN ADDITION TO THE FAST TURN AROUND OF THE BLOOD TEST, THAT THEY ARE MORE ACCURATE THAN THE CONVENTIONAL TESTING THAT THE VIAL AND VIAL OF BLOODS TYPICALLY COULD DO.
MR. BOSTIC: AND WHY DOES THAT MATTER FOR AN INVESTOR?
CHRISTOPHER LUCAS: AGAIN, YOU HAVE SOMETHING THAT IS UNIQUE AND THAT GIVEN HOW THE PROCESS WAS, THAT THEY WERE GOING TO BE ABLE TO BRING THAT TO MARKET AND BEAT THE COMPETITION.
MR. BOSTIC: AROUND THE TIME OF THE COMMERCIAL LAUNCH IN SEPTEMBER OF 2013, WERE YOU STILL IN CONTACT WITH MS. HOLMES AT THERANOS?
CHRISTOPHER LUCAS: IN WHAT PART OF 2013?
MR. BOSTIC: SO THIS IS AROUND THE TIME OF THE COMMERCIAL LAUNCH IN SEPTEMBER OF 2013.
MR. BOSTIC: AND WAS THE INFORMATION THAT YOU WERE RECEIVING FROM MS. HOLMES GENERALLY CONSISTENT WITH WHAT YOU WERE READING IN ARTICLES LIKE THIS ONE?
MR. BOSTIC: IF I COULD ASK YOU TO LOOK AT TAB 5143 IN YOUR BINDER. AND IS EXHIBIT 5143 AN EMAIL FROM YOU TO A COWORKER OF YOURS AT BDV RELATING TO THE THERANOS INVESTMENT?
MR. BOSTIC: YOUR HONOR, I OFFER EXHIBIT 5143.
MR. DOWNEY: NO OBJECTION.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 5143 WAS RECEIVED IN EVIDENCE.)
BY MR. BOSTIC:
MR. BOSTIC: AND FIRST LET'S GO DOWN TO THE HEADER AT THE BOTTOM OF PAGE 1. MR. LUCAS, DO YOU SEE WE'RE ABOUT TO LOOK AT AN EMAIL FROM THERANOS, THE ADDRESS SHAREHOLDERINFO@THERANOS.COM TO YOU IN MID-DECEMBER 2013?
MR. BOSTIC: AND LET'S TURN THE PAGE AND GO TO PAGE 2, AND ZOOM IN ON THE TOP THIRD, PLEASE. AND THIS EMAIL FROM THERANOS SAYS, "DEAR CHRIS. "WE HOPE THIS EMAIL FINDS YOU WELL. PLEASE FIND A MEMO TO STOCKHOLDERS REGARDING CERTAIN DEALS AND TRANSACTIONS WE'RE WORKING TO CLOSE BY YEAR END." DO YOU SEE THAT?
MR. BOSTIC: AND THEN THE MEMO TO STOCKHOLDERS SAYS, "DEAR THERANOS STOCKHOLDER. "WITH OUR LAUNCH TO CONSUMER HEALTH CARE THIS YEAR, WE 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." DO YOU SEE THAT?
CHRISTOPHER LUCAS: I DO.
MR. BOSTIC: AND WAS IT YOUR UNDERSTANDING THAT THIS WAS A MESSAGE THAT THERANOS SENT TO ALL OF ITS SHAREHOLDERS AT THE TIME?
MR. BOSTIC: AT THE BOTTOM OF THAT SAME PARAGRAPH IT SAYS, "AS WE PREPARE FOR 2014 AND CLOSING YEAR END, WE ARE ACTIVELY INVESTING IN INFRASTRUCTURE TO BUILD THIS NEW INDUSTRY WE HAVE CREATED." DO YOU SEE THAT?
CHRISTOPHER LUCAS: I DO.
MR. BOSTIC: THAT LANGUAGE IN THE FIRST SENTENCE OF THAT MEMO, "WITH OUR LAUNCH TO CONSUMER HEALTH CARE THIS YEAR, WE ARE RAPIDLY SCALING," CAN YOU EXPLAIN THE SIGNIFICANCE OF SCALING TO AN INVESTOR?
CHRISTOPHER LUCAS: WELL, WITH THE PARTNERSHIPS THAT THEY HAD OR WERE ESTABLISHING, IT'S NOW TIME, AS IT SAYS, TO ROLL IT OUT IN A STAGED WAY. AND THIS, AGAIN, WAS THE WHOLE REASON THAT THE COMPANY WAS CREATED AND THE TECHNOLOGY, TO COME OUT AND HELP FOLKS AND BE OUT THERE INTO THE DRUG STORES AND SO FORTH.
MR. BOSTIC: IS THERE A DIFFERENCE BETWEEN SCALING ACTIVITY THAT A COMPANY DOES AND DEVELOPMENT ACTIVITY THAT A COMPANY DOES?
CHRISTOPHER LUCAS: DEVELOPMENT IN MY MIND REFERS TO ALL OF THE THINGS THAT GO BEFORE YOU CAN SCALE, ALL OF THE DEVELOPMENT, ALL OF THE R&D. AND WHEN YOU'RE SCALING, IT REFERS TO YOU'RE RAMPING UP PRODUCTION AND STARTING TO GO OUT TO THE WORLD AND SELL YOUR PRODUCT.
MR. BOSTIC: LET'S ZOOM IN ON THE BOTTOM HALF OF THIS PAGE, PAGE 2. AND WAS THIS EMAIL FROM THERANOS GENERALLY ANNOUNCING AN ADDITIONAL RAISING OF FUNDS OR INVESTMENT CAPITAL BY THE COMPANY?
MR. BOSTIC: AND DO YOU SEE THAT THE COMPANY AT THE BOTTOM THERE WAS ALSO SEEKING SHAREHOLDER CONSENT FOR A NUMBER OF TRANSACTIONS, ISSUING STOCK AND SIMILAR THINGS?
MR. BOSTIC: LET'S TURN TO PAGE 1 OF THE EXHIBIT, AND LET'S ZOOM IN ON THE BOTTOM HALF OF THE PAGE. THERE'S AN EMAIL THERE FROM SOMEONE NAMED ANA QUINTANA. DO YOU SEE THAT?
MR. BOSTIC: AND WHO IS SHE?
CHRISTOPHER LUCAS: ANA IS WITH BLACK DIAMOND VENTURES.
MR. BOSTIC: AND WHAT IS HER --
CHRISTOPHER LUCAS: RIGHT NOW SHE'S A PARTNER, BUT BACK THEN SHE WAS A PRINCIPAL.
MR. BOSTIC: DID SHE WORK WITH YOU ON EVALUATING AND IMPLEMENTING INVESTMENTS FOR BDV?
MR. BOSTIC: IN HER EMAIL RESPONDING TO THERANOS ON DECEMBER 16TH, SHE SAYS, "DEAR SHAREHOLDER INFORMATION REPRESENTATIVE. "BLACK DIAMOND VENTURES IS INTERESTED IN INCREASING ITS EQUITY POSITION IN THERANOS." DO YOU SEE THAT?
CHRISTOPHER LUCAS: I DO.
MR. BOSTIC: AT THIS TIME IN MID-DECEMBER 2013, HAD BDV ALREADY MADE THE FINAL DECISION TO INVEST MORE MONEY IN THERANOS?
CHRISTOPHER LUCAS: WELL, WE CERTAINLY WERE VERY INTERESTED AND WE -- YOU KNOW, WE'LL ULTIMATELY PRESENT IT TO OUR INVESTORS, AND IF FOLKS WANT TO INVEST, THEN WE'RE GOING TO INVEST. BUT IT CERTAINLY WOULD HAVE BEEN OUR RECOMMENDATION TO OUR GROUP TO INVEST.
MR. BOSTIC: I'LL ASK YOU TO LOOK AT THE NEXT TAB IN THE BINDER, WHICH IS 5144. DO YOU SEE THERE AN EMAIL CHAIN INCLUDING YOU, MS. HOLMES, AND OTHERS RELATING TO THIS THERANOS FUND RAISE IN DECEMBER OF 2013?
MR. BOSTIC: YOUR HONOR, I OFFER EXHIBIT 5144.
MR. DOWNEY: NO OBJECTION.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 5144 WAS RECEIVED IN EVIDENCE.)
BY MR. BOSTIC:
MR. BOSTIC: AND LET'S START ON PAGE 3 OF THIS EXHIBIT. AND, MR. LUCAS, DO YOU SEE ON PAGE 3 THIS IS THE SAME MESSAGE FROM THERANOS TO ALL STOCKHOLDERS THAT WE WERE JUST LOOKING AT?
MR. BOSTIC: OKAY. LET'S FOLLOW THAT EMAIL CHAIN UP AND LOOK AT PAGE 2, AND IF WE CAN ZOOM IN ON THE MIDDLE OF THAT PAGE. AND WE SEE HERE AN EMAIL FROM YOU TO THERANOS, CC'ING MS. QUINTANA ON DECEMBER 18TH, 2013; IS THAT RIGHT?
MR. BOSTIC: AND YOU SAY, "I HAVE THE FOLLOWING QUESTIONS," AND YOU LIST THE QUESTIONS THERE; IS THAT RIGHT?
CHRISTOPHER LUCAS: CORRECT.
MR. BOSTIC: AND WHAT WAS THE PURPOSE OF POSING THOSE QUESTIONS TO THERANOS AT THIS TIME?
CHRISTOPHER LUCAS: TO FIND OUT ADDITIONAL INFORMATION AS I'M READING THIS AS IT RELATED PRIMARILY TO THIS FINANCING.
MR. BOSTIC: AND WAS THIS AN EFFORT TO GATHER INFORMATION AND FACTS TO INCORPORATE INTO YOUR DECISION OF WHETHER TO INVEST OR RECOMMEND AN INVESTMENT IN THERANOS?
MR. BOSTIC: I WANT TO ASK YOU ABOUT A FEW OF THESE QUESTIONS. FIRST, QUESTION NUMBER 1 SAYS, "WHEN AND HOW CAN WE EXPECT A PARTIAL OR FULL LIQUIDITY EVENT?" DO YOU SEE THAT?
CHRISTOPHER LUCAS: I DO.
MR. BOSTIC: WHAT WAS THE SIGNIFICANCE OF THAT QUESTION AT THE TIME?
CHRISTOPHER LUCAS: WELL, WHEN YOU INVEST IN A COMPANY, YOU ARE GENERALLY CONCERNED, FIRST, DOES THE PRODUCT -- DOES EVERYTHING WORK? AND THEN, WHEN ARE WE GOING TO HAVE THE COMPANY MATURE ENOUGH THAT POTENTIALLY THE COMPANY WOULD GO PUBLIC OR IT WOULD BE SOLD? AND SO PERIODICALLY YOU WOULD CHECK ON TIMING AND SEE WHERE WE ARE.
MR. BOSTIC: HOW ABOUT QUESTION NUMBER 2? YOU ASK, "WHAT AMOUNT OF MONEY IS EXPECTED TO BE RAISED IN THIS FINANCING?" WHY WOULD THAT HAVE BEEN AN IMPORTANT FACT FOR YOU TO KNOW AS AN INVESTOR?
CHRISTOPHER LUCAS: SO IF YOU'RE SCALING UP, RAMPING UP PRODUCTION AND DISTRIBUTION, YOU WANT TO UNDERSTAND HOW MUCH MONEY IS BEING RAISED THAT CAN THEN FULFILL THAT MISSION, THAT PART OF THE -- WHERE THE COMPANY IS AT, IF THEY'RE RAISING TOO LITTLE MONEY, IT'S NOT GOING TO HAPPEN.
MR. BOSTIC: MOVING TO QUESTION NUMBER 4, YOU SAY, "WE HAVE EXPRESSED INTEREST IN THIS ROUND, HOWEVER, OUR CONCERN IS THAT THE EXPECTED CLOSING DATE OF 12/31/13 MAY PRECLUDE US FROM PARTICIPATING. DUE TO THIS SHORT PERIOD OF TIME, IS AN EXTENSION CONTEMPLATED?" CAN YOU EXPLAIN WHAT YOU WERE GETTING AT THERE?
CHRISTOPHER LUCAS: WELL, AS YOU CAN SEE, THE TIMING WAS QUITE COMPRESSED AND I WANTED TO UNDERSTAND IF IT TRULY HAD TO CLOSE BY DECEMBER 31ST OR NOT, AND INDEED, IT DID HAVE TO CLOSE BY DECEMBER 31ST.
MR. BOSTIC: YOU TESTIFIED EARLIER THAT DURING YOUR TIME WITH BDV YOU'VE WORKED ON A NUMBER OF INVESTMENTS; IS THAT RIGHT?
MR. BOSTIC: THIS TIME SCALE, APPROXIMATELY TWO WEEKS BETWEEN THE ANNOUNCEMENT OF A FUND RAISE AND THE CLOSING OF THE ROUND, WHERE DOES THAT FALL ON THE SPECTRUM AS FAR AS PACE OF INVESTMENT?
CHRISTOPHER LUCAS: VERY SHORT.
MR. BOSTIC: AND WHAT EFFECT DOES THAT HAVE ON BDV'S PROCESS IN EVALUATING THE INVESTMENT?
CHRISTOPHER LUCAS: THIS WAS HOLIDAY TIME, AND WE ENDED UP WORKING AROUND THE CLOCK TO -- I FELT THIS WAS IMPORTANT TO INVEST AND FOR OUR GROUP TO INVEST, AND SO WE WORKED TO GET IT DONE, AND IT TOOK A LOT OF EXTRA HOURS.
MR. BOSTIC: LET'S LOOK AT THE TOP OF THAT PAGE, PAGE 2. AND YOU SEE PART OF AN EMAIL FROM SHAREHOLDER INFORMATION AT THERANOS? DO YOU SEE THAT?
MR. BOSTIC: AND IT READS, "ELIZABETH'S OFFICE MENTIONED THAT SHE SPOKE WITH YOU DIRECTLY. PLEASE LET US KNOW IF THERE IS ANY FURTHER INFORMATION YOU NEED TO TURN THE CONSENT BACK TO US." DO YOU SEE THAT?
CHRISTOPHER LUCAS: I DO.
MR. BOSTIC: AND SO AROUND THIS TIME, IN ADDITION TO YOUR EMAILS WITH THERANOS, WERE YOU ALSO HAVE ONE-ON-ONE PHONE CONVERSATIONS WITH MS. HOLMES?
CHRISTOPHER LUCAS: CLEARLY IF THAT'S WHAT THE EMAIL SAYS, YES, I'M SURE I DID.
MR. BOSTIC: AND LET ME JUST ASK ABOUT YOUR MEMORY. DO YOU RECALL THAT DURING THIS TIME PERIOD YOU WERE STILL IN PERIODIC CONTACT WITH MS. HOLMES AT THERANOS?
CHRISTOPHER LUCAS: ABSOLUTELY, YEAH.
MR. BOSTIC: LET'S GO TO PAGE 1, PLEASE, OF THIS EXHIBIT, AND ZOOM IN ON THE BOTTOM HALF. ACTUALLY, IF WE CAN ZOOM IN ON THE MIDDLE, CAPTURE THE MIDDLE TWO MESSAGES. THANK YOU, MS. HOLLIMAN. DO YOU SEE AT THE BOTTOM THERE, THERE'S A MESSAGE FROM MS. QUINTANA TO THERANOS SAYING, "WE VERY MUCH APPRECIATE THE TIME ELIZABETH SPENT DISCUSSING THIS MATTER WITH CHRIS"?
MR. BOSTIC: AND WOULD YOU BE THE CHRIS REFERENCED IN THIS EMAIL? ARE YOU THE CHRIS REFERENCED IN THIS EMAIL?
MR. BOSTIC: AND THE EMAIL ABOVE THAT IS AGAIN FROM MS. QUINTANA, AND IN THAT EMAIL, SHE SAYS, "PLEASE LET ME KNOW IF YOU'D LIKE TO DISCUSS THE DETAILS REGARDING FRIDAY'S CALL WITH ELIZABETH." DO YOU SEE THAT?
CHRISTOPHER LUCAS: I DO.
MR. BOSTIC: THIS WAS ON WEDNESDAY, DECEMBER 18TH. DO YOU RECALL THERE WAS A FRIDAY CALL WITH MS. HOLMES ON DECEMBER 20TH, 2013?
MR. BOSTIC: AND DO YOU REMEMBER, GENERALLY SPEAKING, HOW THAT CALL HAPPENED AND WHO WAS ON THAT CALL?
CHRISTOPHER LUCAS: IF THIS IS -- I JUST WANT TO MAKE SURE THAT WE'RE TALKING ABOUT THE RIGHT CALL. IS THIS THE INVESTOR CALL THAT I HAD WITH OUR GROUP?
MR. BOSTIC: LET ME ASK, FIRST OF ALL, HAVE YOU -- LET ME ASK IT A DIFFERENT WAY. DO YOU HAVE A RECOLLECTION OF AN INVESTOR CALL THAT BDV HAD WHERE MS. HOLMES PARTICIPATED AND ANSWERED QUESTIONS?
MR. BOSTIC: AND WAS THAT CALL AROUND DECEMBER 20TH, 2013?
MR. BOSTIC: A RECORDING OF THAT CALL HAS BEEN REFERENCED IN THIS TRIAL AS EXHIBIT 1348 AND 1349. AT THE TIME, WERE YOU AWARE THAT THAT CALL WAS BEING RECORDED?
MR. BOSTIC: SINCE THEN, HAVE YOU HAD AN OPPORTUNITY TO REVIEW THE RECORDING OF THAT DECEMBER 20TH, 2013 CALL?
MR. BOSTIC: AND DID THAT RECORDING REFRESH YOUR RECOLLECTION GENERALLY ABOUT THE TOPICS DISCUSSED ON THE CALL?
MR. BOSTIC: SO GOING BACK TO KIND OF HOW THAT CALL HAPPENED AND WHO WAS ON IT. WHAT IS YOUR MEMORY? AND LET ME BREAK THAT OUT. FIRST OF ALL, HOW DID THAT CALL HAPPEN? WHAT WAS ITS PURPOSE?
CHRISTOPHER LUCAS: SO, AS I'VE SAID, I WAS IN QUITE FREQUENT CONTACT WITH ELIZABETH, AND IF THIS FINANCING WAS COMING UP, TYPICALLY THE WAY WE OPERATE IS THAT WE HAVE THE CEO OR THE MANAGEMENT TEAM THEN PRESENT TO OUR GROUP. SO THE PURPOSE WAS TO HAVE THIS CALL AND HAVE ELIZABETH PRESENT, AND THEN LET ANY OF OUR PEOPLE ASK ANY QUESTIONS.
MR. BOSTIC: AND WAS THE PURPOSE OF THIS CALL TO HELP INFORM THE GROUP SO THAT YOU AND OTHER INDIVIDUALS COULD DECIDE WHETHER TO INVEST IN THE COMPANY?
MR. BOSTIC: DO YOU RECALL A PORTION OF THAT CALL AFTER MS. HOLMES DROPPED OFF THE CALL WHEN YOU REMAINED ON THE LINE?
MR. BOSTIC: AND DID YOU CONTINUE TO ANSWER SOME QUESTIONS POSED BY POTENTIAL INVESTORS DURING THAT PERIOD OF THE CALL?
CHRISTOPHER LUCAS: THAT'S CORRECT.
MR. BOSTIC: IN ANSWERING THOSE QUESTIONS, WHERE DID YOUR INFORMATION COME FROM?
CHRISTOPHER LUCAS: WELL, PRIMARILY FROM ELIZABETH, FROM THE CALL THAT -- OR FROM THE CONVERSATION THAT WE JUST HAD WITH HER, AND THROUGH WHAT I KNEW FROM MY CONVERSATIONS WITH HER.
MR. BOSTIC: LET'S TURN NEXT TO TAB 5444. DO YOU HAVE EXHIBIT 5444 IN FRONT OF YOU?
CHRISTOPHER LUCAS: I DO.
MR. BOSTIC: AND IS THAT AN EMAIL CHAIN BETWEEN YOU AND MS. HOLMES RELATING TO THE BDV INVESTMENT?
MR. BOSTIC: YOUR HONOR, THE GOVERNMENT OFFERS 5444.
MR. DOWNEY: NO OBJECTION.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 5444 WAS RECEIVED IN EVIDENCE.)
MR. BOSTIC: AND IF WE CAN START WITH PAGE 2 OF THIS EXHIBIT. AND IF WE ZOOM DOWN AT THE BOTTOM, WE'LL SEE A HEADER.
MR. BOSTIC: SHOWING THAT, WE'RE ABOUT TO LOOK AT AN EMAIL FROM YOU TO MS. HOLMES ON DECEMBER 24TH, 2013. AT THE VERY BOTTOM OF THE PAGE. DO YOU SEE THAT, MR. LUCAS?
MR. BOSTIC: AND LET'S TURN TO PAGE 3 AND SEE THAT EMAIL. LET'S ZOOM IN ON THE CONTENT AT THE TOP. MR. LUCAS, YOU WRITE TO MS. HOLMES, YOU SAY THAT YOU'VE CONTINUED TO HAVE CALLS WITH BDV'S INVESTORS AND YOU'VE DETERMINED THAT THERE IS SIGNIFICANT INTEREST IN PARTICIPATING IN THIS ROUND. DO YOU SEE THAT?
CHRISTOPHER LUCAS: I DO.
MR. BOSTIC: AND YOU THEN PASS ALONG SOME QUESTIONS THAT YOU HAD RECEIVED FROM BDV INVESTORS; IS THAT RIGHT?
MR. BOSTIC: AND WE SEE HERE, FOR EXAMPLE, THERE'S THE QUESTION, IN ADDITION TO THE CONVERSIONS, HOW MUCH NEW CAPITAL IS COMING IN? DO YOU SEE THAT QUESTION?
MR. BOSTIC: AND THEN ABOVE THAT THERE'S A QUESTION ABOUT STRATEGIC PARTNERS CONVERTING THE ENTIRE AMOUNT OF THEIR NOTES IN THIS OFFERING?
MR. BOSTIC: CAN YOU GIVE US, AT A HIGH LEVEL, AN EXPLANATION FOR WHY THESE QUESTIONS WERE IMPORTANT TO YOU AT THE TIME?
CHRISTOPHER LUCAS: SO ONE OF THE PARTNERS, WALGREENS, AND THIS I THINK WAS THE PRIMARILY REASON WHY IT HAD TO CLOSE BY THE END OF 2013, IS THAT THEY HAD INVESTED -- I'M SORRY, THEY HAD LENT THE COMPANY MONEY IN THE FORM OF A NOTE, AND THEY HAD THE OPTION TO CONVERT THAT NOTE INTO STOCK, BUT THEY HAD TO EXERCISE THAT OPTION PRIOR TO THE END OF 2013.
MR. BOSTIC: AND WHY DID YOU WANT TO KNOW WHAT THE STATUS WAS IN THAT AREA?
CHRISTOPHER LUCAS: WELL, YOU WANT MORE PEOPLE IN THE WAGON HELPING FUND THE COMPANY, AND IF THEY WERE MAKING THE DECISION AND THEY WERE CONFIDENT IN THEIR DECISION AND THE SCALEUP THEMSELVES, THEY WOULD CONVERT AND WANT TO PARTICIPATE IN THE UP SIDE OF THE COMPANY FOR SURE.
MR. BOSTIC: IN YOUR EMAIL THERE'S ALSO A REFERENCE THERE NEAR THE TOP WHERE YOU SAY, "THE CHALLENGE WILL BE GETTING ALL OF THE FUNDS PRIOR TO YEAR END. IF THERE IS ANY TIME FLEXIBILITY, PLEASE LET ME KNOW." DO YOU SEE THAT?
MR. BOSTIC: AND IS THIS ANOTHER REFERENCE TO WHAT YOU MENTIONED BEFORE ABOUT THE FAST PACE OF THIS INVESTMENT?
MR. BOSTIC: LET'S GO TO PAGE 2. AND IF WE CAN ZOOM IN ON THE MIDDLE THIRD OF THE PAGE. DO YOU SEE THERE, THERE'S A RESPONSE FROM MS. HOLMES TO YOU ON DECEMBER 24TH, 2013?
MR. BOSTIC: AND SHE WRITES IN RESPONSE TO YOUR QUESTION ABOUT TIMING, "OUR CURRENT DOCUMENTS ARE STRUCTURED TO ALLOW FOR INVESTMENT AT $15 A SHARE UP TO 12/31, AFTER WHICH TIME THE NEW PRICE/SHARE TAKES EFFECT." DO YOU SEE THAT?
MR. BOSTIC: AND WHAT WAS THE ULTIMATE OUTCOME HERE? WAS BDV REQUIRED TO COMPLETE ITS INVESTMENT BY THE 31ST, OR WAS AN EXTENSION GIVEN?
CHRISTOPHER LUCAS: NO. WE HAD TO COMPLETE BY DECEMBER 31ST.
MR. BOSTIC: BELOW THAT MS. HOLMES MENTIONS THAT, "ALL CAPITAL COMING IN NOW IS ASSOCIATED WITH STRATEGIC PARTNERS/ENTITIES WITH EXISTING EQUITY POSITIONS AND ABILITY TO MAKE FURTHER INVESTMENTS." DO YOU SEE THAT?
MR. BOSTIC: LET'S GO TO PAGE 1 OF THIS EXHIBIT. AND IF WE COULD ZOOM IN ON THE BOTTOM HALF. AND IN THIS EMAIL ON DECEMBER 26TH YOU SAY, "ON A DIFFERENT TOPIC, ONE OF OUR INVESTORS ASKED WHAT INFORMATION WAS PROVIDED TO THE STRATEGIC PARTNERS SO THAT THEY COULD MAKE THEIR DECISION WHETHER TO CONVERT OR NOT." DO YOU SEE THAT?
CHRISTOPHER LUCAS: I DO.
MR. BOSTIC: AND ABOVE THAT THERE'S A RESPONSE FROM MS. HOLMES THAT SAYS -- WELL, FIRST LET ME ASK, WHY WAS THAT INFORMATION IMPORTANT FOR AN INVESTOR AT THAT TIME?
CHRISTOPHER LUCAS: WELL, SO THEY WOULD BE INFORMED, WELL INFORMED AND MAKE AN EDUCATED DECISION WHETHER THEY SHOULD CONVERT.
MR. BOSTIC: ABOVE THAT MS. HOLMES RESPONDS, "OUR RECENT MILESTONES IN ENTERING THIS $180 BILLION-PLUS INDUSTRY, AND THE POTENTIAL OUR PARTNERS THINK WE HAVE TO REVOLUTIONIZE HEALTH CARE, OBVIOUSLY ALSO SPEAK FOR THEMSELVES IN THIS CONTEXT BASED ON EVERYTHING IN THE PUBLIC DOMAIN." DO YOU SEE THAT?
MR. BOSTIC: AND WHAT WAS YOUR RESPONSE TO THAT QUESTION?
CHRISTOPHER LUCAS: GREAT. IT MEANS EVERYONE IS SET TO GO.
MR. BOSTIC: DID YOU FIND THAT TO BE A SATISFYING RESPONSE THAT ENCOURAGED YOU TO INVEST?
MR. BOSTIC: LET'S LOOK AT THE TOP PART OF PAGE 1 AND CAPTURE THOSE TWO TOP MESSAGES. YOU RESPOND, "YES, ABSOLUTELY." YOU SAY, "AS WE PULL TOGETHER OUR FINANCING, I WOULD LIKE TO HAVE A CONVERSATION WITH YOU." MS. HOLMES RESPONDS THE FOLLOWING DAY, OR ACTUALLY IT MIGHT HAVE BEEN THE SAME DAY GIVEN THE TIME STAMP, BUT SHE RESPONDS SHORTLY TO SAY, "I'M IN THE OFFICE NOW AND COULD CONNECT," AND SHE PROVIDES THE NUMBER. DO YOU SEE?
MR. BOSTIC: AND IS THIS CONSISTENT WITH YOUR MEMORY THAT IN THE DAYS LEADING UP TO BDV'S INVESTMENT IN THERANOS, YOU HAD ACCESS TO MS. HOLMES AND ADDITIONAL CONVERSATIONS WITH HER?
MR. BOSTIC: LET'S LOOK AT TAB 5446. IS THIS ANOTHER EMAIL CHAIN BETWEEN YOU AND MS. HOLMES REGARDING THAT DECEMBER 2013 INVESTMENT?
MR. BOSTIC: YOUR HONOR, I OFFER EXHIBIT 5446.
MR. DOWNEY: NO OBJECTION.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 5446 WAS RECEIVED IN EVIDENCE.)
BY MR. BOSTIC:
MR. BOSTIC: MR. LUCAS -- IF WE CAN JUST ZOOM IN ON THE TOP HALF OF PAGE 1 HERE -- AND DO YOU SEE HERE THAT ON DECEMBER 29TH, 2013, THERE'S SOME ADDITIONAL DISCUSSION ABOUT ANOTHER CALL WITH MS. HOLMES RELATING TO THE INVESTMENT?
MR. BOSTIC: LET'S LOOK NEXT AT THE FOLLOWING TAB, WHICH IS TAB 5447. AND, MR. LUCAS, IS THIS EMAIL CHAIN SIMILARLY RELATED TO THE BDV INVESTMENT IN DECEMBER OF 2013 AND INCLUDING YOU AND OTHERS?
MR. BOSTIC: YOUR HONOR, THE GOVERNMENT OFFERS 5447.
MR. DOWNEY: NO OBJECTION.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 5447 WAS RECEIVED IN EVIDENCE.)
MR. BOSTIC: AND IF WE CAN ZOOM IN ON THE TOP HALF OF THIS PAGE, PLEASE.
MR. BOSTIC: AND IN THE BOTTOM MESSAGE HERE, THERE'S AN EMAIL FROM MS. QUINTANA TO THERANOS, CC'ING YOU, AND IT SAYS, "ATTACHED PLEASE FIND BLACK DIAMOND VENTURE'S EXECUTED MASTER SIGNATURE PAGE," AND IT SAYS "OUR WIRE IN THE AMOUNT OF $5,349,900 WAS INITIATED THIS MORNING." COULD YOU EXPLAIN WHAT WAS HAPPENING AS REFERENCED IN THIS EMAIL?
CHRISTOPHER LUCAS: THIS WAS THE LAST IN THE PROCESS. WE MADE THE DECISION WITH OUR GROUP TO INVEST, WE'RE ACKNOWLEDGING THE WIRE AND SIGNING THIS SIGNATURE PAGE OF THE SHAREHOLDER, OF THE STOCK PURCHASE AGREEMENT.
MR. BOSTIC: SO THIS IS HAPPENING ON DECEMBER 31ST. THAT'S THE DEADLINE FOR THE INVESTMENT; CORRECT?
MR. BOSTIC: CAN YOU EXPLAIN WHEN THE ACTUAL DECISION WAS MADE TO INVEST? DID IT HAPPEN EXACTLY ON THE 31ST OR THE DAYS LEADING UP TO IT? WHAT IS YOUR RECOLLECTION THERE?
CHRISTOPHER LUCAS: CERTAINLY AFTER WE -- WELL, INITIALLY WE WERE VERY INTERESTED IN INVESTING, WE HAD THE CALL WITH ELIZABETH, WE THEN FOLLOW UP WITH OUR INVESTORS, AND SO WHETHER WE WERE EXCITED -- "WE" BLACK DIAMOND -- WERE EXCITED TO INVEST OR NOT, IF NO ONE ELSE WAS INTERESTED IN INVESTING, WE WOULDN'T HAVE THE CAPITAL TO INVEST, SO THAT WOULD HAVE ENDED THE PROCESS. HOWEVER, WE DID HAVE SIGNIFICANT INTEREST, AND THIS WAS THE LEVEL, $5.3 MILLION, AND WE COLLECT THE FUNDS, WIRE, AND THEN WE MANAGE THE FUNDS ON BEHALF OF OUR INVESTORS.
MR. BOSTIC: AND DO YOU RECALL WHETHER THIS $5.3 MILLION AMOUNT INCLUDED ANY OF YOUR PERSONAL FUNDS?
CHRISTOPHER LUCAS: I EXPECT IT DID, BUT I JUST DON'T RECALL.
MR. BOSTIC: LET'S GO TO EXHIBIT 4845. YOUR HONOR, THAT IS IN EVIDENCE. PERMISSION TO PUBLISH?
JUDGE DAVILA: YES.
BY MR. BOSTIC:
MR. BOSTIC: LET'S LOOK AT PAGE 19 OF THIS EXHIBIT.
CHRISTOPHER LUCAS: PLEASE SAY AGAIN WHICH EXHIBIT.
MR. BOSTIC: THIS WILL BE ON THE SCREEN BECAUSE IT'S ALREADY IN EVIDENCE.
CHRISTOPHER LUCAS: OH, OKAY.
MR. BOSTIC: DO YOU SEE IN FRONT OF YOU THE DETAILS OF A WIRE TRANSACTION INVOLVING BLACK DIAMOND VENTURES?
MR. BOSTIC: AND DO YOU SEE AT THE TOP THERE IN A LINE THAT READS OMAD, THERE'S A DATE INDICATED 2013-12-31?
MR. BOSTIC: AND IN THE NEXT SECTION UNDER AMOUNT, THERE'S THE AMOUNT THAT WE JUST SAW, APPROXIMATELY $5.35 MILLION?
MR. BOSTIC: AND UNDER ORIGINATOR, IT SHOWS THAT THIS IS COMING FROM BLACK DIAMOND VENTURES. AND UNDER BENEFICIARY, IT SHOWS THAT THIS IS GOING TO THERANOS. DO YOU SEE THAT?
MR. BOSTIC: IS THIS THE WIRE THROUGH WHICH BDV INVESTED IN THERANOS?
MR. BOSTIC: LET'S GO BACK TO EXHIBIT 5143 JUST BRIEFLY. THIS IS IN EVIDENCE. AND IF WE COULD LOOK AT PAGE 1 FIRST. WE SEE THAT THIS EMAIL ATTACHES SOME TRANSACTION DOCUMENTS AT THE TOP. DO YOU SEE THAT?
MR. BOSTIC: LET'S GO TO PAGE 55 OF THE EXHIBIT. I WOULD JUST LIKE TO SHOW YOU A FEW PORTIONS OF ONE OF THESE AGREEMENTS. DO YOU SEE THAT ONE OF THE DOCUMENTS ATTACHED WAS NAMED PREFERRED STOCK PURCHASE AGREEMENT?
MR. BOSTIC: AND LET'S LOOK AT THE FOLLOWING PAGE IN THIS DOCUMENT. LET'S GO TO PAGE 65 OF THE EXHIBIT. AND LET'S ZOOM IN ON SECTIONS 4.3 AND 4.4. MR. LUCAS, DO YOU SEE THAT THIS AGREEMENT REPRESENTS THAT THE INVESTOR INVESTING IN THERANOS, IT SAYS, HAS SUBSTANTIAL EXPERIENCE IN EVALUATING AND INVESTING IN PRIVATE PLACEMENT TRANSACTIONS OF SECURITIES AND COMPANIES SIMILAR TO THE COMPANY?
MR. BOSTIC: AND IT ALSO SAYS THAT THE INVESTOR CAN PROTECT ITS OWN INTERESTS AND HAS KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS SO THAT THE INVESTOR IS CAPABLE OF EVALUATING THE MERITS AND RISKS OF THE INVESTMENT. DO YOU SEE THAT?
MR. BOSTIC: AND WAS THAT TRUE AS TO YOU AND BDV AT THE TIME OF THE INVESTMENT?
CHRISTOPHER LUCAS: YES. AND GENERALLY FOR ANY KIND OF INVESTMENT LIKE THIS, THIS LANGUAGE IS IN THE DOCUMENTATION.
MR. BOSTIC: YOU WERE FAMILIAR WITH LANGUAGE LIKE THIS FROM YOUR PREVIOUS INVESTMENTS?
MR. BOSTIC: UNDER SECTION 4.4, THE NEXT ONE, IT'S LABELLED "SPECULATIVE NATURE OF INVESTMENT." DO YOU SEE THAT?
MR. BOSTIC: THAT SECTION TALKS ABOUT THE COMPANY HAVING LIMITED FINANCIAL AND OPERATING HISTORY. AND THEN IF WE GO TO PAGE 66 OF THE EXHIBIT, AT THE TOP THERE, THERE'S A CONFIRMATION THAT THE INVESTOR UNDERSTANDS THAT THIS IS A HIGHLY SPECULATIVE INVESTMENT AND IT INVOLVES SUBSTANTIAL RISKS. DO YOU SEE THAT?
MR. BOSTIC: AND DID YOU UNDERSTAND THAT AT THE TIME AS TO THERANOS?
MR. BOSTIC: SECTION 4.5 TALKS ABOUT THE INVESTOR'S ACCESS TO INFORMATION ABOUT THE COMPANY. DO YOU SEE THAT?
MR. BOSTIC: AND WERE THOSE STATEMENTS TRUE AS TO YOU AND BDV AT THE TIME?
CHRISTOPHER LUCAS: WELL, CERTAINLY WE RECEIVED ENOUGH INFORMATION THAT ALLOWED US TO MAKE A DECISION. THERE COULD HAVE BEEN ADDITIONAL INFORMATION, AS I SAID EARLIER, LIKE FINANCIAL STATEMENTS AND SO FORTH THAT WOULD HAVE BEEN HELPFUL. BUT, AGAIN, I HAD A VERY COMFORTABLE RELATIONSHIP WITH ELIZABETH AND EVERYTHING SEEMED TO BE GOING GREAT.
MR. BOSTIC: DID THE FACT THAT YOU FELT THAT YOU HAD A GOOD RELATIONSHIP WITH MS. HOLMES INCREASE YOUR COMFORT LEVEL WITH THE INVESTMENT?
MR. BOSTIC: DID IT INCREASE YOUR COMFORT LEVEL WITH THE INVESTMENT DESPITE THE FACT THAT YOU DIDN'T HAVE INFORMATION LIKE FINANCIAL INFORMATION FROM THE COMPANY?
CHRISTOPHER LUCAS: YES. AND IF I MAY ADD? THE FACT THAT SHE HAD BEEN ABLE TO ATTRACT PARTNERS LIKE WALGREENS AND OTHERS, THAT'S A HUGE FACTOR.
MR. BOSTIC: YOU MENTIONED WALGREENS. IN DECEMBER OF 2013, WAS IT YOUR UNDERSTANDING THAT THE PARTNERSHIP WITH WALGREENS HAD BEEN IN OPERATION FOR A FEW MONTHS?
CHRISTOPHER LUCAS: I DON'T REMEMBER THE AMOUNT OF TIME, BUT SOMETHING LIKE THAT.
MR. BOSTIC: BASED ON YOUR CONVERSATIONS WITH MS. HOLMES, DID YOU UNDERSTAND THAT THAT PARTNERSHIP WAS GOING WELL?
MR. BOSTIC: FINALLY, IF WE COULD JUST MOVE DOWN TO SECTION 4.6. THIS SECTION IN THE AGREEMENT HAS THE INVESTOR CONFIRMING THAT IT IS AN ACCREDITED INVESTOR WITHIN THE MEANING OF A CERTAIN REGULATION. WAS THAT TRUE AS TO BDV AND YOU AT THE TIME?
MR. BOSTIC: I'LL ASK YOU TO LOOK AT TAB 7366 IN YOUR BINDER. IT SHOULD BE AT THE VERY BACK. AND DO YOU HAVE 7366 IN FRONT OF YOU?
CHRISTOPHER LUCAS: I DO.
MR. BOSTIC: I'LL ASK YOU TO GO TO PAGE 2 OF THE EXHIBIT. DO YOU SEE THERE AN EMAIL FROM MS. QUINTANA AT BDV TO YOU REGARDING THE THERANOS INVESTMENT?
MR. BOSTIC: YOUR HONOR, THE GOVERNMENT OFFERS PAGES 2 THROUGH THE END OF EXHIBIT 7366.
MR. DOWNEY: YOUR HONOR, CAN I HAVE JUST ONE SECOND TO TALK TO MR. BOSTIC?
JUDGE DAVILA: SURE.
(DISCUSSION OFF THE RECORD.)
JUDGE DAVILA: FOLKS, WHY DON'T YOU STAND UP RIGHT NOW AND STRETCH A LITTLE BIT. WE'LL BE TAKING OUR BREAK IN ABOUT 45 MINUTES OR SO, BUT FEEL FREE TO STAND AND STRETCH.
(STRETCHING.)
JUDGE DAVILA: YOU AS WELL, SIR, IF YOU WOULD LIKE, YES.
CHRISTOPHER LUCAS: THANK YOU.
(STRETCHING.)
JUDGE DAVILA: ALL RIGHT. THANK YOU VERY MUCH. MR. BOSTIC?
MR. BOSTIC: THANK YOU, YOUR HONOR. THE GOVERNMENT JUST HAD MOVED TO ADMIT EXHIBIT 7366, PAGES 2 THROUGH THE END.
MR. DOWNEY: TO WHICH WE HAVE NO OBJECTION.
JUDGE DAVILA: THANK YOU. IT'S ADMITTED. IT MAY BE PUBLISHED.
(DEFENDANT'S EXHIBIT 7366, PAGES 2 - END, WAS RECEIVED IN EVIDENCE.)
BY MR. BOSTIC:
MR. BOSTIC: MR. LUCAS, DO YOU SEE HERE AN EMAIL BETWEEN INDIVIDUALS AT BDV RELATING TO THE THERANOS INVESTMENT IN DECEMBER 2013?
MR. BOSTIC: AND THE EMAIL READS, "DEAR BDV INVESTOR. "THANK YOU FOR YOUR INTEREST AND PARTICIPATION IN THIS SERIES C-1 STOCK FINANCING. PER OUR COUNSEL'S RECOMMENDATION, WE WOULD LIKE TO SHARE ADDITIONAL INFORMATION AND DISCLOSURES IN THE ATTACHED ACKNOWLEDGEMENT LETTER AND ACCOMPANYING EXHIBIT A." DO YOU SEE THAT?
MR. BOSTIC: NOW, I DON'T WANT YOU TO DISCLOSE ANY PRIVILEGED COMMUNICATIONS THAT YOU HAD WITH COUNSEL, BUT CAN YOU EXPLAIN WHAT THIS COMMUNICATION WAS AND WHAT WAS BEING DISCLOSED TO BDV INVESTORS ABOUT THERANOS AT THIS TIME?
CHRISTOPHER LUCAS: JUST GENERALLY, AS I DON'T HAVE THAT PART OF IT IN FRONT OF ME, BUT GENERALLY WE WERE SAYING TO OUR GROUP THAT THERE WAS A CERTAIN AMOUNT OF INFORMATION THAT WE DID NOT HAVE ACCESS TO, AND WE WANTED THEM TO KNOW THAT AND ACKNOWLEDGE THAT, AND IF THEY STILL WANTED TO INVEST, THEY WOULD ACKNOWLEDGE AND SIGN THAT, AND OBVIOUSLY GET US THE FUNDS. IF THAT MEMO SWAYED THEM OR CAUSED THEM TO CHANGE THEIR MIND, THEN AT THAT POINT THEY WOULDN'T SIGN IT, THEY WOULDN'T INVEST, AND THAT WOULD BE THE END OF THEIR PARTICIPATION.
MR. BOSTIC: YOU SPOKE EARLIER ABOUT SOME KINDS OF INFORMATION THAT YOU DIDN'T HAVE FROM THERANOS AT THE TIME, INCLUDING SOME FINANCIAL INFORMATION; IS THAT RIGHT?
MR. BOSTIC: WHEN IT CAME TO THE AMOUNT OF INFORMATION THAT YOU HAD FROM THERANOS AND THE LEVEL OF TRANSPARENCY, HOW WOULD YOU COMPARE IT TO PREVIOUS INVESTMENTS THAT YOU HAD PARTICIPATED IN?
CHRISTOPHER LUCAS: CERTAINLY IRREGULAR IN THAT GENERALLY WE WOULD HAVE FINANCIAL STATEMENTS, AS I'VE SAID BEFORE, AND OTHER DOCUMENTATION AND SO FORTH COMING FROM THE COMPANY. I FELT COMFORTABLE WITH ELIZABETH AND A FEW OTHERS THAT I MET THAT SHE WAS VERY CONCERNED, AND POTENTIALLY RIGHTLY SO, THAT WHAT SHE WAS WORKING ON AND THE COMPANY WAS WORKING ON WAS VERY TRANSFORMATIVE, AND THEY DID NOT WANT TO HAVE ANY INFORMATION GET OUT INTO THE PUBLIC DOMAIN SO AS TO GIVE ONE OF HER COMPETITORS A CHANCE TO CRUSH THE COMPANY BEFORE THE COMPANY GOT TO FRUITION. BUT THERE IS CERTAIN INFORMATION, AS I SAID BEFORE, LIKE FINANCIALS, THAT TYPICALLY WOULD HAVE BEEN PROVIDED.
MR. BOSTIC: AND AT THE TIME THAT YOU WERE MOVING FORWARD WITH THIS INVESTMENT AND LACKED THAT INFORMATION, WERE YOU SATISFIED WITH THAT EXPLANATION FROM MS. HOLMES ABOUT THE REASON WHY YOU DIDN'T HAVE THAT INFORMATION?
MR. BOSTIC: THIS STEP OF SENDING THIS KIND OF DISCLOSURE TO BDV INVESTORS, HAD BDV EVER TAKEN THIS ACTION BEFORE WITH RESPECT TO A PREVIOUS INVESTMENT?
CHRISTOPHER LUCAS: NO, NOT SOMETHING LIKE THIS. OUR DOCUMENTATION WOULD INCLUDE SOMETHING SIMILAR AS WAS BEFORE, YOU ARE AN ACCREDITED INVESTOR, YOU REALIZE THIS IS SPECULATIVE, AND SO FORTH. BUT WE FELT THAT IT WAS IMPORTANT TO PROVIDE THIS ADDITIONAL DISCLOSURE.
MR. BOSTIC: IN DECIDING TO INVEST IN THERANOS, I JUST WANT TO MAKE SURE THAT I UNDERSTAND THE SOURCES OF INFORMATION THAT YOU RELIED UPON. IN ADDITION TO THE CALLS WITH MS. HOLMES THAT WE'VE BEEN TALKING ABOUT, DID YOU EVER RECEIVE WRITTEN MATERIALS FROM THE COMPANY IN THE TIME PERIOD LEADING UP TO THE 2013 INVESTMENT?
CHRISTOPHER LUCAS: I DON'T RECALL OTHER THAN WHAT WAS MADE GENERALLY PUBLICLY AVAILABLE. I DON'T THINK I RECEIVED ANYTHING PROPRIETARY.
MR. BOSTIC: DID YOU VIEW ANY PRESENTATIONS FROM MS. HOLMES DURING ANY IN-PERSON MEETINGS LEADING UP TO THAT 2013 INVESTMENT?
CHRISTOPHER LUCAS: IF, IF YOU LITERALLY MEAN RIGHT BEFORE THE INVESTMENT OR WITHIN A FEW MONTHS, I DON'T THINK SO. BUT I WOULD ALSO HAVE TO SAY THAT I DON'T REMEMBER FOR SURE.
MR. BOSTIC: TO THE EXTENT THAT YOU WERE PRESENTED WITH ANY SLIDE PRESENTATIONS BY MS. HOLMES OR THERANOS AROUND THE 2013 TIME PERIOD, WERE YOU ALLOWED TO RETAIN COPIES OF THOSE PRESENTATIONS?
CHRISTOPHER LUCAS: I JUST DON'T, DON'T REMEMBER. YEAH, I JUST DON'T REMEMBER.
MR. BOSTIC: WE SPOKE ABOUT NEWS ARTICLES REGARDING THERANOS. DID YOU GENERALLY LOOK FOR AND REVIEW NEWS ARTICLES ABOUT THE COMPANY LEADING UP TO THE INVESTMENT?
MR. BOSTIC: YOU ALSO TALKED ABOUT THE WEBSITE. DID YOU REVIEW THE THERANOS WEBSITE BEFORE DECIDING TO INVEST IN THE COMPANY IN DECEMBER OF 2013?
MR. BOSTIC: WHEN IT CAME TO YOUR UNDERSTANDING OF THE COMPANY STATUS AT THAT TIME, I'D LIKE TO ASK YOU ABOUT A FEW SPECIFICS, AND THIS IS BASED ON THE SOURCES OF INFORMATION THAT WE JUST TALKED ABOUT. FIRST, WHEN IT CAME TO THE COMPANY'S TECHNOLOGY, WHAT WAS YOUR UNDERSTANDING OF THE DEVICES, THE DEVICE OR DEVICES THAT THERANOS WAS USING TO CONDUCT ITS BLOOD TESTS?
CHRISTOPHER LUCAS: SO THE BRAIN OF THE DEVICE WAS, AND I THINK IT HAD DIFFERENT NAMES, BUT THE ANALYZER WAS A BOX THE SIZE OF A PC, YOU KNOW, A COUPLE FEET LONG, FOOT WIDE, AND LIKE OTHER TECHNOLOGIES -- AND ABOUT A FOOT AND A HALF TALL. AND LIKE OTHER TECHNOLOGIES, THEY WERE CONSTANTLY WORKING TO MINIMIZE THAT, SO THERE WERE LARGER VERSIONS BEFORE, AND WITH EACH ITERATION IT GOT SMALLER. SO THAT WAS THE GUTS.
MR. BOSTIC: DID YOU EVER HAVE AN OPPORTUNITY TO SEE THE THERANOS ANALYZER ITSELF?
MR. BOSTIC: AND WHEN DID THAT HAPPEN?
CHRISTOPHER LUCAS: I'M SURE OVER THE YEARS A NUMBER OF TIMES.
MR. BOSTIC: MULTIPLE TIMES?
MR. BOSTIC: AND WOULD THAT HAVE BEEN AT THERANOS'S HEADQUARTERS?
CHRISTOPHER LUCAS: YES. AND PRIOR TO THAT, MY UNCLE WOULD HAVE AN ANNUAL CONFERENCE FOR HIS INVESTORS, FOLKS WHO HAD COME IN ON OCCASION AS THE TECHNOLOGY WAS DEVELOPED, AND ELIZABETH HAD BROUGHT A BOX OR TWO, AN ANALYZER TO LET PEOPLE SEE IT.
MR. BOSTIC: BASED ON YOUR CONVERSATIONS WITH MS. HOLMES, DID YOU HAVE AN UNDERSTANDING THAT THERE WAS ONE THERANOS ANALYZER THAT WAS KIND OF GOING THROUGH VERSIONS, OR WAS THERE EVER A DISCUSSION OF THE NEED FOR MULTIPLE DEVICES TO DO DIFFERENT KINDS OF TESTS?
CHRISTOPHER LUCAS: MY GENERAL RECOLLECTION IS THAT IT WAS ONE DEVICE THAT WAS BEING DEVELOPED TO HANDLE ALL OF THE TESTS.
MR. BOSTIC: AND AS FAR AS WHAT IT COULD DO, DID YOU UNDERSTAND THAT THAT DEVICE WOULD RUN BLOOD TESTS USING A FINGERSTICK SAMPLE?
MR. BOSTIC: HOW ABOUT AS TO THE AMOUNT OF TESTS THAT THAT DEVICE COULD RUN? DID YOU UNDERSTAND THAT IT COULD DO MULTIPLE KINDS OF BLOOD TESTS?
MR. BOSTIC: DID YOU HAVE AN UNDERSTANDING AROUND THE TIME THAT YOU INVESTED ABOUT HOW MANY BLOOD TESTS THERANOS WAS OFFERING TO THE PUBLIC?
CHRISTOPHER LUCAS: MY ESTIMATE WAS THAT IT COULD DO THE MAJORITY OF THE MOST COMMON TESTS OUT THERE, SO THAT WOULD HAVE BEEN AT LEAST DOZENS OF TESTS.
MR. BOSTIC: AND WAS THAT YOUR UNDERSTANDING BASED ON CONVERSATIONS WITH MS. HOLMES?
CHRISTOPHER LUCAS: YES. I WOULD JUST ADD, WITH THE INTENT OF CONTINUING TO DEVELOP OTHER TESTS AS THEY'RE ABLE TO EXPAND THEIR EXPERTISE.
MR. BOSTIC: YOU UNDERSTOOD THAT THE NUMBER OF TESTS THAT THE ANALYZER COULD PERFORM WAS GROWING?
CHRISTOPHER LUCAS: CORRECT.
MR. BOSTIC: BUT AT THE TIME WHEN YOU INVESTED IN DECEMBER OF 2013, WHAT WAS YOUR UNDERSTANDING AS TO THE PROPORTION OF THERANOS'S TESTS THAT COULD BE DONE USING THE THERANOS ANALYZER?
CHRISTOPHER LUCAS: YEAH. AS I SAY, YOU KNOW, DOZENS, BUT CERTAINLY SOME HIGH PERCENTAGE OF THE MOST COMMON BLOOD TESTS OUT THERE.
MR. BOSTIC: WOULD YOU HAVE BEEN SURPRISED AT THE TIME TO HEAR THAT THE THERANOS ANALYZER WAS NEVER USED TO RUN MORE THAN 12 DIFFERENT KINDS OF BLOOD TESTS IN THE THERANOS LAB?
MR. BOSTIC: WOULD YOU HAVE BEEN VERY SURPRISED TO HEAR THAT?
CHRISTOPHER LUCAS: VERY SURPRISED.
MR. BOSTIC: WOULD THAT HAVE BEEN IMPORTANT INFORMATION FOR YOU TO KNOW AT THE TIME THAT YOU INVESTED?
MR. BOSTIC: WHY?
CHRISTOPHER LUCAS: WELL, IF WE HAD SPENT ALL OF THIS TIME AND NOW WE CAN ONLY DO 12, THAT WOULD BE A PROBLEM. HOWEVER, IF ONE WAS TOLD, GEE, WE CAN ONLY DO 12, BUT WE'RE ADDING DOZENS EVERY MONTH, OR SOME NUMBER LIKE THAT, THEN THAT'S JUST THE PROCESS THAT YOU GO THROUGH AS THE TECHNOLOGY IS GETTING PREPARED FOR PRIMETIME AND DISTRIBUTION.
MR. BOSTIC: SO IT SOUNDS LIKE YOU WOULD HAVE BEEN UNDERSTANDING IF THE ANSWER HAD BEEN, HERE'S WHERE WE ARE AND THERE'S MORE TO COME?
CHRISTOPHER LUCAS: YES. IF TRULY THAT WAS THE CASE, YES.
MR. BOSTIC: BUT JUST TO BE CLEAR, WERE YOU TOLD IN 2013 THAT THE THERANOS ANALYZER COULD RUN NO MORE THAN 12 TESTS?
MR. BOSTIC: SPEAKING MORE ABOUT THE CAPABILITIES OF THE THERANOS ANALYZER, DID MS. HOLMES TELL YOU ANYTHING ABOUT THE LEVEL OF AUTOMATION AND ACCURACY THAT THE DEVICE WAS CAPABLE OF?
CHRISTOPHER LUCAS: I DON'T REMEMBER IF WE GOT INTO SPECIFICS, BUT CERTAINLY THAT WAS THE WHOLE PURPOSE OF DEVELOPING THE TECHNOLOGY.
MR. BOSTIC: IF THE DEVICE HAD HAD THE SAME LEVEL OF AUTOMATION AS CONVENTIONAL DEVICES AND IT HAD ACCURACY PROBLEMS, WOULD THOSE FACTS HAVE BEEN IMPORTANT TO YOU AS A POTENTIAL INVESTOR IN THE COMPANY?
MR. BOSTIC: DURING YOUR CONVERSATIONS WITH MS. HOLMES, DID SHE EVER TELL YOU ABOUT ANY ACCURACY OR RELIABILITY PROBLEMS EXPERIENCED BY THE THERANOS ANALYZER?
CHRISTOPHER LUCAS: I DON'T RECALL THAT HAPPENING.
MR. BOSTIC: IN YOUR CONVERSATIONS WITH MS. HOLMES, DID SHE EVER DISCUSS THERANOS'S WORK WITH THE UNITED STATES MILITARY?
MR. BOSTIC: AT THE TIME THAT YOU INVESTED, WHAT WAS YOUR UNDERSTANDING FROM THOSE CONVERSATIONS ABOUT THE MILITARY'S USE OF THERANOS'S TECHNOLOGY?
CHRISTOPHER LUCAS: WELL, THAT IT WAS BEING USED IN THE FIELD AND THAT IT WAS VERY EXCITING BECAUSE OF THE THINGS THAT THE TECHNOLOGY COULD DO THAT OTHER TECHNOLOGIES COULD NOT DO IN THE FIELD, AND IT WAS IMPORTANT FOR THE SURVIVOR RATE FOR FOLKS WHO HAD BEEN WOUNDED IN THE FIELD.
MR. BOSTIC: JUST TO BE CLEAR, FROM WHAT MS. HOLMES TOLD YOU, DID YOU UNDERSTAND THAT THE THERANOS ANALYZER WAS ACTIVELY BEING USED BY THE MILITARY TO TREAT SOLDIERS IN THE FIELD?
MR. BOSTIC: WOULD YOU HAVE BEEN SURPRISED AT THAT TIME TO HEAR THAT THE MILITARY HAD NEVER USED ANY THERANOS TECHNOLOGY IN THE TREATMENT OF SOLDIERS?
CHRISTOPHER LUCAS: YES, I WOULD HAVE BEEN SURPRISED.
MR. BOSTIC: WOULD IT HAVE SURPRISED YOU AT THAT TIME TO HEAR THAT THERANOS OR THE MILITARY HAD NEVER SENT EVEN A SINGLE ANALYZER TO THE MIDDLE EAST?
CHRISTOPHER LUCAS: YES, I WOULD HAVE BEEN SURPRISED.
MR. BOSTIC: COMPARING BDV'S INVESTMENT IN 2013 TO ITS INVESTMENT IN 2006, CAN YOU TELL ME ABOUT WHETHER YOU VIEWED THOSE TWO INVESTMENTS AS CARRYING THE SAME AMOUNT OF RISK?
CHRISTOPHER LUCAS: NO. THE ONE IN 2006, AS I SAID EARLIER, WE HOPED THAT ELIZABETH AND HER TEAM, WHO SEEMED VERY DEDICATED AND VERY PURPOSEFUL AND PASSIONATE, COULD DEVELOP IT, BUT THERE WAS NO GUARANTEE. HOPEFULLY IT HAPPENED, AND HOPEFULLY NOT. THAT'S WHAT VENTURE INVESTING IS. HOWEVER, ALSO, AS I SAID EARLIER, AS YOU GO UP TO LATER STAGE INVESTMENTS, THE RISK PROFILE GOES DOWN AND YOU WOULD EXPECT TO HAVE A HIGHER CERTAINTY OF A RETURN. SO THE DIFFERENCE BETWEEN THE TWO TIME PERIODS WAS HUGE.
MR. BOSTIC: AND IN DRAWING THAT COMPARISON AND REACHING THAT UNDERSTANDING ABOUT THE LEVEL OF RISK IN 2013, WERE YOU RELYING ON YOUR CONVERSATIONS WITH MS. HOLMES?
MR. BOSTIC: FOLLOWING BDV'S INVESTMENT IN THERANOS IN 2013, DID YOU CONTINUE TO STAY IN CONTACT WITH MS. HOLMES?
MR. BOSTIC: DID SHE CONTINUE TO PROVIDE YOU WITH INFORMATION ABOUT THE COMPANY?
CHRISTOPHER LUCAS: YES, WE WOULD SPEAK REGULARLY.
MR. BOSTIC: I'LL ASK YOU TO LOOK, JUST BRIEFLY, AT EXHIBIT 1770. IT'S TAB 1770 IN YOUR BINDER. AND DO YOU HAVE THAT IN FRONT OF YOU?
MR. BOSTIC: IS THIS ANOTHER EMAIL FROM THERANOS TO A GROUP OF INVESTORS, INCLUDING YOU, IN JUNE OF 2014?
MR. BOSTIC: YOUR HONOR, THE GOVERNMENT --
CHRISTOPHER LUCAS: I CAN'T FIND MY ADDRESS, BUT I'M SURE I'M IN HERE.
MR. BOSTIC: I THINK WE CAN HIGHLIGHT IT FOR YOU. YOUR HONOR, THE GOVERNMENT MOVES TO ADMIT EXHIBIT 1770.
MR. DOWNEY: YOUR HONOR, I ACTUALLY THINK THE ATTACHMENT TO THIS IS A LITTLE DIFFERENT THAN WHAT WAS CONTEMPORANEOUSLY SENT. THIS SAME EXHIBIT ATTACHMENT HAS BEEN ADMITTED ELSEWHERE. I DON'T OBJECT TO THE EMAIL, BUT I OBJECT TO THE CONTENT FROM AFTER THE EMAIL WAS SENT.
MR. BOSTIC: YOUR HONOR, I'M HAPPY TO ADMIT JUST PAGES 1 AND 2 OF THE EXHIBIT IF THAT WOULD ADDRESS THE CONCERN.
MR. DOWNEY: IT WOULD, YOUR HONOR.
JUDGE DAVILA: PAGES 1 AND 2 OF 1770 ARE ADMITTED, AND THEY MAY BE PUBLISHED.
MR. BOSTIC: THANK YOU, YOUR HONOR.
(GOVERNMENT'S EXHIBIT 1770, PAGES 1 AND 2, WAS RECEIVED IN EVIDENCE.)
BY MR. BOSTIC:
MR. BOSTIC: AND, MR. LUCAS, DO YOU SEE THAT WE'VE REDACTED A NUMBER OF EMAIL ADDRESSES HERE, BUT APPEARING ON THE PAGE SHOULD BE YOUR ADDRESS AND MS. HOLMES IN THAT BCC FIELD. DO YOU SEE THAT?
MR. BOSTIC: AND THIS IS A JUNE 12TH, 2014 EMAIL. LET'S LOOK AT PAGE 2 AND ZOOM IN ON THE TEXT THERE. IT SAYS, "TO OUR SHAREHOLDERS: "LAST SEPTEMBER, WE INTRODUCED OUR PRODUCTS TO THE CONSUMER AND CLINICAL MARKETS AFTER TEN YEARS OF INCREDIBLE WORK AND DEDICATION OF SO MANY PEOPLE." DO YOU SEE THAT?
MR. BOSTIC: AND THE SECOND PARAGRAPH SAYS, "WITH THIS EMAIL, WE'RE VERY PLEASED TO SHARE WITH YOU THIS MONTH'S 'FORTUNE' MAGAZINE COVER STORY. FORTUNE DID IN-DEPTH RESEARCH TO UNDERSTAND THE IMPACT OUR WORK WILL HAVE ON THE WORLD AND WE SELECTIVELY SHARED MORE OF OUR WORK FOR THIS PIECE." DO YOU SEE THAT?
MR. BOSTIC: AND THERE'S A LINK TO THE JUNE 2014 "FORTUNE" ARTICLE; IS THAT CORRECT?
MR. BOSTIC: AND DO YOU REMEMBER REVIEWING THAT 2014 "FORTUNE" ARTICLE WHEN THEY SENT IT TO YOU?
CHRISTOPHER LUCAS: YES. IT WAS VERY EXCITING.
MR. BOSTIC: LET'S LOOK AT THAT ARTICLE. IT'S EXHIBIT 1776, AND IT'S ALREADY IN EVIDENCE. MR. LUCAS, THIS IS AN ARTICLE TITLED "THIS CEO IS OUT FOR BLOOD" WRITTEN BY SOMEONE NAMED ROGER PARLOFF, PUBLISHED ON JUNE 12TH, 2014; IS THAT CORRECT?
MR. BOSTIC: AND DO YOU RECALL READING THIS ARTICLE?
CHRISTOPHER LUCAS: GREAT ARTICLE AND GREAT PICTURES, THE WHOLE THING.
MR. BOSTIC: AND DID THIS ARTICLE CAUSE YOU TO FEEL MORE POSITIVE ABOUT THE INVESTMENT THAT YOU HAD MADE IN THERANOS?
CHRISTOPHER LUCAS: YES. I WAS VERY PROUD OF THE SITUATION, PROUD WE WERE INVOLVED, PROUD OF ELIZABETH, THE WHOLE THING, YES.
MR. BOSTIC: A MOMENT, YOUR HONOR?
JUDGE DAVILA: YES.
(DISCUSSION AMONGST GOVERNMENT COUNSEL OFF THE RECORD.)
MR. BOSTIC: NO FURTHER QUESTIONS AT THIS TIME. THANK YOU, MR. LUCAS.
JUDGE DAVILA: CROSS-EXAMINATION?
MR. DOWNEY: YES, YOUR HONOR.
JUDGE DAVILA: FOLKS, IF YOU WOULD LIKE TO STAND AND STRETCH AGAIN WHILE WE MAKE THIS CHANGE, FEEL FREE.
(STRETCHING.)
MR. DOWNEY: YOUR HONOR, MAY I APPROACH THE WITNESS?
JUDGE DAVILA: YES.
MR. DOWNEY: (HANDING.)
CHRISTOPHER LUCAS: GOOD MORNING.
MR. DOWNEY: GOOD MORNING.
CHRISTOPHER LUCAS: THANK YOU.
JUDGE DAVILA: MR. DOWNEY.
CROSS-EXAMINATION BY MR. DOWNEY:
MR. DOWNEY: MR. LUCAS, I'M GOING TO REMOVE MY MASK AS WELL.
CHRISTOPHER LUCAS: SURE.
MR. DOWNEY: GOOD MORNING TO YOU. MY NAME IS KEVIN DOWNEY, AND I REPRESENT MS. HOLMES. I'M GOING TO ASK YOU A FEW QUESTIONS TODAY. I WANT TO TALK ABOUT THE PERIOD WHEN YOU WERE INTRODUCED TO THERANOS. THAT WAS IN -- I BELIEVE YOU TESTIFIED THAT WAS EITHER 2005 OR 2006; CORRECT?
MR. DOWNEY: AND YOU WERE INTRODUCED TO THE INVESTMENT OPPORTUNITY BY YOUR UNCLE, DON LUCAS; IS THAT RIGHT?
MR. DOWNEY: AND HE WAS -- HE HAD BEEN A LEGENDARY VENTURE CAPITAL INVESTOR FOR YEARS IN THE VALLEY; CORRECT?
CHRISTOPHER LUCAS: HE HAD BEEN VERY SUCCESSFUL, YES.
MR. DOWNEY: AND HE WAS SOMEWHAT OF A MENTOR TO YOU; CORRECT?
MR. DOWNEY: AND HE RECOMMENDED THAT YOU LOOK AT THERANOS AS A POTENTIAL INVESTMENT; IS THAT RIGHT?
MR. DOWNEY: IN CONNECTION WITH YOUR DECISION TO INVEST IN THERANOS, DID YOU ENGAGE IN THE NORMAL PROCESS THAT YOU ENGAGE IN OF ASSESSING A COMPANY ALONG THE LINES OF WHAT YOU DESCRIBED TO MR. BOSTIC ON DIRECT EXAMINATION?
CHRISTOPHER LUCAS: IN THE VERY BEGINNING I DON'T REMEMBER HOW MUCH DILIGENCE WE DID. THIS WAS A SITUATION WHERE DON HAD ALREADY BEEN ON THE BOARD, OR ABOUT TO BE ON THE BOARD, AND SO OBVIOUSLY WE FELT VERY COMFORTABLE WITH HIS EXPERIENCE AND KNOWLEDGE.
MR. DOWNEY: IN THE ORDINARY COURSE, I THINK YOU TESTIFIED THAT YOU WOULD MEET THE CEO OR THE MANAGEMENT TEAM; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND YOU DID THAT WITH MS. HOLMES PRIOR TO THE INVESTMENT; CORRECT?
CHRISTOPHER LUCAS: I, I BELIEVE SO. I DON'T, I DON'T ABSOLUTELY RECALL --
MR. DOWNEY: OKAY.
CHRISTOPHER LUCAS: -- IF IT WAS BEFORE.
MR. DOWNEY: OKAY. AT WHATEVER POINT YOU MET HER, YOUR IMPRESSIONS OF HER WERE VERY POSITIVE; CORRECT?
CHRISTOPHER LUCAS: VERY POSITIVE.
MR. DOWNEY: AND THAT'S AN IMPORTANT FACTOR IN MAKING A DECISION TO INVEST IN A COMPANY; CORRECT?
MR. DOWNEY: AND COULD YOU TELL US WHAT CHARACTERISTICS OF MS. HOLMES GAVE YOU A POSITIVE IMPRESSION AS YOU WERE EVALUATING THE INVESTMENT?
CHRISTOPHER LUCAS: SURE. SHE WAS VERY ARTICULATE, VERY PASSIONATE, SHE IS VERY SMART, AND SHE WAS ON A MISSION. THIS WAS NOT JUST FOR HER, "WE'RE GOING TO MAKE A BUNCH OF MONEY." SHE WAS ON A MISSION TO PROVIDE TECHNOLOGY TO THE WORLD THAT WOULD BE VERY HELPFUL.
MR. DOWNEY: AND WAS THAT IMPRESSION OF HER IMPORTANT TO YOUR DECISION TO INVEST IN 2006?
MR. DOWNEY: WAS IT IMPORTANT TO YOUR DECISION TO INVEST IN 2013?
MR. DOWNEY: YOU TALKED ABOUT HER VISION. TELL US HER VISION AS YOU UNDERSTOOD IT IN 2006.
CHRISTOPHER LUCAS: IT WAS -- JUST BROADLY, WITH A SMALL AMOUNT OF BLOOD, WE'RE GOING TO DEVELOP THE TECHNOLOGY TO BE ABLE TO RUN TESTS ON THAT BLOOD SO THAT VIALS DID NOT HAVE TO BE DRAWN FROM THE ARM.
MR. DOWNEY: OKAY. AND DO YOU RECALL THE CONTEXT IN WHICH SHE WANTED TO BRING THAT PRODUCT TO MARKET AT THAT TIME IN 2006?
CHRISTOPHER LUCAS: THERE MAY HAVE BEEN SOME THOUGHTS, BUT THIS WOULD HAVE BEEN VERY PREMATURE GIVEN THAT THE TECHNOLOGY WASN'T AVAILABLE YET.
MR. DOWNEY: WAS IT YOUR UNDERSTANDING THAT THE SITUATION WAS THAT THEY HAD A PROTOTYPE AND THEY WERE WORKING TO DEVELOP THAT INTO A MORE DEVELOPED FORM OF TECHNOLOGY?
CHRISTOPHER LUCAS: I DON'T FULLY RECALL, BUT CERTAINLY THEY HAD SOME TECHNOLOGY THAT HAD BEEN DEVELOPED THAT THEY WERE WORKING ON.
MR. DOWNEY: OKAY. YOU DESCRIBED FOR MR. BOSTIC THE TYPICAL PROCESS IN VENTURE CAPITAL OF ASSESSING AN INVESTMENT, AND I REALIZE IT'S A LONG TIME AGO AND YOU DON'T RECALL PRECISELY WHAT PROCESS YOU WENT THROUGH. I WANT TO ASK YOU ABOUT YOUR UNCLE AND HIS PROCESSES IN ASSESSING INVESTMENTS. DO YOU KNOW IF HE WENT THROUGH THE TYPE OF PROCESS IN ASSESSING AN INVESTMENT THAT YOU DESCRIBED ON DIRECT TO MR. BOSTIC?
CHRISTOPHER LUCAS: TYPICALLY HE, HE WOULD. HAVING SAID THAT, HE WAS VERY MUCH ONE THAT PUT A LOT OF FAITH IN THE FOUNDER OR FOUNDERS OF THE COMPANY. HE WOULD SAY IT'S ALWAYS ABOUT THE PEOPLE. IT'S ALL ABOUT THE PEOPLE.
MR. DOWNEY: AND THAT, THAT WAS A THOUGHT THAT HE COMMUNICATED TO YOU AS A GENERAL INVESTING PHILOSOPHY?
MR. DOWNEY: AND HE COMMUNICATED HIS VIEWS -- DID HE COMMUNICATE HIS VIEWS OF MS. HOLMES TO YOU AROUND THE TIME THAT YOU MADE YOUR ORIGINAL INVESTMENT?
MR. DOWNEY: AND WHAT DID HE CONVEY TO YOU AT THE TIME ABOUT MS. HOLMES?
CHRISTOPHER LUCAS: THAT, AS I SAID EARLIER, SHE WAS VERY PASSIONATE, AND THAT IT SEEMED LIKE SHE WAS GOING TO BE ABLE TO DEVELOP THE TECHNOLOGY, AND THIS LOOKED LIKE A WONDERFUL INVESTMENT OPPORTUNITY.
MR. DOWNEY: I THINK YOU MENTIONED ON DIRECT THAT IN ADDITION TO YOUR UNCLE, THERE WAS ANOTHER VENTURE INVESTOR WHO WAS INVOLVED IN INVESTING IN THE COMPANY AT THE SAME TIME. DO YOU RECALL TELLING THAT TO US ON DIRECT?
MR. DOWNEY: LET ME -- IF I MIGHT, I WILL FINISH THE QUESTION AND THEN YOU CAN RESPOND SO IT'S EASIER FOR OUR COURT REPORTER TO TAKE DOWN WHAT WE'RE SAYING. WAS THE OTHER INVESTOR PETE THOMAS?
MR. DOWNEY: AND HE WAS AFFILIATED WITH A FIRM CALLED ATA VENTURES; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND DID YOU BECOME FAMILIAR WITH THE PROCESS THAT MR. THOMAS WENT THROUGH IN INVESTING PRIOR TO THE TIME THAT YOU MADE YOUR FIRST INVESTMENT IN THERANOS?
CHRISTOPHER LUCAS: I MAY HAVE HAD A CONVERSATION WITH HIM, BUT I DON'T KNOW FULLY THE PROCESS THAT HE DID.
MR. DOWNEY: OKAY. IS IT CUSTOMARY IN CONNECTION WITH THE DILIGENCE PROCESS FOR THE VENTURE CAPITAL FIRM TO IN SOME INSTANCES RETAIN A LAW FIRM TO ASSIST IT IN CONDUCTING DUE DILIGENCE?
CHRISTOPHER LUCAS: SOMETIMES.
MR. DOWNEY: WAS THAT DONE IN CONNECTION -- BY EITHER YOUR UNCLE OR BY MR. THOMAS IN CONNECTION WITH ASSESSING THE INVESTMENT IN 2006?
CHRISTOPHER LUCAS: I DON'T KNOW. YEAH, I DON'T KNOW.
MR. DOWNEY: LET ME SEE IF I CAN SHOW YOU A DOCUMENT, AND JUST TAKE A LOOK AT IT, AND WE'LL SEE IF IT REFRESHES YOUR RECOLLECTION IN ANY REGARD. I DON'T WANT YOU TO COMMENT ON THE DOCUMENT. I JUST WANT YOU TO LOOK AT IT IN THE FIRST INSTANCE. THE DOCUMENT WILL BE IN THE NOTEBOOK THAT I GAVE YOU, AND IT'S LABELLED 14219.
(PAUSE IN PROCEEDINGS.)
BY MR. DOWNEY:
MR. DOWNEY: HAVE YOU HAD AN OPPORTUNITY TO LOOK AT THAT?
CHRISTOPHER LUCAS: OH, I'M SORRY. I'VE JUST SEEN -- I DON'T KNOW WHAT YOU WANT ME TO LOOK AT.
MR. DOWNEY: WELL, IF YOU LOOK AT THE EMAIL, AND YOU CAN SKIM THE ATTACHMENT.
CHRISTOPHER LUCAS: YOU WANT ME TO LOOK AT THE WHOLE?
MR. DOWNEY: YEAH. YOU DON'T HAVE TO LOOK AT IT IN DETAIL. I JUST WANT YOU TO LOOK AT THE NATURE OF THE ATTACHMENT.
MR. DOWNEY: DOES THAT REFRESH YOUR RECOLLECTION THAT YOU WERE TOLD IN 2005 OR 2006 THAT MR. THOMAS HAD ENGAGED IN A DUE DILIGENCE PROCESS IN CONNECTION WITH MAKING A DECISION TO INVEST IN THERANOS?
CHRISTOPHER LUCAS: NO. I DID NOT KNOW PETE THOMAS VERY WELL, AND CERTAINLY AT THIS TIME I DIDN'T KNOW ANYTHING ABOUT THIS.
MR. DOWNEY: OKAY. DO YOU HAVE ANY RECOLLECTION WHETHER YOU ENGAGED IN THE REVIEW OF ANY OF THE TYPES OF MATERIALS THAT ARE IDENTIFIED IN EXHIBIT 14219?
CHRISTOPHER LUCAS: THERE MAY HAVE BEEN SOME MATERIAL. THERE WAS -- IF I AM REMEMBERING CORRECTLY -- A DESCRIPTION OF THE TECHNOLOGY AND WHAT THE INTENT WAS SUPPOSED TO BE AND SO FORTH. BUT IN TERMS OF GOING THROUGH THE CORPORATE RECORDS AND IP LIST AND MATERIAL AGREEMENTS AND SO FORTH, I MEAN, THIS IS A STANDARD DUE DILIGENCE LIST THAT ONE WOULD CERTAINLY DO.
MR. DOWNEY: OKAY. AND AM I UNDERSTANDING YOU THAT YOU JUST DON'T RECALL ONE WAY OR ANOTHER WHETHER YOU DID THAT PRIOR TO THE TIME THAT YOU UNDERTOOK YOUR INVESTMENT?
CHRISTOPHER LUCAS: OTHER THAN, AS I SAY, MAYBE SEEING SOME MATERIAL. NO, WE DID NOT CONDUCT ALL OF THIS --
MR. DOWNEY: OKAY.
CHRISTOPHER LUCAS: -- AS I WOULD BELIEVE THAT MAYBE IT WAS DONE. AND, AGAIN, WITH MY UNCLE'S INVOLVEMENT, IT CERTAINLY WOULD -- YOU KNOW, WE'RE GOING ON HIS EXPERIENCE AS WELL.
MR. DOWNEY: OKAY. AND IT'S CUSTOMARY IN THESE SITUATIONS TO LOOK AT THE PATENT PORTFOLIO OF THE COMPANY; CORRECT?
CHRISTOPHER LUCAS: YES, MANY TIMES, YES.
MR. DOWNEY: AND IT IS CUSTOMARY TO LOOK AT THE MATERIAL AGREEMENTS THAT THE COMPANY HAS, THE CONTRACTS THAT IT HAS IN PLACE THAT WILL AFFECT ITS BUSINESS?
MR. DOWNEY: AND IT'S CUSTOMARY TO LOOK AT OTHER CORPORATE DOCUMENTS TO SEE HOW THE COMPANY IS SET UP; CORRECT?
MR. DOWNEY: OKAY. LET ME SHOW YOU AN EXHIBIT THAT IS ALSO IN THE BLACK BINDER THAT IS NUMBERED 12022. AND THERE'S AN ATTACHMENT TO THIS. I DON'T WANT TO OR REALLY NEED YOU TO TAKE THE TIME TO REVIEW THE ENTIRE ATTACHMENT. I GUESS MY FIRST QUESTION IS, DO YOU JUST RECOGNIZE THIS AS AN EMAIL BETWEEN YOU AND MS. HOLMES AT YOUR BDVENTURES EMAIL ADDRESS IN LATE 2005?
CHRISTOPHER LUCAS: YES, AND THIS IS -- AND AGAIN, I'VE NOT LOOKED AT IT, BUT THIS IS -- WHEN I WAS REFERRING TO SOME MATERIAL, I WOULD HAVE SEEN THIS. IT LOOKS LIKE WHAT I MAY HAVE SEEN.
MR. DOWNEY: THIS APPEARS TO BE MATERIAL THAT SHE SENT TO YOU IN CONNECTION WITH YOUR 2006 INVESTMENT?
CHRISTOPHER LUCAS: YEAH, YEAH.
MR. DOWNEY: AGAIN, MR. LUCAS, I KNOW IT'S NOT CUSTOMARY, IF YOU COULD WAIT UNTIL THE QUESTION HAS ENDED, IT WILL MAKE OUR TRANSCRIPT A LITTLE BETTER. THIS IS MATERIAL THAT MS. HOLMES SENT YOU IN CONNECTION WITH YOUR CONSIDERATION OF AN INVESTMENT IN 2006?
MR. DOWNEY: YOUR HONOR, I MOVE THE ADMISSION OF 12022.
MR. BOSTIC: NO OBJECTION.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(DEFENDANT'S EXHIBIT 12022 WAS RECEIVED IN EVIDENCE.)
BY MR. DOWNEY:
MR. DOWNEY: YOU CAN REVIEW AS MUCH OF THE ATTACHMENT AS YOU NEED TO, BUT I'M GOING TO POINT YOU TO SOME PARTICULAR PLACES THAT ARE OF INTEREST TO ME. FIRST OF ALL, IF YOU SEE THE EMAIL ON THE FIRST PAGE BETWEEN -- THE EMAIL ON THE TOP INDICATES THAT THIS IS THE COMMUNICATION BETWEEN YOU AND MS. HOLMES; CORRECT?
MR. DOWNEY: AND SHE WAS SENDING YOU A POWERPOINT ABOUT THE THERANOS INDUSTRY; CORRECT?
MR. DOWNEY: AND AN OFFERING MEMORANDUM; CORRECT?
MR. DOWNEY: AND VARIOUS FINANCIAL INFORMATION RELATED TO THE COMPANY; CORRECT?
MR. DOWNEY: AND IF YOU GO DOWN TO THE BOTTOM EMAIL ON THAT PAGE, YOU SEE THAT THERE'S AN EMAIL FROM YOU, AND IT SAYS, "I REALLY ENJOYED MEETING YOU AND LEARNING ABOUT YOUR COMPANY"? CORRECT?
MR. DOWNEY: AND SO THIS LOOKS LIKE TO BE A FOLLOWUP AFTER YOUR FIRST MEETING WITH MS. HOLMES; CORRECT?
MR. DOWNEY: AND THEN IN THE NEXT PARAGRAPH IT SAYS, "I KNOW THAT DON IS VERY EXCITED ABOUT YOUR FUTURE AND SEES HOW WE CAN HELP MAKE YOUR COMPANY A HUGE SUCCESS." DO YOU SEE THAT?
MR. DOWNEY: AND THAT'S A REFERENCE TO YOUR UNCLE; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND THAT'S CONSISTENT WITH YOUR RECOLLECTION THAT HE WAS EXCITED ABOUT THE COMPANY; CORRECT?
CHRISTOPHER LUCAS: YES. SORRY.
MR. DOWNEY: IN THE CONTEXT OF MAKING AN INVESTMENT, OF COURSE YOUR UNCLE'S VIEW OF HOW THE -- A VIEW OF THE INVESTMENT AND YOUR LIKELY SUCCESS IN CONNECTION WITH THE INVESTMENT WAS AN IMPORTANT FACTOR TO YOU?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: I WANT YOU TO -- I WANT TO JUST DIRECT YOUR ATTENTION TO THE ATTACHMENTS. I THINK THERE'S AN ATTACHMENT SET OF SLIDES, AND THAT STARTS IMMEDIATELY THEREAFTER AND CONTINUES FOR SEVERAL PAGES. BUT IF YOU GO TO THE SECOND SLIDE OF THAT GROUP OF SLIDES, WHICH I'LL PUT UP ON THE SCREEN, THIS IS JUST -- IS THIS AN INDEX OF THE MATERIALS THAT SHE COVERS IN THE ATTACHED SLIDE DECK?
MR. DOWNEY: AND, AND THIS TYPE OF INFORMATION IS CUSTOMARY INFORMATION TO GIVE TO AN INVESTOR THAT IS CONSIDERING AN INVESTMENT; CORRECT?
MR. DOWNEY: AND SHE PROFILED THE MANAGEMENT TEAM; CORRECT?
MR. DOWNEY: AND SHE TALKED ABOUT THE INTELLECTUAL PROPERTY OF THE COMPANY; CORRECT?
MR. DOWNEY: AND SHE TALKED ABOUT THE TECHNOLOGY OF THE COMPANY; CORRECT?
MR. DOWNEY: AND SHE ALSO TALKED ABOUT REGULATORY ISSUES; CORRECT?
CHRISTOPHER LUCAS: YES, IT CERTAINLY IS SHOWN HERE, YES.
MR. DOWNEY: AND REGULATORY ISSUES IN THE MEDICAL DEVICE BUSINESS CAN BE IMPORTANT; CORRECT?
CHRISTOPHER LUCAS: VERY IMPORTANT.
MR. DOWNEY: OKAY. AND YOU KNOW THAT FROM YOUR INVESTMENTS IN OTHER ENTITIES IN THAT INDUSTRY; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND YOU KNEW THAT IN 2006; CORRECT?
MR. DOWNEY: LET ME ASK YOU TO GO FORWARD IN THIS COMPANY -- IN THIS SLIDE TO WHAT IS SLIDE NUMBER 22. IT'S ON PAGE 26 OF THE EXHIBIT. AND THIS SLIDE SEEMS TO SET FORTH WHAT IS CALLED A THERANOS PRODUCT PIPELINE. DO YOU SEE THAT?
MR. DOWNEY: AND DO YOU SEE THAT ON THE LEFT-HAND SIDE OF THE SLIDE, THERE SEEMS TO BE A LIST OF DIFFERENT SERIES OF THE THERANOS ANALYZER; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND THEN ON THE RIGHT-HAND SIDE, THERE SEEMS TO ASSOCIATE, WITH WHATEVER SERIES IS ACROSS FROM IT, THE NUMBER OF ASSAYS THAT THAT SERIES OF THERANOS ANALYZER WOULD BE CAPABLE OF PERFORMING. DO YOU SEE THAT?
MR. DOWNEY: AND THIS PROJECTS GOING THROUGH A THERANOS 5.0 SERIES. DO YOU SEE THAT?
MR. DOWNEY: AND THIS IS BECAUSE THE TECHNOLOGY WAS EXPECTED TO CHANGE AND DEVELOP AND GROW BETTER OVER TIME; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND ON THE RIGHT-HAND SIDE WITH THE NUMBER OF ASSAYS LISTED, IT APPEARS TO REFLECT THAT MS. HOLMES THOUGHT THAT AS THE DEVICE DEVELOPED, THE NUMBER OF ASSAYS THAT IT COULD PERFORM WOULD GROW OVER TIME; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND THAT WAS A CONCEPT THAT SHE COMMUNICATED TO YOU EVEN BEFORE YOU INVESTED; CORRECT?
MR. DOWNEY: AND THAT'S A CONCEPT THAT YOU UNDERSTOOD THROUGHOUT THE TIME THAT YOU WERE AN INVESTOR IN THERANOS; CORRECT?
MR. DOWNEY: YOU, I THINK, TESTIFIED ON YOUR DIRECT EXAMINATION WITH MR. BOSTIC ABOUT SEEING VERSIONS OF THE ANALYZER; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: DO YOU KNOW WHICH SERIES OF DEVICE YOU ACTUALLY SAW WHEN MS. HOLMES SHOWED IT TO YOU EITHER AT THERANOS OR TO YOUR UNCLE'S ANNUAL MEETING?
CHRISTOPHER LUCAS: I, I DON'T KNOW AS YOU'RE -- AS HIGHLIGHTED HERE 1.0, 2.0. I KNOW I SAW A FEW VERSIONS. I MAY HAVE SEEN 1.0 AND 2.0. I JUST DON'T RECALL.
MR. DOWNEY: OKAY. DO YOU SEE ON THE RIGHT-HAND SIDE NEXT TO THE SERIES THERE ALSO IS A PROJECTION OF -- NEXT TO THE 2.0, THAT THERE WOULD BE OVER-THE-COUNTER SALES. DO YOU SEE THAT?
CHRISTOPHER LUCAS: I DO.
MR. DOWNEY: DO YOU KNOW WHAT THAT MEANS?
CHRISTOPHER LUCAS: WELL, CERTAINLY OVER THE COUNTER WOULD MEAN TO ME THAT YOU ARE SELLING SOMETHING THAT WHOEVER PURCHASES IT CAN DO IT FOR THEMSELVES.
MR. DOWNEY: OKAY. DO YOU KNOW HOW THAT ASSOCIATED WITH ANY BUSINESS PLAN FOR THERANOS AS OF 2006?
CHRISTOPHER LUCAS: I, I DON'T.
MR. DOWNEY: OKAY.
CHRISTOPHER LUCAS: IT NEVER HAPPENED, BUT I DON'T.
MR. DOWNEY: OKAY. LET ME ASK YOU NOW TO LOOK AT THE SECOND DOCUMENT WHICH IS ATTACHED TO EXHIBIT 12022. AND DO YOU SEE THAT THIS IS -- THIS APPEARS TO BE SOME TYPE OF A DOCUMENT. IT'S MARKED THERANOS AND CONFIDENTIAL ON THE FIRST PAGE. DO YOU SEE THAT?
CHRISTOPHER LUCAS: AM I LOOKING ON THE SCREEN OR BACK IN THE BOOK?
MR. DOWNEY: I THINK IT MIGHT BE EASIER TO LOOK AT THE SCREEN, BUT --
CHRISTOPHER LUCAS: OH, THIS IS THE DOCUMENT. YES, I SEE IT.
MR. DOWNEY: OKAY. AND DO YOU SEE IN THE BOTTOM CAPTION THE FIRST SENTENCE READS, "THIS CONFIDENTIAL SUMMARY HAS BEEN PREPARED FOR PARTIES WISHING TO ESTABLISH A BUSINESS RELATIONSHIP WITH THERANOS"? DO YOU SEE THAT?
MR. DOWNEY: AND THIS DOCUMENT IS THE KIND OF DOCUMENT THAT YOUNG COMPANIES OFTEN PRESENT TO POTENTIAL INVESTORS TO EXPLAIN HOW THEY THINK THEIR COMPANY WILL DEVELOP OVER TIME; CORRECT?
MR. DOWNEY: AND IF YOU GO FORWARD -- JUST FLIP THROUGH THE PAGES OF THAT DOCUMENT. DO YOU SEE THAT THERE'S A SUMMARY AND DISCUSSION OF THE MARKETS THAT THERANOS WILL BE IN AND A DISCUSSION OF OTHER ASPECTS OF HOW THERANOS THOUGHT ABOUT ITS BUSINESS; CORRECT?
MR. DOWNEY: ALL RIGHT. I WANT TO GO TO WHAT IS PAGE 36 OF THE EXHIBIT, ALTHOUGH IT'S PAGE 9 OF THIS ATTACHMENT. AND DO YOU SEE THAT THERE'S A DISCUSSION THERE OF THE THERANOS 1.0?
MR. DOWNEY: AND DO YOU SEE THAT THE INDICATION WAS THAT IT WAS BEING INTRODUCED TO THE COMPANY FOR IMPROVING RISK PROFILES AND SAFETY PROFILES IN CONNECTION WITH THE DEVELOPMENT OF DRUGS?
MR. DOWNEY: AND WAS THAT THE ORIGINAL BUSINESS PLAN FOR THERANOS AS YOU UNDERSTOOD IT?
MR. DOWNEY: IN OTHER WORDS --
CHRISTOPHER LUCAS: I UNDERSTOOD THAT THEY WERE WORKING WITH SOME PHARMACEUTICAL COMPANIES.
MR. DOWNEY: OKAY. WELL, LET ME ACTUALLY DIRECT YOU IN THAT SAME LITTLE BOX TO THE LAST TWO PARAGRAPHS. AND DO YOU SEE THE SECOND TO THE LAST PARAGRAPH READS, "THE COMPANY IS WORKING WITH LEADING PHARMACEUTICAL COMPANIES TO INTRODUCE THE SYSTEMS ALONGSIDE THERAPEUTICS IN DRUG-DEVICE COMBINATIONS WHICH DRAMATICALLY IMPROVE THE SAFETY PROFILES OF WHAT WILL NOW BE THE NEXT GENERATION OF BLOCKBUSTERS"? DO YOU SEE THAT?
MR. DOWNEY: AND WAS THAT A STATEMENT OF THEIR DESIRE TO INTRODUCE THE PRODUCT INTO PHARMACEUTICAL TRIALS?
CHRISTOPHER LUCAS: THAT'S WHAT I UNDERSTOOD WAS GOING ON, THAT BY USING THE THERANOS TECHNOLOGY, THEY COULD REDUCE THE TIME OF ANALYSIS AND THE COST WHICH, AGAIN, WHAT I UNDERSTOOD AT THE TIME, WAS THE LARGE COST OF CLINICAL TRIALS IS THE BLOOD TESTING.
MR. DOWNEY: AND I THINK YOU MENTIONED SEVERAL TIMES NOW THAT THIS WAS AN EARLY STAGE COMPANY; CORRECT?
CHRISTOPHER LUCAS: ESPECIALLY AT THAT TIME, YES.
MR. DOWNEY: OKAY. DID YOU KNOW THAT AS OF THIS TIME, NOVARTIS HAD ALREADY AGREED TO EVALUATE THE TECHNOLOGY THAT THERANOS WAS DEVELOPING TO ANALYZE -- TO ASSESS WHETHER IT COULD BE USED IN CONNECTION WITH ITS CLINICAL TRIALS?
CHRISTOPHER LUCAS: EITHER I DON'T RECALL OR I DIDN'T KNOW.
MR. DOWNEY: YOU RECALL MS. HOLMES TELLING YOU AT VARIOUS POINTS ABOUT CERTAIN PHARMACEUTICAL COMPANIES ASSESSING THERANOS'S TECHNOLOGY; IS THAT RIGHT?
CHRISTOPHER LUCAS: YES, AS THEY WERE WORKING WITH THERANOS IN THEIR CLINICAL TRIALS.
MR. DOWNEY: OKAY. BUT AM I RIGHT THAT IT'S BEEN SUCH A LONG TIME THAT YOU ACTUALLY DON'T REMEMBER WHICH PHARMACEUTICAL COMPANIES YOU HEARD ABOUT?
CHRISTOPHER LUCAS: I KNEW IT WAS SOME OF THE LEADING COMPANIES, AND I MAY VERY WELL REMEMBER NOVARTIS, BUT I CAN'T TELL YOU FOR CERTAIN.
MR. DOWNEY: OKAY. WE'LL LOOK AT SOME MATERIALS IN A LITTLE BIT TO SEE IF THAT WILL REFRESH YOUR RECOLLECTION IN ANY SENSE. BUT LET ME LOOK NOW AT THE BALANCE OF THIS DOCUMENT. LET ME GO FORWARD IN THIS DOCUMENT TO PAGE 64 OF THE EXHIBIT, AND I WANT TO DIRECT YOUR ATTENTION TO THE BOTTOM THREE-QUARTERS OF THE DOCUMENT, THE SECTION THAT BEGINS "ASSAY." DO YOU SEE THAT?
MR. DOWNEY: AND I THINK ON DIRECT YOU TALKED ABOUT THE ANALYZER BEING THE BRAIN OF THE TECHNOLOGY THAT MS. HOLMES WAS DEVELOPING; CORRECT?
MR. DOWNEY: BUT YOU ALSO UNDERSTOOD THAT ANOTHER COMPONENT OF TECHNOLOGY THAT SHE WAS DEVELOPING WERE SMALL SAMPLE ASSAYS; CORRECT?
CHRISTOPHER LUCAS: I'M NOT SURE WHAT YOU'RE REFERRING TO OTHER THAN THERE WAS SOMETHING AT ONE TIME CALLED A NANOTAINER THAT -- THAT WAS THE COLLECTION DEVICE THAT THE PIN PRICK WAS THEN USED TO COLLECT THE BLOOD.
MR. DOWNEY: OKAY. DO YOU RECALL IN THE EARLY DISCUSSIONS THE DISCUSSION OF CARTRIDGES FOR USE IN CONNECTION WITH THE TECHNOLOGY?
MR. DOWNEY: OKAY. AND DO YOU RECALL THAT THOSE CARTRIDGES CONTAIN THE CHEMISTRY THAT WOULD ACTUALLY PERFORM THE BLOOD TESTS ON THE ANALYZER?
MR. DOWNEY: AND DID YOU UNDERSTAND THAT THOSE ASSAYS ASSOCIATED WITH BLOOD TESTS, THAT EACH ASSAY WAS A SEPARATE BLOOD TEST?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND DID YOU UNDERSTAND THAT THERANOS OVER TIME WAS DEVELOPING AN INCREASING NUMBER OF SMALL SAMPLE ASSAYS?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: LET ME DIRECT YOUR ATTENTION TO SOME OF THE LANGUAGE THAT WAS CONTAINED IN THIS BUSINESS PLAN. I'LL JUST DIRECT YOUR ATTENTION TO THE -- UNDER THE SECOND HEADER, IT READS, "DETAILS OF THE ASSAY/CHEMILUMINESCENCE." DO YOU SEE THAT?
MR. DOWNEY: AND DO YOU SEE THAT UNDER THIS DOCUMENT IT DESCRIBES WHAT THE METHOD IS FOR DEVELOPING EACH OF THESE BLOOD TESTS. DO YOU SEE THAT?
MR. DOWNEY: IF YOU GO BELOW, YOU WILL SEE THAT THERE'S A TIMELINE WITH THE DEVELOPMENT OF EACH ASSAY. YOU HAVE TO ACTUALLY TURN TO PAGE 65, I THINK, OF THE EXHIBIT. AND DO YOU SEE THAT THIS DOCUMENT FROM LATE 2005 DESCRIBED THE PROCESS BY WHICH ASSAYS WOULD BE DEVELOPED? DO YOU SEE THAT?
MR. DOWNEY: AND DO YOU SEE IN THE LAST SENTENCE IT GIVES THE TIMELINE THAT IT WOULD TAKE TO DEVELOP EACH ASSAY?
MR. DOWNEY: AND IT INDICATED THAT EACH ASSAY WOULD TAKE ABOUT THREE MONTHS TO DEVELOP; CORRECT?
MR. DOWNEY: AND THEN THAT THEY COULD BE FULLY DEVELOPED AT SOMETHING CALLED ISO 9000 STANDARDS WITHIN ABOUT SIX MONTHS. DO YOU SEE THAT?
MR. DOWNEY: AND DO YOU KNOW WHAT ISO 9000 STANDARDS ARE?
CHRISTOPHER LUCAS: I'M NOT FAMILIAR WITH THE SPECIFICS, BUT IT'S A STANDARD WHICH IS RECOGNIZED WORLDWIDE AS A CERTAIN LEVEL OF COMPETENCE AND -- OF THE TECHNOLOGY AND ITS DURABILITY AND RELIABILITY AND ACCURACY.
MR. DOWNEY: IT'S A QUALITY MANAGEMENT METRIC; RIGHT?
CHRISTOPHER LUCAS: SURE.
MR. DOWNEY: SO YOU KNEW EVEN BEFORE YOU INVESTED THAT THERE WAS A PROCESS FOR DEVELOPING ASSAYS; CORRECT?
MR. DOWNEY: AND YOU KNEW THAT THOSE ASSAYS WOULD DEVELOP AND CHANGE AND HOPEFULLY GET BETTER OVER TIME; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND GENERALLY THE TIME TO DEVELOP EACH ONE WAS ABOUT SIX MONTHS; CORRECT?
CHRISTOPHER LUCAS: YES, AS STATED HERE.
MR. DOWNEY: NOW, AS YOU WERE LEARNING INFORMATION GOING FORWARD ABOUT THE COMPANY, DID YOU ALSO LOOK AT SOME OF THE INFORMATION THAT IS DISCUSSED IN HERE? DID YOU ACTUALLY LOOK AT ANY MATERIALS IN THE COMPANY ABOUT QUALITY MANAGEMENT, OR ABOUT THE DEVELOPMENT OF ASSAYS, OR ANY KIND OF DATA WITHIN THE COMPANY? DID YOU GO AND HAVE THE OPPORTUNITY TO DO THAT?
CHRISTOPHER LUCAS: CERTAINLY I BELIEVE I WAS AT THEIR OLD OFFICE OR THIS ORIGINAL OFFICE, AND WHAT I WOULD HAVE SEEN WOULD HAVE BEEN QUITE RUDIMENTARY I BELIEVE. BUT I DON'T HAVE A VIVID RECOLLECTION.
MR. DOWNEY: OKAY. DO YOU KNOW IF YOU AT SOME POINT LOOKED AT THE PATENTS THAT THE COMPANY HAD APPLIED FOR AND OBTAINED IN CONNECTION WITH ITS TECHNOLOGY?
CHRISTOPHER LUCAS: YES, AND NOT IN GREAT DETAIL. MY UNDERSTANDING WAS THAT THE PATENT, OR THE PRINCIPAL PATENT WAS, YOU KNOW, A FUNDAMENTAL PATENT OF WHICH IT WAS OUTSTANDING TO HAVE BEEN GRANTED BECAUSE IT MAY, ALONG WITH OTHER PATENTS, BLOCK OTHERS FROM USING THAT TECHNOLOGY.
MR. DOWNEY: OKAY. AND AM I RIGHT THAT THE STRENGTH OF A COMPANY'S PATENTS IS AN IMPORTANT FACTOR IN DECIDING WHETHER TO INVEST IN THE COMPANY; CORRECT?
CHRISTOPHER LUCAS: IT IS, BUT NOT ALL -- THE DEVELOPMENT OF THE TECHNOLOGY IS AT TIMES MORE IMPORTANT THAN THE PATENT PORTFOLIO.
MR. DOWNEY: HAVING THE PATENT MIGHT JUST BE THE FIRST STEP; CORRECT?
CHRISTOPHER LUCAS: YEAH, AND HAVING THE PATENT IS CERTAINLY A PLUS, ABSOLUTELY.
MR. DOWNEY: AND EVEN AS OF THIS TIME, 2005/2006, YOU UNDERSTOOD THAT THERANOS WAS DEVELOPING THE TECHNOLOGY THAT IT EITHER OBTAINED OR SOUGHT INTELLECTUAL PROPERTY PROTECTION FOR?
MR. DOWNEY: I WANT TO GO FORWARD IN THIS DOCUMENT A LITTLE BIT TO LOOK AT ITS DISCUSSION OF THE RISKS THAT THE BUSINESS WOULD FACE OVER ITS LIFE, AND I'LL DIRECT YOUR ATTENTION TO PAGE 45 OF THE EXHIBIT. AND ON THE BOTTOM HALF OF THE DOCUMENT, DO YOU SEE THAT THERE'S A DISCUSSION OF REGULATORY? DO YOU SEE THAT?
CHRISTOPHER LUCAS: IF IT'S LITERALLY THE LAST PARAGRAPH, IT'S NOT HIGHLIGHTED, SO I --
MR. DOWNEY: WELL, LET ME SEE IF I CAN CALL OUT THAT LAST PARAGRAPH TO MAKE IT A LITTLE EASIER FOR YOU TO READ.
JUDGE DAVILA: MR. DOWNEY, SHOULD WE TAKE A BREAK NOW BEFORE WE LAUNCH INTO THIS?
MR. DOWNEY: YEAH, THAT'S FINE.
JUDGE DAVILA: LET'S DO THAT. LET'S TAKE OUR MORNING BREAK, LADIES AND GENTLEMEN, 30 MINUTES, 30 MINUTES. WE'LL SEE YOU -- YOU CAN STAND DOWN, SIR. WE'LL TAKE A BREAK FOR 30 MINUTES AND THEN YOU CAN RETURN.
CHRISTOPHER LUCAS: OKAY. THANK YOU.
JUDGE DAVILA: YOU'RE WELCOME.
(JURY OUT AT 11:40 A.M.)
JUDGE DAVILA: YOU CAN STAND DOWN, SIR.
CHRISTOPHER LUCAS: OH. THANK YOU.
JUDGE DAVILA: PLEASE BE SEATED. THANK YOU.
CHRISTOPHER LUCAS: JUST WALK OUT?
JUDGE DAVILA: ALL RIGHT. THE RECORD SHOULD REFLECT THAT THE JURY HAS LEFT THE COURTROOM. MR. LUCAS IS LEAVING THE COURTROOM. DO YOU WANT A BREAK NOW AND TALK ABOUT THAT MORNING MATTER LATER BEFORE WE COME BACK?
MR. DOWNEY: MAYBE BEFORE WE COME BACK.
JUDGE DAVILA: SURE: YES, THAT'S FINE. ALL RIGHT. THANK YOU.
COURT CLERK: COURT IS IN RECESS.
(LUNCH RECESS TAKEN AT 11:41 A.M.) AFTERNOON SESSION
(JURY IN AT 12:31 P.M.)
JUDGE DAVILA: THANK YOU FOR YOUR PATIENCE. WE'RE BACK ON THE RECORD. ALL PARTIES PREVIOUSLY PRESENT ARE PRESENT ONCE AGAIN. MR. LUCAS IS ON THE STAND AGAIN. YOU CAN REMOVE YOUR MASK AGAIN IF YOU WOULD LIKE AS YOU HAD BEFORE.
JUDGE DAVILA: YES. AND OUR JURY IS PRESENT. MR. DOWNEY.
MR. DOWNEY: THANK YOU, YOUR HONOR.
MR. DOWNEY: MR. LUCAS, DO YOU RECALL BEFORE THE BREAK WE WERE TALKING ABOUT SOME REGULATORY ISSUES RELATED TO THERANOS; CORRECT?
MR. DOWNEY: AND WE WERE LOOKING AT EXHIBIT 12022 AT PAGE 45, WHICH IS DISPLAYED ON THE SCREEN. AND I WANT TO DRAW YOUR ATTENTION TO THE LAST PARAGRAPH THERE, AND THE FIRST SENTENCE OF THAT PARAGRAPH SAYS, "AS THERANOS PREPARES TO INTRODUCE ITS SYSTEMS TO MARKET, THE COMPANY WILL ENTER A TWO-PART 510(K) PROCESS FOR USE OF THE DEVICE IN THERAPEUTIC DRUG MONITORING ACROSS A RANGE OF THERAPEUTIC COMPOUNDS." DO YOU SEE THAT?
MR. DOWNEY: AND DO YOU KNOW WHAT THE 510(K) PROCESS IS?
CHRISTOPHER LUCAS: THAT'S ONE OF THE REGULATORY PROCESSES THAT ARE USED FOR APPROVING A MEDICAL DEVICE.
MR. DOWNEY: OKAY. THERANOS WAS INDICATING TO YOU, AS A POTENTIAL INVESTOR, THAT IT INTENDED TO APPLY FOR THAT APPROVAL?
MR. DOWNEY: IF YOU LOOK AT THE SECOND SENTENCE, IT SAYS, "THE 510(K) PROCESS WILL CONSIST FIRST OF APPROVAL OF THE ASSAYS, AND SECOND TO APPROVE THE NON-DISPOSABLE READER." DO YOU SEE THAT?
MR. DOWNEY: AND THERANOS HAD INDICATED THAT IT INTENDED TO APPLY FOR FDA APPROVAL OF BOTH OF ITS ASSAYS; CORRECT?
MR. DOWNEY: AND OF ITS ANALYZER; CORRECT?
MR. DOWNEY: NOW, HAVING BEEN AROUND THE REGULATORY PROCESS FOR COMPANIES THAT YOU'VE INVESTED IN, YOU REALIZE THAT'S AN UNCERTAIN PROCESS; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND DEPENDING ON HOW LONG THAT PROCESS TAKES, IT CAN AFFECT THE VALUE OF A COMPANY; CORRECT?
CHRISTOPHER LUCAS: THAT'S RIGHT.
MR. DOWNEY: AND DEPENDING ON WHETHER THE COMPANY -- THE DEVICES ARE APPROVED, THAT CAN AFFECT THE VALUE OF THE COMPANY, CAN'T IT?
MR. DOWNEY: ALL RIGHT. I WANT TO DRAW YOUR ATTENTION NOW TO PAGE 42 OF THE ATTACHMENT, WHICH IS PAGE 69 OF THE EXHIBIT. DO YOU SEE THAT THIS IS LABELED RISKS RELATED TO OUR BUSINESS?
MR. DOWNEY: IS THIS A RISK DISCLOSURE THAT THERANOS MADE TO YOU BEFORE YOU MADE YOUR FIRST INVESTMENT IN THE COMPANY?
CHRISTOPHER LUCAS: I'M JUST FORGETTING THE DATE OF THIS DOCUMENT, IF IT'S 2005.
MR. DOWNEY: WELL, LET ME ASK YOU TO LOOK BACK AT THE FIRST PAGE OF THE EXHIBIT, WHICH IS 12022. WE CAN PUT THAT ON THE SCREEN. AND IF WE FOCUS ON THE ADDRESS LINE ON THE TOP, DO YOU SEE THAT THESE MATERIALS WERE SENT TO YOU IN LATE 2005?
MR. DOWNEY: AND THAT PREDATES THE TIME OF YOUR FIRST INVESTMENT IN THERANOS; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: OKAY. SO LET'S RETURN TO PAGE 69 OF THE EXHIBIT. AND ARE, ARE -- IS THIS A RISK DISCLOSURE THAT THERANOS MADE TO YOU PRIOR TO THE TIME OF YOUR FIRST INVESTMENT IN THERANOS?
CHRISTOPHER LUCAS: IF THIS IS A CONTINUATION OF THE DOCUMENT THAT WE'VE BEEN LOOKING AT, YES.
MR. DOWNEY: AND YOU SEE THAT THE FIRST DISCUSSION UNDER RISKS RELATED TO OUR BUSINESS RELATES TO CAPITAL RESOURCES? DO YOU SEE THAT SECTION?
MR. DOWNEY: AND IT SAYS, "BASED ON CURRENT PROJECTIONS, THERANOS BELIEVES THAT THE PROCEEDS OF THIS OFFERING WILL ENABLE THE COMPANY TO BUILD THE PRODUCTION INFRASTRUCTURE NECESSARY TO SERVICE ITS PHARMACEUTICAL CUSTOMERS AND REACH CASH FLOW POSITIVE. HOWEVER, WE CANNOT BE ASSURED THAT CHANGED CIRCUMSTANCES WILL NOT RESULT IN THE DEPLETION OF OUR CAPITAL RESOURCES MORE RAPIDLY THAN WE CURRENTLY ANTICIPATE." DO YOU SEE THAT?
MR. DOWNEY: AND THAT WAS A RISK THAT YOU UNDERSTOOD IN CONNECTION WITH MAKING THIS INVESTMENT IN THERANOS?
MR. DOWNEY: AND, INDEED, IN CONNECTION WITH ALL SUBSEQUENT INVESTMENTS IN THERANOS?
CHRISTOPHER LUCAS: I WOULDN'T NECESSARILY AGREE WITH THAT COMMENT AS IN 2013 IT WAS INFRASTRUCTURE CAPITAL AND INVESTMENTS BY OTHERS OF HUNDREDS OF MILLIONS OF DOLLARS, SO ONE COULD, ONE COULD HAVE BELIEVED AT THAT TIME THAT THE COMPANY COULD GET THE CASH FLOW POSITIVE.
MR. DOWNEY: IN 2013 THERE WERE CERTAIN STRATEGIC PARTNERS THAT HAD ENTERED INTO RELATIONSHIPS WITH THERANOS; CORRECT?
CHRISTOPHER LUCAS: YES. YES.
MR. DOWNEY: AND SO THE NATURE OF THERANOS'S BUSINESS AT THAT TIME WAS DIFFERENT; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND IT WAS OFFERING SERVICES FOR BLOOD TESTING TO THE PUBLIC; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND IT WAS DOING THAT THROUGH WALGREENS; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: OKAY. AND AT THIS TIME THE COMPANY WAS FOCUSSED ON USING ITS TECHNOLOGY IN CONNECTION WITH PHARMACEUTICAL COMPANIES; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: OKAY. SO LET'S LOOK AT THE BALANCE OF THE OTHER RISK FACTORS ON THIS PAGE. HIGHLIGHT THAT MIDDLE SECTION. DO YOU SEE THAT THE FIRST RISK THAT WAS DISCLOSED WAS THAT "THE RATE OF PROGRESS AND COSTS OF OUR RESEARCH AND DEVELOPMENT ACTIVITIES, LEADING TO THE PRODUCTION OF OUR FIRST GENERATION DEVICE." DO YOU SEE THAT?
MR. DOWNEY: AND IT'S TRUE THAT IT'S SOMETIMES DIFFICULT, WITH TECHNOLOGY DEVELOPMENT, TO ASSESS HOW QUICKLY THE TECHNOLOGY WILL BE DEVELOPED; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND ALSO HOW MUCH IT WILL COST TO DEVELOP THAT TECHNOLOGY; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND COMPANIES OFTEN ASSESS THAT THE PROCESS WILL TAKE A SHORTER PERIOD OF TIME THAN IT DOES; CORRECT?
CHRISTOPHER LUCAS: THAT THEY PROJECT IT WOULD BE A SHORTER LENGTH OF TIME, YES. IT'S GENERALLY LONGER.
MR. DOWNEY: AND IT'S A LITTLE BIT LIKE RENOVATING YOUR KITCHEN, RIGHT? IT TAKES LONGER AND COSTS MORE THAN YOU THINK?
CHRISTOPHER LUCAS: THAT'S PARTICULARLY RELEVANT TO ME RIGHT NOW ACTUALLY.
(LAUGHTER.)
BY MR. DOWNEY:
MR. DOWNEY: OKAY. WE TALKED ABOUT THE REGULATORY APPROVAL ISSUES. AND THEN YOU SEE THE THIRD RISK, "OUR SUCCESS IN ESTABLISHING STRATEGIC BUSINESS COLLABORATIONS." DO YOU SEE THAT?
MR. DOWNEY: AND THAT'S JUST SAYING WE EXPECT WE'LL BE ABLE TO HAVE ENTITIES INTERESTED IN US, BUT WE MAY OR MAY NOT BE RIGHT ABOUT THAT; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: NOW, IN 2013 YOU LEARNED THAT THERANOS HAD ESTABLISHED A VERY IMPORTANT STRATEGIC BUSINESS COLLABORATION; CORRECT?
MR. DOWNEY: IT HAD DONE SO WITH WALGREENS; CORRECT?
MR. DOWNEY: AND THAT WAS A VERY IMPORTANT FACTOR IN YOUR CONSIDERATION OF THE VALUE OF THERANOS; CORRECT?
MR. DOWNEY: AND LET ME HIGHLIGHT NEXT, "THE TIMING AND AMOUNT OF FEES FROM POTENTIAL CUSTOMERS." DO YOU SEE THAT?
MR. DOWNEY: AND MS. HOLMES WAS GIVING YOU IN THIS TIME PERIOD HER PROJECTION OF HOW MUCH THE COMPANY MIGHT BE ABLE TO EARN IN THE FUTURE; CORRECT?
MR. DOWNEY: BUT SHE WAS INDICATING HERE THAT, YOU KNOW, HER ASSESSMENT OF THAT COULD BE WRONG; CORRECT?
MR. DOWNEY: OKAY. AND THEN THE NEXT ENTRY SAYS, "OUR SUCCESS IN COMMERCIALIZING OUR PRODUCT CANDIDATES"? CORRECT?
MR. DOWNEY: AND YOU KNEW THAT WAS A RISK?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND IT MIGHT BE, AS THERANOS DEVELOPED THIS PRODUCT, THAT PHARMACEUTICAL COMPANIES JUST MIGHT NOT BE INTERESTED IN IT; CORRECT?
CHRISTOPHER LUCAS: THAT'S RIGHT.
MR. DOWNEY: OR THEY MIGHT NOT BE INTERESTED IN USING IT IN THE WAY THAT SHE THOUGHT THEY WOULD; CORRECT?
MR. DOWNEY: AND THE NEXT RISK THAT CAN IT IDENTIFIES IS "THE EMERGENCE OF COMPETING TECHNOLOGIES AND PRODUCTS." THAT'S ALWAYS A RISK FOR ANY COMPETING COMPANY; RIGHT?
CHRISTOPHER LUCAS: GENERALLY, YES.
MR. DOWNEY: AND THE NEXT RISK TO BE AWARE OF WAS THE COST OF ESSENTIALLY PROTECTING THE COMPANY'S INTELLECTUAL PROPERTY; CORRECT?
MR. DOWNEY: AND THEN SOME ADDITIONAL RISK FACTORS ARE IDENTIFIED UNDERNEATH THAT. THERE'S A RISK IN CONNECTION WITH FUTURE FINANCING. DO YOU SEE THAT?
MR. DOWNEY: AND THE INDICATION THERE WAS THAT THEY MIGHT HAVE FUTURE -- THERE MIGHT BE FUTURE INSTANCES WHERE THEY WANTED TO RAISE ADDITIONAL MONEY; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND THAT COULD AFFECT YOUR RIGHTS AS A SHAREHOLDER; CORRECT?
MR. DOWNEY: AND, IN FACT, THERE WERE IN THE FUTURE SUBSEQUENT INSTANCES WHERE THERANOS WENT OUT AND RAISED ADDITIONAL MONEY; CORRECT?
MR. DOWNEY: BUT FROM THE POINT OF TIME IN 2006, THAT YOU MADE YOUR LAST INVESTMENT IN 2006 UNTIL 2010, THERANOS DIDN'T RAISE ANY MONEY, DID IT?
CHRISTOPHER LUCAS: I DON'T KNOW THAT THAT'S ACCURATE ACTUALLY.
MR. DOWNEY: DO YOU KNOW WHEN THE NEXT RAISE OF MONEY WAS AFTER 2006?
CHRISTOPHER LUCAS: I WOULDN'T REMEMBER.
MR. DOWNEY: OKAY. DID YOU PARTICIPATE IN THE NEXT RAISE OF MONEY AFTER 2006?
MR. DOWNEY: OKAY. THE NEXT ENTRY IS MANAGING GROWTH. AND THIS IS AN IMPORTANT RISK FOR A TECHNOLOGY COMPANY; RIGHT? THERANOS IS TELLING YOU HERE THAT THEY MAY NOT BE ABLE TO MANAGE THEIR GROWTH IN CONNECTION WITH TRANSITIONING FROM A DEVELOPMENT COMPANY TO A COMPANY THAT CAN SUCCESSFULLY COMMERCIALIZE ITS PRODUCT. DO YOU SEE THAT?
MR. DOWNEY: AND THAT'S A RISK FOR COMPANIES THAT MAY BE VERY GOOD AT DEVELOPING TECHNOLOGY, BUT AREN'T VERY GOOD AT INTRODUCING IT INTO THE MARKETS WHERE IT'S GOING TO BE USED; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND THEN THE LAST ENTRY RELATES TO MARKET ACCEPTANCE; CORRECT?
MR. DOWNEY: AND THAT INDICATES THAT THE MARKET MAY OR MAY NOT BE INTERESTED IN OUR PRODUCT IN THE WAY THAT WE EXPECT THEY WILL; CORRECT? AND THEN UNDER THAT -- CORRECT? IS THAT CORRECT?
MR. DOWNEY: AND THEN IT IDENTIFIES SOME PARTICULAR RISKS THAT ACCOMPANIED THERANOS'S ATTEMPT TO USE THIS IN CONNECTION WITH TAKING BLOOD TESTS FROM PATIENTS; CORRECT?
MR. DOWNEY: OKAY. AND THEN PRODUCT LIABILITIES AND KEY EMPLOYEES ARE ALSO IDENTIFIED; CORRECT?
MR. DOWNEY: AND DO YOU SEE UNDER KEY EMPLOYEES THERE'S A REFERENCE THAT MS. HOLMES WAS A KEY EMPLOYEE?
MR. DOWNEY: I HAD ASKED YOU BEFORE ABOUT YOUR PERCEPTIONS OF MS. HOLMES. DO YOU KNOW HOW OLD MS. HOLMES WAS WHEN YOU MET HER AT THIS TIME IN 2005?
CHRISTOPHER LUCAS: I BELIEVE 19.
MR. DOWNEY: LET ME -- I WANT TO JUST MAKE SURE WE INTRODUCE THE RIGHT DOCUMENTS TO DOCUMENT YOUR EARLY INVESTMENTS IN 2006, SO I'D LIKE TO START BY SHOWING YOU EXHIBIT 14213.
CHRISTOPHER LUCAS: DO YOU WANT ME TO OPEN IT IN THIS?
MR. DOWNEY: IT SHOULD BE IN YOUR BLACK BINDER, YES.
CHRISTOPHER LUCAS: SAY THE NUMBER AGAIN, PLEASE.
MR. DOWNEY: 14213.
CHRISTOPHER LUCAS: OKAY.
MR. DOWNEY: AND IF YOU -- IF YOU LOOK AT THE COVER PAGE OF THIS, DO YOU SEE THAT THIS IS THE SERIES B PREFERRED STOCK PURCHASE AGREEMENT FROM FEBRUARY 2006?
MR. DOWNEY: AND THEN I'D LIKE TO ASK YOU TO JUST TAKE A MOMENT AND FLIP THROUGH ALL THE WAY TO PAGE 32 OF THE EXHIBIT, AND I WILL TELL YOU THAT THE WAY PERHAPS TO DO THAT IS THAT THE BOTTOM RIGHT-HAND CORNER HAS SOME NUMBERS, AND THE LAST FOUR DIGITS WILL BE 6326.
MR. DOWNEY: DO YOU SEE A SIGNATURE ON THAT PAGE?
MR. DOWNEY: IS THAT YOUR SIGNATURE?
CHRISTOPHER LUCAS: IT SURE LOOKS LIKE IT, YES.
MR. DOWNEY: OKAY. YOUR HONOR, I MOVE THE ADMISSION OF 14213.
MR. BOSTIC: NO OBJECTION.
JUDGE DAVILA: IT'S ADMITTED AND MAY BE PUBLISHED.
(DEFENDANT'S EXHIBIT 14213 WAS RECEIVED IN EVIDENCE.)
BY MR. DOWNEY:
MR. DOWNEY: AND THEN IF YOU LOOK AT THE FIRST PAGE, THIS IS THE AGREEMENT WHICH SETS FORTH THE TERMS UNDER WHICH YOU PURCHASED STOCK FROM THERANOS IN FEBRUARY OF 2006; CORRECT?
MR. DOWNEY: AND I THINK YOU'VE TESTIFIED ON DIRECT THAT YOU HAVE EXPERIENCE WITH THESE KINDS OF DOCUMENTS; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND ARE THESE DOCUMENTS THAT YOU TYPICALLY SIGN IN CONNECTION WITH MAKING AN INVESTMENT IN A PRIVATE COMPANY?
MR. DOWNEY: AND YOU UNDERSTAND THAT THIS IS INTENDED TO BE THE AGREEMENT THAT DOCUMENTS THE TERMS ON WHICH YOU'RE BUYING THE STOCK; CORRECT?
CHRISTOPHER LUCAS: YES. THERE ARE OTHER AGREEMENTS THAT COME ALONG WITH THIS, BUT THIS IS, AS IT SAYS, IT'S A STOCK PURCHASE AGREEMENT.
MR. DOWNEY: OKAY. AND LET ME ASK YOU TO LOOK, AND WE'LL JUST DISPLAY IT ON THE SCREEN FOR SIMPLICITY'S SAKE, I'M GOING TO DIRECT YOUR ATTENTION TO PAGES 70 AND 71 OF THE DOCUMENT. DO YOU SEE THAT THIS IS A SCHEDULE THAT IS ATTACHED TO THE STOCK PURCHASE AGREEMENT THAT LISTS THE INVESTORS IN THIS SERIES B INVESTMENT IN THERANOS?
MR. DOWNEY: AND DO YOU SEE THAT BLACK DIAMOND VENTURES XII IS LISTED AT THE TOP?
MR. DOWNEY: AND YOU BOUGHT 433,304 SHARES OF STOCK IN THIS OFFERING?
MR. DOWNEY: AND YOU PAID JUST A LITTLE BIT OVER $400,000; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND FOR SOME REASON THERE'S AN EXTRA $0.25 THERE. WHY IS THAT?
CHRISTOPHER LUCAS: DO YOU WANT ME TO ANSWER?
MR. DOWNEY: YEAH. DO YOU KNOW?
CHRISTOPHER LUCAS: DEPENDING ON THE PRICE PER SHARE OF THE STOCK, THAT WOULD HAVE TO BE THE NUMBER TO MAKE AN EVEN NUMBER OF SHARES.
MR. DOWNEY: SO IT LOOKS LIKE, JUST DOING THE MATH BASED LOOKING AT THESE TWO NUMBERS, IT LOOKS LIKE YOU PAID A LITTLE UNDER A DOLLAR A SHARE FOR THE SERIES B SHARES IN 2006. CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND I THINK YOU TESTIFIED THAT YOU'RE NOT SURE IF THIS WAS MONEY FROM PEOPLE WHO INVEST IN YOUR FIRM OR YOUR OWN MONEY OR BOTH?
CHRISTOPHER LUCAS: YES. IT WAS THE MAJORITY OF OUR INVESTORS, AND IT COULD HAVE BEEN AND LIKELY SOME OF MY OWN.
MR. DOWNEY: I WANT TO ASK YOU TO JUST LOOK AT ONE OTHER SCHEDULE WHICH IS ATTACHED TO THIS, WHICH IS AT PAGE 76 OF THE EXHIBIT. I'LL JUST DRAW YOUR ATTENTION TO THE SCHEDULE 3.8(A), WHICH IS ON THE BOTTOM. AND IS THIS A LISTING OF THE PATENT APPLICATIONS THAT THERANOS HAD PENDING AT THE TIME?
CHRISTOPHER LUCAS: YES, IF THAT'S AN ACCURATE STATEMENT, YES.
MR. DOWNEY: AND IS THIS TYPICALLY THE KIND OF INFORMATION THAT WOULD BE AVAILABLE IN WHAT YOU CALLED A DATA ROOM PRIOR TO AN INVESTMENT?
MR. DOWNEY: OKAY. I TAKE IT THAT REVIEWING ALL OF THIS MATERIAL, DOES IT REFRESH YOUR RECOLLECTION ONE WAY OR ANOTHER WHETHER YOU ACTUALLY ACCESSED THAT DATA ROOM PRIOR TO THIS INVESTMENT?
CHRISTOPHER LUCAS: I AM NOT CERTAIN. HOWEVER, I DON'T BELIEVE THAT THERE WAS AT THAT TIME A DATA ROOM AND ALL OF THE INFORMATION WAS PROVIDED BY EMAILS AND/OR PRINTED MATERIAL.
MR. DOWNEY: OKAY. NOW, I THINK YOU TESTIFIED THAT AT SOME POINT YOUR UNCLE BECAME THE CHAIRMAN OF THE BOARD OF THERANOS; IS THAT RIGHT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND THAT WAS AROUND THE TIME OF THIS INVESTMENT; CORRECT?
CHRISTOPHER LUCAS: YES, I WOULD SAY SO. BUT HE -- I DON'T ABSOLUTELY RECALL WHEN.
MR. DOWNEY: OKAY. BUT DO YOU REMEMBER THAT GENERALLY WHEN YOU INVESTED, THAT HE INVESTED IN THE COMPANY AT THE SAME TIME?
CHRISTOPHER LUCAS: CORRECT. IF NOT, MAYBE HE DID SOMETHING SOONER. BUT CERTAINLY ONCE WE INVESTED, HE WAS AN INVESTOR.
MR. DOWNEY: OKAY. NOW, DID I UNDERSTAND YOU ON DIRECT TO SAY THAT YOU MADE ANOTHER INVESTMENT IN THERANOS PRIOR TO THE END OF THAT CALENDAR YEAR?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: WAS THAT IN CONNECTION WITH ANOTHER RAISE OF STOCK?
MR. DOWNEY: DO YOU KNOW WHY THERE WAS THAT ADDITIONAL RAISE OF STOCK IN THE LATTER PART OF 2006?
CHRISTOPHER LUCAS: I WOULD EXPECT IT'S BECAUSE THE COMPANY NEEDED ADDITIONAL FUNDS AND SO THEY WENT AND RAISED IT AND PROGRESS WAS BEING MADE.
MR. DOWNEY: OKAY. LET ME ASK YOU TO LOOK IN YOUR BLACK NOTEBOOK AT THE EXHIBIT THAT IS MARKED AS 12003A.
CHRISTOPHER LUCAS: OKAY.
MR. DOWNEY: AND DO YOU HAVE THAT DOCUMENT?
MR. DOWNEY: OKAY. AND I'M GOING TO ASK YOU TO GO TO THE PAGE THAT IS BATES LABELLED IN THE LOWER RIGHT-HAND CORNER AS 8412. THAT'S A GOOD DISTANCE AHEAD OF THE DOCUMENT OF WHERE IT STARTS, ALMOST AT THE END OF THE DOCUMENTS.
MR. DOWNEY: AND DO YOU SEE REFERENCE TO -- DO YOU SEE A REFERENCE TO YOUR FIRM ON THAT PAGE?
CHRISTOPHER LUCAS: 8412?
MR. DOWNEY: YEAH. I'M SORRY. I THINK IT'S ACTUALLY -- LET ME GIVE YOU THE RIGHT PAGE. THERE IS THAT REFERENCE, BUT LET ME ASK YOU TO DEAL WITH FIRST 8316.
MR. DOWNEY: AND IS THAT YOUR SIGNATURE UNDER BLACK DIAMOND VENTURES THERE?
CHRISTOPHER LUCAS: YES, IT CERTAINLY APPEARS THAT WAY.
MR. DOWNEY: YOUR HONOR, I MOVE THE ADMISSION OF 12003A.
MR. BOSTIC: YOUR HONOR, IS THIS COMING IN AS A BUSINESS RECORD?
MR. DOWNEY: YES, THIS IS THE DOCUMENTATION OF HIS INVESTMENT WHICH WAS DISCUSSED ON DIRECT.
JUDGE DAVILA: DOES THIS MEMORIALIZE THAT? HAVE YOU ESTABLISHED THAT?
MR. DOWNEY: WELL, HE SIGNED IT AND HE LOOKED AT THE FIRST PAGE.
JUDGE DAVILA: RIGHT. CAN YOU JUST ASK A COUPLE OF QUESTIONS, DOES THIS MEMORIALIZE --
MR. DOWNEY: SURE, SURE.
MR. DOWNEY: IS THIS THE CONTRACT THAT WAS ENTERED INTO IN CONNECTION WITH THE INVESTMENT THAT YOU MADE IN THERANOS IN THE LATTER PART OF 2006?
CHRISTOPHER LUCAS: IT LOOKS THAT WAY, YES.
MR. DOWNEY: OKAY. YOUR HONOR, I MOVE THE ADMISSION.
MR. BOSTIC: NO OBJECTION.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(DEFENDANT'S EXHIBIT 12003A WAS RECEIVED IN EVIDENCE.)
BY MR. DOWNEY:
MR. DOWNEY: I WANT TO ASK YOU TO LOOK AT PAGE 91 OF THE EXHIBIT, WHICH WE'LL DISPLAY ON THE SCREEN TO MAKE IT EASY FOR YOU TO SEE. IF YOU GO ABOUT HALF -- A LITTLE OVER HALFWAY DOWN THE PAGE, DO YOU SEE A REFERENCE TO BLACK DIAMOND VENTURES XII?
MR. DOWNEY: AND DOES THAT INDICATE THAT YOU INVESTED ABOUT $925,000 IN CONNECTION WITH THIS INVESTMENT?
MR. DOWNEY: AND I WANT TO SHOW YOU THE COVER PAGE JUST TO ORIENT YOU AS TO -- BECAUSE I THINK THERE ARE A FEW MORE ENTRIES ON HERE I'M GOING TO SHOW YOU. LET ME JUST SHOW YOU THE COVER PAGE OF THIS DOCUMENT. BRING IT UP ON THE SCREEN. DO YOU SEE THAT THIS IS, THIS IS THE STOCK PURCHASE AGREEMENT FROM THE SECOND HALF OF 2006; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND THEN THERE'S A SERIES OF CLOSING DATES, DIFFERENT CLOSING DATES, FOR DIFFERENT CLOSING DATES THAT ARE ASSOCIATED WITH THIS STOCK PURCHASE?
MR. DOWNEY: AND WHY IS THIS -- CAN YOU EXPLAIN WHY THERE ARE DIFFERENT CLOSING DATES?
CHRISTOPHER LUCAS: GENERALLY IT'S BECAUSE A CERTAIN AMOUNT OF FUNDS HAVE COME IN DURING A PERIOD OF TIME AND THEY CLOSE ON THAT AMOUNT. THEY WAIT FOR ANOTHER AMOUNT TO COME IN. AND IN THIS CASE USUALLY DOCUMENTS ALLOW FOR A 60-DAY CLOSING PERIOD, AND IT LOOKS LIKE THAT'S THE CASE HERE.
MR. DOWNEY: OKAY. SO LET'S GO BACK TO PAGE 91, WHERE WE WERE, THE $925,000 INVESTMENT. AND THAT'S IN CONNECTION WITH THE FIRST CLOSE ON OCTOBER 13TH. DO YOU SEE THAT?
MR. DOWNEY: OKAY. NOW I WANT YOU TO LOOK AT -- AND BY THE WAY, BLACK DIAMOND VENTURES XII, DOES THAT CONSIST OF MONEY OF INVESTORS WHO INVEST THROUGH BLACK DIAMOND VENTURES?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: I WANT TO SHOW YOU PAGE 102 OF THE EXHIBIT AND BLOW THAT UP. AND DO YOU SEE THAT THERE'S ANOTHER REFERENCE -- WELL, DO YOU SEE, FIRST OF ALL, IN THE TOP THAT THIS INDICATES THE THIRD CLOSE IN NOVEMBER OF 2006?
MR. DOWNEY: OKAY. AND THAT UNDERNEATH THERE IT APPEARS THAT BLACK DIAMOND VENTURES XII BOUGHT ANOTHER $425,000 SHARES IN THIS OFFERING; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND THE PURCHASE PRICE FOR THAT WAS A LITTLE UNDER $1.2 MILLION; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND THERE'S ANOTHER REFERENCE THERE TO BLACK DIAMOND VENTURES 55, LLC. DO YOU SEE THAT?
MR. DOWNEY: IS THAT AN ENTITY THAT HAS SOME ASSOCIATION WITH YOUR FIRM?
MR. DOWNEY: AND CAN YOU EXPLAIN WHAT THAT IS?
CHRISTOPHER LUCAS: SO WE HAVE HAD AN INVESTOR, CRAIG HALL AND HIS GROUP, AND WE ESTABLISHED A SEPARATE ENTITY FOR HIS AMOUNT.
MR. DOWNEY: I SEE. WAS THAT OF HIS REQUEST?
MR. DOWNEY: OKAY. AND IT APPEARS THAT BLACK DIAMOND 55 INVESTED A LITTLE UNDER $1,930,000. DO YOU SEE THAT?
MR. DOWNEY: AND THE INVESTOR, CRAIG HALL, WHO HAD THIS SEPARATE ENTITY SET UP, HE IS SOMEONE WHO HAD BEEN INTRODUCED TO YOU BY YOUR UNCLE; IS THAT RIGHT?
CHRISTOPHER LUCAS: NO. INTRODUCED BY A MUTUAL FRIEND.
MR. DOWNEY: I SEE. OKAY. BUT THE INTRODUCTION WAS MADE AROUND THE POTENTIAL INVESTMENT IN THERANOS?
CHRISTOPHER LUCAS: AROUND THAT TIME, YES.
MR. DOWNEY: OKAY. SO YOU REALLY MET HIM IN CONNECTION WITH THERANOS?
CHRISTOPHER LUCAS: I DON'T RECALL IF IT WAS SPECIFICALLY BECAUSE OF THERANOS, BUT IT CERTAINLY WAS AROUND THAT TIME.
MR. DOWNEY: OKAY. BUT YOU CAME TO LEARN THAT HE WAS A VERY SUCCESSFUL REAL ESTATE INVESTOR IN TEXAS; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND THAT HE HAD A LOT OF EXPERIENCE IN INVESTMENT; CORRECT?
MR. DOWNEY: AND HE HAD BEEN, FOR EXAMPLE, AT ONE POINT THE LARGEST SHAREHOLDER IN AMERICAN AIRLINES?
CHRISTOPHER LUCAS: AS I UNDERSTAND IT, YES.
MR. DOWNEY: BUT HE ALSO INVESTED IN A LOT OF REAL ESTATE ENTITIES, HOTELS AND WINERIES, ET CETERA; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: ALL RIGHT. NOW, WERE THE INVESTORS IN BLACK DIAMOND XII, THEY WERE INVESTORS WHO HAD BEEN LONG TIME INVESTORS IN OTHER PROJECTS WITH BLACK DIAMOND?
CHRISTOPHER LUCAS: NOT NECESSARILY. LARGELY TRUE, BUT BECAUSE WE HAVE SEPARATE ENTITIES, THERE COULD HAVE BEEN SOME NEW INVESTORS IN THAT ENTITY INVESTING WITH BLACK DIAMOND FOR THE FIRST TIME.
MR. DOWNEY: NOW, I SHOWED YOU A MOMENT AGO, AND WE WENT THROUGH IN SOME DETAIL, THE -- A BUSINESS PLAN THAT MS. HOLMES HAD GIVEN YOU IN CONNECTION WITH THERANOS. DO YOU RECALL THAT?
MR. DOWNEY: DID YOU TRANSMIT THAT BUSINESS PLAN TO BLACK DIAMOND XII INVESTORS FOR PURPOSES OF THEIR EVALUATION OF AN INVESTMENT IN THERANOS?
CHRISTOPHER LUCAS: I DON'T RECALL.
MR. DOWNEY: WHETHER YOU TRANSMITTED IT, THE ACTUAL DOCUMENT OR NOT, DID YOU COMMUNICATE THE SUBSTANCE OF WHAT WAS IN THE DOCUMENT TO BLACK DIAMOND XII INVESTORS?
CHRISTOPHER LUCAS: I WOULD THINK I WOULD HAVE SHARED SOME OF THE INFORMATION.
MR. DOWNEY: OKAY. AND WHAT ABOUT WITH MR. HALL? DID YOU SHARE THE INFORMATION THAT WAS CONTAINED IN THE BUSINESS PLAN WITH MR. HALL OR HIS REPRESENTATIVES?
CHRISTOPHER LUCAS: I CERTAINLY WOULD HAVE SPOKEN ABOUT WHAT WAS GOING ON AT THERANOS. I DON'T KNOW IF I SHARED THE DOCUMENT.
MR. DOWNEY: OKAY. YOU DON'T RECALL ONE WAY OR THE OTHER?
CHRISTOPHER LUCAS: NOT RIGHT NOW, NO.
MR. DOWNEY: OKAY. LET ME JUST TRY TO GET A SENSE OF THE MAGNITUDE OF THE INVESTMENT AND REALLY SEPARATE THOSE INVESTMENTS OUT. IT LOOKS LIKE BETWEEN THE CLOSE THAT YOU HAD INVESTED IN OCTOBER FOR THE BLACK DIAMOND XII GROUP AND THE NOVEMBER CLOSE, THAT THE INVESTMENT TOTALLED ABOUT A LITTLE BIT OVER $2 MILLION. IS THAT RIGHT?
CHRISTOPHER LUCAS: YES. IF I'M REMEMBERING CORRECTLY, THE FIRST IS AROUND 900,000, AND THEN THIS, AND THAT WOULD TOTAL OVER 2 MILLION.
MR. DOWNEY: AND THE CLOSE THAT IS ASSOCIATED WITH BLACK DIAMOND LLC, THAT'S THE ONLY CLOSE THAT THE HALL GROUP INVESTOR PARTICIPATED IN; CORRECT?
MR. DOWNEY: OKAY. I WOULD LIKE YOU TO JUST GO BACK TO THE TEXT OF THIS DOCUMENT AND LOOK AT PAGES 14 AND 15. I'LL DRAW YOUR ATTENTION TO SECTION 4. AND DO YOU SEE THAT THESE ARE REPRESENTATIONS AND WARRANTIES THAT YOU WERE MAKING IN CONNECTION WITH PARTICIPATING IN THE INVESTMENT IN 2006?
MR. DOWNEY: OKAY. AND IF YOU TAKE A MOMENT TO JUST REVIEW THIS SECTION, YOU'LL RECOGNIZE IT AS SIMILAR TO A SECTION THAT MR. BOSTIC COVERED WITH YOU WHEN YOU WERE ON DIRECT EXAMINATION; IS THAT RIGHT?
MR. DOWNEY: LET ME JUST DRAW YOUR ATTENTION FIRST TO SECTION 4.3. AND THAT RELATES TO A REPRESENTATION THAT YOU MAKE ABOUT YOURSELF, CORRECT, IN TERMS OF YOUR QUALIFICATION TO EVALUATE AN INVESTMENT?
MR. DOWNEY: AND YOU REPRESENTED THAT YOU HAD SUBSTANTIAL EXPERIENCE IN EVALUATING AND INVESTING IN PRIVATE PLACEMENT TRANSACTIONS OF SECURITIES AND COMPANIES SIMILAR TO THE COMPANY; CORRECT?
MR. DOWNEY: AND THAT WAS CERTAINLY TRUE; CORRECT?
MR. DOWNEY: OKAY. BECAUSE THIS WAS -- YOU NOT ONLY HAD INVESTED, BUT REALLY YOU WERE -- THIS WAS YOUR LIFE'S WORK? YOU'RE A VENTURE CAPITALIST BY TRADE?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND IN THE NEXT SECTION, WHICH IS SECTION 4.4, YOU REPRESENT YOUR -- THAT YOU UNDERSTAND THE SPECULATIVE NATURE OF THE INVESTMENT; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND ALSO THAT IF THE INVESTMENT IS COMPLETELY LOST, THAT THAT'S SOMETHING THAT YOU CAN SUSTAIN; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND THAT WOULD BE TRUE NOT ONLY FOR YOU, BUT FOR THOSE WHO INVESTED THROUGH YOU; CORRECT?
CHRISTOPHER LUCAS: THAT'S RIGHT.
MR. DOWNEY: AND LET ME DIRECT YOUR ATTENTION TO SECTION 4.5. AND THIS IS ABOUT YOUR ACCESS TO DATA. AND YOU REPRESENT THAT YOU'VE HAD THE OPPORTUNITY TO ASK QUESTIONS OF AND RECEIVE ANSWERS FROM THE OFFICERS OF THE COMPANY CONCERNING THE AGREEMENTS, AND THEN IT LISTS THE VARIOUS SCHEDULES AND EXHIBITS AND SO FORTH, AND AS WELL AS THE COMPANY'S BUSINESS MANAGEMENT AND FINANCIAL AFFAIRS, WHICH QUESTIONS WERE ANSWERED TO ITS SATISFACTION. DO YOU SEE THAT?
MR. DOWNEY: AND THAT WAS ALSO TRUE; CORRECT?
CHRISTOPHER LUCAS: AS I STATED EARLIER, THERE CERTAINLY WOULD HAVE BEEN MORE INFORMATION WE WOULD HAVE POTENTIALLY HAD LIKED, BUT WE DIDN'T HAVE ACCESS TO IT, AND WE MADE THE DECISION TO INVEST.
MR. DOWNEY: OKAY. BECAUSE AFTER ALL, YOU HAD THE OPPORTUNITY TO REVIEW THAT LARGE DOCUMENT THAT WE WENT THROUGH AT SOME LENGTH ABOUT WHAT THE COMPANY'S BUSINESS PLAN WAS; CORRECT?
CHRISTOPHER LUCAS: WELL, WE CERTAINLY REVIEWED IT. THAT WOULDN'T NECESSARILY BE SUFFICIENT, BUT CERTAINLY WE RELIED ON THE DOCUMENT AND THE OTHER INFORMATION THAT WE RECEIVED FROM ELIZABETH.
MR. DOWNEY: EXCUSE ME. I'M SORRY. AND YOUR ASSESSMENT OF MANAGEMENT; CORRECT?
MR. DOWNEY: AND SOME OF THE OTHER FACTORS WE DISCUSSED EARLIER?
CHRISTOPHER LUCAS: SURE.
MR. DOWNEY: OKAY. NOW, I WANT TO ASK YOU TO GO FORWARD IN THE EXHIBIT TO PAGE 116, AND WE'LL PUT IT UP ON THE SCREEN FOR EASE. I THINK IT'S THE PAGE BEFORE THIS. OH, NO, SORRY, IT IS THIS PAGE. COULD YOU BLOW UP THE SECTION ENTITLED SCHEDULE 3.8(B). I'M SHOWING YOU A LATER PAGE IN 12 -- IN THIS STOCK PURCHASE AGREEMENT FROM OCTOBER 2006. AND DO YOU SEE THERE'S A REFERENCE HERE TO AN EVALUATION AGREEMENT BETWEEN THERANOS AND SMITHKLINE BEECHAM?
MR. DOWNEY: AND YOU RECOGNIZE SMITHKLINE BEECHAM AS A LEADING PHARMACEUTICAL COMPANY; CORRECT?
MR. DOWNEY: AT THAT TIME ANY WAY; CORRECT?
MR. DOWNEY: AND DID YOU REVIEW THE AGREEMENT THAT IS REFERENCED IN SCHEDULE 3.8(B) PRIOR TO THE TIME THAT YOU HAD MADE AN INVESTMENT?
CHRISTOPHER LUCAS: I WOULD THINK SO. I JUST DON'T ABSOLUTELY RECALL.
MR. DOWNEY: OKAY. WELL, DO YOU RECALL THAT THE ADDITIONAL RAISE PRIOR TO THE END OF 2006 WAS BECAUSE THE COMPANY HAD HAD SUCCESS IN CONNECTION WITH TRYING TO ESTABLISH RELATIONSHIPS WITH PHARMACEUTICAL COMPANIES AND THAT IT WAS SEEKING FUNDS TO BUILD FURTHER INFRASTRUCTURE TO PERFORM THOSE CONTRACTS?
CHRISTOPHER LUCAS: THAT WOULD MAKE SENSE.
MR. DOWNEY: LET ME ASK YOU TO JUST LOOK AT, IN YOUR BINDER, BUT DON'T COMMENT ON IT AND I'M NOT GOING TO PUT IT ON THE SCREEN, AT EXHIBIT 14111. AND REALLY MY ONLY QUESTION ABOUT THIS DOCUMENT FOR YOU, MR. LUCAS, IS WHETHER YOU RECALL EVER SEEING THIS DOCUMENT.
CHRISTOPHER LUCAS: I DON'T RECALL.
MR. DOWNEY: OKAY. YOU CAN PUT THAT ASIDE. LET ME JUST GO BACK FOR ONE MOMENT TO EXHIBIT A ON PAGE 91, AND JUST -- I WANT TO PUT IT BACK UP FOR A MOMENT AND HIGHLIGHT THE BLACK DIAMOND VENTURES XII INVESTMENT AMOUNT. THIS IS THE DOCUMENT THAT WE LOOKED AT A MOMENT AGO WITH THE $925,000 INVESTMENT. DO YOU SEE THAT?
MR. DOWNEY: AND FOR $925,000 AT THIS STAGE, YOU ONLY GOT -- WELL, YOU GOT 328,000 SHARES. DO YOU SEE THAT?
MR. DOWNEY: OKAY. AND DO YOU RECALL THAT IN FEBRUARY, THE FEBRUARY RAISE WHEN YOU BOUGHT STOCK, YOU HAD PAID A LITTLE BIT LESS THAN A DOLLAR PER SHARE; RIGHT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND IN CONNECTION WITH THIS OCTOBER RAISE, YOU WERE PAYING A LITTLE BIT UNDER $3 A SHARE; CORRECT?
MR. DOWNEY: AND DID THAT REFLECT THAT THERE WAS INCREASING VALUE IN THE COMPANY?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: DO YOU KNOW IF THAT RELATED AT ALL TO WHAT THERANOS WAS DOING IN CONNECTION WITH THE PHARMACEUTICAL BUSINESS?
CHRISTOPHER LUCAS: AFTER YOU SHOW ME -- YOU'VE SHOWN THE AGREEMENT HERE, I WOULD EXPECT --
MR. DOWNEY: MR. LUCAS, IF YOU DON'T RECOGNIZE THE DOCUMENT, DON'T, DON'T -- I DON'T WANT YOU TO TESTIFY ABOUT THINGS YOU DIDN'T KNOW AT THE TIME. SO IF YOU DON'T RECOGNIZE IT, I DON'T WANT YOU TO DESCRIBE IT TO THE JURY BECAUSE IT WILL BE EVIDENCE IN THE CASE.
CHRISTOPHER LUCAS: OH. OKAY.
MR. DOWNEY: BUT IS IT TYPICALLY THE CASE THAT IF PHARMACEUTICAL CONTRACTS ARE OBTAINED, IT CAN CONTRIBUTE TO INCREASING THE VALUE OF THE COMPANY?
MR. DOWNEY: DO YOU RECALL LEARNING THAT, SHORTLY AFTER YOU INVESTED IN THE COMPANY, THAT THERANOS FINALIZED ANOTHER CONTRACT WITH A PHARMACEUTICAL COMPANY?
CHRISTOPHER LUCAS: THIS IS THE 2006?
MR. DOWNEY: YES, YES. AND I'M REFERRING TO THE SECOND INVESTMENT IN 2006.
CHRISTOPHER LUCAS: GOT IT.
MR. DOWNEY: OCTOBER, NOVEMBER CLOSE.
CHRISTOPHER LUCAS: GOT IT.
MR. DOWNEY: OKAY. DO YOU RECALL LEARNING THAT THEY HAD OBTAINED ANOTHER PHARMACEUTICAL CONTRACT?
CHRISTOPHER LUCAS: I BELIEVE THAT THERE WERE MULTIPLE COMPANIES THAT THERANOS WAS WORKING FOR, BUT I DON'T RECALL THE NAMES.
MR. DOWNEY: OKAY. AND YOU DON'T RECALL THE DRUGS THAT THERANOS WAS INVOLVED IN, IN EVALUATING IN THOSE PROJECTS, DO YOU?
CHRISTOPHER LUCAS: NOT NOW, NO.
MR. DOWNEY: OKAY. YOU THINK YOU MAY HAVE BEEN TOLD AT THE TIME, BUT YOU DON'T RECALL NOW?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: OKAY. ALL RIGHT. SO AFTER THE INVESTMENT IN THE LATTER HALF OF 2006, I THINK YOU DESCRIBED THAT YOU WOULD STAY IN TOUCH WITH MS. HOLMES ABOUT THE COMPANY PERIODICALLY AND GET UPDATES ON THE COMPANY; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: DO YOU RECALL THAT YOU WERE ACTUALLY ASKED TO REVIEW THE FINANCIAL INFORMATION OF THE COMPANY AND PREPARE REVENUE MODELS GOING FORWARD FOR THE COMPANY SHORTLY AFTER THIS 2006 INVESTMENT?
CHRISTOPHER LUCAS: I DON'T RECALL.
MR. DOWNEY: OKAY. LET ME ASK YOU TO LOOK AT AN EXHIBIT, AND THE NUMBER IN YOUR NOTEBOOK WILL BE, THE BLACK NOTEBOOK AGAIN, 12051.
CHRISTOPHER LUCAS: OKAY.
MR. DOWNEY: AND IS THIS AN EMAIL EXCHANGE BETWEEN YOU AND MS. HOLMES RELATED TO THERANOS IN 2007?
MR. DOWNEY: OKAY. YOUR HONOR, I MOVE THE ADMISSION OF 12051.
MR. BOSTIC: NO OBJECTION.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(DEFENDANT'S EXHIBIT 12051 WAS RECEIVED IN EVIDENCE.)
BY MR. DOWNEY:
MR. DOWNEY: I'M SHOWING YOU AT THE TOP THAT THIS IS AN EMAIL IN JUNE OF 2007 BETWEEN -- WHICH WAS SENT FROM YOU TO MS. HOLMES; CORRECT?
MR. DOWNEY: AND IN THE BODY OF THE EMAIL YOU SAY, "ELIZABETH. "ATTACHED IS THE LATEST SPREADSHEET WHICH SHOWS THREE SCENARIOS OF CASH PAYMENTS. SPECIFICALLY, THEY ARE AN ADVANCE OF ONE MONTH'S PAYMENT, TWO MONTH'S PAYMENT, THREE MONTH'S PAYMENT. THE RESULTS ARE SHOWN AT THE BOTTOM OF THE SPREADSHEET. USING A THREE MONTH ADVANCE PAYMENT TERM, WE DO ACHIEVE CASH BREAKEVEN BY THE END OF THIS YEAR." DO YOU SEE THAT?
MR. DOWNEY: AND IS THIS IN CONNECTION WITH YOUR PREPARATION OF A SPREADSHEET THAT WILL REFLECT A MODEL ANTICIPATING WHAT THERANOS'S REVENUE WOULD BE GOING FORWARD?
CHRISTOPHER LUCAS: YES. IT CERTAINLY APPEARS THAT I WAS TRYING TO HELP OUT AND I PUT SOMETHING TOGETHER THAT WE COULD ALL REVIEW.
MR. DOWNEY: AND LET ME JUST ASK YOU TO LOOK AT THE ATTACHMENT. AND I DON'T NECESSARILY WANT TO SHOW YOU THIS IN -- ON A MONTH-BY-MONTH BASIS, BUT I WANT TO GET A SENSE OF HOW THIS WAS ANALYZING THERANOS'S BUSINESS. DO YOU SEE ON THE LEFT-HAND COLUMN THE -- I'VE EXCERPTED THE TOP HALF OF THE PAGE, WHICH IS REVENUE. DO YOU SEE THAT?
MR. DOWNEY: AND DO YOU SEE THAT THERE APPEAR TO BE DIFFERENT ITEMS THAT IT'S ANTICIPATED WILL GENERATE REVENUE. DO YOU SEE THAT?
MR. DOWNEY: ONE OF THOSE IS READERS, ONE OF THEM IS CARTRIDGES, AND ONE OF THEM IS DATABASE. DO YOU SEE THAT?
MR. DOWNEY: AND THAT'S A REFERENCE TO THE FACT THAT THERANOS HAD DIFFERENT COMPONENTS TO ITS TECHNOLOGY; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND THE READERS ARE THE ANALYZERS THAT YOU'VE BEEN TALKING ABOUT; CORRECT?
MR. DOWNEY: AND THE CARTRIDGES WERE THE TECHNOLOGY THAT CONTAIN THE ASSAYS; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND THEN WE DIDN'T TALK ABOUT THIS BEFORE, BUT ANOTHER ELEMENT OF ITS TECHNOLOGY WAS ITS DATABASE; CORRECT?
CHRISTOPHER LUCAS: YES, YOU WERE ANNOUNCING THAT. I HADN'T RECOLLECTED IT.
MR. DOWNEY: I AGREE. BUT THAT IS CORRECT, ISN'T IT? LET ME ASK --
CHRISTOPHER LUCAS: IT'S CORRECT THAT THAT IS HERE.
MR. DOWNEY: YEAH, YEAH. A DATABASE WAS A TECHNOLOGY THAT THERANOS WAS WORKING ON IN THE PERIOD BETWEEN 2006 AND 2013. DO YOU RECALL -- DO YOU KNOW THAT ONE WAY OR ANOTHER?
CHRISTOPHER LUCAS: IN THINKING IT WAS AS -- YES, AS THEY WOULD AMASS THE DATA INFORMATION, THEY COULD PUT IT IN A DATABASE SO THEY COULD CROSS REFERENCE AND SO FORTH.
MR. DOWNEY: OKAY. THEY WANTED TO BE ABLE TO PERFORM CERTAIN WHAT THEY CALLED ANALYTICS IN CONNECTION WITH PEOPLE'S HEALTH; RIGHT?
MR. DOWNEY: SO THE MORE DATA THEY COMPILED ABOUT A PERSON, THE MORE THEY THOUGHT THEY COULD ANALYZE WHAT MIGHT OR MIGHT NOT BE HELPFUL IN TREATMENT OF THAT PERSON; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: IN PROJECTING THE REVENUE THAT IS CONTAINED HERE, WHICH LOOKS TO BE FOR CERTAIN MONTHS OF 2008, DO YOU KNOW WHAT YOU WERE REVIEWING TO COMPLETE THIS MODEL?
CHRISTOPHER LUCAS: I MEAN WHAT I USED TO HELP OUT?
MR. DOWNEY: YES. LET ME ASK IT DIFFERENT. LET ME ASK IT IN A CLEARER WAY FOR YOU. WHAT DOCUMENT DID YOU USE TO PREPARE THE MODEL THAT IS PART OF EXHIBIT 12051?
CHRISTOPHER LUCAS: I DON'T REMEMBER.
MR. DOWNEY: OKAY. LET ME ASK YOU TO JUST LOOK AT 12052, WHICH SHOULD BE THE NEXT DOCUMENT IN YOUR NOTEBOOK.
CHRISTOPHER LUCAS: OKAY.
MR. DOWNEY: AND IS THIS AN EMAIL EXCHANGE BETWEEN YOU AND MS. HOLMES FROM JULY OF 2007 RELATED TO THERANOS'S BUSINESS?
MR. DOWNEY: OKAY. YOUR HONOR, I MOVE THE ADMISSION OF 12052.
MR. BOSTIC: NO OBJECTION.
JUDGE DAVILA: IT'S ADMITTED AND IT MAY BE PUBLISHED.
MR. DOWNEY: 12052.
(DEFENDANT'S EXHIBIT 12052 WAS RECEIVED IN EVIDENCE.)
BY MR. DOWNEY:
MR. DOWNEY: AND THIS IS A DOCUMENT CONSISTING OF REALLY ONLY ONE EMAIL AND ATTACHMENT. DO YOU SEE THIS IS AN EMAIL THAT YOU SENT TO MS. HOLMES IN JULY OF 2007 WITH THE SUBJECT THERANOS MODELS?
MR. DOWNEY: AND DO YOU SEE IN THE BODY OF THE EMAIL YOU TOLD HER THAT YOU WERE ATTACHING TWO CURRENT MODELS; CORRECT?
MR. DOWNEY: AND ONE OF THE MODELS WAS LABELLED REV. 9 (EXPECTED). DO YOU SEE THAT?
MR. DOWNEY: AND ONE WAS LABELLED REV. 10 (CAPACITY). DO YOU SEE THAT?
MR. DOWNEY: AND DO YOU KNOW WHAT -- CAN YOU EXPLAIN WHAT THAT MEANS TO US?
CHRISTOPHER LUCAS: AT THIS POINT I CAN'T.
MR. DOWNEY: OKAY.
CHRISTOPHER LUCAS: I JUST CAN'T RECOLLECT.
MR. DOWNEY: OKAY. LET ME ASK YOU TO LOOK AT THE ATTACHMENT, AND THERE'S A LONG SERIES OF PAGES THAT SEEM TO CONTAIN SOME FINANCIAL DATA. DO YOU SEE THAT? ON THE SCREEN I'M ACTUALLY PUTTING IT UP IN NATIVE FORMAT. DO YOU SEE THAT, MR. LUCAS?
CHRISTOPHER LUCAS: WHAT DO YOU MEAN BY "NATIVE"?
MR. DOWNEY: I'M DISPLAYING IT AS A SPREADSHEET AS IT WOULD LOOK ONLINE, WHEREAS IN YOUR NOTEBOOK I HAVE ACTUALLY PRINTED THE PAGES OUT.
CHRISTOPHER LUCAS: YEAH.
MR. DOWNEY: AND THIS SPREADSHEET IS A SPREADSHEET THAT IS -- LOOKS LIKE OTHER MODELS THAT YOU HAVE CREATED TO PROJECT THE REVENUE OF BUSINESSES; CORRECT?
CHRISTOPHER LUCAS: YES. I'M -- I DON'T KNOW THAT WE, BLACK DIAMOND, DEVELOPED THIS MODEL.
MR. DOWNEY: OKAY.
CHRISTOPHER LUCAS: IT ACTUALLY IS QUITE A GOOD MODEL IT SEEMS, SO I'M --
MR. DOWNEY: YOU'RE ESPECIALLY MODEST. MAYBE YOU DID DEVELOP IT.
CHRISTOPHER LUCAS: NO. I'M LOOKING AT THE TABS DOWN BELOW AND I DON'T THINK THAT WE PREPARED THIS.
MR. DOWNEY: OKAY. WELL, DID YOU FORM AN IMPRESSION AT SOME POINT THAT THE FINANCIAL EXPERTISE WITHIN THERANOS NEEDED SOME HELP?
CHRISTOPHER LUCAS: CERTAINLY INITIALLY WITH THE OTHER. I DON'T KNOW IF THIS -- I'M TRYING TO REMEMBER IF THIS IS A YEAR PAST THE OTHER MODEL. I'M JUST FORGETTING AS -- YOU SHOWED IT.
MR. DOWNEY: YEAH.
CHRISTOPHER LUCAS: BUT THIS LOOKS LIKE THIS COULD HAVE BEEN AN INTERNALLY PREPARED MODEL.
MR. DOWNEY: OKAY. IF YOU LOOK BACK AT EXHIBIT 12051, THAT LOOKS LIKE IT'S FROM -- IF YOU LOOK AT THE -- JUST THE EMAIL.
MR. DOWNEY: YEAH. THIS APPEARS TO BE FROM JUNE OF 2007. DO YOU SEE THAT?
MR. DOWNEY: AND THEN IF YOU LOOK AT 12052 AND WE LOOK AT THAT, THAT APPEARS TO BE FROM JULY OF 2007?
MR. DOWNEY: AND REVIEWING THIS TODAY WITHOUT RECALLING IT, DOES IT APPEAR TO BE SOMETHING THAT IS TRYING TO PROJECT THE EXPECTED REVENUE OF THERANOS AND THE CAPACITY TO GENERATE REVENUE THAT THERANOS HAD?
CHRISTOPHER LUCAS: YES, WHOEVER PREPARED THEM, YES.
MR. DOWNEY: I UNDERSTAND. LET ME ASK YOU TO LOOK AT EXHIBIT 12054.
CHRISTOPHER LUCAS: YES, I HAVE IT.
MR. DOWNEY: AND IS THIS AN EMAIL EXCHANGE BETWEEN YOU AND MS. HOLMES CONCERNING THERANOS'S BUSINESS IN AUGUST OF 2007?
MR. DOWNEY: OKAY. YOUR HONOR, I MOVE THE ADMISSION OF EXHIBIT 12054.
MR. BOSTIC: NO OBJECTION.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(DEFENDANT'S EXHIBIT 12054 WAS RECEIVED IN EVIDENCE.)
BY MR. DOWNEY:
MR. DOWNEY: LET ME ASK YOU TO LOOK AT THE BOTTOM EMAIL, WHICH MAYBE WE CAN BREAK THAT OUT AND MOVE IT UP A LITTLE SO THAT EVERYONE CAN SEE FROM THEIR LOCATIONS. DO YOU SEE THERE'S AN EMAIL FROM MS. HOLMES IN JULY SAYING "RUCHITA MENTIONS SHE HAS BEEN FOLLOWING UP WITH YOU. I HAVE NOT YET FOLLOWED UP WITH DON BUT WILL DO SO FRIDAY"? AND THEN SHE TALKED ABOUT FOLLOWING UP ON A GO FORWARD PLAN AND THAT SHE'S CONTINUING HARD CORE ON IMPLEMENTING OUR PLAN. I ASSUME DON IN THAT EMAIL IS A REFERENCE TO YOUR UNCLE?
MR. DOWNEY: WAS RUCHITA THE INTERNAL FINANCE PERSON AT THERANOS?
CHRISTOPHER LUCAS: YOU'RE CERTAINLY TAKING ME DOWN MEMORY LANE WITH SOME OF THE NAMES. AND WE'RE GOING THROUGH HERE, AND I'M SEEING THEM AND I'M GOING, OH, MY GOSH, I FORGOT THAT PERSON. YES, SHE WAS INTERNAL TO THE COMPANY IN THE FINANCE DEPARTMENT.
MR. DOWNEY: AND SHE WAS SOMEBODY WHO YOU DEALT WITH IN CONNECTION WITH FINANCIAL INFORMATION FROM THERANOS?
MR. DOWNEY: AND RUCHITA SINGAL, WAS THAT HER FULL NAME?
CHRISTOPHER LUCAS: SURE. I'M SORRY.
MR. DOWNEY: LET'S LOOK AT THE TOP EMAIL. THIS IS A RESPONSE FROM YOU TO MS. HOLMES, CORRECT, IN AUGUST?
MR. DOWNEY: AND YOU INDICATE, "YESTERDAY, I SPOKE WITH RUCHITA AND SEPARATELY I SPOKE WITH DON ABOUT THE PROJECTIONS. WITH THE LATEST REVISIONS, WE ARE IN AGREEMENT THAT THEY PROPERLY REPRESENT THERANOS'S FINANCIAL FORECAST BASED UPON OUR DISCUSSIONS AND ASSUMPTIONS. I'VE REALLY ENJOYED WORKING THROUGH THE PROCESS WITH RUCHITA." DO YOU KNOW WHAT THE PROCESS IS THAT YOU'RE DESCRIBING HERE AFTER HAVING HAD THE BENEFIT OF REVIEWING THESE DOCUMENTS?
CHRISTOPHER LUCAS: JUST -- I WOULD THINK REFINING THE MODEL.
MR. DOWNEY: AND WHEN YOU SAY "THE MODEL," DO YOU MEAN THE MODEL THAT WOULD BE USED TO PROJECT FUTURE REVENUES OF THE COMPANY?
CHRISTOPHER LUCAS: YES. TAKING WHAT THE COMPANY WOULD HAVE THOUGHT AND PUTTING IT INTO A PROJECTION IN READABLE FORMAT.
MR. DOWNEY: YOU WOULD LOOK, FOR EXAMPLE, AT THE CONTRACTS THAT THE COMPANY HAD?
CHRISTOPHER LUCAS: NO, I DON'T BELIEVE SO. IT WAS, IT WAS -- WE WOULD TALK ABOUT THE NUMBERS AND THEN MAKE SURE THAT THE MODEL ACCURATELY REPRESENTED WHAT WAS -- WHAT THEY EXPECTED.
MR. DOWNEY: OKAY. AND YOU WORKED ON THAT PROCESS WITH MS. HOLMES I PRESUME?
CHRISTOPHER LUCAS: I JUST DON'T REMEMBER WHO. I KNOW THERE WAS CERTAINLY A BACK AND FORTH EXCHANGE.
MR. DOWNEY: OKAY.
CHRISTOPHER LUCAS: BUT AS IT SAYS HERE IT WAS WITH RUCHITA THAT I SPENT TIME WITH.
MR. DOWNEY: NOW, THERE'S A REFERENCE TO YOUR UNCLE AND TALKING TO HIM ABOUT THE PROJECTIONS. AT THE TIME OF YOUR 2006 INVESTMENT AND UNTIL THE TIME THAT HE STEPPED BACK FROM THE COMPANY, WERE YOU IN REGULAR TOUCH WITH HIM ABOUT THE COMPANY?
MR. DOWNEY: AND DO YOU RECALL HEARING FROM HIM THAT THE COMPANY WAS DOING WELL?
MR. DOWNEY: AND DO YOU RECALL HEARING FROM HIM AT A CERTAIN POINT THAT THE COMPANY WAS EXPLORING TRYING TO TAKE ITS TECHNOLOGY INTO RETAIL STORES? DO YOU RECALL TALKING TO HIM ABOUT THAT?
MR. BOSTIC: HEARSAY, YOUR HONOR.
MR. DOWNEY: WELL, I --
JUDGE DAVILA: YOU'RE JUST ASKING HIM IF HE RECALLS?
MR. DOWNEY: YEAH, I'M JUST ASKING IF HE RECALLS. I'M TRYING TO ORIENT HIM.
JUDGE DAVILA: YOU CAN ANSWER THE QUESTION, SIR, IF YOU RECALL SPEAKING WITH YOUR UNCLE ABOUT THAT?
CHRISTOPHER LUCAS: CERTAINLY AS IT BECAME CLOSER WE WOULD HAVE HAD CONVERSATIONS. I DON'T REMEMBER AT THIS TIME. EXCUSE ME. I DON'T REMEMBER AT THIS TIME THE CONVERSATIONS.
BY MR. DOWNEY:
MR. DOWNEY: OKAY. LET ME ASK YOU, YOU LOOKED ON YOUR DIRECT EXAMINATION AT DOCUMENTS FROM LATE 2013 AND THE INVESTMENT THAT YOU MADE THEN. DO YOU RECALL THAT?
MR. DOWNEY: AND YOU KNOW THAT BY LATE 2013 YOU KNEW THAT THERANOS WAS IN A PARTNERSHIP WITH WALGREENS; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: WHAT I'M TRYING TO ORIENT US TOWARDS IS WHEN DID YOU FIRST LEARN THERE WAS A PARTNERSHIP BETWEEN WALGREENS AND THERANOS?
CHRISTOPHER LUCAS: I DON'T REMEMBER.
MR. DOWNEY: DO YOU RECALL IF IT WAS YEARS BEFORE THE DECEMBER '13 INVESTMENT OR JUST A MATTER OF MONTHS?
CHRISTOPHER LUCAS: I DON'T RECALL. IF I HAD TO THINK ABOUT IT, IT WOULD HAVE BEEN SHORTLY BEFORE THAT THEY HAD AN AGREEMENT.
MR. DOWNEY: OKAY. DID YOU LEARN AT SOME POINT THAT WALGREENS HAD ALSO ENTERED INTO AN AGREEMENT WITH SAFEWAY?
CHRISTOPHER LUCAS: I'M SORRY, ASK AGAIN.
MR. DOWNEY: DID YOU LEARN AT SOME POINT THAT THERANOS HAD ALSO ENTERED INTO AN AGREEMENT WITH SAFEWAY?
CHRISTOPHER LUCAS: OH, YES.
MR. DOWNEY: OKAY. AND DO YOU REMEMBER WHEN YOU LEARNED THAT?
CHRISTOPHER LUCAS: I DON'T.
MR. DOWNEY: DO YOU RECALL HOW YOU LEARNED THAT?
CHRISTOPHER LUCAS: I DON'T.
MR. DOWNEY: DO YOU RECALL THAT YOUR UNCLE HAD INTRODUCED THERANOS TO SAFEWAY?
CHRISTOPHER LUCAS: I DON'T KNOW WHO MADE THE INTRODUCTION. I KNOW AT SOME POINT THAT DON KNEW SOMEBODY AT SAFEWAY, ONE OF THE EXECUTIVES.
MR. DOWNEY: ALL RIGHT. NOW, I THINK YOU TESTIFIED THAT AT A CERTAIN POINT YOUR UNCLE STEPPED DOWN AS CHAIRMAN OF THE BOARD OF THERANOS; CORRECT?
MR. DOWNEY: AND HE WAS SUCCEEDED IN THAT POSITION BY GEORGE SHULTZ; CORRECT?
CHRISTOPHER LUCAS: I DON'T REMEMBER.
MR. DOWNEY: OKAY. YOU ARE AWARE AT SOME POINT THAT MR. SHULTZ BECAME THE CHAIRMAN OF THERANOS'S BOARD?
MR. DOWNEY: AND WAS PART OF THE REASON THAT YOUR UNCLE STEPPED BACK WAS A HEALTH REASON?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND AFTER HE STEPPED BACK, YOU WOULD STILL INTERACT WITH MS. HOLMES OCCASIONALLY ABOUT THE COMPANY; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: BUT YOU LEARNED AT LEAST AT SOME POINT IN 2013 THAT THERANOS HAD ENTERED INTO A RETAIL AGREEMENT WITH WALGREENS; IS THAT RIGHT?
MR. DOWNEY: AND THAT WAS GOOD NEWS; RIGHT?
CHRISTOPHER LUCAS: GREAT NEWS.
MR. DOWNEY: AND THAT WAS BECAUSE -- TELL US WHY IT WAS GREAT NEWS?
CHRISTOPHER LUCAS: WELL, AS I SAID EARLIER, IT MEANS THAT THE TECHNOLOGY WAS NOW READY TO BE ROLLED OUT IN A COMMERCIAL ENDEAVOR, AND OBVIOUSLY THAT MEANS MORE REVENUE FOR THE COMPANY, MORE VALUE FOR THE COMPANY, AND THAT WE WERE IN A REAL BUSINESS.
MR. DOWNEY: SO YOU HAD INVESTED IN THE COMPANY SEVEN YEARS BEFORE; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND YOU HAD INVESTED WHEN STOCK WAS, INITIALLY WHEN IT WAS LESS THAN A DOLLAR A SHARE; CORRECT?
MR. DOWNEY: AND THEN YOU MADE AN ADDITIONAL INVESTMENT WHEN IT WAS A LITTLE UNDER $3 A SHARE; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND IN LATE 2013 YOU WERE INFORMED THAT THERE WOULD BE ANOTHER OPPORTUNITY TO INVEST IN THE COMPANY; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: LET ME TAKE YOU BACK TO EXHIBIT 5143, WHICH WAS ADMITTED BY -- ON YOUR DIRECT EXAMINATION. SO THIS WOULD BE IN YOUR WHITE NOTEBOOK, BUT WE'LL ALSO DISPLAY IT ON THE SCREEN. YOU CAN GO TO THE BOTTOM OF PAGE 1. AND I'M JUST SHOWING YOU THAT THIS APPEARS TO BE AN EMAIL THAT WAS SENT FROM THERANOS TO YOU. DO YOU SEE THAT?
MR. DOWNEY: AND THAT WAS ON DECEMBER 15TH, 2013; CORRECT?
MR. DOWNEY: AND THEN IF WE LOOK AT THE SECOND PAGE OF THE DOCUMENT, DO YOU SEE THAT THIS IS TELLING YOU THAT THERE'S A MEMO ABOUT CERTAIN DEALS AND TRANSACTIONS THAT THE COMPANY IS GOING TO CLOSE BY YEAREND. DO YOU SEE THAT?
MR. DOWNEY: AND IF YOU GO BENEATH THAT, YOU ACTUALLY SEE THE MEMO; CORRECT?
MR. DOWNEY: OKAY. AND DO YOU SEE THE FIRST PARAGRAPH DESCRIBES NEWS ABOUT THE LAUNCH AND OTHER PUBLIC NEWS ABOUT THE COMPANY. DO YOU SEE THAT?
MR. DOWNEY: AND THEN IN THE SECOND PARAGRAPH IT SAYS IN THE FIRST SENTENCE OF THE SECOND PARAGRAPH IT SAYS, "AS PART OF THIS INITIATIVE, WE ARE COMPLETING A SERIES OF FINANCIAL TRANSACTIONS WITH STRATEGIC PARTNERS THAT PROVIDE ACCESS TO ADDITIONAL CAPITAL IN ORDER TO ACCELERATE OUR GROWTH." DO YOU SEE THAT?
MR. DOWNEY: AND IN REFERRING TO STRATEGIC PARTNERS, DID YOU UNDERSTAND THAT THAT WAS LIKELY A REFERENCE TO, AMONG OTHERS, WALGREENS?
CHRISTOPHER LUCAS: WHAT WAS THE DATE OF THIS, THIS COMMUNICATION?
MR. DOWNEY: WELL, IF YOU RECALL AT THE TOP OF EXHIBIT 5143, DO YOU RECALL THAT IT WAS DECEMBER 15TH OF 2013?
CHRISTOPHER LUCAS: SO THEN THE ANSWER WOULD BE YES.
MR. DOWNEY: OKAY. AND THIS MEMO IS TELLING YOU AND ALL OTHER SHAREHOLDERS THAT THERE'S GOING TO BE A SERIES OF FINANCIAL TRANSACTIONS THAT ARE GOING TO TAKE PLACE WITH WALGREENS AND PERHAPS OTHERS BY THE END OF THE YEAR; CORRECT?
MR. DOWNEY: AND IT ALSO SAYS -- IT GOES ON TO TELL SHAREHOLDERS THAT THERANOS WAS COMPLETING EQUITY TRANSACTIONS WITH STRATEGIC ENTITIES WHO HAD PREVIOUSLY INVESTED IN THERANOS AND THAT THOSE -- THEY WERE PEOPLE WHO HAD THE OPTION TO INVEST ADDITIONAL EQUITY. DO YOU SEE THAT?
MR. DOWNEY: AND YOU KNEW THAT IN ADDITION TO WALGREENS AND SAFEWAY, THAT THERANOS ALSO HAD PARTNERSHIPS, FOR EXAMPLE, WITH HOSPITAL GROUPS; CORRECT?
CHRISTOPHER LUCAS: I DON'T RECALL THAT.
MR. DOWNEY: OKAY. DO YOU KNOW WHO THE STRATEGIC ENTITIES ARE WHO ARE REFERENCED IN THE SECOND SENTENCE?
CHRISTOPHER LUCAS: IF I DID, I DON'T REMEMBER.
MR. DOWNEY: OKAY. NOW, IN THE SECOND PARAGRAPH THIS SETS FORTH THE PRICE THAT WAS BEING ATTACHED TO THERANOS STOCK IN CONNECTION WITH THOSE TRANSACTIONS. DO YOU SEE THAT?
CHRISTOPHER LUCAS: YEAH.
MR. DOWNEY: SO, IN OTHER WORDS, THIS IS THE AMOUNT THAT STRATEGIC PARTNERS WERE WILLING TO PAY FOR STOCK IN THERANOS AT THE END OF 2013; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND THAT PRICE WAS $75 A SHARE; CORRECT?
MR. DOWNEY: AND THOSE WERE THE SAME SHARES THAT IN 2006 YOU, FOR EXAMPLE, HAD PAID ON ONE OCCASION LESS THAN A DOLLAR; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND ON ANOTHER OCCASION YOU HAD PAID A LITTLE BIT LESS THAN $3; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: SO UPON RECEIVING THIS NEWS YOU IMMEDIATELY REALIZED THAT THE INVESTMENT THAT YOU HAD MADE SEVEN YEARS BEFORE HAD BECOME INCREDIBLY VALUABLE; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND THE QUESTION THAT WAS BEING POSED TO YOU IN THIS MEMORANDUM IS YOU COULD -- YOU CAN INVEST NOW AGAIN, BUT YOU'RE GOING TO HAVE TO PAY THE $75 A SHARE THAT OTHER ENTITIES ARE PAYING AT THE END OF THE YEAR; CORRECT?
MR. DOWNEY: AND SO THAT WAS REALLY WHAT THIS DISCUSSION WAS ABOUT IN THE TIME PERIOD BETWEEN DECEMBER 15TH AND DECEMBER 31ST, 2013; CORRECT?
MR. DOWNEY: AND YOU KNEW AS YOU TOOK THIS INFORMATION IN THAT FOR WHATEVER THIS PRECISE LENGTH OF IT WAS, THAT WALGREENS HAD BEEN IN A PARTNERSHIP WITH THERANOS FOR A SUBSTANTIAL NUMBER OF YEARS; CORRECT?
CHRISTOPHER LUCAS: I DON'T KNOW THAT.
MR. DOWNEY: OKAY. YOU KNEW, HOWEVER, THAT AS OF THE TIME OF THIS ANNOUNCEMENT, THERANOS HAD ACTUALLY BEEN LAUNCHED IN WALGREENS STORES; CORRECT?
CHRISTOPHER LUCAS: I FORGET IF IT HAD BEEN LAUNCHED OR IT CERTAINLY WAS GOING TO BE SHORTLY LAUNCHED.
MR. DOWNEY: OKAY. DO YOU RECALL THAT THERE WAS INITIALLY THE LAUNCH OF A FEW STORES AND THEN OVER TIME ADDITIONAL STORES WERE LAUNCHED THROUGHOUT 2014?
MR. DOWNEY: AND YOU WERE AT LEAST AWARE THAT THERE WAS GOING TO BE A RETAIL LAUNCH AS OF THIS TIME; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND YOU ASSUMED THAT WALGREENS, IN MAKING A DECISION TO PARTNER WITH THERANOS, HAD EVALUATED THAT -- THERANOS VERY CLOSELY; CORRECT?
CHRISTOPHER LUCAS: I CERTAINLY WOULD HAVE BELIEVED THAT, YES.
MR. DOWNEY: OKAY. AND, IN FACT, AT THIS TIME THEY WERE STARTING TO SEE THERANOS EVERY DAY, ITS OPERATIONS EVERY DAY IN THEIR STORES; CORRECT?
CHRISTOPHER LUCAS: THAT THEY WERE STARTING TO?
MR. DOWNEY: WELL, THAT THERANOS WAS BEGINNING TO OPERATE OUT OF THEIR STORES; CORRECT?
CHRISTOPHER LUCAS: WELL, AS YOU SAID, STARTING TO -- SORRY TO STOP YOU. BUT UP HERE IN PALO ALTO THERE WAS ONE, OR MAYBE THERE WERE TWO UP HERE, AND THEN THE ROLLOUT WAS SUPPOSED TO CONTINUE IN SOUTHERN CALIFORNIA. I DON'T KNOW IF THERE WAS ANYTHING EVER DONE DOWN THERE, BUT THEN INDEED THE PHOENIX AREA.
MR. DOWNEY: RIGHT. AND MY QUESTION IS ONLY AS YOU SAT HERE CONSIDERING THIS INVESTMENT BY WALGREENS, YOU KNEW THAT THEY WERE HAVING THE OPPORTUNITY TO WATCH THAT ROLLOUT AND THE PLANNING FOR IT; CORRECT?
CHRISTOPHER LUCAS: ABSOLUTELY.
MR. DOWNEY: AND THAT WAS INCREDIBLY IMPORTANT TO YOU IN CONNECTION WITH MAKING THE INVESTMENT DECISION THAT WAS THE SUBJECT OF THIS MEMORANDUM; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND BECAUSE YOU UNDERSTOOD THAT THEY -- WHETHER YOU WERE WILLING TO PAY $75 WAS ONE QUESTION; RIGHT?
MR. DOWNEY: BUT THEY WERE WILLING TO PAY $75 A SHARE FOR THERANOS; CORRECT?
MR. DOWNEY: AND THEY HAD A LOT MORE INFORMATION ABOUT THERANOS AND ITS TECHNOLOGY AND ITS OPERATIONS THAN YOU DID; RIGHT?
MR. BOSTIC: CALLS FOR SPECULATION.
JUDGE DAVILA: SUSTAINED. YOU CAN ASK ANOTHER QUESTION.
BY MR. DOWNEY:
MR. DOWNEY: WELL, MY QUESTION IS JUST DID YOU MAKE AN ASSUMPTION ABOUT THE RELATIVE DEGREE OF YOUR EVALUATION OF THERANOS AND WALGREENS'S EVALUATION OF THERANOS?
JUDGE DAVILA: YOU CAN ANSWER THAT?
CHRISTOPHER LUCAS: I CAN?
JUDGE DAVILA: YES.
CHRISTOPHER LUCAS: YEAH, I WOULD BELIEVE THAT THEY DID AN EXTENSIVE ANALYSIS PRIOR TO WANTING TO ROLL IT OUT AND INVEST.
BY MR. DOWNEY:
MR. DOWNEY: OKAY. AND THAT WAS MEANINGFUL TO YOU; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: NOW, THE SECOND PARAGRAPH OF THIS -- ACTUALLY, I BELIEVE IT'S ACTUALLY REALLY THE SECOND PARAGRAPH, BUT IT'S THE THIRD PARAGRAPH ON THE SCREEN, GOES ON TO DESCRIBE THAT THERE'S GOING TO BE A STOCK SPLIT; CORRECT?
MR. DOWNEY: AND A STOCK SPLIT IS JUST WHEN YOU HAVE A SHARE IN A COMPANY AND IT'S JUST DIVIDED IN HALF OR IN THREE OR FOUR OR FIVE, WHATEVER THE SPLIT IS; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND SO THE NEW PRICE OF SHARES WAS GOING TO BE $15 A SHARE; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: BUT YOU, WITH YOUR OLD SHARES, WOULD OWN FIVE TIMES AS MANY SHARES; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND SO EFFECTIVELY YOU WOULD BE REALIZING A GAIN TO THE POINT WHERE THE SHARES THAT YOU HAD BOUGHT IN 2006 WERE NOW WORTH $75; RIGHT?
MR. DOWNEY: NOW, MR. BOSTIC WAS ASKING YOU ON DIRECT ABOUT KIND OF THE COMPRESSED PERIOD AND YOUR EXPERIENCE OF THE COMPRESSED PERIOD AT THE END OF 2013. WHAT WAS YOUR UNDERSTANDING OF WHY THERE WAS A DECEMBER 31ST, 2013 DEADLINE FOR YOU TO MAKE A DECISION IN CONNECTION WITH THIS INVESTMENT?
CHRISTOPHER LUCAS: AS I THINK I SAID DURING THE DIRECT, MY UNDERSTANDING WAS THAT WALGREENS HAD AN AGREEMENT TO CONVERT THEIR STOCK AT A PRE-DETERMINED PRICE PRIOR TO THE END OF 2013, AND THIS WAS THE PRICE, AND THAT WAS THE TIMING, AND IF OTHERS WANTED TO INVEST, THEY COULD INVEST AT THAT PRICE ALSO.
MR. DOWNEY: LET ME ASK YOU TO LOOK AT AN EXHIBIT THAT IS ALREADY IN EVIDENCE, 1387. IF YOU SEE THE FIRST PAGE, YOU SEE THAT THIS IS SOME FORM OF A LETTER TO MS. HOLMES FROM DECEMBER 31ST, 2013. THE SUBJECT IS AN AMENDED AND RESTATED THERANOS MASTER SERVICES AGREEMENT. DO YOU SEE THAT?
MR. DOWNEY: AND THEN IF I CAN DIRECT YOUR ATTENTION TO THE BACK OF THE DOCUMENT, THE SIGNATURE PAGE. DO YOU SEE THIS IS SIGNED BETWEEN THERANOS AND WALGREENS ON THE 31ST OF DECEMBER 2013?
MR. DOWNEY: AND IF I COULD DIRECT YOUR ATTENTION IN CONNECTION WITH THIS TO PARAGRAPH 7, DO YOU SEE THAT THERE ARE EQUITY RIGHTS GRANTED TO THERANOS, OR TO WALGREENS, PURSUANT TO THIS AGREEMENT?
MR. DOWNEY: AND DO YOU KNOW WHAT THE PRICE WAS THAT WAS CHARGED TO WALGREENS IN CONNECTION WITH THIS EQUITY RIGHT THAT THEY WERE OBTAINING UNDER THIS AGREEMENT?
(PAUSE IN PROCEEDINGS.)
CHRISTOPHER LUCAS: SORRY TO TAKE THE TIME. DO YOU WANT ME TO UNDERSTAND THIS, OR ARE YOU JUST ASKING, DO I SEE IT?
BY MR. DOWNEY:
MR. DOWNEY: YEAH. CAN YOU SEE THE PRICE THAT IS BEING CHARGED TO WALGREENS -- THE SHARE PRICE IN CONNECTION WITH THE DIVISION EQUITY RIGHTS THAT ARE PART OF THIS AGREEMENT, SPECIFICALLY WHETHER IT'S $15 A SHARE --
CHRISTOPHER LUCAS: YEAH, IT APPEARS TO BE $15 PER SHARE.
MR. DOWNEY: OKAY. AND THAT IS THE POST-SPLIT PRICING THAT IS -- THAT WAS USED FOR PURPOSES OF YOUR INVESTMENT IN LATE 2013; CORRECT?
CHRISTOPHER LUCAS: THAT'S HOW I WOULD -- THAT'S HOW I UNDERSTOOD IT BACK THEN, THAT WE'RE ALL INVESTING AT THE SAME PRICE.
MR. DOWNEY: OKAY. AND MS. HOLMES WAS DESCRIBING TO YOU THAT THERE WAS A TRANSACTION LIKE THIS GOING ON; CORRECT? LET ME ASK THAT A LITTLE MORE CLEARLY. IN TELLING YOU THAT YOU HAD THE OPPORTUNITY TO BUY NEW SHARES, SHE TOLD YOU, WE HAVE TO DO THIS BY THE END OF THE YEAR BECAUSE WE HAVE TO SIGN A NEW DEAL WITH OUR STRATEGIC PARTNER BY THE END OF THE YEAR; CORRECT?
CHRISTOPHER LUCAS: I UNDERSTOOD IT TO BE DIFFERENTLY, THAT THEY HAD THE OPTION TO DO THIS CONVERSION AT THE END OF THE YEAR. YOU MAY BE CORRECT ON THE OTHER OF WHAT YOU SAID, BUT I CERTAINLY DON'T RECALL THAT.
MR. DOWNEY: OKAY. AND DO YOU RECALL, IF YOU LOOK AT THE FIRST PARAGRAPH, THAT MS. HOLMES WAS DESCRIBING A -- SORRY, THE PARAGRAPH LABELLED NUMBER 1 ON PAGE 2. DO YOU SEE THAT THIS RELATES TO THE ROLLOUT OF THERANOS STORES IN SEVERAL DIFFERENT MARKETS AND SETTING UP A PLAN TO DO THAT?
MR. DOWNEY: AND DO YOU -- AND THAT WAS SOMETHING THAT YOU WERE GENERALLY AWARE WAS GOING ON; CORRECT?
CHRISTOPHER LUCAS: THIS IS WHAT IT WAS ALL ABOUT, YEP.
MR. DOWNEY: OKAY. THAT'S WHAT YOUR INVESTMENT WAS ALL ABOUT YOU MEAN?
CHRISTOPHER LUCAS: WELL, I MEAN, TO GET TO THE POINT OF HAVING SOMEONE OF NATIONAL PRESENCE START TO ROLL OUT THE COMPANY'S TECHNOLOGY.
MR. DOWNEY: OKAY. LET ME ASK YOU TO LOOK BACK AT EXHIBIT 5143, WHICH IS THE EXHIBIT THAT WAS INTRODUCED BY THE GOVERNMENT. DO YOU SEE IN THE MIDDLE THERE THAT MS. QUINTANA INDICATED, IN RESPONSE TO THE DECEMBER 15TH EMAIL, THAT ON THE 16TH SHE SAID, "BLACK DIAMOND VENTURES IS INTERESTED IN INCREASING ITS EQUITY POSITION IN THERANOS"? DO YOU SEE THAT?
MR. DOWNEY: AND THAT WAS SOMETHING THAT YOU AND SHE COMMUNICATED ABOUT AND AGREED TO SEND THIS MESSAGE; CORRECT?
MR. DOWNEY: OKAY. ALL RIGHT. NOW, I WANT TO LOOK -- GO BACK TO PAGE 2 OF THIS EXHIBIT. SORRY. LET ME -- I'LL SHOW YOU A DIFFERENT EXHIBIT, AND I WILL MAKE IT A LITTLE EASIER TO SHOW YOU THIS. LOOK AT -- IF WE CAN PULL UP EXHIBIT 5144, WHICH WAS ALSO ADMITTED, I BELIEVE, DURING THE GOVERNMENT'S EXAMINATION. AND JUST TO REORIENT YOU, DO YOU SEE THAT THIS IS THE -- MS. QUINTANA'S TRANSMISSION AT THE VERY END OF THE EMAIL STRING OF VARIOUS SHAREHOLDER CONSENTS THAT HAD BEEN ASKED FOR IN THE MEMO?
MR. DOWNEY: OKAY. AND IF YOU GO DOWN EARLIER IN THE MEMO, I WANT TO HIGHLIGHT THE PART THAT MR. BOSTIC DISCUSSED WITH YOU. AND THIS IS THE SERIES OF QUESTIONS THAT YOU ASKED OF THERANOS IN CONNECTION WITH THE ANNOUNCEMENT THAT THERE WOULD BE THIS INVESTMENT; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND DO YOU RECALL THAT YOU WERE -- I WANT TO SEE WHAT YOU RECALL ABOUT THE ANSWERS THAT YOU GOT TO THESE QUESTIONS OVER THE PERIOD THAT FOLLOWED AND PRIOR TO YOUR INVESTMENT. DO YOU RECALL IF THERE WAS ANY DISCUSSION OF A PARTIAL OR FULL LIQUIDITY EVENT?
CHRISTOPHER LUCAS: YES, AND I'M NOT SURE WHAT TIMEFRAME THAT WAS GOING TO BE.
MR. DOWNEY: OKAY. AND IF YOU GO TO THE FIFTH ITEM THAT YOU RAISED, YOU RAISED THE QUESTION, "IS THERE A PRO-RATA AMOUNT?" DO YOU SEE THAT?
MR. DOWNEY: AND THIS IS JUST ASKING, IS THIS GOING TO BE APPORTIONED BASED ON HOW WE PREVIOUSLY INVESTED; IS THAT RIGHT?
CHRISTOPHER LUCAS: YES, TYPICALLY IN DOCUMENTS AND PRIOR FINANCINGS, YOU'RE GIVEN THE RIGHT FOR ANY FUTURE FINANCING TO PURCHASE AT A PRO RATA AMOUNT.
MR. DOWNEY: AND IF YOU LOOK AT NUMBER 3, YOU SAY, "DO THE NEW INVESTORS IN THIS SERIES INCLUDE BOTH FINANCIAL AND STRATEGIC PARTNERS?" DO YOU SEE THAT?
MR. DOWNEY: AND STRATEGIC PARTNERS I THINK WE DISCUSSED INCLUDED WALGREENS, FOR EXAMPLE?
MR. DOWNEY: AND WHAT DID FINANCIAL PARTNERS MEAN?
CHRISTOPHER LUCAS: ANY OTHER INSTITUTION OR INVESTOR THAT WAS JUST PROVIDING MONEY AND THAT WAS IT.
MR. DOWNEY: WELL, WHY DID YOU WANT TO KNOW THAT INFORMATION?
CHRISTOPHER LUCAS: WELL, JUST TO HAVE A FULL PICTURE OF THE FINANCING.
MR. DOWNEY: OKAY. AND DO YOU RECALL THAT YOU WERE TOLD, PRIOR TO MAKING YOUR DECEMBER 2013 INVESTMENT, THAT THERANOS ANTICIPATED THAT AFTER THE NEW YEAR IT WOULD DO AN ADDITIONAL FUND RAISE? DO YOU REMEMBER THAT?
MR. DOWNEY: AND DO YOU REMEMBER THAT THERANOS TOLD YOU THAT IT EXPECTED THAT AFTER THE NEW YEAR WHEN IT DID AN ADDITIONAL FUND RAISE, THAT THE COMPANY WOULD BE VALUED A BIT HIGHER THAN IT WAS FOR PURPOSES OF THIS OFFERING?
MR. DOWNEY: AND DO YOU RECALL THAT THE REASON THAT THIS OFFERING WAS BEING MADE AVAILABLE WAS THAT YOU AND OTHER SERIES C SHAREHOLDERS HAD ACTUALLY A CONTRACTUAL RIGHT TO HAVE THIS OFFERING MADE TO THEM?
CHRISTOPHER LUCAS: YES. AS I SAID EARLIER, THAT'S THE PRO RATA RIGHT THAT EVERYONE IS GIVEN.
MR. DOWNEY: OKAY. SO THE QUESTION REALLY FOR YOU WAS, DO I WANT TO MAKE THIS INVESTMENT AT THE $15 A SHARE PRICE OR DO I WANT TO TAKE A LONGER TIME AND CONSIDER IT AND INVEST AT A SLIGHTLY HIGHER PRICE IN 2017 -- 2014; CORRECT?
CHRISTOPHER LUCAS: SURE.
MR. DOWNEY: OKAY. AND, AND AM I RIGHT THAT NOTHING WOULD HAVE PRECLUDED YOU FROM INVESTING AGAIN IN 2014? CORRECT?
CHRISTOPHER LUCAS: I WOULD EXPECT NOT. I JUST DON'T REMEMBER.
MR. DOWNEY: OKAY. I WANT TO SHOW YOU NEXT EXHIBIT 5444.
CHRISTOPHER LUCAS: IS THIS ONE I GO TO THE BOOK AGAIN?
MR. DOWNEY: NO. YOU'LL BE ABLE TO SEE IT I BELIEVE BECAUSE IT WAS ADMITTED BY THE GOVERNMENT DURING YOUR DIRECT EXAMINATION.
CHRISTOPHER LUCAS: OKAY.
MR. DOWNEY: YEAH. ALL RIGHT. AND JUST TO REORIENT YOU, DO YOU REMEMBER THAT THIS IS REALLY THE PART OF A SERIES OF EMAILS BETWEEN YOU AND MS. HOLMES ABOUT TWO WEEKS LATER WHERE YOU'RE TRYING TO FIND A TIME TO TALK; CORRECT?
MR. DOWNEY: AND I WANT TO ASK YOU TO GO BACK IN THIS EMAIL STRING TO THE EMAIL THAT YOU SENT HER ON DECEMBER THE 24TH. DO YOU SEE THAT? IT'S AT THE -- IT SHOULD BE ON THE SCREEN IN A MOMENT. IT'S THE BOTTOM OF PAGE 2. AND THEN DO YOU SEE THERE'S AN EMAIL EXCHANGE HERE ON CHRISTMAS EVE; CORRECT?
MR. DOWNEY: AND THEN LET ME JUST SHOW YOU THAT. AND YOU INFORM MS. HOLMES HERE, "I HAVE CONTINUED TO HAVE CALLS WITH OUR INVESTORS AND HAVE DETERMINED THAT THERE IS SIGNIFICANT INTEREST IN PARTICIPATING IN THIS ROUND. THE CHALLENGE WILL BE GETTING ALL OF THE FUNDS PRIOR TO YEAR END. IF THERE IS ANY FLEXIBILITY, PLEASE LET ME KNOW." AND THEN YOU GO ON TO SAY THAT YOU'VE BEEN ASKED A SERIES OF ADDITIONAL QUESTIONS. AND ARE THESE QUESTIONS THAT THE INVESTORS IN BDV WERE ASKING ABOUT THE INVESTMENT?
CHRISTOPHER LUCAS: QUITE LIKELY. I JUST DON'T REMEMBER.
MR. DOWNEY: OKAY. THE FIRST QUESTION IS, "ARE THE STRATEGIC PARTNERS CONVERTING THE ENTIRE AMOUNT OF THEIR NOTES IN THIS OFFERING?" DO YOU SEE THAT?
MR. DOWNEY: AND WHY WAS THAT IMPORTANT?
CHRISTOPHER LUCAS: WELL, IF AN INVESTING ENTITY, OR ANY ENTITY, IS CONVERTING THEIR NOTES, THEIR NOTES ARE AT A HIGHER SECURITY THAN STOCK, AND SO IF THEY'RE WILLING TO CONVERT IT INTO EQUITY, IT MEANS THEY FEEL GOOD ABOUT THE INVESTMENT AND THAT THEY CAN THEN APPRECIATE.
MR. DOWNEY: I SEE. AND THEN YOU WERE ASKED, "WAS THIS CONVERSION PRICE AND EXPIRATION DATE SET AT THE TIME WHEN THEY MADE THE LOANS?" DO YOU SEE THAT?
MR. DOWNEY: AND TELL US WHY THAT WAS IMPORTANT.
CHRISTOPHER LUCAS: BECAUSE THAT WOULD VALIDATE THAT THIS FINANCING HAD TO CLOSE PRIOR TO DECEMBER OF 2013.
MR. DOWNEY: I SEE. PEOPLE WOULD HAVE TO UNDERSTAND WHAT IS THE TRANSACTION HAPPENING BEFORE THE END OF 2013; CORRECT?
MR. DOWNEY: I SEE.
CHRISTOPHER LUCAS: AND WHY THE URGENCY.
MR. DOWNEY: AND WHY IT IS BEING OFFERED WITH THIS 12/31 DEADLINE?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: NOW, YOU WERE NOT GIVEN THE OPPORTUNITY, I THINK, AM I RIGHT, IN 2013 TO LOOK AT ANY OF THE EITHER DRAFT OR FINAL DOCUMENTS RELATED TO NEGOTIATIONS BETWEEN THERANOS AND WALGREENS IN THAT PERIOD?
MR. DOWNEY: IN FACT, WHEN I SHOWED YOU THAT AGREEMENT, THAT'S THE FIRST TIME YOU'VE SEEN IT; CORRECT?
CHRISTOPHER LUCAS: YES, AND THAT WAS PRETTY EXCITING TO SEE ACTUALLY.
(LAUGHTER.)
BY MR. DOWNEY:
MR. DOWNEY: AND YOU HAD CONVERSATIONS WITH MS. HOLMES AND SHE CONVEYED SOME OF THIS INFORMATION TO YOU, BUT NOT ALL OF IT; CORRECT?
CHRISTOPHER LUCAS: JUST THE, THE OVERALL, WE'RE GOING TO START ROLLING IT OUT.
MR. DOWNEY: RIGHT. SHE TOLD YOU THERE WAS SOME INFORMATION SHE COULD SHARE WITH YOU, BUT SOME INFORMATION SHE COULDN'T; CORRECT?
CHRISTOPHER LUCAS: I DON'T KNOW IF IT WAS PUT THAT WAY. BUT IT WAS CERTAINLY WE HAVE A DEAL WITH WALGREENS, WE'RE GOING TO START ROLLING OUT, CHRIS, ISN'T THIS EXCITING? YES, ABSOLUTELY.
MR. DOWNEY: OKAY. LET ME ASK YOU ALSO, I ASSUME YOU KNEW LESS ABOUT THE BOARD OF DIRECTORS AND ITS OPERATIONS AFTER YOUR UNCLE STEPPED BACK FROM THE COMPANY; IS THAT RIGHT?
MR. DOWNEY: OKAY. BUT DID YOU KNOW THAT THE PRICE THAT WAS SET FOR THIS OFFERING AT THE END OF 2013 HAD ACTUALLY BEEN APPROVED BY THE BOARD OF DIRECTORS OF THE COMPANY?
CHRISTOPHER LUCAS: ANY FINANCING WOULD HAVE TO BE APPROVED BY THE BOARD, SO -- JUST AS THE AGREEMENT PRIOR TO GIVE WALGREENS THE OPPORTUNITY TO CONVERT, THAT WOULD HAVE HAD TO HAVE BEEN APPROVED.
MR. DOWNEY: AND THE COMPOSITION OF THE BOARD GAVE YOU CONFIDENCE THAT THIS WAS A REASONABLE INVESTMENT TO MAKE; CORRECT?
MR. DOWNEY: WE TALKED A LITTLE BIT A FEW MOMENTS AGO ABOUT SAFEWAY. I WANT TO ASK YOU WHETHER YOU TRIED TO FOLLOW EVENTS IN THE THERANOS/SAFEWAY RELATIONSHIP, AS WELL AS IN THE THERANOS/WALGREENS RELATIONSHIP.
CHRISTOPHER LUCAS: TO THE EXTENT I COULD.
MR. DOWNEY: OKAY.
CHRISTOPHER LUCAS: BUT I DID NOT HAVE SPECIFIC, YOU KNOW, UPDATES FOR EITHER OF THEM. AND THEN IT BECAME CLEAR, AS WALGREENS STARTED TO ROLL OUT, I WAS AWARE THAT IT WAS GOING TO -- THEY WERE GOING TO CONCENTRATE THEIR EFFORT IN THE PHOENIX AREA.
MR. DOWNEY: OKAY. LET ME ASK YOU TO LOOK AT -- THIS YOU WILL HAVE TO GO TO YOUR BLACK BINDER FOR THIS -- TO 12323.
MR. DOWNEY: DO YOU SEE THAT THIS IS AN EMAIL EXCHANGE BETWEEN YOU AND MS. QUINTANA FROM FEBRUARY OF 2013?
MR. DOWNEY: AND WAS THIS AN EMAIL EXCHANGE THAT WAS MADE IN CONNECTION WITH BDV'S EFFORTS TO KEEP UP WITH THERANOS INVESTMENT?
MR. DOWNEY: YOUR HONOR, I MOVE THE ADMISSION OF 12323.
MR. BOSTIC: YOUR HONOR, HEARSAY AND RELEVANCE.
JUDGE DAVILA: IT'S THE ENTIRETY OF THE DOCUMENT YOU WANT IN, MR. DOWNEY?
MR. DOWNEY: WELL, THERE'S AN INDICATION IN THE COVER MEMO THAT CERTAIN PORTIONS WERE HIGHLIGHTED FOR REVIEW BY THE INDIVIDUAL RECEIVING THE EMAIL. THAT'S REALLY -- THOSE ARE REALLY THE ONLY SECTIONS I'M INTERESTED IN, ALTHOUGH I WILL SAY THAT I DON'T THINK THE BALANCE OF IT IS OF REALLY GREAT CONCERN. IT'S ABOUT OTHER MATTERS.
JUDGE DAVILA: ARE YOU REFERRING TO THE TRANSCRIPT CALL DATA?
MR. DOWNEY: YES.
JUDGE DAVILA: IS IT POSSIBLE FOR YOU TO LOOK AT THESE AND PARSE OUT EXACTLY WHAT IT IS YOU WOULD LIKE?
MR. DOWNEY: I THINK THAT WOULD BE, YOUR HONOR.
JUDGE DAVILA: AND SHOULD WE DO THAT AFTER OUR 2:00 O'CLOCK BREAK? WE'LL GIVE YOU TIME TO DO THAT.
MR. DOWNEY: I CERTAINLY COULD, OR I CAN EVEN IDENTIFY -- THAT WOULD BE FINE. I CAN GIVE YOU THE SECTIONS NOW IF YOU WANT TO --
JUDGE DAVILA: WELL, I THINK A BREAK IS PROBABLY APPROPRIATE AT THIS TIME.
MR. DOWNEY: OKAY.
JUDGE DAVILA: SO LET'S TAKE OUR AFTERNOON BREAK, LADIES AND GENTLEMEN. WE'LL TAKE 30 MINUTES, 30 MINUTES.
CHRISTOPHER LUCAS: OKAY.
JUDGE DAVILA: AND THEN WE'LL COME BACK AND WE'LL CONTINUE THE TESTIMONY. THANK YOU.
(JURY OUT AT 2:04 P.M.)
JUDGE DAVILA: PLEASE BE SEATED. THANK YOU. ANYTHING BEFORE WE BREAK?
MR. DOWNEY: NO, YOUR HONOR.
MR. BOSTIC: NO, YOUR HONOR.
JUDGE DAVILA: OKAY. THANK YOU. BUT CAN I SEE YOU BEFORE WE BREAK?
MR. DOWNEY: SURE.
(RECESS FROM 2:04 P.M. UNTIL 2:37 P.M.)
(JURY IN AT 2:37 P.M.)
JUDGE DAVILA: THANK YOU. WE'RE BACK ON THE RECORD. ALL COUNSEL ARE PRESENT. MS. HOLMES IS PRESENT. THE JURY IS PRESENT. PLEASE BE SEATED. MR. LUCAS IS STILL ON THE STAND. COUNSEL?
MR. DOWNEY: YOUR HONOR, I THINK BEFORE WE BROKE I WAS SEEKING TO ADMIT EXHIBIT 12323.
JUDGE DAVILA: YES.
MR. DOWNEY: THEN THERE HAD BEEN AN OBJECTION AND THEN A COLLOQUY. I JUST WANTED TO IDENTIFY FOR THE COURT THE PORTIONS OF THE DOCUMENT THAT WERE OF INTEREST. I THINK THAT THEY WERE AT THE, BY MY READ, THE 12TH AND 13TH PAGE OF THE EXHIBIT, AND I THINK THAT THEY ARE TWO QUESTIONS AND ANSWERS AND THEY ARE ELECTRONICALLY HIGHLIGHTED IN THE DOCUMENT.
JUDGE DAVILA: OKAY. LET ME -- THESE ARE NOT PAGINATED, ARE THEY? NO.
MR. DOWNEY: NO.
JUDGE DAVILA: OKAY. I THINK I'VE GOT IT.
MR. DOWNEY: IF IT HELPS, ONE QUESTION IS FROM A KELLY BANIA, B-A-N-I-A, AND THEN THERE'S ANOTHER ONE ON THE OPPOSITE PAGE.
MR. BOSTIC: YOUR HONOR, AS TO THOSE PORTIONS, NO RELEVANCE OBJECTION AS TO THOSE PORTIONS. I WOULD STILL HAVE HEARSAY CONCERNS IF THE DEFENSE IS SEEKING TO ADMIT THEM FOR THE TRUTH.
MR. DOWNEY: NO. I'M ONLY SEEKING TO ADMIT THEM FOR WHAT WAS IMPORTANT FOR THIS INVESTOR AND NOT FOR ANY OF THE TRUTH OF THE STATEMENTS CONTAINED HEREIN.
JUDGE DAVILA: I HAVE A HIGHLIGHTED PORTION THAT BEGINS WITH "MORE RECENTLY." IS THAT SOMETHING -- THAT'S EARLIER ON.
MR. DOWNEY: I ACTUALLY -- THAT IS HIGHLIGHTED, BUT I'M NOT -- I'D BE HAPPY TO --
JUDGE DAVILA: YOU'RE NOT SEEKING AN INTRODUCTION OF THAT?
MR. DOWNEY: I'M NOT SEEKING TO INTRODUCE THAT, NO.
JUDGE DAVILA: OKAY.
MR. DOWNEY: I MEAN, IN ALL CANDOR, YOUR HONOR, I WOULD SAY 98 PERCENT OF THIS DOCUMENT IS, IS NOT RELEVANT TO OUR PROCEEDINGS. IT'S JUST THAT THERE ARE TWO QUESTIONS THAT ARE.
JUDGE DAVILA: SO YOU'RE SEEKING TO INTRODUCE THESE NOT FOR THE TRUTH OF THE MATTER ASSERTED IN EACH OF THESE STATEMENTS, BUT RATHER, HOW AND IF AND WHETHER THESE STATEMENTS INFORMED ANY CONDUCT OF THIS WITNESS?
MR. DOWNEY: THAT'S CORRECT.
JUDGE DAVILA: OKAY. ALL RIGHT. WITH THAT RESERVATION THEN, I'LL ADMIT THEM. LADIES AND GENTLEMEN, YOU'RE GOING TO SEE CERTAIN PAGES OF DOCUMENT 12323. THEY'RE NOT PAGINATED, SO I DON'T KNOW HOW WE'LL MARK THOSE. BUT THE HIGHLIGHTED STATEMENTS HERE ARE NOT, LADIES AND GENTLEMEN, OFFERED FOR THE TRUTH OF THE MATTER ASSERTED IN EACH OF THOSE STATEMENTS THAT YOU WILL SEE, THE HIGHLIGHTED PORTIONS. THEIR ONLY EFFECT AND RELEVANCE HERE IS AS TO WHETHER OR NOT THEY HAD AN EFFECT ON THE CONDUCT OF THIS WITNESS, AND WE'LL FIND THAT OUT WHEN MR. DOWNEY ASKS HIS QUESTIONS. SO YOU CAN -- THOSE PORTIONS ARE ADMITTED, AND YOU CAN DISPLAY THOSE TO THE JURY.
(DEFENDANT'S EXHIBIT 12323, 12TH AND 13TH PAGES, WAS RECEIVED IN EVIDENCE.)
MR. DOWNEY: THANK YOU, YOUR HONOR. AND WE'LL, JUST IN AN ABUNDANCE OF CAUTION, WE'LL REDACT THE BALANCE OF THE DOCUMENT TO THE EXTENT THAT IT RAISES ANY CONCERNS AND WE CAN BE CONFIDENT THAT WE'VE ONLY ADMITTED WHAT WE NEED.
JUDGE DAVILA: OKAY. THANK YOU.
BY MR. DOWNEY:
MR. DOWNEY: IF YOU LOOK AT THE COVER PAGE OF THIS DOCUMENT, FIRST AT PAGE 1, THERE'S AN EMAIL FROM MS. QUINTANA TO YOU AND SHE SAYS SHE'S ATTACHING AND FORWARDING A CONFERENCE CALL TRANSCRIPT AND A Q&A PORTION OF THAT. DO YOU SEE THAT?
MR. DOWNEY: AND IF YOU GO TO A FURTHER PAGE OF THIS EXHIBIT, THERE'S FURTHER COLOR ON WHAT SHE'S TALKING ABOUT. THE NEXT PAGE FROM THAT. SORRY, THE PRIOR PAGE. I BEG YOUR PARDON. SORRY, IT'S THE THIRD PAGE OF THE EXHIBIT. YES. OKAY. ALL RIGHT. THIS IS AN EMAIL FROM MELISSA FINDLEY TO YOU WITH THE SUBJECT BEING KURT. DO YOU SEE THAT?
MR. DOWNEY: AND IS MELISSA FINDLEY SOMEBODY WHO WORKED FOR YOU?
CHRISTOPHER LUCAS: NO. SHE WAS ONE OF THE ASSISTANTS TO MY UNCLE.
MR. DOWNEY: I SEE. OKAY. AND IN THE EMAIL SHE SAYS THAT "KURT WILL GIVE YOU A CALL LATER TODAY. HE DID ASK ME TO HAVE YOU HIT THE HIGHLIGHTS OF THE SAFEWAY CALL FOR ME WITH REGARD TO THE WELLNESS PROGRAM SO THAT I AM PREPARED IF PEOPLE ASK ME. CAN YOU EMAIL ME THE KEY POINTS?" SO IS THIS A COMMUNICATION REALLY FROM YOUR UNCLE?
(PAUSE IN PROCEEDINGS.)
CHRISTOPHER LUCAS: SURE. BETWEEN THE TWO OF THEM, YES.
BY MR. DOWNEY:
MR. DOWNEY: OKAY. AND THIS IS JUST A REQUEST THAT YOU SUMMARIZE A TRANSCRIPT OF A SAFEWAY CALL, WHICH IS ATTACHED; CORRECT?
MR. DOWNEY: AND I WANT TO DRAW YOUR ATTENTION TO A FEW EXCERPTS THAT WE'VE BEEN EXCHANGING ABOUT HERE. FIRST TO THE QUESTION THAT IS ASKED BY AN ANALYST. IN SEEING THIS DOCUMENT, IF WE CAN GO TO THAT 12TH PAGE, BUT IN SEEING THIS DOCUMENT, BEFORE WE TALK ABOUT THE SUBSTANCE OF IT, DO YOU RECOGNIZE THIS AS AN EXCHANGE THAT TOOK PLACE IN AN ANALYST CALL WITH SAFEWAY?
MR. DOWNEY: AND ANALYST CALLS ARE CALLS THAT ARE CONDUCTED BY WALL STREET ANALYSTS WHO FOLLOW THE STOCK OF PARTICULAR COMPANIES; IS THAT CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND THEY PRESENT OPPORTUNITIES FOR THOSE ANALYSTS TO ASK QUESTIONS OF THE SENIOR MANAGEMENT OF THE COMPANY THAT THEY'RE FOLLOWING; CORRECT?
CHRISTOPHER LUCAS: RIGHT.
MR. DOWNEY: AND THIS PORTION OF A TRANSCRIPT IS JUST ONE EXCHANGE IN SUCH A CALL BETWEEN ANALYSTS FOR MERRILL LYNCH AND STEVEN BURD, THE CHAIRMAN AND CEO OF SAFEWAY. DO YOU SEE THAT?
MR. DOWNEY: AND WE DON'T HAVE TO GO THROUGH THE ANSWER, BUT TO LOOK AT THE ANSWER. HE'S PROVIDING AN UPDATE AT THIS POINT TO THE ANALYSTS AS TO HIS EXPECTATIONS FOR THE LAUNCH; CORRECT?
CHRISTOPHER LUCAS: THERANOS IS CERTAINLY NOT MENTIONED, BUT I AM BELIEVING THAT'S WHAT THEY'RE TALKING ABOUT.
MR. DOWNEY: OKAY. AND DOES THE FACT THAT YOU RECEIVED THIS EXCHANGE REFLECT THAT MONITORING THE ACTIVITIES OF SAFEWAY WAS -- THE SAFEWAY/THERANOS PARTNERSHIP WAS IMPORTANT TO YOU IN CONSIDERING YOUR INVESTMENT DECISION IN 2013?
MR. DOWNEY: LET ME SHOW YOU JUST THE OTHER QUESTION, WHICH COMES FROM A DIFFERENT ANALYST, AGAIN, ADDRESSED TO MR. BURD. AND, AGAIN, THIS IS JUST FURTHER COLOR ON THE STATUS OF THE THERANOS/SAFEWAY PARTNERSHIP IN EARLY 2013; CORRECT?
MR. DOWNEY: AND BY THE WAY, DID YOU KNOW BY EARLY 2013 THAT MR. BURD, WHO WAS THE CHAIRMAN OF SAFEWAY, HAD ACTUALLY ANNOUNCED THAT HE WAS LEAVING THE COMPANY?
CHRISTOPHER LUCAS: I JUST DON'T REMEMBER.
MR. DOWNEY: OKAY. DO YOU RECALL LEARNING FROM ELIZABETH, ELIZABETH HOLMES THAT SHE HAD BEEN IN SUBSTANTIAL COMMUNICATION WITH MR. BURD OVER A PERIOD OF YEARS ABOUT THAT PARTNERSHIP?
CHRISTOPHER LUCAS: I WAS NOT SURE WHO IT WAS, BUT CERTAINLY ONE OF THE EXECUTIVES AT SAFEWAY.
MR. DOWNEY: FAIR ENOUGH. WE CAN TAKE THAT DOWN. NOW, I THINK YOU WERE TALKING DURING YOUR DIRECT EXAMINATION ABOUT A PERIOD OF WHEN THERANOS WAS A DEVELOPMENT COMPANY; CORRECT?
MR. DOWNEY: AND YOU UNDERSTOOD THAT THERANOS HAD SPENT A LOT OF MONEY ON THE RESEARCH AND DEVELOPMENT OF ITS INVESTMENTS; CORRECT?
CHRISTOPHER LUCAS: OVER THE YEARS, YES.
MR. DOWNEY: AND YOU UNDERSTOOD THAT ONE ELEMENT OF WHAT THEY WERE DEVELOPING WAS THESE SMALL SAMPLES, ASSAYS, SO THAT THEY COULD TEST FINGERSTICK SAMPLES; CORRECT?
MR. DOWNEY: AND YOU WOULD PERIODICALLY GET UPDATES FROM MS. HOLMES AS TO HOW THE DEVELOPMENT OF THAT WAS GOING; CORRECT?
MR. DOWNEY: AND WOULD IT BE CONSISTENT WITH YOUR RECOLLECTION THAT YOU UNDERSTOOD THAT THERANOS HAD DEVELOPED FOR USE IN A CLINICAL LAB ABOUT 70 FINGERSTICK SAMPLE ASSAYS?
CHRISTOPHER LUCAS: I DON'T KNOW -- I DON'T REMEMBER EXACTLY THE NUMBER, BUT AS I SAID EARLIER, IT CERTAINLY WAS DOZENS.
MR. DOWNEY: OKAY. AND YOU JUST DON'T RECALL HER ASSIGNING A PARTICULAR NUMBER, OR DO YOU BELIEVE THAT SHE SAID DOZENS?
CHRISTOPHER LUCAS: I DON'T REMEMBER EITHER.
MR. DOWNEY: OKAY. BUT IT WOULD BE CONSISTENT IN YOUR VIEW WITH YOUR RECOLLECTION IF THERANOS HAD, IN FACT, DEVELOPED AND VALIDATED 70 FINGERSTICK SMALL SAMPLE ASSAYS?
MR. DOWNEY: AND YOU UNDERSTOOD THAT THEY WERE WORKING ALL OF THE TIME TO DEVELOP MORE ASSAYS; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND IT WOULD BE CONSISTENT WITH YOUR CONVERSATIONS WITH MS. HOLMES IF, AS OF THE TIME OF YOUR 2013 INVESTMENT, THERANOS HAD ACTUALLY DEVELOPED, TO THE POINT OF BEGINNING CLINICAL VALIDATION, ABOUT 300 SMALL SAMPLE ASSAYS; CORRECT?
CHRISTOPHER LUCAS: I JUST DON'T RECOLLECT WHAT NUMBER. I MORE FOCUSSED ON THAT THEY WERE ROLLING OUT THE PLATFORM WITH WALGREENS, AND WHATEVER IT IS THAT THEY HAD AT THAT TIME CERTAINLY WAS RELEVANT, OTHERWISE THEY WOULDN'T BE ROLLING IT OUT COMMERCIALLY AND WALGREENS WOULDN'T BE DOING IT.
MR. DOWNEY: OKAY. DID YOU UNDERSTAND THAT SOME OF THE SAMPLES THAT WERE BEING DRAWN AT THE THERANOS SITES IN WALGREENS, AT LEAST IN THE FIRST INSTANCE, WOULD BE DRAWN FROM VENOUS SAMPLES? DO YOU REMEMBER KNOWING THAT?
CHRISTOPHER LUCAS: I THINK I REMEMBER THAT THERE WERE SOME TESTS THAT THERANOS SAID THEY COULDN'T DO, AND SO IF YOU'RE HERE FOR THE OTHERS, THEN WE HAVE TO DRAW THE BLOOD.
MR. DOWNEY: OKAY. I THINK I NEGLECTED, WHEN WE WERE TALKING ABOUT YOUR 2013 INVESTMENT, JUST TO ADMIT THE DOCUMENTS WHICH DOCUMENTED IT. SO I WANT TO MAKE SURE THAT WE HAVE ALL OF THAT IN EVIDENCE, SO PARDON ME FOR ONE MOMENT.
CHRISTOPHER LUCAS: SURE.
MR. DOWNEY: WELL, LET ME ASK YOU TO LOOK AT EXHIBIT 3530, WHICH I THINK IS ALREADY IN EVIDENCE THROUGH ANOTHER WITNESS. ALL RIGHT. AND DO YOU SEE THAT THIS IS AN AMENDED PREFERRED STOCK PURCHASE AGREEMENT FROM AN INITIAL CLOSING DATE IN 2010? DO YOU SEE THAT?
MR. DOWNEY: AND DO YOU RECALL THAT AT SOME POINT IN 2010 YOU HAD BEEN ASKED FOR CERTAIN APPROVALS IN CONNECTION WITH THE STOCK THAT YOU ALREADY HELD AND THAT THAT RESULTED IN THE ISSUANCE OF A NEW STOCK PURCHASE AGREEMENT?
CHRISTOPHER LUCAS: I'M NOT SURE WHAT TIMEFRAME IT WAS, BUT I DO REMEMBER THAT THERE WAS -- THERE WERE SOME DOCUMENTS THAT WE HAD TO APPROVE.
MR. DOWNEY: OKAY. LET ME ASK YOU JUST TO LOOK AT PAGE 25 OF THIS AGREEMENT. AND THIS, I THINK -- IS THIS THE MASTER SIGNATURE PAGE IN CONNECTION WITH THE DECEMBER 31ST, 2013 AGREEMENT THAT YOU SIGNED?
CHRISTOPHER LUCAS: IT CERTAINLY LOOKS LIKE MY SIGNATURE. I'M NOT SURE WHAT IS MEANT BY THE MASTER SIGNATURE PAGE.
MR. DOWNEY: WELL, I THINK, I THINK YOU HAD TESTIFIED THAT THERE WERE SEVERAL DOCUMENTS IN CONNECTION --
MR. DOWNEY: -- WITH THIS. AND A MASTER SIGNATURE PAGE IS SOMETIMES USED TO SIGN ONCE AND INDICATE YOUR AGREEMENT TO MULTIPLE AGREEMENTS?
CHRISTOPHER LUCAS: YES, THAT LOOKS LIKE THE CASE.
MR. DOWNEY: OKAY. IF YOU WOULD JUST GO FORWARD TO SECTION 4. THIS, AGAIN, IS THE REPRESENTATIONS AND WARRANTIES THAT YOU MADE IN CONNECTION WITH THE TRANSACTION. AND I DON'T WANT TO GO THROUGH THESE, BUT I JUST WANT TO GIVE YOU AN OPPORTUNITY TO REVIEW THEM AND CONFIRM THAT YOU MADE THESE REPRESENTATIONS IN CONNECTION WITH THE 2013 AGREEMENT.
CHRISTOPHER LUCAS: YES. IF THIS IS PART OF THAT DOCUMENT, YES.
MR. DOWNEY: OKAY. AND LET ME GO FORWARD TO PAGE 41. AND JUST SO WE HAVE THE PRECISE DETAILS, YOU, I THINK IN CONNECTION WITH THIS TRANSACTION, PURCHASED -- IF WE LOOK AT THE CLOSING INFORMATION, IT INDICATES THAT YOU PURCHASED ABOUT 357,000 SHARES AND THAT YOU PAID ABOUT $5.35 MILLION FOR THEM; CORRECT?
MR. DOWNEY: AND SO THAT REFLECTS THE $15 PRICE; CORRECT?
MR. DOWNEY: OKAY. NOW, SHORTLY AFTER THIS INVESTMENT CLOSED, I THINK YOU WERE -- AM I RIGHT THAT YOU WERE OFFERED IN WRITING THE OPPORTUNITY TO INVEST AGAIN AT THE HIGHER $17 PRICE?
MR. DOWNEY: OKAY. LET ME SHOW YOU EXHIBIT 5448 IN THE GOVERNMENT'S BINDER, WHICH IS THE WHITE BINDER.
CHRISTOPHER LUCAS: OKAY.
MR. DOWNEY: IS THIS DOCUMENT AN EMAIL EXCHANGE BETWEEN THERANOS AND BLACK DIAMOND VENTURES ABOUT A POTENTIAL INVESTMENT IN 2014 WITH THERANOS?
MR. DOWNEY: YOUR HONOR, I MOVE THE ADMISSION OF EXHIBIT 5448.
MR. BOSTIC: NO OBJECTION.
JUDGE DAVILA: IT'S ADMITTED, AND IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 5448 WAS RECEIVED IN EVIDENCE.)
BY MR. DOWNEY:
MR. DOWNEY: SO IF YOU LOOK AT THE SORT OF BLAST EMAIL TO SHAREHOLDERS THAT YOU'RE ADDRESSED ON AS BLACK DIAMOND VENTURES, DO YOU SEE THAT THERE'S AN OFFERING HERE AND THE OFFERING IS AT ABOUT $17 PER SHARE; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND IF YOU LOOK AT THE DATE IN THE ADDRESS BLOCK AT THE TOP, IT'S FROM JANUARY 21ST, 2014; CORRECT?
MR. DOWNEY: AND SO THIS IS ABOUT THREE WEEKS AFTER THE CLOSING ON THE INVESTMENT YOU MADE IN 2013 AT $15 A SHARE; CORRECT?
MR. DOWNEY: DID, DID YOU INVEST AT -- ADDITIONAL MONEY IN THERANOS IN CONNECTION WITH THIS 2014 OFFERING?
MR. DOWNEY: OKAY. WE SPOKE BRIEFLY BEFORE ABOUT THE BLACK DIAMOND 55 THAT REFLECTED MR. HALL'S INVESTMENT. DO YOU RECALL THAT?
MR. DOWNEY: AND MR. HALL INVESTED IN BOTH 2006 AND 2013 IN THERANOS; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND IN 2006 WHEN HE MADE HIS INVESTMENT, HE AGREED TO PAY A FORM OF COMPENSATION TO YOU FOR BEING ESSENTIALLY HIS INVESTMENT MANAGER WITH REGARD TO THE COMPANY; CORRECT?
MR. DOWNEY: DO YOU RECALL THE TERMS OF THAT?
CHRISTOPHER LUCAS: I DON'T.
MR. DOWNEY: OKAY. LET ME ASK YOU JUST TO LOOK AT AN EXHIBIT THAT IS IN EVIDENCE AND SEE IF THESE ARE TERMS THAT WERE ULTIMATELY AGREED TO. IF YOU'LL LOOK AT EXHIBIT 3790. DO YOU SEE AT THE TOP THAT THIS IS AN EXCHANGE BETWEEN BRYAN TOLBERT OF HALL GROUP AND SEEMINGLY WITH MR. HALL. DO YOU SEE THAT?
MR. DOWNEY: OKAY. AND THEN ATTACHED TO THIS DOCUMENT THERE ARE SOME NOTES, AND I JUST WANT TO FOCUS ON SOME NOTES AT THE BOTTOM OF PAGE 3. IT'S THE SECOND TO THE LAST PARAGRAPH REALLY. OKAY. THIS DESCRIBES THAT THE 2006 INVESTMENT WOULD TAKE PLACE THROUGH BLACK DIAMOND VENTURES, YOUR FUND; CORRECT?
MR. DOWNEY: AND THAT MR. HALL WOULD PAY A 2.5 PERCENT ANNUAL MANAGEMENT FEE ON THE FUNDS THAT WERE COMMITTED; CORRECT?
MR. DOWNEY: AND 16 PERCENT OF THE UP SIDE; CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND IS THE MANAGEMENT FEE JUST A FEE THAT IS PAID ANNUALLY BASED ON A PERCENTAGE OF THE MONEY THAT HAS BEEN INVESTED?
CHRISTOPHER LUCAS: CORRECT.
MR. DOWNEY: AND DOES THE UP SIDE REFER TO WHATEVER MONEY IS EVER REALIZED ON THE INVESTMENT?
CHRISTOPHER LUCAS: YES, THAT WOULD BE THE PROFIT PARTICIPATION.
MR. DOWNEY: OKAY. AND WERE THESE TERMS ULTIMATELY AGREED TO BETWEEN BDV AND THE HALL GROUP?
CHRISTOPHER LUCAS: IT SEEMS THAT THEY WERE, BUT I JUST DON'T RECALL --
MR. DOWNEY: OKAY.
CHRISTOPHER LUCAS: -- THE EXACT. IT CERTAINLY SEEMS WHAT WE DID, BUT I DON'T RECALL THAT THEY WERE THE FINAL NUMBERS.
MR. DOWNEY: OKAY. AND DO YOU RECALL IN 2013 THAT MR. HALL DID NOT WANT TO CONTINUE TO INVEST IN THERANOS THROUGH BLACK DIAMOND VENTURES?
MR. DOWNEY: AND DO YOU RECALL THAT HE ASKED TO BECOME A DIRECT INVESTOR WITHOUT HAVING A MANAGEMENT ARRANGEMENT WITH BLACK DIAMOND VENTURES?
CHRISTOPHER LUCAS: I FORGET WHAT THE TERMS ENDED UP BEING, BUT, YES, HE WANTED TO INVEST DIRECTLY.
MR. DOWNEY: OKAY. AND THAT WAS A SUBSTANTIAL SUBJECT OF DISCUSSION BETWEEN YOU AND -- ON THE ONE HAND AND MR. HALL AND MR. TOLBERT ON THE OTHER HAND IN THIS 15-DAY WINDOW IN LATE DECEMBER 2013?
CHRISTOPHER LUCAS: YEAH. I DON'T KNOW HOW SUBSTANTIAL, BUT IT CERTAINLY WAS A DISCUSSION, YES.
MR. DOWNEY: AND MS. HOLMES WAS ALSO DRAWN INTO THAT CONVERSATION; CORRECT?
CHRISTOPHER LUCAS: I DON'T, I DON'T RECALL.
MR. DOWNEY: OKAY. I WANT YOU, FOR THE TIME BEING, JUST TO LOOK AT A PAGE THAT IS IN YOUR NOTEBOOK. IT'S THE FIRST PAGE OF EXHIBIT 14217.
CHRISTOPHER LUCAS: THIS IS YOUR BOOK NOW?
MR. DOWNEY: YES, AND IN THE -- THAT'S RIGHT, YES.
CHRISTOPHER LUCAS: PLEASE SAY AGAIN THE NUMBER.
MR. DOWNEY: IT'S 14217.
MR. DOWNEY: IS THIS A LIST OF THE INDIVIDUALS WHO INVESTED IN THERANOS THROUGH BLACK DIAMOND VENTURES IN LATE 2013?
CHRISTOPHER LUCAS: YES, IT APPEARS TO BE.
MR. DOWNEY: OKAY. AND THERE'S, THERE'S, I DON'T KNOW, 30 OR SO INDIVIDUALS ON THAT LIST?
MR. DOWNEY: AND WHAT -- UNDER WHAT TERMS DID THEY INVEST WITH BLACK DIAMOND VENTURES IN CONNECTION WITH THEIR THERANOS INVESTMENT?
CHRISTOPHER LUCAS: IT WOULD HAVE BEEN A 2 AND A HALF PERCENT ANNUAL MANAGEMENT FEE, AND THEN I'M JUST NOT REMEMBERING WHAT THE PROFIT PARTICIPATION WAS AS OUR NUMBERS HAVE INCREASED OVER THE YEARS, AND SO IT MAY VERY WELL BE THE 16 PERCENT THAT WAS SHOWN PRIOR. I JUST FORGET.
MR. DOWNEY: OKAY. AND IN EXCHANGE FOR, FOR THESE MANAGEMENT FEES AND POTENTIAL UP SIDE, YOU KEEP THE INVESTORS INFORMED OF WHAT YOU KNOW ABOUT THE COMPANY; CORRECT?
CHRISTOPHER LUCAS: THAT'S CERTAINLY ONE OF THE ACTIVITIES, YES.
MR. DOWNEY: OKAY. AND WHAT ELSE IS ASSOCIATED WITH THAT MANAGEMENT FEE AND POTENTIAL UP SIDE? WHAT DO YOU DO FOR THE INVESTORS?
CHRISTOPHER LUCAS: WELL, CERTAINLY IN MONITORING THE INVESTMENT AND TALKING WITH MANAGEMENT AND SO FORTH, AND I'M SAYING THIS IN GENERAL, WE HELP ALSO AS MUCH AS WE CAN WITH THE COMPANY TO HELP THEM SUCCEED.
MR. DOWNEY: OKAY. AND DO YOU RECALL, FOR EXAMPLE, WITH REGARD TO THE THERANOS INVESTMENT, THAT YOU WOULD DO THINGS AFTER THESE INVESTORS INVESTED, LIKE KEEP THEM UP TO DATE WITH THE OPENING OF NEW WALGREENS, OPENING OF NEW THERANOS CENTERS IN WALGREENS STORES?
CHRISTOPHER LUCAS: I WOULD EXPECT WE DID BECAUSE THAT'S VERY EXCITING AND I WANT EVERYONE TO KNOW.
MR. DOWNEY: OKAY. LET ME JUST SHOW YOU A DOCUMENT, WHICH WILL BE EXHIBIT 12604. YOUR HONOR, MAY I JUST HAVE A MOMENT?
JUDGE DAVILA: YES. YES.
(PAUSE IN PROCEEDINGS.)
MR. DOWNEY: YOUR HONOR, MAY I APPROACH THE WITNESS?
JUDGE DAVILA: YES, OF COURSE.
BY MR. DOWNEY:
MR. DOWNEY: (HANDING.)
CHRISTOPHER LUCAS: OKAY.
MR. DOWNEY: THIS EXHIBIT 12604, IS THIS AN EMAIL COMMUNICATION BETWEEN YOU AND AN INVESTOR IN BDV ABOUT THERANOS?
CHRISTOPHER LUCAS: IT CERTAINLY LOOKS LIKE THAT. I'M JUST GOING DOWN THE LIST TO SEE IF HE WAS AN INVESTOR. HE CERTAINLY IS ONE OF OUR INVESTORS. I'M NOT SEEING HIS -- UNLESS I'M MISSING IT, I'M NOT SEEING HIS NAME ON OUR INVESTOR LIST.
MR. DOWNEY: OKAY. YOU CAN PUT THAT DOCUMENT ASIDE. DO YOU ALSO REMEMBER KEEPING INVESTORS UP TO SPEED ON PUBLIC DEVELOPMENTS WITH THE COMPANY IN TERMS OF BOARD APPOINTMENTS AND SO FORTH?
CHRISTOPHER LUCAS: YES. IF THERE WAS SOMETHING RELEVANT, WE GENERALLY GOT IT OUT TO OUR GROUP.
MR. DOWNEY: YOUR HONOR, MAY I HAVE ONE MOMENT?
JUDGE DAVILA: YES.
(DISCUSSION AMONGST DEFENSE COUNSEL OFF THE RECORD.)
BY MR. DOWNEY:
MR. DOWNEY: MR. LUCAS, I'M JUST GOING TO ASK YOU A QUESTION, AND I'M NOT GOING TO HAVE YOU GO BACK AND LOOK AT IT, BUT DO YOU RECALL WE WERE LOOKING AT A SLIDE WHICH WAS PART OF A BUSINESS PLAN WHICH INDICATED VARIOUS SERIES OF ANALYZERS THAT THERANOS INTENDED TO DEVELOP? DO YOU RECALL THAT?
MR. DOWNEY: AND THERE WAS TO BE 1.0, 2.0, ET CETERA?
MR. DOWNEY: AND DID YOU EXPECT THAT EVEN AFTER THERANOS BEGAN TO OFFER BLOOD TESTING SERVICES TO THE PUBLIC, IT WOULD CONTINUE TO DEVELOP THE SERIES OF TECHNOLOGIES THAT IT OFFERED?
MR. DOWNEY: AND DID YOU EXPECT THAT IT WOULD CONTINUE TO DEVELOP AND VALIDATE SMALL SAMPLE ASSAYS TO USE IN CONNECTION WITH THOSE ANALYZERS?
MR. DOWNEY: OKAY. SO A COMPANY CAN BOTH SCALE AND BE A DEVELOPMENT COMPANY AT THE SAME TIME; CORRECT?
CHRISTOPHER LUCAS: YES, IT WOULD HAVE TO BE.
MR. DOWNEY: OKAY. ALL RIGHT. YOUR HONOR, I HAVE NO FURTHER QUESTIONS FOR THIS WITNESS AT THIS TIME.
JUDGE DAVILA: ALL RIGHT. MR. BOSTIC?
MR. BOSTIC: YES, YOUR HONOR.
JUDGE DAVILA: FEEL FREE TO STRETCH AT THIS TIME. WE'RE GOING TO END OUR DAY TODAY AT 4:00 O'CLOCK, 4:00 O'CLOCK.
MR. BOSTIC: MAY I PROCEED, YOUR HONOR?
JUDGE DAVILA: PLEASE.
REDIRECT EXAMINATION BY MR. BOSTIC:
MR. BOSTIC: GOOD AFTERNOON, MR. LUCAS. I'D JUST LIKE TO FOLLOW UP ON A FEW THINGS YOU DISCUSSED WITH MR. DOWNEY. FIRST OF ALL, IN THE BLACK BINDER, CAN I ASK YOU TO TURN BACK TO TAB 14217. DO YOU HAVE THAT IN FRONT OF YOU?
MR. BOSTIC: YOU DISCUSSED THIS DOCUMENT WITH MR. DOWNEY. DID YOU IDENTIFY IT AS A LIST OF INDIVIDUALS WHO INVESTED IN THERANOS IN DECEMBER 2013?
MR. BOSTIC: I'LL ASK YOU TO REVIEW THE LIST, AND LET ME KNOW IF IT REFRESHES YOUR RECOLLECTION AS TO WHETHER YOUR PERSONAL FUNDS WERE ALSO INCLUDED IN THIS INVESTMENT BATCH.
MR. BOSTIC: IT DOES REFRESH YOUR RECOLLECTION?
CHRISTOPHER LUCAS: WELL, MY NAME IS THERE.
MR. BOSTIC: LET ME ASK YOU, MR. LUCAS, BASED ON YOUR CURRENT MEMORY, ARE YOU AWARE OF WHETHER OR NOT YOUR PERSONAL FUNDS WERE ACTUALLY INCLUDED IN THIS 2013 THERANOS INVESTMENT?
MR. BOSTIC: AND --
CHRISTOPHER LUCAS: I MEAN, AGAIN, THIS IS OUR INVESTOR SCHEDULE, AND IT LISTS ALL OF OUR INVESTORS, AND I'M ONE OF THEM.
MR. BOSTIC: THANK YOU. DO YOU REMEMBER SOME DISCUSSION WITH MR. DOWNEY ABOUT MS. HOLMES'S AGE IN 2005?
CHRISTOPHER LUCAS: I DO.
MR. BOSTIC: AND LET'S LOOK JUST BRIEFLY AT EXHIBIT 1776 ONE MORE TIME, AND THAT'S ADMITTED. MAY WE PUBLISH, YOUR HONOR?
JUDGE DAVILA: YES.
BY MR. BOSTIC:
MR. BOSTIC: AND, MR. LUCAS, I BELIEVE YOU SAID THAT YOU RECALL THAT MS. HOLMES MIGHT HAVE BEEN APPROXIMATELY 19 IN 2005?
MR. BOSTIC: I'LL INVITE YOU TO JUST LOOK AT THE FIRST LINE OF THIS "FORTUNE" ARTICLE THAT WE LOOKED AT BEFORE, AND WE'LL ZOOM IN ON THE SCREEN. DO YOU SEE WHERE IT SAYS, "IN THE FALL OF 2013" -- EXCUSE ME. "IN THE FALL OF 2003, ELIZABETH HOLMES, A 19-YEAR OLD SOPHOMORE AT STANFORD." DO YOU SEE THAT LANGUAGE?
CHRISTOPHER LUCAS: I DO.
MR. BOSTIC: SO JUST TO CLARIFY, IF THIS IS CORRECT, WOULD THAT MAKE MS. HOLMES 21 IN 2005?
MR. BOSTIC: OKAY. AND WOULD THAT MEAN THAT SHE WAS THEN 29 YEARS OLD IN 2013 AT THE TIME OF THE FOLLOW-ON INVESTMENT?
MR. BOSTIC: AT THAT POINT IN 2013, WOULD THAT MEAN THAT MS. HOLMES HAD BEEN CEO OF THERANOS FOR APPROXIMATELY TEN YEARS?
MR. BOSTIC: AS AN INVESTOR LOOKING AT AN INVESTMENT OPPORTUNITY IN 2006 VERSUS 2013, DID YOU HAVE MORE CONFIDENCE IN MS. HOLMES AND THERANOS IN 2013 GIVEN THAT SHE WAS A MORE SEASONED CEO?
MR. BOSTIC: OKAY. WE CAN PUT THAT EXHIBIT ASIDE. DO YOU RECALL DISCUSSING WITH MR. DOWNEY SOME FINANCIAL PROJECTIONS THAT YOU APPEARED TO HAVE BEEN INVOLVED WITH IN COLLABORATION WITH THERANOS?
MR. BOSTIC: AND JUST TO BE CLEAR, DO YOU RECALL WHAT INFORMATION YOU RELIED UPON IN ASSISTING WITH THOSE PROJECTIONS?
CHRISTOPHER LUCAS: I DON'T FULLY RECALL THE PROCESS, BUT I WOULD HAVE RECEIVED NUMBERS FROM THE COMPANY, AND THEN I WOULD HAVE PUT THEM IN A NICE FORMAT.
MR. BOSTIC: AND THAT'S MY QUESTION. AT THAT TIME, DID YOU HAVE ANY INDEPENDENT SOURCE OF INFORMATION OR KNOWLEDGE ABOUT THE COMPANY'S FINANCIALS OTHER THAN MS. HOLMES AND THE COMPANY ITSELF?
MR. BOSTIC: DURING THAT PERIOD OF TIME, WAS MS. HOLMES STILL YOUR PRIMARY SOURCE OF INFORMATION ABOUT THERANOS?
CHRISTOPHER LUCAS: YES. AND IN THAT PROCESS, AS WAS MENTIONED EARLIER, THE PEOPLE THAT I WORKED WITH IN PUTTING THE NUMBERS TOGETHER.
MR. BOSTIC: THE DOCUMENTS THAT YOU REVIEWED WITH MR. DOWNEY WERE FROM 2007 PROJECTING FINANCIALS FOR 2008. DO YOU RECALL THAT?
MR. BOSTIC: IN THE YEARS AFTER 2007 LEADING UP TO 2013, DO YOU RECALL DOING ANY ADDITIONAL WORK ON THERANOS FINANCIAL INFORMATION?
CHRISTOPHER LUCAS: I DON'T.
MR. BOSTIC: IN THE TIME AROUND THE 2013 INVESTMENT, DID YOU HAVE ACCESS TO THERANOS FINANCIAL INFORMATION?
MR. BOSTIC: AT THE TIME THAT YOU DECIDED TO INVEST IN LATE 2013, DID YOU HAVE ANY KNOWLEDGE AS TO WHETHER THERANOS WAS SHORT ON MONEY AND NEEDED INVESTMENT TO CONTINUE OPERATIONS?
CHRISTOPHER LUCAS: I WAS NOT -- EXCUSE ME -- I WAS NOT AWARE OF THE CASH POSITION. BUT CERTAINLY WHEN YOU'RE RAISING MONEY, IT'S -- YOU NEED THE MONEY, SO YOU'RE RAISING IT FOR EITHER -- YOU'RE RAISING MONEY FOR THE EXPANSION, AND YOU MAY NOT BE OUT OF MONEY, BUT YOU CERTAINLY NEED ADDITIONAL MONEY FOR THAT SORT OF ROLLOUT.
MR. BOSTIC: AND TO BE CLEAR, YOUR TESTIMONY IS THAT YOU DIDN'T KNOW ONE WAY OR ANOTHER WHAT THERANOS'S FINANCIAL SITUATION WAS IN LATE 2013; IS THAT RIGHT?
CHRISTOPHER LUCAS: CORRECT.
MR. BOSTIC: EXHIBIT 10 -- EXCUSE ME, 12022 WAS PREVIOUSLY ADMITTED. MS. HOLLIMAN, DO WE HAVE THE ABILITY TO PROJECT THAT? AND IF WE CAN GO TO, LET'S SEE, SLIDE 22 IN THE PRESENTATION. SO FOUR MORE PAGES FORWARD, PLEASE, MS. HOLLIMAN. MR. LUCAS, DO YOU REMEMBER REVIEWING THIS SLIDE THAT YOU RECEIVED IN LATE 2005?
MR. BOSTIC: THIS SLIDE HAS PROJECTIONS FOR A SERIES OF THE THERANOS ANALYZER; IS THAT CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. BOSTIC: AND DOWN AT THE BOTTOM, DO YOU SEE THAT THERE ARE YEARS LISTED SO THAT THE VERSIONS OF THE ANALYZER APPEAR ON A TIMELINE?
MR. BOSTIC: AND THIS TIMELINE GOES TO 2010; CORRECT?
MR. BOSTIC: INDICATING THAT AT THIS TIME THE COMPANY WAS PROJECTING THAT ITS ANALYZER WOULD BE ABLE TO DO MORE THAN 1,000 ASSAYS BY APPROXIMATELY 2010? IS THAT HOW YOU READ THIS CHART?
MR. BOSTIC: AT THE TIME THAT YOU INVESTED IN 2013, I THINK YOU TESTIFIED BEFORE YOU UNDERSTOOD FROM MS. HOLMES THAT THE ANALYZER COULD PERFORM DOZENS OF TESTS; IS THAT CORRECT?
CHRISTOPHER LUCAS: CORRECT.
MR. BOSTIC: SO THEN BASED ON THIS CHART, WOULD THAT MEAN THAT YOU UNDERSTOOD THAT THERANOS WAS PAST WHAT WOULD BE VERSION 3.0 ON THIS CHART WHICH COULD ONLY DO TEN ASSAYS?
CHRISTOPHER LUCAS: I DON'T REMEMBER WHAT I WOULD HAVE ASSUMED AT THAT TIME. THIS HAD BEEN DONE BACK IN 2006. YOU KNOW, THAT'S A GOOD PIECE OF TIME, AND I PROBABLY DID NOT EVEN GO BACK AND REFER TO THIS DOCUMENT.
MR. BOSTIC: SORRY TO TALK OVER YOU. IN 2013 THEN, TO UNDERSTAND WHERE THERANOS WAS WITH ITS TECHNOLOGY, YOU WERE NOT REFERRING BACK TO THIS DOCUMENT; CORRECT?
MR. BOSTIC: WHAT WERE YOU RELYING ON FOR YOUR UNDERSTANDING OF HOW FAR ALONG THERANOS'S ANALYZER WAS IN 2013?
CHRISTOPHER LUCAS: AS I SAID EARLIER, IT WAS MY UNDERSTANDING THAT THERANOS WAS ABLE TO DO DOZENS OF TESTS, AND WHICH VERSION THE COMPANY WAS ON I DIDN'T KNOW.
MR. BOSTIC: AND YOUR UNDERSTANDING THAT THE COMPANY COULD DO DOZENS OF TESTS, FIRST OF ALL, DID YOU UNDERSTAND THAT THAT MEANT THAT THE COMPANY'S HOME GROWN ANALYZER COULD PERFORM DOZENS OF TESTS?
MR. BOSTIC: AND WHERE DID THAT UNDERSTANDING COME FROM? WHAT SOURCE?
CHRISTOPHER LUCAS: LIKELY JUST FROM ELIZABETH.
MR. BOSTIC: AND THERE WAS SOME TALK DURING YOUR CROSS-EXAMINATION ABOUT THE IMPORTANCE THAT YOU ASCRIBED TO THERANOS'S PARTNERSHIPS WITH WALGREENS AND SAFEWAY. DO YOU REMEMBER THAT TESTIMONY?
MR. BOSTIC: WERE THOSE PARTNERSHIPS ALL THAT MATTERED TO YOU IN MAKING YOUR DECISION TO INVEST IN 2013, OR DID THE STATE OF THE COMPANY'S TECHNOLOGY AND HOW FAR ALONG IT WAS ALSO MATTER TO YOU AT THAT TIME?
CHRISTOPHER LUCAS: ABSOLUTELY. IT WAS THE WHOLE THING AND THE FACT THAT THERE WERE OTHER RELATIONSHIPS WITH THE PHARMAS AND GOVERNMENT.
MR. BOSTIC: MS. HOLLIMAN, IF WE CAN ACTUALLY KEEP 12022 UP AND GO TO THE PAGE WITH THE BATES NUMBER 18849. I'M SORRY. I COULD TRY TO FIGURE OUT WHAT PAGE NUMBER THAT IS IN THE DOCUMENT, BUT I'M NOT GOING TO TRY TO DO MATH IN FRONT OF A CROWD. SO ABOUT 50 PAGES MORE. HERE WE ARE. THANK YOU.
MR. BOSTIC: MR. LUCAS, DO YOU REMEMBER REVIEWING THIS PORTION OF A MEMO WITH MR. DOWNEY WHERE IN 2005 THERE WERE RISKS DISCLOSED RELATING TO THE THERANOS INVESTMENT?
MR. BOSTIC: AND ONE OF THOSE RISKS, IN FACT, THE FIRST ONE, "THE RATE OF PROGRESS AND COSTS OF OUR RESEARCH AND DEVELOPMENT ACTIVITIES, LEADING TO THE PRODUCTION OF OUR FIRST GENERATION DEVICE." DO YOU SEE THAT?
MR. BOSTIC: AND FIRST, WHEN YOU MADE YOUR 2013 INVESTMENT, DID YOU RECEIVE A SIMILAR DISCLOSURE ABOUT RISKS FROM THERANOS OR MS. HOLMES?
CHRISTOPHER LUCAS: THIS PERTAINS TO THE SECOND 2006 INVESTMENT? I'M SORRY.
MR. BOSTIC: UM, SO I -- I DON'T WANT YOU TO RELY ON ME FOR THAT, BUT YOU UNDERSTAND THAT THIS WAS RELATING TO YOUR INVESTMENT IN THE 2006 TIME PERIOD?
MR. BOSTIC: AND MY QUESTION IS FOR 2013.
MR. BOSTIC: SEVEN YEARS LATER, DID YOU RECEIVE A SIMILAR LIST OR DISCLOSURE FROM THERANOS ABOUT RISKS INVOLVED IN THAT INVESTMENT?
CHRISTOPHER LUCAS: I DON'T REMEMBER. I'D HAVE TO LOOK AT THE DOCUMENTS.
MR. BOSTIC: SITTING HERE TODAY, DO YOU HAVE A MEMORY OF RECEIVING SUCH A LIST?
CHRISTOPHER LUCAS: I JUST DON'T RECALL.
MR. BOSTIC: THAT FIRST RISK THAT IS LISTED HERE IN 2006 RELATES TO PROGRESS AND COST OF R&D. DO YOU SEE THAT?
MR. BOSTIC: AND WHAT WAS YOUR UNDERSTANDING IN 2013 OF THE AMOUNT OF R&D RISK ASSOCIATED WITH THERANOS. WAS IT THE SAME AS IT WAS IN 2006?
CHRISTOPHER LUCAS: NO. IF THEY'RE STARTING TO ROLL OUT THE TECHNOLOGY TO COMMERCIAL PARTNERS, THEN CERTAINLY WE'RE BEYOND -- ONE WOULD THINK WE'RE BEYOND THE R&D RISK FOR THE INITIAL ROLLOUT. BUT AS WE DISCUSSED EARLIER, R&D IS REALLY IMPORTANT IN TECHNOLOGY COMPANIES TO KEEP GOING, ALSO MAKING IT BETTER, FASTER, SMALLER, AND SO FORTH. BUT CERTAINLY IF YOU'RE ROLLING IT OUT, YOU WOULD BELIEVE THE R&D FOR THAT PORTION OF IT WAS DONE.
MR. BOSTIC: AND TO BE CLEAR, WHEN WE'RE TALKING ABOUT YOUR UNDERSTANDING OF HOW FAR ALONG THE THERANOS TECHNOLOGY WAS, WAS THAT UNDERSTANDING JUST BASED ON YOUR ASSUMPTIONS BECAUSE THE ROLLOUT WAS HAPPENING, OR WAS IT ALSO INFORMED BY CONVERSATIONS WITH MS. HOLMES ABOUT THE TECHNOLOGY?
CHRISTOPHER LUCAS: I WOULD CERTAINLY THINK BOTH.
MR. BOSTIC: SO BOTH OF THOSE SOURCES OF INFORMATION WOULD HAVE BEEN IMPORTANT TO YOU AS AN INVESTOR?
MR. BOSTIC: DO YOU RECALL REVIEWING THE STOCK PURCHASE AGREEMENT WITH MR. DOWNEY THAT CONTAINED A SECTION FOR REPRESENTATIONS AND WARRANTIES THAT THE INVESTOR HAD TO MAKE?
MR. BOSTIC: AND DO YOU RECALL THAT ONE OF THOSE PORTIONS TALKED ABOUT ACCESS TO INFORMATION AND WHETHER YOU AS THE INVESTOR HAD HAD A CHANCE TO ASK QUESTIONS OF COMPANY MANAGEMENT AND RECEIVE INFORMATION BACK?
MR. BOSTIC: WHEN YOU MADE THE 2013 INVESTMENT, WERE YOU SATISFIED WITH YOUR ABILITY TO ASK MS. HOLMES QUESTIONS AND THE ANSWERS THAT SHE HAD PROVIDED TO YOU AT THE TIME?
CHRISTOPHER LUCAS: WITH THE QUESTIONS WE ASKED AND THE RESPONSES, YES.
MR. BOSTIC: AND WAS THAT SATISFACTION BASED ON AN ASSUMPTION THAT THE INFORMATION THAT YOU HAD GOTTEN FROM MS. HOLMES WAS TRUTHFUL AND ACCURATE?
MR. BOSTIC: NO FURTHER QUESTIONS. THANK YOU.
RECROSS-EXAMINATION BY MR. DOWNEY:
MR. DOWNEY: I REALLY JUST HAVE A COUPLE OF QUESTIONS FOR YOU. COULD YOU LOOK BACK AT EXHIBIT 1776 IN THE WHITE NOTEBOOK.
CHRISTOPHER LUCAS: OKAY.
MR. DOWNEY: AND I'M GOING TO DIRECT YOUR ATTENTION TO THE BOTTOM OF PAGE 8 OF THAT EXHIBIT. ON YOUR REDIRECT EXAMINATION, DO YOU RECALL THAT --
COURT CLERK: APOLOGIES.
JUDGE DAVILA: IT'S ON THE SCREEN NOW I BELIEVE.
JUROR: UH-HUH.
MR. DOWNEY: I CAN SEE IT. CAN OTHERS? OKAY.
MR. DOWNEY: FIRST OF ALL, I THINK WE ESTABLISHED THAT MS. HOLMES WAS ACTUALLY 21?
MR. DOWNEY: YES. OKAY. AND THEN CAN I ASK YOU TO LOOK AT THE BOTTOM OF PAGE 8 IN THIS EXHIBIT, AND I'M REALLY JUST INTERESTED IN THE LAST PARAGRAPH THERE. AND BEFORE I DO THAT, DO YOU RECALL THAT MR. BOSTIC WAS JUST ASKING YOU QUESTIONS ABOUT THE FACT THAT YOU WERE RELYING ON DATA THAT THERANOS PROVIDED TO YOU IN CONSIDERATION CERTAIN ASPECTS OF YOUR INVESTMENT?
CHRISTOPHER LUCAS: YES. BACK AT THIS 2006 OR 2013 TIMEFRAME?
MR. DOWNEY: YES, RIGHT. DO YOU RECALL HE WAS ASKING YOU THAT?
CHRISTOPHER LUCAS: YEAH.
MR. DOWNEY: OKAY. I WANT TO DIRECT YOUR ATTENTION TO A QUOTE CONTAINED IN THE ARTICLE THAT MR. BOSTIC FIRST REFERRED YOU TO, WHICH READS AS FOLLOWS: "THE FIRST TIME I HEARD ABOUT THIS, I THOUGHT IT WAS SNAKE OIL AND MIRRORS SAYS DAVID HELFET, THE CHIEF OF ORTHOPEDIC TRAUMA AT THE HOSPITAL FOR SPECIAL SURGERY IN MANHATTAN. BUT AFTER REVIEWING VOLUMINOUS VALIDATION STUDIES SUPPLIED TO HIM BY THE COMPANY, HE HAS BECOME A BELIEVER AND IS URGING HIS HOSPITAL TO CONSIDER ADOPTION." DO YOU SEE THAT?
MR. DOWNEY: AND IF YOU SEE, IT CARRIES OVER TO THE NEXT PAGE AND IT SAYS -- THE FIRST PARAGRAPH SAYS, "'IT'S REAL DATA,' HE SAYS. IT'S NOT THEIR INTERPRETATION." AND THEN HE NOTES THAT "THERANOS INVITED DR. HELFET TO JOIN A MEDICAL ADVISORY BOARD." DID YOU READ THIS AS PART OF YOUR REVIEW OF THIS ARTICLE IN 2014?
CHRISTOPHER LUCAS: I DON'T REMEMBER, BUT I CERTAINLY REMEMBER THE ARTICLE AND I READ THE ARTICLE.
MR. DOWNEY: WAS IT IMPORTANT TO YOU, IN THINKING ABOUT YOUR INVESTMENT, THAT MEDICAL EXPERTS HAD REVIEWED DATA IN CONNECTION WITH THERANOS'S TECHNOLOGY?
CHRISTOPHER LUCAS: GREAT.
MR. DOWNEY: I HAVE NOTHING FURTHER, YOUR HONOR.
MR. BOSTIC: I HAVE NOTHING FURTHER. THANK YOU.
JUDGE DAVILA: MAY THIS WITNESS BE EXCUSED?
MR. BOSTIC: YES, YOUR HONOR.
MR. DOWNEY: YES, YOUR HONOR.
JUDGE DAVILA: SIR, YOU'RE EXCUSED. THANK YOU.
CHRISTOPHER LUCAS: THANK YOU.
JUDGE DAVILA: YOU'RE WELCOME. YOU CAN LEAVE THOSE BINDERS THERE. AND THE GOVERNMENT HAS ANOTHER WITNESS?
MR. LEACH: WE DO, YOUR HONOR. THE UNITED STATES CALLS LYNETTE SAWYER.
JUDGE DAVILA: GOOD AFTERNOON. IF YOU'LL PLEASE COME FORWARD, AND I'LL INVITE YOU OVER HERE TO STAND AND FACE OUR COURTROOM DEPUTY. IF YOU WOULD RAISE YOUR RIGHT HAND, WHILE YOU DO SO, SHE HAS A QUESTION FOR YOU.
(GOVERNMENT'S WITNESS, LYNETTE SAWYER, WAS SWORN.)
JUDGE DAVILA: THANK YOU. PLEASE HAVE A SEAT HERE. LET ME INVITE YOU TO TAKE A SEAT. MAKE YOURSELF COMFORTABLE. FEEL FREE TO ADJUST THE CHAIR AND THE MICROPHONE AS YOU NEED. I'LL ENCOURAGE YOU TO SPEAK DIRECTLY INTO THE MICROPHONE. WHEN YOU ARE COMFORTABLE, WOULD YOU PLEASE STATE YOUR NAME AND THEN SPELL IT, PLEASE.
CHRISTOPHER LUCAS: MY NAME IS LYNETTE SAWYER. L-Y-N-E-T-T-E, S-A-W-Y-E-R.
JUDGE DAVILA: THANK YOU. MR. LEACH.
MR. LEACH: THANK YOU, YOUR HONOR.