1 1 CAUSE NO. 2008-65512 2 DEEP MARINE HOLDINGS INC. ) IN THE DISTRICT COURT and DEEP MARINE ) 3 TECHNOLOGY INC., ) Petitioners, ) 4 ) vs. ) HARRIS COUNTY, TEXAS 5 ) PAUL McKIM and B.J. ) 6 THOMAS ) Respondents. ) 129TH JUDICIAL DISTRICT 7 _________________________________________________ 8 9 ORAL DEPOSITION 10 B.J. THOMAS 11 MARCH 19, 2009 12 _________________________________________________ 13 ORAL DEPOSITION OF B.J. THOMAS, produced as a 14 witness at the instance of the Special Litigation 15 Committee of the Boards of Directors of Deep Marine 16 Holdings, Inc. and Deep Marine Technology, Inc. and duly 17 sworn, was taken in the above-styled and numbered cause 18 on March 19, 2009, from 9:46 a.m. to 5:54 p.m., before 19 Cynthia J. Orsen, Certified Shorthand Reporter in and 20 for the State of Texas, reported by computerized 21 stenotype machine at the offices of Locke Lord Bissell & 22 Liddell, LLP, 600 Travis Street, Suite 3400, Houston, 23 Texas 77002, pursuant to the Texas Rules of Civil 24 Procedure and the provisions stated on the record or 25 attached hereto. 2 1 APPEARANCES 2 3 FOR THE SPECIAL LITIGATION COMMITTEE OF THE BOARDS OF DIRECTORS OF DEEP MARINE HOLDINGS, INC. AND DEEP MARINE 4 TECHNOLOGY, INC.: 5 K.B. Battaglini, Esq. Greenberg Traurig, LLP 6 1000 Louisiana Street, Suite 1700 Houston, Texas 77002 7 Telephone: 713.374.3552 - Fax: 713.754.7552 E-mail: battaglinik@gtlaw.com 8 9 John S. "Chip" Rainey, Esq. Greenberg Traurig, LLP 10 One American Center 600 Congress Avenue, Suite 300 11 Austin, Texas 78701 Telephone: 512.320.7211 - Fax: 512.320.7210 12 E-mail: raineyc@gtlaw.com 13 FOR B.J. THOMAS: 14 Charley A. Davidson, Esq. 15 Locke Lord Bissell & Liddell, LLP 600 Travis Street, Suite 3400 16 Houston, Texas 77002 Telephone: 713.226.1373 - Fax: 713.229.2626 17 E-mail: cdavidson@lockelord.com 18 FOR PAUL McKIM: 19 Casey T. Wallace, Esq. 20 Haynes and Boone, LLP 1221 McKinney Street, Suite 2100 21 Houston, Texas 77010-2007 Telephone: 713.547.2516 - Fax: 713.236.5695 22 E-mail: casey.wallace@haynesboone.com 23 24 25 3 1 INDEX 2 PAGE 3 B.J. THOMAS 4 Examination by Mr. Battaglini ................. 6 Examination by Mr. Wallace .................... 191 5 Further Examination by Mr. Battaglini ......... 218 Further Examination by Mr. Wallace ............ 221 6 Signature Page ............................... 224 Court Reporter's Certificate .................. 226 7 8 EXHIBITS 9 NO. DESCRIPTION PAGE 10 1 SEC Administrative Proceeding. 13 11 2 Consent to action in lieu of 47 meeting, 6/23/04. 12 3 Letter, 4/30/03, from Mr. McKim 48 13 to Mr. Thomas. 14 4 Memo, 1/12/04, from Mr. Thomas 49 to Personnel File. 15 5 Memo, 4/12/02, from Mr. McKim 50 16 regarding promotion of Mr. Thomas. 17 6 Minutes of special shareholders 51 18 meeting, 10/26/04. 19 7 Consent to action in lieu of 62 meeting, 6/17/05. 20 8 Consent to action in lieu of 65 21 meeting, 8/9/05. 22 9 Promissory note, 1/24/05, 66 $1,371,000. 23 10 Promissory note, 4/15/05, 66 24 $1,000,000. 25 11 Promissory note, 4/18/05, 67 $1,000,000. 4 1 EXHIBITS (Continued) 2 NO. DESCRIPTION PAGE 3 12 Consent to action in lieu of 67 meeting, 3/8/05. 4 13 Articles of Incorporation of 70 5 Deep Marine Holdings, Inc. 6 14 Financial Statements and 74 Independent Auditor's Report, 7 3/31/05 and '04. 8 15 Board of Directors Meeting, 81 12/16/04. 9 16 Termination of shareholders 122 10 Agreement. 11 17 Collection of documents, 112 Disclosure of Service Fee. 12 18 Incentive Stock Option 124 13 Agreement. 14 19 Letter, 4/3/06, from Mr. Thomas 126 to Mr. Grano. 15 20 Oversight Services Agreement. 127 16 21 Bates Nos. 129 17 DMT/LDB0000312-0000363. Loan Agreement. 18 22 Note Transfer Agreement. 129 19 23 Promissory Note, 6/20/06, 130 20 $2,334,245. 21 24 Demand Promissory Note, 8/4/06, 131 $1,382,377.40. 22 25 Financial statements and audit 132 23 report, 3/31/06 and '05. 24 26 Consent to action in lieu of 138 meeting, 9/18/06. 25 5 1 EXHIBITS (Continued) 2 NO. DESCRIPTION PAGE 3 27 Agreement, Candies DMT Diamond 141 Note conversion. 4 28 Term Sheet. 143 5 29 Board of directors meeting 147 6 minutes, 11/7/06. 7 30 Assignment of Contract by Otto 148 Candies, L.L.C. to Deep Marine 8 2, L.L.C. 9 31 Letter, 2/2/07, from Mr. McKim 156 to Mr. Paul Candies re: 10 Invoice disputes. 11 32 Exchange Agreement, 5/21/07. 168 12 33 Financial statements and audit 171 report, March 31, 2007 and '06. 13 34 Letter, 5/21/07, to Merrill 173 14 Lynch re: DMT Emerald. 15 35 Letter, 8/31/07, from Fitts 175 Roberts to DMT. 16 36 Vessel Purchase Agreement, the 181 17 Kelly Ann. 18 37 Vessel Purchase Agreement, the 181 Agnes. 19 20 21 22 23 24 25 6 1 B.J. THOMAS, 2 having been first duly sworn, testified as follows: 3 EXAMINATION 09:46:10 4 Q. (BY MR. BATTAGLINI) Mr. Thomas, this 5 deposition is being conducted in conjunction with an 6 investigation. It's being conducted by the special 7 litigation committee of the board of directors of both 8 DMT and DMH. It is not being conducted in conjunction 9 with any litigation. However, the transcript may be 10 used in a subsequent litigation. What does the B.J. 11 stand for in your name? 09:46:45 12 A. Nothing. 09:46:46 13 Q. Okay. Your birth certificate says B.J.? 09:46:52 14 A. It does. 09:46:53 15 Q. Really. Okay. Where are you currently 16 employed? 09:46:57 17 A. Southway Services, Inc. 09:46:58 18 Q. Here in Houston? 09:46:59 19 A. Yes. 09:46:59 20 Q. And what is the nature of their business? 09:47:02 21 A. We collect grease from grease traps at 22 restaurants, cafeterias, and food processors. 09:47:09 23 Q. And you've been with them for how long? 09:47:14 24 A. Four months. 09:47:15 25 Q. All right. And what is your position with 7 1 that company? 09:47:18 2 A. I'm the CFO. 09:47:20 3 Q. All right. And prior to joining this company, 4 were you with anyone after you had left DMT? 09:47:28 5 A. Yes. 09:47:29 6 Q. Okay. 09:47:29 7 A. I worked, took a contract assignment as a CFO 8 for a ethanol trading company. 09:47:37 9 Q. Here in Houston? 09:47:38 10 A. Here in Houston. 09:47:38 11 Q. What was the name of that company? 09:47:40 12 A. Biourja Trading. 09:47:43 13 Q. Spell Biourja. 09:47:43 14 A. B-i-o-u-r-j-a. 09:47:48 15 Q. And that was a contract or temporary position? 09:47:51 16 A. Contract position, yeah. 09:47:52 17 Q. Okay. All right. How long was it after you 18 left the employ of DMT that you were employed? 09:48:02 19 A. That I took a contract position or was 20 employed? 09:48:05 21 Q. Any, any kind of position where you were being 22 compensated. 09:48:08 23 A. Similar. Similar timeframe. About the same 24 time that I left DMT. 09:48:14 25 Q. Oh, all right. So there wasn't any 8 1 appreciable time after you left DMT where you were not 2 employed? 09:48:19 3 A. No. 09:48:20 4 Q. Okay. Was it only those two companies that 5 you worked for following DMT? 09:48:31 6 A. Other than a small piece of revenue I received 7 from DMT for helping, to go help them out looking for 8 some records, no. 09:48:39 9 Q. Okay. When was that, by the way, where you 10 assisted them in looking for records? 09:48:49 11 A. I think it was late third quarter of '08. 09:48:53 12 Q. All right. And you had, by that time, been 13 away from DMT for several months, correct? 09:48:59 14 A. Correct. 09:49:00 15 Q. When was your last day that you worked for 16 DMT? 09:49:04 17 A. March 14th. 09:49:06 18 Q. And that was pursuant to the terms of a 19 separation agreement or termination agreement? 09:49:13 20 A. No. There was no separation agreement ever 21 signed. 09:49:18 22 Q. There was one prepared but not signed? 09:49:20 23 A. There was one offered. 09:49:22 24 Q. All right. 09:49:23 25 A. There was one countered. But there was never 9 1 one executed. 09:49:31 2 Q. Do you maintain any claims against DMT today 3 for anything related to your separation from the 4 company? 09:49:47 5 A. Yes. 09:49:48 6 Q. Okay. Are you -- would you share those with 7 me? 8 MR. DAVIDSON: Let me ask a question. 9 How does that relate to your underlying investigation? 10 MR. BATTAGLINI: We can go off. 11 MR. DAVIDSON: No, that's okay. Go ahead 12 and leave it on. 13 MR. BATTAGLINI: I can't share with you 14 what we're pursuing in the investigation on the record. 15 That -- I'm not able to do that. 16 MR. DAVIDSON: Well, I mean, I guess I'm 17 trying to figure how that's within the scope of the 18 judge's order as to the investigation. 19 MR. BATTAGLINI: I'm happy to share that 20 with you off the record. 21 MR. DAVIDSON: Well, okay. That's fine. 22 Let's go off the record, then. 23 (Discussion off the record) 24 (The record was read as requested.) 09:52:41 25 Q. (BY MR. BATTAGLINI) Okay. And again, would 10 1 you share those with me, whatever claims you may have 2 against DMT? 3 MR. DAVIDSON: And I'm going to instruct 4 the witness not to answer the question at this time as I 5 believe that to be outside the scope of the 202 order 6 and beyond the bounds of the legitimate purposes of the 7 investigation. 09:53:18 8 Q. (BY MR. BATTAGLINI) What was the reason for 9 your termination from the company, or separation from 10 the company? 09:53:31 11 A. In the course of filing for the reorganization 12 of DMT into DMH there was a filing -- this is what I was 13 told the reason was, by the way. This is what was 14 passed on to me. That in the course of that 15 reorganization there was a filing in the state of 16 New York where I disclosed a filing with the Securities 17 and Exchange Commission from 1997. What I was told was 18 that the filing with the New York Securities Commission 19 had been rejected because it wasn't completely accurate 20 in terms of that disclosure and that any subsequent 21 filings would have to note that there was that filing 22 that had been rejected. And that wasn't acceptable for 23 Mr. Kazeminy and so I needed to leave. 09:54:42 24 Q. Okay. You said this was shared with you? 09:54:47 25 A. Yes. 11 09:54:47 1 Q. This information was shared with you? 09:54:48 2 A. Yes. 09:54:49 3 Q. Who shared it with you? 09:54:51 4 A. John Hudgens. And, I mean, in the room at the 5 time was John Hudgens, Paul McKim, I think Gene DePalma. 6 And I think Jim Vose was on the phone from Minnesota. 09:55:13 7 Q. Do you remember the approximate month and year 8 when this occurred? 09:55:17 9 A. December '07. 09:55:21 10 Q. And as a consequence of this meeting that you 11 had where all these people were present and Mr. Hudgens 12 shared this information with you, was there some 13 expression that your employment would then terminate? 09:55:35 14 A. Yes. I needed to resign. 09:55:37 15 Q. You were asked to resign? 09:55:38 16 A. Yes. 09:55:39 17 Q. Did you resign? 09:55:40 18 A. Yes. 09:55:40 19 Q. What was the effective date of your 20 resignation? 09:55:44 21 A. I was told March 14th, 90 days. 09:55:48 22 Q. All right. And did you work with DMT and DMH 23 through March 14th? 09:55:57 24 A. Off and on, yes. 09:55:58 25 Q. Okay. When you say off and on, what do you 12 1 mean? 09:56:00 2 A. They -- I was effectively out of the loop on 3 any communication and didn't really have a position. It 4 was, in essence, 90 days of severance and continued 5 employment. I listed that as still my employer through 6 that period of time. 09:56:18 7 Q. Did you go to the office and have an office 8 during that period from December until March? 09:56:23 9 A. Yes. 09:56:24 10 Q. Did you actually go to the office? 09:56:26 11 A. Quite a bit, yeah. 09:56:28 12 Q. Did you have things to do, or were you given 13 things to do? 09:56:31 14 A. No. I wasn't given things to do. 09:56:33 15 Q. All right. Is it your testimony, then, that 16 once you were told in December of 2007 about this, that 17 following that you no longer performed functions as a 18 CFO? 09:56:50 19 A. That is correct. 09:56:50 20 Q. Were you asked to resign as a CFO immediately? 09:56:57 21 A. Yes. 09:56:58 22 Q. Okay. And did that happen? 09:57:00 23 A. Yes. 09:57:00 24 Q. So even though you were technically with the 25 company through March the 14th, you were not the CFO 13 1 through March the 14th? 09:57:08 2 A. That is correct. 09:57:09 3 Q. Your term as CFO ended sometime in December of 4 2007? 09:57:13 5 A. Correct. 09:57:13 6 Q. Okay. 7 (Exhibit 1 marked) 09:57:22 8 Q. (BY MR. BATTAGLINI) I'm going to hand you what 9 has been marked as Thomas Exhibit No. 1. And you can 10 take a moment to look at that if you'd like. 11 MR. WALLACE: Do you have an extra copy? 12 MR. BATTAGLINI: I do not. 13 MR. WALLACE: It would have been, you 14 know, courteous of you to provide extra copies to 15 counsel who are representing parties to this petition 16 that you filed in district court. 17 MR. DAVIDSON: And just so the record's 18 clear, Thomas 1 is a document that Mr. Thomas has not 19 previously been provided, at least during the course, 20 since the filing of the Rule 202 petition. And as an 21 aside, we were given assurances by Mr. Battaglini that 22 he would provide us with the documents that he intended 23 to question Mr. Thomas about prior to the deposition so 24 that Mr. Thomas would have a chance to review and go 25 over those to refamiliarize himself with their contents. 14 09:58:28 1 Q. (BY MR. BATTAGLINI) Take whatever time you 2 need to review the document. 3 MR. WALLACE: K.B., this is sure going to 4 slow down the process. If you had provided documents to 5 everybody in advance, they could have reviewed them. If 6 you give me -- after he reviews them, I'm going to have 7 an opportunity to look at it. I don't know how you're 8 going to get through this deposition with over -- all 9 the exhibits that are in front of you. 10 MR. BATTAGLINI: Mr. Wallace, you were 11 not invited to this deposition, and I object to your 12 continuing comments on the record. 13 MR. WALLACE: I represent Paul McKim 14 who's a party to this petition. 15 MR. BATTAGLINI: There's no party to any 16 litigation. We're not here pursuant to any litigation. 17 There is an investigation. You were not invited -- 18 MR. WALLACE: Mr. Battaglini -- 19 MR. BATTAGLINI: -- to this deposition. 20 MR. WALLACE: -- for purposes of the 21 record, we're pursuant to a order by the District Court 22 on your Rule 202 petition where you named Paul McKim. 23 And you know I represent Paul McKim. And the order 24 provides that pursuant to Rule 202 the manner in taking 25 and use of this deposition shall be done as in any other 15 1 deposition. I have every right to be here. I have 2 every right to see every record. On January 30th, 2009 3 you sent me a copy of B.J. Thomas's notice of deposition 4 that was scheduled to be taken on February 13 -- 5 February 19th, pardon me. 6 MR. BATTAGLINI: Okay. You're 7 interrupting. 8 MR. WALLACE: No, no, no, no, no. 9 MR. BATTAGLINI: You're interrupting this 10 deposition. Do you want me to call the judge? Do you 11 want me to call the judge on this? 12 MR. WALLACE: Go right ahead. Go right 13 ahead. 14 MR. BATTAGLINI: Do you intend on 15 continuing to interrupt this deposition? 16 MR. WALLACE: I'm going to continue on 17 the record. On February 19th you noticed this 18 deposition and provided me with notice. You, however, 19 failed to provide me with amended notice to keep me away 20 from this deposition for which I represent Paul McKim, a 21 party to the Rule 202 petition you filed. And I object 22 to the even taking of this deposition without proper 23 notice given by you. 24 MR. BATTAGLINI: Well, you could have 25 filed something with the Court, brought it up with the 16 1 judge. It's a little late now, Mr. Wallace. 2 MR. WALLACE: No, it's not. 3 MR. BATTAGLINI: May I proceed with this 4 deposition, or do I need to call the Court to have you 5 excused from this room? 6 MR. WALLACE: If you want to call the 7 Court, go right ahead, K.B. It's not going to bother 8 me. But I have every right to look at these exhibits 9 before you question the witness. 10 MR. BATTAGLINI: Are you finished? 11 MR. WALLACE: No. 12 MR. BATTAGLINI: May I continue? 13 MR. WALLACE: No. 14 MR. BATTAGLINI: Do you have any 15 objection, Mr. Davidson, if I continue with the 16 deposition? 17 MR. DAVIDSON: I don't have any 18 objections to you continuing. I do think that 19 Mr. Wallace qualifies as an adverse party under the, 20 under the rules so that he's entitled to be here, is my 21 personal opinion. But, obviously, that's the judge's 22 decision. 23 MR. BATTAGLINI: Well, there's no adverse 24 party. This is an investigation. It's not litigation. 25 There's no adverse party here. 17 1 MR. DAVIDSON: Okay. 10:02:13 2 Q. (BY MR. BATTAGLINI) Do you not have the 3 Exhibit No. 1 in front of you? 10:02:13 4 A. Not at the moment, no. 10:02:13 5 Q. All right. It was placed before you in an 6 effort to help you refresh your memory about something 7 you had mentioned earlier in your testimony about the 8 reasons given to you in December 2007 in conjunction 9 with your being asked to resign. Now, does this refresh 10 your memory as to what you were told in December of 2007 11 as the reason why you were asked to resign? 10:02:36 12 A. No. 10:02:38 13 Q. All right. Exhibit No. 1 appears to pertain 14 to an administrative proceeding instituted against you 15 prior to June the 10th, 1997. Do you recall an 16 administrative proceeding instituted against you prior 17 to June the 10th, 1997? 10:02:57 18 A. Yes. 10:02:57 19 Q. Okay. What was the nature of the 20 administrative proceeding that was instituted against 21 you? 10:03:05 22 A. It was as it's stated here. The SEC 23 investigated and determined that we had incorrectly 24 capitalized pre-operating and deferred costs. They did 25 not think that they should have been capitalized that 18 1 way and entered into the administrative proceeding. 10:03:31 2 Q. Okay. And your testimony is this is not what 3 you were advised in December of 2007 as the reason for 4 you being asked to resign? 10:03:42 5 A. No. 10:03:42 6 Q. It was something else? 10:03:44 7 A. It wasn't this. It wasn't the fact that this 8 had happened, no. 10:03:48 9 Q. All right. Had you ever disclosed to DMT the 10 existence or nature of the administrative proceeding 11 instituted against you by the Securities and Exchange 12 Commission? 10:03:59 13 A. Yes. 10:04:00 14 Q. Who did you disclose it to? 10:04:01 15 A. I disclosed it to Paul McKim, and I disclosed 16 it to Nasser Kazeminy. 10:04:07 17 Q. Do you recall when you disclosed it? 10:04:09 18 A. Yes. I disclosed it to Paul McKim prior to 19 the funding of Deep Marine in 2001. I disclosed it to 20 Mr. Kazeminy 2004, 2005. 10:04:27 21 Q. All right. When were you first employed by 22 DMT? 10:04:31 23 A. January 2002. 10:04:34 24 Q. All right. So you disclosed it to Paul McKim 25 prior to the time that you were employed by DMT? 19 10:04:39 1 A. Correct. 10:04:40 2 Q. How did that come to pass, that you would have 3 been in a communication with Paul McKim prior to your 4 employment with DMT? 10:04:47 5 A. I was assisting him with the preparation of 6 forecasts and projections for the original funding of 7 Deep Marine. 10:05:03 8 Q. As a result of the resolution of the 9 administrative proceeding that was instituted against 10 you as reflected in Exhibit No. 1, did you enter into 11 any agreement with the Securities and Exchange 12 Commission? 10:05:19 13 A. Yes. 10:05:21 14 Q. Do you recall what the agreement was? 10:05:24 15 A. No. 10:05:25 16 Q. Were you compelled by any such agreement not 17 to practice in a particular area or for a particular 18 company? 10:05:53 19 A. You know, the particulars of the rule I don't 20 remember. There was never any company restriction -- 10:05:59 21 Q. All right. 10:05:59 22 A. -- that I could not work for. 10:06:00 23 Q. Was there an injunction that you entered into? 10:06:02 24 A. I believe so. But I don't recall the 25 particulars. 20 10:06:06 1 Q. Okay. Did anyone at DMT in December of 2007, 2 when you had the meeting with people that you mentioned, 3 indicate to you that there was an allegation that you 4 had violated the terms of any injunction or order or 5 agreement with the SEC? 10:06:24 6 A. No. 10:06:48 7 Q. You were involved with Paul McKim in funding 8 of DMT before it actually became a functioning company? 10:06:57 9 A. I assisted Paul in the preparation of 10 forecasts and various pieces to assist him in getting 11 the funding for DMT. Yes. 10:07:06 12 Q. Even before, even before it was up and running 13 as a company? 10:07:09 14 A. Correct. 10:07:10 15 Q. Even before it had offices, was doing any 16 business? 10:07:13 17 A. Correct. 10:07:13 18 Q. Okay. So you and Paul McKim together helped 19 put the company together? 10:07:23 20 A. I assisted Paul with the, with the formation 21 of the company. 10:07:27 22 Q. Okay. Anyone else involved besides you and 23 Paul McKim? 10:07:30 24 A. J.J. Riddle. A gentleman named Sandy Loyd, I 25 believe, had some input in it. 21 10:07:39 1 Q. All right. Who were you employed with at the 2 time, before DMT was up and running? 10:07:44 3 A. I was self-employed. 10:07:46 4 Q. And what was your role in self employment; 5 what were you doing exactly? 10:07:50 6 A. I was doing some accounting and finance work. 10:08:04 7 Q. Now, as a result of the resolution of the 8 administrative proceeding instituted against you, did 9 the commission, the Securities and Exchange Commission, 10 temporarily suspend you from the practice of accounting 11 for any length of time? 10:08:29 12 A. I -- you know, I was -- I don't remember the 13 particulars of how the injunction went. I just haven't 14 looked at it in quite a while. 10:08:38 15 Q. Okay. Was it your impression that any 16 suspension from the practice was temporary and not 17 permanent? 10:08:52 18 A. I, there -- you know, once again, without the 19 documents and going through it and then reviewing, I -- 20 you know, how it worked and what the particulars were, I 21 just don't remember. 10:09:01 22 Q. Okay. Did you show Paul McKim or anyone else 23 at DMT a copy of the order resolving that administrative 24 proceeding? 10:09:13 25 A. No. 22 10:09:14 1 Q. Did anyone ask for it? 10:09:16 2 A. No. 10:09:22 3 Q. Where did you graduate from college? 10:09:25 4 A. University of Tennessee. 10:09:27 5 Q. What year was that? 10:09:29 6 A. 1977. 10:09:30 7 Q. Your degree was in what? 10:09:32 8 A. Accounting. 10:09:33 9 Q. Did you have any subsequent formal education 10 beyond your bachelor's degree? 10:09:39 11 A. Yes. I had a couple of graduate economic 12 classes. 10:09:43 13 Q. And then you sat for the CPA exam? 10:09:47 14 A. No. I sat for the CPA exam first. 10:09:51 15 Q. All right. When did you obtain your, your 16 CPA? 10:09:57 17 A. I believe it was in '81. 10:10:03 18 Q. Oh, when you said first, you obtained your CPA 19 before you took your graduate level courses; that's what 20 you meant? 10:10:13 21 A. Correct. 10:10:13 22 Q. Okay. Any graduate-level degrees? 10:10:13 23 A. No. 10:10:15 24 Q. How long, now, have you been a CPA? 10:10:20 25 A. Well, I'm not sure. Do you want me to count 23 1 the years? I'm not sure what you're asking me. 10:10:24 2 Q. Let me ask you a different question. Are you 3 still a CPA? 10:10:28 4 A. I am at the moment. 10:10:30 5 Q. Was there ever a time when you were not a CPA 6 after you first obtained your CPA? 10:10:35 7 A. Yes. 10:10:35 8 Q. When was that? 10:10:38 9 A. From about 1993, '4, '5, somewhere in there. 10 I allowed my license to lapse. 10:10:50 11 Q. All right. And then you regained your CPA 12 status in what year? 13 MR. DAVIDSON: If you remember exactly. 10:11:04 14 A. Yeah. '07. I'm sorry. '08. 10:11:11 15 Q. (BY MR. BATTAGLINI) This last year? 10:11:12 16 A. Yes. 10:11:13 17 Q. Oh. So you were not a CPA, you did not have 18 your CPA while you were working for DMT? 10:11:18 19 A. No, I did not. 10:11:27 20 Q. Following the resolution of the administrative 21 proceeding with the SEC in 1997, were you terminated 22 from any other company other than DMT? 10:11:43 23 A. Yes. 10:11:43 24 Q. What company was that? 10:11:45 25 A. Preferred Media. 24 10:11:46 1 Q. What year was that, do you recall? 10:11:48 2 A. 1998. 10:11:52 3 Q. And Preferred Media was located where? 10:11:54 4 A. Here in Houston. 10:11:55 5 Q. What was the nature of their business? 10:11:58 6 A. They owned a radio station. 10:12:01 7 Q. And what was your employment with them? 10:12:03 8 A. I was a talk show host. 10:12:07 9 Q. Using the same name, B.J. Thomas? 10:12:09 10 A. No. I used a stage name. 10:12:11 11 Q. What was the stage name? 10:12:12 12 A. Ben Hunter. 10:12:13 13 Q. Ben Hunter? 10:12:14 14 A. Uh-huh. 10:12:16 15 Q. All right. What was the nature of your talk 16 show? 10:12:19 17 A. Political. 10:12:22 18 Q. And that show lasted for a while, and then it 19 stopped? 10:12:25 20 A. Yes. 10:12:26 21 Q. And what was the reason that it stopped? 10:12:32 22 A. Just change in direction, change in format, 23 change in -- a change in things. I was, I was a 24 conservative on a radio station owned by a bunch of 25 attorneys who were typically liberal. 25 10:12:57 1 Q. When you disclosed to Paul McKim about the 2 nature of the administrative proceeding that was 3 resolved by that time with the SEC, did Mr. McKim say to 4 you that he had any issues or questions or concerns 5 about that matter? 10:13:18 6 A. No. 10:13:18 7 Q. Did he indicate to you that it would interfere 8 with your employment with DMT if you were to become 9 employed by DMT? 10:13:28 10 A. No. 10:13:29 11 Q. Now, following that, you said that you may 12 have had a conversation with Nasser Kazeminy about that 13 very same subject? 10:13:36 14 A. No, sir. I didn't say I may have. I said I 15 did. 10:13:39 16 Q. You did? Do you recall when that was? 10:13:41 17 A. It would have been '04 or '05. 10:13:43 18 Q. Okay. Why would you have communicated with 19 Nasser Kazeminy in '04 or '05? 10:13:51 20 A. Nasser was the, had taken a position as the 21 principal shareholder and directing the company. 10:13:58 22 Q. Okay. 10:13:59 23 A. And I didn't, I wanted him to know. 10:14:01 24 Q. So by that time, Mr. Kazeminy had arranged for 25 investment in the company? 26 10:14:07 1 A. Yes. 10:14:08 2 Q. Significant amounts of money? 10:14:12 3 A. Define significant. 10:14:13 4 Q. In excess of a million dollars? 10:14:15 5 A. Yes. 10:14:15 6 Q. All right. And did you voluntarily, then, 7 approach Mr. Kazeminy on this subject of the 8 administrative proceeding? 10:14:23 9 A. Yes. 10:14:24 10 Q. What, in what surroundings; was it person to 11 person, on the phone? 10:14:27 12 A. Person to person in his office. 10:14:29 13 Q. His office where? 10:14:31 14 A. Minneapolis. 10:14:33 15 Q. So you were in Minneapolis for a meeting with 16 him? 10:14:35 17 A. Yes. 10:14:35 18 Q. And you voluntarily disclosed the nature and 19 existence of the administrative proceeding? 10:14:39 20 A. Yes. 10:14:39 21 Q. Did you tell him about the nature of any order 22 that was entered as part of the resolution? 10:14:48 23 A. I don't remember. 10:14:51 24 Q. Did Mr. Kazeminy indicate to you that he had 25 any concerns about the nature or existence of that 27 1 administrative proceeding? 10:15:00 2 A. No. 10:15:03 3 Q. Did he indicate to you that it may present a 4 problem regarding your continued employment with DMT? 10:15:10 5 A. No. 10:15:17 6 Q. Were you one of the first persons, then, to 7 join DMT when it was first formed? 10:15:23 8 A. Yes. 10:15:24 9 Q. It was you and Paul McKim and the other two 10 gentleman that you mentioned? Or someone -- 10:15:28 11 A. J.J. Riddle and Sandy Loyd and five or six 12 others. 10:15:34 13 Q. All right. And you were the CFO from the very 14 beginning? 10:15:39 15 A. No. 10:15:39 16 Q. What was your role initially? 10:15:42 17 A. I was pretty much just handling whatever else 18 needed to be done at the time. 10:15:49 19 Q. Did the company have a CFO at that time? 10:15:51 20 A. Yes. 10:15:52 21 Q. What was that person's name? 10:15:54 22 A. Sandy Loyd. 10:15:55 23 Q. All right. And how long was Sandy Loyd with 24 the company? 10:15:59 25 A. Three years four months. 28 10:16:01 1 Q. All right. And when Sandy Loyd left the 2 company, who took over as CFO? 10:16:07 3 A. We didn't have a CFO for a while. 10:16:09 4 Q. All right. When did you first become CFO for 5 DMT? 10:16:16 6 A. Sometime later in '02. 10:16:19 7 Q. Were you the first CFO to be appointed in that 8 role after Sandy Loyd left? 10:16:27 9 A. Yes. 10:16:28 10 Q. All right. Why was it, why was a CFO 11 appointed at that time and not prior? Why was there a 12 period when there was no CFO? 10:16:38 13 A. We just didn't have one. 10:16:41 14 Q. Okay. What were your initial duties and 15 obligations as a CFO for DMT? 10:16:49 16 A. The standard CFO duties plus taking care of 17 the financials and books. I mean, normal CFO duties and 18 tasks. 10:17:08 19 Q. All right. You concerned yourself with 20 financial reports and reporting? 10:17:08 21 A. Correct. 10:17:08 22 Q. With filling out forms to be submitted to 23 regulatory agencies? 10:17:11 24 A. Yes. We didn't have a lot of regulatory 25 filing requirements. 29 10:17:15 1 Q. All right. Did you sign those forms yourself 2 as CFO? 10:17:20 3 A. Tax returns, yes. 10:17:21 4 Q. All right. Did you prepare balance sheets and 5 revenue statements and expense statements and things 6 like that? 10:17:27 7 A. On a monthly basis, yes. 10:17:29 8 Q. Were you, did you also serve as the head 9 accountant? 10:17:32 10 A. Yes. 10:17:39 11 Q. All right. Did your role as a CFO expand over 12 time? 10:17:46 13 A. I'm not sure what you're asking me. 10:17:48 14 Q. Did you -- over time, did your 15 responsibilities increase? Did you have more to do and 16 more work to do, more things to do in your role as CFO? 10:18:00 17 A. Actually, my duties refined more to being more 18 financial and accounting related. We were a very small 19 company. Everybody did a little bit of everything. 10:18:13 20 Q. So you had -- 10:18:17 21 A. Just as an example, I did the voice-over work 22 for a presentation at a, at a trade show event. We had 23 a presentation that we ran about our company. I did the 24 voice-over for it. When we started off, I was in charge 25 of the Website because we just didn't have enough people 30 1 doing everything that needed to be done. That's very 2 typical for a small business. 10:18:48 3 Q. All right. Did you also have other 4 administrative duties like human resources and benefits 5 and payroll and those kinds of things? 10:18:58 6 A. Yes. 10:19:01 7 Q. All right. Any operational duties and 8 obligations? 10:19:04 9 A. No. 10:19:05 10 Q. That's where you drew the line -- 10:19:07 11 A. That just wasn't my -- 10:19:09 12 Q. -- operations? 10:19:09 13 A. I wasn't -- Paul handled the operations side. 14 Paul and J.J. and other operational people and COOs. 10:19:18 15 Q. All right. When you first formed the company 16 and started working there, who was on the board of 17 directors? 10:19:32 18 A. Paul and J.J. And I'm not sure who else. 10:19:40 19 Q. Were you ever a member of the board of 20 directors of DMT? 10:19:43 21 A. Yes. 10:19:43 22 Q. When did you first become a member of the 23 board? 10:19:48 24 A. 2002, 2003, somewhere in there. 10:19:51 25 Q. All right. And when you first became a member 31 1 of the board, did you have regular board meetings? 10:19:57 2 A. No. 10:19:59 3 Q. Did you keep board minutes? 10:20:03 4 A. I did, yes. 10:20:04 5 Q. You were the person that would keep the 6 minutes if there was a board meeting? 10:20:08 7 A. Yes. 10:20:08 8 Q. That was your role? 10:20:09 9 A. Yes. 10:20:09 10 Q. Were you also serving as corporate secretary? 10:20:13 11 A. Yes. 10:20:13 12 Q. How long did you serve as corporate secretary? 10:20:16 13 A. Same timeframe with being the CFO. 10:20:21 14 Q. All right. So right up until December of 15 2007, in addition to being the CFO you were also serving 16 as corporate secretary? 10:20:29 17 A. Correct. 10:20:30 18 Q. And to the extent there were any board 19 meetings, you would have kept the minutes? 10:20:35 20 A. Yes. 10:20:35 21 Q. All right. Did you also prepare or have 22 prepared board resolutions? 10:20:41 23 A. Yes. 10:20:42 24 Q. Did you do that yourself or have someone else 25 do that for you? 32 10:20:51 1 A. Both. 10:20:52 2 Q. If you didn't do it yourself, who would you 3 use to prepare draft resolutions? 10:20:59 4 A. Outside counsel. 10:20:59 5 Q. All right. And did that change over time, or 6 was it always the same person? 10:21:04 7 A. No. We used different various attorneys. 10:21:07 8 Q. All right. Now, in addition to preparing 9 minutes, resolutions, was there anything else that you 10 prepared for the company, DMT, in your role as corporate 11 secretary? 10:21:23 12 A. Stock certificates. I can't recall everything 13 else that I did over that period of time. If you can be 14 more specific, I can probably tell you if I did it or 15 not. 10:21:36 16 Q. How about meeting agendas? 10:21:38 17 A. Yes. 10:21:39 18 Q. All right. Did the company, did DMT have 19 annual board meetings? 10:21:48 20 A. No. 10:21:49 21 Q. When did the company start having board 22 meetings? 10:21:52 23 A. It started having regular board meetings after 24 Nasser acquired a controlling interest in the company. 10:21:59 25 Q. All right. And you recall that that was 33 1 approximately when? 10:22:02 2 A. Mid '04. Mid to late '04. 10:22:07 3 Q. All right. And at that point in time, mid to 4 late '04, the board was composed of whom? 10:22:15 5 A. Paul and I at that time. 10:22:18 6 Q. Anyone else? 10:22:22 7 A. I don't think so, but I'm not sure. I haven't 8 looked at any of those documents in a while. 10:22:26 9 Q. Okay. Now, why was it that at this time, mid 10 to late '04, that you started having regular board 11 meetings? 10:22:34 12 A. Nasser acquired a controlling interest in the 13 company and set up and had active board meetings. 10:22:43 14 Q. Okay. But he was not on the board, correct? 10:22:45 15 A. That is correct. 10:22:46 16 Q. But what was done, then -- did someone ask you 17 to have board meetings? 10:22:58 18 A. No. Nasser told us we were having board 19 meetings. 10:23:01 20 Q. And when you had board meetings, who attended 21 those board meetings? 10:23:06 22 A. The members of the board and, typically, 23 Nasser. 10:23:10 24 Q. Where were those board meetings held? 10:23:13 25 A. A variety of places. 34 10:23:15 1 Q. All right. Why did Mr. Kazeminy attend the 2 board meetings? 10:23:20 3 A. Because he wanted to. I'm not sure what 4 you're asking me. 10:23:27 5 Q. Did you inquire as to why Mr. Kazeminy was 6 attending a board meeting if he was not a member of the 7 board? 10:23:34 8 A. Nasser ran things. He had a controlling 9 interest in the company. He had an oversight agreement 10 in the company. There was not much question that final 11 decisions and things were made by Mr. Kazeminy. 10:23:57 12 Q. Did Mr. Kazeminy appoint someone to the board 13 to serve his interests? 10:24:01 14 A. Yes. 10:24:01 15 Q. Who would say was that? 10:24:03 16 A. John Ellingboe. 10:24:04 17 Q. And when do you recall Mr. Ellingboe became a 18 member of the board? 10:24:09 19 A. '04, '05. 10:24:10 20 Q. All right. And did Mr. Ellingboe serve on the 21 board throughout the time that you remained as CFO for 22 the company? 10:24:18 23 A. I believe so, yes. 10:24:18 24 Q. Okay. So at that point there became three 25 board members? 35 10:24:21 1 A. No. There were additional board members 2 added. 10:24:24 3 Q. Okay. Who else became a board member? 10:24:26 4 A. Bruce Gillman, Larry Lenig, and Drew Michel. 10:24:33 5 Q. All right. And you were still a board member, 6 as well? 10:24:37 7 A. Correct. 10:24:38 8 Q. Okay. So now when you had board meetings, 9 there were many more folks who attended? 10:24:42 10 A. Yes. 10:24:43 11 Q. And those meetings were held in Houston? 10:24:45 12 A. Among other places. 10:24:46 13 Q. All right. And you kept the minutes of those 14 meetings? 10:24:49 15 A. Yes. 10:24:49 16 Q. And were those meetings regular? 10:24:53 17 A. Somewhat. I mean, they weren't predetermined. 18 It wasn't every two months or necessarily every month. 19 They were, they varied in timeframe. 10:25:01 20 Q. But in your mind, it was regular? 10:25:07 21 A. You know, semi-regular. 10:25:09 22 Q. All right. Approximately how many times of 23 year, a year did the board meet once the board expanded 24 beyond you and Paul McKim? 10:25:20 25 A. Four, five, six. I don't recall. 36 10:25:22 1 Q. All right. Were there annual board meetings 2 at that point? 10:25:26 3 A. Shareholder meetings or board meetings? 10:25:29 4 Q. Annual board meetings. 10:25:31 5 A. I don't know the distinction between an annual 6 board meeting and a regular board meeting. 10:25:37 7 Q. Okay. Well, then, were there annual 8 shareholder meetings? 10:25:41 9 A. No. 10:25:47 10 Q. Were there any special meetings of the board 11 called other than regular board meetings? 10:25:53 12 A. Define what you mean by special. 10:25:57 13 Q. As that may be contained in the bylaws. As 14 that term is defined in the bylaws. 10:26:03 15 A. I don't know. I haven't looked at the bylaws 16 in quite a while. 10:26:06 17 Q. Okay. Were you responsible in your role as 18 corporate secretary to have, examine the bylaws and be 19 generally familiar with them? 10:26:14 20 A. Yes. 10:26:15 21 Q. All right. Do you recall having done so? 10:26:18 22 A. I, I read those several times. 10:26:28 23 Q. Now, do you recall that there was a 24 shareholders agreement entered into at any point? 10:26:44 25 A. Yes. 37 10:26:44 1 Q. And when do you recall the shareholders 2 agreement was entered into? 10:26:48 3 A. At the formation. 10:26:50 4 Q. All right. And you were a shareholder -- 10:26:52 5 A. No. 10:26:52 6 Q. -- at that time? 10:26:53 7 A. No. 10:26:53 8 Q. When did you first acquire shares of the 9 company? 10:27:04 10 A. It wasn't until '06. 10:27:09 11 Q. And do you recall how many shares you 12 acquired? 10:27:13 13 A. I -- well, actually I didn't acquire the 14 shares until '07. 10:27:17 15 Q. All right. And do you recall how many shares 16 you acquired? 10:27:21 17 A. Thirteen. 10:27:22 18 Q. All right. Do you recall the approximate 19 value of the shares, of the 13 shares when you acquired 20 them? 10:27:28 21 A. $5400. 10:27:30 22 Q. All right. How did you come about to obtain 23 those shares? Were they given to you; did you purchase 24 them? 10:27:37 25 A. They were given to me. 38 10:27:39 1 Q. And do you recall how they were given to you? 10:27:43 2 A. By a gift. 10:27:44 3 Q. From whom? 10:27:45 4 A. Joe Grano. 10:27:46 5 Q. Do you know why Mr. Grano gave you 13 shares? 10:27:50 6 A. Yes. He said that he felt like Paul and I had 7 been there quite a while and hadn't gotten any bonuses 8 and he wanted to do something for us. 10:28:02 9 Q. So you accepted the gift and the shares became 10 yours? 10:28:05 11 A. I accepted the gift of -- it was actually a 12 Series B note that converted into stock. 10:28:15 13 Q. And who did the conversion? Yourself, after 14 you obtained the note? 10:28:20 15 A. It was commensurate with a conversion for all 16 of the Series B notes. 10:28:26 17 Q. So you ended up with a stock certificate for 18 13 shares? 10:28:30 19 A. Yes, sir. 10:28:30 20 Q. And are you the person who actually filled out 21 the certificate -- 10:28:33 22 A. Yes, sir. 10:28:34 23 Q. -- showing that you had 13 shares? 10:28:36 24 A. Yes, sir. 10:28:36 25 Q. And do you still have that certificate today? 39 10:28:38 1 A. I believe so. 10:28:39 2 Q. All right. Now, the shareholders agreement 3 that we spoke of a moment ago, do you recall that being 4 entered into? 10:28:49 5 A. Yes. 10:28:49 6 Q. Okay. Were you a part of the preparation and 7 execution of the shareholders agreement? 10:28:53 8 A. No. 10:28:54 9 Q. Who did that, do you recall? 10:28:56 10 A. The attorney that Paul used for the formation 11 of the company. 10:29:00 12 Q. Okay. Now, at some point, was the 13 shareholders agreement terminated? 10:29:05 14 A. Yes. 10:29:06 15 Q. Do you recall when that happened? 10:29:09 16 A. '04, '05. 10:29:10 17 Q. And why do you recall that happening? 10:29:13 18 A. Well, it was difficult to work within the 19 confines of that agreement in terms of acquiring 20 additional equity and making arrangements for stock 21 issuance. And so Mr. Kazeminy wanted it terminated. 10:29:38 22 Q. All right. Do you recall that, in fact, the 23 shareholders agreement interfered with the company's 24 ability to raise funds? 10:29:47 25 A. It was a hindrance, yes. 40 10:29:49 1 Q. Okay. Was that, was the termination of the 2 shareholders agreement discussed at a board meeting? 10:29:58 3 A. I don't recall. 10:29:59 4 Q. Is it -- do you recall having reflected that 5 in board minutes? 10:30:02 6 A. I don't recall. 10:30:06 7 Q. Was it the -- when you and Paul McKim, in 2001 8 and 2002, were putting the company together, was it the 9 plan to raise funds to assist in the growth of the 10 company? 10:30:28 11 A. When I worked on that, the intention was to a 12 raise funds for the company. Yes. 10:30:37 13 Q. All right. Was there an actual business plan 14 written and in place from the very beginning? 10:30:50 15 A. Yes. 10:30:50 16 Q. All right. Did you assist in preparing the 17 business plan, contribute to it, help put it together? 10:30:52 18 A. Yes. 10:30:52 19 Q. Did that plan talk about or envision over time 20 bringing funds to the company as part of its growth 21 plan? 10:31:00 22 A. Yes. 10:31:01 23 Q. All right. Did that plan talk about bringing 24 significant funds to the company? I'm talking about 25 more than a million dollars. 41 10:31:09 1 A. Yes. 10:31:11 2 Q. Did you assist in following that plan, that 3 part of the plan where you were seeking to attract 4 funds? 10:31:19 5 A. I'm not sure what you're asking me. 10:31:21 6 Q. Was part of your role as a CFO to assist the 7 company in attracting investments or funds? 10:31:29 8 A. What period of time are you referencing? 10:31:31 9 Q. From the very beginning when you became CFO. 10:31:35 10 A. When I became CFO in 2002, yes. I was 11 involved in preparing forecasts and projections and 12 assisting with the documents to raise funds. 10:31:49 13 Q. All right. Were you personally involved in 14 what I will call fund-raising efforts? 10:32:00 15 A. You know, I'm -- you're going to have to 16 define what you mean by personally involved. 10:32:06 17 Q. Did you make presentations to potential 18 investors? 10:32:09 19 A. Yes. 10:32:12 20 Q. Did you make a presentation to Mr. Kazeminy or 21 any of his people in Minneapolis regarding a potential 22 investment? 10:32:22 23 A. Not prior to Mr. Kazeminy having invested in 24 the company. 10:32:29 25 Q. Okay. What do you recall was the circumstance 42 1 in which Mr. Kazeminy originally invested in the 2 company? 10:32:40 3 A. I think he was told about the investment, as I 4 remember. And as I was -- as I remember being told, 5 Mr. Kazeminy was told about the investment by Joe Grano. 6 I believe, but I'm not sure, that I, that Paul McKim had 7 a meeting with him. And then Mr. Kazeminy invested. 10:33:05 8 Q. All right. And then following that initial 9 investment, you indicated that you made a presentation 10 to Mr. Kazeminy? 10:33:14 11 A. We were with Mr. Kazeminy in South Florida and 12 took him to go look at ROVs, remote operated vehicles. 10:33:25 13 Q. And that was done in conjunction with the 14 potential for increasing the investment from 15 Mr. Kazeminy? 10:33:34 16 A. It was with the idea that we wouldn't be able 17 to get one without him approving it. 10:33:42 18 Q. All right. How many times did you meet with 19 Mr. Kazeminy for the purposes of attracting additional 20 investment from he or his companies? 10:33:53 21 A. I don't know. 10:33:55 22 Q. More than once? 10:33:56 23 A. Yes. 10:33:56 24 Q. More than five times? 10:33:59 25 A. I don't know. 43 10:34:00 1 Q. All right. Did you ever make phone calls to 2 Mr. Kazeminy or people who worked for Mr. Kazeminy for 3 the purpose of attracting additional investment to the 4 company? 10:34:09 5 A. Regularly. 10:34:16 6 Q. Would you say that the board of directors of 7 DMT was in favor of attracting investment from 8 Mr. Kazeminy or his companies? 10:34:34 9 A. I'm really not sure about the question. 10 Mr. Kazeminy owned 80 percent of the company at that 11 point. So, you know, Mr. Kazeminy wanted to attract 12 more capital from himself, it's kind of a circular 13 argument. And I'm not sure what you want me to answer, 14 off the bat. I'm not sure what the question is. 10:35:00 15 Q. Prior to the time that Mr. Kazeminy or his 16 companies made their initial investment, did the board 17 see it as a favorable circumstance that Mr. Kazeminy 18 invest in the company? 10:35:18 19 A. There were not really regular board meetings 20 prior to that. The board consisted of Paul and myself. 10:35:27 21 Q. Did you and Paul McKim meet, then, informally 22 to discuss whether or not you'd be interested in an 23 investment from Mr. Kazeminy or his companies? 10:35:39 24 A. We were interested in investment from lots of 25 people. There were no formal meetings. 44 10:35:50 1 Q. Did you see any problem with an initial 2 investment from Mr. Kazeminy? 10:35:57 3 A. No. 10:35:57 4 Q. All right. Now, subsequent to the initial 5 investment from Mr. Kazeminy or his companies -- and by 6 the way, what was the identity of the actual investor? 7 It wasn't Mr. Kazeminy himself, was it? 10:36:10 8 A. I don't believe so, no. 10:36:11 9 Q. It was a company, DCC? 10:36:14 10 A. I believe so. 10:36:14 11 Q. All right. That was your understanding, at 12 least? 10:36:18 13 A. I don't recall exactly. I'd have to look at 14 documents. 10:36:22 15 Q. All right. Did you have regular 16 communications with anyone at DCC or any other company 17 about investments that were being made into DMT? 10:36:36 18 A. I don't know the structure of who works for 19 who on DCC's behalf. 10:36:41 20 Q. All right. Who maintained the contact, the 21 regular contact with an investor such as DCC? Was it 22 you or Paul McKim or someone else? 10:36:55 23 A. Paul would -- Paul handled most of that 24 contact. 10:36:57 25 Q. All right. And to the extent that you had 45 1 contact at all, was there one particular person that you 2 had contact with? 10:37:03 3 A. John Ellingboe. Dan Erickson. And 4 occasionally Mr. Kazeminy. 10:37:09 5 Q. All right. And Mr. Ellingboe sat on the 6 board, correct, at some point? 10:37:13 7 A. Correct. 10:37:14 8 Q. What about Mr. Erickson? 10:37:17 9 A. My understanding is Mr. Erickson became a 10 member of the board sometime after I left. 10:37:23 11 Q. All right. Now, in the conversations that you 12 had with Mr. Ellingboe or Mr. Erickson or even 13 Mr. Kazeminy, did you discuss the investments that were 14 made into DMT? 10:37:38 15 A. We discussed a lot of things. 10:37:40 16 Q. All right. Did you discuss in particular the 17 investments that were being made into DMT? 10:37:46 18 A. Some but not all. 10:37:47 19 Q. Did you discuss, for example, the promissory 20 notes that were given in exchange for some of those 21 investments? 10:37:54 22 A. Yes. 10:37:55 23 Q. Did you talk about shares of stock that were 24 being exchanged as consideration for some investments? 10:38:14 25 A. Yes. 46 10:38:14 1 Q. Did you ever have a conversation with 2 Mr. Ellingboe or Mr. Erickson or Mr. Kazeminy where you 3 expressed issues or problems associated with the 4 investments? 10:38:30 5 A. Yes. 10:38:31 6 Q. Okay. Do you recall what some of the issues 7 or problems were that you expressed to any of those 8 three people? 10:38:38 9 A. Yeah. We expressed the -- I expressed the 10 need for more cash in the company, more working capital. 10:38:48 11 Q. Were you proposing that Mr. Kazeminy's 12 companies invest more cash in the company? 10:38:54 13 A. No. We were talking about it in terms of 14 where DMT was and the amount of equity and working 15 capital and that we didn't feel, I didn't feel like 16 there was enough working capital. 10:39:08 17 Q. All right. Were you requesting Mr. Ellingboe 18 or Mr. Erickson or Mr. Kazeminy to invest more so that 19 you would have more working capital? 10:39:16 20 A. Not necessarily, no. 10:39:18 21 Q. All right. What were you proposing? 10:39:20 22 A. We were talking about the level that we were 23 operating at and where I thought we needed more cash. 24 We weren't, we weren't at the point of determining how 25 to go about that. It was, it was simply discussions 47 1 related to the amount of working capital. 10:39:38 2 Q. All right. Any other problems or issues that 3 you recall that you talked to Mr. Ellingboe or 4 Mr. Erickson or Mr. Kazeminy about? 10:39:51 5 A. We talked about the difficulty of raising 6 funds. We talked about -- oh, we covered a lot of 7 different things. I can't recall all of them. 10:40:03 8 Q. Was there one issue in particular that you 9 recall? An unresolved issue, a significant issue? 10 Anything such -- 10:40:12 11 A. You'll have to be more specific. 10:40:20 12 Q. Was there ever an issue regarding the cap 13 table? In other words, the percentage interests of 14 equity ownership among the various shareholders? 10:40:37 15 A. I don't recall anything in general like that. 16 Can you be more specific? 10:40:42 17 Q. I will be. And I'll place a cap table in 18 front of you in conjunction with that. 19 (Exhibit 2 marked) 10:41:30 20 Q. (BY MR. BATTAGLINI) Okay. I've placed before 21 you what has been marked as Thomas No. 2. It's a 22 document entitled Consent to Action in Lieu of Meeting 23 of the Board of Directors of Deep Marine Technology, 24 Incorporated. 25 MR. DAVIDSON: Mr. Battaglini, is this a 48 1 document that you previously provided to us? 10:42:00 2 Q. (BY MR. BATTAGLINI) Exhibit No. 2 has an 3 effective date of the 23rd day of June 2004. 4 MR. DAVIDSON: Is this a document that 5 you previously provided to us? 6 MR. BATTAGLINI: I assume so, yeah. 7 MR. DAVIDSON: When? 8 MR. RAINEY: It would have been on -- did 9 we send over -- I don't know how you sent it over, the 10 CD-ROMs? 11 MR. BATTAGLINI: Yeah. Uh-huh. 12 MR. DAVIDSON: We've been going about an 13 hour. Can we take a 10-minute break? 14 MR. BATTAGLINI: Sure. 15 MR. DAVIDSON: Thanks. 16 (Break from 10:42 to 10:56) 17 (Exhibit 3 marked) 10:56:03 18 Q. (BY MR. BATTAGLINI) I'm going to ask you to 19 set Exhibit 2 aside for a moment. I want to ask you 20 about Exhibit 3, Thomas Exhibit 3. Exhibit 3 is a short 21 letter addressed to you from Paul McKim, correct? 10:56:13 22 A. Uh-huh. 10:56:13 23 Q. Indicating that you were going to be receiving 24 a $1000-per-month auto allowance? 10:56:19 25 A. Yes. 49 10:56:20 1 Q. Do you recall that? 10:56:21 2 A. I do now. 10:56:22 3 Q. Yeah. Do you recall getting a $1000-per-month 4 auto allowance? 10:56:27 5 A. Yes, I believe so. 10:56:28 6 Q. When did that stop, do you know? 10:56:31 7 A. When I left DMT. 10:56:33 8 Q. Okay. That letter indicates that you were 9 able to receive a $1000 auto allowance because the 10 company had received some funding? 10:56:50 11 A. Yes. 10:56:51 12 Q. Okay. Do you recall anything about the nature 13 of the funding that was received by the company that 14 allowed the company to give you an auto allowance? 10:57:04 15 A. We went through some serious restructuring 16 towards the end of '02. I think we finally got all the 17 funds in and squared away sometime during '03. 10:57:18 18 Q. Okay. Who were those funds from, do you know? 10:57:22 19 A. It was from existing shareholders at the time. 10:57:26 20 Q. Anyone in particular that you recall, any 21 existing shareholder at the time? 10:57:30 22 A. Yeah. State Street Research would have been 23 the principal source. 10:57:35 24 Q. All right. 25 (Exhibit 4 marked) 50 10:57:36 1 Q. (BY MR. BATTAGLINI) I'm going to hand you what 2 has been marked as Exhibit 4, another short memorandum. 3 It looks like a memo from you to the file in January of 4 2004 regarding an employee advance. Do you see that? 5 MR. DAVIDSON: Let me ask, 6 Mr. Battaglini, were either 3 or 4, were those in the 7 documents that you produced to us previously? 8 MR. BATTAGLINI: I assume so, yes. 9 THE WITNESS: I don't believe so. 10:58:11 10 Q. (BY MR. BATTAGLINI) Anyway, does this refresh 11 your memory as to whether or not you received an 12 employee advance? 10:58:23 13 A. You know, obviously, since it's got my 14 signature -- to be honest with you, I just don't 15 remember. 10:58:37 16 Q. The last line of the short memo says that the 17 repayment will be made as soon as practical following 18 the sale of my residence. Do you see that? 10:58:45 19 A. Yes. 10:58:45 20 Q. Do you recall if you paid back this advance 21 upon the sale of your residence? 10:58:51 22 A. I, I believe it was repaid prior to that. 10:58:54 23 Q. Okay. So it was repaid, in any case? 10:58:57 24 A. Yes. 25 (Exhibit 5 marked) 51 10:58:57 1 Q. (BY MR. BATTAGLINI) I want to hand you what 2 has been marked as Exhibit No. 5, also a short memo, 3 saying effective April 1, 2002 B.J. Thomas has been 4 promoted to chief financial officer. Do you see that? 10:59:14 5 A. Yes. 10:59:14 6 Q. Does that refresh your memory as to when you 7 were promoted to CFO? 10:59:16 8 A. Well, yeah. It's got a date on it. 10:59:18 9 Q. Is that consistent with your memory? 10:59:22 10 A. I think it's consistent with my memory and my 11 previous testimony. 12 (Discussion off the record) 13 (Exhibit 6 marked) 11:01:20 14 Q. (BY MR. BATTAGLINI) All right. I'm handing 15 you what has been marked as Thomas No. 6. You are 16 welcome to take a moment to review that. 17 MR. DAVIDSON: While you're looking at 18 that, I'll be right back. 11:08:29 19 Q. (BY MR. BATTAGLINI) Okay. Have you had an 20 opportunity to look through the exhibit? 11:08:31 21 A. Yes. 11:08:32 22 Q. The exhibit is entitled, at least the first 23 page is entitled Minutes of Special Shareholders Meeting 24 of Deep Marine Technology, Incorporated. And the second 25 page indicates your signature, correct? 52 1 MR. WALLACE: Objection, form. 11:08:49 2 A. Can we wait until I get the document back? 3 (Pause in proceedings) 11:10:17 4 Q. (BY MR. BATTAGLINI) Is that your signature on 5 Page 2? 11:10:19 6 A. Yes. 11:10:20 7 Q. Okay. And consistent with your duties as 8 corporate secretary, did you prepare these minutes, 9 these two pages that constitute the minutes of the 10 meeting? 11:10:28 11 A. Yes. 11:10:29 12 Q. Okay. And it says here that the purpose of 13 the meeting was threefold. It was an election of new 14 officers -- excuse me, election of new directors is what 15 I meant to say, adoption of an incentive stock option 16 plan, and then an adoption of an amendment to the 17 articles of incorporation, correct? 11:10:52 18 A. Correct. 11:10:56 19 Q. Numbered Paragraph 3 of the minutes reflect 20 the shareholders present for the roll call; is that 21 right? 11:11:05 22 A. Correct. 11:11:05 23 Q. And then Page 3 of this exhibit reflects two 24 things. It reflects the total number of shares owned 25 and outstanding. And also in the column just to the 53 1 right of that is the number of shares that actually 2 voted at the meeting? 11:11:23 3 A. Correct. 11:11:24 4 Q. Okay. And did you prepare this schedule as 5 well? 11:11:26 6 A. Yes. 11:11:26 7 Q. Okay. Now, I want to ask you some questions 8 about the schedule. It reflects that Paul McKim had 9 117 shares. And then there's a list of other 10 shareholders, correct? 11:11:43 11 A. Correct. 11:11:44 12 Q. Do you know the circumstance under which these 13 other shareholders other than Paul McKim obtained 14 shares? 11:11:53 15 A. Yes. 11:11:54 16 Q. Okay. Bresner Partners, for example, with 17 30 shares. Do you recall how Bresner ended up with 18 30 shares? 11:12:03 19 A. That was from the original formation of the 20 company. 11:12:08 21 Q. Was Bresner Partners a founding shareholder? 11:12:14 22 A. Define founding for me. 11:12:17 23 Q. It was involved in, not only in the formation 24 of the company but invested as part of the original 25 formation of the company? 54 11:12:24 1 A. They were involved in the original formation. 11:12:28 2 Q. Okay. Did Bresner Partners receive the shares 3 for helping found the company or for having delivered 4 funding, cash, an investment? 11:12:43 5 A. I'm not sure as to the distinction between the 6 two in terms of the original issuance of shares. 11:12:52 7 Q. Okay. Did the company receive money from 8 Bresner Partners? 11:12:56 9 A. No. 11:12:58 10 Q. Okay. Then how was the exchange valued? If 11 it was not a cash exchange, what kind of exchange was 12 it? 11:13:04 13 A. That was part of the original arrangements 14 made for the allocation of stock. 11:13:13 15 Q. Something other than cash, then? 11:13:17 16 A. As far as I know. 11:13:19 17 Q. Labor, property? What was it, do you know? 11:13:21 18 A. You know, I'd have to go back and look as to, 19 as to what the document said. 11:13:27 20 Q. How about Logan Langberg with 10 shares, do 21 you recall how Mr. Langberg obtained 10 shares? 11:13:35 22 A. That was part of the original formation. 11:13:38 23 Q. Again, it's not a cash exchange; it was some 24 other form of exchange? 11:13:41 25 A. Yes. 55 11:13:42 1 Q. Same thing with Harley Langberg? 11:13:44 2 A. Yes. 11:13:44 3 Q. It was a non-cash exchange? 11:13:46 4 A. That was part of the original -- as best I 5 remember, part of the original documentation for the 6 allocation of stock. 11:13:52 7 Q. Okay. How about Deep Work, Inc. with 8 400 shares? Did that have something to do with the 9 licensing or the technology? 11:13:59 10 A. Yes. 11:14:00 11 Q. And do you recall specifically why Deep Work 12 ended up with 400 shares? 11:14:04 13 A. That was the conditions for the original 14 funding of the company, original arrangements. Deep 15 Work provided the one-man subs that we used that was the 16 foundation of the company. There were licensing 17 agreements and purchase agreements, and a lot of other 18 things were all involved. And that was their allocation 19 of stock on the unit, on the original issuance. 11:14:32 20 Q. All right. How about FLI Deep Marine, LLC 21 with 1570 shares? 11:14:39 22 A. Original investors and subsequent investors. 11:14:42 23 Q. Okay. Cash investors? 11:14:44 24 A. Yes. 11:14:44 25 Q. All right. And UBS? 56 11:14:47 1 A. That was the same thing. 11:14:50 2 Q. All right. And then State Street Research 3 with 119 shares? 11:14:55 4 A. That was what they had left after their 5 shares, original shares, additional shares, and then in 6 exchange with DCC Ventures. 11:15:10 7 Q. How about Raytheon Company salaried? 11:15:14 8 A. Same thing. 11:15:15 9 Q. Raytheon Company combined? 11:15:17 10 A. Same. 11:15:18 11 Q. In other words, originally they may have had 12 more shares -- 11:15:22 13 A. Correct. 11:15:22 14 Q. -- but some of those shares were conveyed or 15 transferred as a result of another investor stepping in 16 to invest in the company? 11:15:30 17 A. Mr. Kazeminy. 11:15:32 18 Q. How about Sandpiper and Company with 19 778 shares? 11:15:36 20 A. The same. 11:15:38 21 Q. Now, the DCC Ventures, LLC, that's 22 Mr. Kazeminy's company? 11:15:42 23 A. I do not know the ownership of DCC Ventures. 11:15:51 24 Q. The 4664 shares that are reflected on this 25 particular table, were those shares obtained through 57 1 funding, obtained from DCC Ventures? 11:16:03 2 A. Some of them, yes. 11:16:05 3 Q. Okay. To the extent that you're drawing a 4 distinction, are you saying that some of the shares were 5 not derived through funding of the company? 11:16:14 6 A. Well, as I, as I said before, State Street and 7 its various entities had more shares. And those were 8 exchanged. So they ended up with less; somebody got 9 more. And that more went to DCC Ventures. But it 10 wasn't from funding of the company. 11:16:34 11 Q. Okay. What, then, was the reason that 12 DCC Ventures ended up with 400 -- or, excuse me, 4664 13 shares? 11:16:38 14 A. I thought I just explained that. 11:17:06 15 Q. If you flip back to -- we'll go back to that 16 point in just a minute. 17 If you go back to Pages 1 and 2 of the 18 exhibit, it says the nominated slate -- I'm at the 19 bottom of the first page. It says the nominated slate 20 of directors was Mr. Paul McKim, Mr. Joseph Grano, 21 Mr. Nasser Kazeminy, and Mr. John Ellingboe. 11:17:27 22 A. I'm sorry. I'm -- are you talking about... 11:17:30 23 Q. First, bottom of the very first page of the 24 exhibit. 11:17:34 25 A. Okay. Yes. 58 11:17:37 1 Q. Okay. And then there was a unanimous vote of 2 those present. And it appears that all four were then 3 made board members. Is that your understanding? 11:17:46 4 A. Correct. 11:17:47 5 Q. So at some point Mr. Kazeminy was a board 6 member? 11:17:51 7 A. Well, he was nominated. But he never accepted 8 the nomination. 11:17:57 9 Q. Okay. Do you recall who placed his name on 10 the slate? 11:18:05 11 A. This would have been done, as best I remember, 12 it would have been done in conjunction with discussions 13 with John Ellingboe. 11:18:14 14 Q. Okay. So as a result of the vote of the 15 shareholders, Mr. Kazeminy did not become a board 16 member? 11:18:26 17 A. As a result of the vote of the shareholders, 18 he was nominated as a board member. 11:18:32 19 Q. But he refused to accept the position? 11:18:35 20 A. He declined to accept. 11:18:36 21 Q. All right. And Mr. Grano and Mr. Ellingboe 22 and Mr. McKim did, in fact, become board members? 11:18:42 23 A. No. Mr. Grano declined, as well. 11:18:45 24 Q. I see. If you would turn -- I'm going to 25 count pages for you. One, two -- the 16th page of the 59 1 exhibit. Which should be a cap table. 11:19:19 2 A. Yes. 11:19:20 3 Q. Okay. Do you recall having prepared this cap 4 table, as well? 11:19:30 5 A. Yes. 11:19:30 6 Q. Okay. Was that customarily something you 7 would have done? 11:19:34 8 A. Yes. 11:19:34 9 Q. All right. I think that this cap table, in 10 terms of what's reflected as stock ownership, is the 11 same thing that's on the prior proxy table that we were 12 looking at. Can you kind of double-check that? I want 13 to ask you about any difference between these two 14 tables. 11:20:09 15 A. Yes. 11:20:10 16 Q. Okay. 11:20:14 17 A. And the difference would have been the shares 18 owned by Mr. Riddle and Mr. Loyd. 11:20:20 19 Q. On the corporate cap table, they've gone down 20 to zero percent? 11:20:25 21 A. Yes. 11:20:25 22 Q. Do you know what happened to their shares? 11:20:26 23 A. Yes. They were purchased by the company. 11:20:29 24 Q. All right. Went back into treasury stock? 11:20:32 25 A. Yes. 60 11:20:32 1 Q. Now, Logan Langberg and Harley Langberg don't 2 appear on the cap table. Instead it's Jeffrey Langberg, 3 et al. with 50. 11:20:46 4 A. Yes. 11:20:48 5 Q. Do you know what happened there? 11:20:50 6 A. This is not intended to be a stock register. 7 It is kind of just a working table for where the equity 8 pieces were -- 11:21:00 9 Q. I understand. 11:21:00 10 A. -- from the company. 11:21:01 11 Q. I understand. Nevertheless, is the Jeffery 12 Langberg, et al. designation intended to include Logan 13 and Harley Langberg? 11:21:12 14 A. Yes. 11:21:12 15 Q. Okay. And then Deep Work seems to have 16 disappeared. And the name -- 11:21:22 17 A. Nuytco. 11:21:23 18 Q. -- Nuytco appears with the same number of 19 shares. 11:21:25 20 A. Yes. 11:21:27 21 Q. What happened there? What's Nuytco? 11:21:28 22 A. Once again, this isn't intended as a formal 23 stock register. This was just intended to, for tracking 24 equity and walking it through. Nuytco was the parent 25 company to Deep Work, Inc. 61 11:21:41 1 Q. All right. That's fine. That's fine. And on 2 the cap table, Joe Grano's name appears in place of UBS, 3 correct? 11:21:52 4 A. Correct. 11:21:54 5 Q. Now, the cap table shows that DCC Ventures had 6 49.53 percent, correct? 11:22:01 7 A. Correct. 11:22:02 8 Q. And that's Mr. Kazeminy's company, as far as 9 you know? 11:22:05 10 A. As far as I know. 11:22:06 11 Q. All right. So at that point, Mr. Kazeminy or 12 his company did not own 80 percent of the company, 13 correct? 11:22:13 14 A. Not at that point, no. 11:22:15 15 Q. Okay. And this is in approximately late 2004? 11:22:19 16 A. October '04. 11:22:21 17 Q. Yeah. When do you recall Mr. Kazeminy 18 increased the percentage ownership above 49.53 percent? 11:22:33 19 A. I believe it would have been sometime in '05. 11:22:37 20 Q. In conjunction with a further investment? 11:22:42 21 A. No. I believe it was in connection with 22 conversion of some Series B shares. 11:22:56 23 Q. Who do you recall -- last question about this 24 exhibit. Who do you recall, then, was on the board 25 following the vote of the shareholders in October 2004? 62 11:23:05 1 A. You know, I'd have to go back and look at the 2 next board minute meetings -- minutes from the next 3 board meeting. 11:23:13 4 Q. All right. 5 (Exhibit 7 marked) 11:24:12 6 Q. (BY MR. BATTAGLINI) All right. I'm handing 7 you what has been marked as Thomas Exhibit No. 7. And 8 that is apparently a consent to action in lieu of 9 meeting. Effective June 17th, 2005. 10 Are you ready? 11:27:18 11 A. Uh-huh. 11:27:19 12 Q. Now, this document succeeds the other one by 13 about five or six, seven months, correct, eight months? 11:27:31 14 A. About. 11:27:32 15 Q. And it's signed by four members of the board 16 of directors? 11:27:37 17 A. Yes. 11:27:38 18 Q. As far as you recall, did this constitute the 19 entire board, the board that's reflected here on this 20 exhibit? 11:27:44 21 A. I believe so, yes. 11:27:45 22 Q. All right. Yourself, Mr. McKim, John 23 Ellingboe and Larry Lenig? 11:27:50 24 A. Yes. 11:27:52 25 Q. Is that the board that resulted from, 63 1 ultimately resulted from the prior shareholder meeting 2 the year before? 11:28:07 3 A. I believe so, yes. 11:28:07 4 Q. Okay. Now, did DCC Ventures, which was then 5 the largest shareholder, insist upon having board 6 representation at that point? 11:28:16 7 A. There was no request from DCC Ventures for 8 board representation. 11:28:20 9 Q. How about FLI Deep Marine, which would have 10 been the next largest shareholder along with UBS or Joe 11 Grano? 11:28:29 12 A. No. 11:28:29 13 Q. They did not insist upon board representation, 14 either? 11:28:31 15 A. No. 11:28:31 16 Q. Did Mr. Grano insist upon board 17 representation? 11:28:35 18 A. No. 11:28:35 19 Q. Did any other shareholder insist upon board 20 representation? 11:28:41 21 A. No. 11:28:43 22 Q. Do you know why Larry Lenig became a member of 23 the board? 11:28:50 24 A. Yes. That was from Mr. Kazeminy. He had, he 25 knew Mr. Lenig and wanted him on the board. 64 11:29:01 1 Q. Was there any discussion among the members of 2 the board, either formally or informally, about the 3 addition of Mr. Lenig to the board? 11:29:14 4 A. Informal discussions, I'm sure, with Mr., 5 Mr. Ellingboe. But that -- you know, an introduction 6 was made to Mr. Lenig, and he was nominated to the 7 board. 11:29:32 8 Q. All right. Did the shareholders approve 9 Mr. Lenig's addition to the board? 11:29:38 10 A. I don't recall a, I don't recall anything 11 going through the shareholders for the appointment of 12 Mr. Lenig. 11:29:50 13 Q. All right. Do you recall if there was any 14 issue about the appropriateness of Mr. Lenig's 15 nomination or election to the board? 11:29:59 16 A. I don't recall any. 11:30:01 17 Q. Now, this particular exhibit pertains to -- 18 and I'm looking at the first Whereas clause on Page 1. 19 Money that the company wished to borrow from U.S. Bank 20 and/or obtain credit accommodations. 11:30:20 21 A. Yes. 11:30:20 22 Q. In the amount of $1.3 million. 11:30:23 23 A. Yes. 11:30:23 24 Q. Was that some of the money that the company 25 was hoping to attract to fund operations or development 65 1 or acquisition of assets? 11:30:38 2 A. It was the funds need, the company needed to 3 complete the build of a vessel called the Diamond. 11:30:46 4 Q. Uh-huh. 11:30:48 5 A. It was funds the company needed. 11:30:52 6 Q. All right. Were you involved in the 7 negotiation and documentation of the investment from 8 U.S. Bank in the amount of $1.3 million? 11:31:06 9 A. I'm not sure I see an investment. I see a 10 loan. They're not the same. 11:31:14 11 Q. All right. Loan. 11:31:15 12 A. Yes. 11:31:15 13 Q. The loan document. Did you prepare the loan 14 documentation and sign off on it? 11:31:20 15 A. I would have signed off on it. 16 (Exhibit 8 marked) 11:31:41 17 Q. (BY MR. BATTAGLINI) All right. I'm handing 18 you what's been marked as Exhibit 8. It's another 19 consent to action in lieu of meeting. This is the one 20 dated August the 9th, 2005. Does this exhibit reflect a 21 further accommodation, credit accommodation from 22 U.S. Bank? 11:33:12 23 A. Yes. 11:33:15 24 Q. And it was signed off by all four directors? 11:33:18 25 A. Yes. 66 1 (Exhibit 9 marked) 11:33:43 2 Q. (BY MR. BATTAGLINI) I hand you what's been 3 marked as Thomas Exhibit 9 entitled Promissory Note. 4 All right. Is this a note dated January 5 the 24th, 2005 in the amount of the $1,371,000? 11:35:17 6 A. Yes. 11:35:18 7 Q. Made to DCC Ventures, LLC as payee? 11:35:24 8 A. Yes. 11:35:24 9 Q. And signed by you as CFO? 11:35:27 10 A. Yes. 11:35:28 11 Q. Do you recall what this was given in exchange 12 for? 11:35:36 13 A. Cash. 11:35:37 14 Q. Cash? Into the company? 11:35:43 15 A. Yes. 11:35:44 16 Q. All right. 17 (Exhibit 10 marked) 11:35:44 18 Q. (BY MR. BATTAGLINI) I hand you what is marked 19 Thomas No. 10 entitled Promissory Note. 20 This is a promissory note dated April the 21 15th, 2005 for $1 million payable to -- excuse me, 22 whereby DCC Ventures, LLC is the payee? 11:36:55 23 A. Yes. 11:36:55 24 Q. Signed by you as CFO? 11:36:57 25 A. Yes. 67 11:36:58 1 Q. And what was given in exchange for this note, 2 do you recall? 11:37:03 3 A. I believe cash. 11:37:04 4 Q. Cash to the company? 11:37:05 5 A. I believe so. 6 (Exhibit 11 marked) 11:37:20 7 Q. (BY MR. BATTAGLINI) I hand you what has been 8 marked Thomas Exhibit 11. Promissory note. 11:37:30 9 A. Yes. 11:38:24 10 Q. All right. Is that exhibit a promissory note 11 dated April the 18th, 2005 in the amount of a million 12 dollars whereby the payee is designated as DCC Ventures, 13 LLC? 11:38:34 14 A. Yes. 11:38:35 15 Q. Signed by you as CFO? 11:38:36 16 A. Yes. 11:38:37 17 Q. And what do you recall was exchanged for the 18 note? 11:38:40 19 A. Cash, I believe. 11:38:41 20 Q. Cash to the company? 11:38:43 21 A. I believe so. 22 (Exhibit 12 marked) 11:38:51 23 Q. (BY MR. BATTAGLINI) I hand you what has been 24 marked as Thomas Exhibit 12 entitled consent to action 25 in lieu of meeting. 68 1 Okay. This exhibit is entitled Consent 2 to Action in Lieu of Meeting of Deep Marine Technology, 3 Incorporated with an effective date of March the 8th, 4 2005, correct? 11:41:18 5 A. Correct. 11:41:18 6 Q. And are you among the directors that signed 7 off on this consent? 11:41:24 8 A. Yes. 11:41:24 9 Q. At this point there were three directors, 10 correct? 11:41:26 11 A. Correct. 11:41:26 12 Q. Now, one of the things that this consent 13 apparently pertains to is reflected in the first Whereas 14 clause where it says that the company intends to form a 15 Louisiana limited liability company as a wholly owned 16 subsidiary for the purpose of purchasing the motor 17 vessel Nicki Candies for a purchase price of 18 $15.2 million, correct? 11:41:53 19 A. Correct. 11:41:54 20 Q. What did the Nicki Candies come to be called 21 after the purchase? 11:42:00 22 A. The DMT Diamond. 11:42:03 23 Q. All right. And do you recall what the 24 exchange was, was it a cash exchange of 15.2 million or 25 some other exchange? 69 11:42:16 1 A. It was a convertible note. 11:42:18 2 Q. As reflected in the second Whereas clause? 11:42:21 3 A. Correct. 11:42:21 4 Q. Okay. So how much cash, then, did the company 5 pay, if any, for the purchase of the Nicki Candies 6 initially? 11:42:32 7 A. None. 11:42:32 8 Q. All right. In the one, two, three, four, 9 fifth Whereas clause it says the directors believe it is 10 in the best interest of the company to form the LLC for 11 the purpose of purchasing the ship. 12 Do you recall that the board deliberated 13 and determined that it was in the best interest of the 14 company to do that? 11:42:56 15 A. I, I don't recall a formal board meeting. Or 16 I mean, it was a discussed item informally. 11:43:05 17 Q. Informally? 11:43:06 18 A. Yes. 11:43:06 19 Q. And you were among the persons who discussed 20 it? 11:43:08 21 A. Yes. 11:43:09 22 Q. Was there any dissent? 11:43:12 23 A. No. 11:43:13 24 Q. All right. And the very next Whereas clause 25 says the directors believe it is in the best interest of 70 1 the company to approve the transaction with Candies and 2 the execution of the note. Do you recall if there was 3 any dissent to that? 11:43:27 4 A. I do not recall any. 11:43:37 5 Q. Did you, yourself, as CFO, look at anything in 6 particular, study anything, perform any due diligence to 7 determine whether or not what was being proposed here in 8 this consent was good business for the company? 11:43:53 9 A. We ran quite a few projections. 11:43:57 10 Q. And what did those projections show, if you 11 recall? 11:44:01 12 A. It was a, it was a good return on this vessel. 11:44:08 13 Q. All right. Was it also good that the company 14 didn't have to come up with cash in order to do the 15 deal? 11:44:18 16 A. Yes. 17 (Exhibit 13 marked) 11:44:22 18 Q. (BY MR. BATTAGLINI) I'll hand you what has 19 been marked as Thomas 13. By the way, Mr. Thomas, I'm 20 not going to ask you detailed questions concerning this 21 exhibit. 11:45:19 22 A. Oh. 11:45:19 23 Q. Just a few questions. 11:45:26 24 A. Okay. 11:46:06 25 Q. All right. This exhibit is entitled Articles 71 1 of Incorporation of Deep Marine Holdings, Inc. And it 2 has a file stamp in the upper right-hand corner of 3 November the 16th, 2005. Correct? 11:46:19 4 A. Correct. 11:46:21 5 Q. And is it true that your signature appears on 6 the very last page of this exhibit? 11:46:28 7 A. Yes. 11:46:29 8 Q. And it says B.J. Thomas, Incorporator? 11:46:32 9 A. Yes. 11:46:32 10 Q. And is it fair to say that you were involved 11 in the incorporation of Deep Marine Holdings, Inc.? 11:46:39 12 A. Yes. 11:46:39 13 Q. All right. Why did this come about? Why was 14 Deep Marine Holdings formed? 11:46:50 15 A. We were interested in providing the best legal 16 structure for protection and preservation of the assets 17 of the company. The structure that existed was one that 18 still had, or that had more exposure. Deep Marine 19 Technology is in a very dangerous business, and things 20 can go wrong. In the structure as it was, all of the 21 assets, all of the operations were in Deep Marine 22 Technology and were exposed in the event of a traumatic 23 or dramatic accident. 24 The intention of the structure was to 25 create a holding company that would have ownership of 72 1 the various vessels as separate entities as opposed to 2 having them as subsidiaries of Deep Marine Technology. 11:48:04 3 Q. All right. Did the board of Deep Marine 4 Technology meet to discuss the formation of this new 5 corporation? 11:48:16 6 A. I am not sure. Without, without reviewing the 7 notes, I can't be sure as to exactly how it was, how it 8 was done. But I, I believe it was discussed at a board 9 meeting as to the intention to move forward with this 10 kind of restructuring. 11:48:49 11 Q. Were you asked previously to prepare a plan of 12 action that resulted in the formation of this new 13 corporate entity? 11:48:58 14 A. I believe I laid out a plan of action for 15 creating that, creating the entity and the 16 reorganization that would take place. 11:49:04 17 Q. All right. You were asked by... 11:49:07 18 A. I prepared it. And I believe I prepared it 19 and suggested it to the board. 11:49:16 20 Q. All right. Let me ask you one particular 21 question about something that appears on Page 3 of that 22 exhibit under Article 7, Board of Directors, 23 Section 7.1. 11:49:36 24 A. Yes. 11:49:36 25 Q. It says the board of directors shall consist 73 1 of at least one but not more than 15 persons. Do you 2 see that? 11:49:44 3 A. Yes. 11:49:45 4 Q. The number of director positions may, by a 5 majority vote of the directors then in office, be 6 increased from time to time up to 15 members. Correct? 11:49:57 7 A. Yes. 11:49:58 8 Q. So does that mean to you -- and by the way, 9 did you prepare these articles or have them prepared at 10 your request? 11:50:05 11 A. Yes. 11:50:05 12 Q. So you have a fair understanding of what these 13 terms mean? 11:50:11 14 A. I, I would have to review them more carefully 15 to say that I've got a fair understanding. I can, I can 16 attempt to answer your questions, but... 11:50:23 17 Q. Well, let me ask it, and you tell me if you 18 can't answer it. Okay? 11:50:27 19 A. Okay. 11:50:27 20 Q. But as to the provision we just read at 21 Section 7.1, was it your understanding that the number 22 of directors for DMH could be increased by a majority 23 vote of the directors then in office? 11:50:42 24 A. It seems to indicate that. 11:50:46 25 Q. In other words, the shareholder vote -- 74 11:50:48 1 A. As best I can tell, yes. 11:50:50 2 Q. In other words, a shareholder vote wasn't 3 necessary to increase the number of directors? 11:50:54 4 A. That is best I can tell. 11:50:56 5 Q. All right. That's fine. 6 (Exhibit 14 marked) 11:50:58 7 Q. (BY MR. BATTAGLINI) I'm going to hand you 8 what's been marked as Thomas No. 14. And you probably 9 want to take a moment to review Exhibit No. 14. 10 MR. BATTAGLINI: And while you're doing 11 that, we're going to take a short break to make a copy 12 of something. 13 THE WITNESS: I'll take a short break, 14 also. 15 (Break from 11:51 to 12:09) 16 MR. DAVIDSON: Why don't we go back on 17 the record. 12:09:37 18 Q. (BY MR. BATTAGLINI) All right, Mr. Thomas. 19 I'd like to ask you some questions about the exhibit 20 which is entitled Financial Statements and Independent 21 Auditors Report, Deep Marine Technology, Inc. as of 22 March the 31st, 2005. Now, it's true that the outside 23 auditors were Fitts, Roberts and Company, PC? 12:10:24 24 A. Yes. 12:10:25 25 Q. And you provided information to Fitts Roberts 75 1 in order for them to prepare the auditors report? 12:10:32 2 A. Yes. 12:10:35 3 Q. There are some schedules, balance sheets, that 4 appear starting on Page 4. Pages 4, 5 and 6 contain a 5 summary of assets, liabilities and ultimately on Page 3, 6 a reflection of whether or not there was a net gain or 7 loss. Were those schedules prepared by you or prepared 8 by the auditors? 12:11:13 9 A. The underlying financial information would 10 have been prepared by us. 12:11:17 11 Q. All right. If I was to ask you some questions 12 about these balance sheets, you would be able to answer 13 my questions? 12:11:27 14 A. I don't know. It depends on the question. 12:11:30 15 Q. Yeah. All right. Turn to Page 4, if you 16 will, a comparison between -- this page contains a 17 comparison between 2004 and 2005? 12:11:56 18 A. Yes. 12:11:57 19 Q. And it reflects an increase of trade 20 receivables from 48,000 to 1.2 million? 12:12:06 21 A. Yes. 12:12:06 22 Q. Do you recall what that pertained to, that 23 increase? 12:12:12 24 A. The principal amount of that increase would 25 have been billings for the operation of the Nicki 76 1 Candies. 12:12:23 2 Q. Which became known as the Diamond? 12:12:25 3 A. Correct. 12:12:26 4 Q. So in other words, that, that boat was 5 purchased that became an asset and was put into service? 12:12:34 6 A. Yes, it was. 12:12:35 7 Q. And it started generating income for the 8 company? 12:12:38 9 A. This was prior to the purchase of the asset. 12:12:45 10 Q. Okay. How was the company able to generate 11 receivables prior to the purchase? 12:12:50 12 A. We chartered it. 12:12:51 13 Q. All right. What was the charter arrangement? 12:12:56 14 A. I, it would have been day rate -- I'm 15 guessing. I don't remember exactly. I believe it was a 16 day rate for the use of the vessel. 12:13:06 17 Q. Those are your net numbers? 12:13:08 18 A. I'm not sure what you mean. Net trade 19 receivables? 12:13:11 20 Q. Yes. 12:13:11 21 A. We didn't have a bad-debt reserve. 12:13:15 22 Q. Okay. What about the unbilled accounts 23 receivable that's reflected there in 2005, do you know 24 what that's attributable to? 12:13:24 25 A. That would have been revenue earned but 77 1 unbilled. In other words, we had a, an arrangement, a 2 contract with whoever we were providing the vessel to 3 for payment of invoicing of so much per day through 4 March 31st of 2005. We would not have been able to bill 5 that in March of 2005, but we would have earned the 6 income associated with it. 12:13:56 7 Q. The total assets reflected at the bottom of 8 that page went from 5.5 million to 13.3 million. What 9 do you attribute most of that to, that increase in total 10 assets? 12:14:09 11 A. Well, it's a combination of the increase in 12 currents assets and the increase in property and 13 equipment. 12:14:20 14 Q. Was there one or two single events or 15 acquisitions that accounted for the bulk of that? 12:14:25 16 A. The bulk of the construction in process for 17 assets, which would have been, which would have been for 18 the two ROVs that were on order. 12:14:39 19 Q. And on the next page, Page 5 -- and by the 20 way, how was the company able to finance the acquisition 21 of the two ROVs that were on order? 12:14:47 22 A. Mr. Kazeminy advanced cash. 12:14:52 23 Q. Do you recall approximately how much cash he 24 advanced? 12:14:54 25 A. Not offhand. I'd have to go back and look. 78 12:14:58 1 Q. All right. The next page, Page 5, reflects 2 current liabilities. And here I draw your attention to 3 the long-term debt entry which increased from 3.8 to 4 12.3 million. Is that reflective of some of the 5 promissory notes that were executed? 12:15:22 6 A. It would include those. 12:15:24 7 Q. All right. Anything else? 12:15:26 8 A. The Series A bonds, Series B bonds. 12:15:35 9 Q. If you look at the bottom of Page 6 where 10 everything is tallied up, it shows a decrease in the net 11 loss for the company from the prior year from 3.2 down 12 to 2.9, correct? 12:15:54 13 A. Correct. 12:15:56 14 Q. Did the board meet and consider where the 15 company was as of March 2005 in terms of the net loss 16 that's reflected? 12:16:10 17 A. The board would have been, the board and 18 Mr. Kazeminy would have been receiving monthly 19 statements so there would not have been any surprise 20 with this. They would have seen the monthly and 21 year-to-date results all the way through. 12:16:25 22 Q. Uh-huh. Did the board have an action plan to 23 try to turn the company around from a net loss position 24 to a net gain position? 12:16:37 25 A. Not labeled as such. But it was with the 79 1 acquisition of the Nicki Candies. 12:16:43 2 Q. And what was that designed to do, the 3 acquisition of the Nicki Candies? 12:16:48 4 A. It was designed to give the company an asset 5 in exchange for stock, not cash, that would generate 6 revenues and a positive bottom line. It was the 7 acquisition of the Nicki Candies with its associated ROV 8 and a second ROV. 12:17:07 9 Q. All right. If you'll turn to Page 30 of that 10 exhibit, under Note 13, Subsequent Events, purchase of 11 vessel Nicki Candies renamed the DMT Diamond. 12:17:25 12 A. Yes. 12:17:25 13 Q. It says that in March of 2005, DMT formed a 14 wholly owned subsidiary, Deep Marine 1, LLC, for the 15 purpose of acquiring the vessel Nicki Candies renamed 16 DMT Diamond. 17 Was that a part of the plan, was to form 18 this new subsidiary and hold the asset in that 19 subsidiary? 12:17:57 20 A. Yes. 12:17:57 21 Q. Now, it says that the purchase price was 22 15.2 million paid via the issuance of a senior secured 23 convertible note payable to Otto Candies by DM1. And 24 that's consistent with your prior testimony, correct? 12:18:06 25 A. Yes. 80 12:18:10 1 Q. Now, going to the bottom of the page it says 2 the vessel owned by DM1 is leased to the company via a 3 bare boat charter party at fair market rates. So in 4 other words, DM1 is leasing the asset to DMT? 12:18:30 5 A. Correct. 12:18:31 6 Q. At fair market rates? 12:18:32 7 A. Correct. 12:18:34 8 Q. Pursuant to a bare boat charter party? 12:18:38 9 A. Correct. 12:18:39 10 Q. And it says here the company will operate the 11 vessel and is responsible for all operating costs 12 including the maintenance of specified levels of 13 insurance coverage. So it's owned by DM1, operated by 14 DMT? 12:18:54 15 A. Yes. 12:18:54 16 Q. And then further, it says, on the next page, 17 that the company entered into a vessel operating 18 agreement with Otto Candies and under such agreement 19 Otto Candies will maintain, supply, and provide the 20 navigational crew to man and operate the Nicki Candies 21 for the company. 22 So on the one hand, the company was to 23 operate. But pursuant to this language, it suggests 24 that the company entered into an agreement with Otto 25 Candies to actually provide crew and operations, 81 1 correct? 12:19:30 2 A. To provide the crew for operating the vessel, 3 the actual operating of the vessel. In other words, the 4 captain and crew, the engineer, those were provided by 5 Otto Candies. 12:19:46 6 Q. And the compensation for that was cost plus 7 12 percent plus a fixed daily rate of $1607? 12:19:56 8 A. Correct. 12:19:57 9 Q. Now, did the board consider that and consider 10 that to be a good deal for the company, that particular 11 arrangement? 12:20:03 12 A. Yes. 12:20:03 13 Q. Why was that? 12:20:06 14 A. We -- the board was trying to limit the cost, 15 put it in a position where we knew what the operating 16 costs were going to be. We were not boat owners. And 17 this was, this was an arrangement that allowed us to, 18 kind of, peg that cost on a daily basis going forward. 12:20:37 19 Q. Now, when this occurred, when this arrangement 20 with Otto Candies occurred regarding the manning and 21 operation of the Nicki Candies, Otto Candies was not on 22 the board of DMT, correct? 12:20:50 23 A. Correct. 24 (Exhibit 15 marked) 12:21:15 25 Q. (BY MR. BATTAGLINI) I'm going to hand you 82 1 what's marked as Thomas 15. 2 MR. BATTAGLINI: And I have two extra 3 copies of this particular exhibit. 12:23:34 4 Q. (BY MR. BATTAGLINI) All right. Have you had 5 an opportunity to review this exhibit? 12:23:36 6 A. I'm most of the way through it. 12:24:01 7 Q. All right. 8 All right? 12:24:23 9 A. Okay. 12:24:24 10 Q. All right. You've had an opportunity to 11 review this exhibit? 12:24:27 12 A. Yes. 12:24:29 13 Q. It doesn't say minutes, but is this actually a 14 set of minutes of a board meeting of December the 16th, 15 2004? 12:24:36 16 A. Yes. 12:24:36 17 Q. All right. And you signed off as 18 secretary/treasurer on the last page? 12:24:40 19 A. Yes. 12:24:41 20 Q. And you prepared these minutes? 12:24:43 21 A. Yes. 12:24:43 22 Q. Now, having reviewed these minutes, do you 23 also bring back to mind the actual meeting? And were 24 you present at this meeting? 12:24:51 25 A. Yes, I was. 83 12:24:52 1 Q. Okay. Now, it says here in the first 2 paragraph that the meeting was called to order by Paul 3 McKim, chairman of the board, and that he and John 4 Ellingboe and Nasser Kazeminy and Joe Grano were 5 present. Were you also present? 12:25:09 6 A. Yes. 12:25:10 7 Q. It says that Nasser Kazeminy and Joe Grano 8 submitted their resignations. 12:25:16 9 A. Yes. 12:25:17 10 Q. Do you recall that? 12:25:19 11 A. Yes. 12:25:20 12 Q. Okay. So was it a matter of Mr. Kazeminy and 13 Mr. Grano not accepting the nomination and election to 14 the board, or was it a matter of them having accepted it 15 and later resigning? 12:25:36 16 A. I don't remember them actually accepting the 17 nomination. In other words, I don't believe they ever 18 became members of the board. 12:25:46 19 Q. Okay. Do you know why you chose the word, 20 then, resignation when you prepared these minutes? 12:25:51 21 A. I, I can't tell you in hindsight. That's, 22 that's quite a ways back. 12:25:57 23 Q. The next paragraph says as its first point of 24 business B.J. Thomas was nominated to the board by John 25 Ellingboe? 84 12:26:03 1 A. Yes. 12:26:04 2 Q. And the motion was carried unanimously and 3 that you accepted the nomination -- 12:26:09 4 A. Yes. 12:26:10 5 Q. -- correct? Does that indicate that at some 6 point you were not actually on the board? 12:26:14 7 A. Yes. 12:26:15 8 Q. And do you recall what happened there? 12:26:18 9 A. No. 12:26:20 10 Q. So you were on the board, at some point you 11 were not on the board, and now you're back on the board? 12:26:25 12 A. Yes. 12:26:30 13 Q. The next paragraph says the board held an 14 election for chairman of the board. Paul McKim 15 nominated John Ellingboe. No further nominations were 16 made, and John Ellingboe accepted the position as 17 chairman. Correct? 12:26:44 18 A. Correct. 12:26:44 19 Q. Who was chairman prior to this occurrence? 12:26:48 20 A. I believe Paul McKim. 12:26:50 21 Q. Okay. Do you know why Paul McKim was not 22 either nominated or did not continue as board chairman? 12:27:00 23 A. Not offhand. 12:27:03 24 Q. Okay. Do you know how long John Ellingboe 25 served as chairman of the board? 85 12:27:09 1 A. Some period of time. Until Bruce Gillman 2 became chairman of the board. 12:27:25 3 Q. The sixth paragraph down says appointment of 4 officers for DMT was discussed by the board. Paul McKim 5 was nominated as president, and B.J. Thomas was 6 nominated as secretary/treasurer by B.J. Thomas. And 7 that the motion was carried unanimously. 8 Prior to that date, were you not, then, 9 serving as secretary/treasurer? 12:27:48 10 A. Yes, I believe I was. 12:27:49 11 Q. And was Paul McKim not, then, serving as 12 president? 12:28:01 13 A. Yes, he was. 12:28:01 14 Q. Okay. Do you know why it was necessary for 15 the board to renominate these individuals for these 16 positions? 12:28:04 17 A. Not offhand, no. 12:28:11 18 Q. Two paragraphs following that it says the need 19 for the board to add additional members was discussed 20 and several names were considered. B.J. Thomas moved 21 that Larry Lenig -- and it says Jed DiPaolo. Is that 22 correct, or is it DePalma? 12:28:28 23 A. DiPaolo. 12:28:27 24 Q. Oh. There is a DiPaolo? 12:28:31 25 A. Yes. there is a DiPaolo. 86 12:28:33 1 Q. Okay. That Larry Lenig and Jed DiPaolo be 2 invited to join the board. Why did you make that 3 motion? 12:28:40 4 A. These were names of individuals -- Larry Lenig 5 was somebody that Nasser knew and thought should be on 6 the board. Jed DiPaolo was somebody that worked for 7 Growth Capital Partners, who was a group we were using 8 with an eye towards an equity-raising round. He had 9 previous experience, I believe, with Halliburton and 10 with Boots and Coots. Offshore -- I mean, he was 11 familiar with the offshore industry. 12:29:25 12 Q. Uh-huh. Why did you make those particular -- 13 why did you make that motion for both Mr. Lenig and 14 Mr. DiPaolo? 12:29:35 15 A. Well, there was only three of us so somebody 16 had to make it. 12:29:39 17 Q. You did not make the motion independently; you 18 relied upon someone else's suggestion to make that 19 motion? 12:29:46 20 A. Well, it was, it was from Mr. Kazeminy in 21 terms of bringing Larry Lenig on board. Jed DiPaolo was 22 somebody that was discussed and Mr. Kazeminy indicated 23 he wanted on the board if he was willing to accept the 24 position. 12:30:04 25 Q. All right. Did Mr. Kazeminy have a discussion 87 1 with you about nominating Larry Lenig? 12:30:12 2 A. It would have been a discussion at the board 3 meeting about bringing those names to the board. 12:30:18 4 Q. Okay. Was there any discussion regarding 5 these two individuals and the appropriateness of naming 6 these two individuals to the board? 12:30:31 7 A. I'm sure there was some discussion of the 8 board. 12:30:49 9 Q. If you turn to the next page, the paragraph 10 that starts consideration for First Long Island 11 Investors. Do you see where that is? 12:30:58 12 A. Yes. 12:31:00 13 Q. It says when the Series B bonds were first 14 issued, the conversion price was in excess of $1600 per 15 share. When the conversion price was reduced to $393.80 16 per share, FLI was not contacted. 17 Did that present a problem for the board? 12:31:28 18 A. Just in terms of equity. We didn't, we -- it 19 was discussed. They had spoken with Joe Grano, and he 20 thought it was inequitable to them when the, when the 21 change in the exercise price was made. 12:31:47 22 Q. All right. So was a resolution proposed? 12:31:50 23 A. Yes. 12:31:50 24 Q. And it says here that you moved that FLI be 25 issued a number of shares to be calculated based on the 88 1 ownership percentage FLI would have had if the 2 $6 million Series B bond had been issued with the 3 $1684.21 conversion price. 4 How did you know to make that particular 5 motion? Is that something you'd already calculated and 6 worked through prior to this meeting? 12:32:23 7 A. As I remember, we sat down, Joe and I sat down 8 and walked through the math of it prior to the meeting. 12:32:36 9 Q. It says here that you were instructed to 10 calculate the number of shares and discuss with FLI. 11 Did you do that? 12:32:43 12 A. Yes. 12:32:44 13 Q. And was FLI in agreement with what was being 14 proposed? 12:32:48 15 A. Yes. 12:32:48 16 Q. Who did you talk to specifically, do you 17 recall? 12:32:50 18 A. Don't recall. 12:32:55 19 Q. In the next paragraph it says consideration 20 for DCC was discussed. Do you recall that discussion? 12:33:03 21 A. Yes. 12:33:05 22 Q. And did this also have to do with some 23 equitable consideration? 12:33:09 24 A. Yes. 12:33:09 25 Q. Okay. And what was the resolution of that? 89 12:33:12 1 A. That there was an additional set of warrants 2 issued to DCC. 12:33:24 3 Q. Was there any discussion or dissent regarding 4 this proposal? 12:33:30 5 A. No. 12:33:36 6 Q. In the next paragraph it says the board 7 discussed the arrangements of the proposed vessel sale 8 from Otto Candies, LLC for a secured convertible note. 9 It says that you moved that the proposed arrangement 10 with conversion of the note at 22 percent to 25 percent 11 of the outstanding stock of DMT based on various factors 12 to be negotiated be accepted. And that the motion 13 carried unanimously. 14 So do I read this correctly whereby the 15 conversion would result in Otto Candies, LLC owning 22 16 to 25 percent of the equity of the company? 12:34:14 17 A. Yes. 12:34:16 18 Q. And the board considered that to be a good 19 arrangement at the time? 12:34:20 20 A. Yes. 12:34:21 21 Q. All right. 22 MR. BATTAGLINI: I think that it's 23 approximately 12:30, 12:34. Should we break for lunch 24 now? 25 MR. DAVIDSON: Sure. 90 1 MR. BATTAGLINI: We're off. 2 (Break from 12:34 to 1:20) 13:20:56 3 Q. (BY MR. BATTAGLINI) If you would place back 4 before you the financial statements we were looking at 5 earlier? That's Exhibit No. 14? 13:21:09 6 A. Yes. 13:21:09 7 Q. And if you would turn to -- well, let's start 8 with Page 26. At the bottom it's entitled Consulting 9 Agreement with a Director? 13:21:23 10 A. Yes. 13:21:24 11 Q. Do you recall a consulting agreement with a 12 director early on? 13:21:29 13 A. Yes. 13:21:30 14 Q. Who was the director? 13:21:32 15 A. Jeff Langberg. 13:21:33 16 Q. And what was he doing for the company in a 17 consulting capacity? 13:21:38 18 A. A myriad of things. He was looking over the 19 results of operations. He was also looking for 20 additional funding for us. 13:21:57 21 Q. And how much did the company pay him for 22 consulting? 13:22:04 23 A. 100,000 and 96,000 in 2005 and 2004 24 respectively. 13:22:11 25 Q. Okay. Do you think that was the extent of it, 91 1 or was he engaged beyond that time? 13:22:16 2 A. I think that was the extent of it. 13:22:23 3 Q. Is Mr. Langberg one of the persons who 4 proposed seeking funding from Nasser Kazeminy? 13:22:35 5 A. Not that I'm aware of. 13:22:36 6 Q. Is he one of the persons who proposed an 7 arrangement with Otto Candies, LLC? 13:22:45 8 A. I don't believe so. 13:22:46 9 Q. All right. What specifically do you recall 10 that he proposed in terms of additional funding? 13:22:55 11 A. I don't know that he brought anybody else to 12 the table. I don't recall him bringing anybody else to 13 the table for additional funding. 13:23:04 14 Q. All right. If you will turn to Page 22 of 15 that exhibit it talks about the board approving and 16 having ratified by the shareholders an employee stock 17 option program. Do you see that? 13:23:26 18 A. Yes. 13:23:26 19 Q. Did you ever receive any stock options 20 pursuant to that program? 13:23:30 21 A. Yes. 13:23:31 22 Q. How many did you receive? 13:23:33 23 A. I don't recall. I'd have to go back and look 24 as to the exact number. 13:23:37 25 Q. Did you ever exercise the option? 92 13:23:39 1 A. Yes, I did. 13:23:40 2 Q. When do you recall having exercised it? 13:23:43 3 A. 2008. 13:23:45 4 Q. Okay. Following your separation from the 5 company? 13:23:48 6 A. Correct. 13:23:49 7 Q. All right. And what was the exercise price, 8 do you recall? 13:23:54 9 A. $393.80 a share. 13:23:57 10 Q. For how many shares? 13:23:59 11 A. I don't remember the exact number. 13:24:00 12 Q. Okay. Give me a ballpark of how much you 13 think you -- what it was. Was it in excess of $100,000? 13:24:08 14 A. Yes. 13:24:08 15 Q. Was it in excess of $300,000? 13:24:12 16 A. I believe so. 13:24:13 17 Q. Okay. Where were you able to derive the funds 18 to exercise the option? 13:24:18 19 A. I borrowed them. 13:24:20 20 Q. Okay. Who did you borrow from, do you know? 21 MR. DAVIDSON: Counsel, same question, I 22 guess, that I had earlier as to how, how this is within 23 the scope of the 202 order, what the source of his funds 24 were to be able to purchase stock options. 25 MR. BATTAGLINI: Well, again, the 202 93 1 order doesn't specify a scope. This is an 2 investigation, an internal investigation of the company. 3 MR. DAVIDSON: Okay. 4 MR. BATTAGLINI: So the company has an 5 interest in knowing. 6 MR. DAVIDSON: Okay. Well, in that case, 7 at this time, until we hear more to justify the 8 question, I'm going to instruct Mr. Thomas not to answer 9 that question for the same reasons as previously stated. 10 Because I don't think that has anything to do with 11 anything. 13:25:22 12 Q. (BY MR. BATTAGLINI) Why did you borrow money 13 in order to exercise the option? 13:25:30 14 A. To have cash to exercise the option. 13:25:34 15 Q. Why did you want to exercise the option? 13:25:38 16 A. Because I thought that the value of the 17 company justified the investment. 13:25:46 18 Q. Do you still think that? 13:25:48 19 A. I don't know. I haven't seen financials in a 20 while. 13:25:51 21 Q. If you thought at the time of the exercise 22 that the investment was justified, was that based upon 23 your having worked for the company for several years and 24 having been familiar with the books and records, the 25 relative value of the assets, prospective opportunities 94 1 for the firm, all of those kinds of things? 13:26:13 2 A. Yes. 13:26:14 3 Q. Okay. So bottom line, you thought that the 4 company was well positioned and was going to do well in 5 the future? 13:26:21 6 A. I thought I had a fairly well protected 7 downside in the event the company had to liquidate its 8 assets. 13:26:28 9 Q. And what would be the well protected downside? 13:26:30 10 A. In excess of what I was paying for the shares. 13:26:38 11 Q. And how would that come about? 13:26:41 12 A. The exercise price of the shares in total was 13 at a relatively low value overall because of when they 14 were granted. 13:26:55 15 Q. Okay. Do you know if anyone else outside the 16 company was offered options at the same price, share 17 price? 13:27:11 18 A. Other than the warrants we discussed 19 previously? 13:27:13 20 Q. Yeah. 13:27:14 21 A. No. 13:27:17 22 Q. Now, you told me earlier that when the company 23 first got started, the first year or two, not that much 24 attention was paid to having board meetings but that at 25 some point, perhaps beginning in 2005, late 2004, the 95 1 company started having regular or irregular board 2 meetings, correct? 13:27:40 3 A. Yes. 13:27:40 4 Q. Okay. And that carried throughout your tenure 5 with the company? 13:27:44 6 A. Yes. 13:27:47 7 Q. And that each of those meetings was properly 8 recorded with minutes and that any resolution was 9 properly prepared and executed, at least by you as 10 secretary, right? 13:27:56 11 A. Yes. 13:27:56 12 Q. Is it your opinion that the company, let's say 13 starting in 2005, complied adequately with corporate 14 governance? 15 MR. WALLACE: Objection, form. 13:28:11 16 A. As far as I know. 13:28:14 17 Q. (BY MR. BATTAGLINI) Did you ever sign anything 18 as CFO or as secretary indicating that, that the company 19 was complying with proper procedures? 13:28:26 20 A. Not that I recall. 13:28:30 21 Q. Nevertheless, it was your opinion as the CFO 22 that the company was complying with proper procedures? 23 MR. WALLACE: Objection, form. 13:28:38 24 A. I believe so. 13:28:40 25 Q. (BY MR. BATTAGLINI) Okay. Was there ever a 96 1 discussion at the board level, when you were a board 2 member, that the company was not adequately complying 3 with proper corporate procedures? 4 MR. WALLACE: Objection, form. 13:28:53 5 A. Not that I recall. 13:28:54 6 Q. (BY MR. BATTAGLINI) Was there ever a 7 discussion, for example, where it was determined that 8 the company needed to do something to improve or revise 9 its internal procedures? 13:29:08 10 A. With regard to -- I'm asking you -- internal 11 procedures is a pretty wide-open question -- 13:29:26 12 Q. It is. 13:29:26 13 A. -- so I'm trying to figure out where it is, 14 what it is you're specifically asking about. 13:29:26 15 Q. Let me break it down into two areas. 13:29:26 16 A. Okay. 13:29:26 17 Q. One would be on the financial side, financial 18 reporting, essentially. And the other would be 19 corporate governance. Any discussions like that at the 20 board level regarding improvements that could have been 21 made, that should be made, that were made? 13:29:36 22 A. For corporate governance? 13:29:38 23 Q. Yes. 13:29:39 24 A. Not that I recall. 13:29:40 25 Q. How about on the financial reporting side? 97 13:29:42 1 A. We discussed becoming Sarbanes-Oxley 2 compliant. 13:29:47 3 Q. All right. What kind of controls did you have 4 in place as a CFO having to do with the payment of money 5 to outside vendors and outside persons? 13:30:02 6 A. We had approval levels for the various 7 operations people involved in operating the company. 13:30:08 8 Q. Uh-huh. 13:30:10 9 A. Those approval levels went with purchase 10 orders. That rolled up into signed-off-on invoices and 11 the issuance of funds. 13:30:25 12 Q. So basically you would pay off an invoice, a 13 properly approved invoice? 13:30:29 14 A. Yes. 13:30:30 15 Q. But you otherwise would not make a payment? 13:30:32 16 A. We'd try not to. 13:30:34 17 Q. Okay. Do you recall if there were instances 18 when payments were made in the absence of an approved 19 invoice? 13:30:41 20 A. I don't necessarily recall one way or the 21 other. It could have been either one. I'd have to, I'd 22 have to look and see the circumstances. 13:30:49 23 Q. All right. Were you the person in charge of 24 that as CFO -- 13:30:53 25 A. Yes. 98 13:30:54 1 Q. -- payments going out the door? 13:30:55 2 A. Yes. 13:30:56 3 Q. Okay. Was anything discussed at the board 4 level about, let's call them, improper payments, 5 payments made in the absence of your controls? 13:31:09 6 A. I don't recall any conversations about that. 13:31:11 7 Q. Were you ever reprimanded by anyone for having 8 failed to comply with the company's own internal 9 controls regarding a payment of monies? 13:31:23 10 A. No. 13:31:29 11 Q. Were you ever asked or instructed to make a 12 payment to anyone in the absence of internal controls? 13:31:38 13 A. Not that I recall. 13:31:58 14 Q. What kind of insurance program did DMT have 15 prior to -- 13:32:05 16 A. I'm sorry. Repeat the question, please? 13:32:07 17 Q. What kind of insurance program did DMT have 18 prior to the formation of DMH? 13:32:14 19 A. We had a fairly extensive insurance program 20 involving a significant amount of insurance having to do 21 with our operations. 13:32:42 22 Q. Do you recall who the insurance was placed 23 with prior to the formation of DMH? 13:32:48 24 A. Aon insurance. 13:32:49 25 Q. Was that part of your responsibility, in 99 1 addition to being CFO, you also had the insurance side, 2 as well? 13:32:55 3 A. Yes. 13:32:55 4 Q. Okay. Did you meet with Aon and talk to Aon 5 about what they were proposing each year for the levels 6 of insurance you needed? 13:33:03 7 A. Yes. 13:33:04 8 Q. Did you have a fair idea of the insurance 9 portfolio that the company was purchasing through Aon? 13:33:11 10 A. Yes. 13:33:11 11 Q. Okay. What do you recall that the company was 12 spending on a yearly basis, on an annual basis for its 13 insurance coverage, overall insurance coverage? 13:33:20 14 A. It escalated from year to year as operations 15 grew. 13:33:24 16 Q. Of course. Do you recall what it was early 17 on? 13:33:26 18 A. Early on it would have been, I'm guessing, 19 probably in the 5 to $700,000 range. 13:33:36 20 Q. For your annual premium? 13:33:37 21 A. Yes. 13:33:38 22 Q. And then in, let's say, 2007, do you happen to 23 recall approximately what the premium was? 13:33:44 24 A. I believe it was close to $2 million. 13:33:47 25 Q. All right. And again, it was all through Aon? 100 13:33:50 1 A. Yes. 13:33:51 2 Q. Okay. Was there ever a time when any company, 3 either a broker or a consultant, pitched business to the 4 company asking to come in and make a presentation about 5 what they could offer to replace Aon? 13:34:06 6 A. Yes. 13:34:07 7 Q. Okay. How often did that happen? 13:34:09 8 A. Occasionally. 13:34:10 9 Q. All right. Did you sit in on those 10 presentations? 13:34:15 11 A. They typically routed through me. 13:34:17 12 Q. Okay. Was part of the presentation that 13 someone could beat Aon's ultimate cost of insurance 14 premiums that were being paid? 13:34:26 15 A. No. 13:34:27 16 Q. It wasn't a price point; it was some other 17 issue that they thought they could do better than Aon? 13:34:31 18 A. Well, as is typical in most sales job, it 19 was -- if we were approached, it was, you know, a chance 20 to discuss it, a chance to talk about it, a chance to 21 become involved in it. 13:34:49 22 Q. Okay. Did the company ever consider moving 23 away from Aon? 13:34:57 24 A. No. Not -- well, yes. 13:34:59 25 Q. When was that, do you recall? 101 13:35:01 1 A. It was considered in 2006. 13:35:07 2 Q. And do you recall the circumstance? 13:35:10 3 A. Yes. We were -- or I was told to meet with 4 some people from, or with someone from Hays Insurance 5 operating out of Minneapolis. 13:35:27 6 Q. Okay. Who asked you to meet with Hays? 13:35:31 7 A. I believe it was John Ellingboe. 13:35:33 8 Q. Okay. And what would be the purpose for 9 meeting with Hays? 13:35:37 10 A. To talk to them about them taking over our 11 insurance. 13:35:42 12 Q. Now, is Hays situated in the same way that Aon 13 is? In other words, does Hays offer products, or is 14 Hays set up differently? Do you recall? 13:35:55 15 A. I -- Hays offers products. They offer 16 insurance. 13:35:58 17 Q. But Hays itself is not an insurance company, 18 is it? 13:36:00 19 A. No. No. They're a broker. 13:36:03 20 Q. Okay. 13:36:04 21 A. My understanding is they're a broker. 13:36:05 22 Q. Okay. And did you meet with Hays? 13:36:07 23 A. Yes. 13:36:08 24 Q. Where did this occur? 13:36:10 25 A. Dinner with Mike Prinz from Hays. 102 13:36:13 1 Q. And where did that take place, in Houston? 13:36:15 2 A. Yes. 13:36:16 3 Q. All right. And do you recall anything from 4 the dinner that you had with Mike Prinz? 13:36:21 5 A. Well, there were a couple of dinners. They 6 were interested in picking up our insurance. There was 7 a meeting with Mike Prinz and another gentleman from a 8 different agency located here in Houston that they were 9 talking about doing a joint venture arrangement of some 10 kind in order to cover our offshore liability insurance. 11 So there were a couple of different discussions. 13:36:49 12 Q. Okay. Did they discuss with you who they were 13 thinking of placing the insurance with? 13:36:54 14 A. No. There's a very limited number of agencies 15 that cover our kind of insurance. 13:36:59 16 Q. Aon being one? 13:37:02 17 A. Aon's a broker. 13:37:04 18 Q. Understood. What kind of products was Aon 19 selling the company? 13:37:08 20 A. The insurance coverage that we needed for our 21 Jones Act payroll, our umbrella policy, our general 22 liability policy. They brokered our workmen's comp 23 insurance. Our equipment coverage. Our vessel 24 insurance. 13:37:26 25 Q. Was Mike Prinz suggesting that Aon be replaced 103 1 as the broker but that you might go with the same 2 insurance products, or was Mike Prinz proposing a 3 complete change in the products that you were currently 4 purchasing? 13:37:39 5 A. No. He was recommending a change in broker, 6 not a change in coverage. 13:37:43 7 Q. Not a change in coverage. Okay. And what was 8 he proposing exactly, that he could save you money from 9 what you were paying Aon; or what would be the 10 attraction? 13:37:55 11 A. There was no recommendation that it would be 12 cheaper. 13:37:59 13 Q. Okay. 13:38:00 14 A. It was that they could provide the same level 15 of service. 13:38:08 16 Q. Okay. And you had one or more dinners, two 17 dinners, three dinners with Mike Prinz? 13:38:14 18 A. Two or three. 13:38:15 19 Q. Two or three. And you came away from those 20 dinners with an understanding of what, that you had 21 something to recommend not recommend? What was the 22 result of all that? 13:38:25 23 A. I sent an e-mail to Mr. Kazeminy recommending 24 that we not change our insurance coverage from Aon. 13:38:32 25 Q. The coverage or the broker? 104 13:38:34 1 A. The broker. 13:38:35 2 Q. Okay. And again, the issue really wasn't 3 coverage that was being provided, the insurance products 4 that you were actually paying for; the issue was whether 5 or not you would have someone in place recommending 6 products to you? 13:38:46 7 A. We change brokers. 13:38:49 8 Q. Yeah. 13:38:50 9 A. That was, that was the source of the 10 suggestion, to meet with them. And my memo to 11 Mr. Kazeminy was that we not change brokers. 13:38:58 12 Q. Okay. Why did you send a memo to Mr. Kazeminy 13 about that? 13:39:03 14 A. John Ellingboe and I discussed it, and we 15 needed to send a report back to Mr. Kazeminy. 13:39:09 16 Q. Why to Mr. Kazeminy? 13:39:11 17 A. Because ultimately he was going to, he would 18 be the one that decided how that worked. 13:39:19 19 Q. Why was Mr. Kazeminy going to be the one who 20 ultimately decided that? 13:39:26 21 A. NJK Holding had an oversight agreement with 22 Deep Marine Technology. Mr. Kazeminy, through his 23 various entities, owned a significant if not controlling 24 interest in DMT. So he was, he was a reasonably active 25 owner. And it was, it was going to be his call. 105 13:39:51 1 Q. So under the oversight agreement, insurance 2 matters were something that would be discussed with 3 Mr. Kazeminy or his representatives? 13:39:59 4 A. Yes. Insurance was a significant cost item to 5 us. 13:40:03 6 Q. Okay. With your, with your Aon programs over 7 the years, was there any gaps in coverage? 13:40:10 8 A. Not that I'm aware of. 13:40:11 9 Q. Things where Aon really couldn't pull together 10 the right coverage or the right coverage at the right 11 price or wasn't able to insure certain risks? 13:40:21 12 A. Not that I'm aware of. 13:40:25 13 Q. Was, did Hays suggest to you or Mike Prinz 14 suggest to you that one of the things that Hays could 15 provide was looking closely at what you were being 16 covered for to determine and place insurance to cover 17 any gaps or to cover risks that weren't currently being 18 covered, things like that? 13:40:47 19 A. Not that I recall. 13:40:48 20 Q. You don't recall conversations like that? 13:40:49 21 A. No. 13:40:50 22 Q. What were you talking about at your dinners, 23 then, in the two to three dinners that you had? 13:40:53 24 A. We talked about Pinot noir wines from Oregon. 25 And we talked about various other things. And we talked 106 1 about insurance. That was mostly what we talked about. 2 At the one dinner with the other 3 gentleman we talked about their history and background 4 and what they thought they could bring to the table in 5 terms of providing us the same level of service that Aon 6 was providing. 13:41:23 7 Q. Okay. So you sent an e-mail to 8 Mr. Kazeminy -- you and Mr. Ellingboe both sent an 9 e-mail? 13:41:29 10 A. No. I sent it. 13:41:30 11 Q. You sent it. And what was the result of all 12 of that? 13:41:34 13 A. As -- I never heard back, but we never heard 14 anything more. And we came up on our renewal with Aon 15 and proceeded. 13:41:42 16 Q. All right. And that's the extent of your 17 knowledge about the business with Hays? 13:41:48 18 A. Hays also provided, by virtue of Mr. Kazeminy 19 having over a 50-percent-ownership stake including the 20 shares owned by DCC Ventures, we were, we had available 21 coverage under the NJK D&O insurance. 13:42:11 22 Q. Expand on that. What do you mean exactly, 23 that you had available? 13:42:15 24 A. Well, we became -- it became available for us 25 to be included in their coverage as a subsidiary. 107 13:42:21 1 Q. Okay. And that meant you personally, since 2 you were a D or an O, right? 13:42:26 3 A. Yes. 13:42:27 4 Q. So you would have benefited or you did benefit 5 because of coverage that NJK had secured? 13:42:36 6 A. I guess that depends on whether they write the 7 check on the other end or not as to whether it was 8 beneficial. 13:42:45 9 Q. NJK had D&O coverage through who, do you know? 13:42:55 10 A. I believe it was placed originally with Aon 11 and then subsequently with Hays. 13:42:55 12 Q. All right. And the idea was that the premium 13 that was paid by NJK for this D&O coverage would also 14 cover you in your role as a director and/or officer of 15 DMT or DMH? 13:43:05 16 A. Yes. 13:43:06 17 Q. Okay. Did that ever happen, ever come into 18 place? 13:43:09 19 A. Did the coverage ever come into place? Yes. 13:43:12 20 Q. It did? 13:43:12 21 A. Yes. 13:43:13 22 Q. How do you know that? 13:43:15 23 A. Because one of our directors was pretty 24 insistent about seeing the naming and the coverage of 25 the policy. 108 13:43:21 1 Q. Okay. So you saw the policy itself? 13:43:23 2 A. Yeah. I believe so. 13:43:25 3 Q. Okay. And were you satisfied that you were 4 covered under this policy? 13:43:28 5 A. Well, I had coverage. And, you know, how much 6 coverage and how good it is is always relative. It 7 could have been better. 13:43:35 8 Q. How, who was actually paying the premium for 9 that D&O coverage? Was DMT paying for it or somebody 10 else? 13:43:42 11 A. Well, I don't recall, I don't recall how DMT 12 paid for it in terms of its allocated share of 13 insurance. I just, I simply do not recall. 14 However, my experience with NJK was that 15 they didn't leave a whole lot on the table in terms of 16 allocating cost back-outs. So somehow, some way, I'm 17 reasonably sure, just from experience, that we did, in 18 fact, pay for it. 13:44:14 19 Q. And the way you would have paid for it is by 20 paying some monies under the oversight agreement? 13:44:20 21 A. Would have been payments to NJK. Yes. 13:44:23 22 Q. Okay. For general oversight. And as part of 23 that, you're suggesting that -- 13:44:27 24 A. No. 13:44:27 25 Q. -- some of that money would -- 109 13:44:27 1 A. No, no. It would have been a separate 2 payment. 13:44:30 3 Q. Separate payment. And again, according to the 4 internal controls, would you have expected to see an 5 invoice or something similar that you would have 6 approved that would have generated such a payment? 13:44:39 7 A. Yes. 13:44:40 8 Q. Did you ever see such an invoice? 13:44:42 9 A. I just simply do not recall. It's been too 10 long. 13:44:49 11 Q. Okay. Now, this D&O coverage that we're 12 talking about, how long was that in place, right up 13 until the time you left the company? 13:45:01 14 A. Yes. I believe so. 13:45:02 15 Q. Okay. How many years do you recall it being 16 in place? 13:45:08 17 A. I think it began in '05. So from there 18 forward. 13:45:15 19 Q. All right. Do you recall a -- and this is in 20 the context of insurance which we've been talking about. 21 Do you recall a claim, an intellectual property claim, 22 made by another company and the claim was in excess of a 23 million dollars and it was intended that insurance cover 24 that? Did you get involved with that at all? 13:46:06 25 A. I don't remember that at all. But I'd be -- 110 1 could have been. I just don't recall. 13:46:19 2 Q. Were you involved generally with the payment 3 of claims being made? 13:46:25 4 A. I would have been around it, yes. I mean, we 5 had claims for accidents. You know, I would have been 6 aware because it would have had a direct impact on our 7 insurance. We would have had a minimum payment that we 8 would have been required to have made. 13:46:42 9 Q. Sure. 13:46:42 10 A. So, yes, I would have been reasonably familiar 11 with those. 13:46:45 12 Q. Do you recall a specific instance where it was 13 determined that you didn't have, the company didn't have 14 sufficient insurance to cover the claim? 13:46:52 15 A. I don't recall any claims like that. 13:46:54 16 Q. Now, before we leave the subject of insurance, 17 did the company ever end up doing business with -- did 18 DMT or DMH ever end up doing business with the Hays 19 Company? 13:47:41 20 A. Directly? 13:47:42 21 Q. Directly. 13:47:43 22 A. Yes. 13:47:45 23 Q. Okay. When was that? 13:47:47 24 A. That would have been in '07. 13:47:53 25 Q. Okay. And what was the nature of the business 111 1 that the company was doing with the Hays Company? 13:47:57 2 A. There was an insurance consulting agreement. 13:48:05 3 Q. Okay. And is that something that you had 4 looked at and signed off on? 13:48:10 5 A. And it was something that was sent to us, and 6 the direction from Mr. Kazeminy was that we would enter 7 into that agreement and pay the Hays group. 13:48:28 8 Q. What was the nature of the arrangement, what 9 was Hays supposed to be doing pursuant to this 10 agreement? 13:48:34 11 A. Consulting work related to insurance. 13:48:38 12 Q. All right. Prior to that time was anybody 13 doing consulting work for your insurance program? 13:48:44 14 A. No. 13:48:45 15 Q. You had not had a consultant? 13:48:48 16 A. Not an outside consultant, no. 13:48:51 17 Q. All right. Did you have a basic understanding 18 of the services that are performed by an insurance 19 consultant? 13:48:59 20 A. Basic, yes. 13:49:00 21 Q. Okay. What was your understanding at the time 22 of what an insurance consultant would offer a company? 13:49:05 23 A. An outside consultant for insurance? 13:49:08 24 Q. Yes. 13:49:09 25 A. I -- we never employed one. I didn't 112 1 investigate it. I apologize. I misunderstood the 2 question. I understood what our broker was doing. 13:49:18 3 Q. Okay. Separate and apart from what your 4 broker was doing, did you have an understanding of what 5 an insurance broker -- I mean, excuse me, an insurance 6 consultant would offer? 13:49:29 7 A. No. Not really. 13:49:30 8 Q. Was it ever explained to you the services that 9 would be provided under such an agreement? 13:49:37 10 A. No. 11 (Exhibit 17 marked) 13:50:16 12 Q. (BY MR. BATTAGLINI) I'm going to hand you -- 13 and this is slightly out of order -- Exhibit 17. I'll 14 go back to 16 later. It's several pieces of paper with 15 a paper clip on it attaching them together. I merely 16 attached them for convenience. And I'd like to kind of 17 walk you through what this is. 18 Have you seen many of these documents 19 before? 13:51:52 20 A. Yes. 13:51:53 21 Q. All right. Let's take them in order. The one 22 on the top is called a Disclosure of Service Fee. And 23 it's on Hays letterhead. And it's dated March the 30th, 24 2007. It appears to be signed by Paul McKim. Do you 25 recall having seen that page before? 113 13:52:18 1 A. Yes. 13:52:19 2 Q. All right. How did you come to have seen this 3 page before? And I'm talking about back on or about 4 March the 30th, 2007. 13:52:27 5 A. I believe it was e-mailed to me. 13:52:30 6 Q. All right. From the Hays Company? 13:52:32 7 A. I believe so, yeah. 13:52:34 8 Q. And did you have an understanding of what it 9 was when you received it? 13:52:37 10 A. It was an agreement for consulting services. 13:52:41 11 Q. Okay. Well, the one page, at least, is a 12 disclosure of a service fee, correct? 13:52:46 13 A. Correct. 13:52:46 14 Q. A fee was going to be assessed in exchange for 15 services provided? 13:52:52 16 A. Yes. 13:52:52 17 Q. Was that your understanding? 13:52:53 18 A. That's my understanding. 13:52:54 19 Q. Okay. Would you prefer to get that back in 20 front of you? 13:52:57 21 A. Yes, please. 13:52:58 22 Q. All right. 23 (Pause in proceedings) 13:53:17 24 A. Okay. 13:53:17 25 Q. (BY MR. BATTAGLINI) Okay. And the amount of 114 1 the service fee reflected on this first page of the 2 exhibit is $100,000, correct? 13:53:25 3 A. Correct. 13:53:25 4 Q. What was your understanding at the time of 5 what the $100,000 was to pay for? 13:53:30 6 A. That was to pay for Hays doing some consulting 7 services. 13:53:34 8 Q. All right. And who was Hays going to consult 9 with? 13:53:40 10 A. That is not particularly clear. 13:53:43 11 Q. It's not clear from this page that we're 12 looking at or -- 13:53:45 13 A. Correct. 13:53:46 14 Q. Okay. Did you have an understanding at the 15 time of who Hays was going to consult with? 13:53:52 16 A. My best guess at the time was that they were 17 going to be consulting with Mr. Kazeminy. 13:53:59 18 Q. Is that because under an oversight agreement 19 that insurance discussions like that were going to be 20 had with Mr. Kazeminy rather than with the people at DMT 21 in Houston? 13:54:12 22 A. Mr. Kazeminy was quite capable of setting the 23 degree of, his degree of involvement on any of those 24 things. 13:54:19 25 Q. Okay. Prior to your receipt of this 115 1 disclosure of service fee, who had the insurance company 2 or the insurance broker, Aon, been dealing with on a 3 regular basis in terms of the placement of insurance? 13:54:36 4 A. Merely myself as well as Paul McKim. 13:54:39 5 Q. Okay. Once this service fee document was 6 signed by Mr. McKim, did you have any communications 7 with Hays regarding insurance coverage? 13:54:53 8 A. I'm not sure as to the last time I would have 9 had dinner with Mike Prinz, if it was subsequent to this 10 or not. 13:55:03 11 Q. Okay. Do you know if Hays Company was having 12 communications with someone in Minnesota working for 13 Mr. Kazeminy, for example, regarding the placement of 14 insurance coverage and consulting services in 15 conjunction with that? 13:55:21 16 A. Do not know. 13:55:23 17 Q. Okay. If it did happen, it wasn't reported to 18 you? 13:55:26 19 A. Correct. 13:55:27 20 Q. Did you communicate with anyone in Minnesota 21 working with Mr. Kazeminy's companies for the purpose of 22 discussing insurance? 13:55:39 23 A. Yes. The previous year we had gone through a, 24 quite a bit of analysis regarding where we were placing 25 our, where we were placing our Jones Act coverage. And 116 1 there was a, a new underwriter on the market that was 2 offering some extremely low rates. 13:56:09 3 Q. Uh-huh. And who did you discuss that with? 13:56:12 4 A. Paul, myself, John Ellingboe, and Nasser were 5 involved in that conversation. 13:56:19 6 Q. All right. On a routine basis, did you 7 consult with people from time to time in Minnesota? 13:56:28 8 A. Regularly. 13:56:29 9 Q. Okay. And who did you normally consult with 10 on administrative matters including insurance? 13:56:35 11 A. John Ellingboe and Dan Erickson. 13:56:38 12 Q. All right. Do you know whether or not 13 Ellingboe or Erickson talked with the Hays Company about 14 the insurance that was contemplated by this disclosure 15 of service fee? 13:56:51 16 A. I have no -- no. I don't know. 13:56:53 17 Q. It's possible; you just don't know? 13:56:55 18 A. Absolutely. 13:56:55 19 Q. Okay. Now, it says here, for coverages, all 20 property, executive risk, casualty and marine coverages 21 associated with the operation known as Deep Marine 22 Technology. Is that a fair summary of the types of 23 coverages that you would expect to see on your business? 13:57:13 24 A. Yes. 13:57:13 25 Q. Okay. It didn't exclude anything in 117 1 particular? 13:57:17 2 A. Not that I'm aware of. 13:57:25 3 Q. Now, if you'll go to the fourth, starting at 4 the fourth page and carrying on to the fifth page, there 5 is an insurance summary for DMT. Is that something that 6 you prepared or had prepared for you? 13:57:39 7 A. This is something the Aon would have prepared 8 for us. 13:57:42 9 Q. All right. That's reflective of Aon's 10 coverage for 2006 to 2007? 13:57:48 11 A. Yes. 13:57:49 12 Q. And was this something that Hays wanted to see 13 so that they could consult with the company about 14 coverage? 13:58:00 15 A. I -- you know, I believe they probably 16 requested it. This was something that we received from 17 Aon as just a normal course of their providing coverage. 13:58:09 18 Q. Okay. Now, following that, following the 19 pages that we just looked at, there are some invoices, 20 correct? 13:58:18 21 A. Yes. 13:58:18 22 Q. And let's look at the first invoice. This is 23 the Invoice No. 119056 dated April the 24th, 2007 from 24 Hays Company to DMT. In fact, to your attention. 13:58:33 25 A. Yes. 118 13:58:33 1 Q. And it's a quarterly installment in the amount 2 of $25,000 designated as a service fee on the invoice. 3 I see Paul McKim's signature on there. Do you see that 4 in the middle of the page? 13:58:48 5 A. Yes. 13:58:49 6 Q. Why would his signature appear on an invoice 7 like this? 13:58:51 8 A. To approve it. 13:58:53 9 Q. Would he normally approve something like this? 13:58:58 10 A. Yes or no. It depends. 13:59:01 11 Q. Would it first have to go by you in order to 12 be approved by Mr. McKim? 13:59:11 13 A. No. It could have gone straight. You know, 14 it wasn't required to go to me before it went to Paul 15 McKim. 13:59:11 16 Q. Okay. Do you recall having discussed this 17 particular invoice, I'm talking about 119056, with Paul 18 McKim? 13:59:21 19 A. I remember discussing it. 13:59:25 20 Q. Okay. What was the nature of the discussion, 21 do you know? 13:59:27 22 A. The discussion was related to the invoice 23 coming in and the related service agreement. 13:59:36 24 Q. Okay. Was there a discussion about whether or 25 not it should be paid or anything of that nature? 119 13:59:44 1 A. Yes. 13:59:45 2 Q. What was that discussion about? 13:59:48 3 A. The discussion was about the contract with 4 Hays and the question of what we were getting for it and 5 did we, that this was something that Nasser wanted and 6 so we needed to proceed along. 14:00:08 7 Q. Did you participate in any telephone call or 8 meeting with Nasser Kazeminy or anyone else working from 9 Minnesota having to do with this particular invoice 10 where the nature of the call was why do we need to pay 11 this invoice? 14:00:27 12 A. No. 14:00:29 13 Q. Did you take it upon yourself as CFO to look 14 into this to see whether or not it should be paid? 14:00:36 15 A. No. We were already directed to enter into 16 the agreement. 14:00:42 17 Q. Directed by whom? 14:00:44 18 A. Mr. Kazeminy. 14:00:45 19 Q. And what specifically do you remember by way 20 of a direction to enter into this agreement? Did you 21 participate in a phone call? 14:00:53 22 A. Mr. Kazeminy called me. We discussed. He 23 indicated that this was a, he was going to work 24 something like this out and, you know, that was to be 25 expected. 120 14:01:06 1 Q. Did he explain to you on the telephone during 2 this call why it was necessary to engage Hays for this 3 service fee? 14:01:22 4 A. Mr. Kazeminy said he wanted to use Hays. 14:01:26 5 Q. Did he say for what purpose? 14:01:31 6 A. You know, there was a discussion about, about 7 Hays and who was at Hays and that was somebody he wanted 8 to use. And this -- so this was, this was where things 9 were going. 14:01:48 10 Q. Did you have an understanding following the 11 phone call with Mr. Kazeminy of why DMT was paying 12 $25,000 a quarter of a service fee to Hays? 14:02:02 13 A. Because Mr. Kazeminy wanted to. And he had an 14 oversight agreement, and he was an over-50-percent 15 shareholder. And this was something he wanted to do. 14:02:13 16 Q. Okay. But other than the fact that this was 17 something that he wanted to do -- and you've been clear 18 about that -- did you have an understanding of what the 19 purpose was, the actual purpose? 14:02:25 20 A. I was not necessarily very clear on it. I was 21 aware and convinced that Mr. Kazeminy wanted to do it 22 and honestly believed that he had the authority to 23 request it. 14:02:42 24 Q. Okay. Was there anytime when you said to 25 Mr. Kazeminy or anyone else that the company should not 121 1 pay $25,000 a quarter for this service fee? 14:02:54 2 A. Mr. McKim and I discussed the payment, the 3 arrangement and payment to Hays and questioned what we, 4 we were getting from it. And that was as far as we 5 went. 14:03:11 6 Q. Okay. So you had no communication, direct 7 communication with Mr. Kazeminy or anyone else in 8 Minnesota where you said to the person on the other end 9 of the phone, we're not going to pay this amount? 14:03:25 10 A. I did not, no. 14:03:30 11 Q. Do you know if anyone else had such a 12 conversation? Did you observe, did you hear anybody 13 else have such a conversation? 14:03:36 14 A. No. 14:03:41 15 Q. Now, there were -- if we keep flipping through 16 the pages, there are a total of three invoices, correct? 14:03:54 17 A. Yes. 14:04:00 18 Q. Okay. And it's your understanding that all 19 three of those were paid? 14:04:04 20 A. Yes. 14:04:04 21 Q. And were you part of the approval process on 22 any of these three? 14:04:10 23 A. Yes. I signed off on the last one, and then 24 Paul signed off on it. 14:04:14 25 Q. Okay. So in conjunction with the approval and 122 1 payment of these three invoices that are attached to 2 this exhibit, was there any follow-up communication or 3 disagreement or dispute that you recall regarding the 4 payment of these invoices? 14:04:32 5 A. I was not involved in that. No. 6 MR. DAVIDSON: Take a brief break? 7 MR. BATTAGLINI: Sure. 8 (Break from 2:04 to 2:15) 14:15:09 9 Q. (BY MR. BATTAGLINI) Mr. Thomas, let me ask you 10 one more question about Exhibit 17 before we turn to 11 Exhibit 16. Exhibit 17 is the grouping of the documents 12 that we were just talking about about the insurance 13 payments to Hays. 14:15:17 14 A. Yes. 14:15:20 15 Q. Is there any document on there that, that was 16 signed off by you or Mr. McKim that was falsified? 14:15:31 17 A. No. Not that I'm aware of. 14:15:33 18 Q. In other words, it appears to be consistent 19 with your internal procedures for approving invoices and 20 the payment of invoices? 14:15:40 21 A. Yes. 14:15:40 22 Q. Okay. Thank you. 23 (Exhibit 16 marked) 14:15:41 24 Q. (BY MR. BATTAGLINI) I want to hand you what's 25 been marked as Exhibit 16. And if you would take a 123 1 moment to read that. 14:16:08 2 A. Yes. 14:16:09 3 Q. Okay. That's entitled termination of 4 shareholders agreement? 14:16:12 5 A. Yes. 14:16:12 6 Q. And you and I have talked about that earlier 7 today, haven't we? 14:16:16 8 A. Yes. 14:16:16 9 Q. Okay. 10 MR. DAVIDSON: What's the date on that, 11 August 10, '04? 12 MR. BATTAGLINI: Yes. August the 10th, 13 2004. 14 MR. DAVIDSON: Okay. 14:16:37 15 Q. (BY MR. BATTAGLINI) Now, it says here in one 16 of the Whereas clauses that on August the 10th, 2004 the 17 shareholders of the company approved this termination 18 agreement by the affirmative vote of 82.59 percent of 19 the total number of issued and outstanding shares of 20 common stock of the company. Correct? 14:16:56 21 A. Yes. 14:16:56 22 Q. And then at the bottom it's signed by you as 23 secretary? 14:17:08 24 A. Yes. 14:17:08 25 Q. And on the next page there's a cap or recap 124 1 table. And it reflects that everyone, apparently, all 2 the shareholders apparently voted for this except 3 FLI Deep Marine and H.D. Loyd. Is that -- do you read 4 it the same way? 14:17:29 5 A. Yes. 14:17:30 6 Q. Do you know why FLI Deep Marine didn't submit 7 a vote or a proxy? 14:17:36 8 A. No. 14:17:36 9 Q. Did you have any communication with them about 10 that? 14:17:39 11 A. Not that I remember. 14:17:41 12 Q. Okay. Do you know if FLI Deep Marine had any 13 dispute or objection? 14:17:47 14 A. I'm not aware of any. 14:17:48 15 Q. Okay. 16 (Exhibit 18 marked) 14:18:01 17 Q. (BY MR. BATTAGLINI) I'd like you to now look 18 at Exhibit No. 18. It's Incentive Stock Option 19 Agreement? 14:19:43 20 A. Okay. 14:19:43 21 Q. Have you had an opportunity to look at the 22 incentive stock option agreement? 14:19:47 23 A. Uh-huh. 14:19:47 24 Q. Do you recall having seen this before? 14:19:49 25 A. Yes. 125 14:19:50 1 Q. All right. This is effective as of December 2 the 20th, 2005. Is that your understanding? 14:19:56 3 A. Yes. 14:19:56 4 Q. And you are an optionee under this agreement? 14:19:59 5 A. Yes. 14:20:00 6 Q. And it's signed by you on Page 6, correct? 14:20:05 7 A. Yes. 14:20:06 8 Q. All right. And pursuant to this, you ended up 9 with an option to purchase 251 shares of common stock? 14:20:16 10 A. Yes. 14:20:31 11 Q. Now, that would have been common stock of DMT, 12 correct? 14:20:35 13 A. Yes. 14:20:36 14 Q. And you indicated earlier that you did, in 15 fact, exercise? 14:20:40 16 A. Yes. 14:20:41 17 Q. And do you now own 251 shares? 14:20:47 18 A. After conversion and split and reorg. Yeah. 14:20:53 19 Q. And I was going to ask you about that. How 20 did all of that affect this option? 14:21:08 21 A. The options in DMT -- and this is, I'm 22 speaking from memory. I believe the options in DMT were 23 exchanged for options in DMH -- 14:21:22 24 Q. Uh-huh. 14:21:23 25 A. -- with an exchange rate of 380 to 1. And 126 1 that would have been what I exercised. 14:21:34 2 Q. Okay. So whatever that calculates to be, 3 that's what you own? 14:21:39 4 A. Well, this is -- I had two options. So this 5 is one of them, yes. 14:21:44 6 Q. You have another option? 14:21:45 7 A. Yes. 14:21:47 8 Q. Do you recall what your total holdings are 9 today, how many shares you own today of DMH? 14:21:53 10 A. Not offhand, no. 14:21:58 11 Q. All right. 12 (Exhibit 19 marked) 14:21:58 13 Q. (BY MR. BATTAGLINI) I place before you what 14 has been marked as Thomas 19. 14:22:16 15 A. Yes. 14:22:17 16 Q. Okay. This is a letter from you to Mr. Grano? 14:22:19 17 A. Yes. 14:22:20 18 Q. Dated April 3rd, 2006? 14:22:23 19 A. Yes. 14:22:25 20 Q. It refers here to a no transfer agreement, and 21 I want to pull that out as well since it's referenced. 22 But this is your acknowledgement that he granted you the 23 6 percent Series B senior secured convertible note? 14:22:49 24 A. Yes. 14:23:12 25 Q. So you became the holder of the note? 127 14:23:15 1 A. Yes. 14:23:16 2 Q. And was the note paid? 14:23:19 3 A. It was converted. 14:23:20 4 Q. Converted to? 14:23:22 5 A. Common stock. 14:23:23 6 Q. Common stock so you gained additional stock? 14:23:26 7 A. That was the only stock I held at the time. 14:23:28 8 Q. And that was approximately 13 shares? 14:23:32 9 A. Yes. 14:23:32 10 Q. That's how you got the 13 shares? 14:23:34 11 A. Yes. 14:23:35 12 Q. Okay. I'll find it later. I want to ask you 13 about something else now. 14 (Exhibit 20 marked) 14:24:10 15 Q. (BY MR. BATTAGLINI) Let's take a look at 16 No. 20. It's called an Oversight Services Agreement. 17 Okay. Is this oversight services 18 agreement which appears to be dated the 12th day of 19 June, 2006 something that you had seen before? 14:27:58 20 A. Yes. 14:27:58 21 Q. You were aware of this document? 14:28:00 22 A. Yes. 14:28:00 23 Q. And even though you did not appear to have 24 signed it, it was signed by Paul McKim -- 14:28:05 25 A. Yes. 128 14:28:05 1 Q. -- you were aware of its contents? 14:28:07 2 A. Yes. 14:28:07 3 Q. And were you aware of its contents because it 4 contemplates that NJK will provide certain services 5 relative to the work that you were doing for the 6 company? 14:28:20 7 A. Yes. 14:28:21 8 Q. Such as bookkeeping, accounting, internal 9 audit, corporate finance, tax, et cetera? 14:28:27 10 A. Yes. 14:28:28 11 Q. Okay. Who did you work with in conjunction 12 with this oversight agreement? And you may have 13 answered this question before. Was it Erickson and 14 Ellingboe? 14:28:36 15 A. Yes. 14:28:37 16 Q. Okay. And was it your testimony that Hays 17 Company may have been selected pursuant to this 18 oversight services agreement? 14:28:50 19 A. Yes. 14:28:51 20 Q. All right. The one we're looking at, is this 21 the first or the second oversight services agreement? 14:28:57 22 A. I'm only conversant with one. 14:29:00 23 Q. Okay. 24 MR. WALLACE: What exhibit is that? 25 MR. BATTAGLINI: That is 20. 129 1 (Exhibit 21 marked) 14:29:26 2 Q. (BY MR. BATTAGLINI) I want to hand you what 3 has been marked as Thomas 21. And you don't need to 4 review the whole document. I'm not going to ask you 5 about specifics. 6 All right. What is that, 21? No. 21 is 7 a loan agreement with Amegy Bank? 14:31:23 8 A. Yes. 14:31:24 9 Q. Revolving line of credit? 14:31:25 10 A. Yes. 14:31:26 11 Q. Do you recall having worked on this? 14:31:29 12 A. Yes. 14:31:29 13 Q. Okay. It was simply that it was access to 14 funds if you needed them? 14:31:34 15 A. Yes. 14:31:36 16 Q. Did the company avail itself of this line of 17 credit? 14:31:40 18 A. Yes. 14:31:41 19 Q. For what purpose, do you recall? 14:31:43 20 A. Working capital. 14:31:46 21 Q. Was it ultimately paid off, converted, or 22 anything of that nature? 14:31:51 23 A. Paid off. 24 (Exhibit 22 marked) 14:31:55 25 Q. (BY MR. BATTAGLINI) I did now find the no 130 1 transfer agreement that we spoke of earlier. Can you 2 confirm that that's the no transfer agreement that was 3 executed in conjunction with the gift that you received 4 from Mr. Grano? 14:32:26 5 A. Yes. 14:32:26 6 Q. Okay. Was that ultimately reported to the 7 board of directors? 14:32:36 8 A. I don't remember a formal discussion related 9 to it. 14:32:40 10 Q. How about an informal discussion? 14:32:42 11 A. Yes. 14:32:43 12 Q. Wasn't any problem with that, was there? 14:32:53 13 A. Not that I'm aware of. 14 (Exhibit 23 marked) 14:32:53 15 Q. (BY MR. BATTAGLINI) I'll hand you what has 16 been marked as Exhibit 23. It's a promissory note. 14:34:05 17 A. Yes. 14:34:06 18 Q. All right. Promissory note dated June the 19 20th, 2006 in the amount of $2,334,245 where 20 DCC Ventures, LLC is the payee? 14:34:20 21 A. Yes. 14:34:21 22 Q. And you signed as CFO? 14:34:23 23 A. Yes. 14:34:24 24 Q. And what was exchanged for this note, do you 25 recall? 131 14:34:29 1 A. I don't recall. It could have been cash. It 2 could have been previous note balance. I just don't 3 recall. 14:34:42 4 Q. Okay. So it's each cash or a roll-up? 14:34:45 5 A. Yeah. I'm guessing, yes. 14:34:47 6 Q. Okay. 7 (Exhibit 24 marked) 14:34:58 8 Q. (BY MR. BATTAGLINI) I'm handing you what's 9 been marked as Thomas 24. 14:35:27 10 A. Yes. 14:35:28 11 Q. All right. Now, this is dated August 4th, 12 2006 in the amount of $1,382,377.40 paid to the order of 13 Otto Candies, LLC? 14:35:47 14 A. (Witness nodding head.) 14:35:47 15 Q. Do you recall what this was given for? 14:35:50 16 A. It was given for advances by Otto Candies on 17 equipment related to the build-out of the DMT Emerald. 14:36:03 18 Q. The Emerald. Okay. Now, the second page of 19 that has a schedule, ROV purchase allocation, it says. 20 Does that schedule have anything to do with the demand 21 promissory note on the first page? 14:36:19 22 A. Well, the total balance reflects the same 23 amount -- well, yeah. The same amount. 14:36:25 24 Q. Yeah. So in other words, Otto Candies was 25 going to be doing work or providing equipment and they 132 1 took a note rather than cash? 14:36:43 2 A. Yes. 3 (Exhibit 25 marked) 14:38:30 4 Q. (BY MR. BATTAGLINI) All right. I'm handing 5 you what's been marked Exhibit 25. 6 MR. RAINEY: What date is it? 7 MR. BATTAGLINI: This is the March 31st, 8 '06. 14:45:31 9 Q. (BY MR. BATTAGLINI) All right. We're looking 10 at financial statements and the report of the 11 independent auditors for the period ending March 31st, 12 2006? 14:45:38 13 A. (Witness nodding head.) 14:45:39 14 Q. And again, you provided the underlying 15 financial information for preparation of this report? 14:45:43 16 A. Yes. 14:45:44 17 Q. Okay. Look at Page 4. 14:45:47 18 A. Yes. 14:45:50 19 Q. Which reflects the asset portion of the 20 balance sheet. And you see at the bottom of the page 21 the total assets increased from 13.3 million to 22 $45.9 million in the year? 14:46:05 23 A. (Witness nodding head.) 14:46:05 24 Q. Correct? 14:46:06 25 A. Correct. 133 14:46:08 1 Q. And it looks like the largest number 2 attributable to that increase is in the property and 3 equipment column? 14:46:16 4 A. Correct. 14:46:17 5 Q. And what would that be attributable to? 14:46:20 6 A. Well, 15 million of it would have been the 7 DMT Diamond, 15.2. There were a couple of ROVs at 3 or 8 $4 million apiece. So there's another 8. So there's 23 9 of that balance. 14:46:35 10 Q. Now, the company didn't have enough cash to 11 pay for all of those so, instead, it worked out 12 financial arrangements in order to obtain those assets? 14:46:44 13 A. We discussed the note, the convertible note 14 previously. 14:46:47 15 Q. Yeah. 15.2? 14:46:48 16 A. That's correct. 14:46:49 17 Q. Yeah. And that was with Otto Candies? 14:46:54 18 A. That's correct. 14:46:55 19 Q. So the substantial increase in assets was due 20 in part to the financing arranged through Otto Candies? 14:47:04 21 A. To the extent of the purchase of the DMT 22 Diamond, yes. 14:47:08 23 Q. Yeah. If we look on the next page, Page 5, 24 the current liabilities, we see that those have 25 increased as well from 3.9 million up to 21.9. And then 134 1 long-term liabilities have increased from 12.3 million 2 to 20.6 million, reflecting that the company engaged in 3 the borrowing of money or other financial arrangements 4 in order to finance the acquisition of assets, correct? 14:47:43 5 A. Yes. 14:47:43 6 Q. Okay. On the next page, Page 6, we see, 7 however, that the company went from a negative position 8 to a positive position, from a loss of 2.9 million to a 9 gain of 5.7 million for the year. 14:47:59 10 A. Yes. 14:48:00 11 Q. In a cash positive or at least a income 12 positive position. 14:48:04 13 A. Yes. 14:48:05 14 Q. Did the company, at this point, did the board 15 feel that they had finally turned it around? 14:48:13 16 A. I think everybody was pleased with the 17 operating results. 14:48:27 18 Q. Guardedly optimistic? 14:48:35 19 A. Yes. 14:48:36 20 Q. If you would turn to Page 18, under Note 4, 21 long-term debt, there is reflected there the 22 $5.4 million secured convertible note and then the, 23 followed by the senior secured convertible for 24 15.2 million, which makes up your total long-term debt 25 of over $20 million, correct? 135 14:49:11 1 A. Yes. 14:49:13 2 Q. On the next page, on Page 19, under senior 3 secured convertible notes is reflected, as we've 4 discussed before, the 15.2 million financing from Otto 5 Candies for the Diamond, correct? 14:49:29 6 A. Yes. 14:49:30 7 Q. By the way, the note bears interest at 8 3.35 percent? 14:49:34 9 A. Yes. 14:49:35 10 Q. Was that a pretty good rate at the time? 14:49:37 11 A. It was the -- 12 MR. WALLACE: Objection, form. 14:49:40 13 A. -- applicable federal rate at the time. 14:49:41 14 Q. (BY MR. BATTAGLINI) Applicable federal rate? 14:49:43 15 A. Yes. 14:49:43 16 Q. Could you have done better had you obtained 17 financing from another source? 18 MR. WALLACE: Objection, form. 14:49:52 19 A. I don't believe we would have gotten an 20 interest rate quite that low. 14:49:56 21 Q. (BY MR. BATTAGLINI) So in the opinion of the 22 board, that was a favorable interest rate? 23 MR. WALLACE: Objection, form. 14:50:02 24 A. Yes. 14:50:03 25 Q. (BY MR. BATTAGLINI) Okay. Now, what happened 136 1 with that, with that note? Was it refinanced, did 2 something happen to it later on? 14:50:19 3 A. It was converted later, in 2006. 14:50:19 4 Q. All right. And it was converted into what? 14:50:19 5 A. Common stock. 14:50:26 6 Q. If you'll turn to Page 26, under Related Party 7 Transactions, it repeats that in 2002 the company 8 entered into a financial consulting contract with a 9 director. We assume that's Jeffrey Langberg? 14:50:58 10 A. I believe so, yes. 14:50:59 11 Q. Yeah. And then it says the company terminated 12 that agreement in 2006, correct? 14:51:08 13 A. Yes. 14:51:09 14 Q. Did I read that correctly? Was amended and 15 then it was -- 14:51:12 16 A. Formally terminated. 14:51:14 17 Q. Formally terminated. Do you know -- did you 18 calculate how much Mr. Langberg was compensated in total 19 for that consulting contract? 14:51:24 20 A. We would have calculated that, yes. 14:51:26 21 Q. All right. Can you tell just rough and by 22 looking at this disclosure in this financial statement 23 how much that would have been? If it was 3000 for 24 18 months and then it was increased to 4000 -- 14:51:46 25 A. Well, we... 137 14:52:33 1 Q. Anyway, it can be calculated? 14:52:35 2 A. Yes. 14:52:35 3 Q. If we had a calculator, we could calculate it? 14:52:39 4 A. If you'd give me a 10-key, I could run it for 5 you. 14:52:43 6 Q. Right. Do you recall a board meeting where 7 this consulting contract was discussed, particularly the 8 termination of this consulting contract? 14:52:55 9 A. No. I don't recall that at a board meeting. 14:52:58 10 Q. Okay. Do you recall the circumstances under 11 which the company terminated the contract? 14:53:12 12 A. Are you talking about the first agreement or 13 the second agreement? 14:53:16 14 Q. The second agreement, in 2006. 14:53:20 15 A. The second agreement. We, we had been looking 16 for an additional equity round to help fund the 17 construction of the DMT Diamond. Those efforts did not 18 prove out to be satisfactory. Jeff Langberg was, we 19 entered an agreement with Jeff Langberg as described 20 here related to cash compensation and equity 21 compensation for funds that came to us through him. 22 When we got farther into '06, we determined that that 23 wasn't the direction we were going to go; and so the 24 agreement was terminated. 14:54:25 25 Q. Any -- did you have any continuing discussions 138 1 with Jerry Langberg about the termination of that 2 agreement? 14:54:31 3 A. I don't remember any continuing conversations. 4 (Exhibit 26 marked) 14:54:39 5 Q. (BY MR. BATTAGLINI) I'll hand you what has 6 been marked as Exhibit 26. 14:55:40 7 A. Okay. 14:55:40 8 Q. Do you recall having seen that before? 14:55:43 9 A. Yes. 14:55:45 10 Q. This is a consent to action in lieu of meeting 11 effective September the 18th, 2006. And it appears that 12 all the board members existing at the time signed off on 13 this, correct? 14:56:03 14 A. Correct. 14:56:04 15 Q. Including yourself? 14:56:05 16 A. Yes. 14:56:05 17 Q. And it states in the third Whereas clause that 18 DCC agreed to lend the company funds to meet such 19 requirements and the company issued promissory notes to 20 DCC on five separate dates, it indicates here, in the 21 aggregate principal amount of $4.1 million. And it's 22 termed the bridge notes. And then it says the company 23 is currently in default in the repayment of the bridge 24 notes. Do you recall that? 14:56:41 25 A. You know, I remember around those notes. I 139 1 don't remember the specifics of the note. Without going 2 back and reviewing each note, I can't, I can't -- if it 3 says that we were in default, I'm guessing we were 4 probably in default. I remember there being demand 5 notes that were granted extensions. But, you know, the 6 specific nuances of that are a little -- without going 7 back and reading them... 14:57:15 8 Q. Okay. Did the board discuss, specifically 9 discuss the default situation that's reflected in this 10 consent to action in lieu of meeting? 14:57:27 11 A. I don't remember that being discussed in those 12 terms, no. 14:57:31 13 Q. Why would the board not want to meet on 14 something like a default of a note? 14:57:40 15 A. Well, it would primarily be because the note 16 was, all those notes were held by DCC Ventures, which 17 were held by Nasser. 14:57:49 18 Q. Yeah. 14:57:49 19 A. And, you know, it was kind of a question of 20 which pocket he had things in, whether it was his right 21 pocket or his left pocket. 14:58:03 22 Q. What was the consequence of the company 23 finding itself in default on the bridge notes? 14:58:11 24 A. Quite honestly, I don't remember any 25 consequence to it at the time. 140 14:58:18 1 Q. Do you recall if the company approached 2 National City Commercial and Caterpillar Financial? 14:58:24 3 A. We were engaged in loan negotiations with both 4 of them at the time. 14:58:29 5 Q. Okay. Do you think that that was directly 6 related to trying to deal with the default situation on 7 the bridge notes or the payoff of the bridge notes? 14:58:37 8 A. No. 14:58:57 9 Q. Take a look at the second page of that. 10 Now, therefore, be it resolved that the 11 appropriate officers of the company are hereby 12 authorized, empowered, and directed to take all such 13 actions as may be necessary to effect the conversion of 14 the Series B notes of the company in the aggregate 15 principal amount of 4.1 million held by DCC into common 16 stock of the company in accordance with their terms and 17 to issue 10,465 shares of common stock of the company 18 upon such conversion in the name of DCC, et cetera. 19 So is the result that DCC ended up with 20 additional shares of stock by way of a conversion? 14:59:40 21 A. Yes. They ended up with an additional 22 10,465 shares. 14:59:44 23 Q. So that's how it was resolved? 14:59:46 24 A. Well, that was the conversion conditions of 25 the Series B notes. 141 14:59:55 1 Q. Okay. And also in one of the Whereas clauses 2 on the bottom of the first page it says Otto Candies, 3 LLC has agreed to convert its senior secured convertible 4 note dated April 22nd, 2005 into common stock of the 5 company, et cetera. Correct? 15:00:16 6 A. Yes. 15:00:17 7 Q. So both DCC and Otto Candies converted? 15:00:26 8 A. Yes. 15:00:26 9 Q. Into equity? 15:00:26 10 A. Yes. 15:00:26 11 Q. Is that a reason why in late 2006 both DCC and 12 Otto Candies ended up with more shares of stock than 13 they previously had? 15:00:33 14 A. Yes. 15:00:34 15 Q. Okay. And that was okay with the board? 15:00:36 16 A. Well, yes. There wasn't a whole lot they 17 could say about the Series B notes. The conversion of 18 that was at the behest of the noteholder. 15:00:48 19 Q. Uh-huh. 20 (Exhibit 27 marked) 15:00:49 21 Q. (BY MR. BATTAGLINI) I want to pass to you 22 Exhibit 27. 23 Do you recall having seen that agreement 24 before? 15:01:38 25 A. Yes. 142 15:01:38 1 Q. This is also dated September the 18th, 2006, 2 the same date as the prior consent that we were looking 3 at? 15:01:46 4 A. (Witness nodding head.) 5 MR. BATTAGLINI: It's a note conversion, 6 the Candies note conversion. 15:02:10 7 Q. (BY MR. BATTAGLINI) Now, this document says 8 simply that Otto Candies, LLC agrees to convert the 9 senior secured convertible note dated April the 22nd, 10 2005 into equity. And then attached -- and I want to 11 ask you some questions about the attachment -- displays 12 a listing of the equity holders following conversion. I 13 think Adjustment 4 at the bottom reflects that. Is that 14 something that you prepared? 15:02:49 15 A. I believe so, yes. 15:02:50 16 Q. Okay. Is Adjustment 4 on the bottom of 17 Page 2, is that an accurate reflection of the equity 18 interest as a result of the conversion? 15:03:02 19 A. I believe so, yes. 15:03:03 20 Q. Okay. That reflects, for example, that 21 DCC Ventures owns 51.75 percent of the company, correct? 15:03:12 22 A. Yes. 15:03:12 23 Q. And that Otto Candies, LLC owns 22.5 percent? 15:03:17 24 A. Yes. 15:03:17 25 Q. They are the two largest shareholders? 143 15:03:22 1 A. Yes. 15:03:23 2 Q. Okay. You mentioned earlier in your testimony 3 that you thought Nasser Kazeminy owned 80 percent of the 4 company? 15:03:30 5 A. As much as. 15:03:32 6 Q. Okay. But not according to this particular 7 schedule, correct? 15:03:34 8 A. Not subsequent to this exchange, no. But 9 prior to that, on a fully diluted basis, with his 10 ownership of the stock, yes. He was -- in fact, if you 11 look at the conversion of the bridge loans above that -- 15:03:53 12 Q. Uh-huh. 15:03:53 13 A. -- if you look at the conversion of the 14 Series B notes and add DCC Ventures and Mr. Kazeminy's 15 ownership, it's 60, 70 percent. 15:04:06 16 Q. Okay. Now, the bridge loans don't necessarily 17 have conversion rights, correct? They were merely 18 converted because the company was in default and 19 couldn't pay them? That was the resolution? 15:04:40 20 A. Yes. 15:04:41 21 Q. Okay. All right. 22 (Exhibit 28 marked) 15:04:59 23 Q. (BY MR. BATTAGLINI) I want to hand you 24 Exhibit 28. It's entitled Term Sheet, dated the same 25 day, the 18th day of September, 2006. 144 1 (Discussion off the record) 2 (Break from 3:07 to 3:18) 15:18:05 3 Q. (BY MR. BATTAGLINI) All right. I've just 4 handed you a term sheet which is marked as Exhibit 28? 15:18:12 5 A. Yes. 15:18:13 6 Q. Have you had an opportunity to look at that? 15:18:14 7 A. Yes. 15:18:14 8 Q. This is also dated the 18th of September, 9 2006; and it's between Otto Candies, LLC and DMT and 10 appears to concern Otto Candies' selling of its rights 11 to the motor vessel known as the DMT Emerald. Do you 12 recall having seen this before? 15:18:39 13 A. Yes. 15:18:41 14 Q. Now, the way it's reflected in this term sheet 15 is that the Emerald was currently under construction at 16 Bender Shipbuilding and Repair and that DMT was going to 17 organize a new subsidiary to take ownership of the 18 Emerald and that the purchase price for the acquisition 19 would be, at least as set forth in this term sheet, was 20 $29.5 million. Was that your understanding? 15:19:10 21 A. Yes. 15:19:11 22 Q. And critically, on the second page, the top of 23 the second page, it says in connection with the purchase 24 of the ship and related equipment, DMT will require 25 significant financing from third parties. And as a 145 1 condition of such financings, that certain senior 2 secured note dated April 22nd, 2005 must be converted 3 into common stock. 15:19:35 4 A. Yes. 15:19:36 5 Q. So was that the driving force that we've been 6 discussing here about the conversion of that, of the -- 7 of course, this deals with the Emerald. This note 8 conversion that we talked about before was the Diamond 9 note conversion. So they're different vessels, correct? 15:19:52 10 A. Correct. 15:20:00 11 Q. This was signed by Paul McKim as president and 12 CEO. Did the board meet regarding this term sheet and 13 the purchase of the Emerald? 15:20:12 14 A. I -- specifically, I'm just not sure. I 15 believe that there was discussions about it at a board 16 meeting. I am reasonably sure that this was, that this 17 was covered. There was -- this was a pretty big event 18 for us. 15:20:34 19 Q. And in the absence of cash, Otto Candies, LLC 20 was going to end up with more stock, correct? 15:20:43 21 A. Not from this transaction. 15:20:45 22 Q. Okay. How was this transaction going to be 23 financed, the Emerald acquisition? 15:20:51 24 A. It wasn't financed by Otto Candies, I mean, 25 other than some loans along the way. We stepped into 146 1 his position in the DMT Emerald. 15:20:59 2 Q. How were you able to do that? How was the 3 company able to do that? 15:21:04 4 A. They assigned us their position. 15:21:06 5 Q. And so who did the company end up owing money 6 to for that purchase? 15:21:12 7 A. Some to Otto Candies, quite a bit to Bender 8 Shipyard. 15:21:17 9 Q. Okay. Now, the purchase price as reflected in 10 this term sheet as 29.5 million, was that the ultimate 11 amount that you paid for the Emerald? 15:21:27 12 A. Oh, no. It was significantly more than that. 13 The 29 million represented about what Otto had in it at 14 the time. As was represented to us. 15:21:40 15 Q. Okay. So the idea was that Otto would be made 16 whole for his 29.5 million? 15:21:50 17 A. Yes. 15:21:51 18 Q. And then to the extent it cost more to 19 complete the construction -- 15:22:00 20 A. That was on DMT. 15:22:00 21 Q. That's on DMT. 15:22:00 22 A. (Witness nodding head.) 15:22:01 23 Q. So the ultimate purchase price is the result 24 of what Otto had into it plus what you needed to pay to 25 finish the job? 147 15:22:08 1 A. Yes. 15:22:09 2 Q. Okay. 3 (Exhibit 29 marked) 15:22:15 4 Q. (BY MR. BATTAGLINI) I'm going to hand you 5 what's been marked as Exhibit 29. Board of directors 6 meeting November 7th, 2006. 7 Okay. These appear to be minutes from 8 the board of directors meeting from November the 7th, 9 2006; is that correct? 15:25:16 10 A. Yes. 15:25:17 11 Q. And you prepared and signed them? 15:25:19 12 A. Yes. 15:25:19 13 Q. I draw your attention to Item No. 8, Paul 14 McKim updated the board on the status of the 15 construction of the DMT Emerald. Do you recall what he 16 said to the board? 15:25:36 17 A. No. Not specifically, no. 15:25:42 18 Q. Now, on the next page, at Item 10, it says 19 John Ellingboe and B.J. Thomas updated the board on the 20 status of the various long-term financing options. 21 National City Commercial, Merrill Lynch as a possible 22 financing source for the DMT Emerald as well as the 23 purchase of the DMT Emerald from Otto Candies, LLC. 24 Do you recall what you said to the board 25 to update them on the financing? 148 15:26:09 1 A. No. This is quite a ways back. I would have 2 updated them on the status at the time of where we were 3 in talking to National City and Merrill Lynch about 4 financing for the Emerald and our changing out our 5 financing arrangement. You had showed me the agreement 6 we had with Amegy previously. We eventually swapped 7 that out with an agreement with National City. So I 8 would have updated on where we were at that time. 15:26:43 9 Q. All right. 10 (Exhibit 30 marked) 15:26:43 11 Q. (BY MR. BATTAGLINI) I hand you what has been 12 marked as Exhibit 30. It's entitled Assignment of 13 Contract. 14 Okay. You've had an opportunity to read 15 the document marked assignment of contract? 15:29:13 16 A. Yes. 15:29:13 17 Q. Now, this was, appears to be an assignment of 18 a contract between Otto Candies, LLC and what is 19 designated on the page as Deep Marine 2. Wasn't the 20 actual name of the company DM2? 15:29:28 21 A. I think so. It's been a while. 15:29:30 22 Q. Yeah. Anyway, this was for the purpose of 23 assigning the Emerald over to DMT? 15:29:42 24 A. Yes. 15:29:58 25 Q. Does this document reflect what DMT was 149 1 assuming in terms of any obligations to Bender? 15:30:20 2 A. With the associated contract, I believe so. 15:30:35 3 Q. And there's one schedule here that talks about 4 change orders suggesting that the purchase price would 5 have been increased by approximately 2.4 million, 6 correct? 15:30:43 7 A. Yes. 15:30:44 8 Q. Okay. Other than that, do you see anything 9 here that would indicate any additional obligations to 10 Bender? 15:31:05 11 A. No. 15:31:06 12 Q. Okay. Was there any discussion at the board 13 level about this assignment, which was dated in December 14 of 2006, about the ultimate cost of the Emerald or any 15 issues associated with the cost? 15:31:22 16 A. Yes. 15:31:23 17 Q. Okay. What were those? 15:31:26 18 A. The discussion that took place had to do with 19 the value of the assignment from Otto. As part of the 20 financing, we had to get back to some source documents 21 that we had a hard time getting from Otto Candies. John 22 Ellingboe was very involved with that and was pretty 23 insistent on getting to the bottom of it. And as it 24 turned out, there was a discrepancy between what had 25 been represented to us as the value of what Otto had in 150 1 it and the actual cost that we were provided. 15:32:16 2 Q. Say that last part again? 15:32:17 3 A. There was a difference between what was 4 represented to us as the cost for what we were going to 5 pay and the actual, the actual out-of-pocket cost that 6 Otto had incurred. 15:32:34 7 Q. Okay. On the term sheet, there was a number 8 there that would indicate what Otto had into it at the 9 time? 15:32:43 10 A. Yeah, I believe so. 15:32:44 11 Q. Okay. And your point here is that number went 12 up -- 15:32:48 13 A. No. 15:32:47 14 Q. -- the number that Otto had into it went up? 15:32:50 15 A. No. Well, that ultimately there was a 16 difference between those two numbers. 17 (Cell phone interruption) 18 THE WITNESS: Excuse me. I am really 19 trying to turn this off. 15:33:00 20 A. There was a difference. 15:33:00 21 Q. (BY MR. BATTAGLINI) So the issue wasn't what 22 Bender was going to charge to complete it; it was what 23 Otto already had into it? 15:33:10 24 A. Yes, I believe so. 15:33:11 25 Q. Okay. And can you tell us a little bit more 151 1 about the amount? 15:33:14 2 A. Just that it was -- as I remember it, it was 3 about $2 million. 15:33:21 4 Q. Did it have anything to do with the change 5 orders that are reflected on the exhibit to this 6 assignment of contract? 15:33:27 7 A. No. 15:33:28 8 Q. It was something other than change orders? 15:33:30 9 A. Yeah. It didn't have anything to do with the 10 change orders. 15:33:33 11 Q. Okay. And you recall that it was in the 12 neighborhood of about 2 million extra? 15:33:39 13 A. Yes. 15:33:39 14 Q. Over and above what was reflected in the term 15 sheet? 15:33:42 16 A. No. That there was a difference of about 17 $2 million. What was represented to us was that Otto 18 was going to let us step into it for what he had in it. 15:33:51 19 Q. Right. 15:33:52 20 A. And there was a $2 million difference between 21 what we ultimately got receipts for and that number. 15:34:02 22 Q. Okay. How was that resolved? 15:34:05 23 A. That was resolved prior to a board meeting, I 24 believe, in New Orleans with discussion between Nasser 25 Kazeminy, Joe Grano, Paul McKim, and myself and John 152 1 Ellingboe. 15:34:21 2 Q. Okay. How was it resolved? What happened? 15:34:24 3 A. Well, what it came down to was did we, did we 4 still want to proceed about the deal as it was, knowing 5 that that's what it was. 15:34:32 6 Q. Uh-huh. 15:34:33 7 A. And the conclusion was that even with the 8 extra $2 million in there, it was still a good deal for 9 DMT. 15:34:45 10 Q. Was the board in a position to reject the 11 deal? Was that a legitimate option? 15:34:59 12 A. It would have been very difficult. We had, we 13 had a lot of things already in the works related to the 14 acquisition of the boat. Could it have been done? Yes. 15:35:11 15 Q. When you say a lot of things in the works, in 16 other words, you were planning ahead and you had lined 17 up, perhaps, some opportunities to conduct business 18 using that boat, revenue-generating business? 15:35:24 19 A. There were a lot of discussions about making 20 use of the boat. There were discussions with customers 21 about the boat. All of that was taking place. 15:35:35 22 Q. So you were far enough down the road that it 23 would have been difficult not just to back out of the 24 primary deal where you would acquire the boat, but 25 backing out of some other things that you had lined up 153 1 in anticipation of having the boat? 15:35:48 2 A. I don't remember -- I remember parts and 3 pieces. We were already heavy into sales cycle with 4 regard to the boat coming out, as I remember. I could 5 be wrong about the timing on it and the actual timeline 6 of when that occurred. But as I remember, we were 7 already, we were already talking to customers about the 8 boat. And we were already making a pretty big deal out 9 of it. 15:36:18 10 Q. Okay. In your mind, was the deal restructured 11 in New Orleans? 15:36:25 12 A. Yes. 15:36:26 13 Q. Okay. 15:36:27 14 A. It was agreed to we were going to proceed with 15 the, with the costs as they were laid out. 15:36:32 16 Q. Okay. So that was a restructuring of the 17 cost? 15:36:36 18 A. Well, it was an agreement to the cost as they 19 were being handed to us. 15:36:41 20 Q. Okay. 15:36:42 21 A. I'm not trying to mince words. I'm just 22 trying to tell you that, you know, at that time, we knew 23 that there was, we knew there was a difference and we 24 agreed to go ahead and proceed. 15:36:52 25 Q. Did you participate in a board meeting where 154 1 it was deliberated and discussed whether or not it was 2 appropriate for DMT to continue with this deal? 15:37:07 3 A. By the time of the board meeting, I think it 4 was pretty much predetermined that we were going to go 5 ahead with the deal, to the extent Nasser had 6 conversations with other board members about it. I was 7 not there for it. But I, I mean, by the time it came 8 out, it was pretty much, it was pretty much done. 15:37:24 9 Q. So in other words, there were some pre-meeting 10 meetings? 15:37:28 11 A. Yes. 15:37:30 12 Q. But it was, as far as you know, it was 13 discussed? 15:37:33 14 A. Yes. 15:37:34 15 Q. It was considered? 15:37:35 16 A. Yes. 15:37:36 17 Q. Bottom line was the board was -- 15:37:38 18 A. It was still a good deal for the company. 15:37:41 19 Q. Still a good deal. All right. Did that 20 circumstance sour relations between the board and Otto 21 Candies, LLC? 15:37:53 22 A. It was one, one item. 15:37:58 23 Q. Now, we're talking about the period of late 24 2006, right? 15:38:01 25 A. Yes. 155 15:38:02 1 Q. By that time, by late 2006, what was the 2 general feeling between Otto Candies, LLC and DMT? 15:38:12 3 A. At that time I still think it was, I think it 4 was still reasonably positive. I'm trying to reflect on 5 the timeline. I think at that time that was kind of one 6 of the first things that kind of made everybody wince a 7 little bit. 15:38:35 8 Q. Was Otto Candies, Junior on the board -- 15:38:39 9 A. No. 15:38:40 10 Q. -- at that time? 15:38:41 11 A. No. 15:38:42 12 Q. Okay. So he was not a part of the 13 deliberations to determine whether or not that was a 14 good deal for DMT? 15:38:49 15 A. No. 15:38:50 16 Q. Okay. Do you recall if and when Otto Candies, 17 Junior ever became a member of the board? 15:38:59 18 A. I don't -- I'm not aware of any time when Otto 19 Candies, Junior became a member of the board. 15:39:04 20 Q. What about Otto Candies, III? 15:39:06 21 A. I have heard that there was a period of time 22 where Otto Candies, III was on the board. 15:39:12 23 Q. This is after you left the company? 15:39:14 24 A. It was after I left the company. 15:39:15 25 Q. Okay. But prior to the time that you left the 156 1 company, neither Otto Candies, Junior nor Otto 2 Candies, III ever served on the board? 15:39:24 3 A. Not that I'm aware of. 4 (Exhibit 31 marked) 15:39:26 5 Q. (BY MR. BATTAGLINI) Okay. I'm going to hand 6 you what's been marked as Exhibit 31. It's a series of 7 papers with a clip on it, Mr. Thomas. It's clipped 8 merely for convenience. It's not intended to 9 demonstrate that all of these belong together. But I'm 10 grouping them for discussion purposes. 11 Okay. Do you have the exhibit in front 12 of you? 15:44:51 13 A. Yes. 15:44:51 14 Q. All right. The top page apparently is a 15 letter that was sent from Paul McKim to Paul Candies 16 saying that we are in receipt of the above-referenced 17 invoices for services of the MV Mother Teresa. 18 Unfortunately, we are unable to process these invoices 19 for payment due to a conflict in the records of DMT's 20 accounting department and the attached invoices. 21 Do you recall this event? 15:45:24 22 A. Yes. 15:45:25 23 Q. Okay. Why was this letter sent by Paul McKim 24 rather than from the CFO? 15:45:32 25 A. When this first came up that we were being, 157 1 that Paul wanted to terminate the services of the Mother 2 Teresa, he stepped in and wanted to direct the 3 communication and the handling of this issue. 15:45:56 4 Q. Okay. Is it because he felt it was a 5 sensitive issue or... 15:46:03 6 A. Because he was the CEO. 15:46:07 7 Q. Did he have a relationship with Paul Candies? 15:46:13 8 A. Define relationship. 15:46:14 9 Q. Had they done business together? Did he 10 communicate with Paul Candies regularly? 15:46:18 11 A. He communicated with Paul Candies. 15:46:22 12 Q. Did you have a discussion with Paul McKim 13 about his plan for dealing with this, preparing and 14 sending a letter to Paul Candies and somehow resolving 15 whatever the issue was? 15:46:38 16 A. We talked about it along the way. 15:46:38 17 Q. All right. What, what did DMT want out of 18 this? How did they want this issue revolved? To not 19 pay the invoices at all, or was there something else? 15:46:51 20 A. No. It was, it was a dispute of the invoices. 21 Paul felt quite strongly he had terminated the agreement 22 between DMT and Otto Candies, LLC for the use of the 23 Mother Teresa. 15:47:06 24 Q. Okay. And how ultimately was this resolved? 15:47:09 25 A. I don't know that it is resolved. 158 15:47:15 1 Q. Okay. This letter is dated February the 2nd, 2 2007. You remained with the company for the balance of 3 2007. Was it not resolved before you left? 15:47:24 4 A. No, it was not. 15:47:26 5 Q. What was the approximate amount of the 6 controversy? Can you tell by looking at this? 15:47:33 7 A. No. Not from, not from looking at this. 8 There's one invoice on here that's included. I think 9 there was more than that. There's a reference in the 10 Otto Candies communication to 325,000 offset or higher. 11 I don't remember what the total amount was that was 12 being disputed. 15:47:54 13 Q. But you think it's in the range of 300,000, 14 something like that? 15:47:58 15 A. That's the amount of the offset. I'm unsure 16 as to the full amount. 15:48:04 17 Q. Okay. Now, this precise issue had to do with 18 a supposed termination of an agreement and the billing 19 beyond the date of termination? 15:48:20 20 A. Yes. 15:48:20 21 Q. Right? Were there any other issues associated 22 with this, or was it simply that? 15:48:25 23 A. With the Mother Teresa? 15:48:27 24 Q. With the Mother Teresa. 15:48:31 25 A. You know, without reviewing other information, 159 1 the best I can work from is the documents in front of me 2 would seem to deal with, primarily with the termination 3 of the contract. There was some question, I think, also 4 regarding the day rate involved. But I'm pulling from 5 memory and that's a ways back. 15:48:56 6 Q. Okay. Tell me -- help me here. How could it 7 be that a communication was given that a contract was 8 terminated for this particular vessel? That work 9 continued to be done? What kind of work was being done 10 that generated an invoice? 11 MR. WALLACE: Objection, form. 15:49:19 12 A. I don't want to speak too far on behalf of the 13 Candies; they're very capable of doing that themselves. 14 But I believe they felt like they should be able to bill 15 DMT subsequent to the date of the termination of the 16 contract. 15:49:36 17 Q. (BY MR. BATTAGLINI) But for what? Did they 18 actually provide services beyond that day? 15:49:40 19 A. No. For the boat being on charter to us 20 beyond that date. 15:49:44 21 Q. So kind of like a standby charge, that sort of 22 thing? 15:49:47 23 A. A day-rate charge. 15:49:48 24 Q. Yeah. For being on standby? 15:49:50 25 A. No. Just for being a chartered vessel to DMT. 160 1 They believe that the contract continued. 15:49:57 2 Q. Okay. So it wasn't that they were actually 3 doing anything in particular. I understand. I 4 understand. 5 Now, other than the Mother Theresa, were 6 there other issues that were developing on any of the 7 other vessels with respect to any operations or services 8 being performed by Otto Candies, LLC? 15:50:27 9 A. Through what time? 15:50:29 10 Q. Well, this letter is dated February the 2nd, 11 2007. I would say anytime around February of 2007 and 12 beyond for the balance of 2007. 15:50:41 13 A. Yes. There were, there were serious 14 considerations about the Agnes Candies. 15:50:48 15 Q. Uh-huh. 15:50:49 16 A. And the repair of that vessel. That vessel 17 was down. We had it on charter in Boston working on a 18 saturation-system-required project. And because of 19 repair issues related to the boat, we were down for a 20 significant period of time. This was not something we 21 could just go find another sat system and replace on the 22 fly. This was a pretty significant deal for us. And so 23 yes, there were, there were other issues involving, 24 involving the Candies and boats. 15:51:29 25 Q. Were they issues concerning equipment or 161 1 general maintenance -- 15:51:35 2 A. Maintenance. 15:51:35 3 Q. -- or crew quality or -- 15:51:38 4 A. I've heard other stories. There were, there 5 were a host of different issues related to the boats. 15:51:46 6 Q. Okay. How serious did this become? Did the 7 board meet, did the DMT board meet and discuss these 8 issues? 15:51:53 9 A. Yes. There was, there was a meeting that Otto 10 Junior and Otto III attended related to issues having to 11 do with the Agnes Candies and its operations. 15:52:06 12 Q. Okay. 15:52:06 13 A. That was late '07. 15:52:08 14 Q. Was it limited to that one vessel, or did 15 these things that you're describing pertain generally to 16 all of the vessels, all four vessels at the time? 17 Weren't there four vessels at the time? I'm not 18 including the ROVs. I'm talking just the boats. 15:52:27 19 A. You know, I'm not sure. I would have to think 20 back as to how many boats we had with Candies at that 21 time. They were operating the Emerald -- or the 22 Diamond. They didn't operate the Emerald. That was a 23 source of some problems. The Agnes was a problem. I 24 don't remember if we had another boat with them at the 25 time or not. 162 15:52:49 1 Q. Okay. And again, were the problems equipment 2 related, maintenance related, crew related; or don't you 3 recall? 15:53:00 4 A. There was a variety of problems. Repair 5 problems, maintenance problems, downtime problems. And 6 then other things as it went along. 15:53:12 7 Q. How were those issues resolved? 15:53:16 8 A. As I remember, Otto sat at the meeting and 9 said, you know, they were aware that they had a problem 10 with it and they were addressing it. 15:53:29 11 Q. Okay. Now, why was Otto Candies, LLC not 12 involved with the Emerald? You said that was a 13 source -- 15:53:43 14 A. They didn't -- we needed a crew for the 15 Emerald when it pulled away from the dock. We didn't 16 crew our vessels at that time. In fact, none of the 17 time I was there did we. And we were relying on Otto to 18 provide the crew. That was part of the agreements that 19 we had. 15:53:53 20 Q. Uh-huh. 15:53:55 21 A. About 30 days before we were supposed to take 22 possession of the boat from Bender, Otto Candies said I 23 can't crew it. 15:54:04 24 Q. Okay. So was the idea that DMT needed to find 25 its own crew? 163 15:54:11 1 A. DMT better do whatever it was going to do 2 because he wasn't going to provide the crew for it. 15:54:16 3 Q. Okay. Was he expecting to be paid for a crew 4 even though he didn't provide a crew? 15:54:20 5 A. No. I don't think he expected payment. I 6 never saw anything that indicated he did. 15:54:25 7 Q. All right. 15:54:25 8 A. That I remember. 15:54:26 9 Q. Did he assist DMT in arranging for a 10 substitute crew? 15:54:32 11 A. I don't believe so. 15:54:33 12 Q. Did DMT find a substitute crew? 15:54:36 13 A. Yes. 15:54:38 14 Q. Were you involved in calculating the cost of 15 the problems associated with performance by Otto 16 Candies, LLC under any of these contracts, charter 17 agreements and whatnot? 15:55:03 18 A. The cost of the problems? I think we did 19 calculate at one time lost revenues. Lost revenues and 20 additional costs paid by DMT. Yes. 15:55:19 21 Q. You performed those? 15:55:20 22 A. I remember us doing that calculation, that 23 particular calculation. I don't know that there weren't 24 others. 15:55:30 25 Q. And was that something that was discussed at a 164 1 board meeting? 15:55:33 2 A. It was discussed with Nasser on one of his 3 weekly phone calls. 15:55:40 4 Q. All right. Do you recall what the approximate 5 number was that you had calculated? 15:55:46 6 A. You know, I want to say we thought we were 7 down 6 to $8 million in revenue as a result of downtime 8 on Otto's boats. 15:55:54 9 Q. And what did the board decide to do as a 10 result of that? 15:55:58 11 A. That was, that was placed in -- that was 12 Nasser. That was a conversation we had with Nasser. 15:56:03 13 Q. And do you recall if Nasser Kazeminy said 14 anything about that? 15:56:09 15 A. I don't know what the sum and substance of his 16 conversations with Otto were. 15:56:14 17 Q. Was there a plan of action? Did the board 18 devise a plan of action to deal with that in some 19 fashion? 15:56:20 20 A. Not that I'm aware. That was, once again, in 21 Nasser's lap. 15:56:27 22 Q. Nevertheless, there was a recognition at the 23 board level of DMT? 24 MR. WALLACE: Objection, form. 15:56:34 25 A. There was -- you know, was it a formal 165 1 discussion? There was a discussion at the board level 2 that there was a problem with the boats. You know, what 3 the ultimate resolution was I don't know because I 4 wasn't there anymore. But there was a recognition at 5 the board level that there was a problem and there was a 6 serious problem, that there had been, that there was a 7 detrimental impact to DMT because of the downtime on the 8 Agnes and its operations and its work. And that was 9 discussed. And, you know, the ultimate resolution, I do 10 not know. 15:57:13 11 Q. (BY MR. BATTAGLINI) Okay. Up to the time that 12 you left -- and I would say, when, December 2007 would 13 have been the last possible board meeting you would have 14 attended? 15:57:21 15 A. (Witness nodding head.) 15:57:23 16 Q. Were each the directors involved and engaged 17 in discussing the issues with Otto Candies, LLC? 15:57:31 18 A. I am not aware of any board members that were 19 assigned to handle that discussion. 15:57:39 20 Q. Was it an agenda item for the board meetings? 15:57:42 21 A. There was a discussion at one of the board 22 meetings. I do not remember if there was a specific 23 agenda item or not. I do know that there was a 24 discussion that took place. It was at a board meeting. 25 Otto Junior and Otto III were there. 166 15:57:54 1 Q. Okay. Were you, as, serving not only as a 2 director but also as CFO, tasked with looking into it in 3 any respect -- 15:58:05 4 A. Not for that, no. 15:58:06 5 Q. -- that issue? 15:58:06 6 A. This was falling primarily in Nasser's lap at 7 the time. 15:58:11 8 Q. All right. 15:58:11 9 A. There were other things going on between, 10 between DMT and Otto regarding additional boats being 11 brought in. So, you know, this was, this was all part 12 of the arsenal that Nasser had at his fingertips in 13 terms of his negotiations. 15:58:28 14 Q. Did you perceive that it was being handled 15 pursuant to the oversight agreement? 15:58:35 16 A. As principal shareholder and head of NJK with 17 an oversight agreement, Nasser, Nasser was being, and 18 being an active owner, Nasser was capable of handling 19 all of those things. 15:58:49 20 Q. Okay. Did you become aware that, in fact, 21 people working with either DCC or NJK were involved in 22 attempting to resolve the issues with Otto Candies? 15:59:04 23 A. Yes. I believe that, I believe that Gene 24 DePalma made a trip to New Orleans related to a lot of 25 that. 167 15:59:15 1 Q. Okay. When Gene DePalma was doing that, did 2 he ever communicate with you about exactly what they 3 were doing out there trying to resolve these issues? 15:59:24 4 A. I remember, I remember a discussion about it 5 and the fact that it was all unresolved. 15:59:31 6 Q. To the extent that you were responsible for 7 the financial statements and notes to the financials and 8 that this would have been something that would have been 9 material, were people reporting to you the results so 10 that you could properly characterize this in the 11 financials? 15:59:49 12 A. It was properly characterized in the 13 financials. There was a meeting and a discussion 14 between the auditors, Paul McKim, and myself related to 15 these outstanding invoices and the correct treatment for 16 the financial statements. 16:00:05 17 Q. Did you feel comfortable that it was being 18 adequately reported? 16:00:17 19 A. Yes. 16:00:17 20 Q. The work that you did in calculating what was 21 perceived to be a negative impact of this, you were 22 interested in that to see how it affected the bottom 23 line? 16:00:30 24 A. Well, we calculated gross revenue. It was an 25 approximation as to the net effect. 168 16:00:35 1 Q. Okay. But that was the purpose, you wanted to 2 see how it was going to affect the bottom line? 16:00:39 3 A. Sure. 4 (Exhibit 32 marked) 16:00:40 5 Q. (BY MR. BATTAGLINI) Okay. I want to hand you 6 what has been marked as Exhibit 32. It's entitled 7 exchange agreement. 8 MR. DAVIDSON: Let's take five minutes. 9 MR. BATTAGLINI: Yeah. 10 (Break from 4:05 to 4:19) 16:19:25 11 A. Before we get any farther, you asked me 12 earlier today about signatures on regulatory matters. 16:19:36 13 Q. (BY MR. BATTAGLINI) Uh-huh. 16:19:37 14 A. And I think I said, or somewhere close to, 15 that there weren't any. But that's not really accurate. 16 For instance, this exchange agreement, when we had to 17 file with the, with the State of New York because of the 18 stock ownership, that was something that I would have 19 signed. Regulatory matters also would have included 20 some parts and pieces of our ownership of vessels and 21 signatures with the Coast Guard. I would have signed 22 those. So I wanted to clarify that if that makes any, 23 if that's helpful at all. 16:20:11 24 Q. I appreciate the clarification. And I am 25 aware, for example, that you filed two Form Ds with the 169 1 SEC and, perhaps, other documents that don't show up on 2 their Website. But yeah, I understand. 3 Going back to the exchange agreement 4 dated May the 21st, 2007, is this the document that 5 resulted in DMT shareholders exchanging their stock for 6 DMH shares? 16:20:42 7 A. I think that this one was, I think this was 8 redone in '08. 16:20:50 9 Q. Okay. Well, let's talk about this '07 10 document first, though. 16:20:54 11 A. Right. 16:20:54 12 Q. This '07 document was prepared. It appears to 13 have been executed by most stockholders but perhaps not 14 all. Is the reason that it was not executed by all the 15 shareholders the reason that it was redone in 2008? 16:21:13 16 A. I don't believe so. 16:21:14 17 Q. Okay. What is your understanding of that? 16:21:18 18 A. I think it was redone because they withdrew 19 after the filing with the New York Securities 20 Commission. They rescinded and then reissued. 16:21:31 21 Q. Okay. So this particular version of it, the 22 one dated May 21st, 2007 was not effectuated? 16:21:39 23 A. I don't believe so, no. 16:21:41 24 Q. Okay. Take a -- and by the way, your 25 signature does appear on this particular version, 170 1 doesn't it, on Page 12? Under option holders I see your 2 signature? 16:21:52 3 A. Yes. 16:21:53 4 Q. And also on Page 11 under stockholders I see 5 your signature? 16:21:58 6 A. Yes. 16:21:59 7 Q. Okay. And then going to the very end, on 8 Page 14 it shows you converting 13 shares into 9 4940 shares? 16:22:11 10 A. Yes. 16:22:12 11 Q. Did that change at all with the subsequent 12 exchange agreement? 16:22:16 13 A. I don't believe so. I think it was all 14 calculated on 380 shares for 1. 16:22:22 15 Q. Okay. And then at the very last page it shows 16 that you had 1076 options that were converted to -- 16:22:31 17 A. Convertible. 16:22:32 18 Q. -- convertible to 408,880? 16:22:37 19 A. Yes. 16:22:37 20 Q. Did you exercise all of those or just some of 21 them? 16:22:40 22 A. No. Almost all of those. 16:22:53 23 Q. What is your current percentage of equity 24 ownership of the company now, do you know? 16:23:00 25 A. I don't have a clue. I have no idea what 171 1 other, if any other equity arrangements or things have 2 been done by DMT. 16:23:08 3 Q. Okay. So you haven't seen a cap table, a 4 recent cap table? 16:23:11 5 A. Have not. 16:23:12 6 Q. Okay. 7 (Exhibit 33 marked) 16:23:22 8 Q. (BY MR. BATTAGLINI) I'm handing you what has 9 been marked as Exhibit 33. Exhibit 33. It's the 10 financial statement for the period ending March 31, 11 2007. 12 You ready? 16:29:21 13 A. Uh-huh. 16:29:22 14 Q. Okay. What you have before you is the 15 financial statement for the period ending March 31, 16 2007. And I draw your attention to Page 4. And an 17 examination of the assets as compared with the year 18 before, it looks like total current assets has increased 19 by -- or excuse me. It's about the same. But property 20 and equipment and construction in progress has increased 21 substantially over the prior year such that the total 22 assets now have gone from 45.9 million to 74.8 million, 23 correct? 16:30:06 24 A. Yes. 16:30:06 25 Q. Is that attributable in large part to the 172 1 acquisition of new vessels and equipment or the 2 construction of new vessels and equipment? 16:30:16 3 A. No. The construction of the Emerald and some 4 ROVs in process and build-out on the saturation system, 5 yes. 16:30:25 6 Q. Okay. Going to the next page, Page 5, one 7 would expect to see a corresponding increase in 8 liabilities. Although interestingly, the long-term 9 liabilities has gone down from 20 million to 10 14.3 million. That being the case, where does the 11 increase reside, in additional paid-in capital? 16:30:55 12 A. It was a result of the conversion that we did 13 in the end of '06. 16:30:59 14 Q. Yeah. 16:31:00 15 A. For the note conversion from debt to equity. 16:31:09 16 Q. So total stockholders equity increased from 17 3.4 million to 30.4 million? 16:31:17 18 A. Yes. 16:31:18 19 Q. Yeah. Okay. And then on the next page, 20 Page 6, we see a net income figure going down from 21 5.7 million to approximately $1 million? 16:31:30 22 A. Yes. 16:31:32 23 Q. Did the board meet and discuss these 24 particular numbers after this financial statement was 25 submitted by the auditors? 173 16:31:42 1 A. All -- the financial statements were reviewed 2 at each financial statement that were issued to board 3 members as prepared each month. 16:31:52 4 Q. All right. And what was the conclusion of the 5 board regarding this set of numbers as of March 31, 6 2007? 16:31:59 7 A. I, I don't recall a specific resolution. 16:32:04 8 Q. Was the board pleased, concerned? Was there 9 an action plan put in place? 16:32:10 10 A. I just don't recall. I'd have to look back at 11 the board minutes to refresh my memory. 12 (Exhibit 34 marked) 16:32:23 13 Q. (BY MR. BATTAGLINI) I'd like you to look at 14 what has been marked as Exhibit 34. It's a two-page 15 document dated May the 21st, 2007. 16 MR. DAVIDSON: Is there a Page 3 to this? 17 Who signed this? 18 MR. BATTAGLINI: I only have what you 19 see. 20 MR. DAVIDSON: Okay. 21 MR. BATTAGLINI: It's a good question, 22 though, Mr. Davidson, because the last sentence on the 23 second page is The values are dependent upon the 24 limiting conditions and assumptions noted below. And 25 there's nothing below. 174 1 MR. DAVIDSON: Right. 2 MR. BATTAGLINI: So I don't know. 16:34:42 3 Q. (BY MR. BATTAGLINI) All right, Mr. Thomas. 4 This appears to be an appraisal from DLS sent to 5 Merrill Lynch with respect to the Emerald. Have you 6 seen this before? 16:34:55 7 A. I believe so. 16:34:56 8 Q. Okay. And it's expressed as a theoretical 9 prospective value based upon completion of construction 10 and outfitting of the vessel. Have you seen these types 11 of appraisals before? 16:35:11 12 A. Yes. 16:35:11 13 Q. Is this consistent with the types of 14 appraisals you've seen before on vessels? 16:35:16 15 A. Yes. 16:35:16 16 Q. Okay. On the second page it gives a range of 17 fair market value as of May 2007. One is a fully 18 outfitted value. One is for a value without the 19 deployment tower heat compensation system. 20 Did the board consider this appraisal at 21 any point? Did the board meet and consider this 22 appraisal, and was it placed on the agenda for any of 23 the board meetings? 16:35:52 24 A. I don't remember it being a board topic that 25 was on its own. It would have been discussed as part of 175 1 the, part of the loan with Merrill Lynch. 16:36:04 2 Q. Uh-huh. Do you recall if there was a 3 discussion internally as to whether or not these were 4 good values for what you were acquiring? 16:36:14 5 A. We thought they were low. 16:36:18 6 Q. Conservative? 16:36:19 7 A. Yes. 16:36:20 8 Q. Okay. When these values were presented to 9 Merrill Lynch, did the company perceive that that 10 presented any problem in terms of the financing that was 11 needed in order to acquire the asset? 16:36:40 12 A. Well, we were looking for -- I mean, the 13 relationship had to do with the fair market value and 14 the percentage of the loan available off of that. 16:36:49 15 Q. Uh-huh. 16:36:51 16 A. It was, it was certainly doable with these 17 valuations. But we were, we were actually hoping for a 18 higher valuation and thought it was on the conservative 19 side. 16:37:02 20 Q. Yeah. All right. 21 (Exhibit 35 marked) 16:37:07 22 Q. (BY MR. BATTAGLINI) I hand you what has been 23 marked as Exhibit 35. It's a letter from Fitts Roberts 24 and Company. 25 All right. Have you seen this particular 176 1 letter from Fitts Roberts before? 16:39:16 2 A. Yes. 16:39:16 3 Q. All right. It was addressed to the board of 4 directors. Do you recall having received it on or about 5 the date on the top of the letter of August 31st, 2007? 16:39:27 6 A. Approximately, yes. 16:39:28 7 Q. Okay. This letter points out what Fitts 8 Roberts perceives to be certain deficiencies in internal 9 control that they consider to be material weaknesses. 16:39:42 10 A. Yes. 16:39:43 11 Q. Did you have a discussion with Fitts Roberts 12 and Company before they sent this letter? 16:39:46 13 A. Yes. 16:39:47 14 Q. About these material weaknesses? 16:39:50 15 A. Yes. 16:39:51 16 Q. Did you agree with the letter as it was, as it 17 was sent, as it was delivered to the company? You'd 18 agree with their findings or no? 16:40:02 19 A. Yes. 16:40:03 20 Q. Okay. What was the discussion at the board 21 level about the findings of Fitts Roberts and Company 22 with respect to -- 16:40:11 23 A. I don't recall that there was -- I don't 24 recall. I don't know that there was a board discussion 25 related to this. 177 16:40:19 1 Q. Okay. At the time, in your role as CFO, you 2 were in charge of the areas that Fitts Roberts 3 considered to be weak, correct? 16:40:29 4 A. Yes. 16:40:30 5 Q. That would include accounting, inventory 6 recording, and fixed asset approval? 16:40:41 7 A. Yes. 16:40:42 8 Q. Okay. Were actions taken to resolve those 9 issues? 16:40:46 10 A. There were several actions already underway, 11 in fact, when we received this. 12 During that period of time, it was 13 exceedingly difficult to find accounting staff in this 14 town. People fresh out of school were getting paid 15 quite a bit and some significant bonuses, signing 16 bonuses, just to come to work. There wasn't a CPA firm 17 in town that wasn't struggling to find people. We had a 18 similar problem. So the accounting staff issue was one 19 that we dealt with. It was a problem. 20 We knew that we were using -- we wanted 21 to get out of using spreadsheets. We wanted to -- we 22 were migrating to a much more robust accounting system. 23 We were exiting out of QuickBooks, a very basic system. 16:41:45 24 Q. Right. 16:41:47 25 A. So yeah. It was -- and it was a struggle. It 178 1 was a, it was a real, live, full-blown mid-market 2 accounting system. And if we had additional people, it 3 would have made a difference. 4 During this time we lost a controller. 5 Actually, we lost two during that period. So it was, it 6 was a problem. 7 We were instituting a bar coding system, 8 and that was in the works. I think they noted that in 9 there. 10 There wasn't anything done that I recall 11 specifically with regard to approvals for fixed assets, 12 but it would have been something that we would have 13 moved into as we went along. 14 And as far as the record-retention piece 15 went, we recognized that that was also a difficult issue 16 given our size and the speed of our growth. And so we 17 had just converted to a document imaging system that 18 linked every invoice, every approval with the actual 19 record in the accounting system. So it was no more than 20 a click away, and approvals were recorded as part of the 21 system. 22 So yes, there were issues. And if you go 23 from, from -- as I remember some of the numbers in here, 24 you go from 2 million to 8 million to 35 million to 25 50 million to, I believe for 3/31/08, somewhere close to 179 1 80, $85 million. You're growing pretty damn fast. 16:43:21 2 Q. Uh-huh. 16:43:23 3 A. So all things considered, yes, there were 4 issues. But you add to the, add to the equation the 5 difficulty in finding people, it compounds your 6 problems. 16:43:34 7 Q. Going back to the fixed asset accounting 8 policy, where Fitts Roberts noted that the company did 9 not have a formal policy requiring board approval of 10 fixed asset additions and the related debt, was there a 11 proposal at the time merely to place any approvals on 12 agenda, as an agenda item for board meetings or to form 13 an audit committee to make presentations to the board or 14 anything of that nature? 16:44:07 15 A. You know, there wasn't -- what they said was 16 there wasn't a formal policy. 16:44:13 17 Q. Uh-huh. 16:44:13 18 A. But there wasn't debt taken on by the company 19 that, I think for the most part, in some shape, form, or 20 fashion wasn't walked through with the board and 21 approvals made. And so it's, we didn't, we didn't go 22 out and acquire the DMT Emerald without board approval. 23 Those things were discussed and approved along the way. 16:44:38 24 Q. So it may not have been a formal policy, but 25 there was certainly an informal mechanism in place to 180 1 deal with it? 16:44:45 2 A. Oh, yeah. 16:44:46 3 Q. Would that also apply to matters such as the 4 controversies regarding Otto Candies, LLC and the 5 equipment, maintenance, and crew issues? 16:44:59 6 A. There was not a formal policy that these would 7 be discussed. But, you know, once again, the issues 8 were raised. They were discussed with Mr. Kazeminy on a 9 regular basis, weekly. And at the board level, I can 10 only point to a specific meeting, I believe, sometime 11 around September or October of '07 where they were 12 specifically addressed. 16:45:29 13 Q. Whether there was a formal or informal policy 14 regarding the approvals necessary for acquiring fixed 15 assets and related debt, was there an informal policy 16 requiring the board to be informed of appraisals or to 17 have appraisals done prior to any acquisition? 16:45:56 18 A. There wasn't anything specified in terms of 19 any kind of informal policy. It would have been part of 20 just normal governance. You know, certainly the loan 21 with Merrill Lynch, negotiating the loan, if I'm not -- 22 I think there was a board resolution that John Ellingboe 23 and I be appointed to handle that negotiation and report 24 back to the board. The board would have been aware of 25 the appraisal value and the numbers and the pieces that 181 1 went with it. The loan would have been, would have been 2 covered. 16:46:35 3 Q. What about fairness opinions for things like 4 the exchange or the acquisition of significant assets? 16:46:47 5 A. We didn't go outside for a fairness opinion. 16:46:50 6 Q. Yeah. 16:46:50 7 A. We would have relied on the valuation as being 8 the basis for the fair market value of the asset. 9 (Exhibits 36 and 37 marked) 16:47:17 10 Q. (BY MR. BATTAGLINI) I am going to hand you two 11 documents. One is Exhibit 36. The other is Exhibit 37. 12 They are both vessel purchase agreements. One is for 13 the Kelly Ann. The other's for the Agnes. Let me know 14 when you've -- 16:51:36 15 A. I'm good. 16:51:37 16 Q. Okay. These are vessel purchase agreements 17 for the, what were then known as the Agnes and the 18 Kelly Ann? 16:51:44 19 A. Yes. 16:51:44 20 Q. Now, these are dated December 7, 2007. Were 21 you familiar with these before you left the employ of 22 the company? 16:51:53 23 A. I was familiar with the transaction, yes. 16:51:56 24 Q. All right. These reflect as to DM3 a purchase 25 price of 16 million for the Agnes and as to DM4 a 182 1 purchase price of 21 million for the Kelly Ann. But I 2 notice that the purchase price is not cash but, instead, 3 a delivery of shares of common stock of the parent. 16:52:23 4 A. Yes. 16:52:23 5 Q. Correct? So these are non-cash purchases? 16:52:26 6 A. Correct. 16:52:27 7 Q. For significant assets for the company? 16:52:29 8 A. Correct. 16:52:30 9 Q. Did these two become the Topaz and the 10 Sapphire? 16:52:34 11 A. I believe so. 16:52:35 12 Q. Yeah. Was this considered by the board to be 13 a good deal given that it was no cash required? 14 MR. WALLACE: Objection, form. 16:52:46 15 A. As I remember, the board approved this 16 transaction before I left, September/October of '07. 16:52:54 17 Q. (BY MR. BATTAGLINI) Right. And what was the 18 nature of the deliberation of the board with respect to 19 this? 20 MR. WALLACE: Objection, form. 16:53:02 21 A. Nasser negotiated this transaction with Otto 22 and described it to the board. 16:53:12 23 Q. (BY MR. BATTAGLINI) Did the board deliberate 24 and have the opportunity either to approve or disapprove 25 it? 183 16:53:17 1 A. The board voted to approve the transaction, 2 yes. 16:53:20 3 Q. And you were a member of the board at the 4 time? 16:53:22 5 A. Yes. 16:53:23 6 Q. Did you vote to approve it? 16:53:24 7 A. Yes. 16:53:24 8 Q. Why did you vote to approve it? 16:53:28 9 A. Assets for no cash out the door are not a bad 10 thing. 16:53:33 11 Q. Okay. You notice a cap table as the last 12 sheet on both of these exhibits? 16:53:38 13 A. Yes. 16:53:38 14 Q. And it reflects the percentage ownership after 15 the issuance of stock to Otto Candies for the purchase? 16:53:48 16 A. Yes. 16:53:48 17 Q. And I think that's reflected as where it says 18 new, in parentheses. Am I correct in assuming that? 16:53:54 19 A. It looks about that. 16:53:57 20 Q. So after the issuance, Otto Candies had 21 20 percent, 20.44 percent of the company? 16:54:04 22 A. Plus the other 17.9 that he already owned. 16:54:07 23 Q. Okay. So you add those two together? 16:54:09 24 A. I would assume. 16:54:10 25 Q. Okay. Now, I notice that DCC Ventures would 184 1 have 41.18 percent at this point, correct? Less than 2 50 percent? 16:54:26 3 A. Correct. 16:54:28 4 Q. And that Otto Candies, if you add those two 5 numbers together, would have a little over 38 percent, 6 correct? 16:54:37 7 A. That's correct. 16:54:43 8 Q. Yeah. Did any of the shareholders object to 9 this occurring? In other words, the cap table changing 10 such that Otto Candies would end up with 30, more than 11 38 percent of the company and DCC Ventures would have a 12 reduced interest down to 41.18? 16:55:09 13 A. Not that I recall while I was there. 16:55:12 14 Q. Did anyone complain about dilution? 16:55:18 15 A. Not to me, but I wasn't there that much 16 longer. 16:55:23 17 Q. It says here that B.J. Thomas had a 18 .02 percent interest. 16:55:30 19 A. All right. Those big 13 shares. 20 MR. DAVIDSON: Don't go crazy. 16:55:48 21 Q. (BY MR. BATTAGLINI) Did Otto Candies 22 misrepresent the state or condition of the vessels that 23 he was selling to DMT? 16:56:00 24 A. I have no idea for that, those two 25 transactions. 185 16:56:04 1 Q. For any transaction that you were aware of the 2 whole time you were employed with DMT, did Otto Candies 3 misrepresent the state or condition of the vessels? 16:56:14 4 A. That he sold to us? 16:56:16 5 Q. Yes. That he sold to you. 16:56:17 6 A. Not that I'm aware of. 16:56:21 7 Q. Okay. 16:56:21 8 A. Not that I -- let me rephrase that. Not that 9 I remember. 16:56:24 10 Q. Did DMT acquire from Otto Candies, LLC any 11 vessels that were broken, poorly built, or not able to 12 meet U.S. Coast Guard regulations? 16:56:36 13 A. In terms of purchase? 16:56:38 14 Q. Yeah. 16:56:41 15 A. Not during, not that I recall during my period 16 with DMT. 16:56:45 17 Q. Let's shift over now to -- 18 MR. DAVIDSON: Hang on a second. 19 (Discussion off the record) 20 MR. DAVIDSON: That's fine. 16:57:02 21 Q. (BY MR. BATTAGLINI) Let's shift over now. And 22 the context is not purchase but charter. And I'm going 23 to ask you the same question. Did Otto Candies, LLC 24 ever send a boat or a vessel for charter purposes that 25 was poorly built, in disrepair, couldn't meet Coast 186 1 Guard regulations, those kinds of things? 16:57:28 2 A. There was a vessel -- and I'm pulling back 3 from memory. But there was a vessel that the story was 4 that the vessel had been represented to us as being 5 cleared for manned diving. And I'm hazy on this, and so 6 please don't take it as gospel. This is my 7 understanding as best I can recall. 8 There was a problem with, there was a 9 problem with that boat actually being certified to be 10 able to handle that. And I think that was the Agnes, 11 but I can't -- I just can't swear to it. 12 The Agnes, we also ran into significant 13 problems while it was on charter to us and being refit 14 as a saturation system. There were, there were a 15 constant stream of complaints about the electrical 16 system on the boat and what we were having to go through 17 to bring it up to Coast Guard certs for using it as a 18 saturation system diving vessel. 16:58:39 19 Q. This was prior to -- 20 MR. DAVIDSON: Is this the Agnes you're 21 talking about? 22 THE WITNESS: Yes. 23 MR. DAVIDSON: Which is one of the ones 24 that was -- 25 THE WITNESS: Which is one of the ones 187 1 we -- 2 MR. DAVIDSON: -- just talked about the 3 purchase agreement for December '07? 4 THE WITNESS: Yes. 5 MR. DAVIDSON: Okay. 16:58:47 6 Q. (BY MR. BATTAGLINI) This was prior to the 7 purchase? 16:58:49 8 A. Yes. 16:58:50 9 Q. And it was not only prior to the purchase, but 10 it was during a different phase of the relationship 11 whereby it was there for charter? 16:58:58 12 A. Yes. We -- well, we had chartered it. 16:59:00 13 Q. Right. 16:59:01 14 A. And were outfitting it with a saturation 15 system. And there were significant problems with the 16 build-out of that. And lot of those problems went back 17 to problems with the vessel that really were problems. 18 And problems inherent with the boat. 16:59:23 19 Q. Why, then, did the company purchase the Agnes, 20 ultimately? 16:59:29 21 A. A couple of reasons. Why did we purchase it 22 for stock? One was because it was already outfitted 23 with the saturation system which made it a reasonably 24 valuable asset. There was a significant investment in 25 our part in that refitting and putting the saturation 188 1 system on it. That was, that was one of the driving 2 forces. That plus at the time I think we all believed 3 that there was still going to be a pretty good market 4 for saturation work for the foreseeable future. 17:00:06 5 Q. The issues, particularly with the Agnes prior 6 to the purchase, where in the retrofitting and in 7 dealing with other issues, technical issues that came up 8 that resulted in an expense to DMT, how were those 9 issues resolved with Otto Candies, LLC? 17:00:28 10 A. I can only assume that Nasser took them into 11 account when he negotiated the, the dilution to DMT 12 stock for the acquisition. Nasser was very aware of the 13 issues and the problems and the costs associated and the 14 problems with the Agnes while it was operating. Those 15 were things that were discussed on a regular and ongoing 16 basis. 17:00:53 17 Q. I notice that there's a difference in purchase 18 price attributable to each of these two vessels. The 19 Agnes was valued at 16 million, the Kelly Ann at 20 21 million. Did that have something, the difference in 21 price have something to do with what you just mentioned? 17:01:10 22 A. I don't know. I just simply don't know. It 23 could be the age of the boats. It could be the size of 24 the boats. 17:01:22 25 Q. Uh-huh. 189 17:01:22 1 A. It could be any number of things. 17:01:30 2 Q. Was the, did the board discuss this idea that 3 one of the reasons that DMT should entertain the idea of 4 actually purchasing these vessels is in part to resolve 5 the issues that the company was having with Otto 6 Candies, LLC? 17:01:48 7 A. I don't know. I don't believe so. I don't 8 remember that as being part of the overall discussion. 17:01:54 9 Q. In other words, if you own the boats, you 10 don't have to deal with charter issues with not only 11 Otto Candies but with anybody else? 17:02:03 12 A. Well, no. But we still would have had crewing 13 issues. We still would have had maintenance issues. 14 There still would have been other ongoing issues. 17:02:13 15 Q. Uh-huh. Was DMT paying above market rates for 16 any of the services provided by Otto Candies, LLC, that 17 you recall? 17:02:38 18 A. I don't believe so. I don't believe so. 17:02:40 19 Q. Were you part of an effort to determine what 20 the competition was charging for the same services? 17:02:48 21 A. No. 17:02:49 22 Q. For example, did you look into what Hornbeck 23 was charging or anyone else? 17:02:53 24 A. Well, we found out what Hornbeck was charging 25 when they crewed the DMT Emerald. 190 17:02:57 1 Q. Yeah. And what did you discover? 17:03:01 2 A. The day rate was significantly higher with 3 Hornbeck, which was not unexpected. 17:03:07 4 Q. Did Hornbeck provide any better service? 17:03:10 5 A. Yes. Significantly better. 17:03:14 6 Q. But at a higher price? 17:03:16 7 A. At a higher price. But significantly better. 8 When their crew came in and started working through the 9 Emerald, which only had, when they came on, I think 10 about four weeks left to get out the door, there was, 11 there were a fair number of issues that they raised and 12 resolved that should have been handled by the Candies 13 crew. 17:03:37 14 Q. Did the board then decide to engage Hornbeck 15 more in the future to replace Otto Candies to the extent 16 that Otto Candies was going to continue to service any 17 vessel? 17:03:49 18 A. There wasn't a discussion about that that I 19 remember while I was on the board. 17:03:53 20 Q. Did anyone make a motion to approve some sort 21 of resolution to that effect? 17:03:59 22 A. It's possible. I just don't remember. 17:04:11 23 Q. Do you remember an issue regarding a crane, 24 whether or not Otto Candies delivered a new crane or a 25 used crane as part of one of the acquisitions? 191 17:04:25 1 A. I remember Paul telling me about an issue 2 related to the crane. A new crane that we had paid for 3 and a crane that was being sent to us that was a used 4 crane. 17:04:35 5 Q. Okay. Did you look into it to find out what 6 actually happened? 17:04:38 7 A. Paul was handling the front end of that and 8 walking it through. And that would have been something 9 he was taking care of. 17:04:47 10 Q. Okay. Do you know how that was resolved? 17:04:49 11 A. I do not. 17:06:10 12 Q. Give me just one more moment. I might be able 13 to wrap this up. 14 MR. BATTAGLINI: That's all the questions 15 I have. Thank you. 16 MR. WALLACE: I've got a few questions. 17 Do you want a break, Mr. Thomas? 18 THE WITNESS: Yeah. 19 (Break from 5:06 to 5:12) 20 EXAMINATION 17:12:03 21 Q. (BY MR. WALLACE) Mr. Thomas, I don't have 22 5 hours and 16 minutes worth of questions, but I have a 23 few. I'll note for the record it's 5:10 right now. 24 We've been at this since 9:30. So I'll try to get as 25 much in as I can tonight. And hopefully we won't have 192 1 to extend this to another day. 2 Do you recall your testimony with 3 Mr. Battaglini with respect to the consulting services 4 provided by Hays that are referenced in Thomas Exhibit 5 No. 17? 17:12:38 6 A. Parts of it. 17:12:39 7 Q. Okay. You were asked that, about the fact 8 that that represents Hays was to provide consulting 9 services to DMT from April 1st, 2007 to April 1st, 2008, 10 right? 17:12:58 11 A. Yes, sir. 17:12:59 12 Q. And it was for consulting services, right? 17:13:02 13 A. Yes, sir. 17:13:03 14 Q. To your knowledge did DMT ever receive any 15 consulting services from Hays? 17:13:07 16 A. Not that I'm aware of. 17:13:08 17 Q. But how much money was paid to Hays for those 18 alleged consulting services? 17:13:12 19 A. Seventy -- 17:13:14 20 Q. To your knowledge. 17:13:14 21 A. -- five thousand while I was there. 17:13:16 22 Q. Okay. Okay. During your testimony with 23 Mr. Battaglini, you said -- and I'm going to quote you, 24 quote: You know there was a discussion about, about 25 Hays and who was at Hays and that somebody he wanted to 193 1 use. And this -- so this was, this was where things 2 were going. 3 Who was it and during -- let me start 4 over. 5 You were having an exchange with 6 Mr. Battaglini about conversations you had with 7 Mr. Kazeminy and Hays, right? 17:13:56 8 A. Yes, sir. 17:13:57 9 Q. Do you recall saying in your testimony with 10 Mr. Battaglini, quote: You know, there was a discussion 11 about, about Hays and who was at Hays and that somebody 12 he wanted to use. And this -- so this was, this was 13 where things were going. 14 Do you recall that testimony? 17:14:12 15 A. Yes. 17:14:13 16 Q. All right. And when you say he wanted to use, 17 who was he? 17:14:17 18 A. He being Nasser Kazeminy. 17:14:19 19 Q. And who was it that Nasser Kazeminy wanted to 20 use at Hays? 17:14:24 21 A. Laurie Coleman. 17:14:25 22 Q. And who is Laurie Coleman? If you know. 17:14:31 23 A. She's the wife of Senator Coleman. 17:14:33 24 Q. Okay. In March of 2007, did you have a 25 telephone conversation with Mr. Kazeminy about you, 194 1 about Senator Norm Coleman? 17:14:50 2 A. That -- there was just that one conversation. 17:14:53 3 Q. Okay. Now, that services agreement that you 4 have before you which is Exhibit No. 17; is that right? 17:14:58 5 A. Yes, sir. 17:14:59 6 Q. It's for services beginning in April of 2007? 17:15:02 7 A. Yes, sir. 17:15:03 8 Q. And in March of 2007 you had a telephone 9 conversation with Mr. Kazeminy about Senator Norm 10 Coleman, right? 17:15:09 11 A. Well, it could have been in March. 17:15:20 12 Q. Okay. You're not sure? 17:15:20 13 A. I'm not sure. It was sometime -- if I'm going 14 to put a timeline to it, I'm going to estimate sometime 15 that first quarter of '07. 17:15:22 16 Q. Okay. Fair enough. Sometime before the 17 existence of the document that you have before you which 18 is Exhibit No. 17? 17:15:30 19 A. Yes, sir. 17:15:31 20 Q. Okay. In that conversation that you had with 21 Mr. Kazeminy, did he tell you, quote, United States 22 senators don't make shit, close quote? Or words to that 23 effect? 17:15:45 24 A. Yes, sir. 17:15:47 25 Q. Do you have any idea what he meant when 195 1 telling you that by the context of the conversation you 2 were having? 17:15:57 3 A. Other than the fact that senators don't make a 4 lot of money, not really. I'm not very good at reading 5 more into it other than that. 17:16:08 6 Q. Fair enough. And I don't want you to read 7 anything into it that you can't. Okay? Please don't 8 let me try to put words in your mouth. Can we have that 9 agreement? 17:16:15 10 A. Sure. 17:16:15 11 Q. Okay. In this telephone conversation, it was 12 specifically about Hays insurance, though, right? And 13 about the use of Hays? 17:16:29 14 A. Yes, sir. 17:16:29 15 Q. And he introduces in that conversation the 16 subject about United States senators don't make shit, 17 correct? 17:16:37 18 A. That's how the conversation started. 17:16:39 19 Q. And who works at Hays? That you know of 20 personally. 17:16:44 21 A. Mike Prinz. Laurie Coleman. Well, I -- you 22 know, look. I can't say that I know personally. I have 23 heard that. 17:16:51 24 Q. Fair enough. 17:16:52 25 A. Mike Prinz I know works at Hays. 196 17:16:54 1 Q. That's a fair testimony. You don't have any 2 personal knowledge that Laurie Coleman works there, 3 correct? 17:17:00 4 A. Correct. 17:17:00 5 Q. Okay. Did you later approach Mr. McKim asking 6 him whether it was appropriate to follow Mr. Kazeminy's 7 orders to use Hays? 17:17:09 8 A. We talked about this after the conversation. 17:17:11 9 Q. And what was Mr. McKim's reaction? 17:17:15 10 A. Our first reaction for both of us was somewhat 11 of a sense of relief in that the previous year we had 12 gone through the discussions with the e-mail that I 13 ultimately sent to Mr. Kazeminy relating to the use of 14 Hays and an associated firm here in Houston to transfer 15 our offshore insurance, or our insurance brokerage to. 16 Neither one of us were very excited by that kind of 17 move. We were very well taken care of by Aon. We were 18 comfortable with the level of service and knew that the 19 company was benefitting from the arrangement. We had 20 ongoing use for Aon on a variety of issues and really 21 did not want to change to an unknown entity that was 22 significantly smaller in size. 17:18:22 23 Q. Okay. I'm a little bit confused by your 24 response. Did you say at first you were relieved? 17:18:27 25 A. Yeah. We were relieved because this meant 197 1 that we weren't going to be getting our chops busted 2 about changing to Hays. For doing -- for, actually, the 3 brokerage of our insurance and the ongoing, and the 4 ongoing brokerage arrangement and who was going to be 5 taking care of and servicing us. 17:18:47 6 Q. I see. Because all Hays was going to do was 7 provide consulting services as opposed to providing 8 insurance. 17:18:52 9 A. Yes, sir. 17:18:52 10 Q. Okay. But from the date of the conversation 11 when he told you U.S. senators don't make shit until the 12 expiration of a year later, to your knowledge, DMT never 13 got any consulting services from Hays? 17:19:07 14 A. No, sir. Not that I'm aware. 17:19:09 15 Q. But they were paid $75,000 of corporate money 16 for that? 17:19:12 17 A. Yes, sir. 17:19:13 18 Q. Okay. Was there -- did Mr. McKim later ever 19 make an objection to any of the payments to Hays, to 20 your knowledge? 17:19:27 21 A. Paul was very unhappy about making the 22 payments and grumbled whenever, whenever one of the 23 invoices came through. 17:19:39 24 Q. Did he grumble to Mr. Kazeminy about it? 17:19:43 25 A. I don't know if he did or not. 198 17:19:46 1 Q. Did Mr. Kazeminy ever let it be known to you 2 in some form of communication that this was his company 3 and that you and Mr. McKim better just follow his orders 4 in paying Hays? 17:20:01 5 A. He did not -- I did not have that portion of a 6 conversation with Nasser ever. 17:20:06 7 Q. Okay. Fair enough. Are you aware of any 8 payments that were made by DMT to a relative of Nasser 9 Kazeminy whose name I will butcher but I will try to 10 pronounce it? Behnaz Ghaufouri. And for the court 11 reporter, it's B-e-h-n-a-z, last name, 12 G-h-a-u-f-o-u-r-i. 17:21:18 13 A. I'm not aware of any while I was there. I've 14 heard that she was brought in sometime after my 15 departure. 17:21:26 16 Q. You don't know anything about it, though, 17 right? 17:21:28 18 A. No. 17:21:28 19 Q. Okay. Fair enough. Let's talk about these 20 boats, the Mother Teresa, the Agnes, the Emerald, the 21 Diamond, and the Sapphire. And we'll try to get through 22 this pretty quick. 17:21:42 23 A. Okay. 17:21:43 24 Q. Okay? You testified earlier about the Mother 25 Teresa and DMT's desire to terminate the transaction 199 1 that it had with Otto Candies. Do you recall that? 17:22:01 2 A. Yes. 17:22:07 3 Q. Did DMT provide written notice to Otto that it 4 wished to terminate the agreement? 17:22:16 5 A. I remember seeing a certified letter. 17:22:19 6 Q. And when I say Otto, can we understand that 7 I'm talking about Otto Candies, LLC as opposed to Otto 8 Candies, Junior? 17:22:26 9 A. Yes, sir. 17:22:27 10 Q. And if I talk about Otto Candies, Junior, I'll 11 actually be specific with his name. 17:22:30 12 A. That's fine. 17:22:31 13 Q. Great. When the certified letter was sent to 14 Otto terminating the transaction as it related to the 15 Mother Teresa, did Otto continue to bill anyway? 17:22:51 16 A. Yes, he did. 17:23:02 17 Q. Do you know that -- do you know how much Otto 18 continues to this day to contend that they are owed 19 subsequent to the date of termination? 17:23:02 20 A. I simply don't remember. There was a 21 discussion when we came into the 3/31/07 audit 22 specifically related to the difference between what we 23 showed as a payable to Otto and what Otto confirmed to 24 the auditors as a balance due. 17:23:22 25 Q. Was it a $1.2 million balance owed? 200 17:23:25 1 A. I just simply don't remember. 17:23:27 2 Q. Fair enough. Do you know why Otto continued 3 to bill after a certified letter was sent to Otto saying 4 the deal's terminated? 17:23:37 5 A. It was, it was their contention that the 6 contract continued. 17:23:43 7 Q. Regardless of the termination? 17:23:44 8 A. Regardless of the termination. 17:23:45 9 Q. And who told you that? 17:23:47 10 A. That was what I believe was in their response. 11 Paul Candies -- I believe Paul Candies had sent a 12 response or something to Paul to the effect that this 13 money was still owed and that it didn't make -- you 14 know, here's the reasons why, that I don't believe, I 15 don't believe, I don't believe satisfied anything from 16 the, the notice that we were terminating the contract. 17:24:28 17 Q. Let's skip to the MV Agnes. Okay? 17:24:31 18 A. Okay. 17:24:31 19 Q. You're familiar with that ship, right? 17:24:33 20 A. Somewhat. 17:24:35 21 Q. Is it true that in June of 2006 DMT leased the 22 Agnes from Otto? 17:24:41 23 A. I believe so, yeah. 17:24:42 24 Q. Okay. And it was at a rate of approximately 25 $30,000 a day, right? 201 17:24:47 1 A. I believe so, yeah. 17:24:48 2 Q. And that was to include not just the ship, but 3 crew and maintenance, right? 17:24:52 4 A. Yes. The maintenance would have still been 5 his. It was his boat. 17:24:56 6 Q. Okay. Was there a representation made to DMT 7 that the vessel would meet all U.S. Coast Guard 8 regulations to perform dive operations? 17:25:07 9 A. I believe that would have been made. I would 10 not -- that would not have been mine to check. That 11 would have been an operational issue. 17:25:15 12 Q. Fair enough. Fair enough. But subsequent to 13 taking receipt of, or delivery of the vessel, was there 14 an independent inspection of the vessel to determine 15 whether or not it met the regulations necessary to 16 perform dive operations? 17:25:30 17 A. I don't, I don't know. 17:25:33 18 Q. Was DMT, after it took possession of the 19 vessel, required to invest a significant amount of time 20 and money to bring the vessel up to Coast Guard 21 standards? 17:25:43 22 A. When we were, when we had the boat in at the 23 dock to install the saturation system, I had several 24 conversations with Mike Lunstra [phonetic] regarding the 25 problems with the, with the vessel to get it to where we 202 1 could actually go out and go to work and the delays, the 2 delays associated with that. 17:26:08 3 Q. Who's that, Mike Lunstra? 17:26:09 4 A. Mike Lunstra was the VP of our dive division. 17:26:16 5 Q. Okay. And it was in dock to get a saturation 6 system attached to it, right? 17:26:19 7 A. Yes. 17:26:20 8 Q. But even without a saturation system, there 9 were problems with the vessel, right? 17:26:25 10 A. Yes. There were underlying problems with the 11 vessel. 17:26:29 12 Q. Okay. And it didn't meet the regulations to 13 perform diving operations, did it, at that time? 17:26:40 14 A. That's a little broad for what I -- there were 15 problems with that, that piece of it. I don't remember 16 the exact, the exact nature and extent. But I do know 17 that there was a, that there were, there was a problem 18 that surfaced regarding the use of that in diving. 17:26:58 19 Q. Fair enough. Even though there were problems 20 with the vessel that were discovered at the time the 21 saturation unit was being added to the vessel, did Otto 22 continue to charge DMT 30,000 a day for the lease 23 despite DMT's inability to utilize the vessel? To the 24 best of your memory. 17:27:19 25 A. You know. And this part I'm a little hazy 203 1 about. 17:27:24 2 Q. Okay. Fair enough. 17:27:25 3 A. I don't know. I know that there were -- and I 4 don't know if it was on the Agnes or not. There were, 5 there were negotiations with Otto or discussions with 6 Otto about days that we would pay for and some days for 7 repairs that we weren't. But I don't specifically 8 remember if it was for that boat or not. 17:27:45 9 Q. Okay. Do you recall that around October of 10 2007 DMT sent the Agnes up to Boston? 17:27:54 11 A. I thought we had sent it before then. 17:27:56 12 Q. Okay. Well, nevertheless, you remember that 13 the Agnes was shipped off to Boston for a job, right? 17:28:02 14 A. Yes, sir. 17:28:02 15 Q. All right. And who, who was the crew -- who 16 provided the crew? 17:28:08 17 A. That was -- I mean, we were -- in our 18 industry -- 17:28:13 19 Q. Uh-huh. 17:28:13 20 A. -- a bare boat charter, when you charter a 21 vessel, it comes with captain and crew. 17:28:19 22 Q. Okay. 17:28:20 23 A. And we were chartering that vessel from Otto, 24 and he would have provided the captain and the crew. 17:28:25 25 Q. Okay. And they are in charge of maintenance 204 1 also, right? 17:28:28 2 A. Well, yes. The maintenance is still on them. 3 It wasn't something that we took on in the charter. 17:28:33 4 Q. The Horizon Offshore contract that you had 5 when the ship was sent up to Boston was a $125,000-a-day 6 contract, wasn't it? 17:28:42 7 A. Yes, sir. Something. I mean, I remember it 8 was a very substantial day rate. 17:28:47 9 Q. But during that timeframe when they were, when 10 DMT was to be doing this work, there were significant 11 mechanical difficulties on that ship, weren't there? 17:28:57 12 A. Yes, sir. The boat was down for significant 13 blocks of time. 17:29:00 14 Q. And was that due to a lack of mechanical 15 maintenance on behalf of the crew of Otto's? 17:29:07 16 A. There were a variety of issues. I'm not sure 17 I'm qualified to say exactly who was responsible for 18 what. But Otto was providing a boat that when it wasn't 19 working, we weren't making money and, in fact, 20 continuing to incur costs. 17:29:28 21 Q. Okay. In fact, it was delayed for months, 22 wasn't it? 17:29:28 23 A. There was a significant amount of time. 24 Significant being more than 30 days. 17:29:35 25 Q. Did it cost DMT revenue of about 205 1 seven-and-a-half-million dollars during the downtime? 17:29:40 2 A. That's consistent with, with my memory. You 3 had said 7 to 8 million. I'd say I think that's about 4 right. 17:29:46 5 Q. Did Otto ever offer to pay DMT back for its 6 failure to provide a working boat with a working crew 7 with working maintenance? 17:29:56 8 A. Not that I'm aware of. 17:30:04 9 Q. Let's talk about the MV Emerald. In May of 10 2007, did DMT agree to purchase from Otto the Emerald 11 for a price of approximately $22 million? 17:30:18 12 A. I think that's when we signed the paperwork. 13 But, you know, that was -- I think all of the, all of 14 the pieces had been done quite a ways before that. 17:30:29 15 Q. Okay. It took about a year to build it? 17:30:35 16 A. I think it would have been longer. It was 17 probably -- I mean, all total, it was -- I'm going to 18 guess just from memory because, you know, you talk about 19 building a boat and you just, we just pegged it at 20 18 months at that point. 17:30:48 21 Q. Fair enough. Fair enough. Who was to 22 provide, if you know, the crew and maintenance for the 23 MV Emerald? 17:30:58 24 A. Originally it was supposed to come from Otto. 17:31:02 25 Q. Okay. Did DMT go out and get a contract with 206 1 anybody to do work once the Emerald was delivered with a 2 crew and maintenance contract? 17:31:17 3 A. Prior to -- about, about 30 days prior to the 4 delivery of the Emerald, we were told by Otto that he 5 wasn't going to provide a crew. And so we went out and 6 contracted with -- Mr. Battaglini mentioned the name 7 earlier, and I can't remember. 8 MR. BATTAGLINI: Hornbeck? 9 THE WITNESS: Hornbeck. Thank you. 10 MR. BATTAGLINI: Yeah. 17:31:45 11 A. -- from Hornbeck to crew the vessel. 17:31:53 12 Q. (BY MR. WALLACE) Do you know why Otto decided 13 two weeks before the ship was to be delivered he was 14 just arbitrarily saying I'm not giving you a crew and 15 I'm not going to give you maintenance? 17:32:03 16 A. My, my understanding, what I heard at the 17 time, was that because of the size of the vessel it 18 required a captain with an unlimited license. And Otto 19 either didn't have those or wasn't willing to hire them 20 or, for whatever reason, wasn't going to hire them for 21 the vessel. 17:32:42 22 Q. Prior to Mr. -- excuse me. Strike that. 23 Prior to Otto saying you're not going to 24 get the crew, you're not going to get maintenance, had 25 DMT secured a contract with anybody to provide services 207 1 with the Emerald? And specifically I'm talking about 2 BP. If you remember. 17:33:01 3 A. For us to go to work for BP? 17:33:04 4 Q. Yes. 17:33:04 5 A. Did we have a contract with a customer? 17:33:06 6 Q. Yes. 17:33:07 7 A. I'm not sure when we signed the agreement with 8 BP. But in similar timelines. I mean, we knew we were 9 going to work ofr BP, and we were anxious to get out the 10 door to go to work. 17:33:18 11 Q. And what ship were you going to use to go to 12 work? 17:33:20 13 A. The Emerald. 17:33:21 14 Q. The Emerald? 17:33:22 15 A. Yes. 17:33:22 16 Q. All right. And anxious to go do the work? 17:33:25 17 A. It was, it was a good day rate. And we were 18 going to make money. 17:33:28 19 Q. Okay. But at the last minute you have no 20 crew. And you were -- while you had a contractual 21 obligation to work for BP, you didn't have any way to 22 fulfill it, right? 17:33:39 23 A. We had to go find a crew somehow, some way. 17:33:41 24 Q. And you hired Hornbeck? 17:33:43 25 A. Yes, sir. 208 17:33:44 1 Q. And do you know the amount of money, extra 2 money that had to be spent because of Otto's failure to 3 provide the crew? 17:33:52 4 A. As I remember, it was 10 to 12,000 a day more 5 expensive. But that's pulling from memory. 17:33:58 6 Q. Okay. And if it's 10 to $12,000 more per day 7 that DMT had to expend because Otto did what it did, how 8 many days are we talking? If you know. 17:34:08 9 A. It would have been every day. I mean, you had 10 to have a crew on the boat every day. 17:34:13 11 Q. Okay. And that's a really good answer to a 12 really sloppy question. How many days total was the BP 13 work? If you remember. 17:34:22 14 A. I don't remember. It ended up -- it ran -- 15 you know, as I remember, we were running BP through 16 October, November, December. Somewhere in there. 17:34:35 17 Q. So from May -- 17:34:36 18 A. It may have extended -- it had a, I think, a 19 three-month deal on it. And they extended it and then 20 extended it again. But, you know, the exact timeline, I 21 just don't recall. But it was, it was for a significant 22 portion of time. 17:34:48 23 Q. Okay. Three or four, five months? 17:34:49 24 A. Yeah. 17:34:50 25 Q. At 10 to $12,000 extra a day because you had 209 1 to use Hornbeck? 13:35:21 2 A. (Witness nodding head.) 17:34:55 3 Q. Is that fair? 17:34:56 4 A. It's reasonable. 17:35:02 5 Q. Now, have you ever heard or has it ever been 6 made known to you that at the time of closing on the 7 Emerald Otto Candies, Junior informed DMT that the 8 purchase price had been arbitrarily increased by 9 $6 million? 17:35:21 10 A. That's not consistent with my memory. 17:35:23 11 Q. Was your memory a $2 million figure that you 12 and Mr. Battaglini talked about a little earlier? 17:35:28 13 A. Yes. 17:35:28 14 Q. Okay. Did he say something to the effect you 15 either take it or leave it? 17:35:35 16 A. Essentially, yes. 17:35:35 17 Q. I'm going to get my extra 2 million. And if 18 you don't like it -- 17:35:38 19 A. You don't have to do the deal. 17:35:40 20 Q. That's essentially what he said, you don't 21 have to do the deal? 17:35:42 22 A. Yeah. We can take the deal someplace else. 17:35:44 23 Q. But you had a contract with BP to provide 24 services with the ship, right? 17:35:50 25 A. You know, the timeline for that is, is not one 210 1 I'm exactly sure of. I think we knew, I think we had 2 resolved the $2 million issue prior to having the 3 contract with BP. But I could be wrong about that. But 4 I think so. 17:36:10 5 Q. Okay. Fair enough. Nevertheless, Otto 6 Candies, Junior through Otto Candies, LLC is saying 7 stick 'em up, $2 million, take it or leave it? 17:36:21 8 A. There was a verbal representation, as I 9 understand it, and as I remember being, hearing from 10 Paul and John Ellingboe, that we were going to get the 11 boat from Otto for his cost of the boat. 17:36:38 12 Q. And yet that's not what happened? 17:36:40 13 A. As I understand it, John Ellingboe had driven 14 the cost down, had identified it down to about a 15 $2 million difference. 17:36:47 16 Q. Okay. And one shareholder of DMT or DMH made 17 the corporation fork out an extra $2 million from the 18 coffers of the corporation, right? On this 19 take-it-or-leave-it attitude? 17:37:12 20 A. DMT paid $2 million more than what Otto had in 21 the boat, is my best recollection. 17:37:21 22 Q. Okay. And DMT's agreement with Otto was we're 23 getting it at cost? 17:37:26 24 A. That was a verbal representation as I 25 understand it. 211 17:37:29 1 Q. Fair enough. The MV Diamond. That was 2 provided by Otto, too, as well? 17:37:47 3 A. Yes. 17:37:49 4 Q. Upon delivery did it have mechanical problems? 5 If you know. 17:37:55 6 A. You know, it's possible that when we first -- 7 we chartered that boat. We had the boat on charter 8 prior to the purchase and used it for, I believe, dive 9 work; but it could have been dive and ROV work. You 10 know, it's possible that there were some mechanical 11 issues, but I don't remember them as being a significant 12 item. 17:38:25 13 Q. Do you know if during the time Otto's 14 maintenance crew was on the job they were anything but 15 diligent in trying to get this ship working and 16 operational? 17:38:36 17 A. The Diamond? 17:38:38 18 Q. The Diamond. 17:38:41 19 A. We had, the Diamond went into dock April, May 20 '05 and came out end of June, first of July '05 and went 21 to work with an exceedingly high utilization rate 22 through the time that I departed DMT. We had 23 consecutive long-term contracts on it. You know, six 24 months at a whack. 17:39:18 25 Q. Uh-huh. 212 17:39:20 1 A. With Anadarko, I believe. The Diamond 2 performed -- as I remember, the Diamond performed well 3 during that period. And I've heard that it spent five 4 months in dry dock when it came back in. But during my 5 time there, we had a, we had quite a good utilization 6 rate. 17:39:43 7 Q. Fair enough. And this five months dry dock, 8 was it during that time that Paul McKim had to finally 9 have Otto's crews removed from the Diamond? 17:39:52 10 A. I've heard that story. 17:39:54 11 Q. But you don't know, have any personal 12 knowledge about it? 17:39:56 13 A. I have no personal knowledge because that all 14 occurred after I left. 17:39:58 15 Q. All right. Let me skip right past it, then. 17:39:59 16 A. Okay. 17:39:59 17 Q. It's not fair to ask you anything you don't 18 know about personally. 19 Do you know anything about the Sapphire? 17:40:07 20 A. Can you identify which one it was prior to 21 becoming the Sapphire? 17:40:12 22 Q. Unfortunately, I don't know. But I'm -- 23 Mr. Battaglini talked to you a little bit about it, I 24 think, when he talked to you about a crane being sold. 17:40:19 25 A. It's either the Sapphire or the -- the 213 1 Kelly Ann or the Agnes. 17:40:26 2 Q. Okay. Are you, do you understand that on one 3 of the vessels DMT purchased the ship and was to have a 4 crane installed, a brand new crane installed on the 5 ship? 17:40:39 6 A. That was my understanding, yes. 17:40:40 7 Q. And the crane was to cost about $700,000? 17:40:43 8 A. Yes, sir. 17:40:43 9 Q. It was supposed to be a new crane? 17:40:45 10 A. That was my understanding, as well. 17:40:48 11 Q. And yet Otto provided a used crane, didn't he? 17:40:51 12 A. That was, that was what I was told and heard 13 through the course of discussions. This was, this -- 14 these were items that typically fell in the operational 15 side in terms of the build-out of the boat -- 17:41:04 16 Q. Okay. 17:41:05 17 A. -- and work that was done. 17:41:06 18 Q. Okay. 17:41:07 19 A. And Paul was pretty much plugged in and 20 connected with all of those pieces and would have 21 handled all of that. 17:41:13 22 Q. Okay. Fair enough. I want to move this on. 17:41:16 23 A. That's fine. 17:41:16 24 Q. You've been here long enough. 17:41:18 25 A. Thank you. 214 17:41:19 1 Q. I want to talk about something I think you can 2 educate me on. Do you know what bank covenants are? 17:41:27 3 A. Yes. 17:41:28 4 Q. All right. Would you explain in laymen's 5 terms what a bank covenant is? 17:41:34 6 A. It's a ratio or a restriction or some kind of 7 to-do that the bank makes as a condition of their loan. 17:41:44 8 Q. And did your bank or did DMT's bank have 9 covenants on the loans that it had with DMT? 17:41:53 10 A. There were quite a few loan covenants. 17:41:57 11 Q. Do you know if any of those loan covenants 12 were caused to be broken by the actions of either 13 Mr. Kazeminy or Mr. Candies? 17:42:09 14 A. Well, you know, by the actions of, I don't, I 15 don't know and can't address. You know, did we, did we 16 run into problems with our loan covenants because the 17 Agnes wasn't working as advertised on the job for 18 Horizon? Yeah, that caused us problems. We were, we 19 were going to be bucking up against problems with our 20 loans, violations of our loan covenants. 17:42:38 21 Q. While you were there, in any capacity -- even 22 after your termination you came back at some point, 23 right? 17:42:47 24 A. After my -- well, December 14th I resigned and 25 then was there to a certain extent during the day for a 215 1 while and then no longer after that. 17:42:59 2 Q. Okay. But I got the impression at some point 3 after January 1st you came back at their request and did 4 some work. 17:43:05 5 A. Oh. I came back for about two hours worth of 6 work last, I think it was, September, October. They 7 were, they were trying to find some schedules and work 8 papers on some things that were stored electronically. 9 And they just didn't know where to look for them. 17:43:28 10 Q. Are you familiar with any, any transfers of 11 millions of dollars, frankly, into the DMT cash 12 concentration account? 17:43:42 13 A. No. 17:43:43 14 Q. Okay. Was Otto Candies ever a customer of 15 DMT? 17:43:51 16 A. Not to my knowledge. 17:43:54 17 Q. In fact, the other way around? 17:43:56 18 A. Exactly the opposite. 17:44:06 19 Q. Any reason that cash coming from Otto 20 Candies, Inc. would be booked on the DMT general ledger 21 as a Candies customer advance that you know of? 17:44:19 22 A. Not that I know of. We didn't receive cash 23 from Otto that way while I was there. 17:44:25 24 Q. Okay. But subsequent -- can you think of any 25 reason that would be proper to book it that way? 216 17:44:30 1 A. As a customer advance? 17:44:31 2 Q. As a customer advance if it came from Otto 3 Candies, Inc. 17:44:39 4 A. Unless you were going to be chartering a boat 5 out to Otto or providing some of our people for some 6 service. 17:44:47 7 Q. And to your knowledge that never happened, did 8 it? 17:44:50 9 A. I'm not aware of it. But subsequent to my 10 departure, I wouldn't be. 17:45:03 11 Q. Do you believe, sitting here today, that there 12 was, from all the things you know about what happened 13 while you were there, that there was wasteful and 14 self-dealing transactions with Otto Candies, LLC? 17:45:22 15 A. There were difficulties in the transactions 16 and the structure of things. 17 We had a maintenance agreement with Otto 18 to provide maintenance for the vessels. This was 19 something that we talked about extensively. Otto was in 20 the, essentially the mud boat business. He would run 21 mud out to a, to a platform and come back. Or transport 22 a crew and come back. If he had a problem with the 23 boat, he simply swapped out with another boat and kept 24 going. So his maintenance needs were pretty simple. 25 Our maintenance needs were very 217 1 different. We needed, we had to be out and working in 2 order to get paid. We didn't -- we couldn't swap our 3 equipment off of one boat to another boat. And so we 4 needed a fairly aggressive maintenance schedule in order 5 to be able to keep working. We needed more prevention 6 than we did reaction. That's not a good structure when 7 you've got somebody whose, whose motivation is really to 8 not spend any more than they have to. 9 So there were, there were some conflicts 10 in the ways things were executed that made things more 11 difficult. 12 In terms of self-dealing, you know, to my 13 understanding did Otto tag $2 million on the purchase 14 price of the boat? If that's self-dealing, then yes. 17:47:04 15 Q. You're not here making any allegations against 16 anybody, are you? 17:47:08 17 A. No, sir. I just want to go home. 17:47:08 18 Q. And you're not a party -- I'm sorry? 17:47:10 19 A. I just want to go home. 17:47:12 20 Q. That's right. And you're not a party to that 21 lawsuit filed in Cause No. 2008-64385 that Paul McKim 22 filed, are you? 17:47:20 23 A. No, sir. 24 MR. WALLACE: It's 15 of 6:00. And the 25 witness is tired; and I am, too. We've been at this 218 1 since 9:30. I'll reserve any questions, any further 2 questions I might have. 3 MR. DAVIDSON: Gentlemen? 4 MR. BATTAGLINI: I have one follow-up 5 question. 6 (The time is 5:47) 7 FURTHER EXAMINATION 17:47:52 8 Q. (BY MR. BATTAGLINI) Mr. Wallace used the word, 9 in one of the very last questions to you, self-dealing. 10 Do you remember that? 17:48:03 11 A. (Witness nodding head.) 17:48:04 12 Q. Whether or not Otto Candies, LLC was engaged 13 in self-dealing vis-a-vis its transactions with DMT. 14 I'm interested in knowing about any self-dealing. But 15 let me ask you first, Otto Candies, Junior was not a 16 director of the company, was he? Not a director of DMT? 17:48:25 17 A. No, sir. Not that I'm aware of. Not during 18 my time. 17:48:28 19 Q. He was not an officer of DMT? 17:48:30 20 A. No, sir. 17:48:31 21 Q. In fact, he wasn't even a shareholder of DMT, 22 was he? His company was, right? Wasn't -- 23 MR. DAVIDSON: Is this the proverbial one 24 question? 17:48:40 25 Q. (BY MR. BATTAGLINI) -- it Otto Candies -- 219 1 MR. BATTAGLINI: Yeah. 17:48:40 2 Q. (BY MR. BATTAGLINI) Otto Candies, LLC was the 3 actual shareholder? 17:48:44 4 A. I believe so, yes. 17:48:45 5 Q. Okay. You may not know the answer to this, 6 but does a shareholder have any sort of fiduciary 7 obligations to its company in conducting business with a 8 company? 9 MR. WALLACE: Objection, form. 17:49:00 10 A. You know, I'm a long ways away from any of my 11 business law classes. 17:49:05 12 Q. (BY MR. BATTAGLINI) Yeah. 17:49:06 13 A. You know, I, I have no idea. 17:49:08 14 Q. Okay. In order for you to answer a question 15 from Mr. Wallace to whether or not there's any 16 self-dealing, wouldn't you have to know whether or not 17 there was an obligation somewhere, a legal obligation? 17:49:22 18 A. Well, you know what, in answering my 19 question -- or answering Mr. Wallace's question with the 20 term self-dealing -- 17:49:33 21 Q. Uh-huh. 17:49:33 22 A. -- you know, was -- and what I tried to 23 qualify it as was to the extent that Otto bumped up the 24 price by $2 million, if that's self-dealing, then, then 25 that's what it is. I wasn't trying to make a value 220 1 statement and state that Mr. Candies was involved in 2 self-dealing. If that's what it's considered to be, 3 then that's what it is. 17:49:54 4 Q. Okay. Was it, was the transaction that you 5 were speaking of where he allegedly jacked up the price 6 by $2 million -- and by the way, I don't have any 7 documents here in front of me that I've seen stating 8 specifically, exactly what happened. And I don't know 9 that there are any documents. But to the extent that 10 the price went up by $2 million, was that an arm's 11 length transaction between the parties, or was it not an 12 arm's length transaction? 17:50:27 13 A. Well, specifically to answer your question, 14 you know, at the end of the day is it an arm's length 15 transaction? Well, yeah. Because we bought the boat, 16 and he sold us the boat. 17:50:42 17 Q. Okay. 17:50:42 18 A. You know, if you're looking for documentation 19 on that, then the person that you need to address is 20 really Mr. Ellingboe who, who was the person leading 21 that point in the transaction with Mr. Candies. 17:50:54 22 Q. Okay. Thank you. 17:50:55 23 A. No. Seriously. I mean, talk to John. He was 24 very involved in that. 17:50:59 25 Q. All right. I appreciate that. 221 17:51:00 1 A. Okay. 17:51:00 2 Q. Thank you. 3 MR. WALLACE: One, I think, last 4 question. And I said one, and watch it not be one. 5 MR. DAVIDSON: You got one, then we're 6 leaving. 7 MR. WALLACE: And I apologize to the 8 court reporter in advance. 9 (The time is 5:51) 10 FURTHER EXAMINATION 17:51:13 11 Q. (BY MR. WALLACE) Do you know if around the 12 time the Emerald was to be delivered, $22 million, if 13 Otto Candies sent an e-mail to Paul McKim or anyone else 14 at DMT telling him there's going to be 28 million, 15 there's going to be an extra $6 million? 17:51:43 16 A. I'm not aware of that that way. That 17 doesn't -- that part I just simply don't remember 18 because I don't remember the price of the boat moving 19 out from underneath me when we got down to the end of 20 the transaction. You know, the sequence of this guy's 21 really, it's not -- it's -- back you up. 22 There was verbal representations made by 23 Otto. Right, wrong, or indifferent. We had to drill 24 down and get all the documents pulled together for the 25 sale and exchange and the note agreements with, with 222 1 Merrill Lynch to do the transaction. As part of 2 drilling that all down, John was pretty dogged about 3 determining and getting to something because we couldn't 4 get -- which, you know, John's a lawyer so I think that 5 kind of, that kind of, you know, made his nose twitch. 6 And he kept digging. And when it came down to that 7 piece of it, there was an e-mail that I think came from 8 Otto III. And I'm not sure, but I think Paul got it. 9 I'm pretty sure John got it. I know it was reported to 10 Mr. Kazeminy. That basically the Candies were saying 11 that, you know, look, we feel like our integrity is 12 being questioned. You know, if you don't want to do 13 this transaction, you don't have to. But here's the 14 deal. It's this much money. And, you know, if you 15 don't like it, we'll take it and go someplace else. 17:53:15 16 Q. Did the e-mail say something like if DMT 17 didn't like it they can go fuck themselves? 17:53:21 18 A. That's a, that's a characterization of it. It 19 was, it was a pretty blunt, it was a pretty blunt letter 20 that, you know, here's the deal, take it or leave it. 17:53:38 21 Q. This is the last question. Do you know if 22 DMT, if -- excuse me, if Otto ever billed for personnel 23 that weren't on the boats? 17:53:48 24 A. You know, I'm, I'm not aware of that. 17:53:51 25 Q. Okay. 223 17:53:55 1 A. That's not to say it did or didn't happen. 2 I'm just not -- I'm simply not aware of anything like 3 that. 17:54:00 4 Q. Fair enough. 17:54:01 5 A. I don't remember hearing any stories about it 6 at the time while I was there. 17:54:03 7 Q. Fair enough. 8 MR. WALLACE: I'll reserve any further 9 questions I might have. You've been very patient, sir. 10 Thank you. 11 MR. DAVIDSON: K.B., do you have anything 12 else? 13 MR. BATTAGLINI: No. 14 THE REPORTER: Off the record? 15 MR. BATTAGLINI: Off the record. 16 (Proceedings concluded at 5:54 p.m.) 17 18 19 20 21 22 23 24 25 224 1 CHANGES AND SIGNATURE 2 WITNESS NAME: _____________ DATE OF DEPOSITION: _____ 3 PAGE LINE CHANGE REASON 4 ______________________________________________________ 5 ______________________________________________________ 6 ______________________________________________________ 7 ______________________________________________________ 8 ______________________________________________________ 9 ______________________________________________________ 10 ______________________________________________________ 11 ______________________________________________________ 12 ______________________________________________________ 13 ______________________________________________________ 14 ______________________________________________________ 15 ______________________________________________________ 16 ______________________________________________________ 17 ______________________________________________________ 18 ______________________________________________________ 19 ______________________________________________________ 20 ______________________________________________________ 21 ______________________________________________________ 22 ______________________________________________________ 23 ______________________________________________________ 24 ______________________________________________________ 25 ______________________________________________________ 225 1 I, B.J. THOMAS, have read the foregoing deposition 2 and hereby affix my signature that same is true and 3 correct, except as noted above. 4 5 __________________________ 6 B.J. THOMAS 7 8 THE STATE OF _______________) 9 COUNTY OF __________________) 10 11 Before me, ________________________, on this day 12 personally appeared B.J. THOMAS, known to me or proved 13 to me on the oath of ______________ or through 14 ________________________ (description of identity card 15 or other document) to be the person whose name is 16 subscribed to the foregoing instrument and acknowledged 17 to me that he/she executed the same for the purpose and 18 consideration therein expressed. 19 Given under my hand and seal of office on this 20 _____ day of _______________________, ______. 21 22 ________________________ 23 NOTARY PUBLIC IN AND FOR 24 THE STATE OF ___________ 25 My Commission Expires: __________ 226 1 CAUSE NO. 2008-65512 2 DEEP MARINE HOLDINGS INC. ) IN THE DISTRICT COURT and DEEP MARINE ) 3 TECHNOLOGY INC., ) Petitioners, ) 4 ) vs. ) HARRIS COUNTY, TEXAS 5 ) PAUL McKIM and B.J. ) 6 THOMAS ) Respondents. ) 129TH JUDICIAL DISTRICT 7 _________________________________________________ 8 9 REPORTER'S CERTIFICATION 10 ORAL DEPOSITION OF B.J. THOMAS 11 MARCH 19, 2009 12 13 I, Cynthia J. Orsen, Certified Shorthand Reporter 14 in and for the State of Texas, hereby certify to the 15 following: 16 That the witness, B.J. THOMAS, was duly sworn and 17 that the transcript of the deposition is a true record 18 of the testimony given by the witness; 19 That the deposition transcript was submitted on 20 ____________________ to the witness or to the attorney 21 for the witness for examination, signature, and return 22 to me by _____________________; 23 That pursuant to information given to the 24 deposition officer at the time said testimony was taken, 25 the following includes all parties of record and the 227 1 amount of time used by each party at the time of the 2 deposition: 3 K.B. Battaglini, Esq. (5h30m) Attorney for The Special Litigation Committee 4 of the Boards of Directors of Deep Marine Holdings, Inc. and Deep Marine Technology, 5 Inc. Casey T. Wallace, Esq. (0h38m) 6 Attorney for Paul McKim Charley A. Davidson, Esq. (0h0m) 7 Attorney for B.J. Thomas 8 That a copy of this certificate was served on all 9 parties shown herein on ___________________ and filed 10 with the Clerk. 11 I further certify that I am neither counsel for, 12 related to, nor employed by any of the parties in the 13 action in which this proceeding was taken, and further 14 that I am not financially or otherwise interested in the 15 outcome of this action. 16 Further certification requirements pursuant to 17 Rule 203 of the Texas Code of Civil Procedure will be 18 complied with after they have occurred. 19 Certified to by me on this 22nd day of March, 2009. 20 21 ______________________________ 22 Cynthia J. Orsen, CSR, RPR Texas CSR 5217 23 Expiration: 12/31/09 Esquire Deposition Services 24 1221 Lamar, Suite 1305 Houston, Texas 77010 25 713.524.4600 Firm Registration No. 3 228 1 FURTHER CERTIFICATION UNDER TRCP RULE 203 2 3 The original deposition was/was not returned to the 4 deposition officer on ________________________. 5 If returned, the attached Changes and Signature 6 page(s) contain(s) any changes and the reasons therefor. 7 If returned, the original deposition was delivered 8 to K.B. Battaglini, Esq., Custodial Attorney. 9 $________ is the deposition officer's charges to 10 the Special Litigation Committee of the Boards of 11 Directors of Deep Marine Holdings, Inc. and Deep Marine 12 Technology, Inc. for preparing the original deposition 13 and any copies of exhibits; 14 The deposition was delivered in accordance with 15 Rule 203.3, and a copy of this certificate, served on 16 all parties shown herein, was filed with the Clerk. 17 Certified to by me on this _______ day of 18 ______________________, 2009. 19 20 21 _____________________________ 22 Cynthia J. Orsen, CSR, RPR Texas CSR 5217 23 Expiration: 12/31/09 Esquire Deposition Services 24 1221 Lamar, Suite 1305 Houston, Texas 77010 25 713.524.4600 Firm Registration No. 3