united states bankruptcy court district of delaware …bankrupt.com/1102b3/05-20050-194.pdf ·...

UNITED STATES BANKRUPTCY COURTDISTRICT OF DELAWARE

IN RE: . Case No. 05-20050..

NOBEX CORPORATION, .. 824 Market Street. Wilmington, Delaware 19801

Debtor. .. January 12, 2006

. . . . . . . . . . . . . . . . 2:05 p.m.

TRANSCRIPT OF HEARINGBEFORE HONORABLE MARY F. WALRATH, CHIEF JUDGE

UNITED STATES BANKRUPTCY COURT JUDGE

APPEARANCES:

For the Debtor: Morris, Nichols, Arsht & TunnellBy: DEREK C. ABBOTT, ESQ.

ALICIA B. DAVIS, ESQ.1201 North Market StreetP.O. Box 1347Wilmington, DE 19899

Moore & Van Allen PLLCBy: W. B. HAWFIELD, JR., ESQ.

DOUGLAS R. GHIDINA, ESQ.100 North Tryon StreetSuite 4700Charlotte, NC 28202

Audio Operator: Danielle R. Gadson

Proceedings recorded by electronic sound recording, transcriptproduced by transcription service

______________________________________________________________

J&J COURT TRANSCRIBERS, INC.268 Evergreen Avenue

Hamilton, New Jersey 08619E-mail: [email protected]

(609) 586-2311 Fax No. (609) 587-3599

2

J&J COURT TRANSCRIBERS, INC.

APPEARANCES (Cont'd.):

For Biocon Limited: Pachulski, Stang, Ziehl, Young, Jones & Weintraub, P.C.By: SANDRA G.M. SELZER, ESQ.919 North Market Street17th FloorP.O. Box 8705Wilmington, DE 19899

Pachulski, Stang, Ziehl, Young, Jones & Weintraub, P.C.By: ROBERT B. ORGEL, ESQ.10100 Santa Monica Boulevard11th FloorLos Angeles, CA 90067

For the U.S. Trustee: Office of the U.S. TrusteeBy: DAVID BUCHBINDER, ESQ.J. Caleb Boggs Federal Building844 King Street, Suite 2313Lockbox 35Wilmington, DE 19801

For Creditors Committee: Blank Rome LLPBy: DAVID CARICKHOFF, ESQ.Chase Manhattan Centre1201 Market Street, Suite 800Wilmington, DE 19801

For Elan Pharma Flaster, Greenberg International Limited: By: WILLIAM J. BURNETT, ESQ.

913 N. Market Street, Suite 1001Wilmington, DE 19801

Dechert LLPBy: CRAIG MARTIN, ESQ.Cira Centre2929 Arch StreetPhiladelphia, PA 19104

For the Founders Group: Klehr, Harrison, Harvey, Branzburg & Ellers LLPBy: STEVEN K. KORTANEK, ESQ.Mellon Bank Center919 Market Street, Suite 1000Wilmington, DE 19801

3


I N D E X

FurtherWITNESSES: Direct Cross Redirect Recross Redirect

Charles Dimmler 20 41 44 444556 59

EXHIBITS: MARKED RECEIVED

For the Debtor:

D-1 Chart 20

4


THE COURT: Good afternoon.1

MR. ABBOTT: Good afternoon, Your Honor. Derek2

Abbott here on behalf of Nobex Corporation. 3

Your Honor, we have a number of matters listed on the4

agenda. We have endeavored to minimize the controversy before5

Your Honor and to that end, I think only one thing will be6

going forward on a contested basis. And at the Court's7

pleasure, I'd just run through the agenda, save the contested8

matter for last and tell you where we are on the others, if I9

may?10

THE COURT: That's fine.11

MR. ABBOTT: Your Honor, the Morgan Joseph retention12

application has been withdrawn by the debtor. 13

Your Honor, I should note that that will be as we14

noted in the certificate or the notice we sent. It's being15

withdrawn in favor of an application to be filed to retain SSG16

Capital Advisors that we'll notice on an appropriate basis. 17

They have begun work already given the exigencies of the case,18

Your Honor, so we'll be seeking that nunc pro tunc. I just19

wanted to alert the Court to that.20

THE COURT: Thank you.21

MR. ABBOTT: Your Honor, I understand that an order22

has been entered on Morris Nichols' retention, which was number23

two?24

THE COURT: Yes, and three I think I've entered an25

5


order on.1

MR. ABBOTT: We had filed a certificate of no2

objection. I wasn't aware of the order, but that makes sense,3

Your Honor.4

Number four, Your Honor, is our debtor in possession5

financing motion. What we have agreed to do at the request of6

the debtor and Biocon, Your Honor, is defer the final hearing7

to a date sometime next week. We had been in contact with your8

chambers. So, what we've got today is another interim order9

that frankly mirrors the earlier interim order that I think the10

parties are okay with, subject to Your Honor answering it. 11

Then the question has come up with date. We had12

talked to your chambers and understood that Wednesday morning13

of next week was available. There's been some talk around14

counsel table over the last couple of minutes about whether15

Friday might be a better date for parties and I'm not sure that16

we've resolved that, so first let me see if it's available and17

if it is, maybe we will, after the hearing, talk about it and18

figure out if Wednesday or Friday works better for the parties,19

if it works for the Court.20

THE COURT: It looks like Friday late morning might21

be available.22

MR. ABBOTT: All right, Your Honor, maybe --23

THE COURT: Say 10:00 -- 11:00 maybe. Let me see. 24

Before I misspeak, let me see what Ms. Capp has to say.25

6


Maybe 11:00, 11:30. There's a 2:00 trial that's1

scheduled, so you'd have that window it looks like.2

MR. ABBOTT: Your Honor, I appreciate that. Maybe I3

should get through the rest of the matters on the docket and4

talk with counsel and hand the order. And we do have the5

adjourned hearing date in our form of order. We may have to6

interlineate that, but --7

THE COURT: Okay.8

MR. ABBOTT: -- if we could have the luxury of some9

time to talk about it, that'd be appreciated, Your Honor.10

THE COURT: Will there be additional borrowings under11

this interim as well?12

MR. ABBOTT: Your Honor, there won't. The amounts13

would not change.14

THE COURT: Okay.15

MR. ABBOTT: The question that we're debating is how16

that delay is going to impact the balance of the sale17

procedures and that's really the concern.18

THE COURT: Okay.19

MR. ABBOTT: Your Honor, number five on the agenda is20

the sale procedures and sale motion itself. That, too, would21

be adjourned to the date that we determine.22

Your Honor, number six is the debtor's motion for an23

order authorizing payment of sale related incentive pay to24

senior management. Your Honor, that motion will be going25

7


forward today. It is contested by the U.S. Trustee. I'd1

propose to address that last, Your Honor?2

THE COURT: Okay.3

MR. ABBOTT: Your Honor, number seven is the debtor's4

motion for the payment of retention bonuses and sale related5

incentive paid to non-insider employees. That, Your Honor, I6

don't believe is contested any longer based on the revised7

relief that I'm about to explain to the Court in connection8

with number six and I do have an order on that one.9

In short, Your Honor -- and perhaps I should just10

hand that order to the Court, so the Court could follow?11

THE COURT: That would be helpful.12

MR. ABBOTT: May I approach, Your Honor?13

THE COURT: Yes.14

MR. ABBOTT: Your Honor, we negotiated with the15

creditors committee at some length over these incentives and16

arrived at a mechanism that the committee agreed to and17

endorsed, Your Honor. And I don't wish to take any of their18

comments or steal their thunder here, Your Honor, but for this19

three-person marketing team, Your Honor may recall that those20

folks had been authorized one month severance pay by the21

earlier order the Court entered. We had asked for some22

additional incentive. We've modified that here.23

First, if only the proposed Biocon sale goes through,24

there will be no sale incentive compensation and that's with25

8


respect to both senior management and these marketing team1

folks. 2

Then in the window between -- assuming we are lucky3

enough to get some upside in an auction or a sale process, Your4

Honor, between sale consideration of three and a half million5

and 10 million, the marketing team would be entitled to sale6

incentive compensation of up to one percent of the amount of7

the overage, not to exceed $65,000.8

The next tranche, Your Honor, would be a one-half9

percent between -- for amounts over 10 million, not to exceed10

an additional $25,000. 11

And if, Your Honor, we are fortunate enough to12

achieve a gross price that allows us to pay all our general13

unsecured creditors in full, then we're back to the one percent14

formula for amounts in that tier or over that amount, Your15

Honor. 16

And I believe that the committee supports that relief17

with respect to the marketing team. There's a similar18

structure I'll explain for senior management, but absent19

objection, I would ask the Court to enter the order that I've20

tendered after folks have an opportunity to speak if they would21

like.22

THE COURT: All right, does anybody else wish to be23

heard on that motion then?24

MR. CARICKHOFF: Good afternoon, Your Honor. David25

9


Carickhoff of Blank Rome on behalf of the creditors committee.1

I just want to be clear that we're not the ones that designed2

how the percentages were to be divided up among the employees3

and senior management. What the committee determined after4

discussions with the debtor and after consideration was two5

specific percentages. 6

So, for -- to the extent that the purchase price7

exceeds the stalking horse at this point for the sale where8

it's three and a half million to 10 million, we agree to a 109

percent for that overage for the employees and the senior10

management, collectively. For anything over 10 million,11

between 10 million and 15 million, we agree to a seven percent12

payment as a sale incentive. And with respect to 15 million13

dollars and up, the four percent sale incentive. 14

I just want to be clear that we're not picking out15

the one percent, the half percent. We said this is what we16

would agree to in this context. We think it's an appropriate17

use under 363, the estate money, to really motivate and18

incentivize these people to maximize value for the estate.19

THE COURT: All right, thank you. 20

Does anybody else wish to be heard then on this21

motion?22

The U.S. Trustee has no objection to this order then?23

MR. BUCHBINDER: Your Honor, David Buchbinder on24

behalf Kelly Beaudin Stapleton, United States Trustee, not to25

10


the non-insider motion.1


MR. BURNETT: Your Honor, good afternoon. William3

Burnett, Flaster Greenberg, on behalf of Elan Pharma. I'm here4

with co-counsel, Craig Martin of Dechert, and I'd like to move5

him pro hac. We've not yet filed our motion, but we will be6

doing so shortly. 7

THE COURT: All right, it will be granted.8

MR. BURNETT: Thank you, Your Honor.9

MR. MARTIN: Thank you, Your Honor. I just wanted to10

say who my client is and why we're here and maybe also comment11

on this.12

My client is Elan Pharma International Limited, which13

is a pharmaceutical company that holds a promissory note, and14

we are the largest unsecured creditor in the case. Due to some15

issues that arose in the formation meeting, however, we were16

not appointed on the committee. 17

We have been working with the debtor and the18

committee and have been somewhat active in the process. Some19

of the things that I'm hearing now are new to me and it maybe20

that I just need a few minutes to get my arms around what's21

being proposed because I'm hearing it for the first time and I22

want to make sure I understand it.23

THE COURT: Do you have a copy of the order for --24

MR. ABBOTT: Absolutely, Your Honor.25

11


THE COURT: -- counsel?1

MR. MARTIN: So having said that, I just wanted you2

to know who we are and what our role was in the case, and I'll3

look this over and sit down now.4

THE COURT: All right, thank you.5

MR. MARTIN: Thank you.6

MR. ABBOTT: Your Honor, perhaps we can move through7

some of the rest of the agenda while Mr. Martin takes that8

opportunity.9

THE COURT: All right.10

MR. ABBOTT: Your Honor, the next item was the11

debtor's motion for an order regarding the sharing by the12

committee of confidential information provided to it by the13

debtor -- or to it and its members and professionals by the14

debtor. 15

Your Honor, that was subject to some informal16

comments from the committee and an objection by Mr. Martin's17

client, Elan, and in fact, a limited objection by the18

committee. What we're trying to do, Your Honor, is work19

through those issues and for that reason, we've agreed to20

adjourn that hearing also to this -- probably the next omnibus21

date in fact, Your Honor, because that's not the most critical22

issue before this company and this estate. 23

THE COURT: Okay. 24

MR. ABBOTT: Your Honor, the final item that I don't25

12


believe is the subject of any contest today is the debtor's1

application under 327(e) to retain Moore & Van Allen. 2

Your Honor, the upshot of all of that is that after3

fairly lengthy discussions, we have revised the scope of4

services rather dramatically in a way that has satisfied Mr.5

Buchbinder's office, who did object, and I believe there's no6

contest to that motion. And probably the easiest thing for me7

to do would be to hand to the Court a copy of that proposed8

order, if I may?9

THE COURT: You may.10

MR. ABBOTT: May I approach, Your Honor?11

THE COURT: Yes.12

MR. ABBOTT: Your Honor, by way of background, Moore13

& Van Allen, as set forth in the application, had been working14

with this debtor for sometime and as a result, gained a15

substantial amount of institutional knowledge, as well as being16

the debtor's principal counsel with respect to negotiation of17

the sale transaction with Biocon as well as the debtor in18

possession financing. 19

In addition, they have performed a variety of other20

services historically for the debtor. Most importantly,21

including work as patent counsel. And we are in the midst of a22

case that is albeit rich in issues not rich in assets, at least23

liquid assets today, Your Honor. And so, what we've tried to24

do is craft a scope of services consistent with the law and25

13


with the desire of the United States Trustee's Office while1

trying to maximize the value of their institutional knowledge2

and to get them to allow -- to prevent others from having to3

reinvent the wheel, Your Honor. And that draft order is what4

the parties have agreed to. The upshot is that we would expect5

that my office will handle the bulk of bankruptcy matters. 6

They will continue to effectively service transactional counsel7

and to support these other matters. 8

I note, Your Honor, that 327(e) retention of Moore &9

Van Allen was not the intent and rather late in the process. 10

We all learned of an issue that would prevent that, so --11

THE COURT: Yes.12

MR. ABBOTT: -- there is some necessary transition13

that we're working through and I think we've tried to provide14

for that in that scope of services order. And that's --15

subject to trying to respond to the Court's questions, those16

are my comments.17

THE COURT: Well, does anybody else wish to comment?18

MR. BUCHBINDER: Your Honor, Dave Buchbinder on19

behalf of the United States Trustee. We went through more than20

one version of the proposed schedule A and schedule B, but we21

believe that the proposed schedule A now effectively limits the22

scope of Moore & Van Allen's duties that it doesn't seem23

inappropriate to retain them as special counsel for these24

limited purposes. We have the oversight of the fee application25

14


process and we have the additional oversight of any additional1

facts we may learn as this case progresses to provide us with2

the appropriate supervision over their fees. And on that basis3

and with these significant limitations to their activities,4

we're willing to allow them to be retained as special counsel.5


MR. CARICKHOFF: Your Honor, for the record, David7

Carickhoff on behalf of the committee. In going through Moore8

& Van Allen's retention, we recognize that their history with9

the debtor, their background of information, we thought it was10

critical that they do get retained in this case. We've worked11

with the U.S. Trustee and the debtor to come up with a scope12

that we think works within the 327(e) context. We're13

comfortable with that. 14

With respect to the issues of the payments and having15

all their fees reviewed by the Court, we're comfortable with16

that resolution as well and would support their retention and17

do believe it would be helpful in these cases given their18

background with the debtor.19


MR. ORGEL: Your Honor, Robert Orgel, Pachulski21

Stang, for Biocon, the buyer here. The buyer is buying patents22

and wanted to make sure they're supported in the purchase23

agreement provided they have to be. Biocon indicated it would24

pay for that support and is -- under this order, does so25

15


directly to patent counsel. We just want to make sure you note1

that we do directly. I do believe that --2

THE COURT: Still retained, all right.3

Well, since you're apparently not hiring a special4

counsel -- a special bankruptcy counsel, which was my concern,5

I will approve it.6

MR. ABBOTT: Thank you, Your Honor. I guess you have7

the order?8

THE COURT: I have the order.9

MR. ABBOTT: Your Honor, that I think -- may I have a10

moment, Your Honor?11

THE COURT: Yes.12

(Pause/counsel confer.)13

MR. ABBOTT: Your Honor, thank you for that. Mr.14

Martin has asked and I think it makes sense, Your Honor,15

perhaps that we take a 15 minute recess; allow him to get16

comfortable with that. 17

The reason I think it's important, Your Honor, is18

number one, if we get the non-insider piece done -- and I note19

for the record that there wasn't an objection I don't believe20

filed by Elan to either of those motions, but -- if we get the21

non-insider piece done, it will streamline the testimony on the22

senior management piece and I think it could be time well23

spent. So if the Court would allow us a 15 minute 24

adjournment --25

16


THE COURT: All right. 1

MR. ABBOTT: -- I think that could be helpful.2

THE COURT: All right. I do have a 3:00, so just3

give the parties -- I don't know how long that will go. I4

don't anticipate it will long, but it has a few matters, so --5

MR. ABBOTT: How about 10 minutes, Your Honor? 6

THE COURT: All right, let's take 10 minutes then.7

MR. ABBOTT: Thank you, Your Honor.8

THE COURT: We'll take a break.9

(Recess)10

THE CLERK: All rise. You may be seated.11

MR. ABBOTT: Thank you, Your Honor. The time I12

believe was put to good use. 13

Your Honor, I've conferred with Mr. Martin and I14

understand he doesn't have an objection to the non-insider15

portion of the incentive relief requested and without putting16

words in his mouth, I think acquiesces in the Court's entry of17

that order.18

MR. MARTIN: That is correct, Your Honor. 19

THE COURT: All right, then I'll enter that order by20

agreement.21

MR. ABBOTT: Your Honor, we did manage to agree among22

the peanut gallery here that Friday at 11:30 or earlier if the23

Court could do it that day would be better perhaps than24

Wednesday. That supposes at least from the estate's25

17


perspective, the likelihood of seeking a sale hearing on March1

20th and I wanted to check and see if the Court had that date2

available?3

THE COURT: Let me e-mail my judicial assistant on4

that.5

MR. ABBOTT: Thank you, Your Honor. 6

But that date, next Friday, would be the date that we7

would come back on the final DIP hearing and the bid procedures8

hearing. And it's the 20th date that we'll be asking for9

probably at that point, although there remains some discussion10

about that point, so that would be a helpful piece of11

information, Your Honor.12


MR. ABBOTT: And if the Court has entered -- well,14

let me give you time to send your e-mail, Your Honor. 15

THE COURT: I have. But I haven't gotten a response,16

so we can continue while --17

MR. ABBOTT: Has the Court entered the non-insider18

order, Your Honor?19

THE COURT: I have.20

MR. ABBOTT: Okay. Thank you.21

Your Honor, we are now at the senior management22

incentive motion. We have, after discussions with -- extensive23

discussions with the committee and senior management and less24

than Mr. Martin would have liked with Elan, agreed to a revised25

18


incentive compensation structure that uses those same tiers and1

one more. 2

And, Your Honor, I've placed on Your Honor's bench a3

draft order that has not been settled yet, but is illustrative4

of at least of the mechanism and that's not the part of the5

order that's any controversy. 6

Again, provides zero sale incentive compensation for7

matters below the three and a half million dollar proposed8

stalking horse bid to Biocon. With respect to senior9

management, would provide nine percent of the amount between10

three and a half -- up to, at the board's discretion, Your11

Honor, nine percent of the incremental amount between three and12

a half million and 10 million. Seven -- excuse me, six and a13

half percent --14

THE COURT: Whoa. Yes, wait a minute. Start over15

again.16

MR. ABBOTT: I apologize, Your Honor. 17

Globally, the deal that was structured, Your Honor,18

was 10, 7, 4 and then back to 10. We've used some of that with19

the marketing team, so what would remain, Your Honor -- and20

I'll just be specific as to Messrs. Dimmler and Savre, which21

are the subject of the senior management motion. 22

Mr. Dimmler would be paid up to 6.5 percent of the23

incremental additional value above three and a half million,24

but below 10 million. For that same segment, Mr. Savre could25

Dimmler - Direct/Abbott 19


be paid up to two and a half percent.1

If the sale price falls between 10 million and 152

million, Mr. Dimmler would get four and a half percent of that3

increment. Mr. Savre would get -- up to four and a half4

percent and then Mr. Savre would get up to two percent of that5

increment.6

Over $15 million, Your Honor, Mr. Dimmler would7

receive two and three-quarters percent and Mr. Savre would8

receive one and a quarter percent of that increment.9

And then when we get to that break even point where10

all the creditors are paid in full, we go back to the six and a11

half percent for Mr. Dimmler and two and a half percent for Mr.12

Savre.13

And I've got another chart that sets that out --14


MR. ABBOTT: -- a little more clearly than the order. 16

Perhaps I should hand --17

THE COURT: Yes.18

MR. ABBOTT: -- that up for clarity, Your Honor?19

THE COURT: Yes. Why don't you.20

MR. ABBOTT: May I approach?21

THE COURT: Yes. And the marketing -- okay.22

23

MR. ABBOTT: I apologize for my inability to24

articulate that more clearly, Your Honor.25



THE COURT: I'll just mark this Debtor's 1 and this1

does lay it out, okay.2

(Debtor's Exhibit 1 marked for identification.)3

MR. ABBOTT: Thank you, Your Honor.4

And, Your Honor, in support of our motion in this5

revised matter, we do have Mr. Dimmler who we would expect to6

testify. And unless the Court wants to hear an introduction, I7

would propose to just get right to evidence given our limited8

time.9

THE COURT: All right, let's do that.10

MR. ABBOTT: Your Honor, the estate calls Charles11

Dimmler to the stand, please.12


THE CLERK: Please remain standing. Place your hand14

on the Bible. Please state your full name and spell your last15

name for the Court.16

MR. DIMMLER: My name is Charles Louis Dimmler, III. 17

The last name is spelled D-i-m-m-l-e-r.18

CHARLES DIMMLER, III, DEBTOR'S WITNESS, SWORN19

DIRECT EXAMINATION20

BY MR. ABBOTT: 21

Q Mr. Dimmler, would you tell the Court what position you22

hold with the debtor?23

A I am chairman of the board of directors of Nobex24

Corporation and a special advisor to the firm. And at present,25



have the responsibilities and the duties of acting chief1

executive officer.2

Q When did your association -- formal association with the3

debtor begin, Mr. Dimmler?4

A It began on the 31st of March of 2004.5

THE COURT: Excuse me, could you speak into the6

microphone? We're not picking you up.7

THE WITNESS: I beg your pardon, Your Honor. 8

THE COURT: You can just move it towards you. Thank9

you.10

THE WITNESS: Certainly.11

BY MR. ABBOTT:12

Q And since beginning -- well, on the 31st of March, 2004,13

what were your responsibilities with respect to the debtor?14

A My responsibilities at the outset of the relationship were15

as chairman of the board of directors and special advisor to16

the corporation.17

Q Since March of 2004, have those duties changed at all?18

A Yes, in the sense that my responsibilities have increased19

in scope on a gradual basis over the past 15 to 17 months. My20

responsibilities increased more at an operational level as a21

result of the challenges that the corporation faced with22

respect to financing and operations and business development.23

Q When you began in March 2004, what sort of commitment did24

you expect this relationship to entail?25



A Well, originally the agreement with the board was that1

this would be a responsibility that would obligate me to2

between one day every two weeks to perhaps one day per week.3

Q And has that been your experience?4

A It was at the outset for, I would say, the first four to5

six weeks of the engagement. And it increased gradually to the6

point that by the end of June into the Summer of 2004, it was a7

full-time responsibility, a full-time obligation.8

Q Now, I believe you suggested that you were essentially9

acting as the chief executive for this organization.10

A That's correct.11

Q Would you describe the circumstances that lead you into12

that role?13

A Yes, at approximately April of 2005, the board of14

directors took the decision to ask for the current chief15

executive officer's resignation. The board had been16

contemplating that decision since approximately October,17

November of 2004. The chief executive officer at the time was18

informed of the board's decision in late April, early May of19

2005. And the chief executive officer finally tendered his20

resignation on the 16th of -- I beg your pardon, 16th of21

September of 2005.22

Q And I'll get back to that, but could you describe for the23

Court briefly your background and experience since beginning in24

the corporate world?25



A Certainly. Following four years service in the military,1

I began my business career in 1968 and over the ensuing 142

years, spent that time in line operating roles in two Fortune3

100 companies, both technology intensive businesses, in sales4

marketing, business development and general management. 5

Finishing that period of my career as president and chief6

operating officer of a global wholly-owned subsidiary of one of7

those corporations. 8

In 1982, I co-founded a biotechnology company. My9

co-founder and I funded it from our own accounts. Ultimately,10

venture capitalized it, took it public. It was ultimately sold11

in 1986, '87 to Rhone-Poulenc, which is now an element of12

Sanofi-Aventis. 13

And then was recruited by a British merchant bank to14

build a life sciences private equity investment business in New15

York. I conducted that assignment through the year 2000 and16

then -- I beg your pardon, until the last day of 1999.17

And beginning in 2000, became the chief investor18

officer of H. Lundbeck A/S, a Danish pharmaceutical company19

specializing in central nervous system disease. And I was also20

appointed the chairman and chief executive officer of their21

U.S. subsidiary. 22

I remained at Lundbeck until the first day of January23

of 2004. At which point, I was contacted by the board of24

directors of Nobex Corporation. 25



During my career as a venture capitalist and as an1

entrepreneur, I was responsible for raising in aggregate2

approximately $240 million of capital from seminal providers of3

capital, such as pension funds, insurance companies, endowments4

and so on. And also in the process of running those investment5

portfolios, raised an additional 125 to 130 million dollars of6

capital to support the development of those life sciences7

companies.8

In the course of that experience, also I was9

responsible for taking several companies into the public market10

successfully and others we sold to pharmaceutical companies as11

trade sales.12

Q Do you have any other roles currently in other unrelated13

entities?14

A Yes, I do. I serve on the boards of directors of three15

other companies. First and foremost, I serve on the board of16

directors of a publicly listed genomics company by the name of17

Gene Logic. I serve as the chairman of the audit committee of18

that company. I also serve on the board of another company19

known as Preferred Global Health. And also -- I also serve on20

a pro bono basis as a chairman of the board of trustees of the21

Huntington's Disease Society of America.22

Q How are your compensation arrangements with the debtor23

currently structured?24

A My compensation is as I am not an employee of the company,25



my compensation has been since the outset, 1099 income. It's1

10,000 -- it has been $10,000 per month. In addition to that,2

I was entitled to 15,000 share options per month for as long as3

I was engaged by the company.4

Q And was that $10,000 per month cash compensation5

structured to be coincident with the initial time commitments6

that you testified to earlier today?7

A Yes, it was.8

Q And currently how much of your time are you devoting to9

Nobex Corporation matters?10

A Six days a week.11

Q Can we safely assume that those are full days?12

A Yes. Yes, you can.13

Q Would you tell the Court very briefly about the debtor's14

business and its assets?15

A Certainly. The core competence of Nobex Corporation is16

its ability in medicinal chemistry to design certain kinds of17

molecules that enable the transport of certain biologicals18

known as peptides or proteins to be transported across the19

gastrointestinal tract into the bloodstream. This is unique20

and powerful and highly proprietary and well-protected21

technology. It's -- it is very powerful because of the fact22

that these natural substances ordinarily are denatured or23

broken down in the course of the -- their passage through the24

gastrointestinal tract because they're basically proteins by25



nature. And so the ability to transport these moieties across1

the gastrointestinal tract for the purposes of therapeutic2

drugs is very very powerful with substantial market potential. 3

So when one categorizes or thinks about the4

possibilities of this technology, first of all, one can imagine5

this proprietary platform that is applicable to a whole range6

of therapeutic peptides and proteins. This is an area of7

significant growth in clinical medicine and in the bio-8

pharmaceuticals industry. So one can imagine this platform9

being applied across a very broad range of potential10

therapeutic applications.11

Q Mr. Dimmler --12

A More --13

Q Oh, I apologize. Please finish your answer.14

A So more specifically now with respect to product under15

development, as opposed to simply intellectual property per se16

that can be reduced to practice in the future, the company has17

two lead products -- two lead product candidates. One for type18

2 diabetes, known as oral insulin; the second for heart19

failure, known as oral brain-type natriuretic peptide, which20

address very significant markets of opportunity. 21

In addition to that, there are other product22

candidates. One for ulcerative colitis as an example. One for23

the treatment of or the management of pain associated with24

spinal fracture that are also quite potentially valuable as25



well. So, this company represents very powerful and1

potentially very valuable technology.2

Q Can you explain in just a sentence or two why the3

company's here before the Court in Chapter 11?4

A Yes. The drug discovery and development business is a5

long, highly regulated, very expensive process. Despite the6

fact that the company over the last 12 years has raised close7

to $90 million in debt and equity capital, the company simply8

did not have the financial resources necessary to bring any of9

these product candidates far enough forward toward the market10

to enable to -- to enable the company to monetize them. We11

simply ran out of money in the process.12

Q And what is the debtor's current intention regarding the13

disposition of these assets in the bankruptcy case?14

A The debtor's commitment wholly and totally is to achieve15

the highest value for these assets that we possibly can. 16

Hopefully, through an auction process.17

Q What are you doing now and expect to continue to do18

towards that goal on the debtor's behalf? You, personally.19

A At the moment, I'm working effectively around the clock to20

the best of my energy to do so to assemble as many qualified21

bidders as possible. At the moment, we have four potential22

bidders who are at various stages of their due diligence23

process. We are in contact with them on an active, ongoing and24

substantive basis. They are at various stages of their due25



diligence processes. We understand from two of these already1

that they do intend to be bidders in the event that we have an2

auction. 3

I was in San Francisco earlier this week. I arrived4

home very late last night. After having met with a couple of5

these groups, I have two scientists -- two chief scientists in6

San Francisco this afternoon, along with our banker, SSG,7

meeting with one private equity group. This is a group that8

already has about three and a half weeks of due diligence9

processed behind them.10

Q Okay, we understand a little bit about what you're doing11

now. Are you familiar with a gentleman named Russ Savre?12

A I certainly am.13

Q Who is Russ Savre?14

A Russ Savre is our vice president of finance and15

administration for Nobex Corporation.16

Q Is he a full-time employee?17

A Yes, he is.18

Q How long has he been with the company?19

A Russ has been employed by the company since the 1st of20

January of 2004.21

Q Can you describe for us the work that Mr. Savre's doing22

now and expects to do to meet the debtor's goal of maximizing23

the value of these assets? 24

A Well, he, as is everyone else who is currently engaged25



with Nobex, is multi-tasking. He's basically doing two jobs. 1

He's doing the job of the chief financial officer, controller2

and treasurer of the company as a vice president of finance and3

administration would be doing in the ordinary course. 4

In addition to this, inasmuch as we have increased5

activity or a high degree of activity with respect to due6

diligence processes and so on and so forth, Russ is the senior7

coordinator of all of that activity. He is working to assemble8

all of the documents necessary. He is the principal interface9

with our counsel. He is -- has been active in preparing the10

due diligence room, the information room, to make all of the11

information, corporate records, intellectual property,12

contracts and so on and so forth, readily available to13

prospects who are entertaining the possibility of making a bid14

in the event that we have an auction process. 15

Q Are you or Mr. Savre currently considering other offers of16

employment?17

A No, we are not.18

Q Are you and Mr. Savre committed to continue your work for19

the debtor to try to get to these goals?20

A Yes, we are.21

Q Is the debtor seeking to adjust your base compensation, as22

well as seek some sale incentive?23

A Yes.24

Q Can you describe very briefly what that change in your25



base would be?1

A Yes. It would increase, as of effective the 1st of2

January as I understand it, my compensation by an increment of3

$15,000 per month.4

Q And are you aware of whether the debtor has actually filed5

a separate motion with the Court for approval of that change?6

A That is my understanding.7

Q How does that changed compensation compare to the8

compensation that the company had formerly been paying you as9

the chairman and its former chief executive officer?10

A That compensation at $25,000 per month in my case11

effective from January 1st, would be $10,000 per month less12

than the aggregate of the amount in which Dr. Price and I were13

paid prior to his departure.14

Q As a result of your work now for a couple of years with15

Nobex, do you believe you have a good business knowledge and16

understanding of the debtor's assets you described to the17

Court?18

A I do.19

Q How do you think that knowledge is going to allow you to20

maximize the value of those assets during the sale process?21

A I believe that despite the fact that I am neither22

scientist or physician that I have a working knowledge of the23

technology and its reduction to practice and its commercial24

applications to communicate the value of these assets to25



prospective buyers be they financial or be they strategic1

buyers.2

Q Now, after two years of work for Nobex and a career in3

technology and to some extent healthcare related fields, what4

sort of contacts do you have in the pharmaceutical industry?5

A I would say reasonably extant. I am in contact now with6

contacts at several large pharmaceutical companies. None of7

these has emerged as an active prospective bidder at this8

point, but I have contacts at Pfizer, Schering-Plough, at9

Novartis. We have also contacts at other pharmaceutical10

companies via intermediaries. I'm speaking of friends and11

colleagues, not agents. 12

And I anticipate that in the event that we have an13

auction process and a bid procedures order is handed down that14

we will have books in the hands of all members of PHRMA who15

have any prospect of taking an interest in this technology for16

the delivery of therapeutic biologicals. Those would include17

other companies, such as Rosch, Abbott and so on,18

GlaxoSmithKline.19

Q Is there anybody else at Nobex with your set of skills and20

knowledge today?21

A No, there is not. We are down now to nine or 1022

employees, so there are 10 or 11 of us working on this program. 23

So there are none others that have quite the same skill sets24

that I have.25



Q Is there anybody else that could, given that unique set of1

attributes, provide the kind of value you can to this company2

as it tries to maximize its assets in your view?3

A No.4

Q You mentioned earlier that the company entertained SSG and5

will be filing an application -- or at least I mentioned that6

we'd be filing an application, you mentioned you retained them. 7

Is there a reason that SSG just couldn't do this without you?8

A I believe our skill sets are complementary. SSG is a very9

valuable member of the team because they know this business and10

the process of the disposition of distressed assets very well. 11

And despite the fact that we've only been working with them12

effectively since last Saturday, I can say that I've been13

working with one partner during the weekend and into yesterday14

prior to my departure from San Francisco and they are going to15

add a good deal of value to this process. 16

So, while their skill sets are not equivalent to17

mine, my skill sets and those of Russ Savre nor any other18

member of the Nobex team are equivalent to theirs, so it's a19

highly complementary relationship.20

Q You told us what Mr. Savre was doing and expected to do. 21

You just mentioned his skill set. Would you just describe for22

the Court how his skill set will be integral that team of you23

and SSG as well to maximize the value of these assets?24

A Absolutely. First of all, he is -- he has superb25



financial and accounting skills. Russ has done an absolutely1

outstanding job in managing the cash and keeping every member2

of our team alert to budget compliance. 3

In addition to that, there is a great deal of work,4

as I suggested earlier, involved in orchestrating the company's5

obligations to supporting the due diligence process of any6

prospective bidder. So, Russ is absolutely crucial to this7

process. 8

I will say that you asked the question about the key9

assets, the key resources of Nobex. I think when one looks to10

the human resource side of the company, the three key assets on11

the human resource side of this company are these two12

scientists and Russ Savre. They're absolutely indispensable.13

Q I think you may have just told me the answer to this14

question, but I'll ask it anyway. Is there anybody else at15

Nobex that can do the kinds of things that you need and expect16

Mr. Savre to do during the course of this process?17

A No.18

Q You heard me earlier describe a revised sale related19

incentive pay structure for both you, Mr. Savre and now that20

the Court has approved with respect to the marketing team. Do21

you believe that that payment scheme accomplishes a sound22

business purpose?23

MR. BUCHBINDER: Your Honor, objection. That's24

irrelevant for purposes of this particular motion. That's25



another motion. That has nothing to do with this motion.1

MR. ABBOTT: I apologize. Maybe Mr. Buchbinder, Your2

Honor, misunderstood my question. I was not referring to his3

base compensation changes. I was referring to the sale4

incentive compensation plan that is before the Court today as5

reduced relief requested under this motion.6

THE COURT: Any objection then?7

MR. BUCHBINDER: Repeat the question.8

MR. ABBOTT: Glad to.9

BY MR. ABBOTT: 10

Q With respect to the sale incentive pay that we're asking11

the Court to approve here today --12

A Yes.13

Q -- do you believe that that incentive compensation scheme14

serves a sound business purpose?15

MR. BUCHBINDER: Objection; irrelevant, Your Honor. 16

Under -- David Buchbinder on behalf of the United States17

Trustee. 18

Your Honor, I'm going to be objecting to the question19

on the grounds of relevancy because it is the position of the20

United States Trustee that under Section 503(c), the business21

judgement rule is no longer applicable except to the extent22

that 50(c)(3) (sic) permits it. And whether there is a sound23

business purpose to this or not is not relevant to the24

determination that the Court must make under 503(c).25



MR. ABBOTT: Your Honor, I'll save argument for the1

end of the day, but I believe --2

THE COURT: Yes.3

MR. ABBOTT: -- this testimony is relevant. We have4

sought this relief, among other things, in accordance with5

Section 363 and the test there is the debtor's business6

judgement, I believe.7

THE COURT: Well, I'll allow it. I'm not sure it is8

still the standard under 503, but I'll allow it.9

BY MR. ABBOTT: 10

Q Maybe I'll repeat the question for you, Mr. Dimmler.11

A Yes, please.12

Q Is the sale incentive compensation mechanism before the13

Court today designed to serve a sound business purpose for the14

debtor?15

A Yes, it is.16

Q What is that purpose?17

A I have a team in place whose responsibility involves a18

high degree of difficulty in delivering performance. As I19

indicated earlier, our objective, our job, our fiduciary20

obligation is to achieve the highest value for these assets to21

the benefit of creditors and then hopefully for shareholders as22

well. 23

This is a time consuming, energy consuming and24

reasonably stressful endeavor over a sustained period of time25



through which we anticipate would be approximately the 30th of1

March. And I believe that given the demands of this program2

that this is an appropriate compensation strategy. 3

This is out of the context -- strict context of4

bankruptcy. This is typical in private enterprise. I believe5

that it is highly appropriate for the reasons that I've stated6

and I also believe that it is fair in view of the way it's7

structured that there will be no incentive compensation paid,8

unless we improve upon the $3.5 million stalking horse bid.9

Q Do you believe that this incentive pay structure is10

justified by the particular facts and circumstances facing this11

company today?12

A Yes, I do.13

Q Could you expound on that a little bit?14

A Well, I believe it's -- again, we are a dedicated group of15

people. This is a group of individuals who has abided with a16

great deal of challenge over a sustained period of time and17

they have all elected to remain in harness with the company and18

to see this test accomplished, to see this job done. These are19

people who are highly dedicated. These are highly qualified20

people, highly employable. I believe that this is -- we21

couldn't have a better team to see this job through and I22

believe that given the fact that we are all human beings driven23

by these sorts of incentives that it is, as I say, appropriate24

and fair that these incentives be granted --25



Q Now --1

A -- allowed, permitted.2

Q -- have you had experience -- other than the incentive3

package proposed and before the Court today, have you had4

experience in other context and in fact in other context in5

this company with incentive-based compensation programs?6

A Well, for this company in general over the course of the7

last several years, there have always been -- there has always8

been performance compensation in place. With my particular9

arrangement, there was incentive compensation as a result of10

the 15,000 share options that were granted to me at the time11

that I became engaged in the company. 12

Speaking for myself over my entire career, my entire13

career has had compensation based upon performance. If you14

performed, you kept your job and you were paid incentive15

compensation accordingly. If you didn't perform, you had to go16

look for another job. So this is entirely -- the mind set and17

the mentality in venture capital, the mind set and mentality in18

entrepreneurship is all about pay for performance. So this is19

entirely consistent with the culture in which -- the corporate20

culture in which Nobex operates.21

Q Has it been your experience at Nobex that incentive22

compensated individuals tend to try to perform at levels that23

would reward them by allowing them that incentive compensation?24

A Absolutely. It's a matter of pride and professional25



satisfaction.1

Q You've testified that you and your team are going to stay2

with the company and work to maximize the debtor's assets. And3

you testified to the increased burdens on you in order to do4

that, you and Mr. Savre and your marketing team. If you don't5

-- if that team and you and Mr. Savre did not work aggressively6

and as hard as you've described to market these assets, what7

result would you predict for the sale?8

A I anticipate that it might lead to -- it might result in9

suboptimal performance. However, we are entirely committed to10

-- as I say, to our purpose, which is very clear to deliver11

maximum value to the estate and we realize that this is a very12

significant challenge. This is clearly a crippled company and13

to assemble bidders who are prepared to bid this -- bid for14

this asset in an aggressive way in order to enable us to15

achieve our purpose is a real challenge, but we're up to it and16

we're committed to it.17

Q Is it the debtor's business judgement that implementation18

of this incentive based sale compensation mechanism is in the19

best interest of the estate and the creditors?20

A Yes --21

MR. BUCHBINDER: Your Honor?22

THE WITNESS: -- absolutely. 23

THE COURT: Sustained.24

MR. BUCHBINDER: Dave Buchbinder. Same objection.25



THE COURT: Well, it's not relevant, but I think it1

goes to the ultimate decision the Court has to make.2

MR. ABBOTT: It does, Your Honor, but I believe3

testimony relating to that is allowable.4

THE COURT: Well, not as to the ultimate question. I5

mean you can ask regarding facts relevant to that, but I don't6

think you can ask the ultimate question.7

MR. ABBOTT: Let me try to rephrase, Your Honor.8

THE COURT: All right.9

BY MR. ABBOTT:10

Q Do you -- does the debtor believe in its business11

judgement that implementing this incentive compensation plan12

will foster the best possible result for the creditors?13

MR. BUCHBINDER: Your Honor, Dave Buchbinder. Same14

objection that it's irrelevant for the reasons stated15

previously and to the extent that it was asked and answered16

before, it's been asked and answered.17

THE COURT: Well, what do you think -- let press the18

United -- the U.S. Trustee on this. What do you think the19

standard is under 503(c)?20

MR. BUCHBINDER: Well, I think there are a number of21

standards under 503(c) and there are three of them depending on22

which of the subdivisions we're looking at. But, it starts23

with and it applies to all three subdivisions, notwithstanding24

503(b). 503(b) is the administrative expense provision. If we25

Dimmler - Cross/Buchbinder 40


create an obligation pursuant to 363(b) outside the ordinary1

course that's a post-petition expense, it is a 503(b)2

administrative expense. 3

And 503(c) begins with the words "Notwithstanding4

503(b), there shall neither be allowed nor paid." And then we5

get into the different formulas depending on what is being6

proposed. 7

And to the extent that 503(c) sets forth these three8

various subparts -- to that extent, it supplants the business9

judgement rule. It may be that a proposal is eminently sound,10

but it doesn't matter because 503(c) says notwithstanding11

503(b) and then it gives us a formula. That's why.12

THE COURT: All right. Well, I think you still may13

first have to meet the 503(b) standard. So I will overrule the14

objection. I'll allow it.15

BY MR. ABBOTT:16

Q Do you recall the question, Mr. Dimmler?17

A Would you be so kind?18

Q Do you believe that implementing the plan described today19

and before the Court for approval today will best serve the20

creditors by maximizing the value of the sale process?21

A Yes, sir, I do.22

Q Has this plan -- strike that.23

Has the board considered and approved an incentive24

compensation plan?25



A Yes, they have.1

MR. ABBOTT: Your Honor, I'll pass the witness.2


CROSS-EXAMINATION4

BY MR. BUCHBINDER:5

Q Good afternoon, Mr. Dimmler. Dave Buchbinder from the6

Office of the United States Trustee.7

A Good afternoon.8

Q You currently serve on the boards of directors of other9

organizations; is that correct?10

A Yes, sir, I do.11

Q Can you identify those for us?12

A Yes. I serve on the board of Gene Logic, Inc. I serve on13

the board of Preferred Global Health. And I serve as a14

chairman of the board of trustees of the Huntington's Disease15

Society of America.16

Q Any others?17

A I also serve as an advisor -- an investment advisor to18

Danske Bank, the Danish bank based on Copenhagen; as an19

investment advisor to their life sciences investment funds.20

Q Do you currently receive some form of regular compensation21

from any or all of these four entities?22

A I do. I receive compensation from Danske Bank. I receive23

no compensation from the Huntington's Disease Society of24

America nor from Preferred Global Health. And I do receive25



compensation from Gene Logic.1

Q Have your activities on behalf Nobex affected any of your2

compensation from Danske Bank or Gene Logic?3

A No, they have -- it has not.4

Q In the motion that you recently filed seeking a change in5

your ordinary compensation, you indicated that you receive6

stock -- cash bonuses from Nobex based upon funds raised. Do7

you recall making that statement?8

MR. ABBOTT: Your Honor, I might object here on9

relevance. Mr. Buchbinder suggested --10

THE COURT: Talk into the mic, please.11

MR. ABBOTT: Your Honor, Derek Abbott. I believe I12

need to object here on relevance. Mr. Buchbinder objected when13

he thought I was talking about that motion. That's not before14

the Court today and I'm not sure how this is relevant to the15

issues that are before the Court today.16

MR. BUCHBINDER: Your Honor, he testified upon17

questioning as to what his current compensation was and what18

compensation he had been receiving from Nobex. I just want to19

paint the entire picture. I believe the door has been opened20

to that question.21

THE COURT: I'll allow you to briefly explore it.22

MR. BUCHBINDER: Yes.23

BY MR. BUCHBINDER:24

Q Mr. Dimmler, have you also received any cash bonuses from25

Dimmler - Redirect/Abbott - Recross/Buchbinder 43


Nobex for raising investment capital for them?1

A There were provisions in my compensation arrangement for2

compensation in that regard. I have not received any payment. 3

The only payments that I have received from Nobex are the4

retainer fee to which I testified a few moments ago.5

Q Has Nobex adopted any other programs to pay incentives to6

any of its employees other than the present motion before the7

Court and the other motion affecting non-insiders?8

A Not to my knowledge. 9

Q Okay.10

A Certainly none that I'm aware of and certainly none for11

myself, no.12

Q Have you reviewed all of the pleadings filed in this case13

before they have been filed with the Court?14

A No, I have not, not personally. I have been coordinating15

and maintained currency with my counsel, but I have not read16

all of the documents.17

Q Do you recall authorizing your counsel to file an18

application for an order shortening time to hear this19

particular motion on shortened time?20

A No, I do not.21

MR. BUCHBINDER: I have no further questions at this22

time, Your Honor.23

THE COURT: Any redirect?24

MR. ABBOTT: Your Honor, just one brief matter.25

Dimmler - Cross/Kortanek 44


REDIRECT EXAMINATION1

BY MR. ABBOTT: 2

Q Mr. Dimmler, in response to one of Mr. Buchbinder's3

questions, you suggested that the company had not approved4

other incentive compensation which appears to me to be in5

direct contrast with your testimony in response to my question6

that historically the company pre-petitioned has compensated7

individuals on an incentive basis?8

A Yes. Perhaps I misunderstood Mr. Buchbinder's question. 9

I thought he was referring to other compensation in the context10

of this bankruptcy proceeding.11

Q Is it true then that other than in the course of this12

bankruptcy proceeding, the company has consistently utilized13

incentive-based compensation systems for certain of its14

employees?15

A Yes, indeed and in fact I believe I did testify to that16

effect earlier.17

MR. ABBOTT: Thank you.18

No further questions, Your Honor. 19

MR. BUCHBINDER: Your Honor, one quick question by20

way of recross.21

RECROSS-EXAMINATION22

BY MR. BUCHBINDER:23

Q Mr. Dimmler, have any of the pre-existing incentive24

programs involved inducements for employees to remain with the25



company?1

A No.2

MR. BUCHBINDER: No further questions, Your Honor.3

MR. KORTANEK: Your Honor, I'm Steve Kortanek with4

Klehr Harrison. We represent the Founders Group. And perhaps5

we should of had cross and then had redirect all at once, but6

if I may, Your Honor, I have a few questions?7


CROSS-EXAMINATION9

BY MR. KORTANEK: 10

Q Good afternoon, Mr. Dimmler. How are you?11

A Good afternoon, sir.12

Q I'd like to talk a little bit, Mr. Dimmler, about the13

process by which your and Mr. Savre's incentive compensation14

was negotiated. Tell me how that was negotiated. For example,15

was there or was there not a special committee of the board16

with whom you negotiated your package, Mr. Dimmler?17

A Do you mean the package that we're speaking about now or18

my original compensation package when I became engaged with the19

firm?20

Q Let's start with the package that was proposed in the21

debtor's motion. Did you or did you not negotiate -- with whom22

did you negotiate when that package was originally proposed to23

the Court?24

A When -- immediately after we made the voluntary filing.25



Q Yes.1

A It was proposed as one of the many matters that we2

undertook with counsel.3

Q Who proposed it?4

A Well, in the --5

MR. ABBOTT: Your Honor, I'm just going to object and6

counsel the witness not -- 7

THE COURT: Please --8

MR. ABBOTT: -- to the extent it calls for --9

THE COURT: Please talk into a microphone.10

MR. ABBOTT: I apologize, Your Honor. I just want to11

object and remind the witness not to discuss attorney client12

privilege matters and if he can answer the question without13

doing so, I'd ask him to do that.14

THE WITNESS: The concept of an incentive package was15

taken by me to our board. One of our directors, Michael16

Berendt, is chairman of the compensation committee. I referred17

the matter as to concept, should there or should there not be a18

compensation -- an incentive compensation program to Mr.19

Berendt, who chairs the compensation committee. And then we,20

after having -- and I recused myself from that discussion. 21

Then when the compensation committee decided that22

there should be an incentive compensation program, then the23

entire board took the matter up and decided that there should24

be. So the board took the decision. 25



Now, we have a very small board. At this point in1

time, there were only four members of the board. The former2

chief executive officer, who had been a member of the board,3

had already departed by that time. He was gone on the 16th of4

September.5

BY MR. KORTANEK: 6

Q That's Mr. Price?7

A That's correct. 8

Q Okay.9

A So, the board took the matter under consideration and10

without my involvement and without negotiation, the board took11

the decision. I wanted to recuse myself because I'm -- I was12

not a disinterested party. And so we brought that decision13

forward to counsel and then counsel took the matter forward. 14

And I would say also that the program that has been15

proposed here is a program that is, if you will, somewhat16

discounted from the original program that the board agreed to17

adopt.18

Q Well, then help me understand and help the Court19

understand, sir, what that program went through without20

discussing attorney client privilege matters. Was there any21

bid and ask in the compensation proposed for you or Mr. Savre?22

A Any bid and ask?23

Q In other words, was any proposal made by you, by Mr. Savre24

to the board or vice versa that resulted in a different25



proposal?1

A No, we -- it was the board. We proposed -- once the board2

said we should have an incentive compensation plan, we took3

advice from counsel as to what would be appropriate in4

counsel's point of view. And we also took advice from our5

investment banker at the time, Morgan Joseph, who of course has6

not been retained. But Mr. Lemler (phonetic) had what we7

thought was an informed point of view given the fact that we8

considered him to be an expert in the field. And then we took9

that recommendation forward and the board took the decision on10

it.11

Q Well, I -- you need to help me understand, sir, how the12

numbers were arrived at by the board and management. Because13

if I'm hearing you correctly, it's true, is it not, that the14

board initially just approved the concept of an incentive15

program; is that correct?16

A Yes, that was precedent to then determining what the17

compensation structure should be. 18

Q And then --19

A The compensation committee led that discussion and then20

took it forward to the board for the board's discussion and21

approval.22

Q Okay. So before -- strike that.23

After you had received advice from counsel and input24

from Morgan Joseph, is it fair to say that the compensation25



committee provided the first numerical proposal that we're now1

considering?2

A Yes, it is fair to say that.3

Q And --4

A This was not a matter that I negotiated with anything like5

a heavy hand at all. My -- I consider it my job to supervise6

the process on the business side of achieving the purpose which7

I've already stated to the Court today. So this is not -- I8

don't consider this an opportunity to make a lot of money here9

at anyone's expense. And therefore, I didn't negotiate this10

with my board or with anyone else. I simply asked advice. 11

Because in my view, the most important matter to attend to here12

is the matter at hand and not creating an economic opportunity13

for myself.14

Q Am I to understand you correctly that the compensation15

committee then, either orally or in writing, proposed some16

structure to you, sir?17

A I simply said to them that for the work that we are18

undertaking, I think it would be fair -- we all thought it19

would be fair, everyone who was involved in the discussion, our20

counsel, our banker, Russ Savre and so on and so forth. We21

felt that it was appropriate that we should be compensated on22

an incentive basis in the event that we deliver performance. I23

did not have a specific structure or amount of money in mind. 24

So, I took advice from counsel and from the banker, and I took25



what my board told me the board felt was fair and appropriate.1

Q Mr. Dimmler, who -- within management, excluding Morgan2

Joseph and outside counsel, who first within management3

actually said or wrote down, let's say, a percentage that you4

would get from sale proceeds? Who first made that proposal is5

what I'm trying to understand.6

A I don't recall. I do not recall, truthfully.7

Q Okay. Now, to the extent -- was there a time at which a8

number or numbers or mathematical formula was proposed?9

A Yes.10

Q Okay.11

A Absolutely.12

Q You recall what those numbers were?13

A It seems -- no, I don't. Not with any accuracy. No, I do14

not.15

Q Are those numbers the same as what was in Nobex's original16

motion to compensate you and Mr. Savre?17

A I would imagine they were, but truthfully I don't recall. 18

I'd like to elaborate a little bit.19

Q Well --20

A Well --21

Q Let me --22

A Go ahead.23

Q Let me ask you a different question, Mr. Dimmler. It's24

fair to say then, is it not, that if the number was proposed by25



you, since you can't recall who proposed it, that there was no1

change in those numbers and therefore, no bid and ask for the2

numbers that you originally filed in your motion?3

A Is that a question or --4

MR. KORTANEK: That is a question, Your Honor. I'm5

trying to -- I'll rephrase it.6

BY MR. KORTANEK: 7

Q Based on your recollection then, it's true, is it not,8

that there was no offer and exchange or change in the values as9

between you and Nobex's board between the initial proposal and10

what resulted in Nobex's original motion with this Court?11

A I think they're within the same -- as I recall, they're in12

the same range, the same order of magnitude. But it would be13

inaccurate for me to say that these are precisely the values14

that were imbedded in the original proposal because the truth15

is I don't recall. Because my head has been focused much16

more, truthfully, on the job that has to be done than on what I17

might or might not be paid for delivering the performance. 18

My head has been on in keeping this team together, in19

writing a plan to scale back the head count in research20

triangle so that we could abide with the budget involved with21

the DIP financing, in preparing documents to go to the market,22

to assemble bidders and fielding inquiries and getting a new23

website up and running and so on and so forth. That's where my24

head has been. 25



My head has not been focusing on the minutiae of what1

my incentive compensation might or might not be. I was much2

more concerned about whether there would be incentive3

compensation or whether or not I was going to get another4

couple hundred basis points or not, or Mr. Savre for that5

matter.6

Q So in other words, Mr. Dimmler, you are, as you've said7

already I think fairly well, entirely committed to this sale8

process and to your fiduciary duties in fact without regard to9

whether or the extent to which you have an incentive component?10

A I am absolutely committed to the sale process, yes. But11

at the same time, I am human and members of my team are human12

and we'd like to be compensated for a job well done in the13

event that we deliver a job well done. Yes, I'm committed to14

it. I would like very much to be compensated because I am an15

economic being.16

Q Now pre-petition, turning to that phase, Mr. Dimmler, am I17

to understand correctly that Nobex's position and your position18

as heading management was that it marketed the company and19

sought sale or financing transactions?20

A Yes, we did.21

Q And you would characterize that effort as a serious22

effort; would you not?23

A Yes, I would.24

Q Okay. I'm going to ask you a question that will reference25



a case, but hopefully it won't draw an objection. Are you1

familiar with the term Revlon duties, just as a lay person?2

A Revlon duties?3

Q Revlon duties.4

A I am not.5

Q Well, instead of asking what the name and understanding6

that counsel may jump to his feet, you're familiar are you not,7

sir, in your capacity as a board member, not only on this8

entity but other presumably Delaware corporations, with the9

obligation of management and a board to maximize value10

especially when a company is for sale?11

A Certainly.12

Q Okay. And you would tell the Court today, would you not,13

that you carried out that duty assiduously pre-petition in14

terms of marketing the assets or seeking other capital; isn't15

that true?16

A Yes, I would.17

Q Okay. And pre-petition, sir, you carried that effort out18

without any kind of incentive compensation such as Nobex is19

proposing today; isn't that correct?20

A Well, not exactly because, as Mr. Buchbinder I believe21

pointed out, there was an opportunity in the event that we22

raised a minimum of $20 million that I might earn incentive23

compensation to as much as $500,000. So there was incentive24

compensation involved. 25



Certainly, if we had been able to raise the money1

that we had hoped to be able to raise and build the company the2

way the company can and should be built with proper financing,3

the shares that we were all entitled to would have been4

potentially worth a much greater sum than any amount that we're5

dealing with here this afternoon. So, this arrangement for not6

only myself, but also for members of the management team was7

highly bias toward incentive compensation.8

Q Mr. Dimmler, let me ask your understanding of some of the9

conditions under which you would seek to -- you and Mr. Savre10

would seek to obtain this incentive compensation. If there11

were a non-sale transaction -- for example, plan transaction or12

some other event -- do you believe you'd be entitled to the13

compensation that's being sought today?14

A Would you be so kind as to elaborate on what sort of a15

transaction you have in mind? Would you --16

Q Let me ask --17

A -- elaborate the terms --18

Q If there were a transaction --19

A -- of such a transaction?20

Q -- other than a sale --21

A Uh-huh.22

Q -- what do you think your rights would be under this23

proposed plan?24

A Well, in the event that it involved benefits to the estate25

Dimmler - Cross/Martin 55


that would exceed the benefits that would accrue to the estate,1

but it would be paid to the estate from the stalking horse bid,2

then if we played a constructive and substantive role in3

delivering such a transaction, then I believe we would be4

entitled to incentive compensation. If, however, we played no5

role in it at all and made no contribution, then if you don't6

deliver performance, you shouldn't be paid.7

Q Do you think that there's a similar -- taking what you8

just said, you said that if in a scenario where you didn't play9

any role in the value added, you would not be entitled to the10

compensation. Would that also be true under the sale11

component? For example, if it were shown somehow that you12

and/or Mr. Savre did not have a material role in, let's say, a13

$10 million sale transaction, are you telling me, sir, that you14

would not be entitled to the compensation sought today?15

A I think conceptually I would concur with that. But I, as16

a practical matter, can't imagine how that would occur because17

these transaction just don't fall out of the sky. So, I mean18

they take a good bit of work and a good bit of effort and19

nurturing and constructive contribution. But as a practical20

matter, I stand by my philosophy. If you don't make a21

significant contribution that is equivalent to the money that22

you intend to earn, you shouldn't be paid.23

MR. KORTANEK: Thank you, sir.24

No further questions.25




CROSS-EXAMINATION2

BY MR. MARTIN:3

Q Hello, Mr. Dimmler. My name is Craig Martin as I4

mentioned earlier. I represent Elan Pharma International5

Limited. 6

MR. MARTIN: For the record, that's E-l-a-n. I7

apologize for not spelling that earlier. 8

BY MR. MARTIN: 9

Q Couple of quick questions. It sounds like you've had10

quite a long week, which I know everyone in the room11

appreciates. To follow-up on what Mr. Kortanek was just asking12

you, is it true in your view that the obligation that's being13

incurred today is a cash payment obligation?14


Q So does that mean that if there were to be a transaction16

in which you were involved that resulted in a private equity17

fund or some other financial player offering debt or equity as18

part of a purchase price component, that would have to be19

valued so that you could receive your payment in cash?20


Q And is it your further understanding that the obligation22

that the company is incurring today is a maximum obligation up23

to a certain percentage and that the board in the future will24

determine if and to what extent you're entitled to some or all25



of that?1

A That is not my understanding. My understanding is that2

there is no cap on this.3

Q Well, let me phrase the question differently. Let's look4

at D-1. Do you have this exhibit up at the witness stand?5

MR. ABBOTT: Your Honor, may I approach and hand him6

a copy of the exhibit?7


BY MR. MARTIN:9

Q Let's take for example a hypothetical transaction that10

resulted in a cash payment for the business of say $7 million. 11

That would put the percentage incentive in the middle category12

and for yourself that would be 6.5 percent. Do you see that?13

A I do.14

Q Now, I've heard some things that have been said today that15

suggest that the maximum you're entitled to receive is 6.516

percent, but that it is in the board's discretion what of that17

6.5 percent you're entitled to. Is that your understanding?18

A That is my understanding with respect to -- if you're19

asking with respect to the allocation proposed here between Mr.20

Savre and me --21

Q No, my question is as follows: Isn't it correct that the22

board could decide in a $7 million transaction that your work23

was only worth three percent?24

A Yes, absolutely.25

Dimmler - Further Redirect/Abbott 58


Q Or two percent?1

A Yes.2

Q Or they could decide that you know what, he did earn the3

6.5 and the board will approve that at some point in the4

future?5


Q And can you tell us who is on the board at this point in7

time?8

A Yes. Sol Barer, who is president and chief operating9

officer of Celgene Corporation; Michael Berendt, B-e-r-e-n-d-t,10

Ph.D., who is managing director of R.C. Tech; and Michael Hsu,11

spelled H-s-u, who is managing director and managing partner of12

EndPoint BioCapital Sendirian Berhad.13

Q Is that all of them? 14

A And I am also --15

Q You're also on the board?16

A Yes, I am.17

Q Now, is it your current understanding as you sit here18

today that the outstanding unsecured debt in this case is19

somewhere between 10 and 15 million dollars?20

A That's my understanding. Six million Elan, two and a half21

million trade creditors and the balance to Biocon on a22

converted basis.23

Q So is it your view then that if the assets of this estate24

sell for over $15 million that the unsecured creditors will be25

Dimmler - Further Redirect/Abbott 59


paid in full; is that correct?1


MR. MARTIN: Thank you, sir.3

I have no further questions.4

THE COURT: Anybody else?5

MR. ABBOTT: Your Honor, just a couple and I'm sorry6

for cutting off the cross-examiners with earlier redirect. I7

didn't realize there were additional folks out there.8

FURTHER REDIRECT EXAMINATION9

BY MR. ABBOTT: 10

Q Just to clarify your testimony, there was incentive based11

compensation for your pre-petition sales effort; is that right?12

A Yes.13

Q Okay. Mr. Kortanek asked you a number of questions about14

negotiation of the actual numbers that the debtor initially15

proposed. Was there discussion and back and forth in16

negotiation through which the debtor arrived at the numbers17

that are before the Court today in terms of incentive18

compensation?19

A Yes.20

Q And with whom were those numbers negotiated?21

A Well, we discussed them -- Russ Savre and I have discussed22

them. I have not taken this proposition to the board of23

directors. The -- this plan, as I indicated earlier, is a24

somewhat discounted plan from the plan that the board of25

60


directors originally authorized and we will have that1

discussion with the board -- I'm sorry, did I cut you off?2

Q No, no, no, no, please finish your answer.3

A And we'll have this discussion with the board in a board4

meeting that we will conduct on Monday morning.5

Q And I misled you with my question, I apologize. My -- let6

me come at it from a different angle. To your knowledge, did7

the creditors committee express a view as to the appropriate8

level of the incentive compensation during the discussions that9

led us to the numbers that are before the Court today?10

A That's my understanding, yes. Yes.11

Q And to your knowledge, was there some back and forth12

discussion regarding what the appropriate numbers would be?13

A That is my understanding, yes.14

MR. ABBOTT: May I have a moment, Your Honor?15

THE COURT: Yes.16

(Pause/counsel confer.)17

MR. ABBOTT: No further questions, Your Honor. 18


Thank you. You may step down.20

THE WITNESS: Thank you.21

22

THE COURT: You can leave the exhibit with the clerk. 23

Thank you.24

MR. ABBOTT: Your Honor, would it be acceptable if25

61


Mr. Dimmler were excused from the balance of the hearing given1

his commitments?2

THE COURT: Yes.3

MR. ABBOTT: Thank you, Your Honor. 4

(Pause/witness excused.)5

MR. ABBOTT: Your Honor, the debtor is here today6

requesting Court approval for what it believes is a typical,7

fair and appropriate compensation mechanism -- I apologize,8

Your Honor. Mr. Buchbinder apparently has some evidence.9

MR. BUCHBINDER: Your Honor, may we take about a five10

minute break and -- because I think I can make it very short if11

I speak with Mr. Abbott briefly?12

THE COURT: All right, maybe I'll take my 3:00 in the13

interim.14

MR. BUCHBINDER: Okay.15

THE COURT: Okay. Thank you.16

(Recess)17

THE CLERK: All rise. You may be seated.18

MR. BUCHBINDER: Your Honor, Dave Buchbinder on19

behalf of the United States Trustee. I do not have a witness20

to call. I simply would like to offer -- and I can mark it as21

an exhibit and present it to the Court -- a pleading previously22

filed in this case which I have provided to counsel and if23

necessary, I'll ask the Court to request judicial notice of24

docket entry number 50 in this case, which was the debtor's25

62


motion for order shortening notice with respect to motion for1

order authorizing payment of sale related incentive paid to2

senior management. The motion for order shortening time3

related directly to today's motion.4

THE COURT: All right, I will take judicial notice of5

that.6

MR. BUCHBINDER: I have a copy I can present to the7

Court, if I may approach?8


MR. ABBOTT: Your Honor, that's fine. I just wanted10

to note for the record that we don't think it's particularly11

relevant and we'll address that in argument.12

THE COURT: All right. Well, let me I guess hear13

from the U.S. Trustee first in opposition.14

MR. BUCHBINDER: Okay. My sole evidence is this15

pleading, Your Honor, otherwise I'm prepared to argue. If you16

want me to argue first, that's fine. If you want Mr. Abbott to17

argue first, that's fine.18

THE COURT: I'd like you to argue first.19

MR. BUCHBINDER: Okay.20

THE COURT: That's fine.21

MR. BUCHBINDER: Your Honor, we all woke up on the22

morning of October 17th, 2005 and the world was different. To23

most people, it may not have been very different, but to those24

of who live, breathe, eat and sleep bankruptcy law, the world25

63


became very different. 1

One of the places where the tectonic plates of2

bankruptcy have shifted seismically is

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