Day 1 Transcript

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1 UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
2 -----------------------------------------x
3 U.S. BANK NATIONAL

ASSOCIATION, solely in its
4 capacity as indenture trustee
of Windstream Services, LLC's
5 6 3/8% Senior Notes due 2023,
6 Plaintiff and
Counterclaim Defendant, New York, N.Y.
7
v. 17 Civ. 7857(JMF)
8
WINDSTREAM SERVICES, LLC,
9
Defendant, Counterclaim
10 Plaintiff, and
Counterclaim Defendant,
11
v.
12
AURELIUS CAPITAL MASTER, LTD.,
13
Counterclaim Defendant
14 and Counterclaim Plaintiff.
15
-----------------------------------------x
16
July 23, 2018
17 9:30 a.m.
18 Before:
19 HON. JESSE M. FURMAN,
20 District Judge
21 APPEARANCES
22 FRIEDMAN KAPLAN SEILER & ADELMAN LLP

Attorneys for U.S. Bank National Association
23 BY: EDWARD A. FRIEDMAN
DANIEL B. RAPPORT
24 JEFFREY FOURMAUX
CHRISTOPHER COLORADO
25 BLAIR ALBOM
SOUTHERN DISTRICT REPORTERS, P.C.

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1 APPEARANCES CONTINUED
2 MASLON EDELMAN BORMAN & BRAND LLP

Attorneys for U.S. Bank National Association
3 BY: MICHAEL C. McCARTHY
4 KIRKLAND & ELLIS LLP

Attorneys for Windstream Services, LLC
5 BY: RICHARD GODFREY
AARON MARKS
6 IAN SPAIN
HARIKLIA KARIS
7 RICHARD U.S. HOWELL
8 ROBBINS, RUSSELL, ENGLERT, ORSECK, UNTEREINER & SAUBER LLP

Attorneys for Aurelius Capital Master
9 BY: WILLIAM TRUNK
LAWRENCE ROBBINS
10 JEFFREY KANE
WENDY LIU
11
12 (Case called)
13 THE CLERK: Counsel, please state your name for the
14 record.
15 MR. FRIEDMAN: Good morning, your Honor. For U.S.
16 Bank, as Trustee, Friedman Kaplan Seiler & Adelman, Edward A.
17 Friedman. With me is Jeffrey Fourmaux, Daniel Rapport,
18 Christopher Colorado.
19 MR. COLORADO: Good morning, your Honor.
20 MR. ROBBINS: And Blair Albom.
21 Also representing U.S. Bank, as Trustee, is Mr. Mike
22 McCarthy from the Maslon law firm.
23 THE COURT: Good morning.
24 MR. GODFREY: Good morning, your Honor. Rick Godfrey,
25 on behalf of Windstream Services. With me is Mr. Howell,

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1 Mr. Marks, Ms. Karis.
2 THE COURT: Good morning.
3 All right. Sorry about the standing room only for
4 some of you. I think we are trying to arrange for an overflow
5 courtroom. I don't think anybody had indicated that there
6 would actually be a need so we hadn't done that in advance, but
7 we are certainly trying our best to do it as quickly as
8 possible. So in the meantime, I apologize and would ask for
9 your patience.
10 We are here for the beginning of trial. A couple of
11 housekeeping matters before we start with the first witness.
12 First, with respect to the motion to seal filed by Services,
13 docket number 203, I reviewed the letter and the declaration
14 and the exhibits. I see no basis to seal the letter motion
15 itself. It describes only in generic terms the nature of the
16 exhibits at issue and doesn't, as far as I can tell, reveal any
17 proprietary or confidential information. So, too, I think,
18 with one small exception, the Moody affidavit also just
19 describes things in general terms. The one exception is in
20 paragraph 5 of that affidavit, the second sentence I think can
21 and should be redacted following the word "involved." But with
22 that one narrow exception, I think it, too, can be unredacted.
23 I have already approved the redactions of plaintiff's
24 Exhibits 41 and 42, which are also Windstream or Services
25 Exhibits 36 and 37. I will reserve judgment for now on whether

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1 to keep sealed in their entirety the other two exhibits; that's
2 Aurelius Exhibits 29 and 31 and, corresponding to Windstream,
3 Exhibits 74 and 183 until they are either used at trial or I
4 have an opportunity to consider what role they play and decide
5 the weight of the presumption.
6 I will say, however, that I am skeptical of the need
7 to keep them sealed in their entirety. As far as I can tell,
8 they are being offered to show, number one, that there had been
9 some discussions before the notice of default about refinancing
10 and also to show that there was discussion at the I think
11 September 22nd board meeting, or whatever the date is, of the
12 notice of default. I would think that those two things could
13 be unsealed and as well as the sort of, you know, fact of the
14 meeting and the like. And the rest of it is not clear to me it
15 is relevant to the case at all and, therefore, it could
16 presumably be redacted consistent with what I said last week
17 about the other two exhibits. You may want to take a look at
18 that in the meantime, but I will reserve judgment until later
19 on that.
20 I did get a number of submissions over the weekend. I
21 did sign the stipulation regarding admission of the exhibits
22 and deposition designations. I don't know if that has hit the
23 docket yet, but you can assume that that is fine and,
24 therefore, those exhibits are now in evidence and you don't
25 need to offer them.

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1 I received a new Exhibit G to the Joint Pretrial Order
2 from the Trustee. Has that been -- was that docketed,
3 Mr. Friedman?
4 MR. ROBBINS: No, your Honor.
5 THE COURT: Why don't you docket that.
6 Any issues or objections with respect to that?
7 And then I did get the corrected affidavits of
8 Mr. LaRue and Dr. Kan. I have both of those. I would say try
9 to keep the corrections in the affidavits to a minimum going
10 forward because I have now read all the affidavits and marked
11 them up and it is going to create confusion if there are
12 different version floating around. But as I indicated, each
13 witness will be given an opportunity to state on the record,
14 under oath, if there are corrections to be made, and that is
15 one way of doing it going forward to avoid diversion control
16 problems.
17 That's it for housekeeping matters on my end. Is
18 there anything else that --
19 MR. MARKS: Just a clarification, your Honor.
20 THE COURT: Microphone.
21 MR. MARKS: Just a clarification, your Honor.
22 With respect to Exhibit G, I am just really checking
23 with U.S. Bank, whether that predated the stipulation?
24 MR. FRIEDMAN: I think it did, your Honor.
25 MR. MARKS: I just want to make sure --

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1 MR. FRIEDMAN: So are there exhibits that have to come
2 off it?
3 MR. COLORADO: No. Everything is on the Exhibit G.
4 MR. FRIEDMAN: Exhibit G is the correct trial exhibit
5 list for the Trustee, and we'll make sure it is filed
6 electronically, your Honor.
7 THE COURT: Great. All right.
8 MR. FRIEDMAN: And one other matter relating to the
9 stipulation. Mr. Godfrey and I have agreed, if it is all right
10 with the Court, that the pleadings listed on the stipulation
11 that have now been ordered admitted may be considered as marked
12 for identification rather than in evidence, and the parties'
13 thinking is simply that the pleadings will be governed by the
14 usual rules, nothing special in this case. If facts are
15 admitted in a responsive pleading, that is an admission, and
16 nobody here is trying to expand or contract the usual rules
17 applicable to the use of pleadings at trial. So the suggestion
18 from Kirkland & Ellis, which we agreed to, is that with that
19 understanding, the pleadings should be considered marked for
20 identification rather than admitted into evidence. If that's
21 all right with your Honor?
22 THE COURT: That is fine with me.
23 Mr. Godfrey, is that --
24 MR. GODFREY: Your Honor, we agree with that. And
25 just so the Court has a record of which exhibits we're speaking

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1 of specifically, it is Windstream Exhibits 174, 175, 176, 177,
2 178 and 179, which are not admitted for substantive purposes
3 but have been marked for identification. And it is U.S. Bank
4 PX 114, 115, 129A, 130, 131 and 132, and those are the
5 pleadings to which Mr. Friedman properly was referring and to
6 which we have an agreement are marked for identification
7 purposes but not for substantive admission into evidence
8 unless, of course, there is an admission in the pleadings
9 themselves, in which case Mr. Friedman is correct, they may be
10 used in the regular and ordinary course as the Court would
11 allow.
12 THE COURT: All right. Very good.
13 Is that a correct list, Mr. Friedman?
14 MR. FRIEDMAN: That is a correct list, your Honor.
15 THE COURT: All right. Any other housekeeping
16 matters?
17 MR. GODFREY: Yes, your Honor. First, a question. We
18 have the original signed affidavits. So we weren't certain how
19 you wanted us to tender those. We have them in the exhibit
20 book that we have already handed up to your clerk and the court
21 reporter and your Honor has a copy now and we have a copy of
22 it, but how do you want us to handle the originals? Is there a
23 special marking for the originals or is there a special filing
24 for the originals?
25 THE COURT: So, as with exhibits generally, the

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1 parties should hold on to them. They are not filed with the
2 court. But when -- as I indicated last week, when the witness
3 testifies, you should provide the original to the witness and
4 they can authenticate it and we'll go from there.
5 MR. GODFREY: Fine.
6 Secondly, Mr. Eichler has a correction in the last
7 sentence of his affidavit. I thought the best way to do
8 that -- and I discussed this with counsel across the bar -- was
9 simply to have him do it on the witness stand. I provided the
10 corrected language to Mr. Friedman. It will be in the witness'
11 binder. He wrote it out and he can then testify to it. It is
12 the very last sentence. It is simpler than providing the Court
13 another corrected affidavit. I thought that was the better way
14 to proceed, if that is acceptable to the Court.
15 THE COURT: It works for me.
16 MR. GODFREY: Finally, there is one topic we've
17 discussed with Mr. Robbins. We might have a witness-out-of-
18 order issue but that would depend upon how fast we go. So
19 we'll let the Court know if that materializes. Right now we
20 don't. It is a possibility and we'll work with Mr. Robbins if
21 that materializes, but right now it is just to put a small flag
22 down for the Court that that might happen, but it would be
23 probably more a Wednesday/Thursday issue, if it arises at all.
24 THE COURT: OK. Sounds good.
25 Anything else?

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1 MR. GODFREY: Not from me, your Honor.
2 MR. FRIEDMAN: No. Thank you, your Honor.
3 THE COURT: All right. Then let's proceed to the
4 first witness. I take it Services is calling Mr. Fletcher?
5 MR. GODFREY: He is actually being called adversely by
6 U.S. Bank, your Honor, but, yes.
7 MR. FRIEDMAN: I don't want to be overly technical,
8 your Honor. The direct testimony of Mr. Fletcher is being
9 offered by Windstream Services. I am cross-examining
10 Mr. Fletcher.
11 THE COURT: I got that. Understood.
12 MR. GODFREY: That is correct.
13 Mr. Fletcher, if you could take the stand, please.
14 JOHN P. FLETCHER,
15 called as a witness by Windstream Services,
16 having been duly sworn, testified as follows:
17 THE CLERK: Please have a seat.
18 Please state and spell your full name for the record.
19 THE WITNESS: John P. Fletcher, J-o-h-n, P., as in
20 Paul, F-l-e-t-c-h-e-r.
21 THE COURT: Mr. Fletcher, if you want to -- the A/V in
22 here is terrible, but the best chance is if you are a couple of
23 inches away from the microphone. Not too close but not too far
24 either. So, three little pigs, just right.
25 Go ahead.

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I7ndusb1 Fletcher - direct
1 MR. GODFREY: May I approach the witness, your Honor?
2 THE COURT: Yes.
3 MR. GODFREY: Thank you.
4 DIRECT EXAMINATION
5 BY MR. GODFREY:
6 Q. Mr. Fletcher, I have handed you a notebook, and on the top
7 of it is an affidavit which is marked as Windstream Exhibit No.
8 190. Do you recognize that affidavit, sir?
9 A. I do.
10 Q. If you could turn to the last page of the affidavit. Is
11 that your signature, sir?
12 A. That is my signature.
13 Q. Did you sign that under penalties of perjury?
14 A. I did.
15 Q. Is that affidavit, which is an affidavit setting forth your
16 direct testimony, are the statements made in that affidavit
17 made upon your own personal knowledge?
18 A. Yes.
19 Q. And to the best of your knowledge, are the statements made
20 in that affidavit true, accurate, and correct?
21 A. Yes.
22 MR. GODFREY: Your Honor, at this time Windstream
23 Services would offer into evidence as the direct testimony of
24 Mr. John Fletcher Windstream Exhibit 190, which is his
25 affidavit, which has been provided of course to the Court and

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I7ndusb1 Fletcher - cross
1 to U.S. Bank in advance of this proceeding.
2 THE COURT: All right. And understanding that there
3 are no longer any objections, that is admitted.
4 (Defendant's Exhibit 190 received in evidence)
5 MR. GODFREY: Your Honor, in light of that, it is time
6 for me to pass the witness.
7 THE COURT: Yes, indeed. Cross-examination.
8 CROSS-EXAMINATION
9 BY MR. FRIEDMAN:
10 Q. Good morning, Mr. Fletcher. One of the things you say in
11 your direct testimony is that the transferor subsidiaries are
12 express beneficiaries of the Master Lease, is that correct?
13 A. That is correct.
14 Q. The term "express beneficiaries" is your characterization,
15 is that correct?
16 A. I would want to be able to look at the Master Lease to
17 answer that question.
18 Q. Am I correct that the words "express beneficiary" or
19 "express beneficiaries" do not appear in the Master Lease?
20 A. I would need to refer to the Master Lease to answer that
21 question.
22 Q. As you sit here, without looking at the document, you do
23 not know, is that correct?
24 A. The Master Lease --
25 Q. Can you answer my -- I apologize for interrupting. Can you

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1 answer my question yes or no?
2 A. Please restate the question.
3 Q. My question was, as you sit here, without looking at the
4 Master Lease, you do not know whether the words "express
5 beneficiary" appear in the Master Lease?
6 A. I would need to refer to the Master Lease to confirm that.
7 THE COURT: So as you sit here today, you would say
8 you don't know?
9 THE WITNESS: I would said I don't know.
10 THE COURT: All right.
11 BY MR. FRIEDMAN:
12 Q. Now, in your view, Mr. Fletcher, as express beneficiaries
13 of the Master Lease, the transferor subsidiaries have the right
14 to use and occupy the transferred assets, is that correct?
15 A. Please restate the question to make sure I understand what
16 parties you are referring to. Please restate the question.
17 Q. I missed what you said. You were unclear.
18 A. Please restate the question, please.
19 Q. OK. You've described the transferor subsidiaries as
20 express beneficiaries under the Master Lease, correct?
21 A. Correct.
22 Q. My question is, in your view, as express beneficiaries of
23 the Master Lease, the transferor subsidiaries have the right to
24 use and occupy what is referred to as the leased property in
25 the Master Lease?

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1 A. Windstream Holdings --
2 Q. I'm sorry. Again, if you can answer my question yes or no,
3 I would appreciate it.
4 A. You would need to restate the question.
5 Q. OK. The question is: Is it your view that as express
6 beneficiaries of the Master Lease, the transferor subsidiaries
7 have the right to use and occupy the transferred assets?
8 A. Yes.
9 Q. Also, Mr. Fletcher, in your view, the Master Lease
10 contemplated the continued use of the transferred assets by the
11 transferor subsidiaries as an express right; is that your view?
12 A. Yes.
13 Q. Am I correct that Windstream Holdings granted permission to
14 the transferor subsidiaries to use the leased property?
15 A. I would not use that term, but Holdings, as the sole
16 tenant, had negotiated and obtained the express right for the
17 transferors now to use the property.
18 Q. I'm going to ask you to take a look at your deposition
19 testimony, at page 126, lines 17 through 21. And that page of
20 your deposition is appearing before you now.
21 At your deposition, Mr. Fletcher, I asked you the
22 following question:
23 "Q So the question I have for you is whether Holdings has
24 given the subsidiaries permission to use the leased property?"
25 And your answer was, "Yes."

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1 Did I read that correctly?
2 A. You read that correctly.
3 Q. Was that testimony you gave at your deposition truthful and
4 correct?
5 A. It was truthful and correct and uses the word "given" where
6 you used the word "grant." I was making a distinction.
7 Q. In paragraph 34 of your direct testimony, Mr. Fletcher, you
8 discuss submissions that were filed with regulatory authorities
9 in various states. I'm not asking you to remember the
10 paragraph number. Do you recall you discussed regulatory
11 submissions in your affidavit?
12 A. Yes.
13 Q. Those submissions were filed by the transferor
14 subsidiaries, sometimes joined by Holdings, is that correct?
15 A. They were filed by the transferor subsidiaries. I don't
16 recall how often Holdings actually joined them.
17 Q. Now, you say in your direct testimony that each submission
18 assured the regulators that the transferor subsidiaries were
19 "expressly permitted to use and occupy the transferred assets
20 as express beneficiaries." Do I have your testimony correct?
21 A. That sounds correct.
22 Q. Would you agree with me that none of the submissions to the
23 regulators actually describe transferor subsidiaries as express
24 beneficiaries, using that term?
25 A. It used the description of the Master Lease and the

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1 permitted use under the Master lease --
2 Q. Again, Mr. Fletcher, if you can answer my question yes or
3 no, I would appreciate it.
4 A. OK.
5 Q. Would you like the question again?
6 A. Yes.
7 Q. OK. The question was would you agree with me that none of
8 the submissions to the regulators actually describe transferor
9 subsidiaries as "express beneficiaries," using that term?
10 A. I do not recall at this time -- those submissions were made
11 over four years ago -- if I used those exact phrases in those
12 filings.
13 Q. You just don't remember as you sit here, correct?
14 A. As I sit here.
15 Q. Would you agree with me that the term "express
16 beneficiaries" is a term invented by Windstream Services for
17 this litigation?
18 A. I would not agree with that.
19 Q. Am I correct that Holdings and the transferor subsidiaries
20 told the regulatory authorities that the transferor
21 subsidiaries would be leasing the transferred assets?
22 A. There were isolated statements that --
23 Q. Mr. Fletcher, again --
24 MR. GODFREY: Your Honor, I think he should allow the
25 witness to answer the question.

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1 THE COURT: There is redirect. If the question calls
2 for a yes or no answer, you can answer yes, no, or I don't
3 remember or I don't know, but if you want to go beyond that,
4 counsel will follow up or your counsel will have an opportunity
5 to do so on redirect.
6 So, with that, proceed.
7 BY MR. FRIEDMAN:
8 Q. The yes or no question I have for you, Mr. Fletcher, is am
9 I correct that Holdings and the transferor subsidiaries in fact
10 told the regulators that the transferor subsidiaries would be
11 leasing the transferred assets?
12 A. Yes.
13 Q. Now, you were personally involved in the regulatory
14 proceedings, correct?
15 A. Yes.
16 Q. In your role as general counsel, you were overseeing the
17 regulatory team who were preparing the submissions in the
18 regulatory proceedings, correct?
19 A. Yes.
20 Q. Now, I'm coming back to the regulatory proceedings in a
21 moment, but I want to digress briefly.
22 You also refer in your direct testimony to a July 2014
23 IRS private letter ruling. Do you recall that?
24 A. In which context, please?
25 Q. In your direct testimony, in the affidavit you are

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1 submitting in this case, you refer to a July 2014 IRS private
2 letter ruling; do you recall that?
3 A. I do recall that.
4 Q. And am I correct that you were involved in drafting the
5 filings to seek that ruling?
6 A. Yes, I was involved.
7 Q. And did you make sure that the filings accurately described
8 the transaction?
9 A. Yes. We did our best to do that.
10 Q. And the transaction that was being described to the IRS is
11 the transaction that as of the summer of 2014 had been planned
12 and structured and it closed on April 24, 2015, is that
13 correct?
14 A. Yes. A long period occurred. There were changes to the
15 facts given the passage of time, but, yes.
16 Q. As of the summer of 2014, the material aspects of the
17 transaction had been structured and planned, correct?
18 A. Yes, those that were material to the IRS ruling.
19 Q. And what about those that were material to the regulatory
20 authorities, had those material aspects of the transaction been
21 structured and planned as of the summer of 2014?
22 A. In the summer of 2014, we had a plan for this overall
23 transaction. There were many other details that still needed
24 to be ironed out, but we -- the overall framework of the
25 transaction was largely understood at that time.

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1 Q. So as of that time, the plan was the transferor
2 subsidiaries would be transferring their telecommunications
3 network assets to a REIT known as CSL, correct?
4 A. There were other steps in the transactions. They went to
5 Services first. Then Services made the contribution.
6 Q. With that modification, you would agree that one part of
7 the transaction involved the telecommunications network assets
8 owned by the transferor subsidiaries being transferred to CSL,
9 is that correct?
10 A. Yes, with the modification of Services within those steps.
11 Q. And another aspect of the transaction that had been planned
12 as of the summer of 2014 was that Holdings would be signing a
13 Master Lease with CSL, is that correct?
14 A. Please restate it. I didn't hear the time period.
15 Q. Summer of 2014.
16 A. Please restate the whole question.
17 Q. Yes. As of the summer of 2014, part of the plan that was
18 in place was that Holdings would sign a Master Lease with the
19 REIT or with CSL?
20 A. Yes. I believe that was the structure at that time, yes.
21 Q. And that structure did not change, correct?
22 A. Correct. Holdings remained the sole lessee to the Master
23 Lease.
24 Q. My question was yes or no. That structure that was planned
25 in the summer of 2014, that Holdings would sign the master

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1 lease, that aspect did not change, correct?
2 A. I'm not sure I understand your question. The whole
3 structure of the transaction, that did not change?
4 Q. No.
5 THE COURT: I think it is just the plan for Holdings
6 to be the signatory on the Master Lease.
7 THE WITNESS: That did not change.
8 BY MR. FRIEDMAN:
9 Q. And am I correct that part of the plan as of the summer of
10 2014 is that the funds to pay rent to CSL would come from the
11 operations of the transferor subsidiaries?
13 Q. Am I correct that in the planning for the transaction, as
14 of the summer of 2014, part of the plan was that the funds
15 needed to pay the rent to CSL would come from the transferor
16 subsidiaries?
17 A. Yes. That was contemplated.
18 Q. And was it also contemplated as of the summer of 2014 that
19 the transferor subsidiaries, who would be using the transferred
20 assets, would be responsible for maintenance, operations and
21 fulfilling regulatory obligations?
22 A. I would not describe it that way with the word
23 "responsible."
24 Q. OK. Now, you reviewed draft applications prior to their
25 submission to the regulatory authorities, correct?

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1 A. Correct. I reviewed the original template that was then
2 replicated for multiple jurisdictions, and I reviewed most of
3 those final filings before submission.
4 Q. Am I correct that, just as with the filings you described
5 with the IRS, when it came to the regulatory filings, you made
6 sure that the filings accurately described the transaction?
7 A. Yes. That was my effort and attempt throughout the
8 process.
9 Q. If there was something inaccurate or misleading in an
10 application to one of the state public service commissions, you
11 would have corrected it, is that right?
12 A. If it were material and I felt like it needed to be
13 addressed with the commission, I would have corrected it.
14 Q. Am I correct that there were multiple submissions to
15 regulatory authorities by the transferor subsidiaries in
16 various states that stated that the transferor subsidiaries
17 would be leasing back the transferred asset?
18 A. I don't think it used the word "leasing back."
19 Q. I'm going to ask you to take a look at the application that
20 was filed with the Alabama Public Service Commission, that is
21 PX6.
22 MR. FRIEDMAN: Joe, could you put up on the screen the
23 first page of the application. That is the letter. Go a page
24 or two in. There it is. OK.
25 Q. Do you recognize that document from PX6 as the application

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1 filed by transferor subsidiaries with the Alabama Public
2 Service Commission?
3 A. I have not reviewed this in some time but it does look
4 familiar. I don't see PX6 anywhere.
5 MR. FRIEDMAN: Do you want to just flip back and show
6 the witness PX6.
7 Q. PX6 is on the cover letter. Do you see that?
8 A. I see that now.
9 Q. Now, this application that was submitted to the Alabama
10 Public Service Commission was verified by you, is that correct?
11 A. I verified a number of applications. I would have to see
12 the signature page to this application to confirm that. I did
13 not verify all of them, I don't recall.
14 MR. FRIEDMAN: Joe, could you turn, please to page 21.
15 That is page 21 of PX6.
16 Q. Do you see there is your name and then there is an oath and
17 then a notarization. Does this confirm to you that the Alabama
18 application is one of the applications that you verified under
19 oath?
20 A. Yes.
21 Q. Am I correct that this application describes the
22 transaction to the Alabama Public Service Commission?
23 A. Yes, this is the initial filings that would have described
24 the transaction.
25 Q. And am I also correct that the application asks the Alabama

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1 Commission to issue an order either approving the transaction
2 or declaring that approval is not necessary?
3 A. The relief we requested in every jurisdiction varied. I
4 don't recall exactly what we needed to do in Alabama.
5 Q. Am I correct that the general tenor in all the
6 jurisdictions was asking for approval or requesting that the
7 commission advise that no approval was required?
8 A. That was a frequent aspect of it. This happened over four
9 years ago so I don't remember. There were many jurisdictions
10 involved but --
11 Q. Well, let's just take a look, please, at PX6, pages 19 to
12 20.
13 MR. FRIEDMAN: And, Joe, could you bring that up,
14 please, and we will look at the "Wherefore" clause that starts
15 on the bottom of 19 and continues on the top of 20.
16 Q. And that wherefore clause reads: "Applicants request that
17 this Commission will issue an order: (1) approving, to the
18 extent required by law, the transaction (or alternatively
19 declaring that approval is not required)."
20 Do you see that?
21 A. I do.
22 Q. So does that refresh your recollection that the Alabama
23 application was one of the applications where that specific
24 relief was requested?
25 A. Yes. Thank you.

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1 Q. Now, you were saying a moment ago, Mr. Fletcher, that the
2 application describes the transaction, correct?
3 A. Yes.
4 Q. And when we talk about the "transaction," just to make sure
5 we're clear, we're talking about the transaction that had been
6 planned as of 2014 and eventually closed on April 24, 2015,
7 correct?
8 A. Correct.
9 Q. That's the transaction you were describing to the
10 regulatory authorities such as the Alabama PSC, correct?
11 A. Yes.
12 Q. OK. Now, I'm going to ask you to take a look at paragraph
13 1 of the application on pages 2 and 3.
14 If you could bring that up, please, Joe.
15 And you see the paragraph number 1 on the bottom of
16 page 2, it is just after "Introduction." And then, if you go
17 over to the highlighted language, which is a couple of
18 sentences into paragraph 1, that language reads: "To
19 accelerate this ongoing transformation, further improve
20 Windstream's competitive position and anticipate customer
21 needs, the WIN companies seek to transfer ownership of certain
22 assets described in this application to CSL or one of its
23 wholly owned direct or indirect subsidiaries and lease them
24 back on an exclusive, long-term basis."
25 Do you see that in the application?

(212) 805-0300
24
1 A. I see that.
2 Q. So I am correct that part of the description of the
3 transaction to the Alabama PSC was that the transferor
4 subsidiaries would be leasing back the transferred assets; is
5 that correct?
6 A. Can we go back to the part of the document that defines the
7 entities?
8 Q. Yes. I think -- just, Joe, go back one page to the very --
9 oh, hold on. It may be right here.
10 Well, let's look at page 1, carrying over to page 2,
11 and then Mr. Fletcher will see what he is looking for.
12 OK. So page 1 begins with listings of various
13 entities who are making the application, and then if you follow
14 that over to the third line of page 2, those entities are
15 described as the WIN companies. Do you see that?
16 A. Yes. I just want to confirm who the WIN companies are.
17 Q. And those WIN companies are transferor subsidiaries, is
18 that correct?
19 A. Windstream Alabama certainly was, and these others do look
20 like transferor subsidiaries.
21 Q. OK. So let's go back, Joe, please, to page 3.
22 A. Where is Windstream identified?
23 Q. Oh, go back to page -- I think it is on page 2.
24 Do you see, just before the introduction on page 2,
25 the last sentence: "The WIN company's parent corporation is

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25
1 Windstream Holdings, Inc., defined as 'Windstream.'"
2 A. Got it. I see that. So Windstream is Windstream Holdings.
3 Q. And the WIN companies are the transferor subsidiaries,
4 correct?
5 A. Yes.
6 Q. And the highlighted language on page 3 tells the Alabama
7 Public Service Commission that the transferor subsidiaries will
8 be transferring their assets to CSL and leasing them back on an
9 exclusive long-term basis, correct?
10 A. It's poorly constructed. I don't know if it is referring
11 back to Windstream or the Windstream companies.
12 Q. OK. Are you unable to answer my question yes or no?
13 A. If you could restate it, I could confirm.
14 Q. My question was: The highlighted sentence on page 3 tells
15 the Alabama PSC that the transferor subsidiaries are seeking to
16 transfer ownership of certain assets to CSL and lease those
17 assets back on an exclusive long-term basis?
18 A. Was that a yes or no question?
19 Q. Correct.
20 A. Please restate it. I didn't hear it as that, a yes or no.
21 THE COURT: Does the highlighted sentence state that
22 the transferor subsidiaries would be leasing back the assets?
23 THE WITNESS: It says the WIN companies --
24 THE COURT: You've got to speak more loudly and into
25 the microphone, please.

(212) 805-0300
26
1 THE WITNESS: I'm sorry.
2 THE COURT: You can read it to yourself and then it is
3 a yes or no.
4 (Pause)
5 THE WITNESS: I would say yes.
6 BY MR. FRIEDMAN:
7 Q. Now, at the time of this application, you understood that
8 the regulators were focused on whether the transferor
9 subsidiaries would be able to continue to operate and discharge
10 their regulatory obligations after they transferred their
11 assets, correct?
12 A. Correct.
13 Q. And you understood that one of the reasons for that concern
14 was that CSL, which was becoming the owner of the assets, was
15 not a regulated entity, is that correct?
16 A. Which entity?
17 Q. CSL.
18 A. That was one of the questions of these proceedings, as to
19 whether it should become a regulated entity.
20 Q. Am I correct that at the time of these proceedings, CSL was
21 not a regulated entity?
22 A. Correct.
23 Q. Am I also correct that, as part of the plan of Windstream,
24 CSL was not going to become a regulated entity, correct?
25 A. I wouldn't say that. I think long term we viewed the need

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27
1 to become regulated would be very beneficial to CS&L.
2 Q. Let's for the moment not talk long term.
3 A. Well, you said that's what the plan was.
4 Q. I appreciate that.
5 As of the time of these applications, you were looking
6 towards a closing in the near term where the assets would be
7 transferred to CSL, correct?
8 A. Yes.
9 Q. And as part of the plan, at the time of the closing and
10 asset transfer, it was understood that CSL would not be a
11 regulated entity, correct?
12 A. I wouldn't agree with that statement. We were prepared and
13 did have it become regulated, as required by the regulators.
14 We did it in Kentucky and Georgia, for instance.
15 Q. Was it part of the plan that CSL would provide
16 telecommunications services?
17 A. Yes. They had a taxable REIT subsidiary. They were going
18 to own a telecommunications business as part of the --
19 Q. And where was that tax --
20 THE COURT: You've got to wait for the answer to
21 finish before you start your question.
22 I think it was "taxable REIT subsidiary," is that what
23 you said?
24 THE WITNESS: Correct.
25 THE COURT: If you could just move a little closer to

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28
1 the microphone, please.
2 Can I, as long as I interrupted, how many members of
3 the press are here? If you could raise your hands?
4 (Pause)
5 All right. Here's what I am going to do to free up a
6 little space. If you want to just quickly and quietly move
7 into the jury box, that will free up some seats in the back,
8 and other folks who are standing can then sit in those seats
9 and then we'll go from there.
10 MR. FRIEDMAN: Shall I continue or wait?
11 THE COURT: Why don't you wait one minute and then
12 we'll carry on.
13 (Pause)
14 All right. Why don't you carry on. That didn't free
15 up as many seats as I was hoping but I'll have another plan
16 soon.
17 Go ahead.
18 BY MR. FRIEDMAN:
19 Q. Mr. Fletcher, allow me to follow up on your reference to
20 the taxable REIT subsidiary.
21 First, let me ask, do you know what an ILEC is?
22 A. Yes.
23 Q. And what is an ILEC?
24 A. Incumbent local exchange carrier.
25 Q. Were the transferor subsidiaries, or some of them, ILECs in

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29
1 the states where they operated?
2 A. Yes. Some of them were ILECs.
3 Q. Was there any plan for any CSL subsidiary, or CSL itself,
4 to become an ILEC as of the closing of the transaction?
5 A. No.
6 Q. It was understood at the time of the applications to the
7 regulatory authorities that the transferor subsidiaries would
8 continue to function as ILECs in the states where they were
9 ILECs and would continue to provide telecommunication Services
10 as ILECs, is that correct?
11 A. Yes.
12 MR. FRIEDMAN: And, Joe, could you bring back, please,
13 page 3 of PX6.
14 Q. And when you told the regulatory authorities in Alabama
15 that the transferor subsidiaries would be leasing back the
16 transferred assets, you were directly addressing what the
17 regulators were focused on, is that correct?
18 A. I'm not sure I can answer. I don't know exactly what they
19 were focused on in each jurisdiction.
20 Q. Would you agree that, in general, the regulators were
21 focused on whether the transferor subsidiaries would be able to
22 continue to operate and discharge their regulatory
23 requirements?
24 A. Yes.
25 Q. And am I correct that by telling the regulatory authorities

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30
1 in Alabama that the transferor subsidiaries would be leasing
2 back the transferred assets, you were providing the assurance
3 that they would be able to continue to operate and discharge
4 their regulatory requirements, correct?
5 A. I wouldn't use the word "assurance," but it was relevant to
6 that concern.
7 Q. Now, the Alabama Public Service Commission issued an order
8 approving the transaction described in the application, is that
9 correct?
10 A. I don't recall if they -- if they determined they needed to
11 rule on it. Some of the jurisdictions determined they didn't
12 need to act.
13 MR. FRIEDMAN: Joe, could you put up PX7, please, just
14 the first page.
15 Q. PX7, Mr. Fletcher, is -- you see the heading at the top,
16 the State of Alabama, and it is entitled, after the caption,
17 "Order granting approval, to the extent required by law, of
18 certain corporate transactions," etc.
19 Does that refresh your recollection that the Alabama
20 Public Service Commission issued an order approving the
21 transaction described in the application?
22 A. Yes.
23 Q. And let me ask you, you understood that the Alabama Public
24 Service Commission understood that the WIN companies, the
25 transferor subsidiaries, would be leasing back the transferred

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31
1 assets, correct?
2 A. I'm not sure how I understand their understanding.
3 Q. OK. Well, so you -- OK. Let's take a look at, please,
4 page 6, Joe, of PX7.
5 Do you agree, Mr. Fletcher, that what the Alabama PSC
6 was approving was the transaction as described in the petition,
7 is that correct?
8 A. I see that language, yes.
9 Q. And let's take a look back at what the Public Service
10 Commission wrote in its order.
11 MR. FRIEDMAN: Joe, could you go back to this same
12 exhibit, PX7, page 2.
13 Q. And I'm calling your attention, Mr. Fletcher, to the bottom
14 of page 2, where we see what the Public Service Commission
15 wrote about the transaction, and I think -- let me just read it
16 into the record: "To accelerate the WIN companies'
17 transformation to a provider of advanced communications and
18 technology services, they seek to transfer ownership of certain
19 assets described in its petition (the "subject assets") to CSL,
20 or one of its wholly owned direct or indirect subsidiaries, and
21 lease them back on at exclusive long-term basis."
22 Do you see that?
23 A. Yes.
24 Q. That's what the Alabama Public Service Commission wrote,
25 correct?

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32
1 A. I see that, yes.
2 Q. And when I asked you before if you understood what the
3 Alabama Public Service Commission understood about the
4 transaction, you would agree with me that we can glean that
5 understanding from what the Alabama Public Service Commission
6 said in its order, correct?
7 A. I think the order speaks for itself.
8 Q. OK. Let's take a look, please, at what else the Alabama
9 Public Service Commission said in its order.
10 And I am going to call your attention, Joe, if you
11 could put it up, page 3 of this order, and we'll look at the
12 part entitled "discussion."
13 THE COURT: I apologize. We're trying to arrange for
14 the overflow feed in realtime as we're going on with the trial,
15 which is part of what's creating the complication here.
16 Give me one second to figure out what's going on.
17 MR. GODFREY: I do have one question, your Honor. I
18 should have asked this at the start. Since we are all on the
19 clock, are you keeping the time?
20 THE COURT: Yes.
22 THE COURT: I'm not counting this particular moment.
23 MR. GODFREY: I wasn't going to argue with that. It
24 just occurred to me, since we have less time, I need to be
25 sensitive to the time.

(212) 805-0300
33
1 THE COURT: You do.
2 MR. GODFREY: I thought I should find out who is
3 keeping it.
4 MR. FRIEDMAN: I have been taping my foot.
5 (Pause)
6 THE COURT: Folks, Courtroom 318 is, I'm told now, an
7 overflow courtroom. So if you would prefer a seat in slightly
8 more comfort than perhaps you have here, you are welcome to go
9 there. If you want to stay here, you can stay here. I'm open
10 to suggestions at the break of who else might sit in the
11 remaining seats in the jury box. That is one other option
12 since we don't have too many extra folks here. I'll entertain
13 counsel's thoughts on that, but in the meantime let's proceed.
14 Mr. Friedman.
15 MR. FRIEDMAN: OK.
16 BY MR. FRIEDMAN:
17 Q. So, Mr. Fletcher, what you have on the screen in front of
18 you is page 4. I guess I misspoke when I said page 3. This is
19 part of the Alabama Public Service Commission order.
20 You see the section entitled "Discussion."
21 A. Yes.
22 Q. And under "Discussion," the Alabama PSC describes the
23 proposed asset transfer and the application and says: "There
24 is no prior authority directly addressing the issue of whether
25 approval is required for the transfer of certain assets of an

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34
1 entity to a non-transportation company that will simply lease
2 back the assets to the carriers holding a certificate of public
3 convenience and necessity (CPCN)."
4 Do you see that?
5 A. Yes.
6 Q. Now, am I correct in reading this order that the
7 non-transportation company referred to is CSL here?
8 A. Yes.
9 Q. And when the Alabama PSC talks about CSL simply leasing
10 back the assets to carriers holding a CPCN, am I correct that
11 the carriers holding a CPCN are transferor subsidiaries?
12 A. Correct.
13 MR. FRIEDMAN: We are done with that exhibit. Thank
14 you.
15 (Continued on next page)
16
17
18
19
20
21
22
23
24
25

(212) 805-0300
35
I7NAUSB2ps Fletcher - cross
1 BY MR. FRIEDMAN:
2 Q. Now, did the transferor subsidiaries for any Windstream
3 company ever tell the Alabama regulatory authorities that the
4 transferor subsidiaries are not or will not be leasing the
5 transferred assets?
6 A. I do not recall. Before today I had not read the Alabama
7 order.
8 Q. Am I correct that none of the Windstream companies ever
9 told any of the state regulators that the transferor
10 subsidiaries would not be leasing the transferred assets?
11 MR. GODFREY: Objection. The question doesn't have a
12 good-faith basis.
13 MR. FRIEDMAN: It certainly does, your Honor.
14 THE COURT: Overruled.
15 You don't have to argue it if I rule in your favor.
16 BY MR. FRIEDMAN:
17 Q. Do you need the question again?
18 A. Yes, please.
19 Q. Am I correct that none of the Windstream companies ever
20 told the regulatory authorities in any state that the
21 transferor subsidiaries would not be leasing the transferred
22 assets?
23 A. I would not agree with that statement, so I guess the
24 answer is no.
25 Q. Now, I'm going to ask you to take a look at PX 31.

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36
1 MR. FRIEDMAN: Joe, if you could put that up, please.
2 That's page 31, the cover letter. Let's go to the first page
3 of the application, please.
4 Q. Do you recognize this part of PX 31 as the application that
5 was filed in the state of West Virginia before the Public
6 Service Commission of West Virginia?
7 A. It looks like you accurately described it.
8 Q. Am I correct that this is another application that you
9 verified under oath; is that correct?
10 A. I would have to see the signatory.
11 MR. FRIEDMAN: Let's just, Joe, please flip to the
12 second-to-last page of the document.
13 THE COURT: Mr. Friedman, I missed the exhibit number?
14 MR. FRIEDMAN: 31, your Honor.
15 THE COURT: Thank you.
16 Q. And do you see the verification there for PX 31,
17 Mr. Fletcher?
18 A. Yes, I do. Thank you.
19 Q. And that is your signature on the verification? Correct?
20 A. Yes. That's my signature.
21 MR. FRIEDMAN: So let's go back, Joe, to the
22 participation.
23 Q. So you see that "Windstream," up at the top under paragraph
24 1, is used to mean Windstream Holdings, and that the defined
25 term "Windstream Companies" is used to mean the transferor

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37
1 subsidiaries who are doing business in West Virginia?
2 A. Yes. I believe it's one of the transferor subsidiaries.
3 Q. And in a moment we're going to turn to paragraph 2 of the
4 application.
5 MR. FRIEDMAN: Why don't we do that, Joe, please.
6 Q. Paragraph 2 is where the applicants started to describe the
7 transaction, correct? In fact, that's what paragraph 2 is. It
8 is a description of the transaction. Is that right?
9 A. It is, yes. It's part of the description of the
10 transaction.
11 Q. And this part of the description of the transaction says,
12 "Windstream is proposing an intra-corporate transaction (the
13 'transaction') in which its business will be divided into two
14 independent units: an operating unit that will continue to
15 provide telecommunications and related services, and a real
16 estate investment trust unit that will hold title to certain
17 distribution plant assets (the 'subject assets') and will lease
18 those assets exclusively to the Windstream companies on a
19 long-term basis."
20 Do you see that description of the transaction in
21 paragraph 2?
22 A. I see that description.
23 Q. And that description is telling the West Virginia Public
24 Service Commission that CSL, after it acquires title to the
25 assets, will lease those assets exclusively to the transferor

(212) 805-0300
38
1 subsidiaries on a long-term basis. Correct?
2 A. Yes, with the Windstream companies the reference for
3 transferor subsidiaries.
4 MR. FRIEDMAN: We can put that away, Joe. Thank you.
5 Q. Now, you were also personally involved in proceedings
6 before the Kentucky Public Service Commission. Is that
7 correct?
8 A. Yes.
9 Q. In those proceedings, you personally repeatedly explained,
10 under oath, that after the transfer of assets to CSL, the
11 Kentucky transferor subsidiaries would be leasing back the
12 transferred assets. Is that right?
14 Q. Yes. In the Kentucky proceedings, you personally, on more
15 than one occasion, explained under oath that after the transfer
16 of assets to CSL, the Kentucky transferor subsidiaries would be
17 leasing back those assets.
18 A. I don't recall using that phraseology.
19 MR. FRIEDMAN: I'm going to ask Joe, please, to put up
20 PX 17.
21 Q. Do you see that PX 17 is entitled "Windstream Kentucky
22 East, LLC, and Windstream Kentucky West, LLC, responses to the
23 Kentucky Cable Telecommunications Association, requests for
24 information." Do you see that?
25 A. Yes.

(212) 805-0300
39
1 Q. And those two Windstream companies are transferor
2 subsidiaries, correct?
3 A. Correct.
4 Q. And they are the applicants in the Kentucky proceeding,
5 correct?
6 A. Correct.
7 Q. And this response by the applicants to requests for
8 information, this is a response filed with the Kentucky Public
9 Service Commission as part of the proceedings. Correct?
10 A. Correct.
11 Q. And you recall that you personally responded to certain of
12 the requests for information and provided responses under oath.
13 Is that correct?
14 A. I do not recall which items of this document I
15 personally -- are you asking me if I signed this document?
16 Q. No. I'll refresh your recollection.
17 MR. FRIEDMAN: Joe, can you move forward to, I think
18 it may be the second page of this exhibit, please. There we
19 go.
20 Q. This is the second page. And that is a verification signed
21 by you, correct, Mr. Fletcher?
22 A. That is. I see that, yes.
23 Q. And that verification says that "I, John Fletcher,
24 executive vice president, secretary, and general counsel of
25 Windstream Holdings, Inc., after being duly sworn, state that

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40
1 the facts contained in the responses to data requests for which
2 I am listed as a witness are true and accurate to the best of
3 my knowledge." And then that's your signature. Correct?
4 A. Yes.
5 Q. And that refreshes your recollection that you provided
6 sworn responses to information requests in the Kentucky
7 proceedings. Correct?
9 MR. FRIEDMAN: Let's flip ahead, Joe, please. The
10 page number I have is WIN3962. So it's seven pages into the
11 document.
12 Q. There we see a question. And the witness responding to
13 that question, Mr. Fletcher, is yourself. Correct?
14 A. Correct.
15 Q. And I'm just going to read part of your answer, which you
16 provided under oath. "In applicant's view, the commission
17 would not have jurisdiction over CSL because, as a real estate
18 investment trust ('REIT'), it will not be providing any
19 telecommunications services in Kentucky. CSL will lease on a
20 long-term exclusive basis all of its real estate assets,
21 including poles, to the operating companies." Do you see that?
22 A. Yes.
23 Q. That sworn response by you tells the Kentucky Public
24 Service Commission that the transferor subsidiaries will be
25 leasing the assets that are transferred to CSL. Is that

(212) 805-0300
41
1 correct?
2 A. You read the statement correctly.
3 MR. FRIEDMAN: Let's go, please, a little further into
4 the document, I think it's about 20 pages more, to page 3984.
5 We're now up to request no. 22.
6 Q. This is another request for information where you,
7 Mr. Fletcher, provided the response under oath. Is that
8 correct?
10 Q. And in the portion that I highlighted, your sworn statement
11 is that "a REIT is only permitted to lease real estate and
12 receive rental income and cannot operate the facilities.
13 Therefore, the REIT (CSL) will lease to the operating companies
14 on a long-term exclusive basis the real estate assets,
15 including poles." Do you see that?
16 A. I see that.
17 Q. Is that what you stated to the Kentucky Public Service
18 Commission under oath?
19 A. You have accurately read the statement.
20 Q. That's a yes-or-no question, actually.
21 A. Yes.
22 Q. And when your statement refers to the REIT leasing the real
23 estate assets to the transferor subsidiaries, those real estate
24 assets include what we sometimes refer to as the
25 telecommunications network assets, correct?

(212) 805-0300
42
1 A. I would use a different term. It's the distribution
2 network.
3 MR. FRIEDMAN: Thank you, Joe. You can put that away.
4 Q. Would you agree with me, Mr. Fletcher, that there are
5 numerous other examples from regulatory proceedings in other
6 states, in addition to Alabama, West Virginia, and Kentucky,
7 where the transferor subsidiaries told the regulatory
8 authorities that the transferor subsidiaries would be leasing
9 the transferred assets?
10 A. I believe there were examples that we've covered today.
11 Q. My question was, would you agree with me that, in addition
12 to the examples covered today involving representations to the
13 regulatory authorities in Alabama, West Virginia, and Kentucky,
14 there were other states where the transferor subsidiaries
15 stated to the regulatory authorities that the transferor
16 subsidiaries would be leasing the assets transferred to CSL?
17 A. I don't recall the frequency of these statements. This was
18 over four years ago.
19 Q. Now, in addition to statements made by the transferor
20 subsidiaries to the regulatory authorities that the transferor
21 subsidiaries would be leasing the transferred assets, am I
22 correct that the transferor subsidiaries also repeatedly told
23 the regulatory authorities that, as part of the transaction and
24 the lease, the transferred assets would be available solely and
25 exclusively to the transferor subsidiaries?

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43
1 A. Please restate your question.
2 Q. Yes.
3 A. There are multiple elements.
4 Q. Am I correct that the transferor subsidiaries told
5 regulatory authorities that, as part of the transaction and the
6 lease, the transferred assets would be available solely and
7 exclusively to the transferor subsidiaries? That's what was
8 told to CSL.
9 A. I don't recall that exact phraseology, but we did make it
10 clear that Holdings held these assets for their sole and
11 exclusive benefit. It was an exclusive lease. And it is
12 accurate that the transferor subsidiaries had the right, under
13 the master lease, held by Holdings, for that purpose.
14 MR. FRIEDMAN: That's not really responsive. I move
15 to strike, your Honor. I don't know if the Court is inclined
16 to do that?
17 THE COURT: I am not inclined. You can ask your next
18 question.
19 MR. FRIEDMAN: Let's take a look at PX 8, please, Joe,
20 if you could put it up.
21 Q. You see PX 8, Mr. Fletcher. This is an application filed
22 by transferor subsidiaries before the Arizona Corporation
23 Commission. Correct?
24 A. I see PX 8. I do not recall Arizona having network assets,
25 but I do see it's an Arizona filing.

(212) 805-0300
44
1 Q. So you probably don't recall that you verified this
2 application.
3 A. No, I don't recall that.
4 Q. OK. Let's take a look, please, at, I think it's the last
5 page of this exhibit. Am I correct, Mr. Fletcher, that you did
6 in fact verify the application that was filed with the Arizona
7 Corporation Commission?
8 A. I see that. Correct.
9 MR. FRIEDMAN: Let's go, Joe, please, to page 7 of
10 this exhibit.
11 Q. I've highlighted one sentence in here, which reads, "The
12 assets of the Windstream certificated entities will be owned by
13 CLS" -- that should be CSL, correct, Mr. Fletcher?
14 A. Yes.
15 Q. "The assets of the Windstream certificated entities will be
16 owned by CSL but will, pursuant to a master lease agreement, be
17 available solely to Windstream certificated entities for
18 purposes of providing communications services." Did I read
19 that correctly?
20 A. Yes.
21 Q. And do I understand -- and the Windstream certificated
22 entities are transferor subsidiaries, correct?
23 A. I would need to go back to -- I don't remember, in Arizona,
24 having transferred assets. If you could go back to the first
25 page I can confirm.

(212) 805-0300
45
1 MR. FRIEDMAN: OK. Why don't we now turn back so
2 Mr. Fletcher can confirm that the certificated entities are
4 Q. The first one there is McLeod USA Communication Services.
5 That's the transferor subsidiary, correct?
6 A. I believe so. This is -- it's not an ILEC and -- I see
7 that.
8 MR. FRIEDMAN: Let's go back, Joe, to page 7.
9 Q. Am I correct, Mr. Fletcher, the Alabama Corporation
10 Commission is being told that after the transfer of assets to
11 CSL, when CSL will be the owner of the assets, those assets,
12 pursuant to a master lease, will be available solely to the
13 transferor subsidiaries, correct?
14 A. Correct.
15 Q. That's what your statement says. Correct?
16 A. Correct.
17 Q. Now, am I correct that the way the transaction was
18 structured and planned by Windstream, the transferred assets
19 would be available solely to the transferor subsidiaries after
20 the closing?
21 A. Yes. That was the plan.
22 Q. And after the closing, those assets would be available for
23 the transferor subsidiaries' exclusive use and benefit.
24 Correct?
25 A. Please say that again?

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46
1 Q. Yes. After the transfer of the assets to CSL, those assets
2 would be available to the transferor subsidiaries for their
3 exclusive use and benefit in carrying on their business.
4 A. No. I would say it differently.
5 Q. Now, would you agree with me that the expectation at
6 Windstream when the transaction was being planned was that the
7 transferor subsidiaries would have long-term exclusive control
8 of the transferred assets?
10 Q. Am I correct that when Windstream was planning the
11 transaction, the expectation was that, after the closing, the
12 transferor subsidiaries would have long-term exclusive control
13 of the transferred assets?
14 A. No. I would put that control in Holdings.
15 MR. FRIEDMAN: I'm going to ask Joe, please, to put up
16 Fletcher transcript page 114, 11 through 21, please.
17 Q. Now, Mr. Fletcher, in your deposition, I asked you the
18 following question:
19 "Q. And am I correct that when we go through the various other
20 Windstream submissions to regulators, the Windstream companies
21 repeatedly assured the regulators that the transferor
22 subsidiaries would have long-term exclusive control of the
23 property they had transferred; is that correct?"
24 And your answer was:
25 "A. That was our expectation and that is what we communicated

(212) 805-0300
47
1 to the regulators."
2 Was that testimony by you at your deposition truthful?
3 A. Yes.
4 Q. Now, I've asked you a lot of questions about the rights
5 that the transferor subsidiaries would have with respect to the
6 leased property after the transfer to CSL. I'm going to shift
7 and ask you some questions about obligations. So my first
8 question is, am I correct that the transferor subsidiaries have
9 been required to fulfill the obligations of the tenant under
10 the master lease in consideration of their use of the leased
11 property?
12 MR. GODFREY: Objection to form.
15 THE COURT: Yes. He sustained the question.
16 THE WITNESS: I did.
17 MR. GODFREY: I'm not going to object, so --
18 Q. I'll try to break it down for you. April 24, 2015, the
19 master lease is signed. Correct?
20 A. That sounds right. April 2015.
21 Q. And the master lease sets forth many obligations of the
22 tenant. Correct?
23 A. Yes.
24 Q. And my question is, at the time of the master lease, the
25 transferor subsidiaries were enjoying their right to use the

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1 leased property. Correct?
2 A. Yes.
3 Q. And in consideration of their exercising their right to use
4 the leased property, am I correct that they have been required
5 to fulfill the obligations of the tenant under the master
6 lease?
7 A. No, I wouldn't describe it that way.
8 Q. You mentioned at the beginning of your testimony that you
9 see the transferor subsidiaries as express beneficiaries,
10 correct?
11 A. I do.
12 Q. And is your definition of an express beneficiary a party
13 having rights but no obligations?
14 A. It can have that concept, yes.
15 Q. I'm just asking you, when you talk about the transferor
16 subsidiaries as express beneficiaries, and you use the term
17 "express beneficiaries," are you saying the transferor
18 subsidiaries have rights to use the leased property but they do
19 not have obligations in connection with that lease?
20 A. Under the master lease they have --
21 Q. I didn't ask you about the master lease.
22 A. Well, the master lease is where they talk about --
23 Q. I didn't ask you about the master lease.
24 MR. GODFREY: Objection.
25 THE COURT: Gentlemen.

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1 MR. FRIEDMAN: It was a yes-or-no question.
2 THE COURT: Understood. But at a minimum only one
3 person can speak at a time.
4 MR. FRIEDMAN: I'm sorry.
5 THE COURT: Why don't you ask the question again, and
6 then we'll go from there.
7 And, Mr. Godfrey, if you have an objection, please use
8 the microphone. Thank you.
9 BY MR. FRIEDMAN:
10 Q. You have used the term "express beneficiaries" to describe
11 the transferor subsidiaries. Correct?
12 A. Correct.
13 Q. In your use of that term, part of what you are saying is
14 that the transferor subsidiaries have rights to use the leased
15 property. Correct?
16 A. Correct, via Holdings.
17 Q. Please. If you are unable to answer my question yes or no,
18 just say so. I think you answered it, though. Did you?
19 A. I did.
20 Q. My next question is, in your definition of the transferor
21 subsidiaries as express beneficiaries, do they have obligations
22 as well as rights? That's a yes-or-no question.
23 A. Say it again, please.
24 Q. In your definition of the transferor subsidiaries as
25 express beneficiaries, do they have obligations as well as

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1 rights?
2 MR. GODFREY: Objection as to form. Obligations in
3 general? Obligations under the lease?
4 THE COURT: Mr. Godfrey. Microphone.
5 Can I rephrase the question?
6 MR. FRIEDMAN: Sure.
7 THE COURT: Is it your view that the transferor
8 subsidiaries have obligations under the master lease? Yes or
9 no.
10 THE WITNESS: Yes.
12 BY MR. FRIEDMAN:
13 Q. Do they have obligations in connection with their use of
14 the leased property from any source?
15 A. Yes.
16 THE COURT: And what is that source?
17 MR. GODFREY: Your Honor, I have a question. I did
18 not hear -- I thought the witness had said "no" to the
19 question, but it said in the transcript "yes."
20 MR. FRIEDMAN: I think he did say "yes."
21 THE COURT: He said yes. So my question is, what is
22 the source of those obligations other than the master lease?
23 THE WITNESS: Other regulatory requirements and other
24 applicable legal requirements.
25 BY MR. FRIEDMAN:

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1 Q. Am I correct, Mr. Fletcher, that each transferor subsidiary
2 does in fact pay for the maintenance, operations, and capital
3 expenditures for the leased property it uses?
4 A. I don't know the exact flow of funds within the company to
5 do that.
6 Q. So you don't know the answer to my question.
7 A. No.
8 Q. Is that correct?
9 I'll ask the question again. I think the answer is
10 yes, no, or, I don't know. But please correct me if I'm wrong.
12 Q. Am I correct that each transferor subsidiary does in fact
13 pay for the maintenance, operation, and capital expenditures
14 for the leased property it uses?
15 A. I don't know.
16 Q. Am I correct that, under the master lease, capital
17 improvements paid for by the transferor subsidiaries, capital
18 expenditures, in some cases automatically become the property
19 of CSL?
20 A. I have to say, I don't know. I can explain my answer if
21 you would like.
22 Q. No, that's OK.
23 Now, do you know if the transferor subsidiaries paid
24 anything for maintenance, operations, and capital expenditure
25 in connection with their use of the leased property?

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1 A. I don't know if it's at the transferor subsidiary level or
2 services.
3 Q. The answer is you don't know if they pay anything. Is that
4 right?
5 A. I don't know the exact source of payment.
6 Q. My question was, do you know if the transferor subsidiaries
7 made any payments for their maintenance, operation, capital
8 expenditures with respect to the leased property they were
9 using.
10 A. I don't know.
11 Q. Now, would you agree with me that under the terms of the
12 master lease, the rights of the transferor subsidiaries to use
13 the leased property are "subject to and in accordance with the
14 terms of this master lease"?
15 A. I would not describe it that way.
16 MR. FRIEDMAN: Can we see PX 68, please, and flip to
17 Section 7 point -- pull up PX 68.
18 Q. That's the master lease, correct, Mr. Fletcher?
19 A. Correct.
20 MR. FRIEDMAN: Let's flip to section 7.2.
21 Q. Up at the top, I'd like to call your attention to the part
22 of 7.2 in particular that's highlighted.
23 Let me ask this first, Mr. Fletcher, 7.2 contemplates
24 that transferor subsidiaries will be using leased property.
25 Correct?

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1 A. Please say it again?
2 Q. Section 7.2 contemplates that transferor subsidiaries will
3 be using leased property. Correct?
4 A. Not unless they have the right to.
5 Q. Excuse me?
6 (Pause)
7 A. It contemplates they have the right to use it.
8 MR. FRIEDMAN: "It contemplates they have the right
9 to," I think he said.
10 THE COURT: Mr. Fletcher, please keep your voice up.
11 Q. And, Mr. Fletcher, in connection with the transferor
12 subsidiaries' exercising their right to use, occupy, and
13 operate the leased property, am I correct that they are
14 required to do so "subject to and in accordance with the terms
15 of this master lease"?
16 A. Please restate the question. I was distracted.
17 MR. FRIEDMAN: Maybe the reporter can just read back
18 the question.
19 (Record read)
20 Q. "Subject to and in accordance with the terms of this master
21 lease"?
22 A. No, I wouldn't describe it that way.
23 Q. Did I read the words correctly from section 7.2?
24 A. You read parts of the words correctly. Nothing requires
25 the tenant subsidiaries to do anything in this section. You

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1 used the words "required."
2 Q. Would you agree with me that in connection with the
3 transferor subsidiaries' use of the leased property, they are
4 required to comply with all applicable regulatory requirements?
5 A. No. Because I'm not a party to this --
6 Q. Mr. Fletcher, again, it's a yes-or-no question. Your
7 answer is no?
8 Is that correct?
9 A. That's correct.
10 Q. Would you agree with me that the transferor subsidiaries,
11 in connection with their use of the leased property, have the
12 obligation to use the leased property for its primary intended
13 use as defined in the master lease?
14 A. No, I would not say it that way.
15 Q. Thank you.
16 Would you agree with me, Mr. Fletcher, that the
17 transferor subsidiaries do in fact have obligations in
18 connection with their use of the leased property, including
19 being responsible for the operation and maintenance of the
20 leased property?
21 A. No.
22 Q. I'm going to ask you to take a look, please, at PX 11.
23 MR. FRIEDMAN: If we could bring up the first page,
24 Joe.
25 Q. This is an application to the Indiana Utility Regulatory

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1 Commission, verified by you, Mr. Fletcher. Do you remember
2 verifying this application, Mr. Fletcher?
3 A. No, I do not.
4 MR. FRIEDMAN: Can you flip, Joe -- I don't actually
5 remember what page the application is on.
6 Q. That's your verification, Mr. Fletcher?
7 A. Yes.
8 Q. As of August 28, 2014, correct?
9 A. Correct.
10 Q. And now I'm going to ask you to take a look at paragraph 5,
11 please, in this document that you've verified.
12 MR. FRIEDMAN: Can you go back, please, Joe, and pull
13 up paragraph 5. And go to the next page.
14 Q. The last sentence of paragraph 5 says, "Under the terms of
15 the exclusive lease from CSL, the Windstream companies will
16 continue to be responsible for the operation and maintenance of
17 the subject assets and to have responsibility for meeting all
18 relevant quality of service standards and all other regulatory
19 obligations, just as they do today." Did I read that
20 correctly?
22 Q. And that's a statement that is verified by you and
23 submitted to the Indiana Utility Regulatory Commission.
24 Correct?
25 A. Correct.

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1 Q. And that sworn statement by you was accurate or inaccurate,
2 sir?
3 A. Could you go to the definition of Windstream Companies in
4 this document?
5 Q. Yes.
6 MR. FRIEDMAN: Probably back just one page, Joe. Yes,
7 if you go back to page 1. There we go.
8 A. Thank you.
9 Q. The Windstream Companies are transferor subsidiaries?
10 A. Yes. They include transferor subsidiaries.
11 Q. OK. So let's go back to that paragraph 5 that we're
12 looking at.
13 So you made this highlighted statement under oath to
14 the Indiana commission, correct?
15 A. Correct.
16 Q. And is this statement accurate or inaccurate?
17 A. I don't think that's a yes-or-no question. I wouldn't say
18 it that -- I wouldn't use that language to that.
19 Q. Would you agree with me that the transferor subsidiaries,
20 in numerous states, told the regulatory authority that under
21 the master lease, the transferor subsidiaries would be
22 responsible for the operation and maintenance of the
23 transferred assets?
24 A. I don't recall.
25 Q. Let me see if I can refresh your recollection?

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1 MR. FRIEDMAN: Let's go, please, to PX 15, if you
2 could bring that up, Joe.
3 Q. That is the application filed by transferor subsidiaries in
4 Kentucky. Correct?
5 A. PX 15, correct.
6 Q. And these are the Kentucky proceedings that we were looking
7 at earlier where you provided sworn testimony that the
8 transferor subsidiaries would be leasing the transferred
9 assets. Correct?
10 A. Correct.
11 Q. And now we're going to look at other representations made
12 in these same proceedings.
13 MR. FRIEDMAN: If you could, Joe, please go to
14 paragraph 44 in this application.
15 Q. The Kentucky Public Service Commission is being told,
16 "Under the terms of the exclusive lease from CSL, the operating
17 companies will be responsible for the operation and maintenance
18 of the subject assets and will continue to have responsibility
19 for quality of service standards and fulfillment of all
20 regulatory obligations."
21 Did I read that correctly?
23 Q. And that is what the Kentucky Public Service Commission was
24 being told by the transferor subsidiaries, correct?
25 A. Correct.

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1 Q. And is that statement accurate or inaccurate?
2 A. It is accurate as between CS&L did not have those
3 obligations on the Windstream side of the equation.
4 Q. Can you answer my question yes or no; this statement as a
5 whole, is this an accurate statement that was made by the
6 transferor subsidiaries to the Kentucky Public Service
7 Commission?
9 Q. I'd like you to look at the highlighted sentence, please.
10 Is that statement by the transferor subsidiaries to the
11 Kentucky Public Service Commission accurate?
12 A. I would not use those words today.
13 Q. I didn't ask you that question. I asked you a yes-or-no
14 question: is that accurate. If you're unable to answer yes or
15 no, just --
16 A. I think sentence is --
17 Q. Sorry?
18 A. I think sentence is inaccurate and imprecise.
19 Q. Let's go back to PX 6, please. And this is the Alabama
20 application that we were looking at earlier. You recall,
21 Mr. Fletcher, in the Alabama application, the transferor
22 subsidiaries told the Alabama Public Service Commission that
23 they would be leasing the assets transferred to CSL? Do you
24 recall that?
25 A. I recall that.

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1 Q. And I want to look at another representation by the
2 transferor subsidiaries to the Alabama Public Service
3 Commission.
4 MR. FRIEDMAN: And, Joe, I would ask you, please, to
5 go to paragraph 3.
6 Q. And I think this is what we looked at before. Go up to the
7 next page. There it is, the sentence that carries over,
8 Mr. Fletcher, from page 4 to page 5. I'll read it to you.
9 "Under the terms of the exclusive lease from CSL, the WIN
10 companies will be responsible for the operation and maintenance
11 of the subject assets and also continue to have responsibility
12 for quality of service standards and all regulatory
13 obligations." Do you see that?
14 A. I see that.
15 Q. So that's the same statement as is made in Kentucky and
16 other states by transferor subsidiaries, correct?
17 A. Yes, to the extent it is one of the states that have that
18 statement.
19 Q. And here the statement is in the application verified by
20 you, correct?
21 A. Correct.
22 Q. And was this statement that you verified an accurate
23 statement or not?
24 A. I would use the word "imprecise."
25 Q. You seem to be a fairly precise individual. Am I correct

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1 that you feel you were imprecise in this application that you
2 verified?
3 A. This document --
4 Q. That's a yes-or-no question. If you are unable to answer
5 it yes or no, just feel free to tell me.
6 A. Please restate it.
7 Q. Is it your testimony that, in your verification of this
8 document, you were being imprecise?
9 A. Yes.
10 Q. Now, am I correct, with respect to statements verified by
11 you, Mr. Fletcher, we've looked at a number of them this
12 morning, correct?
13 A. Correct.
14 Q. And all of the statements, verified by you, that we looked
15 at so far are statements that were submitted in writing to
16 state regulatory authorities, correct?
17 A. Correct.
18 Q. We have not looked at any oral testimony. Correct?
19 A. We've not reviewed any oral testimony.
20 Q. So with respect to the written submissions that you
21 verified, you had plenty of time to review them and make sure
22 they were accurate and precise before you verified them; is
23 that correct?
24 A. We could always use more time. This was done under very
25 tight time --

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1 Q. Can you answer my question yes or no?
3 Q. My question was, in connection with the written statements
4 that you verified, did you have time to review them, to make
5 sure they were precise and accurate before you verified them?
6 A. No. My team helped me with these. We could always use
7 more time.
8 Q. I don't need a speech really.
9 And who is it who deprived you of the time you needed
10 to make sure your sworn statements were accurate and precise?
11 A. Tight schedule.
12 Q. I'm going to move on from the regulatory proceedings.
13 We've talked about --
14 THE COURT: Mr. Friedman, how much time do you think
15 you have remaining on cross?
16 MR. FRIEDMAN: 40 minutes, your Honor.
17 THE COURT: Are you at a natural point --
18 MR. FRIEDMAN: This is a natural point.
19 THE COURT: Let's take our morning break now, in part
20 because there are some chairs outside that I'm going to have
21 put in the aisle, to the extent that we can consistent with
22 fire code, so that some folks can get a seat. I am, however,
23 going to say that if you cannot find a seat in this courtroom,
24 you are going to have to go to Courtroom 318. I think there
25 have been some concerns expressed about the number of people in

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1 here. Having said that, counsel, I'm OK if there are lawyers
2 in the case who would also want to take the unoccupied seats in
3 the jury box. Maybe I'll put the press in the first row and
4 then the lawyers in the back row. Does that make sense?
5 MR. GODFREY: Whatever your Honor prefers, but that
6 works fine for us, your Honor.
7 THE COURT: So why don't we do that. During the
8 break, I will have the chairs brought in, and folks can use
9 those. If you're counsel to one of the parties in this case,
10 you can take a seat in the jury box. The press can move to the
11 front row. And if you cannot find a seat in one of those
12 locations, you're going to have to go to the overflow courtroom
13 on the third floor, Courtroom 318.
14 Any housekeeping or anything we need to take up?
15 MR. GODFREY: Not from the Windstream Services
16 perspective, your Honor.
17 MR. FRIEDMAN: No, your Honor.
18 THE COURT: Consistent with the both general practice
19 as well as the protocols that I so ordered, Mr. Fletcher is not
20 to communicate with counsel during the break. So,
21 Mr. Fletcher, you should be aware of that.
22 It's 11:15, 11:16. We'll take a ten-minute break, so
23 be ready to start up at 11:26. Mr. Fletcher should be back on
24 the stand at that time. I will see you in a few minutes.
25 (Recess)

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1 MR. FRIEDMAN: Your Honor, I have one little thing
2 before we resume the examination. We forgot, on behalf of the
3 Robbins Russell firm, for them to enter an appearance.
4 Mr. Robbins is here, if that's OK.
5 THE COURT: I was wondering about that.
6 MR. ROBBINS: Yes. Good morning. We were in the pews
7 this morning. So I would just, on behalf of Aurelius, I'm
8 Larry Robbins from the firm of Robbins Russell. I'm joined by
9 my partner, William Trunk, as well as my colleagues, Wendy Liu,
10 Brandon Arnold, and Jeff Kane. Jeff is in the back.
11 And with that, I think my speaking role is over for
12 now.
13 THE COURT: Very good. I figured that, in the
14 trial-within-a-trial format that we're following, that you all
15 were sort of seated at the tables for the trustee at this
16 point, and that looks to be the case.
17 All right. Mr. Friedman, why don't you continue.
18 Mr. Fletcher, you remain under oath and you may continue.
19 BY MR. FRIEDMAN:
20 Q. Mr. Fletcher, before the break, as you recall, there were
21 questions about representations by the transferor subsidiaries
22 to regulatory authorities. Correct?
23 A. Correct.
24 Q. Am I correct that the regulatory authorities were not the
25 only recipients of representation by the transferor

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1 subsidiaries, that they were leasing the assets?
2 A. I don't recall at this time other representations.
3 Q. Do you recall that, after the master lease was signed, the
4 transferor subsidiaries entered into numerous agreements with
5 third parties granting right to third parties in the leased
6 property?
7 A. I don't recall those transactions at this time. You would
8 have to refresh my memory.
9 Q. Do you recall that there were such transactions, whereby
10 the transferor subsidiaries, after signing the master lease,
11 entered into agreements with third parties whereby the
12 transferor subsidiaries granted rights to the third parties in
13 the leased property?
14 A. I wouldn't describe it that way. But, yes, the transferor
15 subsidiaries had a retained title to interact with third
16 parties, to enter into agreements to provide rights to the
17 subject assets.
18 Q. Just to be clear, I'm not talking about a situation where
19 transferor subsidiaries retained title. I'm talking about
20 situations where property owned by the transferor subsidiaries
21 was transferred to CSL, CSL became the owner of it -- are you
22 with me so far?
23 A. Yes.
24 Q. Nothing retained by the transferor subsidiaries. After
25 April 24, 2015, with respect to such property, that had been

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1 fully transferred to CSL, that property we refer to as the
2 leased property under the master lease -- correct?
3 A. Correct.
4 Q. -- transferor subsidiaries granted rights to third parties
5 to use and access the leased property. Do you recall that?
6 A. No. An example would --
7 Q. You don't recall that.
8 A. I don't recall at this time.
9 THE COURT: Mr. Fletcher, just keep your voice up,
10 please.
11 THE WITNESS: Yes.
12 Q. So let's take a look at an exhibit that is PX 109.52.
13 MR. FRIEDMAN: And, Joe, if you could pull up the
14 first page, I would appreciate it.
15 Q. This is a fiber exchange agreement among CSL Realty,
16 Windstream KDL, LLC, and a third party named FiberLight, LLC.
17 Do you see that?
18 A. I see that.
19 Q. And you recall that Windstream KDL, LLC, is a transferor
20 subsidiary?
21 A. Correct.
22 Q. So let's just take a look at recital B in this agreement,
23 please. And first of all, before we even go to recital B, you
24 see this is an agreement made as of May 16, 2016. Correct?
25 A. I see that.

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1 Q. So this is one year after the master lease has been signed.
2 Correct?
3 A. Correct.
4 Q. And you see that the transferor subsidiary Windstream KDL
5 is referred to in this agreement as "CS&L-tenant"?
6 A. I see that description.
7 Q. And you see that CS Realty, LLC, is referred to as CS&L.
8 Do you see that?
9 A. I see that.
10 Q. So now recital B says that "CS&L owns certain real estate,
11 rights of way, fiberoptic cables, and certain fixtures and
12 equipment." Let me pause there. When we talk about CS&L
13 owning real estate rights of way, fiberoptic cables, and
14 certain fixtures and equipment, you recognize we are talking
15 about property that was transferred to CSL from the transferor
16 subsidiaries on April 24, 2015, correct?
17 A. Those classes of properties are covered. The equipment I'm
18 not sure about.
19 Q. Now, this recital goes on to say -- I'm just read the first
20 part quickly. "CS&L owns certain real estate rights of way,
21 fiber optic cables, and certain fixtures and equipment that it
22 leases to CSL-tenant pursuant to a master lease dated April 24,
23 2015." Do you see that recital?
24 A. Yes, I see that.
25 Q. And do you see the recital goes on to say, after the

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1 highlighted language, that "CSL-tenant uses this property in
2 the operation of a fiberoptic system"? Do you see that?
3 A. I see that.
4 Q. So "CSL-tenant" is the transferor subsidiary, correct?
5 A. Correct.
6 Q. And the recital tells us that the transferor subsidiary is
7 using the leased property in the operation of a fiberoptic
8 system. Correct?
9 A. Correct.
10 Q. And that much is consistent with what you were saying
11 earlier this morning, that after the transfer of property to
12 CSL, the transferor subsidiaries continued using that property
13 in the operation of their business. Correct?
14 A. Correct.
15 Q. Now let me focus you in on one other part of this recital.
16 The recital says that CSL leases this property to the
17 transferor subsidiary pursuant to the master lease. Do you see
18 that?
19 A. Are you still on the same page, 1?
20 Q. I'm on page 1, the highlighted language. I'm focused on
21 the words in the second line of the highlighted language "that
22 it leases to CSL-tenant pursuant to a master lease dated April
23 24, 2015." Do you see those words?
24 A. Yes.
25 Q. Those words tell us that the leased property is leased to

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1 the transferor subsidiary pursuant to the master lease.
2 Correct?
3 A. That's what the words say. You've read them correctly.
4 Q. Let me ask you now to take a look at PX 109.4. And we'll
5 look at some other lease. This is a sublease agreement. Do
6 you recognize this sublease?
7 A. Could I look at that prior exhibit, see who signed that
8 agreement?
9 Q. Sure.
10 MR. FRIEDMAN: Let's go back, Joe, please, to 109.52.
11 And let's look at the signature page.
12 Q. It may be, Mr. Fletcher, that this agreement was
13 produced -- I don't remember whether it was produced with or
14 without a signature.
15 There we go. It's signed on behalf of the transferor
16 subsidiary by Robert Grunderman. Do you see that?
17 A. Yes, I see that. I wanted to confirm they did not sign it?
18 Q. Mr. Grunderman at the time and presently is the CFO of
19 Windstream Holdings. Correct?
20 A. Correct.
21 Q. He's the one who signed the agreement with the
22 representation that we just looked at. Correct?
23 A. Correct.
24 Q. Now let's go, please, to PX 109.4. And this is -- do you
25 recognize this, Mr. Fletcher?

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1 A. No.
2 Q. Obviously it's entitled "Sublease Agreement."
3 MR. FRIEDMAN: Let's take a look, Joe, please, at the
4 signature page and date.
5 Q. This is signed by Windstream North Carolina, LLC, and Town
6 of Waxhaw. The date is April 12, 2017. Do you see that?
7 A. I see that.
8 Q. And Windstream North Carolina, LLC, is one of the
10 A. Correct.
11 MR. FRIEDMAN: Now let's go back, Joe, please, to the
12 first page that we were looking at.
13 Q. So the first recital said this is a lease agreement entered
14 into by and between Windstream north Carolina, LLC, and the
15 Town of Waxhaw. Correct?
16 A. Correct.
17 Q. And Windstream North Carolina, LLC, is a transferor
18 subsidiary that is a sublessor under this lease agreement.
19 Correct?
20 A. Correct.
21 Q. So the transferor subsidiary is subleasing certain real
22 property, as defined in this agreement, to the Town of Waxhaw.
23 Correct?
24 A. I'm not -- this is the first time I've reviewed this
25 document. You just read the title of their capacity.

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1 Q. Do you see in the second whereas clause the recital that
2 sub -- no, the second one. Oh, sorry, I meant the first one.
3 I'm sorry -- that the sublessor is the lessee of certain real
4 property. Do you see that?
5 A. Yes.
6 Q. Now, where the recital here says that the sublessor, a
7 transferor subsidiary, is the lessee of certain real property,
8 do you know under what agreement a transferor subsidiary is the
9 lessee of this real property?
10 A. I do not know.
11 Q. Let me put this away for a moment and bring up PX 144,
12 please. This is an e-mail exchange, Mr. Fletcher, that was
13 part of the discovery process in this lawsuit before trial, and
14 you see that counsel for Windstream Services, in the
15 highlighted language, has explained that "the agreement
16 pursuant to which Windstream North Carolina, LLC, is the
17 'lessee' of the property in Waxhaw, North Carolina, with tax
18 parcel number," etc., "as recited in WIN -- is the master
19 lease." Do you see that?
20 A. I see that language.
21 Q. So you understand that language to be telling us that the
22 transferor subsidiary is the lessee of real property under the
23 master lease. Correct?
24 MR. GODFREY: Objection as to form. And this is a
25 statement in PX 144, your Honor.

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1 THE COURT: Mr. Godfrey, again, microphone.
2 MR. GODFREY: Objection as to form and as to the
3 accuracy of the question, what PX 144 states.
4 THE COURT: I'll overrule the objection. The witness
5 can answer if he can.
6 A. No. The sentence states, that property is under the master
7 lease. It's a master lease property, is how I read that.
8 Q. You're saying, Mr. Fletcher -- I want to make sure I
9 understand you -- the property in question is leased property
10 under the master lease? Is that what you're saying?
11 A. I'm reading this for the first time. Yes, that's how I --
12 Q. No, I just didn't understand your last answer. I'm just
13 asking you --
14 A. That's how I understand it.
15 Q. Again, just to be clear, you are saying that your
16 understanding from reading this statement is that the property
17 in question is leased property under the master lease.
18 A. Correct.
19 Q. Now let's go back to 109.4. So this leased property, under
20 the master lease, is being subleased by a transferor subsidiary
21 to a third party. Correct?
22 A. I have not reviewed this agreement before today. I would
23 need to read it to confirm your statement. Do you want me to
24 read it?
25 Q. No, Mr. Fletcher. If you're not familiar with it, I don't

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1 want to take the time.
2 Now, so far, we've looked at two agreements entered
3 into by third parties -- entered into by transferor
4 subsidiaries with third parties. Correct?
5 A. Correct.
6 Q. And am I correct that neither of those agreements signed by
7 transferor subsidiaries refers to the transferor subsidiaries
8 as express beneficiaries. Correct?
9 A. You've -- I've not reviewed those documents to see their
10 full content.
11 Q. Do you believe that, in agreements entered into by
12 transferor subsidiaries with third parties, there are
13 agreements identifying transferor subsidiaries as express
14 beneficiaries?
15 A. I'm not aware of any.
16 Q. And you agree that in the fiber exchange agreement we
17 looked at a moment ago, the transferor subsidiary was
18 identified as leasing property under the master lease.
19 Correct?
20 A. That was the description you read, yes.
21 Q. And do I understand you correctly that, with respect to the
22 North Carolina sublease, based on what you saw, it's not clear
23 to you that the agreement is telling us that the transferor
24 subsidiary is leasing under the master lease?
25 A. No. I have not read the document.

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1 Q. Now, you say in your direct testimony that, as express
2 beneficiaries under the master lease, the transferor
3 subsidiaries may enter into agreements such as assignment and
4 co-location agreements with third parties concerning the
5 transferred assets. That's part of your direct testimony.
6 A. Yes.
7 Q. Yes? And that testimony by you is correct, in your view,
8 Mr. Fletcher?
9 A. Yes.
10 Q. And to be clear, when you talk about transferor
11 subsidiaries entering into agreements with third parties, do
12 those agreements include agreements whereby transferor
13 subsidiaries grant rights of use with respect to the leased
14 property?
15 A. Yes.
16 Q. Do you consider co-location agreements that you refer to to
17 be subleases, or leases?
18 A. I don't consider them to be a lease. I consider them to be
19 a license.
20 Q. You would agree with me that an entity cannot lease
21 property to a third party unless the entity owns or leases the
22 property itself?
23 MR. GODFREY: Objection as to form.
24 A. Mr. Godfrey.
25 THE COURT: Mr. Godfrey, I don't want to keep

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1 reminding you.
2 MR. GODFREY: I'll say it again, your Honor.
3 Objection to form.
4 THE COURT: Maybe we should get you a lapel
5 microphone.
6 Overruled.
8 Q. You would agree with me, Mr. Fletcher, that an entity
9 cannot lease property to a third party unless the entity owns
10 or leases the property itself?
11 A. You would need some ownership right to be leasing.
13
14
15
16
17
18
19
20
21
22
23
24
25

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1 Q. You'd need an ownership right or you'd need to be leasing,
2 is that correct?
3 A. Fee simple, leasehold estates, those would be included.
4 Q. Would you agree with me that after the signing of the
5 Master Lease, the transferor subsidiaries did have the right to
6 sublease the leased property?
7 A. Holdings delegated authority --
8 Q. Please --
9 A. -- to transfer.
10 Q. I'm going to ask a yes or no question.
11 Would you agree with me that after the signing of the
12 Master Lease, the transferor subsidiaries did have the right to
13 sublease the leased property?
14 A. I wouldn't describe it that way, so I would disagree with
15 your statement.
16 Q. Then let's -- Joe, please, can you put up for me PX6.
17 That is the Alabama application we've looked at
18 before, and I'd like to move forward in the document to
19 paragraph 28, please.
20 OK. This is page 12, paragraph 28, of the application
21 that you verified, Mr. Fletcher.
22 And I'm calling your attention to the first
23 highlighted portion on page 12, which reads: "The WIN
24 companies' exclusive usage rights will include the right to
25 provide communications services or sublease access to the

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1 system."
2 Do you see that?
3 A. I see that language.
4 Q. Did I read it correctly?
5 A. You read it correctly.
6 Q. Is that a statement that you made under oath to the Alabama
7 Public Service Commission?
8 A. Yes.
9 MR. GODFREY: What page are you looking at,
10 Mr. Friedman?
11 MR. FRIEDMAN: I'm sorry. It is page 12, in paragraph
12 28.
14 Q. And that statement that you made, Mr. Fletcher, is
15 accurate?
16 A. I would use the word "imprecise."
17 Q. Now, am I correct that the transferor subsidiaries made
18 that same statement to regulatory authorities in multiple other
19 states?
20 A. I do not recall. This was over four years ago.
21 Q. Would it refresh your recollection if I tell you that this
22 same statement was made in submissions by the transferor
23 subsidiaries in Georgia, Indiana, Kentucky, and Ohio, in
24 addition to Alabama?

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1 Q. OK.
2 A. We made filings in those states.
3 Q. Say, again. Sorry.
4 A. We did make filings in the states you listed.
5 Q. And let's just take a look at the Georgia application,
6 because we haven't looked at anything from Georgia yet. This
7 is PX10.
8 OK. Do you see this as an application filed by
9 transferor subsidiaries before the Public Service Commission,
10 State of Georgia?
11 A. Yes.
12 Q. And I'm going to call your attention to paragraph 31.
13 There, it says: "The WIN companies' exclusive usage rights
14 will include the right to provide communications services or
15 sublease access to the system."
16 Do you see that?
17 A. I see that.
18 Q. That's the same statement that was made in Alabama,
19 correct?
20 A. It looks -- it looks verbatim.
21 Q. And is your recollection being refreshed that this was the
22 Windstream position that was being expressed in multiple
23 jurisdictions?
24 A. I see this now in two jurisdictions.
25 Q. Well, let's look at the Indiana application, PX11.

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1 Paragraph 13, please, Joe.
2 Let's go to paragraph 13. OK.
3 Here it says, towards the bottom: "The Windstream
4 companies' exclusive usage rights will include" -- you missed a
5 part of it, Joe. Sorry.
6 Do you see the second half of what's blown up for you,
7 Mr. Fletcher. "The Windstream companies' exclusive usage
8 rights will include the" --
9 A. It's moved. I don't see that.
10 Q. We've lost it. Sorry. I apologize, Mr. Fletcher.
11 "The Windstream companies' exclusive usage rights will
12 include the right to provide communications services or
13 sublease access to the system." Do you see that?
14 A. I see that.
15 Q. That is the same sentence verbatim in Indiana?
16 A. It looks -- I don't have them side-by-side, but, yes, they
17 look to be the same.
18 Q. So this was not a careless phrasing that happened to come
19 out of your mouth when you were speaking to somebody, this was
20 a considered expression of the Windstream position in multiple
21 jurisdictions in explaining the transaction, correct?
22 A. There is a lot --
23 THE COURT: Yes or no?
24 THE WITNESS: I was going to ask him to restate the
25 question.

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1 Q. Yes. This sentence we've now read in three jurisdictions
2 was a considered expression of the Windstream position for
3 explaining the transaction to the regulators, correct?
4 A. Correct.
5 Q. Now, let me go back to collocation agreements for a moment.
6 When you were testifying a moment ago, you said that
7 you do not consider collocation agreements a kind of lease.
8 Did I understand you correctly?
9 A. Yes.
10 Q. So, I want to show you Section 7.2(e) of the Master Lease,
11 which is on page 36 of PX68. There it is. Look down at the
12 bottom, where you see subparagraph (e). Subparagraph (e)
13 refers to any sublease, and then I'll call your attention to
14 the parenthetical, from the Master Lease: "Any sublease,
15 including but not limited to, any rights granted pursuant to a
16 dark fiber agreement, a dim fiber agreement, or a collocation
17 agreement."
18 Do you see those words that I read?
19 A. Yes.
20 Q. Do those words tell you that under the Master Lease, a
21 collocation agreement is considered a kind of sublease?
22 A. No. It tells me that it can be.
23 MR. FRIEDMAN: We can put that away, Joe.
24 Q. Would you agree with me, Mr. Fletcher, that FCC regulations
25 describe collocation agreements as leases?

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1 A. I am not familiar with those regulations.
2 Q. OK.
3 MR. FRIEDMAN: Joe, do we have the next cite in here
4 to show the witness or not?
5 Q. Let me just read to you, Mr. Fletcher, from a -- I will
6 tell you what it is. I think you have it in your binder,
7 actually; maybe that is easier.
8 Chris, do you know what number it is in his binder?
9 Not that one.
10 May I approach the witness, your Honor?
11 THE COURT: You may.
12 MR. GODFREY: Tab, please, Mr. Friedman, the tab of
13 the binder you are referring to?
14 MR. FRIEDMAN: Yes. That is what I am about to do.
15 THE COURT: He is trying to figure that out.
16 MR. FOURMAUX: It should be H.
17 MR. FRIEDMAN: Tab H. There you go, Mr. Fletcher.
18 BY MR. FRIEDMAN:
19 Q. So I'm showing you "In Re Deployment of Wire Line
20 Services," etc., "Fourth Report and Order," and I'd like to
21 call your attention in that document to note 14 on page 15439.
22 So, that should be about four pages into the document.
23 Have you found --
24 A. It seems to have the same page number, 15435, on each page.
25 What is the bottom page number you are referring to?

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1 Q. If you flip on the bottom and look for note 14, that may be
2 the easiest way to do it.
3 A. Bottom right, page 4?
4 Q. Do you see note 14 there?
5 A. I see I think it is note 14.
6 Q. And it reads, "In a physical." Have I directed you to the
7 right place or am I messed up?
8 THE COURT: I have a feeling your formating is
9 different. I think the page is page 2 -- sorry, page 3 is note
10 14, but I have a feeling that the notes are at the end.
11 MR. FRIEDMAN: Oh, OK. Turn to the back. I
12 apologize. I think you are right, your Honor.
13 Q. There are footnotes at the back, Mr. Fletcher?
14 A. Page 38, footnote 14, beginning "47 U.S.C.," is that it?
15 Is that the footnote?
16 Q. It is a footnote that starts, "In a physical collocation
17 agreement."
18 MR. GODFREY: What page, please?
19 MR. FRIEDMAN: We are trying to get it.
20 THE COURT: Page 38, footnote, or end note 14.
21 MR. GODFREY: The one that starts, "47 U.S.C."?
22 THE COURT: Yes.
24 BY MR. FRIEDMAN:
25 Q. Do you see the note, Mr. Fletcher, that begins, "In a

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1 physical collocation agreement"?
2 A. My note 14 begins, "47 U.S.C."
3 THE COURT: It is in the middle of that footnote.
4 THE WITNESS: On the fifth line -- I see on the fifth
5 line, "In a physical collocation."
6 BY MR. FRIEDMAN:
7 Q. OK.
8 A. I am there now.
9 Q. Let me just read that to you. Apologies for the confusion.
10 "In a physical collocation agreement, a competitor
11 leases space at an incumbent ILECs premises for its equipment.
12 The competing provider has physical access to this space to
13 install, maintain, and repair its equipment."
14 Do you see that?
15 A. I see that.
16 Q. So, two questions. One is, putting aside the use of the
17 word "lease," do you recognize this as an accurate description
18 of a physical collocation agreement?
19 A. Yes.
20 Q. And you see that in the view of the FCC, the physical
21 collocation agreement is described as a lease, correct?
22 MR. GODFREY: Objection as to form. This is an
23 opinion. It speaks for itself, your Honor.
24 THE COURT: Sustained.
25 BY MR. FRIEDMAN:

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1 Q. Would you agree with me, Mr. Fletcher, that the transferor
2 subsidiaries have entered into about 30 collocation agreements
3 since the Master Lease was signed?
4 THE COURT: Can the witness put away this --
5 MR. FRIEDMAN: Yes.
7 MR. FRIEDMAN: Shall I approach the witness and
8 relieve him of that binder?
9 THE COURT: Yes, please.
10 (Pause)
11 BY MR. FRIEDMAN:
12 Q. Would you like the question again, Mr. Fletcher?
13 A. Yes, please.
14 Q. Am I correct that since the signing of the Master Lease,
15 the transferor subsidiaries have entered into about 30
16 collocation agreements?
17 A. I do not know the number.
18 Q. And would you agree that, whatever the number, these are
19 collocation agreements whereby the transferor subsidiary allows
20 another company to have physical access to space that is part
21 of the leased property?
22 A. I don't know if they are part of the leased property or
23 not, but, yes, they provided third parties right of access to
24 facilities.
25 Q. All right. Let's, as an example, take a look at PX109 at

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1 .59, please.
2 OK. This is entitled "Interconnection agreement
3 between Windstream Florida, LLC and CenturyLink Communications,
4 LLC.
5 Windstream Florida, LLC, Mr. Fletcher is a transferor
6 subsidiary?
7 A. Yes.
8 Q. And century link communications is a third party?
9 A. Correct.
10 Q. And I'd like to turn to Attachment 7 in this document.
11 Attachment 7 is entitled, "Physical Collocation."
12 Do you, by the way, Mr. Fletcher, recognize this as a
13 form of agreement that the transferor subsidiaries were using
14 for collocation agreements after the signing of the Master
15 Lease?
16 A. No, I don't review these agreements. I did not review
17 these agreements in my role.
18 Q. Do you see in Section 1.2 that the CLC -- that's the third
19 party -- is being allowed to obtain dedicated space, referred
20 to as the "collocation space," in Windstream's wire centers and
21 to place equipment in such space to interconnect with
22 Windstream's network?
23 A. Yes. You correctly read the phrase.
24 Q. Now, let's go to the next page, please.
25 OK. In 1.15.1, the document describes types of

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1 collocation, and one type is referred to as "caged." And are
2 you familiar, Mr. Fletcher, apart from reading this document,
3 with what "caged" collocation is?
4 A. Yes, I'm generally familiar with that.
5 Q. And what this document says is that caged location refers
6 to a form of collocation which allows the third party, quote,
7 to lease caged floor space to house their equipment within
8 Windstream wire centers. Close quote.
9 Do you see that portion of the document that I read?
10 A. I see that.
11 Q. So this form, part of the collocation agreement, refers to
12 caged location as a lease of caged floor space, correct?
13 A. Yes.
14 Q. And Windstream wire centers, where the caged floor space is
15 being provided, Windstream wire centers are part of the leased
16 property, correct?
17 A. I believe so.
18 Q. So when we have agreements by the transferor subsidiaries
19 that lease dedicated caged space within the leased property,
20 would you agree that those agreements are understood properly
21 as leases by the transferor subsidiaries?
22 A. No. That's not my -- how I would interpret it.
23 Q. Do you understand that these collocation agreements
24 relating to caged space provide the third parties with a right
25 to exclusive possession of designated space?

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1 A. I don't see the word "exclusive" in --
2 Q. I'm asking you about your understanding of caged
3 collocation agreements. Do they provide to the third party the
4 right to have exclusive possession of a designated space?
5 A. No.
6 Q. Would you agree that if a collocation agreement did provide
7 exclusive possession of a designated space to a third party, it
8 would be, in your lexicon, a lease?
9 A. No.
10 Q. OK. Now, in addition to collocation agreements, the
11 transferor subsidiaries have entered into other forms of
12 agreements granting rights to third parties in the leased
13 property, correct?
14 (Pause)
15 Should I break it down?
16 A. No, I am not aware of the specific --
17 Q. They entered into fiber exchange agreements, dim fiber
18 agreements, and dark fiber agreements, correct?
19 A. They had the right to.
20 Q. OK. You are not aware that they did?
21 A. I think they did but I don't have the exact -- it's not
22 something I worked on directly. I don't have direct knowledge
23 of the frequency, of the number of those types of agreements.
24 Q. And do you recall that the provision of the Master Lease we
25 looked at refers to dark fiber agreements, dim fiber agreements

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1 as part of what could be considered a sublease?
2 A. Yes.
3 Q. And do you consider dark fiber agreements or dim fiber
4 agreements to be leases of property?
5 A. Yes. I think those types of agreements tend to have more
6 of the attributes that I would require to see for a lease.
7 Q. And in those types of agreements, what you see are grants
8 to third parties of an indefeasible and exclusive right to use
9 specific fiber optic cables, correct?
10 A. Correct.
11 Q. And when a transferor subsidiary grants third parties an
12 indefeasible and exclusive right to use specific fiber optic
13 cables that are part of the lease property on the Master Lease,
14 you would agree that the transferor subsidiaries are leasing to
15 third parties, correct?
16 A. I would not agree with that statement.
17 Q. You would agree that courts recognize indefeasible rights
18 of use agreements to be leases, correct?
19 MR. GODFREY: Objection to the form, your Honor.
21 Q. Let me ask you to take a look at some of these agreements.
22 I am going to show you PX109.27. This is a -- it is
23 entitled, "Dark Fiber Lease Agreement." And you see that this
24 is an agreement between a third party, referred to as
25 "grantee," and Windstream KDL, a transferor subsidiary, as

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1 grantor, correct?
2 A. Correct.
3 Q. And if we look at Article II, which is the next page, we
4 see that this is a grant of dark fiber lease in system.
5 So, as you understand it, this kind of agreement would
6 be a lease agreement, correct?
7 A. I don't know. I've not read this agreement. I can read it
8 here with you, if you would like me to. Go back to the --
9 Q. The --
10 A. -- dark fiber lease. Where is that defined?
11 Q. Do you see it up at the top, "Dark fiber lease means an
12 exclusive right to use the grantee fibers," etc.?
13 A. But the last three lines, it says it does not provide
14 grantee with any ownership interest in, or otherwise, or
15 physical access to, control of, modification of, encumbrance in
16 any manner, or other use except as expressly set forth herein."
17 So I only see an exclusive right to use. I don't see
18 an indefeasible conveyance in the provisions I've looked at so
19 far.
20 Q. OK. If you look at Section 510, Mr. Fletcher.
21 Just go down, Joe, please. It is the next page.
22 Sorry.
23 5.1. "This agreement shall continue in effect for a
24 term of ten years."
25 So we have a transferor subsidiary granting a dark

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1 fiber lease for ten years, correct?
2 A. I would not call it a lease, but the document does -- you
3 are correct, the document does describe the conveyance as a
4 dark fiber lease. I would call it a license.
5 Q. OK. And you would call it a license even though, going
6 back to the definition on page 2 -- if you don't mind, Joe --
7 even though the definition of "dark fiber lease" means an
8 exclusive right to use the grantee fibers?
9 A. Correct. Because I do not see an indefeasible grant of
10 interest in property in the materials we've reviewed so far.
11 Q. Now, I'm going to move to another question, Mr. Fletcher.
12 You say in your direct testimony that the decision to
13 fund the Master Lease payments is made by Services' executive
14 management team and approved by the Board of Directors, is that
15 correct?
16 MR. GODFREY: Paragraph reference, please?
17 MR. FRIEDMAN: 40 in Mr. Fletcher's affidavit.
18 A. Correct.
19 Q. That is part of your testimony.
20 And you say that the decision and the board approval
21 occurs on a quarterly basis, is that correct?
22 A. Correct.
23 Q. Do I understand you correctly to be saying that Services
24 decides every quarter whether or not it wants its subsidiaries
25 to fund the rent due to Unity?

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1 A. Yes. I wouldn't use the word "want," but whether it can as
2 well, because there are restrictions on that capacity -- on the
3 ability to make that payment.
4 Q. When Services decides that the transferor subsidiaries
5 should fund the rent due under the Master Lease, Services can
6 require the transferor subsidiaries to provide the funds,
7 correct?
8 A. Yes. Services controls all the transferor subsidiaries.
9 Q. The payment from the transferor subsidiaries of funds
10 needed to make the rent payments is not voluntary by the
12 A. I wouldn't describe it the way you described it, so I would
13 disagree with your statement.
14 Q. Well, I was asking you a question. Let's back up.
15 The funds that are used to pay the rent to CSL are
16 funds that come from the operations of the transferor
18 A. They come from the operations of all service -- all of
19 Services and their subsidiaries, which includes the transferor
20 subsidiaries.
21 Q. Would you agree with me that the transferor subsidiaries
22 account for about 80 percent of the revenue of all of its
23 subsidiaries?
24 A. I cannot verify that number. I don't know that number.
25 Q. So funds from the transferor subsidiaries are used to fund

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1 the rent payments to CSL, correct?
2 A. Yes. I believe at least a portion of the rent payments are
3 funded by dividends from those entities.
4 Q. And you recall that when the transaction was being planned,
5 the plan was that the subsidiaries that were transferring the
6 assets and would be using the assets would be the subsidiaries
7 expected to fund the rent payments, correct? That was the
8 plan?
9 A. Certainly initially, yes.
10 Q. And you would agree that when Holdings and Services decide
11 that transferor subsidiaries should provide funds to fund the
12 rent payment, the transferor subsidiaries have no choice in the
13 matter?
14 A. They are controlled subsidiaries.
15 Q. Now, you say in your direct testimony affidavit that you
16 were personally involved in negotiating the terms of the Master
17 Lease, correct?
18 A. Correct.
19 Q. And you also say that you personally played a central role
20 in the negotiations, correct?
21 A. Correct.
22 Q. Am I correct that at the time of the negotiation that you
23 described, Holdings was the owner of Services, CSL, and the
24 transferor subsidiaries?
25 A. Yes. It was the direct and indirect owner of all of those

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1 entities.
2 Q. So all of those entities were a part of one Windstream,
3 correct?
4 A. Yes.
5 Q. So in this negotiation of the terms of the Master Lease,
6 there were not two parties, correct?
7 A. I disagree with that. We designated internal parties to
8 represent CS&L.
9 Q. All right. Well, let me ask you to take a look at your
10 deposition testimony, at page 148, line 11 through 149, line 2.
11 please.
12 A. That's not on my screen.
13 MR. FRIEDMAN: Yes. Can you bring that up, please?
14 Q. OK. So I asked you the question: "Well, in this case, at
15 the time the Master Lease was prepared, CSL was an indirect
16 wholly owned subsidiary of Holdings, correct?"
17 Your answer was, "Correct."
18 Then I said, "Let me ask you the question. Was there
19 any negotiation over the terms in the Master Lease?"
20 And you said, "Yes."
21 And then I asked you, "And who were the parties on
22 either side of the negotiation?"
23 and your answer was: "there was only one Windstream
24 at this point." And as we disclosed in the Form 10, this was
25 not an arm's length transaction. There really weren't two

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1 parties."
2 Was that testimony by you that I just read truthful
3 and correct?
4 A. Yes, it was truthful and correct.
5 Q. Now, we talked earlier about the plan, when the transaction
6 was being planned, that the transferor subsidiaries would
7 continue to have long-term exclusive control of the transferred
8 assets. Do you recall that that was part of the planning of
9 the transaction?
10 A. Again, I wouldn't describe it that way. Holdings certainly
11 was going to have a long-term right to control the assets and
12 have that discharged through its subsidiaries.
13 Q. When you talked about -- I think I read some of your
14 deposition testimony. When you talked about long term
15 exclusive control for the transferor subsidiaries, what did you
16 mean by "long term"?
17 A. I meant their rights, as express beneficiaries of Holdings
18 under the Master Lease, which expressly recognized their right
19 to use the property. And long term, the initial term was 15
20 years that could be extended up to 35 years in total.
21 Q. And you considered, when you used the term "long term," you
22 considered 35 years long term?
23 A. Yes.
24 Q. I just have a couple of more questions, Mr. Fletcher.
25 MR. FRIEDMAN: Joe, can you bring up, please,

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1 PX109.37. It is another one of these third-party agreements.
2 Q. This is called an IRU agreement between Windstream KDL and
3 Midwest Fiber Networks.
4 Do you recognize Windstream KDL as a transferor
5 subsidiary?
6 A. Yes.
7 Q. And do you recognize Midwest Fiber Networks as a third
8 party?
9 A. Yes. I don't know of that company.
10 Q. You don't know that company. It is not part of Windstream,
11 correct?
12 A. I do not think that is a Windstream company. I think that
13 is a safe assumption.
14 Q. Right. And the date of this agreement is May 23, 2016.
15 And I'd like to -- first of all, what is an IRU
16 agreement, Mr. Fletcher?
17 A. Indefeasible right to use. Indefeasible right to use.
18 Q. And it's an indefeasible right to use, let's take a look at
19 what this is. Let's go to Section 1.1 -- let's go to 1.1
20 first, Joe, please.
21 So here -- correct me if I am wrong, Mr. Fletcher --
22 the transferor subsidiary grants to a third party a fully paid
23 exclusive indefeasible right to use certain dark fiber strands.
24 Do you see that?
25 A. Yes.

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1 Q. And you would agree that where these dark fiber strands are
2 part of the leased property, that granting an exclusive
3 indefeasible right to use is granting a lease -- is a lease,
4 correct?
5 A. I think -- no, I think I already used it as a separate
6 category. I would put them at a higher category than a
7 lease -- fee simple IRU lease.
8 Q. You would refer to it as a fee simple IRU lease?
9 A. I would refer to it as -- it is a class of conveyance in
10 its own right that is recognizing, and my understanding it has
11 different treatment in bankruptcy, which is why they -- in
12 telecom it has become more common to see these. I think an
13 indefeasible right to use is a separate class of real estate,
14 very similar in some ways to a lease, but not the same.
15 MR. FRIEDMAN: I have no further questions.
17 Redirect.
18 MR. GODFREY: Thank you, your Honor.
19 (Pause)
20 MR. GODFREY: Are you ready, Mr. Hayne?
21 I am waiting for the technologist, your Honor.
22 THE COURT: All right. It is counting against your
23 time, though.
24 MR. GODFREY: I understand. He and I will have a
25 discussion later about this.

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I7ndusb3 Fletcher - redirect
1 REDIRECT EXAMINATION
2 BY MR. GODFREY:
3 Q. Mr. Fletcher, the cross-examination began with asking what
4 you meant by "express beneficiary." Do you recall that?
6 MR. GODFREY: Mr. Hayne, could you please put up
7 Windstream Exhibit No. 2, page 44, which is Section 7.2 of the
8 Master Lease. Could you highlight 7.2, please.
9 Q. Mr. Fletcher, when you were referring to "express
10 beneficiary," were you referring to what 7.2 provides in the
11 Master Lease?
12 A. Yes. 7.2 provides tenant holding the leasehold estate for
13 the exclusive right to use or cause to be used through any of
14 its subsidiaries, which includes the transferor subsidiaries.
15 Q. So when you refer to "express beneficiary" both in your
16 testimony here today as well as in your affidavit, which has
17 been admitted into evidence as Exhibit -- Windstream Exhibit
18 190, that is what you are referring to, the express provisions
19 of Section 7.2 of the Master Lease, which is Exhibit 2?
20 A. Yes. It is my convention, and we used it throughout
21 Windstream to educate the various groups on how to use the
22 agreement, it was my convention to describe what 7.2 does and
23 to distinguish from a third-party beneficiary.
24 Q. Who is the tenant under the Master Lease?
25 A. Windstream Holdings, Inc.

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1 Q. Are there any other tenants?
2 A. No.
3 Q. Who owns -- who owes the rent obligations under the Master
4 Lease?
6 Q. Anyone else?
7 A. No other parties.
8 Q. Who owes the maintenance, insurance, repair, etc.
9 obligations under the Master Lease?
10 A. Windstream Holdings, Inc. It is the sole obligor of those
11 obligations.
12 Q. Now, were you involved in the preparation of the Master
13 Lease?
14 A. Yes.
15 Q. What was your reasoning, or what was the reason why the
16 Master Lease was entered into only between Holdings and CS&L,
17 the company which became Unity?
18 MR. FRIEDMAN: Objection, your Honor. Beyond the
19 scope of the cross. We didn't get into reasoning at all.
21 MR. FRIEDMAN: I will...
22 A. So this was a transaction that we did over a two-and-a-half
23 year period, and I would answer as I think about -- I am going
24 to reflect back on why we put the lease at Holdings. There are
25 three principal reasons. Number one, everything we did in the

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1 transaction had to address numerous complex requirements. It
2 was one of the most complex deals that I ever worked on. It
3 had a tax-free spin-off, tax requirements for it to be a lease,
4 tax requirements for it to be a REIT, accounting requirements
5 for what is a lease, corporate law requirements, and all of
6 those requirements, including our corporate finance
7 requirements, which include our senior secured lenders, which
8 required an amendment, and the detailed provisions of the
9 indenture, all of those informed our decisions for every
10 structuring element, including the decision to put Holdings as
11 the sole tenant.
12 Second, Holdings is the top-tier entity in our
13 corporate structure. It owns all of our corporate entities,
14 including Services and all the transferor subs. And if you
15 look at the lease, we have the ability, over the 35-year
16 maximum term under that provision, to let any subsidiary,
17 current or future, to discharge the obligations under the
18 lease. So putting it in Holdings gave us maximum flexibility
19 for how we would operate our business today or in the future.
20 And, finally, one of the biggest issues with the lease
21 is what happens at years 12 to 15, when the initial term comes
22 up and when future renewal terms come up. We wanted as much
23 bargaining leverage and bargaining chips that Windstream
24 Holdings could have at that time. And you know who wanted to
25 have direct privity with the Services and the subsidiaries? It

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1 was Unity. And that is an important bargaining chip I think we
2 have. And that important renewal phase, it will come up
3 between 2027, when the process begins, with an ending initial
4 term of 2030. During that period, I think we have an important
5 bargaining chip, and that's after all of our existing notes
6 have retired or matured.
7 Q. Is it your testimony, sir, that Unity wanted a lease with
8 the transferor subs but didn't give it to them?
9 A. They would much have preferred that. Their right to
10 payment was not structurally subordinated. They only received
11 payment from Holdings if Services makes a discretionary
12 distribution subject to all of its corporate finance
13 requirements, including the restricted payment capacity under
14 the indenture. They did not like that position, nor did their
15 lenders.
16 Q. Let's change topics. Let's talk about regulatory filings.
17 I know that you said that you had not seen these
18 regulatory filings for some period of time. Do you recall
19 that?
21 MR. GODFREY: Mr. Hayne, PX6, please. Page number
22 3225.
23 THE COURT: May I ask you a question before you get
24 there?
25 When you say that "they didn't like that," who is the

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1 "they" in that context in that at the time that this was
2 negotiated it was really all owned by Windstream; is that not
3 correct?
4 THE WITNESS: It was all owned by Windstream, but we
5 were discussing the transaction and potential sources of
6 financing. And what I meant when I referred to "they," it was
7 lenders and sources of financing to what became Unity.
8 THE COURT: All right. And Unity is the same as CS&L.
9 THE WITNESS: Yes. CS&L was the initial name, and
10 then they changed the name to Unity after the transaction.
11 MR. GODFREY: Let's move to PX6, then, your Honor.
12 THE COURT: OK.
14 3225, Mr. Hayne.
15 Q. Do you see, six lines from the bottom, the definition of
16 the WIN company's parent corporation?
17 A. Yes.
18 Q. And what does this application, that you signed and you
19 were examined about by Mr. Friedman, what does it say is the
20 parent company of the WIN companies?
21 A. Windstream Holdings, Inc., which it defines as
22 "Windstream."
23 Q. Correct. Now, Mr. Friedman asked you about the next page,
24 page 3.
25 Would you turn to that, which is 3226, Mr. Hayne,

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1 please.
2 And you see, in the sixth line down, where it starts
3 the word, "Position" -- can we highlight that, the word
4 "position," Mr. Hayne -- and then continue. "Position," and
5 that's the word he asked you to read where it said, "The WIN
6 companies seek to transfer ownership of certain assets
7 described in this application to CSL, or one of its wholly
8 owned direct or indirect subsidiaries, and lease them back."
9 Do you see that?
10 A. Yes.
11 Q. And that's what he said to you in every single one of the
12 applications filed to regulators, you made the representation
13 that the leasing back was to the subsidiaries and not to
14 Holdings. Do you recall that question and that testimony?
15 A. Yes. He was referring to this language.
16 MR. FRIEDMAN: Objection, your Honor. That was
17 actually a misstatement of a question.
18 THE COURT: My recollection of the testimony and the
19 transcript will govern. Go ahead.
21 BY MR. GODFREY:
22 Q. Let's look at the next page, paragraph 3 on page 4, which I
23 know you haven't seen and that you weren't shown by
24 Mr. Friedman.
25 Can you read paragraph 3 for us into the record?

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1 A. Paragraph 3 --
2 THE COURT: Let's save some time and skip that. I
3 will take it under advisement. It is in evidence.
4 MR. GODFREY: OK.
5 Q. Do you see that paragraph 3 says that the lease was to
6 Windstream; that is, Windstream Holdings, right?
7 A. Correct.
8 Q. All right. Let's go to then page 8, paragraph 20. 3231,
9 Mr. Hayne.
10 Do you see that it says, at the bottom of page 8 and
11 the top of page 9, that the lease will be to Windstream for the
12 benefit of the WIN companies; do you see that, sir?
13 A. Yes.
14 Q. Was that accurate?
15 A. That was accurate.
16 Q. Let's turn to paragraph 28 on page 12.
17 Do you see in paragraph 28, it says that the Master
18 Lease, or the lease, will be with Windstream for the benefit of
19 the subsidiaries or exclusive long term -- do you see that?
20 A. I'm actually --
21 Q. Paragraph 28.
22 A. 28. Yes, the second line is, "The long term Master Leases
23 at Windstream's option will be in effect for 35 years."
24 Q. OK. Now, let's take a look at the draft Master Lease,
25 which is found at page 3258.

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1 Do you have that, sir?
2 A. Yes. It says, "Outline of the Master Lease that was
3 provided to all of the regulators," and this is an attachment
4 to the filings.
5 Q. And who is the tenant that is listed and the only tenant
6 listed?
8 Q. Are the transferor subs listed as tenants in the Master
9 Lease as provided to the regulators?
10 A. No.
11 Q. Was similar documentation provided to all the regulators
12 showing that the lease was going to be between CS&L,
13 subsequently known as Unity, and Windstream Holdings?
14 A. Yes. We created a standard template all attaching this
15 outline of the Master Lease. We gave it to each of the various
16 local counsels, and then they took it and conformed it to their
17 state legal requirements and their specific requirements for
18 that state.
19 Q. And so when you said that there was some imprecision, were
20 you referring to the fact that on page 3, with the language
21 that was quoted suggesting that the lease would be with the
22 transferor subs, were you stating that because --
23 A. It --
24 MR. FRIEDMAN: Objection, your Honor.

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1 Q. Why were you stating there was imprecision?
2 THE COURT: You may answer that.
3 Mr. Godfrey, please watch the form of your questions.
4 This is redirect.
5 MR. GODFREY: I am just trying to move it along, your
6 Honor, but I will. Thank you.
7 A. Those statements were shorthand abbreviated statements that
8 were part of a larger filing that include many other detailed
9 and complete descriptions, not imprecise descriptions. It was
10 a complex transaction. There was a time when the language was
11 sort of abbreviated and you shorthand, and that's the type of
12 example that Mr. Friedman was referring to.
13 But when you look at these filings in their full form
14 and in all of their detail, I believe they were accurate in all
15 respects, all material respects.
16 Q. Let's turn to PX7, please, the Alabama order.
17 A. Yes.
18 MR. GODFREY: Turn to page 4, Mr. Hayne, Bates stamp
19 number 3274 on the Bates, please.
20 Q. We've just seen the Alabama petition, right?
21 A. Correct.
22 Q. And the order, at the bottom of page 4, says that a finding
23 that the public interest will best -- be best served by such
24 acquirement and operation of such assets as described in the
25 decision; do you see that?

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1 A. Yes.
2 Q. And what do you understand the petition to be?
3 A. The petition followed the form that we covered with the
4 other statement, where we accurately described the transaction
5 in detail in numerous places and brought an outline of the
6 Master Lease to supplement and assure the understanding of the
7 structure.
8 Q. In this case, the petition was -- was that PX6?
9 A. I don't remember the exact number.
10 Q. Exhibit 6, the one we just looked at, with the various
11 paragraphs.
12 A. Yes.
13 Q. Let's look at the great State of Georgia, PX10. First
14 page, please, Mr. Hayne.
15 Do you see Windstream Holdings being defined there as
16 Windstream?
17 Mr. Hayne, it is PX10, 3300, first page.
18 A. Yes. The first page, Windstream Holdings, Inc. Windstream
19 is on the first page of PX10.
20 Q. Go to page Bates stamped number 3303, paragraph number 10,
21 please, of PX10.
22 Do you see that?
23 A. I do see that. In that paragraph, it correctly identifies
24 Holdings as the party receiving the leasehold estate from CS&L
25 on a longterm basis for the exclusive use and benefit of the

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1 Windstream companies, which were the transferor subs.
2 MR. GODFREY: Mr. Hayne, Bates stamp number 3306,
3 paragraph 20, of PX number 10.
4 Q. Do you see the second sentence, sir?
5 A. Of paragraph 20?
6 Q. Yes, sir. Do you see the second sentence, starting
7 "Immediately."
8 A. Yes, I see that.
9 Q. In this petition that you submitted to the regulators for
10 the state of Georgia, who did you tell the State of Georgia was
11 going to be the lessee?
12 A. Holdings.
13 Q. Not the transferor subs?
14 A. If we -- if it referred to the transferor subs as receiving
15 the leasehold interest, it was am imprecise reference. There
16 were multiple other references where we clearly identified
17 Holdings as the lessee.
18 Q. In fact, the next reference is on the next page, page 3307,
19 paragraph 23. Take a look at that, please.
20 A. Yes. The subject assets will be transferred to CSL, and
21 CSL will lease the subject assets backs to Windstream, which is
22 defined as "Windstream Holdings," for the use and benefit of
23 the WIN companies, which are the transferor subs.
24 Q. Two pages later, 3309, paragraph 30.
25 A. The lease of the subject assets from CSL by Windstream,

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1 which is Windstream Holdings, for the benefit of the WIN
2 companies. Again, identifying the correct legal structure.
3 Q. We're done with that exhibit, sir. Let's try the State of
4 West Virginia, PX31, Mr. Hayne. Could we turn to page 4826.
5 What is the definition of Windstream Holdings in this
6 submission, sir?
7 A. Windstream.
8 Q. Turn to page 4828, which is page 3 in the document, at
9 paragraph 5, Mr. Hayne, please.
10 And paragraph 5 of PX31, which was the regulatory
11 submission to the State of West Virginia, who did you tell the
12 regulators of the State of West Virginia the lease would be
13 between?
14 A. CSL will lease them, referring back to the subject assets,
15 back to Windstream, which is Windstream Holdings.
16 Q. Go two pages later, paragraph 10, Bates number 4830.
17 In paragraph 10, who did you tell the regulators in
18 the State of West Virginia the lease would be between?
19 A. CSL will lease them back on a longterm exclusive basis to
20 Windstream, which is Windstream Holdings.
21 Q. Go to the next page, which is titled "IV Proposed
22 Transaction," 4831, paragraph 12.
23 Who did you tell the regulators of the State of West
24 Virginia the lease would be between?
25 A. CS&L and Windstream, which is Windstream Holdings, for the

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1 benefit of the Windstream companies.
2 MR. GODFREY: And then again, if you go to page 4846,
3 Mr. Hayne, please.
4 THE COURT: Mr. Godfrey, I can save you some time and
5 say I've got the point, so.
6 MR. GODFREY: It is in every regulatory filing, your
7 Honor.
8 THE COURT: I got it. They are all in evidence, and I
9 will take it under advisement. But I certainly have the point.
10 MR. GODFREY: I might like to do one more, your Honor,
11 with your permission. It will be short.
12 THE COURT: Then duly warned, but go ahead.
13 MR. GODFREY: I think you will find it of interest.
14 BY MR. GODFREY:
15 Q. PX24, the Kentucky regulatory order, page 2, please.
16 Who did the Kentucky regulators announce to the world
17 would be the lessee and tenant between CS&L and who?
18 A. Windstream Holdings. The second paragraph identifies that.
19 Q. Thank you.
20 MR. GODFREY: I'll take your Honor's advice and I
21 won't go through the Alabama order or anything else or the
22 other orders, and I will move on to a new topic.
24 Q. Now, with respect to the Master Lease, Exhibit --
25 Windstream Exhibit 2, you had said that you viewed the

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1 transferor subsidiaries as express beneficiaries. Do you
2 recall that?
3 A. Yes.
4 Q. And as part of the Master Lease terms, how did you view the
5 subsidiaries' use? What could they do with the leased
6 property?
7 A. Transferor subsidiaries had the right to exercise all of
8 the leasehold usage rights of Holdings, and it was expressly
9 recognized by Unity in Section 7.2.
10 Q. Who gave them that right, was that Holdings or someone
11 else?
12 A. CS&L had to grant and agreed to that right. And then
13 Holdings negotiated for that right for the benefit of the
14 transferor subs, which is why I called them express
15 beneficiaries.
16 Q. Now, did the transferor subs owe any direct obligations
17 under the lease to Unity or CS&L, or were those obligations
18 owed solely by Holdings?
19 A. Solely by Holdings. Services and the transferor subs had
20 no obligations under the Master Lease.
21 Q. I'm not going to go back to the regulatory filings. I will
22 just ask you some questions about the testimony on use in the
23 regulatory filings.
24 Do you recall those questions that you were asked?
25 A. Yes.

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1 Q. When you told the regulators that you expected the
2 subsidiaries to have use or exclusive use of the leased
3 premises, what did you mean?
4 MR. FRIEDMAN: Objection to form, your Honor.
6 A. We meant that Holdings would be receiving this leasehold
7 estate, which include the obligation to pay the rent and
8 discharge all other obligations, and had an indefeasible
9 interest in the subject assets, that Windstream Holdings was
10 holding that leasehold estate for the benefit of the transferor
11 subs and it was the expectation and plan for the transferor
12 subsidiaries to in fact do so.
13 Q. Were you suggesting to the regulators that the transferee
14 subs would be lessees --
15 MR. FRIEDMAN: Objection.
16 MR. GODFREY: I will rephrase it, your Honor.
17 Q. At any time, did you have discussions with the regulators
18 about whether or not the transferee subs would be lessees under
19 the Master Lease?
20 MR. FRIEDMAN: Objection, your Honor. There is
21 nothing about discussions in the record, in the discovery
22 record. We probed it.
24 MR. GODFREY: I will rephrase it -- I will move on,
25 your Honor.

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1 Q. When you said you didn't have enough time with respect to
2 the imprecision question, what did you mean by that?
3 A. I meant that we had a framework. I reviewed it in detail.
4 I gave it to my team. And they took it to, I don't know, 15/20
5 counsel, who took it and replicated it. And we did these
6 filings within ten days after announcement of the transaction.
7 In retrospect, when I look back at some of the
8 imprecise statements that Mr. Friedman spent a fair amount of
9 time on this morning, I wish I had more time in retrospect to
10 have cleaned up that language and not have used any of the
11 imprecise statements that were there. But the overall filings
12 I still stand behind as accurate in all material respects,
13 which is the standard you make when you submit those filings.
14 Q. Could you turn to paragraph 41 of your direct testimony,
15 please. Do you have that handy? Hopefully, we've not lost it.
16 A. I have it.
17 Q. Thank you. On the bottom of paragraph 41, page 13, you say
18 that, "For administrative convenience, it was determined that
19 the transferor subsidiaries would retain legal title and avoid
20 the repetitive step of retitling."
21 MR. FRIEDMAN: Your Honor, objection.
22 MR. GODFREY: I haven't finished the question, your
23 Honor.
24 THE COURT: He has not finished the question, that is
25 accurate.

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1 Go ahead.
2 BY MR. GODFREY:
3 Q. Then 42, you say that, "Transferor subsidiaries may enter
4 into agreements with third parties." Do you see that?
5 A. Yes.
6 Q. What were the types of agreements that you had in mind when
7 you wrote those paragraphs?
9 THE COURT: Basis?
10 MR. FRIEDMAN: That we're getting into what
11 Mr. Fletcher had in mind as opposed to the words and the facts.
12 THE COURT: Well, what were you referring to when you
13 used those words?
14 BY MR. GODFREY:
15 Q. What type of agreements?
16 A. Yes. We through that when we reviewed the Master Lease.
17 Collocation agreements, dim fiber agreements, fiber agreements,
18 interconnection agreements. There is host of agreements that
19 the regulated entities, the transferor subs, needed to interact
20 with third parties either as a legal requirement or just to
21 further a business purpose. The dark fiber agreements, you
22 don't have to do that as per regulatory requirements, but that
23 was something we wanted to preserve the right to do and that's
24 why that language was in the Master Lease.
25 Q. Were some of the agreements that you are referring to

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1 agreements to which the subs retained their legal title that
2 was never transferred?
3 A. Yes.
4 Q. We discussed or you discussed the North Carolina sublease.
5 Have you ever seen that before?
6 A. I had never seen that document before today.
7 Q. Are you aware of any other documents like that, or sublease
8 like that?
9 A. We -- that was a unique situation. That's a city. We were
10 not in the business of subleasing our property to cities for
11 parks and recreation. So that we did that. It was -- I did
12 get escalations over time from how do we deal with these
13 requests, because if we didn't enter into that agreement, the
14 city would probably have used eminent domain and condemn the
15 property. So that was an example where the signatory to those
16 documents, Joyce Latham, thought she could enter into a
17 sublease agreement. And the parties might have done the title
18 search, I don't know, that showed that as the proper legal
19 entity.
20 But my experience in commercial real estate is it
21 is -- there are errors in the description of the proper parties
22 to title. And that North Carolina entity had the authority to
23 enter into the agreement, but they should have listed Holdings
24 as the proper holder of the real estate interests, and it was
25 just incorrectly titled and it was imprecise.

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1 Q. OK. With respect to the fiber optics agreement, do you
2 recall that, that you were shown?
3 A. Yes.
4 Q. That was for the use; do you recall that?
5 A. Yes.
6 Q. Was that something that was permitted by Holdings, or not,
7 in terms of the Master Lease and your understanding of the
8 Master Lease?
9 A. Yes. It was contemplated and permitted. And Holdings
10 reserved the right of the parties -- the transferor
11 subsidiaries, I should say, to enter into those type of
12 transactions, because the third parties were used to dealing
13 with them and they were accustomed to working with them.
14 But in that one agreement that I think you are
15 referring to, it said "CSL tenant," I would not have described
16 that party in that way. Holdings should have been listed as
17 the tenant. CS&L should have recognized that when they signed
18 the document. And Bob Gunderman just didn't understand the
19 incorrect description that that document was using. But that
20 entity had the authority to enter into that agreement. They
21 just didn't properly disclose and describe its capacity.
22 MR. GODFREY: I'm done with that topic, sir.
23 Q. In the regulatory filings -- I'm not going to show any
24 more, but in the regulatory filings, did you describe, or do
25 you recall describing the benefits of the 2015 spin-off

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1 transaction to the regulators?
2 A. Yes. They were significant. We reduced debt by initially
3 3.5 billion. And the final number, when we completed the sale
4 of the retained equity, it was over 4 billion; I think it was
5 approximately 4.2 billion. So there was a significant
6 reduction in debt. It improved our free cash flow profile,
7 which we used to reinvest in the business.
8 And the way I think about the investment is in the
9 three years before the transaction, our capital intensity,
10 which was our capital expenditures divided by revenue, was 11
11 to 13 percent. This was a key point we made to the regulators.
12 And as a result of this transaction, we told them we would do
13 13 to 15 percent in the following years, because we really were
14 engaging in a generational technological change of this network
15 that was enabled by the free cash flow of this business. And
16 that is in fact we did in '16, in '17 and during my remaining
17 tenure. We were at least 13 to 15 percent capital intensity,
18 and one year we got to 18 to 19 percent.
19 And those investments were beneficial to all of the
20 stakeholders of this business, our customers, which who are the
21 regulators were worried about, our stockholders, and our
22 noteholders, and we took great pain to make this complex
23 transaction work for all of those stakeholders.
24 Q. I am not going to ask you any further questions, but I
25 assume all the benefits that you at Holdings believed the

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1 regulators should know about are spelled out in the regulatory
2 filings?
3 A. Yes.
4 MR. GODFREY: I am taking your guidance, your Honor,
5 on that.
6 Q. Final topic. You were asked about the payments from the
7 transferor subsidiaries to Holdings in connection with them
8 paying the rental payments to Unity or CS&L; do you recall
9 that?
11 Q. Is there a process by which those payments are documented
12 within the company?
13 A. The treasury function manages the flow of funds throughout
14 the company, and what I don't know is exactly when utilities
15 and insurance and taxes paid at that transferor subsidiary
16 level. I think they're paid at the Services' level. I think
17 they consolidate the funds at that level.
18 But under the Master Lease, every obligation that
19 Holdings has, as the sole tenant, it has the right to discharge
20 those obligations through its express subsidiaries and third
21 parties as well. So all of that flow of funds and payment of
22 funds, if it was using transferor subsidiary money or Services'
23 money, wherever it came from, it is authorized and contemplated
24 by the Master Lease as a permitted process.
25 MR. GODFREY: Mr. Hayne, Windstream Exhibit 7, please.

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1 THE COURT: Mr. Godfrey, how much longer do you have
2 so we can time our lunch break?
3 MR. GODFREY: Five minutes or less.
4 THE COURT: All right. I will hold you to it and then
5 we will break for lunch.
6 Go ahead.
7 MR. FRIEDMAN: Your Honor, I will have, if it is all
8 right, about five minutes of recross.
9 THE COURT: I think we will take that after lunch but
10 that is fine.
11 MR. FRIEDMAN: That is fine.
12 MR. GODFREY: Would you go to the signature page,
13 Mr. Hayne. I'm sorry. That was my mistake in directing you.
14 Q. Whose signature is that there, Mr. Fletcher?
15 A. Bob Gunderman, as CFO, and myself, as general counsel.
16 Q. And what is this Exhibit 7, Windstream Exhibit 7?
17 A. Can you go back to the prior page, please?
18 MR. GODFREY: Perhaps enlarge it, Mr. Hayne, for those
19 of us with poor eyesight.
20 A. This is an officers' certificate given each quarter, or
21 maybe more frequently, to the Trustee under all of our notes.
22 And it is confirming compliance with restricted payments that
23 we have made during the covered period, which is generally
24 three months or less.
25 Q. Can you read into the record, please, the second previous

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1 of Windstream Exhibit 7.
2 A. "On the date hereof, Windstream Services, LLC, will make a
3 dividend payment to parent, Windstream Holdings, Inc., which
4 will pay a lease payment to communications, sales & leasing in
5 the amount of $54,166,666.67 (the "restricted" payment.)"
6 Q. And with respect to this dividend payment, did you have
7 to -- how often did you prepare and sign these officer
8 certificates?
9 A. Every quarter, when we had a quarterly dividend and when
10 there is a special transaction like the 2015 spin-off, it could
11 require some one within the normal quarterly period. So we
12 provided one at the closing of the spin-off.
13 And every time Holdings makes a payment of rent to
14 CS&L, it has to follow this process. And you cannot pay rent
15 by Holdings to CS&L without meeting this financial test, and
16 there are restrictions on it. And this is one reason why Unity
17 did not like having the lease at the Holdings level.
18 MR. GODFREY: Your Honor, rather than do the other
19 exhibit, just for the record, Windstream Exhibits 3 through 29
20 are these quarterly officer certificates, and they are
21 basically, you will see with almost no alteration, they are the
22 same.
23 THE COURT: They are in evidence and I will take a
24 look at them.
25 (Defendant Windstream Exhibits 3 through 29 received

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1 in evidence)
2 MR. GODFREY: And with that, your Honor, I have no
3 further questions of Mr. Fletcher. Thank you very much.
4 THE COURT: All right. We will, as he mentioned, take
5 our lunch break. It is 1:03. Please be back in the courtroom
6 at 2 o'clock ready to go.
7 Once again, Mr. Fletcher, you are not to communicate
8 with counsel during the break, and if you could please be back
9 here a minute or two before 2 while you are on the stand, that
10 would be great. Enjoy your lunch. I will see you at 2.
11 THE CLERK: All rise.
12 (Luncheon recess)
13
14
15
16
17
18
19
20
21
22
23
24
25

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I7NAUSB4ps Fletcher - recross
1 A F T E R N O O N S E S S I O N
2 2:00 p.m.
3 THE COURT: We will continue with the recross of
4 Mr. Fletcher.
5 Mr. Fletcher, you remain under oath.
6 Mr. Friedman, you may proceed.
7 MR. FRIEDMAN: Thank you, your Honor.
8 RECROSS EXAMINATION
9 BY MR. FRIEDMAN:
10 Q. Mr. Fletcher, when you were answering Mr. Godfrey's
11 questions, you pointed out places in the regulatory commissions
12 where statements were made that there would be a master lease
13 signed by Holdings. Do you recall that?
14 A. I do.
15 Q. And the point was that there were statements to the
16 regulators that the transferor subsidiaries would be leasing,
17 and there were also statements to the regulators that Holdings
18 would be leasing. Is that correct?
19 A. There were more statements to the -- of Holdings, I
20 believe, than the other.
21 Q. You think there were more statements about Holdings as
22 leasing than the transferor subsidiaries as leasing.
23 A. Yes.
24 Q. OK. Now, would you agree with me that, under the master
25 lease, the tenant has a write of assignment or sublease to any

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1 of its subsidiaries?
2 A. Yes.
3 Q. In fact that's a right of assignment or sublease even
4 without the consent of CSL, correct?
5 A. Yes. Certain steps have to be made.
6 Q. So as the master lease was structured back in -- these
7 regulatory submissions were happening in the summer and fall of
8 2014. Correct?
9 A. Correct.
10 Q. And your understanding at that time was that there would be
11 a master lease between CSL and Holdings, and your understanding
12 was that, under the master lease, Holdings could assign or
13 sublease to any of the transferor subsidiaries, correct?
14 A. Yes. It had that right.
15 Q. And would you agree with me that when you take into account
16 the right of Holdings to assign or sublease, it's perfectly
17 plausible that all the statements to the regulators were
18 correct?
19 MR. GODFREY: Objection, form, your Honor.
20 THE COURT: Sustained as to form.
21 Q. Would you agree with me that if Holdings exercised its
22 right to assign or sublease to the transferor subsidiaries,
23 then the transferor subsidiaries would be leasing the leased
24 product?
25 A. Yes.

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1 Q. Is it fair to say that the regulators could well have
2 understood that, even with Holdings as the party signing the
3 master lease, the transferor subsidiaries also could be leasing
4 because Holdings could assign or sublease to the transferor
5 subsidiaries?
6 MR. GODFREY: Objection, form and speculation, your
7 Honor.
8 THE COURT: Sustained as to both.
9 Q. Now, moving to a different question, Mr. Fletcher, you
10 talked about the planning process for the transaction and the
11 decision to have Holdings sign the master lease. Do you recall
12 that testimony?
13 A. Yes.
14 Q. Am I correct that during that planning process, you were
15 aware that if the transferor subsidiaries signed the master
16 lease, that would be a clear violation of the indenture that is
17 at issue in this case?
18 MR. GODFREY: Objection, beyond the scope, your Honor.
19 MR. FRIEDMAN: Well, your Honor, Mr. Fletcher was
20 asked on redirect about why Holdings was a signatory, and part
21 of his answer was a very quiet passing reference to the
22 indenture. I'm picking up on that.
23 THE COURT: Fair enough. I think it's within the
24 scope of those questions.
25 You may answer.

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1 A. Would you please repeat the question?
2 Q. Yes. The question is, at the time that this transaction
3 was being planned, you were aware that if the transferor
4 subsidiaries signed the master lease, that would have been a
5 clear violation of the indenture at issue in this case.
6 A. Yes.
7 Q. Now, when Mr. Godfrey was questioning you, he asked you
8 about the Kentucky decision. Do you recall that?
9 A. Yes.
10 Q. And he pointed out to you that in the Kentucky decision,
11 the decision refers to Holdings as leasing the assets. Do you
12 recall that?
13 A. Yes.
14 Q. And I was a little surprised; Mr. Godfrey started to refer
15 to the Alabama decision, but then did not ask you about it. Do
16 you recall that?
17 MR. GODFREY: Objection. I asked, your Honor. He
18 answered.
19 MR. FRIEDMAN: I'll ask a new question. Sorry.
21 Q. Do you recall, Mr. Fletcher, in the Alabama decision, the
22 Alabama Public Service Commission says, twice, in this
23 transaction, the transferor subsidiaries are leasing the
24 assets, and never once says Holdings is leasing the assets? Do
25 you recall that?

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1 A. I would have to see the document again. Before today I had
2 never read the Alabama order.
3 Q. When Mr. Godfrey was questioning you about the negotiation
4 of the master lease, you said something about Unity wanted a
5 lease with the transferor subsidiaries. Did you say something
6 like that?
7 A. I said something to that effect.
8 Q. So let me just understand the substance and the time. The
9 basic terms of the master lease, with Holdings as the sole
10 signatory, were worked out back in the middle of 2014. You
11 were working on the IRS private letter ruling in July of 2014.
12 Does that help you place when the basic terms of the master
13 lease were worked out?
14 A. It was before July 2014. We began working on the
15 transaction initially in March 2013. I don't remember exactly
16 when we came to rest on that structure.
17 Q. At least no later than the regulatory submissions and the
18 IRS submissions, the structure was that Holdings would be the
19 sole signatory. Correct?
20 A. I do recall about the regulatory submissions, PSC, we had
21 that structure. It was outlined in the documents we looked at
22 today. I do not recall the PLR structure, if it had been set
23 at that time. That was very early in the process.
24 THE COURT: Sorry, the PLR structure is what?
25 THE WITNESS: Private letter ruling filing, which I

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1 believe was in May and June 2013.
3 Q. May or June of 2014? '13, you said. I just didn't hear.
4 I apologize?
5 A. I thought it was '13.
6 Q. OK. The private ruling was --
7 A. The initial filing.
8 Q. Fine. So at least by the time of the regulatory
9 submissions, the structure was in place; Holdings would be the
10 sole signatory, correct?
11 A. Yes. The July 31 time frame, when we began making those
12 filings, that was our plan.
13 Q. July 31, 2014.
14 A. 2014. Thank you.
15 Q. And by that time, the so-called negotiation of the master
16 lease had largely been completed, correct?
17 A. I wouldn't say that. We were still working on provisions,
18 and we were still getting input from financing parties, which
19 is always significant, because the deal hadn't been financed.
20 Q. When you talk about getting input from financing parties,
21 are you talking about potential investors in Windstream or in
22 the CSL entity?
23 A. Primarily CS&L. That's where the bulk of the capital
24 raises were needed.
25 Q. And do you recall who at Windstream was having the

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1 communication with the financing parties?
2 A. Well, initially it would have been Tony Thomas, who was the
3 CFO of Windstream and the designated president of the REIT
4 operations. And that structure changed after December of 2014
5 when Tony was named CEO of Windstream Holdings.
6 Q. And then in 2014, who was involved in the discussions with
7 the financing parties?
8 A. Prior to December 2014 --
9 Q. After December 2 -- I thought you said prior to December
10 2014 it was Tony Thomas.
11 A. Yes.
12 Q. After December 2014, who was it?
13 A. Bob Grunderman became CFO, and the -- we were looking for a
14 new president of the REIT operations, and during that period, I
15 would say Tony and Bob were both looking at the financing for
16 CS&L.
17 Q. And were you involved in discussions with the financing
18 parties?
19 A. Not very closely. I was not very closely involved in this.
20 Q. Am I correct you heard from Tony Thomas and Bob Grunderman
21 what was going on in the discussions with the finance parties?
22 A. Yes.
23 Q. Now, one of the things you said in talking about Unity was
24 that -- and I apologize; I'm not trying to put words in your
25 mouth -- Unity wanted to feel safer, so they wanted -- they

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1 felt -- they would have felt better if the transferor
2 subsidiaries signed the master lease? Did I catch correctly
3 what you were saying?
4 A. Yes. Yes.
5 Q. At least in substance.
6 Now, isn't it a fact that Windstream recognized, and
7 the market recognized, that it really didn't matter, as a
8 practical financial matter, who signed the master lease?
9 MR. GODFREY: Objection as to the form. It's
10 speculation regarding the market, your Honor.
11 THE COURT: I'll allow the witness to testify to his
12 understanding of whether that mattered.
13 A. I don't agree with the statement.
14 Q. You knew that in 2015, Windstream was involved in
15 presentations to the rating agencies about the transaction,
16 correct?
17 A. I don't know the exact time period when those discussions
18 occurred. I think that's right. Those happened three years
19 ago.
20 Q. I'm going to show you a document that we've marked as
21 PX 58.
22 MR. FRIEDMAN: Joe, you could bring that up, the first
23 page.
24 Q. This is a Windstream rating agency presentation from 2015.
25 I don't have -- this is a document produced by Services. We

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1 don't have an exact date on it. I'm going to call your
2 attention --
3 MR. GODFREY: Objection, beyond the scope, your Honor.
4 MR. FRIEDMAN: No. We --
5 THE COURT: There's no question on the table yet. Go
6 ahead.
7 Q. I'm going to ask you, please, to look at page 50 of this
8 presentation, which in the first box says "implicit priority."
9 What was being presented by Windstream to the rating agencies
10 was "continued viability of WIN requires timely payment of
11 master lease before any other payments except requisite
12 operating expenses." Do you understand that --
13 MR. GODFREY: Objection plus lack of foundation as to
14 this witness's knowledge.
15 MR. FRIEDMAN: If may, your Honor --
16 THE COURT: I will give you a little latitude, but
17 you're going to have to make your --
18 MR. FRIEDMAN: I will.
19 Q. You see that statement that I just read, Mr. Fletcher?
20 A. I see the statement on the screen.
21 Q. Do you agree with that?
22 A. I did not draft this statement.
23 Q. Say again?
24 A. I did not draft this statement, and I would not have made
25 the statement.

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1 Q. The people at Windstream who were making these
2 presentations to the rating agencies would have been Bob
3 Grunderman and Tony Thomas?
4 A. In the time frame of 2015?
5 Q. Yes.
6 A. It would have been Bob Grunderman.
7 Q. Would you agree with me that if the transferor subsidiaries
8 stopped providing funding to Holdings, to pay the master lease,
9 CSL would be able to declare default?
10 A. I do not follow your question.
11 Q. As the transaction was planned and at the present time, the
12 funding source for the rent payments is the operations of the
14 A. Correct.
15 Q. And if the subsidiaries stop providing the funding, then
16 Holdings does not have its own operations to pay the rent.
17 Correct?
18 A. Holdings is a holding company without separate operations.
19 Q. So whether -- would you agree with me -- whether the
20 obligation is at the Holdings level or at the
21 transferor-subsidiary level, as a practical matter, it doesn't
22 matter to Unity?
23 A. I disagree with that statement. This is a long-term lease,
24 up to 35 years in structure. I think it very much matters.
25 Q. Now, you were testifying in response to Mr. Godfrey's

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1 questions that every obligation under the master lease can be
2 discharged by the transferor subsidiaries. Correct?
3 A. That's my recollection, yes.
4 Q. And am I also correct that every right of the tenant under
5 the master lease can be exercised by the transferor
6 subsidiaries? Correct?
7 A. As a general proposition I think that's correct.
8 Q. And the ability of the transferor subsidiaries to exercise
9 every right of tenant under the master lease includes the right
10 to sublease the leased property.
11 A. Please say that again? I didn't follow your question.
12 Q. The rights of the transferor subsidiaries to exercise the
13 rights of tenant under the master lease include the right to
14 sublease the leased property.
15 A. I -- that to me required separate action by Holdings to
16 delegate that authority.
17 Q. And Holdings in fact has delegated that authority?
18 A. We had a process where we communicated --
19 Q. Could you answer that question yes or no? Has Holdings
20 delegated that throat?
21 A. We have an operating procedure, yes.
22 Q. Now, would you agree with me that Windstream structured a
23 master lease under which the transferor subsidiaries can behave
24 in all respects as the tenant?

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I7NAUSB4ps Fletcher
2 A. Again, at Holdings' direction.
3 Q. Was the answer to my question yes?
5 Q. Would you agree that Windstream structured a master lease
6 under which the transferor subsidiaries can behave in all
7 respects as tenant?
8 A. I would have to go back to the 110-page document -- it has
9 been some time since I've really worked with it -- to answer
10 your question. So I can't answer that question right now.
11 MR. FRIEDMAN: No further questions.
12 THE COURT: All right. Let me ask two questions of my
13 own. Then counsel, if you want to follow up briefly, you may.
14 First, Mr. Friedman just asked you earlier if you were
15 aware at the time that the transferor subsidiaries had signed
16 the master lease that it would have been a violation of the
17 terms of the indenture, and you said yes. That's correct?
18 THE WITNESS: I did say that, yes. But the
19 transaction scope that we had effected, if you had done it at
20 the transferor-subsidiary level, you probably would have had a
21 smaller transaction.
22 THE COURT: Well, that's not the question. I think
23 you testified that, had the transferor subsidiaries signed the
24 master lease, that it would have been -- had they been parties
25 to it, it would have been a violation of the indenture.

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I7NAUSB4ps Fletcher
1 THE WITNESS: If Services and transferor subs
2 executed, I don't think it would have complied with it.
3 THE COURT: All right. Keep your voice up. So my
4 question is, was that among the reasons that it was structured
5 in this particular way, where Holdings was the sole tenant
6 under the --
7 THE WITNESS: Yes. That's why I listed it in my list
8 of reasons as, when we did something, that was part of the
9 reasons why, from the corporate finance standpoint, that we put
10 the agreement -- the lease at Holdings.
11 THE COURT: All right. But just to be clear, since
12 it's fairly central here, was it discussed and understood at
13 the time that one of the reasons to have Holdings be the sole
14 tenant under the indenture was to avoid a -- sorry, under the
15 master lease -- was to avoid a breach of the indenture?
16 THE WITNESS: Yes. It was to provide a compliance
17 framework for that indenture.
18 THE COURT: All right. In paragraph 54 of your
19 affidavit, you state that the indenture could have been drafted
20 to preclude transactions like and including the 2015
21 transaction. For instance, it could have prohibited Services
22 on the transferor subsidiaries from leasing directly or
23 indirectly, quote/unquote, a formulation used in other contexts
24 in the indenture, including in Section 4.09, or prohibited
25 corporate affiliates from entering into prohibited

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I7NAUSB4ps Fletcher
1 transactions, and then you say another concept used in other
2 contexts in the indenture. What other contexts are you
3 referring to there?
4 THE WITNESS: So the "directly or indirectly" is used
5 throughout the term of chain of control, which is one of the
6 more important definitions of the agreement and one that's
7 gotten a lot of my attention over the years. And there are
8 many examples throughout the agreement of prohibition of
9 transactions with affiliates where that term is used. And if
10 either of those phraseologies had been 4.19 and sale and
11 leaseback transactions, I would not have supported the
12 transaction as it was structured.
13 THE COURT: Can you give me an example of the other
14 context in which the prohibition was on the corporate
15 affiliates.
16 THE WITNESS: I will have to look.
17 THE COURT: Sure.
18 THE WITNESS: You would go throughout article 4, is
19 really the source of most of the covenants.
20 THE COURT: If you can't find it, that's OK. I was
21 just wondering what you had in mind, when including those words
22 in paragraph 54.
23 THE WITNESS: I am not finding it quickly here.
24 THE COURT: All right. But you think it would be in
25 article 4 of the indenture agreement?

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I7NAUSB4ps Fletcher - redirect
1 THE WITNESS: Yes. It would be, within 4.11 is an
2 entire section on transaction of affiliates. And it may be
3 buried within the definitional terms, but it is a concept that
4 the indenture uses, and if those words had been in the
5 framework, it would have been a different analysis.
7 Counsel, any follow-up on that?
8 MR. FRIEDMAN: No, your Honor.
9 MR. GODFREY: Briefly, your Honor.
11 BY MR. GODFREY:
12 Q. Mr. Fletcher, you said that the phrase "directly or
13 indirectly" was used at various spots in the indenture. Let's
14 take a look at page 61, section 4.07(a), please.
15 MR. FRIEDMAN: Your Honor, this is just leading and
16 inappropriate.
17 MR. GODFREY: I haven't asked a question yet, your
18 Honor.
19 THE COURT: That is true. Are you going to just have
20 him identify places where those words occurred?
21 MR. GODFREY: If I do that, would that be helpful to
22 the Court?
23 THE COURT: No. You can do that separately.
24 MR. GODFREY: I have no further questions, your Honor.
25 Thank you.

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I7NAUSB4ps Fletcher - redirect
1 THE COURT: All right. Mr. Fletcher, you may step
2 down.
3 (Witness excused)
4 THE COURT: You can leave that there and counsel will
5 retrieve it in one moment -- which is to say, counsel, you
6 should retrieve that in one moment.
7 MR. GODFREY: I will do that, your Honor.
8 Your Honor, do you want us to keep the original
9 affidavits? Is that what you prefer us to do?
10 THE COURT: Yes. Thank you.
11 MR. GODFREY: If I may approach to retrieve the
12 original binder?
13 THE COURT: You may. And will somebody get
14 Mr. Eichler in the meantime?
15 MR. GODFREY: Yes.
16 JOHN EICHLER,
17 the defendant herein,
19 THE COURT: You may proceed.
20 MR. GODFREY: Thank you, your Honor. May I approach
21 the witness, your Honor?
23 MR. GODFREY: Counsel needs to approach the bench
24 because I have a notebook for you as well. It's the same
25 notebook. It says "Judge" on it, your Honor.

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I7NAUSB4ps Eichler - direct
1 THE COURT: I'm entitled to the right title.
2 All right, you may proceed.
3 MR. GODFREY: One more, your Honor. This is Exhibit
4 191.
5 It's your original affidavit, sir.
7 BY MR. GODFREY:
8 Q. Mr. Eichler, you have before you what has been marked as
9 Windstream Exhibit 191. Do you recognize that document, sir?
10 A. Yes.
11 Q. If you turn to the last page of Exhibit No. 191, whose
12 signature appears there, sir?
13 A. That's mine.
14 Q. Did you prepare that document?
15 A. Yes.
16 Q. Since that document has been prepared, have you found
17 anything in that document that you would like to change?
18 A. I have. The last sentence.
19 Q. Thank you.
20 MR. GODFREY: Your Honor, I sent an e-mail yesterday
21 to Mr. Friedman with the language from the last sentence that
22 Mr. Eichler would like to change. He has a copy in his
23 notebook. Mr. Friedman has a copy of it. Does your Honor want
24 a separate copy, or should Mr. Eichler just read it into the
25 record.

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I7NAUSB4ps Eichler - direct
1 THE COURT: I think reading it into the record would
2 suffice.
3 Q. Let's look at the very last -- what do you want changed,
4 Mr. Eichler, what sentence?
5 A. The sentence currently reads --
6 Q. What sentence, what paragraph, what page? We'll start with
7 that.
8 A. It's on the last page.
9 Q. That's page 5, Windstream Exhibit 191, page 5?
10 A. Page --
11 THE COURT: I think it's 4.
12 A. It's 4 at the bottom of the page, but paragraph 16, the
13 very last sentence.
14 Q. And you would like to change that sentence?
15 A. Yes.
16 Q. What would you like that sentence to now read as?
17 A. "Any subsidiaries for placement capital expenditures that
18 are funded by Unity are reflected on Holdings' standalone
19 financial statements because of the failed sale/spinoff and
20 leaseback accounting treatment discussed herein."
21 Q. With that change to the very last page of Windstream
22 Exhibit 191, which is your affidavit in this action, are the
23 contents as stated in your affidavit true, accurate, and
24 correct to the best of your personal knowledge?
25 A. Yes.

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I7NAUSB4ps Eichler - cross
1 Q. Are the statements made in Windstream Exhibit 191 based
2 upon -- is there any other change you want to make? No other
3 changes?
4 A. No other changes.
5 MR. GODFREY: Your Honor, I would offer that for the
6 direct testimony of Mr. Eichler, Windstream Exhibit 191, into
7 the record.
8 THE COURT: I suppose just to be precise, any
9 objection to the correction? You've already indicated no
10 objections to the remainder.
11 MR. FRIEDMAN: And no objections to the correction,
12 your Honor.
13 THE COURT: Windstream 191 is admitted.
14 (Defendant's Exhibit 191 received in evidence)
15 MR. GODFREY: Thank you, your Honor. With that I will
16 pass the witness to Mr. Friedman again.
17 THE COURT: All right. Mr. Friedman.
18 CROSS-EXAMINATION
19 BY MR. FRIEDMAN:
20 Q. Good afternoon, Mr. Eichler.
21 A. Hello.
22 Q. In paragraph 2 of your direct-testimony affidavit, you
23 describe the transaction that occurred in April 2015, correct?
24 A. Correct.
25 THE COURT: Mr. Eichler, can you just move a little

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1 closer to the microphone, please, and keep your voice up so
2 that everybody can hear you.
3 Q. That is the transaction that closed on April 24, 2015.
4 A. Correct.
5 Q. On that date, the transferor subsidiaries transferred their
6 telecommunications network assets to CSL, correct?
7 A. Yes.
8 Q. There were approximately 64 transferor subsidiaries. Is
9 that right?
10 A. I think that's right.
11 Q. In your description of the transaction in paragraph 2, you
12 don't mention anything about leasing, I noticed.
13 THE COURT: I'm a little confused. Paragraph 2, if
14 I'm working off the same affidavit, says that, as controller of
15 Windstream, he is responsible for various things.
16 MR. FRIEDMAN: Oh, I meant 5, your Honor. My mistake.
17 I apologize. I'm referring to --
18 THE COURT: You flipped the two over.
19 MR. FRIEDMAN: Paragraph 5. Right. I must have been
20 standing on my head.
22 Q. OK. I'm really sorry. Paragraph 5, Mr. Eichler, you have
23 a description of the transaction. It does not mention anything
24 about leasing. Is that correct?
25 A. Correct.

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1 THE COURT: Sorry.
2 THE WITNESS: Correct.
3 Q. Am I correct that leasing was actually an important part of
4 the April 2015 transaction? Correct?
5 A. Yes.
6 Q. On April 24, 2015, the master lease was signed. Is that
7 right?
8 A. Yes.
9 Q. And it was understood at that time that the transferor
10 subsidiaries would be continuing to use the transferred assets
11 to serve their customers and operate their businesses.
12 A. Yes. They are listed as express subsidiaries under the
13 lease.
14 Q. Before and after the signing of the master lease, am I
15 correct the transferor subsidiaries are the Windstream entities
16 that have been using the telecommunications network assets? Is
17 that right?
18 A. Yes, that's right.
19 Q. And no other Windstream entities, other than the transferor
20 subsidiaries, have been using the transferred assets since
21 April 24, 2015. Correct?
22 A. Correct.
23 Q. You mention in your direct testimony that Ernst & Young was
24 retained to assist in determining the appropriate accounting
25 treatment associated with the transaction. Is that right?

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1 A. Yes.
2 Q. And Windstream also engaged with PwC on the appropriate
3 accounting treatment. Is that right?
4 A. Yes.
5 Q. The accounting treatment for the transaction ultimately
6 decided upon, was that in accord with advice received from
7 Ernst & Young and PwC?
8 A. Yes.
9 Q. And the accounting treatment for the transaction is in
10 accord with GAAP.
12 One clarification. Ernst & Young was very involved in
13 the early stages of our accounting evaluation, and near the end
14 of it we primarily engaged with PwC.
15 Q. Now, am I correct that Windstream prepares financial
16 statements for each of the transferor subsidiaries?
17 A. Yes.
18 Q. Let me show you PX 66.
19 MR. FRIEDMAN: I'll ask Joe to please put up it on the
20 screen.
21 Q. I'm sure you recognize it. This is sometimes referred to
22 as "the accounting memo." Is there a term you use to describe
23 this document, Mr. Eichler?
24 A. It's the accounting memo.
25 Q. The accounting memo, OK. I thought I got that from

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1 somewhere.
2 And am I correct that PX 66 was created by Windstream
3 management with the aid of its advisors?
4 A. Yes.
5 Q. And those advisors include PwC and Ernst & Young.
6 A. Yes.
7 Q. This accounting memo explains and memorializes the planned
8 accounting treatment for the transaction. Is that right?
9 A. That's right.
10 Q. Is it fair to say that this accounting memo is the final
11 official Windstream conclusion as to how the transaction would
12 be accounted for?
13 A. Yes.
14 Q. And you worked on this accounting memo, correct?
15 A. That's right.
16 Q. It was important in the course of your work on the memo to
17 make sure that the information set forth in the memo was
18 accurate. Is that right?
19 A. That's right.
20 Q. And it was important to make sure that the reasons
21 explained for the accounting treatment were accurately set
22 forth. Correct?
23 A. Yes.
24 Q. And it was important to make sure that the description of
25 the transaction was accurate. Correct?

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1 A. Yes.
2 Q. And important to make sure that there was an accurate
3 setting forth of the plans concerning the use of the assets.
4 Correct?
5 A. Yes. I'd say everything in the memo is intended to be
6 accurate.
7 Q. And fair to say that extensive and careful effort went into
8 the preparation of this memorandum?
9 A. Yes.
10 Q. And you satisfied yourself that the accounting conclusions
11 expressed in the memo are valid and correct?
12 A. Yes.
13 Q. And you do have personal knowledge of the contents of the
14 memo.
15 A. Yes.
16 Q. As part of the planning for what became the April 24, 2015
17 transaction, there were communications with the SEC; is that
18 correct?
20 Q. And these communications were in the range of August,
21 secretary, and October 2014; is that right?
22 A. Yes.
23 Q. Am I correct that Windstream was communicating with the SEC
24 for advice on the appropriate accounting treatment for the
25 transaction?

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1 A. Yes, that's correct.
2 Q. And at the time of the communications with the SEC, the
3 material aspects of the transactions had already been planned
4 at Windstream.
5 A. I would say so.
6 Q. You say in paragraph 10 of your direct testimony affidavit
7 that Windstream accounted for the 2015 transaction as a
8 financing. Is that correct?
9 A. Yes.
10 Q. When you talk about accounting for the transaction as a
11 financing, am I correct that means, among other things, the
12 transferor subsidiaries retain the transferred assets on their
13 balance sheet?
14 A. Yes.
15 Q. And also the transferor subsidiaries record a liability.
16 A. That's right.
17 Q. The liability, in the case of a transaction accounted for
18 as a financing, is sometimes called a financing obligation.
19 Correct?
20 A. Correct.
21 Q. In this case, the decision was made to use the terminology
22 "long-term lease obligations" to describe the obligation. Is
23 that correct?
24 A. Yes.
25 Q. The terminology "long-term lease obligations" best

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1 indicates the significance and character of the liability.
2 Correct?
5 A. If it was -- it was originally evaluated --
6 Q. Could you answer the question yes or no if you are able to.
7 If you're not able to, just tell me.
8 A. Yeah. It was a recognition of the --
9 Q. Sorry.
10 THE COURT: Three options: yes, no, or, I'm not able
11 to.
12 Q. Do you want me to ask the question again?
13 A. I would say it's yes. It characterized that based on the
14 relationship that it had with the lease.
15 Q. So, to be clear, you would agree that the terminology used
16 for the financing obligation, namely "long-term lease
17 obligations," best indicates the significance and character of
18 the liability.
19 A. Yes.
20 Q. The transaction is accounted for on the financial
21 statements of the transferor subsidiaries and also on the
22 financial statements of Holdings. Is that correct?
24 Q. And as part of the accounting for the transaction, the
25 Holdings income statement shows "leasing income from

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1 subsidiaries." Is that correct?
2 A. Yes.
3 Q. And the decision to use that terminology to describe the
4 revenue received by Holdings was a decision by Windstream
5 management; is that correct?
6 A. Ultimately it was the decision of that.
7 Q. Ultimately it was the decision --
8 A. Yes.
9 Q. -- of Windstream management?
10 A. Yes.
11 Q. And before making that decision, management discussed its
12 terminology with PricewaterhouseCoopers?
13 A. Yes, we did.
14 Q. And PricewaterhouseCoopers agreed that this is the way
15 Windstream needed to reflect the Holdings revenue to meet GAAP
16 accounting rules, correct?
17 A. It was their suggestion that we present it this way.
18 Q. And management agreed.
19 A. We ultimately agreed. We had discussions about it, about
20 the presentation of it, but ultimately we agreed. I mean,
21 it's --
22 Q. OK. Now, you would agree that, under GAAP, it is required
23 to use the terminology that best indicates the significance and
24 character of the matters being reported.
25 A. Yes.

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1 Q. You say, in paragraph 10 of your affidavit, that you
2 determined -- quote, "We determined that the 2015 transaction
3 could not be classified as a sale leaseback under GAAP because
4 it did not constitute a sale under GAAP due to the continued
5 involvement in the transferred assets by the transferor
6 subsidiaries." That was part of your direct testimony. Do you
7 have your affidavit there?
8 A. I do.
9 Q. So you see what I just read to you from paragraph 10?
10 A. Could not be classified as a sale-leaseback under GAAP
11 because it did not constitute a sale under GAAP. Right.
12 Q. I want to focus you in on the statement that it did not
13 constitute a sale under GAAP. Do you see that?
14 A. Yes.
15 Q. And are you telling the Court that, as part of the
16 Windstream accounting analysis, a determination was made that
17 the transfer of the assets by the transferor subsidiaries did
18 not constitute a sale?
19 A. Based on the sale leaseback accounting guidance that we
20 were evaluating, it did not -- it was not considered a sale
21 under the sale leaseback accounting guidance. That's what
22 that's speaking to.
23 Q. Well, let me ask you to look at the accounting memo again.
24 This is PX 66.
25 MR. FRIEDMAN: And, Joe, I'll ask you, please, to

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1 bring it up. And can we turn, please, to PX 66 at page 7.
2 Q. Do you see, Mr. Eichler, I highlighted one sentence under
3 issue 3. And the sentence that's highlighted reads, "As of the
4 April 24, 2015 closing date, the transaction met the four
5 criteria for a 'sale of real estate' as defined in ASC
6 360-20-40-7." Do you see that?
7 A. Yes, I do.
8 Q. So you would agree that, as part of the accounting analysis
9 at Windstream, there was a determination that the transaction
10 met the criteria for a sale of real estate. Correct?
11 A. Under that particular accounting code, 360-20-40-7, it met
12 the criteria of the sale of real estate, which is different
13 than the guidance that I'm referring to in the affidavit.
14 Q. Let me ask you, by your advancing the assertion -- well,
15 let me back up a second. Do I understand you correctly; you
16 are saying, in your direct testimony, that, in your view, the
17 transaction was not a sale and leaseback under GAAP?
19 Q. And by your advancing that assertion, are you intending to
20 suggest to the Court that it matters in this case whether the
21 transaction is a sale and leaseback under GAAP?
22 A. Just stating the facts around our conclusion.
23 Q. You understand that there's a legal issue before the Court
24 as to whether the transaction here is a sale and leaseback
25 transaction under the indenture.

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1 A. Yes, I do.
2 Q. And do I understand you correctly, you have no view as to
3 whether the GAAP recognition or nonrecognition as a sale and
4 leaseback transaction has anything to do with the legal issue
5 before the Court?
6 A. No. I'm just speaking to the accounting conclusions.
7 THE COURT: May I go back one minute. You said that
8 the guidance -- I'm not going to repeat the numbers -- but with
9 respect to the sale of real estate in the ASC, whatever that
10 stands for, that that differs from the guidance that you were
11 referring to in the affidavit. Can you just spell that out and
12 explain what you mean by that.
13 THE WITNESS: Sure. The guidance I'm referring to in
14 the affidavit is specific to the sale and leaseback accounting
15 guidance that we had to evaluate this transaction under, and
16 one of the criteria for it to achieve accounting treatment as a
17 sale and leaseback is, you have to meet certain criteria. One
18 of the criteria is that you satisfy certain measurements around
19 continuing involvement in the asset. So if the seller or
20 lessee has any significant continuing involvement in the asset
21 under the sale and leaseback accounting guidance, you really
22 treat it as though you have not transferred the rights and
23 rewards of ownership of that asset, essentially treat it as
24 though there is not a sale.
25 THE COURT: All right. And as long as we're on the

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1 topic, am I wrong that the financing method is a subset of sale
2 and leaseback transaction under the accounting guidance?
3 THE WITNESS: If you do not qualify for a sale-
4 leaseback accounting treatment, then you fall back to treatment
5 as a financing under Section 360.
6 THE COURT: Right. And my question is, if you don't
7 qualify for treatment of a sale-leaseback accounting treatment
8 then you fall back to the financing method, or I think there's
9 a third as well, correct?
10 THE WITNESS: Well, for our evaluation it really just
11 fell back to financing.
12 THE COURT: All right. But is that not still a subset
13 of the larger category called sale-leaseback transactions?
14 THE WITNESS: No.
15 THE COURT: So in your view, the financing method is
16 not a method of accounting --
17 THE WITNESS: It's not --
18 THE COURT: Hold on a second. Let me finish my
19 question. It's not a method of accounting for a sale-leaseback
20 transaction; it's a wholly different kind of transaction?
21 THE WITNESS: That's correct.
22 THE COURT: OK.
23 BY MR. FRIEDMAN:
24 Q. I'd actually like to follow up a little bit on the Court's
25 questions. When a sale and leaseback transaction has occurred,

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1 then, under GAAP, it must be accounted for under one of three
2 different methods, depending on the circumstances. Is that
3 correct?
4 A. I think that, once you achieve a sale-leaseback, then I
5 think you would evaluate that transaction as either an
6 operating lease or a capital lease.
7 Q. Let me try to make this a little more concrete. You are
8 familiar with ASC 840-40-25-11?
9 A. I -- it's been a while since I reviewed that section, but
10 I'm generally familiar with Section 840.
11 Q. What that says is, "A sale leaseback transaction that does
12 not qualify for sale leaseback accounting because of any form
13 of continuing involvement by the seller-lessee, other than a
14 normal leaseback, shall be accounted for by the deposit method
15 or as a financing, whichever is appropriate under 360-20."
16 You're familiar with that provision?
17 A. Yes. I recall it.
18 Q. And would you agree with me that the starting point for
19 that provision, that I just read to you, is that, where there
20 has been a sale and leaseback transaction, that sale and
21 leaseback transaction will have to be accounted for either
22 under what's called sale and leaseback accounting or as
23 financing or under the deposit method? Those are three ways of
24 accounting for a sale and leaseback transaction. Correct?
25 A. I think that's correct.

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1 Q. In the accounting memo, Services did not determine that the
2 2015 transaction was not a sale and leaseback under GAAP.
3 Correct?
4 A. Can you repeat the question?
5 Q. Yes. Maybe there are too many negatives. So the issue is
6 whether the 2015 transaction is a sale and leaseback
7 transaction under GAAP. And the accounting memo did not make
8 the determination that the transaction was not a sale and
9 leaseback.
10 A. The accounting memo states that -- reviewing it as a spin
11 leaseback, and there is no authoritative accounting guidance
12 regarding a spin leaseback. And so the closest authoritative
13 guidance that we had to look at was running it through the sale
14 leaseback accounting guidance.
15 Q. So the guidance that governed the accounting for the
16 transaction was ASC 840-40 -- I won't get all the numbers
17 right. But that's the guidance for sale and leaseback
18 transactions. Correct?
19 A. Yes.
20 Q. And that's the guidance that Windstream followed in
21 determining ultimately to account for the transaction as a
22 financing.
23 A. Yes. Given no other authoritative guidance, that's what we
24 had to use.
25 Q. Now, in this case, am I correct that the obligation of the

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1 transferor subsidiaries that's reported on their financial
2 statements is measured by the present value of the lease
3 payments?
5 Q. Each transferor subsidiary bears a portion of this
6 obligation, correct?
7 A. For accounting purposes, you're reflecting a portion of
8 that financing obligation on the balance sheets of each of the
10 Q. The obligation is described on the balance sheet of each
11 transferor subsidiary as long-term leasing obligations,
12 correct?
14 Q. Each transferor subsidiary is responsible for paying its
15 share of the total obligation, correct?
16 A. No.
17 Q. Each transferor subsidiary does in fact pay its share,
18 correct?
19 A. No.
20 Q. Am I correct that, at the inception of the master lease, it
21 was understood that Holdings would not have the means to fund
22 rent payments to CSL?
24 Q. And it was understood that the required funds would be
25 provided by the transferor subsidiaries in connection with

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1 their use of the leased properties, correct?
2 A. Yes.
3 Q. In fact, since the inception of the master lease, the
4 transferor subsidiaries have been providing the funding that
5 Holdings needs to make the rent payments.
6 A. The cash is ultimately sitting in Services. It is cash
7 that's generated by the subsidiaries. And that's cash that is
8 distributed out to Holdings for the rent payment.
9 Q. That cash amounts to approximately 650 million per year,
10 correct.
11 A. Yes.
12 Q. You describe, in paragraph 14 of your affidavit, the manner
13 in which Holdings receives the funds used to pay rent to CSL.
14 Is that right?
15 Do you have paragraph 14 handy?
16 A. Yes. I've got it here.
17 Q. And you say there that Services aggregates all income of
18 its subsidiaries in a centralized cash account?
19 A. Yes.
20 Q. And then you say that Services "makes restricted payments
21 to Holdings," which Holdings uses to satisfy its master lease
22 obligations, close quote. That's your testimony, correct?
23 A. Yes.
24 Q. Do I understand you correctly that when you refer to these
25 restricted payments to Holdings, you are referring to

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1 distributions, to dividends paid by Services to Holdings?
2 A. Yes.
3 Q. Would you agree with me that the annual payments of
4 approximately 650 million per year from the transferor
5 subsidiaries to Holdings are reflected in Windstream's audited
6 financial statements?
7 A. Yes.
8 Q. Would you also agree with me that the annual payments of
9 650 million per year are not reflected as dividends or
10 distributions in the audited financial statements?
11 A. No, they are not.
12 Q. And if we look at the audited financial statements, we
13 would see that the $650 million approximately per year received
14 by Holdings is accounted for as leasing income from
16 A. Yes.
17 Q. It is not accounted for in the audited financial statements
18 as dividends or distributions, correct?
19 A. Correct.
20 Q. In fact, the audited financial statements do contain
21 entries for dividends and distributions from Services to
22 Holdings, correct?
23 A. Yes.
24 Q. The 650 million needed by Holdings for rent is not part of
25 the dividends or distributions reflected in the audited

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1 financial statements, correct?
3 Q. In paragraph 15 of your direct testimony affidavit, you say
4 that the transferor subsidiary that used the leased properties
5 paid applicable maintenance expenses related to the leased
6 properties. Correct?
7 A. Yes.
8 Q. And that's an accurate statement.
9 A. Yes.
10 Q. In paragraph 16, do I understand correctly that capital
11 expenditures that are incurred to maintain the leased
12 properties are also paid by the transferor subsidiaries who are
13 using the leased property?
14 A. Yes.
15 Q. And are you familiar with the term tenant "capital
16 improvements" in the master lease?
17 A. Yes.
18 Q. Am I correct that the capital expenditures paid by the
19 transferor subsidiaries include payment of tenant capital
20 improvements?
21 A. Yes. That's correct.
22 Q. And the transferor subsidiaries, to date, have paid several
23 hundred million dollars for tenant capital improvements.
24 Correct?
25 A. I don't recall the exact total, but it's -- it's been quite

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1 a bit.
2 Q. It's in the hundreds of millions?
3 A. I think it is.
4 Q. Am I correct that, under the terms of the master lease,
5 such capital improvement expenditures by the transferor
6 subsidiaries result in improvements to the property that
7 automatically become the property of Unity?
10 pay for these capital improvements because they are obligated
11 to do so in connection with their use of the leased property?
14 A. No. I don't think that's correct.
16 who are using the leased property are required to pay these
17 capital expenditures?
18 MR. GODFREY: Objection as to form. Required by whom?
20 A. No. I don't agree with that statement.
21 Q. Who makes the decision that the transferor subsidiaries
22 should pay hundreds of millions of dollars to fund capital
23 improvements that automatically become the property of Unity?
24 A. I'd say management of Windstream.
25 Q. When you say "management of Windstream," are you referring

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1 to Windstream Holdings?
2 A. Yes.
3 Q. And the transferor subsidiaries are required to comply with
4 the decision by management of Windstream Holdings?
5 A. I would say that's correct.
6 Q. And would you agree with me that, if the transferor
7 subsidiaries did not pay the capital improvements and the
8 maintenance for the leased property, they could not enjoy their
9 right to use the leased property?
10 A. Can you repeat the question?
11 Q. Yes. Would you agree with me that, if the transferor
12 subsidiaries who use the leased property did not pay for the
13 maintenance and the capital improvements, they could not enjoy
14 their right to use the leased property?
15 A. I think it would be a problem between Holdings and Unity
16 under the master lease if the assets are not maintained.
17 Q. Can you answer my question yes or no?
18 Do you want the question again? I'm going to give you
19 the question, and if you're unable to answer yes or no, just
20 tell me.
21 A. I'm unable to answer your question.
22 Q. Sorry?
23 A. Unable to answer your question.
25

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I7ndusb5 Eichler - redirect
1 MR. FRIEDMAN: OK. I have no further questions.
2 THE COURT: All right. Redirect.
3 MR. GODFREY: I almost hesitate to ask, your Honor,
4 how much time have I used?
5 THE COURT: 42 minutes.
6 MR. GODFREY: Thank you. My colleagues to my left are
7 a bit nervous about my time use.
8 THE COURT: As they should be.
10 BY MR. GODFREY:
11 Q. Mr. Eichler, you referenced PWC and E&Y. Did either of
12 those service providers, those accounting service providers,
13 give you or others at Windstream Holdings their view on what is
14 known as the accounting memorandum of April 24 of 2015, which
15 is Windstream Exhibit 53?
16 A. Yes, they did.
17 Q. Did either of those accounting agencies, accountancies,
18 disagree with the conclusions reached, as far as you know --
19 MR. FRIEDMAN: Objection, your Honor. Getting into
20 hearsay about what other people said.
21 THE COURT: I think you've opened the door to it, so I
22 will overrule the objection.
23 Don't indicate what they said. Just answer the
24 question, please.
25 A. Can you ask the question one more time?

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1 MR. GODFREY: Would you mind rereading it,
2 Mr. Reporter?
3 (Question read)
4 A. No, they did not.
5 MR. GODFREY: Mr. Hayne, could we put up PX53 -- I
6 mean Windstream Exhibit 53, page 5, and if you go under issue
7 1, is the transaction within the scope of the sale and
8 leaseback guidance for real estate.
9 Q. Now, you recall earlier in your testimony, when you were
10 being asked questions by Mr. Friedman, you mentioned a
11 spin/leaseback; do you recall that?
12 A. Yes.
13 Q. What did you mean by a spin/leaseback?
14 A. It was a characterization of the assets being transferred
15 out of Windstream and ultimately being leased back by Holdings.
16 Q. What do the first two lines, the first sentence, of page 5
17 of Windstream Exhibit 53 say, the accounting memo?
18 Can you read that for us?
19 THE COURT: Just to be clear, Windstream 53 is the
20 same as Plaintiff's 66?
21 MR. GODFREY: It is, your Honor.
22 Q. Could you turn to page 5 first? Do you have page 5? The
23 first sentence under issue 1. Could you read that for us into
24 the record please, Mr. Eichler?
25 (Discussion off the record)

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1 THE COURT: I will read it and we can save time.
2 (Pause)
3 You may proceed.
4 BY MR. GODFREY:
5 Q. If you turn to page 6 of the accounting memorandum marked
6 as Windstream Exhibit 53, if you look at the first full
7 paragraph, starting with the words "Since the transaction
8 includes," it says, "Since the transaction includes a lease of
9 the transferred asset to Windstream, the transaction represents
10 a spin-off-leaseback arrangement. Although ASC 840-40 does not
11 directly address the issue of spin-off-leasebacks, prevailing
12 practice is to evaluate a spin-off-leaseback in accordance with
13 its provisions." Do you see that?
14 A. Yes.
15 Q. Can you explain what that meant at the time that you
16 drafted or participated in preparing this account memorandum?
17 A. Yes. What it meant was that there was no direct accounting
18 guidance governing spin-off-leaseback arrangements, and so we
19 looked to ASC 840-40 as the closest applicable accounting
20 guidance that we could use.
21 MR. GODFREY: Let's now turn to page 10 of Windstream
22 Exhibit 53, Mr. Hayne, please.
23 Q. Under the "Conclusion - Issue 3" -- enlarge that for me --
24 in the first sentence, it says, "As noted in the table above,
25 the provisions of the lease arrangement include several

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1 prohibited forms of continuing involvement by Windstream in the
2 transferred assets and, as a result, the transaction would not
3 qualify as a sale leaseback." Do you see that?
4 A. Yes.
5 Q. At the time, when that conclusion was reached, what
6 implications did that have for Windstream in its accounting
7 treatment going forward?
8 A. We determined that we had to treat it as a financing and
9 keep the assets on the balance sheet of Windstream and record
10 it as a financing obligation.
11 Q. Did you treat it as a financing -- strike that.
12 Did you treat it as a financing obligation because you
13 thought it was a sale and leaseback, or because you thought it
14 was not a sale and leaseback and that was the closest
15 alternative?
16 A. Because it was not a sale and leaseback, we had to treat it
17 as a financing obligation.
18 Q. Go to the next page, please, page 11, the top of the
19 Windstream Exhibit 53 accounting memorandum, and let's enlarge
20 that first sentence.
21 The first sentence on page 11 of Windstream 53 says:
22 "Given that the transaction involves a spin-off-leaseback,
23 there is no specific authoritative guidance that addresses the
24 computation of the financing obligation." Do you see that?
25 A. Yes.

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1 Q. Is this what you are referring to in terms of the lack of
2 direct guidance so you're trying to make it by analogy or
3 something that might give you some indication?
4 A. Yes.
5 Q. Can you explain that any further?
6 A. Well, again, we had to look to guidance that gave us an
7 idea of how to go about calculating the amount of the financing
8 obligation, and so we had to consult with our auditors
9 ultimately to determine the best methodology to arrive at to
10 measure that obligation.
11 THE COURT: Can you just explain, in your own terms,
12 what the difference is between a spin-off-leaseback and a sale
13 and leaseback, your understanding of the difference?
14 THE WITNESS: Really, the way we were kind of
15 characterizing them as a spin/leaseback is just the fact that
16 there was a spin-off of a subsidiary and not actually a sale.
17 BY MR. GODFREY:
18 Q. Now, we've talked about -- or Mr. Friedman was talking with
19 you about the concept of the cash dividends. Are you familiar
20 with that?
21 A. Yes.
22 Q. And are you familiar with the officer certificates and what
23 they refer to?
24 A. Yes.
25 Q. So the officer certificates refer to payments of cash

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1 dividends; you are aware of that, right?
2 A. Yes.
3 Q. And yet it's listed as --
4 MR. FRIEDMAN: Objection. Leading, your Honor.
6 Q. Are you aware of whether or not the officers' certificates
7 refer to cash dividends?
8 A. Yes, I am aware of that.
9 Q. OK. And given that they refer to cash dividends but it is
10 referred to as leasing income from subsidiaries, how do you
11 explain that?
12 A. It was a result of long discussions with our auditors. The
13 fact that we had to present on the standalone holding company
14 financial statements the financing obligation as well as the
15 assets, the transferred assets onto the balance sheet of the
16 standalone financial statements of Holdings, meant that on the
17 income statement of Holdings, standalone Holdings, we had to
18 present the depreciation expense and interest expense on the
19 financing obligation. That presented a very odd answer when
20 you look at the face of the income statement, for you had a lot
21 of expense on the standalone holdings company financial
22 statements without any reflection of income coming in. And so
23 instead of presenting the inflow of cash as a dividend, PCW
24 felt that we should best reflect it as income coming in on the
25 income statements instead of having this massive like net loss

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1 position on the face of the holding company financial
2 statements.
3 There is really not a lot of authoritative guidance
4 dictating how to prepare one of these Schedule I's, so we had
5 some what we felt was flexibility. Again, that was the
6 position that PWC was pushing and ultimately what management
7 concluded to go with.
8 Q. Let's go back to one more question on Windstream Exhibit
9 53, page 16, Mr. Hayne, please.
10 Conclusion 5, do you have that before you,
11 Mr. Eichler?
12 A. Yes.
13 Q. Do you see where it says, in the third line -- well, can
14 you just read out loud the first three lines, please, for us?
15 Read it into the record.
16 A. Starting with, "The master lease"?
17 Q. Yes.
18 A. "The Master Lease between Windstream and CS&L directly
19 benefits Win Services and its subsidiaries, as Windstream is a
20 holding company with no operations. In addition, Windstream is
21 completely dependent upon Win Services' ability to distribute
22 in the form of a cash dividend amounts necessary to fund the
23 annual rental payments due under the lease."
24 Q. Thank you. Cash dividend is referenced here in the
25 conclusion for issue 5 in the accounting statement, right?

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1 A. That's right.
2 Q. The guidance that you received from Pricewaterhouse was in
3 connection with both the accounting statement and then how to
4 treat it on the financials; is that your understanding?
5 A. Yes.
6 Q. Did anyone ever tell you that referring it to the payments
7 from the subsidiary, transferor subsidiaries, to Windstream
8 Holdings as a cash dividend would be improper?
10 THE COURT: Just yes or no.
11 Q. Do you want the question reread?
12 A. Yes.
13 MR. GODFREY: Mr. Court reporter, if you could please
14 reread the question? Thank you.
15 (Question read)
16 A. No.
17 Q. You are a CPA?
18 A. Yes.
19 Q. Was it your view, under GAAP, that the transaction, the
20 2015 spin/leaseback represented in this memo, was a sale and
21 leaseback transaction under GAAP?
22 A. No.
23 Q. To your knowledge, does Services or any of the transferor
24 subsidiaries have an obligation to pay rent to the Master Lease
25 under the Master Lease?

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I7ndusb5 Eichler - recross
2 THE COURT: Well, let him finish the question.
3 MR. GODFREY: I will rephrase the question, your
4 Honor, since I think I lost track in the middle.
5 Q. To your knowledge, as the comptroller of Windstream, are
6 you aware of any obligation by the Services Company or
7 transferor subsidiaries to pay rent to Unity?
8 A. No.
9 MR. GODFREY: One minute, your Honor, if I might?
10 (Pause)
11 I have no further questions, your Honor.
12 THE COURT: Any recross?
13 RECROSS-EXAMINATION
14 BY MR. FRIEDMAN:
15 Q. Mr. Eichler, in answering questions from Mr. Godfrey, you
16 referred to the officers' certificates, correct?
17 A. Yes.
18 Q. And those officer certificates are where Windstream has
19 characterized payments to Holdings as dividends, is that
20 correct?
21 A. Yes.
22 Q. Those officers' certificates are not audited, correct?
23 A. Correct.
24 Q. The financial statements filed with 10-K are audited,
25 correct?

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1 A. Yes.
2 Q. You mentioned that there is no direct accounting guidance
3 for what you have described as a spin-off-leaseback
4 transaction, is that right?
5 A. Yes.
6 Q. Am I correct that the reason there is no direct accounting
7 guidance is because it's a very unusual transaction?
8 A. I don't know.
9 Q. Did you find in your analysis precedence where this kind of
10 transaction had occurred and you looked at how it had been
11 accounted for?
13 Q. Now, you said something about what the spin-off was. I
14 want to follow up on that a little bit.
15 In this transaction that closed on April 24, 2015, one
16 step in the transaction was that the transferor subsidiaries
17 transferred their assets to CSL, correct?
18 A. Yes.
19 Q. And at the time of the transfer, CSL and the transferor
20 subsidiaries were all subsidiaries of Holdings, correct?
21 A. Ultimately they were all underneath Holdings.
22 Q. But that very same day, April 24, 2015, the CSL stock was
23 transferred from Services to Holdings and then spun off by
24 Holdings to Holdings' shareholders, is that right?
25 A. I don't recall each step in the transaction.

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1 Q. Let me ask you this. One of the steps in the transaction
2 that occurred on April 24, 2015 was 80.1 percent of the stock
3 in CSL was spun off to the Holdings shareholders?
4 A. Yes, that's right.
5 Q. And that is the spin-off, correct?
7 Q. So CSL acquired the assets from the transferor
9 A. Yes.
10 Q. And then the CSL stock was spun off to the public
11 shareholders, correct?
12 A. Correct.
13 Q. And at the same time there was an obligation under the
14 Master Lease to pay probably $10 billion over the years to CSL,
15 an independent public company, correct?
16 A. Yes. There was a Master Lease executed between Holdings
17 and Unity at the same time.
18 Q. And the Master Lease entailed obligations requiring rent
19 payments in the range of $10 billion over the years, correct?
20 A. Something like that.
21 Q. So from the perspective of the transferor subsidiaries,
22 assets that they owned and needed to operate their network were
23 no longer owned by them, they were owned by an independent
24 public company, correct?
25 A. Correct.

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I7ndusb5
1 Q. And in order for the transferor subsidiaries to operate
2 their business as the result of a spin-off, someone in the
3 Windstream family had to pay $10 billion over the years to CSL,
4 correct?
5 A. Yes.
6 Q. And you were saying earlier Holdings signed the Master
7 Lease, correct?
8 A. Yes.
9 Q. But the funds needed to pay CSL would come from the
10 operations of the transferor subsidiaries, correct?
11 A. Yes.
12 MR. FRIEDMAN: No further questions.
13 THE COURT: Are we good? Can we let Mr. Eichler go?
14 MR. GODFREY: I have no further questions, your Honor,
15 except how much time did I use?
16 THE COURT: You used -- you have used 55 minutes
17 total.
18 All right. Mr. Eichler, you may step down.
19 (Witness excused)
20 MR. GODFREY: May I approach to get the binder and his
21 affidavit, your Honor?
22 THE COURT: Yes. I think, since we are at a natural
23 breaking point, why don't we take our mid-afternoon break now.
24 It is 3:22. We will pick up again at 3:32.
25 I assume Dr. LaRue is the next witness, so if he could

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I7ndusb5 LaRue - direct
1 be on the stand at 3:21 so that we will be ready to go, I will
2 see you in ten minutes.
3 MR. GODFREY: Thank you, your Honor.
4 (Recess)
5 THE COURT: You may be seated.
6 MR. FOURMAUX: Your Honor, Jeffrey Fourmaux for the
7 Trustee, from the Friedman Kaplan Seiler & Adelman firm.
8 The next witness the Trustee will call is Professor
9 David LaRue, who is there at the witness stand.
10 THE COURT: All right. Dr. LaRue, if you want to step
11 up and my deputy will administer the oath to you.
12 DAVID WAYNE LaRUE,
13 called as a witness by the plaintiff,
15 THE CLERK: Please have a seat.
16 MR. GODFREY: Your Honor, I apologize for
17 interrupting, but Mr. Howell is going to handle this witness so
18 any objections, if there are any, will come from Mr. Howell.
19 THE COURT: All right. Very good.
20 THE CLERK: State and spell your full name for the
21 record.
22 THE WITNESS: Yes. My name is David Wayne LaRue,
23 D-a-v-i-d, W-a-y-n-e, L-a capital R-u-e.
25 BY MR. FOURMAUX:

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1 Q. Professor LaRue, did you prepare a direct testimony
2 affidavit for use at this trial?
3 A. Yes, sir, I did.
4 MR. FOURMAUX: Your Honor, may I approach to hand the
5 witness his binder which contains the affidavit which we will
6 proffer.
8 (Pause)
9 BY MR. FOURMAUX:
10 Q. Professor LaRue, on the binder that is on the top, if you
11 could please look at the very first tab in the binder.
12 A. Yes.
13 Q. And do you recognize what that first tab in the binder is?
14 A. I do. This is the my direct testimony affidavit.
15 Q. OK. Did you review its contents before you signed it?
16 A. I did, yes.
17 Q. All right. And it is now true and complete, to the best of
18 your knowledge?
19 A. Yes, sir.
20 MR. FOURMAUX: Your Honor, at this time we would offer
21 the direct testimony affidavit of Professor LaRue -- it is
22 marked as PX200 -- into evidence. This is, I will note, the
23 version that was circulated yesterday, and I understand that
24 there is no objection from Windstream on its use.
25 THE COURT: All right. So just to be clear, this is

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1 what was circulated yesterday and marked as the second
2 corrected direct testimony affidavit of Dr. LaRue?
3 MR. FOURMAUX: Yes, your Honor.
4 THE COURT: But the date remains the same, June 15, is
5 that correct.
6 MR. FORMAUX: Correct, as of June 15th.
7 THE COURT: All right. I take it no objections?
8 MR. HOWELL: No objection, your Honor.
9 THE COURT: All right. It is admitted.
10 And, sorry, can you tell me the exhibit number once
11 again?
12 MR. FOURMAUX: PX200.
13 THE COURT: All right. Thank you.
14 (Plaintiff's Exhibit PX200 received in evidence)
15 MR. FOURMAUX: Just one other procedural matter.
16 As your Honor I'm sure is aware, Professor LaRue was
17 jointly retained by both the Trustee, or counsel to the
18 Trustee, and also by counsel for Aurelius. And his opinion is
19 divided amongst nine questions that were posed. Questions one
20 through seven are questions that were posed to him both by
21 counsel for Aurelius and by counsel for the Trustee, and he is
22 offering those opinions on behalf of both of those parties.
23 However, there is also a section of his opinion that comes
24 under the scope of what's designated as questions eight and
25 nine. Those questions were posed to him only by counsel for

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1 Aurelius, and he is offering those opinions only on behalf of
2 Aurelius.
3 So, the proposal and request that I make, your Honor,
4 is that to the extent that cross-examination should touch on
5 the topics of questions one through seven, I, as counsel for
6 the Trustee, would interpose any objections, but in the event
7 that there is some cross-examination that goes to questions
8 eight and nine and the accompanying opinions, then Mr. Jeffrey
9 Kane, from the Robbins, Russell firm, one of the counsel for
10 Aurelius, would object to those questions.
11 And, similarly, upon redirect, if there were -- I
12 would conduct any redirect on behalf of the Trustee as to
13 matters within the scope of questions one through seven, but if
14 there were -- if in addition to that there needed to be any
15 redirect on the solely Aurelius part of the Professor's
16 opinion, then Mr. Kane would handle that.
17 THE COURT: All right. That's fine, as long as
18 Mr. Kane has a microphone handy and uses it for any objections.
19 MR. FOURMAUX: Finally, one important matter, your
20 Honor, at this time, the Trustee would move the Court to
21 recognize Professor LaRue, under Federal Rule of Evidence 702,
22 as an expert in the fields of financial accounting and federal
23 income taxation based on the qualification, education and
24 experience that is set forth at paragraphs 1 through 6 of his
25 affidavit.

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I7ndusb5 LaRue - cross
1 THE COURT: Any objection?
2 MR. HOWELL: No objection, your Honor.
4 MR. FOURMAUX: I yield to Windstream counsel.
6 MR. HOWELL: Good afternoon, your Honor. In an effort
7 to save some time, I have already provided a set of binders
8 that's right next to the witness, but, unfortunately, I saved
9 no time because they remain entirely out of his reach. So I
10 would like to switch those binders, and then I would also bring
11 up the cross binders for the clerk, yourself and the court
12 reporter, if I may?
13 THE COURT: Sure. You may.
14 (Pause)
15 MR. HOWELL: May I proceed, your Honor?
17 CROSS-EXAMINATION
18 BY MR. HOWELL:
19 Q. Good afternoon, Dr. LaRue.
20 A. Good afternoon.
21 Q. We get to continue the afternoon of talking about
22 accounting standards, so I'm sure everyone is thrilled.
23 You are familiar with the 2015 transaction involving
24 Holdings, Services, CS&L, and certain subsidiaries of Services
25 and CS&L, correct?

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1 A. Yes, sir.
2 Q. I'm going to call that "the transaction" today, OK?
3 A. OK.
4 Q. And you're familiar with the indenture dated January 23,
5 2013, that governs the 6 3/8 notes due 2023, correct?
6 A. I am familiar with the indenture, yes.
7 Q. I will just refer to that as the indenture, OK?
8 I would like to start by discussing a few areas where
9 you are not giving opinions in this case. You are not offering
10 any opinions that Windstream breached the indenture, correct?
11 A. No -- I mean, yes, you are correct.
12 Q. And you're not offering any opinion as to whether there has
13 ever been a default under the indenture, correct?
15 Q. You are not offering any opinion whether the transaction
16 fits under the definition of sale and leaseback transaction in
17 the indenture, correct?
19 Q. Now, sale and leaseback transaction, lower case S, lower
20 case L, lower case T, that's an accounting term, correct?
21 A. It is an accounting term, yes.
22 Q. And Sale and Leaseback Transaction, capital S, capital L,
23 capital T is a defined term in the Indenture, correct?
25 Q. Person, with a capital P, is also a defined term in the

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1 Indenture, correct?
2 A. Correct.
3 Q. And you reviewed portions of the Indenture as part of the
4 work that you did on this case, right?
5 A. Portions.
6 Q. For instance, you reviewed the terms of the Indenture in
7 order to make a calculation of attributable debt if the 2015
8 transaction were determined to be a sale and leaseback
9 transaction under the Indenture, correct?
11 Q. I'm going to ask you to look at what has been marked as Win
12 Exhibit No. 1 in the case, and, Derrick, if you could pull that
13 up on the screen.
14 Dr. LaRue, do you recognize that as the front page of
15 the Indenture in this case?
16 A. Yes, I do.
17 Q. OK. I'd like to turn to page 27 of that document, which is
18 actually page 34 of Win Exhibit No. 1.
19 Derrick, if you could highlight Section 1.04.
20 Dr. LaRue, do you see Section 1.04 there?
21 A. Yes, I do.
22 Q. This section is called "Rules of Construction," correct?
23 A. Yes.
24 Q. And under 1.04(a) it says, "A term has the meaning assigned
25 to it," correct?

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1 A. Yes.
2 Q. And under 1.04(b), the Indenture says, "An accounting term
3 not otherwise defined has the meaning assigned to it in
4 accordance with GAAP," right?
5 A. Correct.
6 Q. So where an accounting term is defined in the Indenture,
7 one need not look outside the Indenture, to GAAP, to construe
8 the meaning of that term, correct?
10 Q. Dr. LaRue, you retired as a professor in 2008, correct?
11 A. Correct.
12 Q. Since 2008, you have spent some time sitting on the board
13 of one company called Microstrategy, correct?
15 Q. And other than your time sitting on the board of
16 Microstrategy, 100 percent of your work time has been spent on
17 expert witness and litigation consulting, correct?
19 Q. You are not a CPA, correct?
20 A. No.
21 Q. You've only worked on one public company audit in your
22 career, correct?
24 Q. And that was when you were doing a faculty residency at
25 Arthur Andersen in 1980, correct?

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2 Q. You've never performed an audit for a private company,
3 correct?
5 Q. You've never performed an audit for a nonprofit company,
6 correct?
7 A. Correct.
8 Q. You never served as an internal auditor, correct?
9 A. Correct.
10 Q. You've never signed an audit report, right?
11 A. Correct.
12 Q. You never had any direct discussions about the proper
13 application of GAAP to a transaction on behalf of a client,
14 correct?
15 A. I'm sorry. Say that again, please.
16 Q. You've never had any direct discussions about the proper
17 application of GAAP to a transaction on behalf of a client,
18 correct?
19 A. Well, in my capacity as the audit committee chairman for
20 Microstrategy, I had a lot of discussions about the proper
21 application of GAAP in a variety of transactions.
22 MR. HOWELL: Derrick, if you could pull up Dr. LaRue's
23 deposition, page 32, lines 19 through 23, and put that on the
24 screen, please.
25 Q. Dr. LaRue, at your deposition, did I ask you this question

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1 and did you give this answer?
2 "Q Have you ever had any discussions, setting aside
3 negotiation discussions with the SEC, about the proper
4 application of GAAP on behalf of a client?
5 "A I -- not directly."
6 Did I ask that question and did you give that answer?
7 A. Yes.
8 MR. HOWELL: Thanks, Derrick. You can take that down.
9 Q. Prior to this case, you never offered an expert opinion
10 regarding the proper accounting treatment of a spin-off
11 transaction, correct?
12 A. Correct.
13 Q. And you can't recall offering an expert opinion on the
14 proper accounting of a failed sale transaction, correct?
15 A. Correct.
16 Q. You haven't analyzed debt covenants as part of an audit
17 ever, correct?
18 A. Correct.
19 Q. And you don't know what a cross default is, correct?
20 A. No. Yes, correct.
21 Q. Dr. LaRue, you have reviewed the company's accounting memo
22 that was just covered with Mr. Eichler, correct?
23 A. Yes.
24 Q. I'm going to ask you a few questions about that, and I know
25 it is both PX66 and Win Exhibit 53 but we'll look at Win

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1 Exhibit 53.
2 So, Derrick, would you mind pulling that up, please.
3 Dr. LaRue, do you recognize this document as the
4 company's what's being called the accounting memo?
5 A. Yes.
6 Q. And you are not offering any opinion that the company's
7 accounting treatment of the transaction was incorrect, right?
8 A. When you say "accounting treatment," you're talking about
9 the financial accounting statements? The financial --
10 Q. Yes.
11 A. -- statements?
12 Yes. I'm not offering an opinion on that.
13 Q. So you're not offering any opinion that the company's
14 accounting treatment of the transaction in their financial
15 statements is incorrect, right?
17 Q. In fact, you don't take issue with any statements that are
18 represented in the company's accounting memo, correct?
20 Q. On page 6 of the memo, near the top of the page, after the
21 first bullet, in the first full paragraph, it says: Since the
22 transaction included a lease of the transferred assets to
23 Windstream, the transaction represents a spin-off-leaseback
24 transaction. Do you see that?
25 A. I do.

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1 Q. You don't disagree with that statement, correct?
3 Q. Under GAAP, a sale leaseback transaction, those are defined
4 as transactions that, quote, involve the sale of property by
5 the owner and a lease of property back to the seller, correct?
6 A. Correct.
7 Q. And you agree that this transaction was a
8 spin-off-leaseback rather than a sale leaseback, right?
9 MR. FOURMAUX: Objection.
11 A. Yes, it was classified as a spin-off-leaseback. There was
12 a transfer of assets by the transferor subsidiaries to CS&L.
13 Q. So you agree that the transaction was a spin-off-leaseback
14 rather than a sale leaseback, right?
15 A. It was considered to be a spin-off-leaseback transaction,
16 but it also met the requirements for a sale leaseback
17 transaction as defined under U.S. GAAP.
18 MR. HOWELL: Derrick, could you pull up PX200, which
19 is Dr. LaRue's affidavit, at page 16, paragraph 32, please.
20 Q. And, Dr. LaRue, you recognize this from your direct
21 affidavit in this case, right?
22 A. Yes.
23 Q. You said, "Because Windstream did not meet the criteria for
24 sale leaseback accounting due to various forms of prohibited
25 continuing involvement by the transferor subsidiaries and

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1 Services with the transfers assets (i.e., they did not transfer
2 all of the risks and rewards of ownership to CS&L), this
3 method, with an important adjustment stemming from the fact
4 that the transaction was actually a spin-off/leaseback, rather
5 than a sale leaseback, is the method used by Windstream to
6 account for the transaction in its financial statements."
7 Do you see that, sir?
8 A. I do.
9 Q. Was that accurate when you wrote it?
10 A. Yes.
11 Q. Turning back to the accounting memo, and we were in page 6,
12 under the first bullet, and we had read the first sentence that
13 starts with "Since." And then looking at that next sentence,
14 it says, "Although ASC 840-40 does not directly address the
15 issue of spin-off-leasebacks, prevailing practice is to
16 evaluate a spin-off-leaseback in accordance with its
17 provisions." Do you see that?
18 A. I do.
19 Q. You agree that ASC 840-40 does not directly address the
20 issue of spin-off-leasebacks, right?
21 A. Correct.
22 Q. In general, there are certain transactions that won't fit
23 into a particular or a specific GAAP or a particular specific
24 guidance under GAAP, right?
25 A. That is correct, yes.

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1 Q. And when you don't have specific guidance for a particular
2 transaction, you typically would look to analogous sorts of
3 transactions for what principles to apply from GAAP to a
4 particular transaction, right?
5 A. That's correct, yes.
6 Q. And in many instances, judgment is required when coming up
7 with how to account for transactions, right?
8 A. In many instances, yes.
9 Q. Now, the accounting memo also states, on page 10, right
10 under "Conclusion - Issue 3," "As noted in the table above, the
11 provisions of the lease agreement include several prohibited
12 forms of continuing involvement by Windstream in the
13 transferred assets."
14 And you don't disagree with the company's finding that
15 there were several prohibited forms of continuing involvement
16 in the transferred assets, correct?
18 Q. You agree that the transaction does not qualify for sale
19 leaseback accounting, correct?
20 A. I agree that it doesn't qualify for sale leaseback
21 accounting, correct.
22 Q. And you agree that because the transactions did not
23 qualify -- because the transaction did not qualify for sale
24 leaseback accounting, it was appropriate to account for the
25 transaction as a financing obligation, correct?

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1 A. Correct.
2 Q. In the memo, on page 16, in "Conclusion to issue 5," it
3 says that "Holdings is completely depended upon Win Services'
4 ability to distribute in the form of a cash dividend amounts
5 necessary to fund the annual rental payments due under the
6 Master Lease," correct?
7 A. Correct.
8 Q. Now, you understand that PWC audited the company's
9 financial statements, right?
10 A. Yes.
11 Q. You believe PWC to be a reputable accounting firm, right?
12 A. Yes.
13 Q. And the SEC reviewed the accounting treatment that
14 Windstream applied to the transaction, correct?
15 A. Yes.
16 Q. And I believe we just heard from Mr. Eichler that Ernst &
17 Young also reviewed the accounting treatment that was applied
18 to the transaction, correct?
19 A. I heard Mr. Eichler's testimony, yes.
20 Q. Dr. LaRue, you may recall a discussion that we had or a Q
21 and A that we had in your deposition about how sometimes there
22 can be a difference between financial accounting treatment on
23 the one hand and legal reality on the other. Do you recall a
24 discussion about that?
25 A. Yes.

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1 Q. And, for example, there could be times where accounting
2 principles require an entity to write off bad debt even though
3 that debt is still legally owed to the entity that wrote it
4 off, correct?
5 A. That's correct, if the debt is considered to be
6 uncollectible.
7 Q. And I'm using that as an example of a situation where
8 accounting treatment may be different than the actual legal
9 rights. Does that make sense?
10 A. Yes.
11 Q. Another example is take a company that files consolidated
12 financial statements and that company may have intercompany
13 transactions that based on SEC or other regulations wouldn't
14 show up in a consolidated financial statement but those
15 intercompany obligations still exist between the companies.
16 You've seen situations like that before, right?
17 A. Yes. That's normally the case when you file consolidated
18 financial statements, normally you eliminate intercompany
19 transactions and you report transactions between the
20 consolidated entity and third parties.
21 Q. Right. And while you eliminate those from the books on
22 your consolidated accounting treatment, those intercompany
23 transactions aren't actually eliminated, right?
25 Q. And in this case, we see the transferred assets, which you

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1 call both the transferred assets or the lease property -- you
2 know what I'm talking about, right?
3 A. Yes, sir.
4 Q. And we see the transferred assets reported on multiple
5 different financial statements, including those for CS&L, for
6 Holdings, and for the transferor subsidiaries, right?
7 A. Yes.
8 Q. But if we consolidate all of those, we don't have three
9 sets of transferred assets, right?
10 A. That's right.
11 Q. Now, Dr. LaRue, it is your opinion that Windstream's
12 financial statements reflect that there is an unwritten lease
13 between Holdings on the one hand and Services or the transferor
14 subs on the other hand, correct?
15 A. That is correct, yes.
16 Q. And you agree you've never seen such a lease in writing,
17 correct?
18 A. I have not seen a written agreement between Holdings and
19 the transferor subsidiaries.
20 Q. And you agree that you've also never seen a commitment to
21 such a lease in writing, correct?
22 A. Correct.
23 Q. And you have also never seen a sublease between Holdings
24 and the transferor subsidiaries related to the transferred
25 assets in writing, correct?

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1 A. No -- yes, that's correct.
2 Q. Before this case, you've never worked on a matter involving
3 an unwritten lease in your career, correct?
4 A. Not that I recall.
5 Q. You will also agree that this unwritten lease that you say
6 exists between -- or that you say the financial statement
7 reflect between Holdings and the transferor subs, that that
8 lease was not disclosed in Windstream's financial statements,
9 correct?
10 A. I believe it was disclosed in terms of on the face of the
11 financial statements.
12 Q. You think that there is a note in the financial statements
13 that discloses a lease between Holdings and the transferor
14 subsidiaries?
15 A. I didn't say that.
16 MR. FOURMAUX: Objection. It misstatements the
17 testimony just given.
18 THE COURT: I don't even know what the question was
19 anymore, so Mr. Howell.
20 MR. HOWELL: I am happy to re-ask, your Honor.
22 BY MR. HOWELL:
23 Q. Neither Services nor the transferor subs have provided a
24 general description of a lease or sublease with Holdings in
25 their financial statements, correct?

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1 A. On the income statement of Holdings, the parent company
2 income statement of Holdings, there is an entry under
3 "Operating Revenues," and that entry is "Leasing Income From
4 Subsidiaries." That discloses a couple of things. First, it
5 reflects the fact that the income that's reported, about
6 $653.6 billion -- or million dollars in 2016 is income from a
7 lease. Secondly, it discloses the fact that the lease income
8 is being received from the subsidiaries. So there is a
9 disclosure on Holdings' parent only income statement that there
10 is leasing income being received from the subsidiaries of
11 Holdings. The same would be true for the cash flow statement
12 of Holdings. And then, of course, on the financial statements
13 of the transferor subsidiaries, those financial statements
14 reflect payments on longterm lease obligation and longterm
15 lease obligation.
16 Q. Now, neither Services nor the transferor subsidiaries has
17 provided a general description of a lease or sublease with
18 Holdings in the notes to their financial statements, correct?
19 A. Not in the notes to the financial statements other than to
20 state that the Master Lease between CS&L and Holdings was for
21 the direct benefit of the transferor subsidiaries.
22 Q. I would like to look at one of the accounting standards
23 codified at ASC 840, and this is PX150A. So, rather than go to
24 your notebook, hopefully Derrick can pull this up on the
25 screen.

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1 Under PX150A, I would like to look at Section
2 840-10-50-2.
3 Are you familiar generally with this accounting
4 standard, Dr. LaRue?
5 A. I would like to read it.
6 Q. OK.
7 (Pause)
8 A. OK.
9 Q. And the first sentence there says: "The lessee shall
10 disclose, in its financial statements or notes thereto, a
11 general description of its leasing arrangements including, but
12 not limited to," and then it includes some specifics below. Do
13 you see that?
14 A. I do.
15 Q. And do you believe that the line entries that you just
16 referenced are sufficient to satisfy Section 840-10-50-2 in
17 terms of providing a general description of a leasing
18 arrangement including, but not limited to, each of the
19 following criteria within that section?
20 MR. FOURMAUX: Objection to form.
22 A. Would you repeat the question? I'm sorry.
23 Q. Do you believe that the line entries that you referenced,
24 the leasing income subsidiaries' and the Holdings' parent
25 standalone financial statement, the longterm leasing obligation

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1 entry on the books -- the balance sheet of the transferor subs
2 and the statements and the cash flows are sufficient to satisfy
3 GAAP requirement 840-10-50-2 for what the lessee must disclose
4 in terms of a general description of its leasing arrangements,
5 including the criteria listed?
6 THE COURT: Upon reflection, sustained as to form.
7 Could you break that up, please, into more component parts?
8 You lumped several different financial statements in together
9 there.
10 MR. HOWELL: Certainly.
11 BY MR. HOWELL:
12 Q. Do you think that the longterm leasing obligation line
13 entry on the book -- on the balance sheet of the transferor
14 subsidiaries that you referenced is sufficient to comply with
15 Section 840-10-50-2 if the unwritten lease you say exists does
16 in fact exist?
17 A. I think when you look at the financial statements as a
18 whole, the answer would be yes. In Note 6 there is quite a bit
19 of explanation regarding the terms of the Master Lease between
20 Holdings and CS&L. When you look at the financial statements,
21 you see that the financing -- or the longterm lease obligation
22 of Holdings --
24
25

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I7NAUSB6ps LaRue - cross
1 Q. My question was a yes-or-no question.
2 A. I'm sorry.
3 Q. I'm sorry. We have a limited amount of time. So your
4 answer to my question is yes.
5 A. Yes.
6 Q. Have you ever worked on another matter in which a lease was
7 disclosed only in line entries and not in the notes to the
8 financial statements for that company?
9 A. I thought I just said that the part of the disclosures that
10 relate to the lease are the notes to the financial statements,
11 note 3 and note 6.
12 Q. I believe -- well, OK. Move on.
13 Now, you agree that Windstream did usually put
14 footnotes into its financial statements, saying that,
15 notwithstanding the accounting treatment applied to the
16 subsidiaries, neither Windstream Services nor its subsidiaries
17 is a counterparty or obligor to the master lease agreement.
18 Correct?
19 A. That note is in the financial statements, yes.
20 Q. And you're not offering an opinion that either Windstream
21 Services or the transferor subsidiaries is a counterparty or
22 obligor to the master lease agreement. Right?
23 A. Correct.
24 Q. You're familiar that GAAP has a definition for "lease
25 inception," correct?

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1 A. Yes.
2 MR. HOWELL: If we could pull up PX 150.
3 Q. This is ASC840-40-20, a section called "Glossary," and
4 there is the definition for "lease inception."
5 Now, Dr. LaRue, when we look at that definition, it
6 says "inception of lease. The date" -- first of all,
7 "inception" means the establishment or starting point of
8 something, correct?
9 A. Correct.
10 Q. The "inception of lease" definition says "the date of the
11 lease agreement or commitment, if earlier. For purposes of
12 this definition, a commitment shall be in writing, signed by
13 the parties in interest to the transaction, and shall
14 specifically set forth the principal provisions of the
15 transaction." You see that?
16 A. I do.
17 Q. So a commitment to a lease has to be in writing under ASC
18 840-40-20, correct?
19 A. Correct, for the purposes of determining when the inception
20 of the lease takes place.
21 Q. And the commitment also needs to specify -- excuse me.
22 Strike that.
23 The commitment also needs to specifically set forth
24 the principal provisions of the transaction. Correct?
25 A. Yes.

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1 Q. But it's your position that the lease itself doesn't need
2 to be in writing. Correct?
3 A. Correct.
4 Q. So your position is that a commitment has to be laid out in
5 writing and have all the principal provisions, or else we can't
6 have a lease inception. But you could have an unwritten lease
7 agreement that can establish the principal provisions in the
8 inception of a lease. Is that right?
9 A. That's correct, for the purpose of determining the date of
10 the inception of the lease where the commitment is prior to the
11 lease agreement.
12 Q. In this case, you have never seen a lease or a commitment
13 to a lease between Holdings and the transferor subs in writing,
14 correct?
16 Q. Dr. LaRue, you've also reviewed portions of the master
17 lease as part of your work in this case, right?
18 A. Yes.
19 Q. Generally speaking, leases are either capital leases or
20 operating leases. Correct?
21 A. Correct.
22 Q. And the master lease is an operating lease, correct?
23 A. Yes.
24 Q. And the unwritten lease that you say that Windstream's
25 financial records reflect exists between Holdings on the one

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1 hand and the transferor subsidiaries on the other, that would
2 also be an operating lease, correct?
3 A. Yes.
4 Q. Now, in general, subject to certain exceptions that you say
5 exist that we'll discuss, subject to those objections --
6 exceptions, if you have an operating lease, GAAP, as presently
7 constituted, does not require or permit for the recording of a
8 lease liability under that operating lease for future lease
9 obligations. Correct?
10 MR. FORMAUX: Object to form.
11 THE COURT: I'm not sure I understood the question.
12 So I guess I sustain the objection. Try again.
13 BY MR. HOWELL:
14 Q. As a general rule, when you have an operating lease, GAAP,
15 as presently constituted, does not permit for the recording of
16 a lease liability for future lease obligations under that
17 operating lease, correct?
18 A. Correct, outside the context of a sale leaseback
19 transaction that qualifies for a financing.
20 Q. We'll come back to that exception that you just mentioned.
21 So what that means is, in general, if you have an operating
22 lease, you don't record a lease obligation for future lease
23 obligations, right?
24 A. Under current GAAP, outside the context of a sale leaseback
25 transaction, that's correct.

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1 Q. And what that means is, if I have an operating lease and
2 that lease is for a hundred thousand, I've got to pay $100,000
3 a month going forward, on my balance sheet I won't write down
4 that I have a lease obligation going forward. Right?
5 A. That's correct. Subject to my previous answer.
6 THE COURT: Can you just define for me what the
7 distinction is between an operating lease and a capital lease.
8 THE WITNESS: Yes, your Honor. An operating lease is
9 any lease that's not -- that doesn't meet the requirements for
10 a capital lease. A capital lease is basically characterized
11 for accounting purposes as an installment sale rather than an
12 actual lease. A capital lease is defined as a lease that meets
13 any one of four requirements. One of those requirements would
14 be, if the title to the lease property transfers to the lessee
15 at the end of the lease term, then it's treated as if it were a
16 sale and financing of that sale. The second possibility for
17 classifying a capital lease, or a lease as a capital lease,
18 would be if the term of the lease is 75 percent or more; maybe
19 it's more than 75 percent of the estimated use for life of the
20 leased asset. The third situation would be where there's a
21 bargain purchase option at the end of the fixed lease term,
22 bargain purchase being the terms of the bargain purchase make
23 it reasonable to assume that the lessee would exercise that
24 option at the end of the lease term and become the owner of the
25 property. The fourth situation is where the present value of

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1 the minimum lease payments is more than 90 percent of the fair
2 market value of the property on the day that the lease was
3 entered into, in which case you're paying for the vast majority
4 of the value of the asset, we're going to treat you as the
5 owner.
6 THE COURT: So a capital lease is effectively where,
7 in essence, you're treating the lessee as the owner because it
8 amounts to, indicia of ownership is sort of present. Is that a
9 fair statement?
10 THE WITNESS: Yes, sir.
11 THE COURT: And if it doesn't qualify under those,
12 then it qualifies as an operating lease?
13 THE WITNESS: Yes, sir.
14 THE COURT: All right. Thank you.
15 MR. HOWELL: Five minutes with Mr. Solomon.
16 Q. So now you say the one exception that exists to the general
17 rule that we just talked about is that when you have a sale
18 that cannot qualify for sale leaseback accounting treatment
19 because of continuing involvement by the transferor, correct?
20 MR. FORMAUX: Objection, misstates his testimony.
21 THE COURT: He can answer the question yes or no.
22 A. You said when we had a sale it can't qualify for sale
23 leaseback accounting treatment? It's when you have a sale-
24 leaseback transaction that doesn't qualify for sale-leaseback
25 accounting treatment.

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1 Q. I apologize if I asked the question imprecisely. So where
2 you have a sale-leaseback transaction that fails to qualify for
3 sale-leaseback accounting and is instead accounted for under
4 the financing method, in that situation you say that is an
5 exception to the general rule we talked about for operating
6 leases. Right?
7 A. Yes. In that situation --
8 Q. It's just a yes-or-no question, sir.
9 A. Yes.
10 Q. And I'm going to come back to that exception, but before I
11 do, you can't point me to any other specific exceptions to the
12 general rule that GAAP does not permit the recording of a
13 liability for an operating lease for future lease obligations.
14 Correct?
15 A. In the context of a sale-leaseback transaction there are
16 two exceptions. One is where the sale-leaseback transaction is
17 accounted for as a financing, as we've just said. The other is
18 where it's accounted for under the deposit method.
19 Q. So those are the two exceptions that you can point me to.
20 You can't point me to any other exceptions to that general rule
21 we talked about for operating leases, right?
22 A. None come to mind.
23 Q. Now, that exception to the general operating lease rule,
24 that was not something that you discussed in your initial
25 expert report, correct?

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1 A. I don't believe I discussed it in my initial report.
2 Q. And then after Mr. Solomon put out his rebuttal report and
3 noted his opinion that GAAP does not allow or permit the
4 recording of a liability for future lease obligations under an
5 operating lease, you noted this exception in your reply to
6 Mr. Solomon, correct?
7 A. Correct.
8 Q. And you said, "Mr. Solomon" -- actually, we can pull up
9 Dr. LaRue's reply to Mr. Solomon, his second report. It is not
10 an exhibit in the case but I'll just mark it for identification
11 purposes as 201.
12 I have the language here, so in the interest of time
13 I'll read it. In your reply to Mr. Solomon's report, you said,
14 "Mr. Solomon is incorrect because of the distinction between an
15 operating lease and a capital lease is irrelevant in the
16 context of a sale-leaseback transaction accounted for as a
17 financing." Do you recall that?
18 A. I do.
19 Q. And then you say "in a sale-leaseback transaction that
20 fails to qualify for sale-leaseback accounting and instead is
21 accounted for under the financing method, like this
22 transaction, the seller lessee records a liability related to
23 the lease regardless of whether the lease would otherwise have
24 been classified and accounted for as an operating lease or
25 capital lease." Do you recall that?

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1 A. I do.
2 Q. And you may recall, as we discussed in your deposition,
3 that you didn't have at that time a citation in that paragraph.
4 Do you recall that?
5 A. Yes.
6 Q. And in general you would endeavor to include citations to
7 provide a basis for the opinions in your report, correct?
8 A. Yes.
9 Q. In general you want to provide a citation in the points you
10 make when you can provide that citation, correct?
11 A. Correct.
12 Q. And you'll recall in your deposition that I asked for the
13 authority that you thought supports this exception. Do you
14 recall that?
15 A. I do.
16 Q. And at your deposition you stated that the authority could
17 be found somewhere in ASC 840-40 and somewhere in ASC 360-20
18 but you couldn't tell me exactly where. Do you recall that?
19 A. I do.
20 Q. So I went back and looked for them, which I promise is
21 harder for me than it is for you, and I couldn't find them. So
22 we sent your counsel a letter asking for them. Do you recall
23 that?
24 A. Yes.
25 Q. And you said in the response to that letter that -- and now

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1 you also say in your current affidavit -- that the support for
2 this exception is in ASC 840-40-25-11, as well as ASC
3 840-40-55-63 through ASC 840-40-55-70. Correct?
4 A. Correct.
5 Q. And there are no other GAAP provisions beyond those that
6 support your position that you have included in your affidavit,
7 correct?
8 A. Correct.
9 Q. So I'd like to take a look at -- and we'll go back to PX
10 150. And again we're in ASC 840-40. So first let's turn to
11 ASC 40-40-25-11.
12 MR. HOWELL: And there again I apologize, your Honor;
13 there are no page numbers on this document, so hopefully we can
14 follow it on the screen.
15 THE COURT: There's no shorter section number, so --
16 MR. HOWELL: That's certainly true. Been a pleasure.
17 Q. Now, ASC 840-40-25-11 reads, "A sale-leaseback transaction
18 that does not qualify for sale-leaseback accounting because of
19 any form of continuing involvement by the seller-lessee other
20 than a normal leaseback shall be accounted for by the deposit
21 method or as a financing, whichever is appropriate under
22 subtopic 360-20." See that?
23 And that ASC doesn't say anything about accounting for
24 a transaction as a lease obligation, correct?
25 A. No. But it does say that you account for it as a

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1 financing.
2 Q. And this statement is entirely consistent with what we
3 looked at a couple of times in the accounting memo. Correct?
4 MR. FORMAUX: Objection to form.
5 MR. HOWELL: That's fine. I'll withdraw it.
6 Q. So instead it talks about accounting for certain types of
7 transactions by using the deposit method or a financing,
8 correct?
9 A. Correct.
10 Q. So now let's turn to ASC 840-40-55-63 through 70. And I'll
11 try to do everyone the favor of just using the last number now
12 as we bounce back and forth between 63 and 70. But all of
13 those are ASC 840-40-55.
14 And these eight GAAP, 63 through 70, are an example
15 called "sale-leaseback" --
16 MR. HOWELL: If you go just a little bit above there
17 to the title right above it, example 3. Thank you.
18 Q. These are an example called "sale-leaseback transaction
19 accounted for by the financing method with subsequent sales
20 recognition -- leaseback classified as operating lease." See
21 that?
22 A. Yes.
23 Q. And one quick note. With respect to Windstream, there has
24 not been subsequent sales recognition in this case, right?

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1 Q. Starting with ASC 840-40-55-63, the second sentence reads,
2 "Depending on the nature and duration of the continuing
3 involvement with the property, that guidance may require a
4 sale-leaseback transaction to be accounted for as a financing."
5 Do you agree with that, correct?
6 A. Yes.
7 Q. It then says, "As illustrated in this example, if a
8 sale-leaseback is reported as a financing, lease payments,
9 exclusive of an interest portion, decrease and collection on
10 the buyer-lessor's note increase the seller-lessee's liability
11 account, with a portion of the lease payments being recognized
12 under the interest payment." Do you agree with that?
13 A. Yes.
14 Q. And the seller-lessee's liability account, that's the
15 financing obligation, right?
16 A. In this example, that's the financing obligation, yes.
17 Q. And next it says, "The seller-lessee reports the sales
18 proceeds as a liability, continues to report the real estate or
19 the real estate and equipment as an asset, and continues to
20 depreciate the property." So that says the seller-lessee will
21 report a liability, and that liability will be sales proceeds,
22 correct?
23 A. Correct.
24 Q. Then next, 64 lays out the facts in this hypothetical
25 example, right? We'll go over all of them, but the example

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1 includes the sale of a building to a buyer-lessor for $950,000.
2 Right?
3 A. Yes.
4 Q. And the example includes a lease agreement at $100,000 a
5 year for five years, correct? Initial term.
6 A. Correct.
7 Q. That lease can also be renewed for five years, correct?
8 A. Right.
9 Q. And there is a fair-value repurchase option during the
10 initial lease term. Correct?
11 A. Correct.
12 Q. And also the seller-lessee guarantees the residual value of
13 the property will be no less than $925,000 at the end of the
14 initial term, right?
15 A. Yes.
16 Q. And last line says, "in exchange for the building, the
17 seller-lessee receives $50,000 and ten-year note." Right?
18 A. Correct.
19 Q. Going to the next GAAP, 65, that shows that the
20 seller-lessee accounts for the transaction as a financing
21 because of the continued involvement associated with the
22 guarantee and the repurchase option. Right?
23 A. Correct.
24 Q. All right. And the last line there, we see that the
25 seller-lessee classifies as a lease if it's an operating lease,

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1 right?
2 A. Yes.
3 Q. And in the same provision, in 65, we see that the
4 continuing involvement -- which, again, the continuing
5 involvement in this example is the guarantee and the repurchase
6 option, right?
7 A. Yes.
8 Q. And then we see that after year five, the continuing
9 involvement goes away. Right?
10 A. Correct.
11 Q. OK. The next REIT provisions go over recognition of the
12 gain of the transaction when the continued involvement goes
13 away in year five, so I'm going to move on from, then, to the
14 one ending 69. OK?
15 A. Sure.
16 Q. And 840-40-55-69 lays out journal entries for this example.
17 Right?
18 A. Yes, it does.
19 Q. Let's take a look at those journal entries. First we see,
20 at inception, there is a financing obligation that is $50,000.
21 Right?
22 A. Yes.
23 Q. And that $50,000 is the sales proceeds from the failed
24 sale-leaseback transaction, correct?
25 A. Received to date, yes.

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1 Q. And that financing obligation, to your point, the next
2 entry has recurring journal entries for years one through five,
3 and that shows $146,471 -- I'm sorry, Jerry. Can you scroll
4 back up. My fault. But just in -- I'm just at the next spot,
5 "recurring journal entries in years one through five." And we
6 see, for each of those years, that $146,471 is added to the
7 financial obligation each year, correct?
8 A. Correct.
9 Q. And that additional $146,471 each year, that represents
10 collections on the buyer-lessor's notes, correct?
11 A. Yes.
12 Q. And the finance obligation, the $50,000 up top and then the
13 $146,471 that's added each year, that is not in the amount of
14 the lease payments, which are $100,000 per year, correct?
15 A. Correct, yes.
16 Q. And the example journal entries use the words "finance
17 obligation," not "lease obligation," correct?
18 A. They do.
19 Q. And then we have 840-40-55-70, which is the balance sheet
20 for the example. Correct?
21 A. Yes.
22 Q. All right. And there we can focus on the chart that is
23 840-40-55-70. So there we have a column called "finance
24 obligation," correct? The second column?
25 A. Yes.

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1 Q. And, again, that starts with the $50,000 in sales proceeds.
2 Right?
3 A. Yes.
4 Q. And then it reflects additions to the financing obligation
5 over time as a result of collections on the buyer-lessor's
6 note. Right?
7 A. Correct.
8 Q. The column is not called "lease obligation," correct?
9 A. Correct.
10 Q. There is no column called "lease obligation," correct?
11 A. Correct.
12 Q. The amounts in that column are not the lease payment
13 amounts in the example, correct?
14 A. Correct.
15 Q. All right. Then in the year five, the lease is renewed,
16 correct?
17 A. Yes.
18 Q. And at that point the continued involvement goes away.
19 Correct?
20 A. Yes.
21 Q. There remain lease payments in the amount of $100,000 per
22 year, correct?
23 A. Yes.
24 Q. And those payments are there under an operating lease,
25 correct?

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1 A. They are.
2 Q. And there is no financing obligation any longer during
3 years six through ten, correct?
4 A. Correct.
5 MR. HOWELL: OK. You can take that down, Derrick.
6 Q. Dr. LaRue, the master lease makes a statement to the effect
7 that the transferor subsidiaries are permitted to use the
8 leased property, correct?
9 A. Yes.
10 Q. So if the second unwritten lease that you say exists does
11 in fact exist, that means the transferor subs would be entering
12 a lease for leased property that they are already permitted to
13 use, correct?
14 MR. FORMAUX: Objection. Calls for a legal
15 conclusion, interpretation of the master lease.
17 Q. Well, you don't have any explanation as to why, if the
18 transferor subsidiaries are already permitted to use the
19 property, they would enter into another lease to use that
20 property, do you, sir?
21 MR. FORMAUX: Objection to form, beyond the scope.
22 THE COURT: Sustained, but not on those grounds.
23 Q. Dr. LaRue, you've offered the opinion that Windstream's
24 financial statements reflect the existence of a lease between
25 Holdings and the transferor subsidiaries, correct?

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2 Q. And you agree of course that financial statements
3 themselves do not create obligations, right?
4 A. Financial statements report the economics of the
5 transaction.
6 Q. Financial statements do not create obligations, correct?
7 A. Correct.
8 Q. And one financial statement that you point to as a basis
9 for your opinion that Windstream's financial statements reflect
10 the existence of a lease between Holdings and transferor
11 subsidiaries is the standalone parent company income statement
12 of Windstream Holdings. Right?
13 A. Yes.
14 MR. HOWELL: So let's look at PX 83, please, Derrick.
15 Q. And you recognize this, Dr. LaRue, PX 83, as the form 10-K
16 filed on March 1, 2017 for the period ending 12/31/16?
17 A. It is.
18 Q. And this is one of the documents that you cite in your
19 affidavit, correct?
20 A. It is.
21 MR. HOWELL: And, Derrick, if you could turn us to
22 page, it will be 37 at the bottom of the page. Great. Thank
23 you.
24 Q. This is the Windstream Holdings, Inc. schedule 1, condensed
25 financial information of the registrant, parent company,

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1 correct?
2 A. It is.
3 Q. And this is an income statement, correct?
4 A. Comprehensive income, yes.
5 Q. And this is a standalone parent company income statement
6 for Holdings for the year 2016, correct?
7 A. Yes.
8 Q. It's filed March 1st of 2017, right?
9 A. I believe so.
10 Q. Now, you've testified that GAAP does not allow or permit
11 Holdings to call this leasing income if it is in fact a cash
12 dividend rather than a lease payment, correct?
14 Q. And in your direct testimony affidavit, you stated that
15 GAAP does not, for example, permit the receipt of a dividend or
16 a distribution to be classified as operating revenue or to be
17 described as leasing income from subsidiaries. Right?
19 Q. Now, you're aware that the company takes the position that
20 those payments are cash dividends from subsidiaries, right?
21 A. I -- the officer certificates make reference to the
22 dividend. The financial statements make reference to the
23 leasing income from subsidiaries. The parent's cash flow
24 statements also make reference to basically this leasing income
25 from subsidiaries. So there's a conflict.

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1 Q. OK. So you agree, but I'm happy to go back with you, you
2 were in the courtroom earlier this morning when Mr. Godfrey
3 went through one of the officer certificates, right, with
4 Mr. Fletcher on the stand?
5 A. I was here for Mr. Eichler's testimony and a little bit of
6 Mr. Fletcher's testimony.
7 Q. Fair enough. My apologies. Let's just quickly pull up WIN
8 Exhibit No. 8. You reviewed some of the officer certificates
9 in this case as part of your work, correct, Dr. LaRue?
11 Q. You recognize this as one of the many officer certificates
12 in this case, correct?
13 A. I do.
14 Q. And the second paragraph says, "On the date hereof,
15 Windstream Services, LLC will make a dividend payment to
16 parent, Windstream Holdings," so it will make a dividend
17 payment to parent Windstream Holdings, "which will pay a lease
18 payment to CS&L in the amount of $54 million" and change,
19 correct?
20 A. It says that, yes.
21 Q. And you're aware that it says that in different officer
22 certificates, correct?
23 A. Yes.
24 Q. In your view that's flatly inconsistent with the financial
25 statements, correct?

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1 A. Yes.
2 Q. And we already talked about in the accounting memo, in
3 conclusion to issue 5 in the accounting memo, they reference
4 payments as cash dividends, correct?
5 A. Correct.
6 Q. And you were here for Mr. Eichler's testimony where he said
7 that he viewed those payments as cash dividends as well,
8 correct?
9 A. Yes.
10 Q. Now, PwC were the auditors for the company for this 10-K,
11 correct?
12 A. Yes.
13 Q. And you're aware that large public accounting firms like
14 PwC have their own libraries of accounting references, right?
15 A. Yes.
16 Q. And you believe that such accounting references could be
17 useful sources in interpreting GAAP under certain
18 circumstances, right?
19 A. Possibly, yes.
20 Q. I'd like to show you what is WIN Exhibit No. 189. This is
21 a PwC guidance and financial statement presentation. Have you
22 ever seen this document before?
23 A. I received a copy of this just a few days ago, and I had an
24 opportunity to flip through it relatively quickly.
25 Q. Have you seen similar documents in your career, financial

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1 statement presentation documents?
2 A. Many.
3 Q. On the second page of the document, we see it has a 2017
4 copyright from PwC. Do you see that?
5 A. Yes.
6 Q. Then if we turn to the preface, the document says -- I
7 think there is another page or two. Thank you. It says, "PwC
8 is pleased to offer our financial statement presentation guide.
9 This guide was last updated in October of 2016." You see that?
10 A. Yes.
11 Q. And now we're going to flip well ahead, to chapter 31,
12 which -- there we go, on page 880. Chapter is titled "Parent
13 Company Financial Statements." Do you see that?
14 A. Yes.
15 Q. And I'd like to turn to page 886 of the exhibit, which is
16 page 31.7 in the document, and look at paragraph 31.5.4, which
17 is called "cash dividends from subsidiaries." See that?
18 A. I do.
19 Q. And the first thing it says, "As discussed in FSP 31.4.2,
20 in parent company financing statements (including the statement
21 of cash flows), the parent's subsidiaries are treated similarly
22 to equity method investments." See that?
23 A. Yes.
24 Q. And then the next sentence says, "Cash dividends received
25 from subsidiaries should be classified within operating

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1 activities unless they represent a return of investment, in
2 which case the appropriate classification would be within
3 investment activities." Do you see that?
4 A. Yes.
5 Q. So here, PwC, with respect the auditors for Holdings, is
6 saying that, in a parent company standalone financial
7 statement, they advise that cash dividends received from
8 subsidiaries should be instead classified as within operating
9 activities. Right?
10 MR. FORMAUX: Objection.
11 THE COURT: Basis?
12 This is not in evidence, correct?
13 MR. FORMAUX: It's not in evidence. Foundation.
14 Form. And it says what it says.
15 MR. HOWELL: First of all, your Honor, with respect to
16 the not-in-evidence question, we exchanged discussion about
17 whether or not we would be permitted to use this in evidence to
18 cross-examine this witness.
19 With respect to foundation, he's said that he's seen
20 many documents like this over the course of his career. He's
21 been certified as an expert in accounting.
22 And I'm not sure if there was a third objection. I'd
23 be happy to address that as well.
24 THE COURT: All right. Well, it says what it says and
25 he already, I think, acknowledged that much. So I think we can

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1 move on.
2 MR. HOWELL: I'll move on.
3 Q. Dr. LaRue, I'm going to briefly go to questions 7 through 9
4 of your affidavit, but hopefully not give counsel, who have
5 been waiting patiently, an opportunity to object at the other
6 end of the table.
7 In questions 7 through 9 of your affidavit, you lay
8 out certain calculations of attributable debt, correct?
9 A. Yes.
10 Q. To do those calculations, you had to go to the indenture
11 and read and understand the term "attributable debt" and then
12 do some math associated with that, right?
13 A. Yes.
14 Q. Now, I'm not going to ask you any questions about those
15 calculations other than to ask you to confirm that for all
16 attributable debt calculations you performed, you assumed that
17 the 2015 transaction was in fact a sale and leaseback
18 transaction under the indenture. Correct?
19 A. Correct.
20 Q. That assumption was provided to you by counsel. Correct?
21 A. Yes.
22 Q. Now, Dr. LaRue, as part of your work in this case, you
23 considered a lot of documents, correct?
24 A. Yes, I have.
25 Q. And those documents were listed in an appendix to your

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1 expert report, correct?
2 A. In the appendix and also in the footnotes to the text of my
3 report.
4 Q. And you reviewed several documents between Windstream and
5 the SEC relating to Windstream's accounting treatment of the
6 transaction, right?
7 A. Yes.
8 Q. And you understood Windstream was working together with PwC
9 when determining the accounting treatment for the transaction,
10 right?
11 A. That was my understanding, yes.
12 Q. And you know that PwC audited the company's financial
13 statements, correct?
14 A. Yes.
15 Q. And the company also worked with Ernst & Young on its
16 accounting treatment, correct?
17 A. I don't recall being aware of that until Mr. Eichler's
18 testimony earlier this afternoon.
19 Q. You haven't seen any mention of any lease between Holdings
20 and the transferor subs in any correspondence from PwC either,
21 do you, correct?
23 Q. And you haven't seen any mention of any lease between
24 Holdings and the transfer of subs and any correspondence with
25 the SEC that you've reviewed, correct?

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I7NAUSB6ps LaRue - redirect
2 Q. And you haven't seen mention of any lease between Holdings
3 and a transferor sub in any correspondence with Ernst & Young
4 that you've reviewed, correct?
5 A. I don't recall --
6 MR. FORMAUX: Objection. Misstates the record. There
7 is no correspondence with Ernst & Young produced in this case.
8 THE COURT: The witness already testified that he had
9 no recollection of Ernst & Young being involved until he heard
10 Mr. Eichler, so I think that it's a fair objection. Sustained.
11 Q. And you've never seen any document where the SEC told
12 Windstream, hey, you should disclose a lease between Holdings
13 and the transferor subsidiaries, right?
15 Q. You've never seen a document where PwC told Windstream,
16 hey, you should disclose the lease between Holdings and the
17 transferor subsidiaries, right?
18 MR. FORMAUX: Same objection, your Honor. There was
19 no correspondence with the auditors produced. So it's not a
20 proper question.
21 MR. HOWELL: No further questions, your Honor.
22 THE COURT: There you go.
23 All right. Redirect.
25 BY MR. FORMAUX:

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1 Q. Professor LaRue, you taught accounting in the past?
2 A. Yes.
3 Q. How many years?
4 A. About 40.
5 Q. And did your accounting -- at what level, university or
6 business school?
7 A. University of Virginia.
8 Q. At what level?
9 A. I taught --
10 Q. Undergraduate, business school, what?
11 A. Both, graduate and undergraduate. I was also the director
12 of the graduate accounting program at UVA.
13 Q. And did your teaching over those years include teaching for
14 GAAP accounting purposes?
15 A. It did.
16 Q. Did your teaching over those years include GAAP accounting
17 for sale-leaseback transactions?
18 A. Yes.
19 Q. And have you been qualified as an expert before, as an
20 expert on GAAP, in cases that involve issues of leasing?
21 A. Yes.
22 Q. Can a transaction qualify as a sale-leaseback transaction,
23 as defined by GAAP, where it also involves a spinoff?
24 A. Yes.
25 Q. Does anything in GAAP require a lease to be in writing?

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1 A. No.
2 Q. You were shown a provision earlier today that makes --
3 there's a definition of "lease inception." Do you recall that?
4 A. I do.
5 Q. And that provision both referred to, in one part, to lease
6 commitments, in another part to lease agreements?
7 A. Correct.
8 Q. And did it impose any requirement of writing upon the lease
9 agreement?
10 A. Not on the lease agreement, no.
11 Q. And is there a general definition of "lease," the word
12 "lease," in the ASC?
13 A. There is.
14 Q. And does that definition -- do you recall that definition?
15 A. I do.
16 Q. What is that definition?
17 A. An agreement that conveys the right to use property, plant,
18 and equipment (land or depreciable property) usually for a
19 period of time.
20 Q. Where can we find the definition; do you recall?
21 A. Yes. Well, it's in a couple places. But it's in ASC
22 840-40-20.
23 Q. All right. And does that definition anywhere include the
24 requirement of a writing?
25 A. It does not.

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1 Q. Just to be clear, what is your basis for believing, or
2 opining, that the financial statements of Holdings and of the
3 transferor subsidiaries, as included in their SEC filings,
4 reflects a lease between the transferor subsidiaries and
5 Holdings?
6 A. When you examine the financial statements of Holdings, you
7 see two things. First of all, you see on the income statement
8 a reference to leasing income from subsidiaries of $653.6
9 million in 2016. The cash flow statement also reflects the
10 receipt of the cash of $653.6 million from subsidiaries, as a
11 consequence of the lease. When you look at the transferor
12 subsidiaries' financial statements, the transferor subsidiaries
13 had, or I had access to the balance sheets and the income
14 statements of the transferor subsidiaries, but the information
15 on those balance sheets of the subsidiaries was combined and
16 reflected in footnote 16 to the financial statements, the
17 consolidated financial statements, filed with the 10-K, on the
18 transferor subsidiaries' balance sheets, they all reflected a
19 lease obligation. The total amount of the lease obligation
20 reflected on all of the transferor subsidiaries equaled the
21 total lease obligation reflected by the parent corporation on
22 the master lease. So those items, those items matched up.
23 Also, on the transferor subsidiaries' financial
24 statements, on the cash flow statements, which were reflected,
25 again, in the 10-K footnote 16, the -- those financial

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1 statements represent -- disclosed payments on long-term lease
2 obligations, in amounts that, together, combined, equal the
3 amount of payments on long-term lease obligations made by
4 Holdings to CS&L under the master lease.
5 And finally, the transferor subsidiaries' income
6 statements showed interest expense which would have been
7 interest -- for the most part was interest expense on the
8 outstanding balance of the finance obligation that they showed
9 on their balance sheets. And the amount of the interest
10 expense shown in 2016 on the transferor subsidiaries' income
11 statements was approximately equal to the amount of interest
12 expense shown on Holdings' income statement on the lease
13 between Holdings and CS&L.
14 Q. And just going back for a moment to the first thing that
15 you mentioned, the Holdings, in its standalone financial
16 statements reporting leasing income from subsidiaries as an
17 item of operating revenue, are there any GAAP requirements
18 generally on what types of -- what constitutes revenue?
19 A. Yes.
20 Q. What are they?
21 A. Revenue is basically described as compensation received in
22 exchange for goods or Services or for the use of property.
23 There's an exchange transaction: I've given up something and
24 receive compensation for that. That would be revenue
25 generally.

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1 Q. And you mentioned that the transferor subsidiaries had also
2 recorded as a liability long-term lease obligations, correct?
4 Q. Are there any GAAP rules describing generally what a
5 liability is and what must be present in order to record a
6 liability?
7 A. Yes. A liability is defined under Statement of Financial
8 Accounting Concepts No. 6, and it's defined roughly as a
9 probable future expenditure, let's say of cash, in exchange
10 for -- as a result of a current commitment.
11 Q. And you were asked about ASC 840-10-50-2 --
12 MR. FORMAUX: Joe, if it's possible for you to bring
13 up PX 150 at that phrase. If it's difficult, there's also a
14 copy of it in the -- if I may approach the binders.
16 MR. FORMAUX: And you should also have one in your
17 book, your Honor, in the second binder.
18 A. So what's the number?
19 Q. 840-40 -- I'm sorry-- oh, I do apologize. 840-10-50-2. So
20 I believe it may be the next.
21 All right. So now we've found it. It should be up on
22 your screen. You were asked some questions about whether there
23 were disclosures that satisfied this rule. To the extent that
24 there's a disclosure on a litigation, can it be satisfied on
25 the face of the financial statement, under the text of this

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1 rule?
2 A. Yes.
3 Q. Or in the notes.
4 A. Or in the notes.
5 Q. Or in a combination.
7 Q. As to the other, there are some included but not two items
8 listed in A, B, and C. Do you see those?
9 A. Yes.
10 Q. Do you see any indication that any of those characteristics
11 existed with respect to the lease between Holdings and the
12 transferor subsidiaries?
13 A. I don't recall that there was -- say that again? I'm
14 sorry.
15 Q. Yes. If none of the items A through C existed, then
16 obviously there would be no need to disclose that, correct?
17 MR. HOWELL: Objection, leading.
18 THE COURT: I'll allow it. Go ahead.
19 A. I don't believe there were any contingent rental -- I don't
20 recall that under the master lease there were any contingent
21 rental payments under A. I believe that there were renewal
22 options, and I don't remember that are there were restrictions
23 imposed by the lease agreements concerning dividends,
24 additional debt, or further leasing.
25 Q. And you were also asked a series of questions about whether

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1 it was possible to have a -- whether it's ever required to
2 record a liability in connection with an operating lease. You
3 recall that series of questions?
4 A. I do.
5 Q. And I think there was some kind of suggestion in the
6 questioning somehow that created some new opinion along the
7 way. So just to be very clear, from your -- did your original
8 report discuss the fact that a sale-leaseback transaction can
9 be accounted for under any one of three different ways?
10 A. I believe I did.
11 Q. And one of -- in your original report, you discuss the
12 financing method of accounting for sale-leaseback transactions,
13 correct?
14 A. Yes.
15 Q. And that involves reporting a liability, correct?
16 A. Yes.
17 Q. And it would record -- it would involve recording a
18 liability even if the lease portion of the sale-leaseback
19 transaction was an operating lease, correct?
21 Q. In fact, you were pointed, earlier, during your
22 cross-examination, to ASC 840-40-25-11. Do you recall that?
23 A. Yes.
24 Q. And that was the provision that said if you have a
25 sale-leaseback transaction that does not qualify for sale and

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1 leaseback accounting as a continuing involvement, then use
2 financing method or deposit method. Do you recall that?
3 A. Yes.
4 Q. Again, nothing in that rule, where you have a
5 sale-leaseback transaction and there is continuing involvement
6 so you cannot use the sale-leaseback accounting method, none of
7 it requires you to -- or imposes this condition to ask, because
8 it's an operating lease or a capital lease?
10 MR. HOWELL: Objection to the question as, again,
11 leading, your Honor.
12 THE COURT: Mr. Howell, can you find a microphone.
13 MR. HOWELL: Sure.
14 Q. Just to be absolutely clear about this --
15 THE COURT: Well, hold on.
16 MR. HOWELL: I'm sorry, this microphone does not work.
17 THE COURT: I think you might just have been too far
18 away.
19 MR. HOWELL: I apologize.
20 THE COURT: The objection is leading?
21 MR. HOWELL: Yes.
23 Q. Just to be absolutely clear, sale of a leaseback
24 transaction is a defined term in GAAP?
25 A. Yes.

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1 Q. And sale-leaseback accounting is a defined term in GAAP,
2 correct?
3 A. Correct.
4 Q. All right. Is a sale and leaseback transaction the same
5 thing as a sale -- as sale and leaseback accounting?
6 A. No, it's not. I mean, a sale-leaseback transaction is a
7 transaction. And how you account for that transaction would
8 include the sale-leaseback accounting method as well as the
9 financial method and the deposit method, whichever of the three
10 is applicable. They are two different things.
11 Q. You were asked also about the example that begins at ASC
12 840-40-55-63. Do you recall that?
13 A. I do.
14 MR. FORMAUX: Is it possible to pull that up? That
15 should be in PX 150.
16 Q. You were asked a series of -- now, just to be clear, first
17 off, that is an example describing a sale-leaseback
18 transaction, correct?
19 A. Yes.
20 Q. And it is an example in which the financing method is
21 applied?
22 A. Yes.
23 Q. And that entails reporting a liability, correct?
24 A. Yes.
25 Q. All right. Even though in this example, the lease is in

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1 the nature of an operating lease?
2 MR. HOWELL: Your Honor, again I'm going to object to
3 all of these questions as leading.
5 Q. You were asked to -- if we could go down to 840-40-55-69, I
6 think you were asked some questions along the lines of --
7 concerning the entries that affected the liability that's
8 captioned "financing obligation." Do you recall that?
9 A. Yes.
10 Q. And I think you were pointed to some entries that did not
11 have anything to do with the lease payments. Do you recall
12 that?
13 A. Yes.
14 Q. All right. And are there journal entries in this example
15 that show you that the financing obligation, that liability
16 that's recorded, is amortized by the amount of the lease
17 payments?
18 A. Yes.
19 Q. Where are they?
20 A. You'll have to scroll down.
21 Q. And maybe you could just bring the first few ones to the
22 fore.
23 A. OK. Just stop there. Year three, for example, the
24 finance, you'll see that there is a debit to finance
25 obligation, so the finance obligation is being reduced. It's

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1 being reduced as a result of the payment of the rent under that
2 operating lease. So the payment is cash of $100,000 in year
3 three. A portion of that is the interest accrued on the
4 outstanding balance of the finance obligation. The balance of
5 $84,093 is the amortization of the finance obligation.
6 Q. So is there some relationship between the liability that's
7 recorded here in this example, the finance obligation and the
8 lease, in the example?
9 A. Well, the finance obligation is being amortized by the
10 lease payments.
11 Q. And these two sets of provisions, the example in ASC
12 840-55-63 and the provision 840-40-25-11, did you see anything
13 in the documents that you reviewed that indicated to you
14 whether they had any particular significance in the accounting
15 determinations made by Windstream?
16 A. Yes. Both of those provisions were cited and relied on by
17 Windstream in the accounting memo. Page 10, I think.
18 MR. FORMAUX: Could you bring up PX 66, at page 10.
19 THE COURT: Mr. Formaux, do you have an estimate on
20 your time? We're nearing the end of the day, but if you're
21 almost done, we could perhaps get Dr. LaRue off the stand.
22 MR. FORMAUX: Yes, I think probably. Just a moment,
23 your Honor.
24 Q. And is there anywhere on that page what you were referring
25 to a moment ago?

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1 A. Yes. If you look at the bottom of the page under issue 4,
2 and it starts off by saying, "In accordance with ASC
3 840-40-25-11, if there is a prohibited form of involvement in a
4 sale-leaseback transaction by the seller-lessee, then the
5 transaction is required to be accounted for as a financing in
6 accordance with the provisions of ASC 360." And then it goes
7 on to say, "Under the financing method, the assets subject to
8 the sale-leaseback remain on the balance sheet of the
9 seller-lessee and continue to be depreciated as if the
10 seller-lessee remained the legal owner. Sales proceeds are
11 recorded as a liability." And of course in this case, there
12 were no sales -- Windstream determined that there were no sale
13 proceeds from the leaseback, from the spinoff transaction.
14 It goes on to say that the "lease payments, less the
15 portion considered to be interest expense, decreases the
16 financing liability." And then it states ASC 840-40-55-63.
17 Q. OK. And you were shown something from a Pricewaterhouse-
18 Coopers document. Do you recall that a moment ago?
19 A. Yes.
20 Q. From internal accounting. And I believe it referred to the
21 cash dividends from subsidiaries being recorded in the
22 operating activities section.
23 A. Correct.
24 Q. Unless they --
25 MR. FORMAUX: Do you have that? Can we bring it up?

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1 I think it will be in Exhibit 189. I believe it is at section
2 31.5.4, which I think was somewhere in the 800 --
3 MR. HOWELL: Yes. 31.5.4.
4 MR. FORMAUX: 31.5.4. Page 886.
5 Q. And do you see that second line, beginning "cash dividends
6 received from subsidiaries," do you see that?
7 A. Yes.
8 Q. Should be classified in operating facilities unless they
9 represent a return on investment, in which case the appropriate
10 classification would be within the investing activities.
11 Correct?
12 A. Yes.
13 Q. Now, here, the leasing income from subsidiaries that's
14 recorded by Holdings, where is it recorded? Is it recorded in
15 the operating activities or in the investing activities?
16 A. Operating activities.
17 Q. And do operating activities of the company, can they
18 include leasing?
19 A. Yes, of course.
20 Q. And if this were, according to this PwC guide, if those
21 were dividends being paid solely as distributions on equity,
22 return of equity to parent, they wouldn't be listed in the
23 operating exceptions, would they?
25 Q. If, according to this PwC document, if there were in fact

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1 distributions being made from subsidiaries to the parent that
2 were solely in the nature of distributions on equity, where,
3 according to this statement, would they appear?
4 A. Well, first of all, this makes reference to the parent's
5 subsidiaries, which I would normally interpret to be other
6 corporations. In this case, most of the transferor
7 subsidiaries and Services were all LLCs. And I would suggest
8 that those are classified -- those are created a little bit
9 differently, treated a little bit differently. So when you
10 have a subsidiary that has retained earnings and you have
11 distributions out of those retained earnings, it's correct that
12 the parent company would report that as dividend income on its
13 income -- on its standalone income statement. It's a little
14 bit different with LLCs, because they don't -- they're treated
15 a little bit differently.
17
18
19
20
21
22
23
24
25

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I7ndusb7 LaRue - redirect
1 Q. And just to be clear, did you, in reviewing Holdings'
2 financial statements, see instances where Holdings did
3 explicitly report amounts received as distributions from a
4 subsidiary or another?
5 A. Yes. They weren't on the income statement. They were on
6 the cash flow statement.
7 Q. All right. And were any of those any amounts sufficient to
8 pay the lease payments on the Master Lease?
9 A. No. The lease payments on the Master Lease were about
10 $653 million. In 2016, I don't remember the exact numbers, but
11 the amounts that were recognized as a distribution on the cash
12 flow statement were barely -- were sufficient to cover the
13 dividends that Holdings paid to its own shareholders and that
14 they used for stock repurchase transactions.
15 Q. OK. And so was the leasing income from subsidiaries
16 reported in the same way and in the same captions that the
17 distributions that you mentioned were reported?
18 A. No. The leasing income from subsidiaries was reported on
19 the income statement whereas the distributions were reported
20 not on the income statement but rather on the cash flow
21 statement.
22 Q. And just I guess, finally, besides -- did you see any other
23 documents in this case -- actually, strike that.
24 I think this is good.
25 A. Great. Thank you.

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I7ndusb7
1 THE COURT: All right. Mr. Kane, did you have any
2 questions?
3 MR. KANE: Nothing for me, Judge.
4 THE COURT: All right. Any recross I guess it would
5 be?
6 MR. HOWELL: No, your Honor.
7 THE COURT: Great. Excellent.
8 Dr. LaRue, you may step down.
9 (Witness excused)
10 THE COURT: All right. So, a few matters.
11 First, defendants said explicitly this morning
12 Services should file on ECF the letter motion that had been
13 previously redacted as well as the Moody affidavit with that
14 one partial sentence redacted. If you could do that today or
15 no later than tomorrow, that would be great.
16 Second, in terms of schedule tomorrow, I assume we
17 will proceed with Mr. Solomon's testimony and then
18 Mr. Gunderman, is that correct?
19 MR. GODFREY: Yes, your Honor.
20 THE COURT: All right. Just a reminder, tomorrow we
21 will start promptly at 9:30, but we're going to sit the shorter
22 day with a short half-hour break in the middle. My guess is
23 we'll probably conclude about 3, give or take.
24 Wednesday my schedule is a little unclear. I may be
25 able to clear my afternoon, in which case I may want to sort of

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I7ndusb7
1 take advantage of that and sit a longer day, as we did today.
2 So I'm putting you on notice of that, although you had
3 mentioned earlier that there were some scheduling issues so we
4 can take that up tomorrow, but I just wanted to flag that.
5 MR. GODFREY: I think that if your Honor sits all day
6 Wednesday, that may help solve them, but we'll confer tonight
7 with the particular witness' counsel.
8 THE COURT: OK. Very good. So we can chat about that
9 in the morning.
10 If you want to know your time, at present, Trustee has
11 used three hours and 50 minutes of its time, Services has used
12 one hour and 57 minutes of its time, and as tempted as I was to
13 charge Mr. Kane with a minute, I decided not to. So, you all
14 have eight hours still.
15 Anything else you want to take up today?
16 MR. GODFREY: Not for Windstream Services. Thank you,
17 your Honor.
18 MR. FRIEDMAN: Nothing from the Trustee. Thank you,
19 your Honor.
20 THE COURT: All right. The courtroom will be open by
21 8:45 tomorrow morning. I will be on the bench at 9:30.
22 Mr. Solomon should be here ready to go, and I will see you in
23 the morning. Have a good evening.
24 THE LAW CLERK: All rise.
25 (Adjourned to 9:30 a.m., Tuesday, July 24, 2018)

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1 INDEX OF EXAMINATION
2 Examination of: Page
3 JOHN P. FLETCHER
4 Direct By Mr. Godfrey . . . . . . . . . . . . .10
5 Cross By Mr. Friedman . . . . . . . . . . . . .11
6 Redirect By Mr. Godfrey . . . . . . . . . . . .96
7 Recross By Mr. Friedman . . . . . . . . . . . 120
8 Redirect By Mr. Godfrey . . . . . . . . . . . 134
9 JOHN EICHLER
10 Direct By Mr. Godfrey . . . . . . . . . . . . 136
11 Cross By Mr. Friedman . . . . . . . . . . . . 138
12 Redirect By Mr. Godfrey . . . . . . . . . . . 159
13 Recross By Mr. Friedman . . . . . . . . . . . 167
14 DAVID WAYNE LaRUE
15 Direct By Mr. Fourmaux . . . . . . . . . . . . 171
16 Cross By Mr. Howell . . . . . . . . . . . . . 175
17 Redirect By Mr. Formaux . . . . . . . . . . . 217
18 PLAINTIFF EXHIBITS
19 Exhibit No. Received
20 PX200 . . . . . . . . . . . . . . . . . . . 173
21 DEFENDANT EXHIBITS
22 Exhibit No. Received
23 190 . . . . . . . . . . . . . . . . . . . . .11
3 through 29 . . . . . . . . . . . . . . . . 118
24 191 . . . . . . . . . . . . . . . . . . . . 138
25

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1

3 U.S. BANK NATIONAL

19 HON. JESSE M. FURMAN,

22 FRIEDMAN KAPLAN SEILER & ADELMAN LLP

SOUTHERN DISTRICT REPORTERS, P.C.

2 MASLON EDELMAN BORMAN & BRAND LLP

4 KIRKLAND & ELLIS LLP

8 ROBBINS, RUSSELL, ENGLERT, ORSECK, UNTEREINER & SAUBER LLP

13 THE CLERK: Counsel, please state your name for the

15 MR. FRIEDMAN: Good morning, your Honor. For U.S.

16 Bank, as Trustee, Friedman Kaplan Seiler & Adelman, Edward A.

17 Friedman. With me is Jeffrey Fourmaux, Daniel Rapport,

19 MR. COLORADO: Good morning, your Honor.

20 MR. ROBBINS: And Blair Albom.

21 Also representing U.S. Bank, as Trustee, is Mr. Mike

22 McCarthy from the Maslon law firm.

23 THE COURT: Good morning.

24 MR. GODFREY: Good morning, your Honor. Rick Godfrey,

25 on behalf of Windstream Services. With me is Mr. Howell,

SOUTHERN DISTRICT REPORTERS, P.C.

2 THE COURT: Good morning.

3 All right. Sorry about the standing room only for

4 some of you. I think we are trying to arrange for an overflow

5 courtroom. I don't think anybody had indicated that there

6 would actually be a need so we hadn't done that in advance, but

7 we are certainly trying our best to do it as quickly as

8 possible. So in the meantime, I apologize and would ask for

10 We are here for the beginning of trial. A couple of

11 housekeeping matters before we start with the first witness.

12 First, with respect to the motion to seal filed by Services,

13 docket number 203, I reviewed the letter and the declaration

14 and the exhibits. I see no basis to seal the letter motion

15 itself. It describes only in generic terms the nature of the

16 exhibits at issue and doesn't, as far as I can tell, reveal any

17 proprietary or confidential information. So, too, I think,

18 with one small exception, the Moody affidavit also just

19 describes things in general terms. The one exception is in

20 paragraph 5 of that affidavit, the second sentence I think can

21 and should be redacted following the word "involved." But with

22 that one narrow exception, I think it, too, can be unredacted.

23 I have already approved the redactions of plaintiff's

24 Exhibits 41 and 42, which are also Windstream or Services

25 Exhibits 36 and 37. I will reserve judgment for now on whether

SOUTHERN DISTRICT REPORTERS, P.C.

2 Aurelius Exhibits 29 and 31 and, corresponding to Windstream,

3 Exhibits 74 and 183 until they are either used at trial or I

4 have an opportunity to consider what role they play and decide

5 the weight of the presumption.

6 I will say, however, that I am skeptical of the need

7 to keep them sealed in their entirety. As far as I can tell,

9 some discussions before the notice of default about refinancing

10 and also to show that there was discussion at the I think

11 September 22nd board meeting, or whatever the date is, of the

12 notice of default. I would think that those two things could

14 meeting and the like. And the rest of it is not clear to me it

15 is relevant to the case at all and, therefore, it could

16 presumably be redacted consistent with what I said last week

18 that in the meantime, but I will reserve judgment until later

20 I did get a number of submissions over the weekend. I

21 did sign the stipulation regarding admission of the exhibits

22 and deposition designations. I don't know if that has hit the

24 therefore, those exhibits are now in evidence and you don't

25 need to offer them.

SOUTHERN DISTRICT REPORTERS, P.C.