decoration decoration
Stories

GROKLAW
When you want to know more...
decoration
For layout only
Home
Archives
Site Map
Search
About Groklaw
Awards
Legal Research
Timelines
ApplevSamsung
ApplevSamsung p.2
ArchiveExplorer
Autozone
Bilski
Cases
Cast: Lawyers
Comes v. MS
Contracts/Documents
Courts
DRM
Gordon v MS
GPL
Grokdoc
HTML How To
IPI v RH
IV v. Google
Legal Docs
Lodsys
MS Litigations
MSvB&N
News Picks
Novell v. MS
Novell-MS Deal
ODF/OOXML
OOXML Appeals
OraclevGoogle
Patents
ProjectMonterey
Psystar
Quote Database
Red Hat v SCO
Salus Book
SCEA v Hotz
SCO Appeals
SCO Bankruptcy
SCO Financials
SCO Overview
SCO v IBM
SCO v Novell
SCO:Soup2Nuts
SCOsource
Sean Daly
Software Patents
Switch to Linux
Transcripts
Unix Books
Your contributions keep Groklaw going.
To donate to Groklaw 2.0:

Groklaw Gear

Click here to send an email to the editor of this weblog.


Contact PJ

Click here to email PJ. You won't find me on Facebook Donate Paypal


User Functions

Username:

Password:

Don't have an account yet? Sign up as a New User

No Legal Advice

The information on Groklaw is not intended to constitute legal advice. While Mark is a lawyer and he has asked other lawyers and law students to contribute articles, all of these articles are offered to help educate, not to provide specific legal advice. They are not your lawyers.

Here's Groklaw's comments policy.


What's New

STORIES
No new stories

COMMENTS last 48 hrs
No new comments


Sponsors

Hosting:
hosted by ibiblio

On servers donated to ibiblio by AMD.

Webmaster
The Proposed MOU, as text - Updated
Friday, February 15 2008 @ 10:38 PM EST

Here's the Memorandum of Understanding [PDF] between SCO and the Stephen Norris Capital Partners, as text. As you will see, it's a takeover. Not only does Darl McBride have to resign, but the SNCP folks get 4 of 7 seats on the board of directors and can pretty much control the rest, the way the voting arrangement is set up. The 5th seat will be the CEO. The last two the current shareholders can pick in a group consisting of them and the holders of the Series A Preferred shares, meaning SNCP, and one must be an "outside executive with suitable industry expertise who is designated by a majority of the Board." Ralph Yarro signed the MOU for SCO.

It's a takeover, whereby they give SCO $5 million, and as for the rest of the money, the more SCO borrows from the $95 million, the more control SNCP gets, with indemnification for the directors "to the maximum extent permitted by law," and the company must "purchase 'tail' directors and officers insurance coverage to protect against claims arising prior to the effective date of the Proposed Plan of Reorganization".

Suitably insured, assuming they can find an insurance company stupid enough to take on these liabilities, the company will go private and then give its full and aggressive attention to raping and pillaging the FOSS community some more with SCO's bogo lawsuits against Linux. Well, that's how I read it. It is, of course, at least in part also a shot across the bow of IBM. Still not interested in settling, the MOU fairly screams?

SCO has filed an 8K about the "reorganization" plan. Here's the meat of it:

On February 13, 2008, The SCO Group, Inc. (the “Company”) entered into a Memorandum of Understanding (the “MOU”) with Stephen Norris Capital Partners, LLC (“SNCP”), a Delaware limited liability company, whereby SNCP will provide up to $100 million to finance a plan of reorganization for the Company. As part of the financing, SNCP will buy a controlling interest in the Company, and take it private. As a result, the Company will shortly be filing a plan to emerge from Chapter 11 of the United States Bankruptcy Code in 2008. The Board of Directors of the Company has unanimously determined that this financing and plan of reorganization is in the best long-term interests of the Company and its subsidiaries, as well as its customers, shareholders, creditors and employees. The MOU is subject to, among other conditions, Bankrupcty Court approval and on February 14, 2008, the Company filed a motion seeking such approval.

But when you read the MOU, what they are getting is $5 million and some stock-dance arounds, which explains to me the recent grants of stock options to SCO executives, and the right to draw on credit to be able to appeal, as needed, any losses in the various litigations SCO is drowning in and to pay any damages to Novell, IBM and Red Hat. Update: There is today a new SEC filing, an S8 announcing 644,543 more shares being registered, at 6 cents, in connection with SCO's Omnibus Stock Incentive Plan. If you read the SCO motion [PDF] regarding the current dispute with the US Trustee's Office over incentive bonuses in October, you know this is a touchy area. End update.]

The more they borrow, though, the more SCO loses control of the company. And hey... how about the interest rate? One might even imagine that no one intends SCO to survive.

How the Stephen Norris folks think they'll get that loaned money back is a mystery, unless the corruption has reached a point where they think they have the appeals court sewn up. Instead, I have another theory, but it's only a theory. That is, I have a theory aside from the obvious possibility that it's folks willing to bet big on the off chance that it'll pay off big. There's a sucker born every minute, they say, after all. But aside from that, I analyze it like this: Who benefits from this move? Aside from the privacy elements, whereby the SCO ship sinks in a private pond with no worry about piercing the corporate veil, since there is money in this plan to pay Novell and others, there is the avoidance of any antitrust worries Microsoft might conceivably face from airing of linen. But I think it's more about holding on to business. The military is switching to Linux. That's a huge loss to Microsoft, of course, but it's also a huge loss to companies that supply services and proprietary software applications to the military. Some folks might not like that the switch to Linux is happening. It will be worse for them if other government agencies and entities decide to follow the DOD's lead.

What to do? What to do? Maybe at least slow down the process by putting Linux under a legal cloud of uncertainty, at a minimum, at least for several more years, and/or under a financial burden, at best, should they prevail?

Well, that's my theory, anyway. As time goes on, we'll see how it plays out. But for now, what is clear as a bell is that someone is willing to spend up to $100 million dollars to keep the litigation going. And I don't personally believe for a minute that it's because they think SCO can make them any money either in products or in litigation. However, that is what they claim the purpose of the plan is:

The Debtor and SNCP acknowledge and agree that a purpose and intended effect of the Proposed Plan of Reorganization is to maximize the Debtor's litigation recovery under the Pending Litigation.

Good luck with that. Let us know how it works out for you.

I wonder if the court will approve this deal? I think it might. It has a better chance than the York deal did, because SCO learned from that debacle that unless there was some arrangement to take care of damages when SCO loses in litigation, the court wouldn't approve the plan. So, they've made an arrangement for that, and that makes it harder to object to, I think. I don't see anything about the software business, Me Inc or Unix or anything in the MOU. I suggest this clause fails the sniff test, though:

Liquidation Preference: In the event of a voluntary or involuntary liquidation, dissolution or winding up of the Company, the funds available for distribution shall be paid out as follows:

(1) the holders of Series A Preferred shall be entitled to receive, prior and in preference to the holders of the Company's New Common Stock, an amount equal to the result obtained by dividing $5 million by the number of shares of New Common Stock into which the Series A Preferred is convertible based on the conversion formula described in the section entitled "Conversion Rights" above (the "Original Series A Price"), multiplied by 3; and thereafter...

If Microsoft is behind the deal, though, I do think it raises legitimate antitrust concerns. Whether anyone will care, since it's all cloaked in IP claims, is another story. If I were Novell or IBM or any creditor, I'd very much want some proof that Stephen Norris Capital Partners really has $100 Milllion. I'd want the court to make them escrow it. If there is some insurance policy, I'd want to see it, have approval and notification rights, and the right to pay any unpaid premiums, plus a clause stating what happens should there be such a problem, or any other, with the insurance.

The deal can die on its own, if the SNCP guys don't like what they find in due diligence, if the deal isn't approved by April 28 (the day before the trial begins in Utah in SCO v. Novell) or at least confirmed by the court by April 15, or if there is "any threatened or pending litigation by any governmental authority".

In my dreams, that last is exactly what happens. In any just world, it is what should happen.

Our thanks go to kh, for providing the OCR.

*******************************

EXHIBIT A

MEMORANDUM OF UNDERSTANDING ("MOU")

Investment Team: Stephen Norris Capital Partners, LLC, a Delaware limited liability company ("SNCP").

Debtor: The SCO Group, Inc., and its direct or indirect subsidiaries, both prior to and after emerging from bankruptcy (collectively, "SCO," "Debtor" or the "Company," and after the effective date of the Proposed Plan of Reorganization sometimes "Reorganized SCO" or "Reorganized Debtor," and together with SNCP, the "Parties").

Overview: SNCP proposes to finance a plan of reorganization (the "Proposed Plan of Reorganization") of SCO to be filed in its Chapter 11 bankruptcy case presently pending in the United States Bankruptcy Court for the District of Delaware, In Re: The SCO Group, Inc., Case No. 07-11337 (KG) (the "Bankruptcy Case"), all on the terms provided for in this Memorandum of Understanding ("MOU") and the definitive agreements and documents contemplated hereby (the "Definitive Documents").

Under the Proposed Plan of Reorganization, SCO will emerge from the Bankruptcy Case and attempt to implement the business plan described in a private placement memorandum to be prepared by SCO, a copy of which shall be provided to SNCP. To fund the Proposed Plan of Reorganization and finance the business of SCO after it emerges from the Bankruptcy Case, SNCP will provide up to US$100 million of financing. In consideration of the US$100 million of financing to be provided as described below, SNCP requires that the Reorganized Debtor issue the following securities:

US$5 million for the purchase of a new class of Preferred Stock (the "Series A Preferred") to be issued by SCO which shall have the liquidation, voting and distribution preferences described hereafter. At its option, the holder of the Series A Preferred will be able to convert the Series A Preferred into between 51% and 85% of the then-outstanding shares of common stock of SCO, as described in the next bullet.

SCO expects to prevail in the matter of The SCOGroup, Inc. v. Novell, Inc., pending in the United States District Court for the District of Utah, Civil No. 2:04 CV-00139, and the related pending litigation, The SCO Group, Inc. v. International Business Machines, pending in the United States District Court for the District of Utah, Case No. 2:03CV0294DAK (the "Novell/IBM Litigation"), so that the final award in the Novell/IBM Litigation will be made in favor of SCO. However, if an award were entered against SCO in the Novell/IBM Litigation or other pending litigation matters, including proceedings involving Red Hat (the "Litigation Claims"), SNCP anticipates that the damages awarded against SCO could range from US$O to more than US$30 million, and would be paid by draw under the Debt Financing. Should the amount drawn under the Debt Financing solely to effect payment (a "Novell/IBM Payment") of a final, non-appealable judgment in the Novell/IBM Litigation (or to settle the Novell/IBM Litigation in a settlement transaction that requires a net payment to Novell/IBM) be $0, then the Series A Preferred shall convert into 51% of the then-outstanding common stock of SCO, on a fully diluted basis. Should the amount drawn under the Debt Financing to effect a Novell/IBM Payment be $30 million or more, then the Series A Preferred shall convert into 85% of the then-outstanding common

stock of SCO, on a fully diluted basis. Should the amount drawn under the Debt Financing to effect a Novell/IBM Payment be between $0 and $30 million, then the Series A Preferred shall convert into a percentage of the then-outstanding common stock of SCO proportionally. For the avoidance of doubt, the conversion percentage of the Series A Preferred shall not adjust by reason of any draws under the Debt Financing other than draws to effect a Novell/IBM Payment, and without limiting the generality of the foregoing, the conversion percentage of the Series A Preferred shall not adjust by reason of draws under the Debt Financing to fund litigation costs or working capital requirements of SCO or the provision of letters of credit or other credit support (including cash payments) in connection with appealing (and posting bonds to stay judgments or rulings pending appeal) a District Court or other judgment in the Novell/IBM Litigation that is subject to further appeal. The Preferred Stock financing described in this and the preceding bullet points and in more detail below is sometimes hereinafter referred to as the "Equity Financing."

US$95 million under the terms of a five year non-revolving credit line. The credit line shall be secured by all of the assets of SCO, including all of its present and future litigation claims. The terms will be as set forth hereafter. The credit facility described in this bullet point and in more detail below is sometimes herein referred to as the "Debt Financing."

Upon the effective date of the Proposed Plan of Reorganization, SNCP will pay $5,000,000 to the Reorganized Debtor in consideration of the issuance of the Series A Preferred. The Reorganized Debtor will retain all of the pending litigation claims, including the potential liability in respect of the Litigation Claims or recoveries under the Pending Litigation.

Also upon the effective date of the Proposed Plan of Reorganization, the existing common stock and common stock equivalents of the Debtor shall be extinguished, and in exchange therefor the then-current equity holders (and holders of common stock equivalents, including stock options) of SCO shall receive a pro-rata interest in a grantor trust (the "Trust"). The Trust shall be the holder of shares of new common stock (and new common stock equivalents) of SCO ("New Common Stock"), representing between 49% and 15% of SCO's fully diluted equity after conversion of the Series A Preferred, the precise conversion percentage of which shall be determined based upon the conversion rights of the Series A Preferred as described herein. Interests in the Trust shall not be transferable, and the Reorganized Debtor will no longer be a public company and shall not be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended.

Also upon the effective date of the Plan of Reorganization, the Trust will enter into a Shareholders' Agreement with the Company and the holders of the Series A Preferred which shall provide, among other things, that: (i) the Trust will not sell or transfer its New Common Stock, except to the Company and on the terms provided for in this MOU and the Definitive Agreements, and (ii) the Trust, Company and the holders of Series A Preferred shall have "tag along, drag along" rights and obligations to participate in a sale of all or substantially all of the Company's outstanding equity securities (or a merger or other corporate reorganization relating to the Company that has the same effect as such a sale of all or substantially all of the Company's outstanding equity securities). Any such sale transaction shall provide the Trust with immediately available funds at least equal to

2

the Redemption Price.

Also upon the effective date of the Proposed Plan of Reorganization, the existing CEO of the Company, Darl McBride, will resign immediately. The newly reorganized company will have seven members on its Board of Directors, four of which will be named by the holders of the Series A Preferred.

Also upon the effective date of the Proposed Plan of Reorganization, SCO will continue to pursue aggressively the Company's claims in the Novell/IBM Litigation and other pending litigation, including The SCO Group, Inc. v. Autozone, Inc., pending in the United States District Court for the District of Nevada, Case No. CV-S-04-0237-RCJ-LRL (the "Autozone Litigation").

Stephen Norris Capital Partners, LLC shall have the right to assign and delegate its rights and obligations hereunder to a special purpose entity created for the purpose of engaging in this transaction and in which Stephen L. Norris is a manager or executive officer.

Availability of Funds: SNCP has a financing commitment sufficient to provide the Equity Financing and the Debt Financing. SNCP will provide the Debtor with a copy of a firm financing commitment sufficient to provide the Equity Financing and the Debt Financing at least five (5) business days prior to the commencement of the Bankruptcy Court hearing on the approval of the Disclosure Statement relating to the Proposed Plan of Reorganization.

Creation of Trust: Upon the effective date of the Proposed Plan of Reorganization, the then-current equity (and common stock equivalents) of SCO shall be extinguished and the equity holders of SCO shall receive a pro-rata interest in the Trust based upon their percentage ownership of the Company's then outstanding Common Stock and common stock equivalents. The beneficial interests in the Trust to be issued to the Company's equity holders shall represent a pro rata interest in the outstanding New Common Stock held by the Trust, which will correspond to the percentage interests of the Company's equity holders (and common stock equivalent holders) at the time of the organization of the Trust. Interests in the Trust shall be non-transferable, except pursuant to the laws of descent and distribution. The trustee of the Trust shall be a national bank or trust company selected by SCO. The Trust will receive $2 million at the effective date of the Plan (from the proceeds of the Series A Preferred), which will be distributed to Trust beneficiaries (in respect of the holdings of New Common Stock and excluding common stock equivalents) after reserving for reasonable Trust expenses. Within one year after the pending litigation claims in the Novell/IBM Litigation are finally resolved (by final judgment or order, not subject to further appeal, or settlement), the Reorganized Debtor will make a final payment to redeem all New Common Stock held by the Trust in an amount (the "Redemption Price") equal to the sum of (a) a percentage of any net recovery the Reorganized Debtor realizes from the final resolution of the Novell/IBM Litigation (net of any recovery on or settlement of counterclaims and cross claims against the Debtor, including a Novell/IBM Payment, if any, and net of all taxes, and Ongoing Legal Fees and Costs incurred by the Debtor or the Reorganized SCO in connection therewith), such percentage to vary between 15% and 49% depending on the conversion percentage of the Series A Preferred, and subject to the anti-dilution rights of the holders of the Series A Preferred, and (b) the product obtained by multiplying (i) the earnings of the Debtor (and the Reorganized SCO) (excluding any earnings arising from a Novell/IBM Litigation recovery) before interest, taxes, depreciation and amortization (over the four full fiscal quarters immediately preceding the resolution of the

3

Novell/IBM Litigation), by (ii) the product of four times the percentage (between 15% (as may be reduced by the anti-dilution rights of the holders of the Series A Preferred) and 49%) determined under (a), above.

The Trust agreement shall provide for liquidating distributions if the following events occur before the New Common Stock held by the Trust are redeemed under the foregoing provisions, as follows: (i) if the Company makes an initial public offering of its securities, the shares of New Common Stock held by the Trust shall be distributed to the beneficiaries (in compliance with applicable securities laws and regulations); (ii) if all or substantially all of the assets of the Company (or any series of related transactions resulting in the sale or other transfer of all or substantially all of the assets of the Company) are sold or a merger, reorganization or other transaction in which holders of a majority of the outstanding voting control of the Company immediately prior to the transaction do not own a majority of the outstanding voting shares of the surviving corporation occurs, the proceeds of such sale or other transaction which are payable to the Trust shall be distributed to the beneficiaries; and (iii) if the Company voluntarily or involuntarily liquidates, dissolves or winds up, the proceeds payable to the trustee in connection therewith shall be distributed to the beneficiaries.

The Equity Financing:

Securities: Series A Preferred Stock ("Series A Preferred").

Closing Date: The closing (and effective date of the Proposed Plan of Reorganization) shall occur within twenty (20) days after the entry of a final order (not stayed pending appeal) confirming the Proposed Plan of Reorganization.

Purchase Price: The Purchase Price for the Series A Preferred shall be US$5,OOO,OOO to be paid on the Closing Date. The Purchase Price will be payable by cash or wire transfer.

Conversion Rights: The Series A Preferred shall convert into New Common Stock of SCO, the amount of which will be determined based on the amount drawn under the Debt Financing to effect a Novell/IBM Payment following the final resolution of the Novell/IBM Litigation. Should the amount drawn under the Debt Financing solely to effect a Novell/IBM Payment be $0, then the Series A Preferred shall convert into 51% of the then-outstanding common stock of SCO, on a fully diluted basis. Should the amount drawn under the Debt Financing to effect a Novell/IBM Payment be $30 million or more, then the Series A Preferred shall convert into 85% of the then-outstanding common stock of SCO, on a fully diluted basis. Should the amount drawn under the Debt Financing to effect a Novell/IBM Payment be between $0 and $30 million, then the Series A Preferred shall convert into a percentage of the then-outstanding common stock of SCO proportionally. For the avoidance of doubt, the conversion percentage of the Series A Preferred shall not adjust by reason of any draws under the Debt Financing other than draws to effect a Novell/IBM Payment, and without limiting the generality of the foregoing, the conversion percentage of the Series A Preferred shall not adjust by reason of draws under the Debt Financing to fund litigation costs or working capital requirements of SCO or the provision of letters of credit or other credit support (including cash payments) in connection with appealing (and posting bonds to stay judgments or rulings pending appeal) a District Court or other judgment in the Novell/IBM Litigation that is subject to further appeal. The conversion percentage of the Series A Preferred shall not exceed 85% of the fully converted New Common Stock irrespective of whether (or the extent to which) any additional equity securities may be

4

issued in payment-in-kind of dividends accruing on the outstanding Series A Preferred (i.e., if holders of Series A Preferred receive New Common Stock as paid-in-kind dividends on the Series A Preferred, then their conversion provisions shall contemplate that after giving effect to the conversion, such holders will not own (including both the New Common Stock issued upon conversion and by paid-in-kind dividends, combined) more than 85% of the fully converted New Common Stock).

Dividends: Use of Proceeds: The proceeds shall be used to fund the Proposed Plan of Reorganization.

The holders of Series A Preferred shall be entitled to receive cumulative dividends at the rate of 10% per annum, which shall be payable as and when declared by the Company's Board of Directors and out of retained earnings. Dividends may be payable in cash or in shares of the Company's New Common Stock (valued by the Company's Board of Directors in good faith) at the option of the Company. In the event of an initial public offering, accrued but unpaid dividends shall be payable in cash or New Common Stock at the option of the Company.

Liquidation Preference: In the event of a voluntary or involuntary liquidation, dissolution or winding up of the Company, the funds available for distribution shall be paid out as follows:

(1) the holders of Series A Preferred shall be entitled to receive, prior and in preference to the holders of the Company's New Common Stock, an amount equal to the result obtained by dividing $5 million by the number of shares of New Common Stock into which the Series A Preferred is convertible based on the conversion formula described in the section entitled "Conversion Rights" above (the "Original Series A Price"), multiplied by 3; and thereafter,

(2) any remaining assets shall be paid out on a pro rata basis to the Trust and the other holders of New Common Stock and share equivalents and Series A Preferred (on an as-converted basis).

In the event of a sale of all or substantially all of the assets of the Company (or any series of related transactions resulting in the sale or other transfer of all or substantially all of the assets of the Company) or a merger, reorganization or other transaction in which holders of a majority of the outstanding voting control of the Company immediately prior to the transaction do not own a majority of the outstanding voting shares of the surviving corporation, the funds available for distribution shall be paid out as follows:

(1) the holders of Series A Preferred shall be entitled to receive, prior and in preference to the holders of the New Common Stock, an amount equal to three times the Original Series A Price (as adjusted for recapitalizations, stock splits, stock dividends, and the like), plus accrued and unpaid dividends; and thereafter,

(2) any remaining assets shall be paid out on a pro rata basis to the Trust and the other holders of New Common Stock and share equivalents and Series A Preferred (on an as-converted basis).

Voting Rights: The holder of each share of Series A Preferred shall have the right to a number of votes equal to the number of shares of New Common Stock issuable on conversion of the Series A Preferred. In addition, the holders of the Series A Preferred shall be entitled to vote as a single class to elect four members ofthe Company's Board of Directors (as set forth below) . Except as provided herein or as required by law, the holders of Series A

5

Preferred and New Common Stock shall all vote together as a single class and voting group on all matters.

Voting Protections: The Company may not, without the affirmative vote or written consent of the holders of not less than 66 2/3% of the issued and outstanding shares of Series A Preferred:

(1) authorize or issue any securities with any rights that are senior to or on parity with Series A Preferred;

(2) declare or pay dividends or make any distributions on any of the Company's equity securities (other than the distribution of $2 million at the effective date of the Proposed Plan of Reorganization);

(3) sell or otherwise transfer all or substantially all of its assets, tangible or intangible, grant any exclusive rights or license to all or substantially all of the Company's products or intangible assets, or merge or consolidate into or with any other entity in a transaction or series of related transactions;

(4) purchase, redeem, or otherwise acquire any of the Company's outstanding equity securities (including warrants, stock options and other rights to acquire equity securities), other than redemption of the New Common Stock of the Trust as contemplated by this MOU and repurchases pursuant to stock restriction agreements approved by a majority of the Board of Directors that grant to the Company a right of repurchase upon termination of the service or employment of a consultant, director or employee;

(5) make any changes in the rights, preferences, or privileges of the Series A Preferred;

(6) amend or repeal or add any provision to the Company's Certificate of Incorporation or Bylaws, if such action would adversely affect the preferences, rights, privileges, or powers of, or restrictions provided for the benefit of, the Series A Preferred;

(7) take certain other actions materially affecting the Series A Preferred;

(8) change the size or election procedure of the Board of Directors; or

(9) authorize any changes in material accounting methods, policies or practices of the Company or change the Company's auditors.

Optional Conversion: The shares of Series A Preferred are convertible at the option of the holder, and at any time and from time to time, into shares of New Common Stock. The conversion rate of the Series A Preferred will initially be at the rate corresponding to the convertibility of all Series A Preferred into 51% of the fully diluted common stock of the Reorganized Debtor, and will be subject to anti-dilution adjustment as described below, as well as adjustments for re-capitalizations, stock splits, stock dividends, and the like. The conversion percentage shall be subject to adjustment based upon the amount(s) drawn on the Debt Financing to effect a Novell/IBM Payment following the final resolution of the Novell/IBM Litigation, as described in the section entitled "Conversion Rights," above.

Automatic Conversion: Each share of Series A Preferred shall automatically convert into the number of shares of New Common Stock determined by dividing (i) the sum of the Original Series A Price plus all accrued and unpaid dividends by (ii) the then-applicable conversion rate, on the earlier to occur of (a) the written consent of holders of at least 66 2/3% of the outstanding Series A Preferred, and (b) a firmly committed underwritten initial public

6

offering of Common Stock with total proceeds to the Company of at least $40 million (a "Qualified Offering").

Anti-dilution Protection: The conversion price of the Series A Preferred shall be subject to adjustment on a proportionate basis, reflecting one-third (1/3) of the dilution effected from an issuance of New Common Stock to fund working capital requirements of the Company. The remaining two-thirds (2/3) dilution from such issuances of New Common Stock shall proportionately effect the holders of New Common Stock held by the Trust and any other holders. The purpose of this adjustment is to provide limited price protection to SNCP in the event that the Company issues additional shares of its capital stock at a price below the Series A Preferred purchase price to fund working capital requirements of the Company. This protection shall be subject to customary exceptions.

Redemption: If the Series A Preferred has not been converted to New Common Stock prior to the 5th anniversary of the closing (the "Initial Redemption Date"), then the holders of the outstanding shares of Series A Preferred shall have the option, exercisable at any time after such anniversary, to require the Company to redeem the Series A Preferred in two equal and yearly installments beginning on the anniversary of the Closing Date after such option is exercised. If a holder elects to require the Company to redeem its Series A Preferred, it must provide the Company with written notice at least 90 days in advance of the Initial Redemption Date. The redemption amount shall be paid from retained earnings and shall be equal to the Original Series A Price, plus any accrued but unpaid dividends plus an additional amount that would result in an additional 12% annual rate of return compounded annually from the Closing Date. In any simultaneous redemption of the Series A Preferred and any other class or series of stock, the Series A Preferred shall have preference.

Right to Maintain Proportionate Interest: Each holder of the Series A Preferred shall have a right of participation to purchase such holder's pro rata share of any offering of new securities of the Company, subject to customary exceptions.

Registration Rights: Demand Rights: Holders of at least 30% of the shares of Series A Preferred (or New Common Stock issuable on conversion thereof) may demand registration by the Company of their shares of New Common Stock and the Company will use its best efforts to cause such shares to be registered. The Company will not be obligated to effect nor pay for more than 3 registrations pursuant to such demand registration rights provisions. These rights are exercisable only after the earlier of (i) 180 days after a Qualified Offering (as defined under "Automatic Conversion" above), and (ii) the 5th anniversary of the closing ofthis financing .

2. "Shelf" Registrations on Form S-3: Holders of at least 20% of the shares of Series A Preferred (or New Common Stock issued on conversion thereof) shall have the right to require the Company to file an unlimited number of and pay for not more than 2 registration statements on Form S-3 registering their shares of New Common Stock per year, provided that the Company is then eligible to use the S-3 registration statement and the anticipated aggregate offering price to the public for any such registration would exceed $1 million.

3. Piggy-Back Registrations: Holders of Series A Preferred shall be entitled to unlimited "piggy-back" registration rights with respect to the New Common Stock issuable upon conversion of the Series A Preferred on all registrations of the Company (other than S-8's, S-4's or similar registrations of business combination

7

transactions or employee benefit plans), subject to the right of the Company and its underwriters to reduce the number of shares of the Investor proposed to be registered in view of market conditions.

4. Registration Expenses: All registration expenses (exclusive of selling expenses), shall be borne by the Company.

Other terms: The registration rights shall include other customary terms and conditions, including a customary "market-standoff" agreement in connection with a Qualified Offering and public offerings conducted by the Company thereafter.

Governance:

Resignation of the Current CEO: Upon the effective date of the Proposed Plan of Reorganization, the existing CEO of SCO, Darl McBride, shall resign.

Board of Directors: Upon the effective date of the Proposed Plan of Reorganization, the Board of Directors will be comprised of seven members. The holders of Series A Preferred shall be entitled to elect four directors. The holders of Series A Preferred and the Trust, in respect of the shares of New Common Stock issued to the Trust on behalf of the holders of New Common Stock prior to the effective date of the Proposed Plan of Reorganization, and any holders of additional New Common Stock issued after such effective date, all voting together as a single voting group, shall be entitled to elect the remaining three directors, one of whom shall be the Chief Executive Officer of the Company and one of whom shall be an outside executive with suitable industry expertise who is designated by a majority of the Board.

The Company and the representatives of Series A Preferred who serve as members of the Board shall enter into indemnification agreements in a form acceptable to SNCP on the Closing Date. In addition, the Company's Certificate of Incorporation shall provide for indemnification of directors to the maximum extent permitted by law, and the Company within 90 days after the Closing Date, obtain Directors and Officers insurance in an amount satisfactory to SNCP. The Reorganized Debtor shall purchase "tail" directors and officers insurance coverage to protect against claims arising prior to the effective date of the Proposed Plan of Reorganization.

Inspection Rights: The Series A Preferred holders shall have the right to inspect the Company's premises and books at times convenient to both parties.

Information Rights: So long as any of the Series A Preferred is outstanding, the Company will deliver to the holders of Series A Preferred unaudited monthly financial statements within 15 days of the end of each calendar month; unaudited quarterly financial statements within 15 days of the end of each fiscal quarter thereafter; annual audited financial statements within 90 days of the end of each fiscal year; and any other information reasonably requested by the holders of Series A Preferred. At least 30 days prior to the beginning of each fiscal year, the Company will deliver to holders of Series A Preferred the financial budget and business and strategic plan for the next fiscal year that will be submitted for approval to the Company's Board of Directors no later than 30 days following the beginning of the fiscal year. With respect to monthly, quarterly and annual financial statements, such statements shall be accompanied by a written report of the CEO of the Company identifying operating highlights for the period and a comparison of such financial statements to the Company's budget for the corresponding period.

8

Debt Financing:

Loan Amount and Type: The loan is for the principal amount up to US $95,000,000. The loan is a non-revolving line of credit pursuant to which draws or disbursements may be made from time to time in accordance with the terms and conditions contained in the loan documents to be negotiated and filed with the Bankruptcy Court prior to the hearing on approval of the Disclosure Statement relating to the Proposed Plan of Reorganization and executed by SCO on the Closing Date (the "Loan Documents").

Purpose of Loan: The purpose of the loan is to provide funds for (i) working capital for SCO following its emergence from bankruptcy, (ii) to pay interest when due under the Debt Financing, and (iii) to support the prosecution of the Reorganized Debtor's Litigation Claims, including providing letters of credit or other financial arrangements adequate to support any required appellate bonds (in which event the Reorganized SCO shall pay the reasonable letter of credit fees and expenses), and to effect payment of any final award against the Reorganized Debtor). Advances to SCO under (i) above shall be subject to the achievement of milestones and maintenance of loan covenants to be established by SNCP and SCO in the Loan Documents.

Loan Term: The term of the loan will be for a period of five (5) years (the "Loan Term") commencing on the first day of the month following the Closing Date.

Interest Rate: Interest will accrue on the outstanding principal balance at a variable or floating rate, expressed as an annual percentage rate, equal to LIBOR plus 1,700 basis points (the "Effective Rate"). Adjustments to the Effective Rate will be made effective on the first day of each month. Interest will be calculated on the basis of a 360-day year and charged for the actual number of days elapsed.

Payments: The Reorganized Debtor shall pay accrued interest on the outstanding principal balance in arrears monthly on the first day of each month commencing on the first day of the month following the Closing Date. The entire unpaid principal balance, together with any accrued interest and other unpaid charges, shall be due on the first day of the month following the expiration of the Loan Term (which date is sometimes referred to as the "Maturity Date").

Late Charges Default Interest Rate: Any payment not paid within ten (10) days of its scheduled payment date shall be subject to a late charge equal to the greater of $50.00 or five per cent (5%) of the amount of the delinquent payment. Upon the occurrence of an event of default, the margin used to compute the Effective Rate will automatically increase by an additional four percent per annum from the date thereof until the delinquent payment has been fully paid, both before and after judgment.

Prepayment Privilege: Reorganized SCO may prepay principal at any time without penalty or premium; provided, however, Reorganized SCO shall not be entitled to re-borrow funds it has prepaid.

Collateral: To secure the Loan, SCO shall grant a valid, perfected and enforceable first prior security interest in favor of SNCP in (or shall cause a security interest to be granted in), all present and future assets of SCO, including litigation recoveries.

Preclosing Protections to SNCP:Should the Company receive a written or oral offer or counteroffer to settle the Novell Litigation, the Novell/IBM Litigation, the Autozone Litigation or any other Litigation

9

Claims (collectively, the "Pending Litigation") prior to the effective date of the Proposed Plan of Reorganization (or if the Company shall receive a written or oral offer or counteroffer to acquire the shares or assets of the Company, including by or for the account of a defendant in the Pending Litigation), the Company shall promptly notify SNCP of the offer and all material terms thereof. Similarly, the Company shall promptly advise SNCP of all offers (including counteroffers) it makes to settle or resolve the Pending Litigation or relating to any proposed sale of the shares or assets of the Company. At its option, one or more representatives of SNCP may attend merger and acquisition negotiations, settlement conferences or conference calls between the parties to the Pending Litigation, whether the same are directed at settling the Pending Litigation or acquiring the shares or assets of the Company. At the request of the Company, each representative of SNCP who shall attend merger and acquisition negotiations, settlement conferences or conference calls between the parties to the Pending Litigation shall execute a confidentiality agreement reasonably acceptable to the Company and SNCP.

The Debtor and SNCP acknowledge and agree that a purpose and intended effect of the Proposed Plan of Reorganization is to maximize the Debtor's litigation recovery under the Pending Litigation. Except as expressly set forth herein, the Debtor and SNCP agree that developments in (including a resolution of) the Pending Litigation shall not constitute a basis to prevent or delay the confirmation or effective date of the Proposed Plan of Reorganization. If the Pending Litigation shall resolve by a sale of the Company to or an exclusive licensing transaction relating to all or substantially all of SCO's intellectual property with or for the account of a defendant in the Pending Litigation), by or in connection with a sale of the Company or an exclusive licensing transaction relating to all or substantially all of SCO's intellectual property to a person which is not a party (including an affiliate of such party) to the Pending Litigation, or net settlement in Debtor's favor prior to the consummation of the Proposed Plan of Reorganization, then, except as provided below, the Equity Financing and the Debt Financing will not be consummated and SNCP shall be entitled to an administrative claim, payable promptly after the Debtor's receipt of such net settlement, sales or licensing proceeds, in an amount equal to fifty percent (50%) of either (a) the Debtor's net recovery in such settlement or any agreement or transaction in connection with, or in lieu of, settlement of claims in the Pending Litigation (including the fair value of any non-monetary consideration) (net of any recovery on or settlement of counterclaims and cross claims against Debtor, any taxes directly attributable to the net recovery or settlement, and the "Ongoing Legal Fees and Costs," as defined below (the "Settlement Compensation"), or (b) the net proceeds and purchase price (including the fair value of any non-monetary consideration) paid to acquire the Company, all or substantially all of the Company's assets, control of the Company or a material license relating to SCO's intellectual property (not in the ordinary course of business), net of any taxes directly attributable to the net proceeds and purchase price, and all Ongoing Legal Fees and Costs (the "Sale Compensation"). In addition to the Settlement Compensation, SNCP shall be entitled in the circumstances in which the Settlement Compensation becomes payable, to complete its acquisition of the Series A Preferred upon payment of the $5 million purchase price therefor, before, at the time of, or immediately after the Reorganized Debtor emerges from the Bankruptcy Case. In connection with the payment of the Settlement Compensation or the Sale Compensation or if this MOU is terminated by SNCP for any of the reasons (other than failure to execute the Definitive Agreements or SNCP's dissatisfaction with the results of its due diligence investigation) set forth under the "Termination of the Transaction" section below that are not directly attributable to the act or omission of the SNCP, then SNCP shall also be entitled to an administrative claim for reimbursement from the Debtor of its out of pocket fees, costs and expenses (up to

10

$500,000) incurred in connection herewith.

As used herein, "Ongoing Legal Fees and Costs" means positive difference between:

I. The sum of (a) all legal fees and chargeable expenses paid to Boies, Schiller & Flexner LLP and any other law (collectively, "BSF") pursuant to paragraphs (d) or (e) of the engagement agreement between SCO and BSF dated October 31, 2004, as amended to the date hereof (the "BSF Engagement Agreement"), plus (b) other professional fees and expenses incurred by the Debtor since September 14, 2007 directly related to the Litigation Proceedings or the transactions by reason of which the Settlement Compensation or Sale Compensation is paid; minus

II All hourly legal fees and chargeable paid at any time to BSF or any of the Three Original Firms (as that term is defined in the BSF Engagement Agreement) in connection with any of the Pending Litigation, which amount is credited in reduction of the contingency fees payable under paragraphs (d) or (e) of the BSF Engagement Agreement.

SCO will obtain court approval of the Settlement Compensation and the Sale Compensation by a motion for Plan Sponsor Protection Arrangements to be filed with the Bankruptcy Court with the Debtor's Motion to Approve the Disclosure Statement relating to the Proposed Plan of Reorganization, and in all events, prior to the submission of the Proposed Plan of Reorganization to creditors and interest holders for voting purposes. If SCO fails to obtain court approval for the Settlement Compensation and the Sale Compensation, SNCP shall have no further obligations under this MOU.

Plan Treatment of Creditors: The Proposed Plan of Reorganization shall provide for the following treatment of claims:

(l) Secured Creditors -(estimated at $0)
Paid in Full at the effective date

(2) Priority Creditors -Taxing Authorities

Paid in full at the effective date OR paid over period of time not to exceed 5 years

(3) General Unsecured Creditors

  • Trade - to be assumed or paid in full at the effective date, from the proceeds of the Preferred Stock

  • Novell/IBM Litigation (if any) depending on outcome of litigation, paid in full when claim is liquidated after the effective date, by draw under the Debt Facility.

(4) All to be paid in full at the effective date:

  • Administrative - Legal, Accounting, Financial Advisors, etc.

  • US Trustee Fees

  • Court/Clerk Fees

11

SNCP's Conditions to Closing: The obligation to provide the Equity Financing and Debt Financing is subject to (i) the Conditions to compliance by the Debtor with its obligations under this MOU, (ii) the accuracy in all material respects of all representations and certifications set forth in this MOU and its attachments, (iii) the execution and delivery of the Definitive Documents, (iv) the accuracy in all material respects of all representations and certifications set forth in the Definitive Documents and its attachments, (v) the absence of any default or event of default under this MOU or the Definitive Documents by the Debtor, (vi) the entry of an order of the bankruptcy court in the Bankruptcy Case confirming the Proposed Plan of Reorganization and all other motions and pleadings required to implement the Proposed Plan of Reorganization (and the absence of any effective stay of such confirmation order) on or before 5:00 pm New York City time on August 15, 2008 (such date, as the same may be extended by SNCP in its sole discretion in writing, the "Commitment Expiration Date"); (vi) the inclusion in the order confirming the Proposed Plan of Reorganization of a finding that the Debt Financing is extended by SNCP in good faith, (vii) the due diligence investigation of SCO (which shall end at the commencement of the Bankruptcy Court hearing on the approval of the Disclosure Statement relating to the Proposed Plan of Reorganization) is not reasonably satisfactory to SNCP; (vii) no Material Adverse Change following the filing of the Proposed Plan of Reorganization, (ix) no relevant threatened or pending litigation by a governmental authority, and (x) there being no injunction, court order/judgment or other ruling, edict or pronouncement with the force of law prohibiting the consummation of any of the material transactions contemplated in this MOU, the Definitive Documents and the Proposed Plan of Reorganization.

A "Material Adverse Change" shall mean any change or effect that is or could be reasonably expected to result in a material adverse change in: SCO's business, considered as a whole; or the consolidated financial condition or results of operations of SCO, other than changes associated with the bankruptcy of SCO or general economic conditions.

Termination of the Transaction: The Debt Financing and the Equity Financing will be terminable in the following circumstances:

  • by mutual written consent of SCO and SNCP;

  • if SCO fails to obtain court approval for the Settlement Compensation and the Sale Compensation upon the approval of the Disclosure Statement relating to the Proposed Plan of Reorganization and prior to the submission of the Proposed Plan of Reorganization to creditors and interest holders for the purpose of voting thereon;

  • the due diligence investigation of SCO (which shall end at the commencement of the Bankruptcy Court hearing on the approval of the Disclosure Statement relating to the Proposed Plan of Reorganization) is not reasonably satisfactory to SNCP;

  • by SNCP upon written notice of a material breach of any covenant or agreement to be performed or complied with SCO which, if capable of being cured, is not cured within 15 business days after notice;

  • by SCO upon written notice of a material breach of any covenant or agreement to be performed or complied with by SNCP which, if capable of being cured, is not cured within 15 business days after notice;

12

  • by either SNCP or SCO if any foreign, federal, state, local or other governmental, administrative or regulatory authority, body, agency, court, tribunal or similar entity (other than the Bankruptcy Court) having competent jurisdiction issues a final and non-appealable order, decree or ruling prohibiting the transaction;

  • by SNCP upon a determination by SCO or SCO's board of directors to pursue a Competitive Transaction;

  • by SNCP, if the Bankruptcy Court shall not have entered an order approving the Settlement Compensation and Sale Compensation in form and substance reasonably acceptable to SNCP on or before April 28, 2008; and

  • this MOU shall be terminated if an Order of the Bankruptcy Court approving the Debtor's execution hereof and performance hereunder is not entered by April 28, 2008, or if the Bankruptcy Court does not enter an Order confirming the Proposed Plan of Reorganization as contemplated hereby by August 15, 2008.

Restriction on Affirmative Seeking Competitive Transactions: SCO acknowledges that it is not actively seeking financing for a plan of reorganization, except as set forth in this MOU. SCO agrees that, until August 15, 2008, neither SCO nor its agents or representatives shall solicit or encourage submission of inquiries, proposals or offers from any third parties regarding any potential financing of a plan of reorganization for SCO (each, a "Competitive Transaction"). SCO shall immediately notify SNCP in writing if it receives an offer or proposal relating to a Competitive Transaction.

Good Faith Negotiations: The Parties agree to negotiate in good faith the Definitive Documents contemplated by this MOU, so that forms of all such Definitive Documents, in substantially final form, shall be filed with the Bankruptcy Court prior to the hearing on approval of the Disclosure Statement relating to the Proposed Plan of Reorganization.

Due Diligence: The Debtor will afford to SNCP all access, cooperation, documents and information reasonably requested by SNCP in connection with its due diligence examination of the Debtor and its business. SNCP may terminate this MOU if it is not satisfied with the results of such due diligence examination. Such due diligence period and termination rights shall end at the commencement of the Bankruptcy Court hearing on the approval of the Disclosure Statement relating to the Proposed Plan of Reorganization.

Governing Law: This Memorandum of Understanding shall be governed by Delaware law and all Parties consent to the exclusive jurisdiction of the Bankruptcy Court hearing the Bankruptcy Cases to determine any controversy arising hereunder. The Definitive Documents executed on the Closing Date (including the Loan Agreement) shall be governed by New York law.

The terms set forth above summarize the major points we have discussed, but are not intended to be the entirety of the terms of the Proposed Plan of Reorganization, the Equity Financing or the Debt Financing and are subject to the drafting and execution of Definitive Documents. The Debtor's execution of this MOU is subject in all respects to the entry of an Order of the Bankruptcy Court approving this MOU and the Definitive

13

Documents contemplated hereby, which Order will be sought in connection with the motion for approval of the Disclosure Statement relating to the Proposed Plan of Reorganization. This MOU shall not be enforceable against the Debtor until such Bankruptcy Court order is entered and shall be subject to the terms of such Order, when entered. If such Bankruptcy Court approval is not obtained by April 28, 2008, then this MOU shall terminate.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGE FOLLOWS.]

14

IN WITNESS WHEREOF, the parties have entered into this MOU as of February 13, 2008.

THE SCO GROUP, INC.
By: __[signature]__
Name: Ralph Yarro III
Title: SCO Chairman

STEVE NORRIS CAPITAL PARTNERS, LLC

By: ____________
Name: Stephen L. Norris
Title: SNCP Chairman

15

IN WITNESS WHEREOF, the parties have entered into this MOU as of February 13, 2008.

THE SCO GROUP, INC.
By: _________
Name: Ralph Yarro III
Title: SCO Chairman

STEVE NORRIS CAPITAL PARTNERS, LLC

By: __[signature]_______
Name: Stephen L. Norris
Title: SNCP Chairman

15


  


The Proposed MOU, as text - Updated | 248 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
Corrections Here
Authored by: feldegast on Friday, February 15 2008 @ 10:44 PM EST
So they can be fixed

---
IANAL
My posts are ©2004-2008 and released under the Creative Commons License
Attribution-Noncommercial 2.0
P.J. has permission for commercial use.

[ Reply to This | # ]

Makes the legal system look pretty depressing.
Authored by: Anonymous on Friday, February 15 2008 @ 10:52 PM EST
So apparently SCO's backers win - for a few more years. I guess someone saw the previous $86 million was money well spent - perhaps the most effective Vista marketing campaign they ran. And well worth funding another $100 million cloud every few years to keep this campaign running for the foreseeable future.

Can anything be done in the courts - some counter suit perhaps - to make this go away forever? Or are the courts now just an efficient place to spend marketing funds?

[ Reply to This | # ]

Off-Topic messages go here
Authored by: elronxenu on Friday, February 15 2008 @ 10:52 PM EST
Please make links clicky.

Type:

<a href="URL">Link name</a>

[ Reply to This | # ]

So $5,000,000.01 gives it to someone else?
Authored by: thorpie on Friday, February 15 2008 @ 11:09 PM EST
So for Novell or IBM to gain full control they have to offer $5,000,000.01. For
this they get all assets(?), all documents, all everything.
Can Novell offer the $5 mil from SCO's to be decided settlement money? They
aren't going to get it anyway?
It would finalize it?

---
The memories of a man in his old age are the deeds of a man in his prime -
Floyd, Pink

[ Reply to This | # ]

Comments on the MOU
Authored by: elronxenu on Friday, February 15 2008 @ 11:12 PM EST
Hmm, the business plan will be secret. SCO will write it and send it to SNCP ... and not the bankruptcy court?

SCO will emerge from bankruptcy before the extent of the monies payable to Novell is known?

How on earth can SCO prevail in the Novell case? So far all that's left is how much SCO has to _pay_ to Novell.

Spending borrowed money to pay Novell won't make SCO any less bankrupt.

[ Reply to This | # ]

Competitive bidding?
Authored by: Anonymous on Friday, February 15 2008 @ 11:19 PM EST
If SCO is worth 100 million dollars to this outfit, how do we know it isn't
worth more? But the terms of this agreement seem to rule out the possibility of
SCO seeking out alternative bids! That in itself seems highly irregular and
something that Novell and IBM should be objecting to. And, 100 million won't
cover Novell, IBM and Suse so how can the court find that this is a path out of
bankruptcy?

[ Reply to This | # ]

Appeal bond?
Authored by: Anonymous on Friday, February 15 2008 @ 11:20 PM EST

Suppose SCO looses before Kimball, then files an appeal, then comes out of BK using this plan...Do they then have to file an appeal bond? Or does the fact that they were in BK when they filed mean that they dodged it?

[ Reply to This | # ]

  • Appeal bond? - Authored by: PJ on Friday, February 15 2008 @ 11:23 PM EST
The military angle
Authored by: rsteinmetz70112 on Friday, February 15 2008 @ 11:23 PM EST
While the military may be moving to Linux and that may adversely impact some
proprietary software vendors. I don't think the military will lack for people
willing to provide services for them. They get people to provide all sorts of
completely unique things in hardware and software all the time. They are used to
that kind of environment.

I really doubt that is a major issue. Doing military work the familiarity wiht
the military is more important than anything else.



---
Rsteinmetz - IANAL therefore my opinions are illegal.

"I could be wrong now, but I don't think so."
Randy Newman - The Title Theme from Monk

[ Reply to This | # ]

Pitfalls (from the top)
Authored by: proceng on Friday, February 15 2008 @ 11:23 PM EST
Under the Proposed Plan of Reorganization, SCO will emerge from the Bankruptcy Case and attempt to implement the business plan described in a private placement memorandum to be prepared by SCO, a copy of which shall be provided to SNCP.
Translation: We now have money and we won't tell you how we intend to disburse it.

Interests in the Trust shall not be transferable, and the Reorganized Debtor will no longer be a public company and shall not be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended.
Translation: We don't have to tell the public (including creditors) where their money is going.

Creation of Trust: Upon the effective date of the Proposed Plan of Reorganization, the then-current equity (and common stock equivalents) of SCO shall be extinguished and the equity holders of SCO shall receive a pro-rata interest in the Trust based upon their percentage ownership of the Company's then outstanding Common Stock and common stock equivalents.
Translation: Those common stock equivalents (also known as options) will be treated as if they were actually purchased shares

Liquidation Preference: In the event of a voluntary or involuntary liquidation, dissolution or winding up of the Company, the funds available for distribution shall be paid out as follows:
(1) the holders of Series A Preferred shall be entitled to receive, prior and in preference to the holders of the Company's New Common Stock, an amount equal to the result obtained by dividing $5 million by the number of shares of New Common Stock into which the Series A Preferred is convertible based on the conversion formula described in the section entitled "Conversion Rights" above (the "Original Series A Price"), multiplied by 3; and thereafter,
Translation: In the event we are forced into Chapter 7, our booked losses are three times what we put into this deal (even if the Chapter 7 is 1 day later)

The Reorganized Debtor shall purchase "tail" directors and officers insurance coverage to protect against claims arising prior to the effective date of the Proposed Plan of Reorganization.
Translation: Even though we are paying for this, if Novell, IBM and Red Hat prevail, we are not out any money (Risk = 0, Reward = 3x what we put in - either as cash or offset against any other income)

Information Rights:
Not quoted here, but the gist of it is "even though the Debtor did not do this with regard to Novell, we trust them to do it for us.

Restriction on Affirmative Seeking Competitive Transactions: SCO acknowledges that it is not actively seeking financing for a plan of reorganization, except as set forth in this MOU. SCO agrees that, until August 15, 2008, neither SCO nor its agents or representatives shall solicit or encourage submission of inquiries, proposals or offers from any third parties regarding any potential financing of a plan of reorganization for SCO (each, a "Competitive Transaction").
Translation: This is an extension of SCO's "exclusive" right to introduce a reorg plan (read: DELAY)

This Memorandum of Understanding shall be governed by Delaware law and all Parties consent to the exclusive jurisdiction of the Bankruptcy Court hearing the Bankruptcy Cases to determine any controversy arising hereunder.
Translation: Judge Kimball need not weigh in on this.

The terms set forth above summarize the major points we have discussed, but are not intended to be the entirety of the terms of the Proposed Plan of Reorganization, the Equity Financing or the Debt Financing and are subject to the drafting and execution of Definitive Documents.
Translation: Wait till you see what else we have planned...

Did I miss anything?

---
And ye shall know the truth, and the truth shall make you free.
John 8:32(King James Version)

[ Reply to This | # ]

Heads I win, tails you loose.
Authored by: Anonymous on Friday, February 15 2008 @ 11:27 PM EST
As I understand it the shadow investors dole out the money slowly, so there is nothing to loose in case SCO looses.

But they stand to gain a lot if by chance SCO should win. Surely, this has been tried before. Is there any kind of rule against this? Precedent?

[ Reply to This | # ]

BSF = Barristers Serving Forever...
Authored by: Anonymous on Friday, February 15 2008 @ 11:35 PM EST
Wonder how that cap on legal fees looks in light of the potential for SCO to
appeal litigation for a LONG time.

For my money (which its not) couldn't happen to a nicer crowd! :-)

[ Reply to This | # ]

Don't existing stockholders have any say?
Authored by: Anonymous on Saturday, February 16 2008 @ 12:11 AM EST

the company will go private and then give its full and aggressive attention to raping and pillaging the FOSS community some more with SCO's bogo lawsuits against Linux. Well, that's how I read it.

That's how I read it too.

There is one other thing, though. Existing stockholders get screwed. They become minority shareholders, and moreover their shares become non-transferable. SCO's stock price has rocketed from about 7 cents to 11 and a half cents since Monday, but the people buying haven't read the MOU. If this goes through, existing shares will have no market value at all.

[ Reply to This | # ]

The Proposed MOU, as text
Authored by: TheBlueSkyRanger on Saturday, February 16 2008 @ 12:19 AM EST
Hey, everybody!

PJ's theory makes sense to me, since it is completely in line with everything
else M$ has done so far.

And this offends me.

It's not just that M$ is fighting to maintain an outdated business model. There
are plenty of those. It's the arrogance. They sell a defective product that puts
its users at risk of a variety of crimes. If any other company created something
that put its customers at such risk, they'd be sued into oblivion. But not M$,
companies have popped up to make money from this, not to hold M$ accountable.

True story: recently, the one Windows machine I have got messed up. A series of
power failures did it. The machine was on, and unbeknownst to me, it attempted
to power up again when power came back on. Power dropped in the middle of the
reboot and the machine wouldn't boot past the title screen. Found out the
system32 folder was corrupted -- the entire folder hierarchy inside was gone.
All the files were there in system32, but all the subfolders inside there that
the files were supposed to go in were gone. It took them two weeks to fix the
machine. It would have been one, but the day before they expected to finish,
Windows hiccuped and did the same thing, undoing all the work they did.

Is it even POSSIBLE for this to happen under Linux?

And M$ wants to maintain the FUD so people will continue buying products that do
things like this?!?

I have never bought the whole statement about "moving aside for the next
generation" because, sooner or later, we all move from the latter to the
former, and some can adapt and survive. The problem is when they act like slum
lords -- regardless of how horrible things are, they have every right to make
that money and how dare you suggest otherwise or bring up things like, I don't
know, laws and such.

It's nice to see people switching. I don't have to see M$ vanish from sight. I
just want to see them have to do right by their customers instead of the other
way around.

Dobre utka,
The Blue Sky Ranger

"Please relax," said the voice pleasantly, like a stewardess in an
airliner with only one wing and two engines, one of which is on fire, "you
are perfectly safe."
--Douglas Adams
"The Hitch-hiker's Guide To The Galaxy"

[ Reply to This | # ]

This is a Really Big Deal
Authored by: Anonymous on Saturday, February 16 2008 @ 12:51 AM EST
$omebody wants to spend a big bunch of $$$ to keep $omething from being
exposed to public scrutiny. It makes me wonder what that $ecret $omething
might be. It must be $omething big -- really big.

I bet SCO regrets having gone the bankruptcy route. It allows us to sift
through every little move they try to make. They're gonna have a hard time
getting this to fly without being more forthcoming to the bankruptcy trustee.
He'll probably try to determine who is really behind this.

This is getting more and more interesting every day!

"Oops..." --SCO



[ Reply to This | # ]

Another five years
Authored by: Anonymous on Saturday, February 16 2008 @ 12:53 AM EST

"US$95 million under the terms of a five year non-revolving credit line." ..."sometimes herein referred to as the "Debt Financing.""
"Purpose of Loan: The purpose of the loan is to provide funds for ... and (iii) to support the prosecution of the Reorganized Debtor's Litigation Claim"

$19M a year is less than chump change to these guys, will hardly satisfy BSF in full battle mode, then after 5 years another sugar daddy steps up to the plate.

"Free as in beer" can't compete on those terms, it's so easy for the enemy to make it look like "free as in worthless"

[ Reply to This | # ]

The W in Washington State is ..
Authored by: kawabago on Saturday, February 16 2008 @ 01:39 AM EST
The W in Washington State is really an upside down M for Mordor!

The hand of darkness has fallen across the land. lorcs (lawyer orcs) roam the
shadows. The stench of Microsoft's corruption and decay permeates the air. All
our hopes lie in an intrepid band of elfen lawyers fighting injustice on the way
to true software freedom.

[ Reply to This | # ]

Loan Sharks Eat Your Hearts Out?
Authored by: ankylosaurus on Saturday, February 16 2008 @ 01:42 AM EST
The interest rate on the loan is suitably extortionate at 1,700 basis points or
17% above LIBOR (London Inter-Bank Offered Rate) which appears to be about 3% at
the moment, so the interest rate on the loans is 20% or so.

---
The Dinosaur with a Club at the End of its Tail

[ Reply to This | # ]

A Sign of Desperation
Authored by: webster on Saturday, February 16 2008 @ 01:50 AM EST

  1. The hand behind the PIPE Fairy is absolutely desperate to FUD Linux. There are millions more where this came from. Law means nothing. Preserving dominance and lack of choice is everything. A comment noted that this $100 million was but a fraction of the fines paid to the EU. This appears to be a fight to the death. Or a bluff before high-tailing it to Pakistan.
  2. This is far from a done deal. PJ suggests an escrow of the $100 million. They are going to fight about something like that. Putting this nest-egg in bankruptcy court control would be a deal-breaker. They are dreaming if they think they are going to ramrod the judge into doing this on their schedule. They are going to have to put up the whole contested SUN-Monopoly License claims in advance to get this to fly. That would be like frittering away the first $35 million. He isn't going to let them jam this through before the Utah trial and then collapse, "declare bankruptcy again," and not follow through after the trial. The Judge is not going to let himself be so obviously a tool of manipulation. There is a clause that breaks the deal if there is any governmental investigation. Maybe the New York Attorney General will finally perk up. They are also going to have to make disclosures and allow discovery if it is contested. Investors are skittish.
  3. This $100 is a pittance. Even more so since they plan to trickle it out as needed. If SCO can stop it, it is a deal killer. Novell's damages are modest but assured. IBM and Red Hat can document billions lost. They can line up every CTO who delayed or declined a linux deal due to the claims and Darl proclamations plus whatever went to the Monopoly's Linusian concubines like Linspire, Novell, and Xandros. No wonder the PIPE Fairy wants to maintain the FUD. The floodgates will open when Linux is definitively cleared.
  4. Remember that there is a negotiation going on. Even not negotiating is negotiating. So SCO says it has $100 more to spend on litigation including appeals. Linux won't be cleared for years. Their opponents will have to pay lawyers for years. At the same time they are only putting out $5 million and frittering away millions on bankruptcy shenanigans. It is not convincing. A trust or escrow will put the millions on the line. It will be a waste.
  5. This sort of event must make the judges feel like pawns in the hands of the Masters of Wealth. The Court, SCO, the suits are all just pieces to be maneuvered on the board. It's worse, the Masters have more pieces and can bring them back repeatedly after a loss.
  6. Prince Al-Weed Al-billions has very deep pockets in his robes. Why would he want to expose them to the American legal system and possible counter-attacks. He can hire lawyers. What lawyers have told him it is okay to get involved in this? What lawyer after reading Kimball's August tenth decision and noting the lack of SCO evidence and the further lack of admissible SCO evidence, and assessing the realities of any appeal would recommend this deal? Did they tell him about due diligence and conspiracy? Does he just read MOG? Does he want to risk having any veils, robes and pockets pierced? Is he intent on marching with the Emperor with no clothes? There must be a Fairy hand in his pocket.
  7. Don't be misled by SCO bravado about appeals and the validity of their claims. Even if they had code, evidence, they lose by the GPL. But it will never come to that. They have lost. Kimball's August tenth decision is the law of the case and the reality. As soon as they put a price tag on it it is final. SCO can appeal if they can post the bond. That will be wasted money except for more FUD time for the still gullible, or thralls of the Monopoly. Appeals are hard to win. Judges back each other up. They presume the findings of fact of the lower court and concentrate on the law. Kimball is a very experienced judge. If they send something back to him, he knows how to fix it.
  8. Obviously SCO and the PIPE Fairy are nowhere near bankrupt. It is just a tactic. This debt facility is another. It won't work better than anything else has, like Darl's snarls or MOG's articles. By keeping the litigation alive they may provoke an IBM counterstrike sooner than later. Maybe they'll invite the PIPE Fairy in.

  9. ~webster~


    Tyrants live their delusions. Beware the PIPE Fairy.

    [ Reply to This | # ]

the Redemption Price.
Authored by: Aladdin Sane on Saturday, February 16 2008 @ 02:02 AM EST
I couldn't help notice the phrase, "the Redemption Price" orphaned at the top of page three of the MOU as I briefly scanned the document.

It immediately evoked for me the philosophical question, "How much did you get for your soul?"

This document is the Price of SCO's Redemption. In case anybody missed it.

---
Form follows function

[ Reply to This | # ]

Will this turkey ever fly?
Authored by: Anonymous on Saturday, February 16 2008 @ 02:06 AM EST
There are 9 causes of Termination, listed in pseudo random order.
Subjectively sorting them I find:
1. by mutual consent;
2, 3. for non performance of either party;
4. if SCO chase a counterbid;
5, 6, 7. different levels of non-approval or default by the BK court;
8. (my gift of IQ credit to SNCP) SCO proving unsatisfactory after
. due diligence, but note the short time they're allowing for this;
9. (PJ's trump card) if any competent authority, local or foreign, says no.

Sorry, whenever I see SNCP I read Societe National des Chemins de Fer.
and they don't fly either.

[ Reply to This | # ]

What scares me the most
Authored by: jrcsnet on Saturday, February 16 2008 @ 02:20 AM EST
Looking at what this says, combined with what I'd expect to come around
afterward, is really worrisome. Even more worrisome however is the relatively
high chance that if this does go through that as soon as its cleared they will
change the name, likely dropping all references to SCO they can possibly find.
To the average person who hasn't followed what is happening it would likely
appear that all of a sudden there is a *second* company alleging claims against
Linux.

[ Reply to This | # ]

A Possible Loophole
Authored by: bezz on Saturday, February 16 2008 @ 02:45 AM EST
This offer looks too good to be true. So it probably is. There is no sound
business rationale for this offer on the part of SCO or the lenders.

One of the covenants is that the reorganized -- and private -- SCO must pay
accumulated interest monthly. And that interest is at credit card rates, LIBOR
+ 1,700 Basis Points. LIBOR is currently very low, just above 3%; one year ago
it was above 5.3%. So SCO can plan on paying 20% to 22.3% interest monthly.

So, let us suppose Kimball awards Novell $30 million in Utah. That doesn't mean
Novell gets the money because SCO can now afford the bond to appeal. And let's
also be generous and assume SCO only needs to post a $10 million bond for the
appeal. Where does that leave us? With SCO having to pay about $170,000 per
month interest and more if LIBOR rises.

I am not sure what the bond requirements are for an appeal, so if someone does,
please chime in.

Of course, SCO will also probably have to draw on that credit line to operate
and (HA HA) pay the interest because it loses money. For each $10 million it
borrows, add another $170,000 per month just to keep up with the loans.

Eventually, SCO will be forced to pay the Novell and IBM pipers, but this deal
pushes that date further into the future. And at some point, they won't be able
to pay the interest.

At that point, SCO will be subject to termination of the transaction and will
have to fold. But now as a private company and off in the future.

What Novell will need to do is request a constructive trust in the BK court if
they hope to get their cash from a Utah judgment. But there is plenty of time
built in to this deal to allow SCO to fail as a private company and protect its
existing management.

One thing seems apparent. This deal was organized by people with a lot more
creative and mean-spirited business sense than the existing SCO management.

[ Reply to This | # ]

Deadman Switch
Authored by: Anonymous on Saturday, February 16 2008 @ 03:26 AM EST
I may be totally off base, wrong, etc. but way back when things like Ralph Yarro
and Darl McBride's golden parachutes wasn't there some sort of clause that all
assets would transfer to that angel something NPO or some other place in the
event of a change of control or one of the leaders getting voted out.

[ Reply to This | # ]

Lets believe it when we see the money eh?
Authored by: SilverWave on Saturday, February 16 2008 @ 06:53 AM EST
Talks cheap...

Seen to much smoke and mirrors in this case...

Hey it *could* be real but where would Chuck Norris get this kind of money
from...
... although Walker, Texas Ranger must be a money maker...










;)

---
You don't need to use an Anti-Virus with Linux as thats mainly a windows thing
:)
But you can if you want to, its your choice.

[ Reply to This | # ]

"Should the Company...........
Authored by: Stevieboy on Saturday, February 16 2008 @ 07:59 AM EST
.....receive a written or oral offer or counteroffer to settle the Novell
Litigation, the Novell/IBM Litigation, the Autozone Litigation or any other
Litigation...."

To quote John McEnroe:

"You cannot be serious!"

[ Reply to This | # ]

SCO files new S8, approx 666K new shares
Authored by: Anonymous on Saturday, February 16 2008 @ 08:04 AM EST
The current management is going to cash out as much as possible it seems. The
board has always had the ability to create these new shares and instantly dilute
the existing set. Always was another good reason for sane investors to stay
away. It looks like it was time to exercise this exit strategy.

A good finger to the buyout proposal by the current management. Upping the
number of shares that have to be bought out.

[ Reply to This | # ]

On Novell getting all their money back
Authored by: Anonymous on Saturday, February 16 2008 @ 08:21 AM EST
SCO will argue that Novell cannot extract back $30M as the amount was spent and
that the minimum cash value of SCO in the interm is the maximum available amount
that Novell will be able to extract back.

This "investment" opportunity shows that the cash the SCO received in
the Sun and Microsoft deals has been invested into a valuable litigation
profile for the company. So while the cash is not present SCO has managed to
leverage the cash into a litigation position that has been highly valued. Now
that they are again able to flop that litigation position back into cash it
shows that the value has been there all along just not in typically accounting
book form.

Conclusion: Novell should be able to ask all of the Sun and Microsoft money to
be returned despite any bottom level of SCO book assets during the interm.

[ Reply to This | # ]

Just how screwed do the current shareholders get?
Authored by: Anonymous on Saturday, February 16 2008 @ 08:35 AM EST
Not that I have much sympathy for them, mind you. But nonetheless:

The MOU seems to say that SNCF gets to elect 4 of 7 board members, and the rest
of the shareholders get to elect 3 more. Except that one of the 3 people they
elect must happen to be the new CEO, and another one must be an "outside
executive ... designated by a majority of the Board" (i.e. by the 4 SNCF
electees). If my math is right, that leaves 1 (one) member of the board that the
49% minority can actually choose freely.

What gives?

[ Reply to This | # ]

ITAR Controlled Items
Authored by: Anonymous on Saturday, February 16 2008 @ 08:46 AM EST
One of the things that could cause problems,if this is indeed a sale to foreign
entity, is the fact that certain types of software are subject to export
controls "Munitions Control List". We're not just talking about
commercial software, we're talking about the sale of ALL of SCO's software
assets. Some of those things may not be exportable. Getting an export licences
from the Dept of State can take up to several years. The more complex the sales
list, the longer it takes. I wonder how long it would take them to review ALL
of the software items that would be included?

BTW, export of these items without a licence is a Federal offense, a felony, I
believe.

[ Reply to This | # ]

Military Angle Not Likely
Authored by: Anonymous on Saturday, February 16 2008 @ 10:39 AM EST
That is, I have a theory (...) The military is switching to Linux. That's a huge loss to Microsoft, of course, but it's also a huge loss to companies that supply services and proprietary software applications to the military. Some folks might not like that the switch to Linux is happening. It will be worse for them if other government agencies and entities decide to follow the DOD's lead.
I don't think the idea that some military contractors are involved in this is likely. The big budget purely military software projects are usually embedded systems running on real time embedded operating systems. Part of that market is already moving to real time versions of Linux, and more will move as time goes by. The military contractors have no problems with this, as it removes vendor lock-in to their suppliers. These RTOS suppliers themselves are offering RT embedded Linux.

I think your theory of Microsoft being behind this one is the most likely. As to who is handling the laundering of the money through the middle east is not certain, but again I think your theory of mutual back scratching is very likely. We needn't start looking for new suspects in the military when the known existing ones from previous deals fit so well.

Microsoft can either offer someone the distribution rights, or they can offer them a commission on any sales to governments in the region. Nobody would raise an eyebrow at some well connected individual in the middle east collecting very large commissions, as no business gets done there without someone in power getting a big share of the money.

Microsoft need only offer a sufficiently generous deal in terms of commission rates and "co-marketing funds" to be able to ask for a $100 million "favour" in return. Again, such exchanges of favours are routine there, and are handled with discretion. If the deal exists only as a handshake between principles, and the business flows to a Dubai company through a Lebanese bank in Cyprus, the chances of any court being able to request paperwork is pretty much nill.

As to SNCP's involvement, I would expect that the middle eastern partner went to one of his usual American business partners to front for him in the US. The fact that Steve Norris appears to have such good connections in the US government would not be unexpected, as many large business deals in the middle east involve direct government to government lobbying. This isn't a deal involving the US government, but these people know and trust each other.

As to why Microsoft wants this, look at the software market. For several years people said it was to create Linux FUD until Vista came out. Well, Vista came out, and it has been poorly received. Service pack 1 was supposed to fix Vista, but now it looks like it won't. In, fact, Microsoft tried to hold back SP1 from it's business "partners" (who would normally test their software before release) until the official release to the general market. They had to reverse that decision a couple of days ago because of the storm of protest, but it was being labeled as a PR move to prevent bad reviews before release.

So the most likely explanation is that this is just Pipe Fairy 2, for pretty much the same reasons as Pipe Fairy 1. It's just a different financial conduit, with a bit more care to ensure the financial links are untraceable. Presumably, Microsoft got some professional advice this time on laundering money from people with more experience at it.

I doubt that $100 million will ever actually flow from the investors. I expect that SCO will shut down or sell off the Unix (and mobile) business and turn into a pure litigation company. They can then concentrate on easier prey than IBM while spending a lot less money on lawyers. This could go on for a long time yet, and we won't even have Darl to entertain us.

[ Reply to This | # ]

How much indemnification are the directors permitted by law?
Authored by: Anonymous on Saturday, February 16 2008 @ 10:52 AM EST
... with indemnification for the directors "to the maximum extent permitted by law," ...

Does anybody know how much that is?

[ Reply to This | # ]

The Four winds exit strategy
Authored by: hAckz0r on Saturday, February 16 2008 @ 11:29 AM EST
This event just serves to further my long time opinion of SCOg's planned exit
strategy. From the beginning of the end, they had to figure out how to keep
themselves out of jail. I contend this is just the next phase in dividing up the
liability and spreading it to the four winds. If you don't have a clear target
anymore how can you aim and fight back with the criminal charges. If there is no
company, and protections of liability are addressed by the new holders, all you
have is a bunch of individuals who may have even left the country by the time
the government steps in to start prosecution.

I believe this was planned, not by this particular “investment” broker, but by
the people controlling the money for the original FUD campaign. Before doing
something so risky, as SCOg did, you would need some kind of promise of
protections when it is all over.

---
DRM - As a "solution", it solves the wrong problem; As a "technology" its only
'logically' infeasible.

[ Reply to This | # ]

What keeps Reorganized SCO from going bankrupt again?
Authored by: Anonymous on Saturday, February 16 2008 @ 12:07 PM EST

The way this is structured, it looks like Reorganized SCO has the option of going bankrupt again if they lose any of their lawsuits. The "investors" have a majority of the board, so, if Reorganized SCO reaches the point where they have to draw on that credit line, (which probably happens after they lose Novell) the investors can just take them into bankruptcy again. So the investors have no downside, other than the $5 million original investment.

The new investment is structured as being secured by all the assets of Reorganized SCO, so after bankruptcy #2, the investors end up with SCO's intellectual property, such as it is, with no liability for the judgments against SCO.

This creates legitimate grounds for Novell, IBM, and Red Hat to object to the deal. It's an asset transfer in bankruptcy.

[ Reply to This | # ]

The Creditors?
Authored by: DMF on Saturday, February 16 2008 @ 12:14 PM EST
As far as I can see (and I haven't read the whole thing) the current creditors
get zip-zilch-nada. True?

If true, and the Bankruptcy Court is charged with yielding the most good for the
most folks - including the creditors, then I don't see where the Court has any
incentive to approve this.

[ Reply to This | # ]

Might Fly
Authored by: John Hasler on Saturday, February 16 2008 @ 01:43 PM EST
I don't see too much wrong with this from the point of view of Novell, IBM and
Red Hat. $100M might not cover their claims in full but it's a lot more than
they previously stood any chance of seeing. They may want to tighten up the
terms of the loan a bit but they may buy it. The other creditors will be
overjoyed, of course. The shareholders get squeezed out, but hey, they're SCO
shareholders. Who cares what happens to them, and besides, they had no chance
anyway.

Those who have been complaining that nothing was going to be settled in court
should be happy too: as soon as he is done with Novell Kimball will schedule IBM
ASAP and then Red Hat and Autozone will wake up.

Seems to me that the biggest sticking point (aside from possible objections to
the terms of the loan from Novell and IBM) will be SNCP's "due
diligence". If they go ahead with this after a thorough review I have to
wonder what sort of mushrooms they've been eating.

---
IOANAL. Licensed under the GNU General Public License

[ Reply to This | # ]

No competitive transactions
Authored by: tknarr on Saturday, February 16 2008 @ 02:27 PM EST

I'd thing the paragraph "Restriction on Affirmative Seeking Competitive Transactions" would be a deal-killer in bankruptcy court. This deal doesn't provide funds directly to pay the existing debts, and it prevents SCO from even looking to see if there's a better deal for the creditors out there. And in bankruptcy court, "better deal for the creditors" is supposed to be the primary goal. Were I a creditor who hadn't already completely written off the debt, I'd object just on that basis alone.

[ Reply to This | # ]

"Darl McBride have to resign..."
Authored by: Anonymous on Saturday, February 16 2008 @ 03:14 PM EST
and be replaced with Michael Myers.

[ Reply to This | # ]

The Change of Control: Bravado and an Offer
Authored by: webster on Saturday, February 16 2008 @ 03:50 PM EST

  1. There are certain assumptions to be made in regard to this take-over: Darl will be gone; others will be in charge; they will be rational; They don't want to waste money and time; they realize that groundless, hari-kari appeals may get them in trouble.
  2. They are posturing as if this is a means to continue to attack Linux, but there are much better ways to attack nowadays much better than wielding the lame tool that is SCO. Patents, for example.
  3. This is also a mechanism for settlement. They can change SCO's tune. They are not gagged like Darl. They have different responsibilities. They can make embarrassing concessions demanded by Novell and IBM, agree on a price, and get Novell and IBM to cease and desist any contemplated retaliation. They can renounce SCO claims without having to worry about counterclaims.
  4. If their purpose is just to continue the FUD, they could have just guided this loan facility to reliable ole SCO.


---------webster


Tyrants live their delusions. Beware the PIPE Fairy.

[ Reply to This | # ]

The Proposed MOU, as text - Updated
Authored by: Anonymous on Saturday, February 16 2008 @ 05:24 PM EST
So the deal has to be completed prior to the start of the trial in Utah, but at
the current time that trial can only determine the amount of money that tscgo
owes novell, but cannot actually setup any form of trust associated for that
owed money as that is currently in the hands of the bk court...

So given the above, what happens if the bk court approves of this buyout, would
a new trial date have to be sort or would Judge Kimball automatically be able to
add items in regards to a trust to the current case (and would extra time be
needed)?

[ Reply to This | # ]

AAAAAAAAAAAAAAAAAAAAAAAGH!!!!!
Authored by: josmith42 on Saturday, February 16 2008 @ 05:46 PM EST

What in the world has happened!? Have we been transported to the twilight zone? Where black is white, wrong is right, and SCO is allowed to live, despite its failed business model!?

Surely this can't be right. Surely there aren't so many bad (and stupid) people in the world that this deal will go through. I have been brought up to believe in the basic and natural goodness of humanity, but this seriously brings into question that conviction.

If it weren't for PJ's comments policy, this comment would be ridden with every expletive from every language I could think to look up. Not only is the black knight still wanting to fight, somebody is willing to perform surgery to reattach his limbs. AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAGH!!!!!

---
This comment was typed using the Dvorak keyboard layout. :-)

[ Reply to This | # ]

Protections
Authored by: mattflaschen on Saturday, February 16 2008 @ 05:46 PM EST
I expect the bankruptcy court to reject the MOU in its current form. The
primary reason is the outrageous "Plan Sponsor Protections". It is
required that:

a. SNCP is allowed to participate in any settlement discussions.

b. SNCP gets a 50% share of any settlement or SCO buy-out /before/ the Plan is
confirmed by the court.

Compare to the York protections, which totalled up to $1 million. Novell argued
that they were excessive, in comparison to a bid price of $10 million. Here,
you have essentially unbounded protections (if SCO does by some miracle win the
litigation) compared to a bid price of $5 million (not counting the loan).

SCO even admits in their motion that these protections are "extraordinary
relief", and admit a "lack of precedent". I can't imagine the
court agreeing to these provisions.

Moreover, another objection to York was the lack of competitive bidding. This
is specifically banned by the SNCP MOU, another fact I don't think the court
will appreciate.

[ Reply to This | # ]

Is this a change of control?
Authored by: Anonymous on Saturday, February 16 2008 @ 07:56 PM EST
If I recall, the agreement where SCO got whatever of UNIX from Novell has a
change of control element where Novell gets it back if there is a change of
control. I wonder if this constitutes that change of control here?

Anyone know?

[ Reply to This | # ]

SCO Self-destruct mechanism?
Authored by: darkonc on Sunday, February 17 2008 @ 03:04 AM EST
Remember that SNCP is now going to, effectively, control SCO -- so they could (if they wanted to) cause SCO to ('accidently') default on it's responsibilities ... which would void any responsibility for SNCP to 'loan' SCO any (further) money to pay off any subsequent (or recent) judgments.

End result:

  • SCO is now in (safely) private hands,
  • no piercing of the veil (SNCP gets 'paid off' first for litigation depts).
  • BSF gets paid for (most of) their legal fees,
  • no payments to {Novell, IBM, RedHat, AutoZone}, etc.
It's almost the perfect alibi.

---
Powerful, committed communication. Touching the jewel within each person and bringing it to life..

[ Reply to This | # ]

More bonuses for SCO executives
Authored by: Anonymous on Monday, February 18 2008 @ 12:24 PM EST
I guess if this takeover is approved, it means that Ralph Yarro and Darl McBride
will be getting more large cash bonuses. Looking back on the scandalous Canopy
breakup and the "creative" accounting just proves that history repeats
itself.

[ Reply to This | # ]

Please help; what actually has to happen for SCOG to emerge from Chapter 11 - PJ?
Authored by: Anonymous on Monday, February 18 2008 @ 12:39 PM EST
I am hoping that some generous contributor more knowledgable in US law than
myself can help me with some questions here.

The questions are about what exactly needs to happen before SCOG can emerge from
Chapter 11, in the context perhaps of this MOU.

* Do the debts have to be discharged before SCOG can leave Ch 11?

* Does the pending litigation (Novell, IBM, Redhat, ...) have to be resolved
beyond further appeal, or a settlement reached, before SCOG can leave Ch 11?

* Do the existing shares have to be extinguished, the trust created, etc, before
SCOG can leave Ch 11, in the context of this MOU?

Please accept thanks in advance for your kindness.




[ Reply to This | # ]

Can Novell amend their counter claim?
Authored by: Anonymous on Tuesday, February 19 2008 @ 09:39 AM EST
I know that the answer is probably "no", but I just had a funny vision
pop into my head.

If this deal is approved, and therefore SCO would be changing ownership, could
Novell change their counter-claims to name SCNP as a co-counter-defendant since
they will own over 50% of SCO?

[ Reply to This | # ]

Groklaw © Copyright 2003-2013 Pamela Jones.
All trademarks and copyrights on this page are owned by their respective owners.
Comments are owned by the individual posters.

PJ's articles are licensed under a Creative Commons License. ( Details )