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SCO's April 2nd Bankruptcy Hearing Transcript - Update: full text
Friday, April 11 2008 @ 02:33 AM EDT

The transcript [PDF] of the April 2nd hearing is now available. And we get some answers.

First, SCO's plan sponsor protections motion [PDF] is not going forward, as we suspected. Ditto the request for a scheduling order. The new deal , if there is one, will be a straight asset sale, with no loan features. So creditors will be paid on confirmation, SCO's attorney Arthur Spector tells the court, adding that he hopes that will resolve any future issues and stem the objectors from objecting to the next plan. Only the shareholders should care about that one, he indicates, and maybe the U.S. Trustee.

He expresses next the hope that the deadline for exclusivity, May 11th, stands, and he hopes to have the new plan done by then. But -- and with SCO there is always a but when it comes to deadlines, it seems -- the due diligence might be a problem, he says. They might need more time, an extension of another month or so to get the due diligence done.

Uh huh. Of course IBM's Richard Levin immediately stands up, tells the court the first he's hearing about an extension is live in real time out of Spector's mouth that very moment, so he puts in the record, without taking a formal position, that the original deadline for due diligence was that day, and he fails to see why changing the deal from a loan to a purchase would affect due diligence deadlines. SCO has a month and a bit more of time until the exclusivity deadline is up. So, if they ask for more time, IBM may object if SCO asks for an extension to do due diligence that should have been done by April 2nd anyway.

Then Novell promises that it will be back to object too, should SCO ask for an extension. And he expresses the hope that the next plan will actually be a real one, not another "fire drill".

Then Joseph McMahon, the trial attorney from the US Trustee's Office, stands up to express "a couple of cautionary notes." And his concerns are so deep, he informs the court that his office is looking into the need for a fiduciary. First, he mentions the prior York deal, and he raises the same question about the new deal that he raised about the York deal -- to what extent the IP which "debtors do not own" was to be sold or made part of a business plan going forward. He hopes the new plan will be crystal clear about what exactly is proposed to be sold or used.

Then he expresses general concerns about the way this case is going, and just to mention that I think he means Microsoft and Sun when he says Novell and IBM:

The second point I have to make, Your Honor, is that we will review the papers when they come in. But we're sincerely concerned about the state of this case. It came in as essentially, Your Honor, a development company. It had operating losses for each and every quarter. My understanding was prior to the petition date, from its formation, which the exception of the quarters in which it struck the deals with Novell and IBM, that are the subject of, I guess, pending litigation.

I don't think that this case can take a fourth chapter. And to the extent that, you know, we have to take a look at the issue of appointing an independent fiduciary to provide some clarity, we very well may move in that direction. And I just want the Court to be aware that we're taking a look at that issue.

I think it's an indication that the doubts we first heard him express at the 341 Creditors Meeting about whether SCO has any hope of any business plan being successful going forward have not dissipated over time. Remember this interchange?

McMahon: I believe that I recall reading in Judge Kimball's opinion, and correct me if I'm wrong, that the Debtors have had I believe it's like one profitable quarter over the last, I would say, five or six years? And it's the quarter in which they signed up certain agreements with Microsoft et al relating to its business, is that correct?

McBride: I believe that from a technical standpoint that's probably a true statement.

McMahon: Okay.

Spector: Are you saying that it's true that's what the opinion said, because that's the way he asked it...in other words..?

McBride: Well...

(98:18)

McMahon: Well, in other words, I'm looking at your, your historical filings, and I guess my question is, you've been running, just on an operating basis, have the Debtors, has SCO, turned a profit in the last five years?

McBride: In the last five years, I believe it would be just that one year.

McMahon: OK.

SCO's dreams of millions from the litigation lottery, shall we say, do not seem to him, I gather, to be a business plan, since they depend on SCO using property that the court in Utah already ruled is Novell's, not SCO's. How do you sue people over intellectual property you don't own? If that is your business plan, and if you don't make money from your supposed software business and never have, what exactly is the plan to get out of Chapter 11 based on?

There is a very interesting back and forth between Spector and the judge on page 9, in which Spector seems to be trying to distance himself a bit from the gestank of SCO. He is explaining that there is a new deal in the works, and he promises the court it will not be filed "in pieces" as the two earlier ones were:

MR. SPECTOR: And we're working now with a new MOU and with -- and once that's -- and new definitive documents will be prepared. And we promise -- we promise we won't file it in pieces any more.

THE COURT: Okay.

We, as Your Honor probably knows, sometimes we have to dance to other people's tunes.

THE COURT: I understand.

MR. SPECTOR: And so things get thrown in, everything's a rush. And then you see what happens on the back end a lot of times. So, I am making the commitment now so I can tell people I have made this commitment.

THE COURT: Okay.

Of course, some of this is just Spector's style. He's always talking about how hard it all is to come up with a plan and how hard they are working on it, trying their level best to do right. Remember the performance he put on about the York deal at the November 2007 hearing, and how teams of lawyers went without sleep for days to try to get the plan finished by the court hearing?

14 MR. SPECTOR: I'd like to say one thing that I never
15 thought I'd say, from your lips to God's ear. Maybe we'll come
16 back with an agreed -- but, I'm not asking for -- if I have to
17 ask for miracles, there would be -- world peace would be on the
18 list. I wouldn't waste it on -- but, Judge, just so you have
19 an idea, I, speaking for myself, hoped that we would have an
20 asset purchase agreement before this Court before November 6th
21 when we first came here and asked for the emergency hearing --
22 emergency hurry-up hearing. I was hoping we'd have all that
23 and the questions that were raised, valid questions that were
24 raised by Novell, IBM and the U.S. Trustee would all be
25 answered by the documents and we would then bring witnesses to

Page 19
1 supplement, and it would all be done in an appropriate manner.
2 I have colleagues, four of them that were up in New
3 York, and they worked literally around the clock, no break,
4 maybe two hours I think they took off, for two days, went
5 around the clock twice in the middle of this week. Fourteen
6 lawyers I'm told were on the other side of the deal from
7 Proskauer representing York. I don't' know how much money has
8 been spent in legal fees to try to get the documents in order,
9 and were still catching things and -- well, yes, we filed the
10 APA this afternoon after one o'clock.

They failed to get it finished, sad to say, and eventually he acknowledged that there was a bit of a problem figuring out exactly what was being sold, resulting in laughter in the courtroom. Finally the deal was withdrawn.

This time, there seems to me to be an awareness that this particular style of performance is not going to go over as well as he might need it to, and I read his words as pointing to SCO as the problem, not his firm. After all, he needs the judge to think well of his firm, regardless of the outcome for SCO, which is obviously looking bleaker and bleaker. He's saying that he wants to put it on the record that there will be no partial filings of MOU's without definitive statements, so he can tell his client no, that he won't file in pieces again. That of course is likely one of the factors that has Mr. McMahon talking about a fiduciary, all the secrecy and odd unwillingness on SCO's part to clearly express what the plan is and how they plan to get out of Chapter 11 successfully.

Now, if they asked me, I'd say they don't have any such plan. But no one asked me.

Update: Thanks to the indefatigable Steve Martin, we have the hearing transcript as text:

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

UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE

IN RE:
THE SCO GROUP, INC.,
et al.,
Debtors.
Case No. 07-11337(KG) Chapter 11

Courtroom No. 3
[address]

April 2, 2008) 2:01 P.M.

TRANSCRIPT OF OMNIBUS HEARING
BEFORE HONORABLE KEVIN GROSS
UNITED STATES BANKRUPTCY JUDGE

APPEARANCES:

For the Debtors: Pachulski Stang Ziehl & Jones
By: RACHEL LOWY WERKHEISER, ESQ.
[address]

Berger Singerman
By: ARTHUR SPECTOR, ESQ.
GRACE ROBSON, ESQ.
[address]

SCO Group, Inc.
By: Ryan E. Tibbitts, ESQ.
General Counsel and Secretary
[address]
ECRO: Nicole Schaefer
TRANSCRIPTION SERVICE: TRANSCRIPTS PLUS
[address]
[phone]
[fax]
[email]

Proceedings recorded by electronic sound recording, transcriptproduced by transcription service.

1

Appearances:
(Continued)

For Plaintiffs,
Executive Committee,
IPO Lit:
Stamell & Schager, LLP
By: JOHN CROW, ESQ.
[address]
For IBM: Potter Anderson & Corroon, LLP
By: LAURIE SELBER SILVERSTEIN, ESQ.
[address]

Cravath, Swaine & Moore LLP
By: RICHARD LEVIN, ESQ.
[address]
For Novell: Young Conaway Stargatt & Taylor, LLP
By: JEAN GREECHER, ESQ.
[address]

Morrison & Foerster LLP
By: ADAM LEWIS, ESQ.
[address]
TELEPHONIC APPEARANCES:
For the Debtor: Berger Singerman
By: DANIEL LAMPERT, ESQ.
[address]
For Alan P. Petrofsky: ALAN P. PETROFSKY, Pro Se

2

THE COURT: Good afternoon, everyone. Please be seated.

MULTIPLE SPEAKERS: Good afternoon, Your Honor.

THE COURT: It's a pleasure to see you. Ms. Werkheiser, hello.

MS. WERKHEISER: Good afternoon, Your Honor. For the record, Rachel Werkheiser from Pachulski Stang Ziehl and Jones on behalf of the debtors.

With me today, Your Honor, is Arthur Spector and Grace Robson from Berger Singerman.

THE COURT: Welcome back.

MS. WERKHEISER: And Ryan Tibbitts, who's in-house counsel with the debtors.

THE COURT: Mr. Tibbitts, good afternoon and welcome.

MS. WERKHEISER: Your Honor, if we can go through the agenda today, I'll turn the podium over to Ms. Robson.

THE COURT: Yes, that sounds fine.

MS. WERKHEISER: Thank you, Your Honor.

THE COURT: Thank you very much.

MS. ROBSON: Good afternoon, Your Honor.

THE COURT: Good afternoon.

MS. ROBSON: The first several matters on the agenda are withdrawn matters. The first one is the motion of the U.S. Trustee for an order authorizing the filing of certain parts of objection to the bonus motion under seal. There are three

3

related documents.

Based upon a resolution to be announced shortly after my presentation on these matters, we're going -- that motion is to be withdrawn by the U.S. Trustee.

The next matter is the debtors' motion for a determination that incentive bonuses for the quarter ending October 31st, 2007 were made in the ordinary course, and for continuing authority to continue that bonus program. That motion also is to be withdrawn based upon the resolution to be announced by the U.S. Trustee at the end of my presentation.

The third matter is the debtors' motion to present evidence relating to the bonus motion under seal. That motion also is to be withdrawn based upon the resolution reached with the U.S. Trustee.

So, I will turn it over to Mr. McMahon who can -- who has indicated he's going to read the terms of that resolution into the record.

THE COURT: Thank you. Mr. McMahon?

MR. McMAHON: Your Honor, good afternoon. Our resolution of those three items, Your Honor, is as follows:

The first point: Information acceptable to the U.S. Trustee regarding the bonus payments for the fourth quarter of 2007 through the second quarter of 2008 shall be included in the debtors' proposed disclosure statement. The information shall include the following:

4

First, background information regarding the incentive payments, the debtors, directors, officers and employees involved in setting the performance metrics, and how the incentive plan operates. Information similar to that which was included in the first day wage motion.

Next, detail regarding payments to officers on an individual basis and non-officers on an aggregate basis. Meaning the total amount of the payments and the number of non- officers covered by the plan.

Third, the performance metrics related to the incentive payments for the fourth quarter of 2007 and the first quarter of 2008, including the date on which the payments were initially set, whether the metrics were altered after they were initially set, and if so, why. And projected budgeted payments for the second quarter of 2008 and the performance metrics for that quarter.

And then the final component, this information, Your Honor, that's going to be part of the information, the disclosure statement, is the procedural history relating to the bonus motion and the U.S. Trustee's objection. That's all going to be part of the disclosure statement. That's one deal point, Your Honor.

Next, the debtors will refrain from paying the second quarter 2008 bonus payment to any insiders, which includes officers, pending the effective date of the plan. Or, in the

5

event the plan is not confirmed or withdrawn, a subsequent order of the Court, via a motion and notice to the U.S. Trustee.

The Court will not enter an order on the bonus motion presently pending before the Bankruptcy Court. The respective rights of the debtors, the U.S. Trustee and any other party in interest with respect to the bonus payments for the fourth quarter of 2007, and the first two quarters of 2008, other than the second quarter of 2008 bonus payments to the insiders, which is addressed as part of our resolution, are fully reserved.

The debtors' pending bonus motion and motion to seal the proceedings in connection with the bonus motion shall be withdrawn without prejudice to the debtors' rights to renew same at a later date and the U.S. Trustee's rights to oppose same.

The U.S. Trustee shall be authorized to file an unredacted version of her objection to the bonus motion with the Court. And our -- in our objection, Your Honor, that was proposed to be filed under seal, we had put in there certain information regarding the metrics that are to be part of the disclosure statement. So, there's no need to further seal that information.

THE COURT: Okay.

MR. McMAHON: The U.S. Trustee's pending objections

6

relating to the disclosure statement plan process, which Mr. Spector is going to be addressing with the Court in a moment, are not affected by this resolution. And our proposal, Your Honor, was conditioned upon us receiving a representation from the debtors at first -- the first quarter 2008 bonuses payable on account of the personal objective component for the debtors' insiders will not vary substantially from the amounts that were paid on account of that bonus component for the fourth quarter of 2007. Our office has received that information, Your Honor.

And then second, the amount of the second quarter 2008 bonuses to each individual, and in the aggregate, will not vary substantially from the bonus payments made for the fourth quarter of 2007.

Those are the deal terms, Your Honor. The debtors have provided us with the representation that we have requested, it was a condition of these deal terms. And, therefore, we are prepared to resolve those three items on these terms.

THE COURT: Thank you, Mr. McMahon.

MR. McMAHON: Thank you, Your Honor.

MS. ROBSON: Your Honor -

THE COURT: Yes?

MS. ROBSON: -- if you had any questions about the pending references, I'd be happy to answer any questions you may have.

7

THE COURT: Well, I think there's some information that's going to be provided to me hereafter, but I don't have any questions with respect to the -- the representations and the agreement on the record.

MS. ROBSON: Okay. Thank you, Your Honor.

THE COURT: Thank you.

MS. ROBSON: I'll turn it over to Mr. Spector.

THE COURT: Thank you. Good afternoon, Mr. Spector.

MR. SPECTOR: Good afternoon, Your Honor. I wish I were here under different circumstances and we were furthering the goal towards confirmation of a plan. But, as you know, because the agenda points it out quite clearly, we're here on a status conference. And the reason is, and as I've explained to counsel for Novell, and through him, I believe, counsel for IBM and also the U.S. Trustee, we are not furthering the disclosure statement process that's before the Court today, or the plan that's before the Court today. We have a status report.

THE COURT: Okay.

MR. SPECTOR: The reason we did not get the definitive documents in in time is not because we hadn't prepared them. It was that the deal was changing after - while we were drafting them. Both sides, the buyer and the seller, came to an agreement informally while we were drafting the documents we had, that they'd rather restructure the deal in a totally different way.

8

THE COURT: Okay.

MR. SPECTOR: And we're working now with a new MOU and with -- and once that's -- and new definitive documents will be prepared. And we promise -- we promise we won't file it in pieces anymore.

THE COURT: Okay.

MR. SPECTOR: Okay. We won't file the MOU until we have the definitive documents, and we won't file the disclosure statement and the plan that incorporates all that until we have them all done this time.

We, as Your Honor probably knows, sometimes have to dance to other people's tunes.

THE COURT: I understand.

MR. SPECTOR: And so things get thrown in, everything's a rush. And then you see what happens on the back end a lot of times. So, I am making the commitment now so I can tell people I have made this commitment.

THE COURT: Okay.

MR. SPECTOR: So, the -- in terms of status, I just want to -- you know, you've got to be very careful when you talk about plans under construction.

THE COURT: Understood.

MR. SPECTOR: As I said -

THE COURT: And you'll notice I'm not going to ask you a lot of questions -

9

MR. SPECTOR: Okay.

THE COURT: -- about it.

MR. SPECTOR: And I'm prepared to just say something very general about that.

THE COURT: Yes.

MR. SPECTOR: The deal that you saw in paper that's before you today is a disclosure statement and a plan that discusses an -- a stock sale with 95 percent of the money in financing, as the worthy objectors had pointed out, uh -- at -

THE COURT: Yes.

MR. SPECTOR: There are some problems. And so the deal that's changed, we think, has fixed it. Well, we don't have any deal, but when we get the deal that we think we're going to get, it will be a much better deal in that respect because it's going to be an asset purchase and no lending. So, that's what we have on the table right now. We are circulating drafts of the MOU.

I want to say that when we do get the disclosure statement prepared, we will have fixed some of the objections that were raised by the objectors to their credit. I do not dispute a lot of the -- the validity of a lot of their points. And I will incorporate it. I learn from these things. And we hope that we won't have these objections when it comes back before the Court because they'll be corrected.

And I also point this out in the following context:

10

Whatever the deal is in different structure, it essentially will be creditors get paid on confirmation with interest, contract interest as it may be, and they will be unimpaired. Now, if we didn't properly unimpair certain of them, we will be sure to do so the next time.

Which gets me to the recently stated terms. The only people who should care about these metrics and the other things will be the stockholders and perhaps Mr. McMahon or the U.S. Trustee because creditors will be getting cash on the barrel at the point of confirmation, and why do they care?

So, when it comes to the -- a lot of the other terms that come up, and the objections raised, if -- if -- we're hoping that at that point, we would see that the worthy objectors would sit on their objections and not share them because they should be taken care of with cash or a reservation of cash that would solve all of those problems.

The ones who are in the bubble in this case are the stockholders. And if stockholders have problems, then we -- we would have to deal with those. That's really all I feel comfortable outlining about the not yet finalized or even close to finalized new plan.

Obviously for these reasons, we're not going forward with this plan sponsor protections. They may change in scope and design entirely because of the new structure. We're not going forward with the scheduling order or a request for a

11

scheduling order because we have these other predicates that have to be satisfied first. Nevertheless, we are hopeful that we can stick to the deadlines that we have for the exclusivity, which I believe is May 11th. Have a plan in by then. I'm hoping that if -- if our discussions go as well as they have, we'll be able to meet those deadlines and get it in.

The only loose end here would be the due diligence deadline. We don't want -- I don't want -- I don't want to come back and have loose ends. I don't want to say, well, it's subject to due diligence now when we come here for the disclosure hearing. So, I might have to say can we have another month so we don't have that contingency overlooking us -- overhanging us when we come to the disclosure hearing. On - on scheduling, that's my only comment.

If Your Honor has any questions, I'd be happy to field them. Otherwise I'd be happy to sit down and let the other folk join.

THE COURT: Mr. Spector, I'm going to withhold any questions because I think -- because of the sensitive nature of what you're doing. And I'll hear from the other parties.

MR. SPECTOR: Thank you.

MR. LEVIN: Good afternoon, Your Honor. Richard Levin, Cravath, Swaine and Moore for IBM.

THE COURT: It's good to see you again, Mr. Levin.

MR. LEVIN: As well you, Your Honor. I commend Mr.

12

Spector for much of what he said. And I rise only to let it not be a surprise, if it happens, the position we may be taking a month from now, come May 11th.

The first I heard of any request for more time for due diligence was as Mr. Spector was speaking here just a moment ago. And my immediate reaction to that, which I simply want to put on the record without formally taking a position is that the prior deal that is being withdrawn had a due diligence deadline of today. Nothing Mr. Spector has said indicated that the changing of the terms of how the transaction is going to go has anything to do with additional due diligence.

There is yet another month or five weeks before exclusivity expires when the debtor has to file a plan to stay within exclusivity. If they need additional time for due diligence, five weeks is certainly plenty of time since given how much they've already had. And may -- and we may well object to any extension for due diligence that should have been completed by today.

THE COURT: Thank you, Mr. Levin.

MR. LEVIN: Thank you, Your Honor.

THE COURT: I think I understood Mr. Spector largely to be saying he may be back. Certainly I don't think the debtor is asking for the extension at this point.

MR. SPECTOR: No, sir.

MR. LEVIN: And all I would say, Your Honor, is if

13

he's back -

THE COURT: If they do.

MR. LEVIN: -- I may be back.

THE COURT: Good. Thank you, Mr. Levin. Mr. Lewis, good to see you again.

MR. LEWIS: Thank you, Your Honor. And how could I miss the party if they're all going to be back?

THE COURT: That's right.

MR. LEWIS: I would just add my short remarks that I think all remains to be seen, and we would obviously reserve our right to object to any extensions or other proceedings as they may come up. But there's really nothing further to do today other than to hope that, as Mr. Spector has said, we don't have to go through another fire drill for no reason in the future. If there's going to be another plan, we hope it's a real plan, whatever it may be, its merits, from our point of view.

THE COURT: Thank you, Mr. Lewis.

MR. LEWIS: Thank you, Your Honor.

THE COURT: Thank you very much. Mr. McMahon?

MR. McMAHON: Your Honor, good afternoon. Joseph McMahon for the United States Trustee.

Our office is certainly going to take a look at the revised papers when they come in, Your Honor. But I guess a couple of cautionary notes, if I may.

14

First, the issue raised in connection with the York Capital deal, and echoed again in the papers that were filed before Your Honor today, was the extent to which this intellectual property which the debtor -- debtors do not own was either being sold, as in the case of the York Capital deal, or made part of a business plan going forward for these debtors.

I sincerely hope that whatever it is we see in the third chapter of these cases, Your Honor, addresses that critical issue insofar as providing some level of clarity as to what it is precisely that is changing hands in connection with the transaction. And I'm sure that Novell will be closely attune to that issue.

The second point I have to make, Your Honor, is that we will review the papers when they come in. But we're sincerely concerned about the state of this case. It came in as essentially, Your Honor, a development company. It had operating losses for each and every quarter. My understanding was prior to the petition date, from its formation, which the exception of the quarters in which it struck the deals with Novell and IBM, that are the subject of, I guess, pending litigation.

I don't think that this case can take a fourth chapter. And to the extent that, you know, we have to take a look at the issue of appointing an independent fiduciary to

15

provide some clarity, we very well may move in that direction. And I just want the Court to be aware that we're taking a look at that issue.

THE COURT: Thank you, Mr. McMahon. And I know we're all going to be interested in seeing the disclosure statement and plan. And I think other than everyone reserving rights, there's not really much more to say and it would be foolish to say much more at this point.

MR. SPECTOR: Right. And that's why I rose. Because it seems to be the tradition to rise to reserve rights if any motion comes -- reserve the right to respond.

THE COURT: Absolutely.

(Laughter)

THE COURT: And I do reserve the right to decide.

(Laughter)

THE COURT: So, we'll all be -- we'll all be busy. Thank you.

I know there's a lot of work to be done. And as I say, obviously everyone is interested I think in a successful result, hopefully, and in seeing the -- the product that's being worked on so hard, that I know that everyone was working on hard.

Anything further?

MR. SPECTOR: No, sir.

THE COURT: I think everyone and we will stand in

16

recess then. Good day, all.

MULTIPLE SPEAKERS: Thank you, Your Honor.

(Proceedings Adjourn at 2:20 P.M.)

C E R T I F I C A T I O N

I, Karen Hartmann, certify that the foregoing is a correct transcript to the best of my ability, from the electronic sound recording of the proceedings in the above- entitled matter.

/s/ Karen Hartmann Date: April 7, 2008
TRANSCRIPTS PLUS

17


  


SCO's April 2nd Bankruptcy Hearing Transcript - Update: full text | 230 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
Lack of planning ...
Authored by: Anonymous on Friday, April 11 2008 @ 02:48 AM EDT
Thanks for the hard work PJ.

Too bad SCO does not have your work ethic.
In almost every instance we see SCO act in a way that seems impulsive.
Often they fail to account for obvious issues.
Issues evident to everyone else, it's just basic reality
Either they plan to fail, or they fail to plan.

I certainly hope the Trustee acts on his threats at this point.
Darl - Magical thinking can only get you in trouble.
Time to grow up.

[ Reply to This | # ]

Corrections thread
Authored by: Anonymous on Friday, April 11 2008 @ 02:56 AM EDT
Please post any corrections as a reply to this thread.

[ Reply to This | # ]

Non-anonymous corrections here
Authored by: kh on Friday, April 11 2008 @ 03:19 AM EDT
In case something was wrong.

[ Reply to This | # ]

Off Topic Threads
Authored by: bugstomper on Friday, April 11 2008 @ 03:23 AM EDT
Please keep off topic here

[ Reply to This | # ]

News Picks
Authored by: bugstomper on Friday, April 11 2008 @ 03:25 AM EDT
Please include the title of the News Pick article in the title of your post.

[ Reply to This | # ]

Sounds like chapter 7 to me
Authored by: kh on Friday, April 11 2008 @ 03:28 AM EDT
Perhaps someone who understands US bankruptcy law could explain to me why
selling your assets is a reorganisation plan of the sort you would make in a
Chapter 11 bankruptcy.
It sounds to me more like the sort of thing that would happen in Chapter 7.

In what way is it: reorganising the business so it can trade its way out of
insolvency?

[ Reply to This | # ]

SCO's April 2nd Bankruptcy Hearing Transcript
Authored by: Anonymous on Friday, April 11 2008 @ 03:57 AM EDT
"and I read his words as pointing to SCO as the problem, not his
firm."

No, I find it much more likely he was referring to the asset buyers as the
problem. Understandingly, anyone who does enough due diligence get cold feet,
and the deal ends up changing all the time, as SCO is desperate to get it
signed.

[ Reply to This | # ]

Dancing to SCO's Tune
Authored by: DaveJakeman on Friday, April 11 2008 @ 04:45 AM EDT
Other lawyers have been made to look ridiculous in the courtroom tap-dancing to
SCO's off-key, weirdly syncopated, disjointed rap. I'm not sure if Spector is
supposed to take a stand against his client, but good for him all the same.
Perhaps there does come a time when a lawyer needs to decide what is right: the
client's tune, or what is right.

---
Monopolistic Ignominious Corporation Requiring Office $tandard Only For
Themselves

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No wonder SCO have gotten away with this for so long.
Authored by: Anonymous on Friday, April 11 2008 @ 05:53 AM EDT
"Then he expresses general concerns about the way this case is going, and
just to mention that I think he means Microsoft and Sun when he says Novell and
IBM:"

Is that an easy mistake to make? Sheesh!

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"fourth chapter"?
Authored by: nb on Friday, April 11 2008 @ 06:00 AM EDT
What did Mr McMahon mean with this statement?

"I don't think that this case can take a fourth chapter"

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Darl's rerponse
Authored by: DannyB on Friday, April 11 2008 @ 08:26 AM EDT
McMahon: I believe that I recall reading in Judge Kimball's opinion, and correct me if I'm wrong, that the Debtors have had I believe it's like one profitable quarter over the last, I would say, five or six years? And it's the quarter in which they signed up certain agreements with Microsoft et al relating to its business, is that correct?

McBride: I believe that from a technical standpoint that's probably a true statement.

Wow, what a convoluted way of saying: "yes".

It was not a complex question. Did you lose money in every single quarter except for a certain one?

What is it with people that cannot "let your 'yes' mean 'yes' and your 'no' mean 'no'" ?

---
The price of freedom is eternal litigation.

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Text is done
Authored by: Steve Martin on Friday, April 11 2008 @ 09:03 AM EDT
Transcript HTML is on the way to PJ.

---
"When I say something, I put my name next to it." -- Isaac Jaffe, "Sports Night"

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SCO's April 2nd Bankruptcy Hearing Transcript
Authored by: Anonymous on Friday, April 11 2008 @ 09:57 AM EDT
So SCO continues to stall and their lawyer seems to be getting a little miffed
as well with the lack of progress on the part of his clients. At least, that's
how it seems. After all, his firm's reputation rides on what happens in these
bankruptcy proceedings as well.

So... color me ignorant, but if SCO can't, or won't, come up with a viable plan
between now and when exclusivity expires, what options are open to the court?

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Reading Between the Lines
Authored by: rsteinmetz70112 on Friday, April 11 2008 @ 10:27 AM EDT
I'd guess that the US Trustee has had some sharp words with SCO about their
behavior. That would account for both Spector's and McMahon's comments.

---
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

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Door # 1, 2, or 3? Trustee says not:
Authored by: tce on Friday, April 11 2008 @ 12:30 PM EDT
Door #1: Reorg to run a profitable business, with what you own

Only one "profitable" quarter in five years, maybe due to money from
Microsoft, converted by SCO.

Door #2: Run SCO business-as-usual, spending Other Peoples Money (OPM)

But now, that money is subject to the trial and may all (plus more) belong to
Novel.

Door #3: Be a litigation company, with BIG BIG upside potential

But now, we know they do not own the "ip" which formed the basis of
the suits.

Trustee says:
Not #1, no track record of success, at all.
Not #2, OPM is now converted Novel money, can't just spend it
Not #4, NO "ip".

Next.

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I'll have to disagree with P.J.
Authored by: Anonymous on Friday, April 11 2008 @ 12:33 PM EDT

To quote:

Now, if they asked me, I'd say they don't have any such plan.
I suspect they very well do have a plan, probably several. I also suspect none of them are based on the reality of the situation.

One possible plan:

    Sell off all assets associated with Unix then claim - in both vs. Novell and vs IBM - that since there's no longer any need for any kind of disagreement, as the disagreement is moot the cases should be dropped.
The reality that fails them with that plan is the counter claims. Those still have to be answered. To get rid of all the Unix associated assets does not remove the liabilities SCOG has built up with regards IBM's Lanham Act counter claims.

At least, I can't imagine any Judge accepting:

    Bank Robber: Your honor. The money I stole I simply do not have any more, therefore you can't charge me with possessing stolen property. Since you can't charge me with that you might as well drop the charges of robbing the bank as well. It's in the past and since disagreement about the money is moot, we should all just go our separate ways happily.
Well... from what I see, that's one possible scenario.

SCOG's working towards a plan, just not one based on reality that others involved in the situations will accept.

RAS

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What is a fiduciary?
Authored by: Anonymous on Friday, April 11 2008 @ 01:27 PM EDT
Can somebody kindly explain what/who a "fiduciary" is? I thought
"fiduciary" was an adjective, but now I discover it is a noun too.
(Who knows? Maybe it will one day be a verb too! Then we could all
"fiduciariate" each other...)

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Fed Up
Authored by: bezz on Friday, April 11 2008 @ 02:39 PM EDT
There were a couple items in the transcript that jumped out. First, Mr. Spector
said he may need to request an extension of exclusivity beyond May 11 to finish
due diligence. From IBM's lawyers comment, "The first I heard of any
request for more time for due diligence was as Mr. Spector was speaking here
just a moment ago", sounds like Mr. Spector never mentioned that in the
status meeting. IBM rightly pointed out they had been blindsided in court by
that comment and would object because due diligence was suppoed to be finished
as of the hearing date. Well, wasn't that an unwelcome surprise? He also
mentioned that the creditors would be paid and unimpaired under this new deal.
Are we talking the creditors SCO submitted to the court? Any chance Novell's
and IBM's claims are not addressed in this new plan?

Second, the full context of Mr. McMahon's remarks concerning an independent
fiduciary indicates the Trustee's Office understands the details of this case
very well. I suspected they were well ahead of anyone here on Groklaw (they are
professionals who do this every day in Delaware), but somewhat surprised at the
specific concern they have taken in the UNIX assets.

The statement, "the extent to which this intellectual property which the
debtor -- debtors do not own was either being sold, as in the case of the York
Capital deal, or made part of a business plan going forward for these
debtors", is very serious for SCO. We know for sure Novell retained the
copyrights and interests in UnixWare. What seems up in the air (at least to me)
is whether or not OpenServer is also encumbered. As closely as I can tell, the
SVR5 kernel in OpenServer is the product of a merge with the SVR4 kernel in
UnixWare. If that is the case, Novell could have rights to Openserver, too.

There have been too many fundamental disconnects and surprises in the bankruptcy
case and it has worn thin for all concerned. The reason SCO filed for
bankruptcy was they faced a judgment in Utah that would have left them
insolvent, and that is a valid reason to enter Chapter 11. However, SCO is
presenting plans that treat the litigation as a asset. And to keep that
"asset" afloat, they propose selling off or misusing Novell's
property. Meanwhile, SCO claims that it can't pay Novell because the money it
has left isn't Novell's; that money was spent a long time ago.

At some point, you have to say "Stop". SCO is now close to hearing
that and the Trustee is prepared to have someone independent step in and figure
out what can't be touched.

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Taking the Rope or Reserving the Right to Reserve the Rights or A Show About Nothing
Authored by: webster on Friday, April 11 2008 @ 02:42 PM EDT

  1. Poor Spector. He makes a lame opening with an apology and limps downhill from there:
    ...But, as you know, because the agenda points it out quite clearly, we’re here on a status conference. And the reason is, ..., we are not furthering the disclosure statement process that’s before the Court today, or the plan that’s before the Court today.
    P. 9. In other words they are doing nothing but looking back at what isn't going to happen. There is a good piece of advice that lawyers find it diffucult to follow: "Shut up and sit down." Maybe Spector felt obliged to take the time so that the other parties wouldn't take the time bashing his party.
  2. Then Mr. Spector misses this kind offering early on from the Judge:
    And you’ll notice I’m not going to ask you a lot of questions --
    P. 10. Spector must have had his hearing aid turned off or he was preoccupied with his own guilty thoughts because he missed this generous invitation by the Judge to "Shut up and sit down." Everything was okay by him so let's not waste time at the hearing already. But no. Specter went on and made it worse. He was hell-bent to do penance and perform this self-flagellation: "I'm prepared [and determined] to just say something very general about that." P. 11. Alas, it is no wonder that lawyers get sore elbows and cricks in their neck telling their clients to listen to the Judge. Even when they listen they don't always understand like when a defendant starts crying and begging for mercy not realizing he has just been released. Lawyers are supposed to both listen and understand. If the Judge has no questions, then everything is great. Talk the next time when you might have something good to say.
  3. Spector's Litany of Penance:
    ...The deal ...a stock sale with 95 percent of the money in financing, as the worthy objectors had pointed out...There are some problems. ...And so the deal that’s changed, we think, has fixed it. Well, we don’t have any deal, but when we get the deal that we think we’re going to get, it will be a much better deal ... I want to say that when we do get the disclosure statement prepared, we will have fixed some of the objections that were raised by the objectors to their credit. I do not dispute a lot of the -- the validity of a lot of their points. And I will incorporate it. I learn from these things. And we hope that we won’t have these objections when it comes back before the Court because they’ll be corrected. ... Now, if we didn’t properly unimpair certain of them, we will be sure to do so the next time. ...If Your Honor has any questions, I’d be happy to field them. Otherwise I’d be happy to sit down and let the other folk join.
    P. 11-13. Left out above were his grazing arguments for more time and confidentiality. The Judge wouldn't bite on anything and again withheld any questions.
  4. Then Mr. Levin continued in this "hearing about nothing" by reserving the right to object to the unproposed but contemplated motions by Mr. Spector. Then Mr. Lewis encapsulated the day:
    But there’s really nothing further to do today other than to hope that, as Mr. Spector has said, we don’t have to go through another fire drill for no reason in the future.
    P. 15. Then Mr. McMahon teased the crowd with a volley of shock and awe referencing SCO's record of profit, their dubious list of assets and a fiduciary appointment. It seemed entirely appropriate flowing from the strength of Spector's representations.
  5. Spector and the Judge came out for the final act and bow:
    THE COURT: ... And I think other than everyone reserving rights, there’s not really much more to say and it would be foolish to say much more at this point.
    P. 17. This was the cue for none other than Mr. Spector:
    MR. SPECTOR: Right. And that’s why I rose. Because it seems to be the tradition to rise to reserve rights if any motion comes -- reserve the right to respond.
    THE COURT: Absolutely. (Laughter)
    THE COURT: And I do reserve the right to decide. (Laughter)
  6. Who said Vaudeville was dead? We reserve the right to object to what you might be thinking. Custom and court decorum don't allow for more than the notation of "Laughter." If she could, Ms. Hartmann [the reporter] would have put "Laughter and Spoiled Fruit."


---------webster

Tyrants live their delusions. Beware the PIPE Fairy.


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Dancing to other people's tune
Authored by: Anonymous on Friday, April 11 2008 @ 04:12 PM EDT
I did not interpret that comment the way PJ did at all. My impression is that
he is referring to the 3rd party who is negotiating with SCO for the assets.
The 3rd party may not be as forthcoming with the details as the the court would
like them to be. After all, they cannot overtly reveal the true source of the
funding or the ridiculous terms (which no true investor would ever consider).

The lawyer was setting the judge up for the moment when he returns to court
without the completed plan and disclosures. He'll be able to tell the judge
that he did everything he could to make it happen, but that it did not happen
anyway due to some issue beyond his control.

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Linux file systems.
Authored by: Mikkel on Friday, April 11 2008 @ 04:17 PM EDT
It sounds like the problem you are running into is that the ownership of the
files do not match the users on the new system. Unless it is an empty drive, all
the files and directories will have permissions based on the UID and GID of the
system that wrote the files. The best way to avoid that is to have the user
names and UID numbers match on the different systems, or use a file system that
does not support UIDs and GIDs.

As far as creating new directories off the base directory of the disk, you can
set the permissions to match those of the /tmp directory. This will let users
create directories, but not mess with other user's files. One way to do this is
to run chmod on the mount point AFTER the partition is mounted.


---
Old age and treachery ALWAYS beats Youth and enthusiasm!

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Expect more of same
Authored by: Anonymous on Friday, April 11 2008 @ 04:26 PM EDT
Specter says of the promised new and improved deal;
"The only people who should care about these metrics and the other things
will be the stockholders and perhaps Mr. McMahon or the U.S. Trustee because
creditors will be getting cash on the barrel at the point of confirmation, and
why do they care?"

He blithely ignores that the obections to the last deal had nothing to do with
the creditors getting paid, but rather to the unlikelyhood of Novell and IBM
ever seeing anything, and to the disposition of 'assets' that SCO does not own.
And his above statement still does not address either of those concerns, and in
fact seems to confirm that we will see yet another version of the same thing.

And just in my personal experience, anytime a lawyer says, concerning the ethics
or legality of a transaction, "why do you/they care?", you should
immediately stop and go through the fine print.

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SCO's April 2nd Bankruptcy Hearing Transcript - Update: full text
Authored by: wvhillbilly on Friday, April 11 2008 @ 11:12 PM EDT
MR. SPECTOR: I'd like to say one thing that I never thought I'd say, from your lips to God's ear. Maybe we'll come back with an agreed -- but, I'm not asking for -- if I have to ask for miracles, there would be -- world peace would be on the list. I wouldn't waste it on -- but, Judge, just so you have an idea, I, speaking for myself, hoped that we would have an 20 asset purchase agreement before this Court before November 6th when we first came here and asked for the emergency hearing -- emergency hurry-up hearing. I was hoping we'd have all that and the questions that were raised, valid questions that were raised by Novell, IBM and the U.S. Trustee would all be answered by the documents and we would then bring witnesses to supplement, and it would all be done in an appropriate manner. I have colleagues, four of them that were up in New York, and they worked literally around the clock, no break, maybe two hours I think they took off, for two days, went around the clock twice in the middle of this week. Fourteen lawyers I'm told were on the other side of the deal from Proskauer representing York. I don't' know how much money has been spent in legal fees to try to get the documents in order, and were still catching things and -- well, yes, we filed the APA this afternoon after one o'clock.
Looks like a class A snow job to me.

---
Trusted computing:
It's not about, "Can you trust your computer?"
It's all about, "Can your computer trust you?"

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