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SCO's Reply to Novell's Objection to 3rd Extension, as text, & a 10Q Reality Check
Tuesday, September 16 2008 @ 04:16 AM EDT

Guess why SCO says it hasn't been able to file a workable reorganization plan so far? No. Really. Guess.

In SCO's just filed Debtors' Reply to Novell's Response to Debtors' Third Motion to Extend Exclusivity [PDF], SCO says one reason is the turmoil in the financial markets. There currently is no deal with Stephen Norris Capital Partners. But SCO needs more time, because there could be someday. "Despite the declining economic climate, Messrs. Norris and Robbins continue to work with the Debtors to pursue a transaction." So, we just need to be patient. Norris is flying to the Middle East shortly and they've had meetings in London and Paris, but investors are nervous, we learn, due to the current turmoil in the markets, and they feel they'd like more legal certainty in this picture first. Like a definite date for SCO to file an appeal.

Ah. Do hold your breath, SCO. Do.

I thought SNCP had buckets of ducats of its own and a pipeline to Middle East princes and stuff. Wasn't that the story? It has to be true. Reporters printed it as true. No? SCNP are just some guys scurrying about looking for investors for SCO?

So, the honorable SCO wants more time to work things out, find a "transaction partner", and exit Chapter 11 with SCO shareholders holding their own and creditors paid in full with interest. Except for Novell, methinks. They never seem to be at the head of the line, do they?

Poor SCO. Everything conspires against it reaching its ethical goals. I swoon with laughter.

Is it a contest to see how outrageous they can be without getting sanctioned? Some kind of office bet? Anyway, all is not lost. SCO says that "the Debtors' mobility business has blossomed." I'm sure. SCO wouldn't lie or anything. Still, I feel I'd like to just quickly double check all SCO's most recent 10Qs, especially the latest 10Q, just to be sure. Darl told the court at trial in Utah he always signs off on truthful SEC filings. So we can use it as our ruler's edge. We've been hearing for a long time about how wonderfully that mobile business will do in the great bye and bye, after all, but when does Me Inc stop blossoming and become an actual, profitable business?

First, here are all the latest filings:

546 - Filed & Entered: 09/15/2008 Affidavit/Declaration of Service Docket Text: Affidavit/Declaration of Service regarding Service of Novell's Response to the Debtors' Third Motion to Extend Exclusivity (related document(s)[541] ) Filed by The SCO Group, Inc.. (Greecher, Sean)

547 - Filed & Entered: 09/15/2008
Reply (A)
Docket Text: Reply to Novell's Response to Debtors' Third Motion to Extend Exclusivity (related document(s)[525], [541] ) Filed by The SCO Group, Inc. (Attachments: # (1) Exhibit A # (2) Exhibit B # (3) Exhibit C # (4) Certificate of Service and Service Lists) (O'Neill, James)

548 - Filed & Entered: 09/15/2008
Notice of Withdrawal (B)
Docket Text: Notice of Withdrawal of Debtors' Motion to Present Evidence and Testimony Related to Certain Awards Under the 2004 Omnibus Stock Incentive Plan Under Seal (related document(s)[537] ) Filed by The SCO Group, Inc.. (Attachments: # (1) Certificate of Service and Service List) (Makowski, Kathleen)

549 - Filed & Entered: 09/15/2008
Notice of Matters Scheduled for Hearing (B)
Docket Text: Amended Notice of Agenda of Matters Scheduled for Hearing (related document(s)[543] ) Filed by The SCO Group, Inc.. Hearing scheduled for 9/16/2008 at 10:00 AM at US Bankruptcy Court, 824 Market St., 6th Fl., Courtroom #3, Wilmington, Delaware. (Attachments: # (1) Certificate of Service and Service List) (Makowski, Kathleen)

550 - Filed & Entered: 09/15/2008
Operating Report
Docket Text: Debtor-In-Possession Monthly Operating Report for Filing Period July 2008 for The SCO Group, Inc. Filed by The SCO Group, Inc.. (Attachments: # (1) Certificate of Service and Service List) (O'Neill, James)

551 - Filed & Entered: 09/15/2008
Operating Report
Docket Text: Debtor-In-Possession Monthly Operating Report for Filing Period July 2008 for SCO Operations, Inc. Filed by The SCO Group, Inc.. (Attachments: # (1) Certificate of Service and Service List) (O'Neill, James)

Now, for our reality check, how's SCO doing according to the latest 10Q?

As a result of both the Court’s August 10, 2007 order and the Company’s entry into Chapter 11, among other factors, there is substantial doubt about the Company’s ability to continue as a going concern including continuing the SCO Litigation or appealing the adverse ruling of August 10, 2007 and the July 16, 2008 order.

As a result of this order from the Court, the Company has accrued $3,473,000 for this contingent liability and related interest. However, the Company, continues to contest this liability. The Company believes that this order is in error, and that the Company has strong grounds to overturn it and the August 10, 2007 summary judgment upon appeal.

The Company intends to appeal the adverse August 10, 2007 summary judgment ruling and the July 16, 2008 order as soon as Final Judgment is entered upon those orders. However, in the event that the Company’s assets are further depleted or frozen, the Company may not be in a financial position to appeal those rulings.

The Company’s management and board of directors determined that filing for relief under Chapter 11 of the United States Bankruptcy Code on September 14, 2007 was appropriate and necessary. Absent a significant cash payment to Novell being required by the final resolution for the aforementioned court order, management believes that the undiscounted future cash flows generated by the Company will be sufficient to recover the carrying values of the Company’s long-lived assets over their expected remaining useful lives. However, if a significant cash payment is required the carrying amount of the Company’s long-lived assets may not be recovered.

So, if they have to pay Novell, it's curtains for them? What? Me Inc can't save them? I guess not. The 10Q says Me Inc is part of "the UNIX business" and that business appears to be tanking:

UNIX Business.

Our UNIX business serves the needs of small-to-medium sized businesses as well as replicated site franchisees of Fortune 1000 companies, by providing reliable, cost effective UNIX software technology for distributed, embedded and network-based systems. Our UNIX business includes our mobility product and services offerings....

Revenue from the UNIX business decreased by $947,000, or 20%, for the three months ended July 31, 2008 compared to the three months ended July 31, 2007 and revenue from the UNIX business decreased by $4,420,000, or 26%, for the nine months ended July 31, 2008 compared to the nine months ended July 31, 2007. The revenue from this business has been declining over the last several years primarily as a result of increased competition from alternative operating systems, particularly Linux. We believe the inclusion of our UNIX code and derivative works in Linux has been a contributor to the decline in our UNIX business because users of Linux generally do not pay for the operating system itself, but pay for services and maintenance. The Linux operating system competes directly with our OpenServer and UnixWare products and has taken significant market share from these products.

With that foundation, let's look at the Memorandum, page 1, the part where SCO says that it has *always* been its goal to emerge from Chapter 11 with a transaction partner and everyone but Novell paid off with interest. SCO says of course they are capable of proposing a plan of reorganization "that solves for contingencies" but "it has always been the Debtors' goal to propose a plan that will allow them to exit bankruptcy with creditors paid in full with interest and equity security holders retaining their interests, and to do so with a fully negotiated and binding transaction at the time of proposing the plan, as opposed to filing the plan with a contingent framework without a transaction partner."

Noble goals. But how would that work in a bankruptcy? And, um, how's about a little coin for Novell? Oh, *them*! They can wait until after the appeal, I suppose.

Say, does SCO have to tell us ever who their shareholders are they are fighting so hard for? Ever? I'm getting the distinct impression SCO has a preference as to who gets paid, its shareholders or Novell.

The rest of the document is devoted to alleging that mean old Novell is trying to delay the appeal. But it's SCO requesting to extend the period of exclusivity. That doesn't even make sense. It's *SCO* asking for more time. Do these lawyers practice in front of any fellow humans before they write this stuff? I know. It's an elaborate dance, with SCO dancing as fast as it can to avoid what we might view as its just deserts. Well, dancing revived Tinkerbell, didn't it? Maybe *that's* the plan.

Also SCO has filed a Notice of Withdrawal of Debtors' Motion to Present Evidence and Testimony Related to Certain Awards Under the 2004 Omnibus Stock Incentive Plan Under Seal [PDF], without prejudice. That means they found out we can read SEC filings, maybe, and we already know the names and the figures? Or might this paragraph from the 10Q explain it?

During the nine months ended July 31, 2008, the Company granted options to purchase approximately 60,000 shares of common stock with an average exercise price of $0.08 per share. None of these stock options were granted with an exercise price below the quoted market price on the date of grant. During the nine months ended July 31, 2008, no options to purchase common stock were exercised. As of July 31, 2008, there were approximately 4,309,000 stock options outstanding with a weighted average exercise price of $3.37per share.

Speaking of the SEC, I see them listed on the Affidavit of Service. I wonder, are they watching this circus?

Here's something odd in the 10Q:

The Company’s resources are allocated and operating results managed to the operating income (loss) level for each of the Company’s segments: UNIX and SCOsource. Both segments are based on the Company’s UNIX intellectual property. The UNIX business sells and distributes UNIX products and services through an extensive distribution channel and to corporate end-users and the SCOsource business enforces and protects the Company’s UNIX intellectual property....

The decline in our UNIX business revenue will continue if the factors that have contributed to the decline described above continue or industry partners continue to withdraw their support for our products.

So... what was the Sun deal, again? I guess they can tell the truth now. It wasn't SCOsource, then? But wasn't the accounting done with that money put into that bucket .... Oh, who can keep up? It used to be that the story was that Linux competed with UNIX. Now it's OpenServer and UnixWare. Whatever, SCO, whateve...

All this is the subject of today's hearing in Delaware, a transcript of which we'll get to read very soon. Sadly, no one will be able to make it in person, so far as I know so far, a first for us, but this court releases transcripts very fast, and for free, so we'll get to read it all. It wouldn't amaze me to hear the court give them another extension, though. They seem to say yes to almost everything in bankruptcy court in Delaware.

And here's SCO's Reply to Novell's Response, #547, as text:

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

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE

In re: The SCO GROUP, INC. et al.,

Debtors. Chapter 11 Cases

Case No. 07-11337 (KG)
(Jointly Administered)

Hearing: September 16, 2008 at 10:00 a.m. (prevailing Eastern time)
Related Docket Nos. 525 and 541

DEBTORS' REPLY TO NOVELL'S RESPONSE TO
DEBTORS' THIRD MOTION TO EXTEND
EXCLUSIVITY

The above captioned Debtors reply to Novell's Response to Debtors' Third Motion to Extend Exclusivity ("Novell Response") to state, among other things, that: (1) it is not the fact of the Novell Litigation itself, but the market reaction as experienced by the Debtors, along with other facts and circumstances that constitute "cause" to extend the Debtors' exclusive periods; and (2) the Debtors are not requesting that the Court extend the Debtors' exclusive periods beyond that imposed by the Bankruptcy Code. In further support of the Third Motion by Debtors Under Section 1121(d) for Extension of Exclusivity Deadlines (the "Motion"), the Debtors state:

Introduction

The Debtors are certainly capable of proposing a plan of reorganization that solves for contingencies. However, it has always been the Debtors' goal to propose a plan that will allow them to exit bankruptcy with creditors paid in full with interest and equity security holders retaining their interests, and to do so with a fully negotiated and binding transaction at the time of proposing the plan, as opposed to filing the plan with a contingent framework without a transaction partner. The Debtors have been working in good faith to secure a transaction to achieve those goals. The Debtors have presented a couple of proposals to ths Court to help reach this goal. Novell has objected to or expressed concerns regarding those proposals. There are

several reasons why the Debtors believe that they have not been able to present a confirmable plan to date. One reason is that the downturn in the economy has impacted the financial markets, which has impacted the Debtors' ability to access capitaL. Another, more fully elaborated in the Motion, is that the August 10, 2007 summary judgment ruling in the Novell Litigation 1 raises certain questions as to what rights SCO Group had in its business which, in turn, impacts how potential investors view and value the Debtors' business. Finally, Novell continues to use legal tactics to delay or avoid appellate review of that ruling.

Exclusive Periods Should be Extended

1. The determination of "cause" is fact and case specific. In re Dow Corning Corp., 208 B.R. 661, 664-665 (Ban. B.D. Mich. 1997) (citing In re Express One Intl., Inc., 194 B.R. 98, 100 (Bank. E.D. Tex. 1996)); In re McLean Indus., Inc., 87 B.R. 830 (Ban. S.D.N.Y. 1988); In re Wisconsin Barge Line, Inc., 78 B.R. 946 (Ban. E.D. Mo. 1987)). The Debtors will not repeat the factors discussed in the Motion, but emphasize that the lack of finality surrounding the August 2007 Ruling, coupled with the other factors referenced in the Motion and herein, constitute "cause."

2. As stated in the Motion, after conducting a four-day bench trial in late April and early May of this year, on July 16, 2008, the Utah District Court entered the July 2008 Ruling. In that ruling, the Utah District Court concluded that SCO Group was entitled to enter into the 2003 Microsoft Agreement and the other SCOsource Licenses and awarded Novell the principal sum of $2,547,817, an amount significantly less than the approximately $30 million plus interest reflected in the proof of claim Novell filed in connection with these bankruptcy cases. The District Court also requested briefing from the parties on the issue of prejudgment interest.

2

3. The July 2008 Ruling also directed Novell to submit a final judgment consistent therewith, so that, among other things, appeals could be taken from the District Court's rulings. However, Novell did not submit a final judgment and instead filed a response indicating that a final judgment could not be entered because several of SCO Group's claims remain stayed and unresolved pending the SuSE arbitration and because Novell's claim for constructive trust is to be adjudicated by this Court. Novell asserted that the SuSE Arbitration affects SCO Group's claims for breach of contract and unfair competition, and copyright infringement. Novell also submitted a request for prejudgment interest that the Debtors contend far exceeds what is justified.

4. In an effort to expedite the entry of a final judgment in the Novell Litigation, and after negotiating about methodologies to employ, SCO Group agreed to Novell's calculation of the prejudgment interest as well as the (reduced) calculation of the amounts subject of any potential constructive trust. See Novell's Unopposed Submission Regarding Prejudgment Interest, filed in the Novell Litigation on August 29, 2008, attached hereto as Exhibit B. Further, SCO Group has decided to dismiss its claims for breach of contract and unfair competition, and copyright infringement subject of the SuSE Arbitration. At this point, Novell has no reason to delay any further the submission of a final judgment as directed by the Utah District Court in the July 2008 Ruling. Therefore, the Debtors believe that their request for extension of the exclusive periods would remain within the statutory limitations imposed in the Bankruptcy Code. 11 U.S.C.§ 1121(d). In all events, the Debtors' stipulate that the extensions sought in the Motion will terminate when the statute requires. SCO Group today filed a motion with the Utah District Court seeking the entry of a final judgment. (See Exhibit A attached hereto.)

3

5. As the Debtors also indicated in the Motion, based upon feedback received from prospective interested parties, the entry of a final judgment (and the commencement of the appellate process) in the Novell Litigation will greatly facilitate the Debtors' ability to sell, finance or recapitalize as necessary as a basis for a plan of reorganization. Novell does not think it is credible that a potential investor would find any comfort in an appeaL. However, it has been repeatedly expressed to the Debtors by potential investors and potential transaction partners that the entry of a final judgment and the commencement of the appellate process is a significant factor affecting their willingness to go forward. Further, as the Motion points out, it is not the appeal per se that would provide comfort, but the establishment of a time frame on an ultimate resolution of the intellectual property rights issues that will greatly assist with the formulation of investors' assumptions and projections. Likewise, the appeal process and the timing of it are of great concern to SCO Group's customers and potential customers of both its UNiX business and nascent mobility business. This Court has acknowledged that the resolution of the rights between Novell and the Debtors, which won't be finally resolved short of an appeal, is a troubling issue for all parties in these cases. Novell seems to argue to this Court that those issues are trivial while at the same time it is doing all it can in the Utah District Court to block SCO Group from ever getting those issues heard by an appellate court. See Novell's Submission Regarding Entry of Final Judgment, filed in the Novell Litigation on August 29, 2008, attached hereto as Exhibit C.

6. Novell claims that it "begs credulity" for SCO Group to claim that the commencement of an appeal of the court's rulings in the Novell litigation has any impact on the timing of or SCO's ability to present a confirmable plan. However, this Court was correct in its observation that the resolution of the issues remaining in the Novell Litigation are troubling

4

issues that continue to complicate these cases. See Memorandum Opinion (D.E. No. 232), pp. 10-11). SCO Group acknowledges that it will not be able to resolve all issues and contingencies before it must confirm a plan of reorganization. However, SCO Group believes that an important issue for investors, customers and partners is when SCO will be able to take an appeal of the August 2007 Ruling and the July 2008 Ruling, and how long will Novell succeed in its continuing attempts to frustrate that appellate review.

7. That timing is a very real concern for Debtors and their stakeholders and will inform the decisions potential investors and customers make in connection with doing business with the Debtors. If it takes months or longer to get a notice of appeal filed, that may have negative impacts on the Debtors' access to capital markets. The Debtors believe that it is important to show creditors, shareholders, potential investors, customers and business partners that an appeal is imminent and that those issues will likely be finally resolved sometime within the usual appellate timeline. A final judgment and notice of appeal is critical to this process and Novell is using legal tactics to delay that from happening.

8. Novell is correct that many issues in the Novell litigation have been resolved -- at least at the district court level. Most of these critical issues will not be finally resolved until the appellate court has addressed the issues. The closer the Debtors can get to that date prior to filing a reorganization plan the better able it will be to file a viable plan that meets the objectives of making creditors and shareholders whole. Novell should support those efforts, not try to thwart them.

9. It is true that these cases have seen starts and stops on the part of the Debtors. This is true, at least in part because at the time of the filing, Novell asserted in the Utah District Court that SCO Group owed it nearly $30,000,000 plus interest and was attempting to have a

5

constructive trust imposed. Additionally, Novell argued to this Court that SCO owed SuSE up to $100,000,000 in damages. Novell then waived that claim in an effort to have the automatic stay lifted as to the SuSE Arbitration proceedings.

10. Shortly after these cases were filed, York Capital said that it could do a UNIX deal even with uncertainty resulting from the August 2007 Ruling and the parties worked hard to try to get a transaction completed. However, Novell and IBM objected to the transaction and the Court expressed concerns about how any deal could be done given the issues raised by the August 2007 Ruling. Thereafter, the negotiations around the transaction with York unraveled and ultimately, the transaction was terminated.

11. Not too long after terminating the transaction with York, the Debtors and Stephen Norris Capital Partners agreed to terms that formed the basis of the Debtors' original Plan, that solved for the issues raised by the Novell Litigation. That value of that transaction was in the range of $75 million to $100 million. During SNCP's due dilgence process, the financial markets began to significantly tighten and investors in general became more nervous about doing deals. The Debtors worked hard to convince SNCP and other potential investors that the August 2007 Ruling and July 2008 Ruling included rulings that: (i) SCO Group had some ownership rights, including all post-1995 copyrights, which is what UnixWare is based on, (ii) Novell had no ownership interest in OpenServer, which is the source of most of the Debtors' revenue, and (iii) the Utah district judge did not hold that Novell gets any of SCO Group's new UnixWare royalties (contrary to what one of the articles had asserted). The Debtors learned that they would be completing trial in the Novell Litigation in late April -- early May 2008, and based upon the proximity to the trial date, SNCP indicated it wanted to await the results of trial and see the commencement of appellate proceedings before completing a transaction with the Debtors.

6

12. Prior to the commencement of the trial, Novell reduced its claim by approximately 50% and made concessions that the Debtors believed would further reduce their damage calculation and help the Debtors clear up their rights -- and the Debtors were right.

13. In July 2008 the Utah District Court issued the July 2008 Ruling, which found that Novell is not entitled to the Debtors' SCOsource revenue or revenue derived from the Debtors' large license to Microsoft. Novell was awarded approximately $2.5 million in damages based only upon an amendment of an agreement with Sun Microsystems. The Utah District Court affirmed that SCO Group owns and has full rights to its UnixWare business, has some ownership rights of UNIX and owns all post-1995 UNIX copyrights. The Debtors were told that the July 2008 Ruling cleared up many issues for customers and investors, but not all -- they still want to know when the Debtors could appeal.

14. Therefore, the Debtors submit that the timing of beginning the appeal remains an important issue in the minds of investors. Since the Petition Date, the investment climate has continued to worsen and a couple of options have gone away. Despite the declining economic climate, Messrs. Norris and Robbins continue to work with the Debtors to pursue a transaction. They scheduled meetings with investors in London and Paris and Mr. Norris is heading to the Middle East this week. The uncertainty around the Novell Litigation issues and the timing of an appeal are discussed in every meeting. While investors have a favorable view of the July 2008 Ruling, they still want to know when the appellate process will begin and the timing of getting all of the issues resolved.

15. Further, even though the July 2008 Ruling directed Novell to file a proposed final judgment in 10 days and for the parties to enter into stipulations regarding the disposition of certain causes of action, Novell has failed to do so in the two months since the issuance of the

7

July 2008 Ruling. The Utah District Court also directed Novell to submit interest calculations to the court. SCO Group has agreed to Novell's interest calculation, their constructive trust number (based on information SCO voluntarily provided to Novell) and has agreed to dismiss all remaining causes of action in order to facilitate the entry of the final judgment. Nevertheless, Novell has refused to submit the form of final judgment as directed by the Utah district court. Now, knowing full well that an appeal of the Novell Litigation rulings is important to the Debtors' reorganization efforts, they object to the extension of the Debtors' exclusive periods.

16. In the meantime, the Debtors' mobility business has blossomed. For example, Franklin Covey, has recently launched "FC mobilelifeTM" which uses mobile applications licensed to it from the Debtors (through Me, Inc.). The Debtors believe that the buzz and feedback surrounding the mobile applications enhance the possibilities of a transaction.

17. Novell cites In re R.G. Pharmacy, Inc., 374 B.R. 484 (Ban. D. Conn. 2007) for the proposition that unresolved litigation, even if important, is not a ground for extension of exclusivity. It is true that the court in that case held that the "fact that litigation is pending with creditors is not itself sufficient cause to justify an extension of the exclusivity period. . ." R. G. Pharmacy, 374 B.R. at 484 (quoting In re Southwest Oil Co. of Jourdanton, Inc., 84 B.R. 448, 452 (Ban. W.D. Tex. 1987)). However, the court also found that the debtor did not show that the requested extension was likely significantly to improve the progress of the case given the breakdown of negotiations with its largest creditors. Id.

18. Here, the Debtors are not premising their request solely on the pendency of the Novell Litigation. The Debtors have been advised by potential investors or transaction partners that the commencement of the appellate process regarding the August 2007 Ruling and the July

8

2008 Ruling will facilitate the Debtors' ability to sell, finance or recapitalize around the UNIX business.

19. The Debtors disagree with Novell's mischaracterizations and analysis of the factors in determining "cause" as applied to the facts and circumstances of these cases. Apparently Novell has forgotten that the Debtors have negotiated and resolved significant issues with Novell! Further, since SCO Group has agreed to dismiss the claims subject of the SuSE Arbitration, Novell can hardly state that the Debtors are pressuring Novell or trying to avoid the SuSE Arbitration. While structuring a plan in itself may not be complicated, the reorganization plan that the Debtors believe would be in the best interests of all constituencies, including equity, includes a transaction partner and the Debtors do not know at this point whether the transaction will take the form of an equity investment, financing, recapitalization or something else. In addition, even an uncomplicated transaction takes some time to draft -- Novell knows this.

20. The Debtors have also negotiated for a resolution of the largest claim against the estate -- the claim of the IPO plaintiffs. Claims review has begun in preparation for the eventual filing of an amended or new plan and estimation of certain contingent or unliquidated claims may soon be sought.

21. Finally, the Debtors are not seeking an open-ended extension. The Debtors recognize that any extension granted by the Court must be within the confines of the statutory mandates of the Bankruptcy Code and cannot go beyond March 16, 2009 and May 14,2009, respectively.

22. The Debtors submit that cause exists to extend the exclusive periods, subject to the statutory limitations imposed by the Bankruptcy Code. The Debtors are working toward a transaction that will allow it to pay creditors in full, allow equity to retain their interests, allow

9

mandates of the Bankruptcy Code and cannot go beyond March 16, 2009 and May 14, 2009, respectively.

22. The Debtors submit that cause exists to extend the exclusive periods, subject to the statutory limitations imposed by the Bankruptcy Code. The Debtors are working toward a transaction that will allow it to pay creditors in full, allow equity to retain their interests, allow employees to keep their jobs and allow the Debtors to continue their businesses so that they can continue to provide their numerous valued customers goods and services that enhance and help keep those businesses running smoothly. The Debtors prefer to propose a plan based upon an actual transaction, and file a disclosure statement containing executed transaction documents, rather than a plan that provides for contingencies without a transaction partner. The Debtors are current on all of their post-petition obligations and do not believe the requested extension will prejudice any party in interest.

WHEREFORE, the Debtors request that the Court enter an order granting the Motion and extending the Debtors' exclusivity periods as requested therein, subject to the statutory limitations imposed by the Bankruptcy Code, and granting them whatever other and further relief the Court deems just and appropriate.

Dated: September 15, 2008

PACHULSKI STANG ZIEHL & JONES LLP

____[signature]______
Laura Davis Jones (Bar No. 2436)
James E. O'Neill (Bar No. 4042)
Kathleen Makowski (Bar No. 3648)
[address, phone, fax, email]

10

-and-

[address, phone, fax, email]

Co-Counsel for the Debtors in Possession


1 Capitalized terms not otherwise defined have the meaning ascribed in the Motion.

11


  


SCO's Reply to Novell's Objection to 3rd Extension, as text, & a 10Q Reality Check | 125 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
Corrections
Authored by: grouch on Tuesday, September 16 2008 @ 04:39 AM EDT
Corrections here, please, with context.

Thanks!

---
-- grouch

GNU/Linux obeys you.

[ Reply to This | # ]

Off-Topic here please
Authored by: NigelWhitley on Tuesday, September 16 2008 @ 04:55 AM EDT
For any topics not directly related to this article but within the area of
interest for Groklaw.

-------------------
Nigel Whitley

[ Reply to This | # ]

Newspicks here
Authored by: NigelWhitley on Tuesday, September 16 2008 @ 05:05 AM EDT
Comments on and suggestions for the ever-popular Newspicks feature. Please use
the title of the article as the title of the new thread, for easy reference.

-----------------
Nigel Whitley

[ Reply to This | # ]

Monocarpic Solutions Inc.
Authored by: Ian Al on Tuesday, September 16 2008 @ 05:59 AM EDT
I've searched everywhere without finding the reference, but I'm sure that Me
Inc. has been sold to Monocarpic Solutions. I remember the press release saying
that it was a perfect complement to the other blossoming technologies held by
the group.

They said something about needing a constant stream of new and innovative
solutions with the sort of product line on which they specialised.

I think Me Inc. was to be in the product line of one of their subsidiaries
called Semelparous Industries.

Where's the clicky when you need one!

---
Regards
Ian Al

Linux: as used by the world's most successful countries and companies.

[ Reply to This | # ]

The desperation is sinking in
Authored by: bezz on Tuesday, September 16 2008 @ 06:38 AM EDT
Let's start with SCO's reply concerning the extension. SCO says one reason it can not complete a reorganization plan is the turmoil in the financial markets. Sounds a bit like Krispy Kreem claiming the "low-carb" diet craze was, in part, responsible for its financial problems. Once a company gets into big problems, it tends to point fingers at the latest news items to assign part of the blame for its own errors. There is still investment cash out there, but it is only going to be spent on ventures with a high probability of success. The world's cash did not evaporate with Wall Street's latest problems, but those holding it are being very particular about where they put it.

As far as the Me, Inc. revenue, I've never seen that broken out as an identifiable line item. But the point is rather moot as all revenues are declining over time. Me is in a market with a lot of competition from companies with development staffs, big budgets and positive business relationships with the platforms and service providers. Enough of Me until SCO demonstrates -- with cash flow -- it is a viable, let alone growing, business.

Stock options were a no go. They averaged $0.08 per share? The grantees could almost double their money tomorrow based upon the $0.15 it ended at yesterday. Not a good way to show the Bankruptcy Court you have been working on reorganizing.

York is off the table. Maybe SCO realized the threat of dissipating assets is no longer a bargaining chip. Too bad they were so profligate with cash in the earlier reorganization plan attempts, they might be in a slightly better position now.

And the MOR's. Funny how page 8 of the Operations MOR (bank accounts General Ledger Cash) gets more blurry with each passing month. They used to be legible. It looks like a big chunk of change rolled into SCO Japan and, after deducting Novell SVRX royalties due, they now have a $634,568 balance overseas. Last month the overseas accounts were negative after SVRX royalties. The US cash situation is only slightly less than June. But they barely have enough to cover the Novell Utah judgment.

The big change is they now appear to be carrying the Utah judgment and interest as a liability. On the Operations MOR, the Prepetition Liabilities went from $3.515 million in June to $5.859 million in July. Yeah, it is a prepetition liability as the debt dates to before filing for Chapter 11. But prepetition liabilities imply they are subject to reduction by the Bankruptcy Court. The Novell liability is no such thing; in fact, it may end up being a constructive trust for converted funds and not negotiable. It appears the 10-Q is carrying the Novell judgment the same way, but I haven't reconciled that filing yet.

One thing SCO has correct: if it has to put Novell's judgment into a constructive trust, it is done. I don't know the rules for posting bond for an appeal, but if they have to post the Novell judgment in full, it is also done. Where, oh where are the White Knights now that SCO is so short on cash? Novell seems quite content to let SCO squirm. If SCO manages to force the Utah final judgment, they can go for a constructive trust in Delaware. If SCO can't get a final judgment in Utah, it is bleeding out anyways.

Today is the Bankruptcy Court hearing, pared down to only a request for extension to exclusivity and quarterly fees. I expect SCO to get the extension. Novell may be protesting, but it matters little whether they get to file a reorganization plan now or six months from now. Even if SCO gets moved to Chapter 7, Novell has the highest precedence claim and SCO won't be able to cover that pittance.

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Market Turmoil
Authored by: elronxenu on Tuesday, September 16 2008 @ 06:47 AM EDT

Would everybody please stop trading!!
SCO needs absolute silence and stability in the marketplace before they can possibly reorganise.

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SCO's Reply to Novell's Objection to 3rd Extension, as text, & a 10Q Reality Check
Authored by: JamesK on Tuesday, September 16 2008 @ 07:34 AM EDT
"There currently is no deal with Stephen Norris Capital Partners. But SCO
needs more time, because there could be someday."

Perhaps they can arrange a deal with the Easter Bunny. ;-)


---
OOXML - The best "standard" that money can buy.

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Missing targets
Authored by: elderlycynic on Tuesday, September 16 2008 @ 07:49 AM EDT
Debtors are working toward a transaction that will allow it to pay
creditors in full, allow equity to retain their interests, allow
employees to keep their jobs and allow the Debtors to continue their
businesses ...

They omitted the targets of ensuring peace between nations and a
cure for cancer.

[ Reply to This | # ]

I must find out who their positive thinking coach is.(nt)
Authored by: Anonymous on Tuesday, September 16 2008 @ 07:56 AM EDT
.

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SCO's wish for Final Order
Authored by: nola on Tuesday, September 16 2008 @ 09:17 AM EDT
Maybe they need to waive the arbitration also?? That would help move things
along.

Oh, you mean they weren't serious about the speed with which they want to get
to Appeal??

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  • I ask you? - Authored by: Anonymous on Tuesday, September 16 2008 @ 09:59 AM EDT
Tomorrow and tomorrow and tomorrow
Authored by: NigelWhitley on Tuesday, September 16 2008 @ 10:00 AM EDT
Clause 8 reads in part
"Novell is correct that many issues in the Novell litigation have been
resolved -- at least at the district court level. Most of these critical issues
will not be finally resolved until the appellate court has addressed the issues.
The closer the Debtors can get to that date prior to filing a reorganization
plan the better able it will be to file a viable plan that meets the objectives
of making creditors and shareholders whole."

The thing that struck me here is that SCO are not claiming they cannot file a
viable reorganization (sic) plan until the appeal is concluded. On the contrary,
they are just saying it would be best to leave it as long as possible before
they do. Quite why that would cause them to be "better able" to make
"creditors and shareholders whole", when in the interim they are
haemorrhaging money and (presumably) limping along with the old failed business
plan, I leave as an exercise for the reader.

It is one of the aspects of the extension requests I find most puzzling. SCO
filed for Chapter 11 to give it time to reorganise into a viable form. It has
not reorganised but simply says it wants as much time as possible to do do, even
though the uncertainties it says are preventing filing a plan will not be
resolved before it must file one. But the Delaware judge seems to think that
makes sense so extensions are granted.

Anyway, this suggests we can expect SCO to ask for an extension of time to the
statutory limit before filing a plan. Hardly news but sort of comforting to see
SCO confirm it in print.

------------------
Nigel Whitley

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SCO's Reply to Novell's Objection to 3rd Extension, as text, & a 10Q Reality Check
Authored by: JamesK on Tuesday, September 16 2008 @ 10:18 AM EDT
"We believe the inclusion of our UNIX code and derivative works in Linux
has been a contributor to the decline in our UNIX business"

Funny how they've never demonstrated that point in court.


---
OOXML - The best "standard" that money can buy.

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Novell's response???
Authored by: rsi on Tuesday, September 16 2008 @ 11:19 AM EDT

I sincerely hope that it is short and sweet:

"Enough is ENOUGH!!!"

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SCO gets extension to end of year!
Authored by: Laomedon on Tuesday, September 16 2008 @ 01:19 PM EDT
The minute entry (#552) has been posted, looks like SCO got their extension
until the end of this year.


UNITED STATES BANKRUPTCY COURT
Minute Entry
FOR THE DISTRICT OF DELAWARE
Matter:
KEVIN GROSS
Reporter / ECR: AL LUGANO
Courtroom Clerk: SHERRY SCARUZZI
Bankruptcy Judge:
Date / Time / Room:
Case Number: 07-11337-KG Chapter: 11
Debtor: The SCO Group, Inc.
Hearing Information:
TUESDAY, SEPTEMBER 16, 2008 10:00 AM CRT#3, 6TH FL.
0.00
OMNIBUS HEARING
R / M #: 549 / 0
SEE ATTACHED COURT SIGN-IN-SHEET
Appearances:
Proceedings:
HEARING HELD. AGENDA ITEMS:
#1 - ORDER SIGNED
#2 - Motion has been withdrawn
#3 - Granted - extended to the end of the year - revised order to be submitted
to Chambers
#4 - ORDER SIGNED
1.00
Page 1 of 1 9/16/2008 12:41:30PM

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Something Really strange in the 10-Q
Authored by: TomWiles on Tuesday, September 16 2008 @ 01:50 PM EDT
P.J.

A new line has been added to the 10-Q. Under OtherIncome there is a line now
for interest expense 925 thousand dollars.

This is new for this quarter. What is strange is that there is no asset or
liability for this item. If you are paying interest you are paying interest in
some form of debt and that should be listed under Long Term Liabilities.

Long Term Liabilities are listed at 182 Thousand dollars. Now that is one high
interest rate.

What I am thinking is that the interest expense being reported is the interest
on the payments withheld from Novel. No way of knowing but it sort of makes
sense. The point is, if the interest expense from the court ruling is being
applied to the financial's, then the liability associated with that risk should
also be on the balance sheet.

The only possibility is that both the interest and the liability have been paid,
but that can not be the case since no associated hit appears in cash which is
the only place that the payment could come from.

So, what is the 925 thousand dollars and who did it go to.

From the 10-Q
" On August 29, 2008, Novell filed an Unopposed Submission Regarding
Prejudgment Interest, informing the Court that the parties agree that Novell is
entitled to $918,122 in prejudgment interest through that date, plus $489 per
day until the entry of final judgment, based on the Court’s $2,547,817
award."

Now that could cover the 925 Thousand dollars, but the date is August so the
payment could not have been made in the third quarter which ends in July. Also,
there should be a note explaining the payment which is not there.

Tom

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Where's the report about today's hearing?
Authored by: Anonymous on Tuesday, September 16 2008 @ 03:16 PM EDT
I don't know about the time difference but I'd have thought it'd be over by
now??

[ Reply to This | # ]

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