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Stipulation to Lift Stay on IPO Class Action and SCO's MORs Filed
Monday, October 06 2008 @ 01:05 PM EDT

Several documents have been filed in the SCO bankruptcy, including the latest monthly operating reports. The courthouse PACER system has been down over the weekend, so those two a friend sent me from Epiq.

There is also a motion asking the court to approve a stipulation between SCO and the class action IPO case lawyers to lift the stay, on terms (Exhibit A [PDF]) that the plaintiffs will restrict their damages, if proven, to the amount covered by insurance and will waive any claims against the bankruptcy estate. That's a practical solution, actually, under the circumstances. In fact, if I were the plaintiffs, looking at this picture as a whole, I'd consider it my best hope of getting anything, assuming the insurance company is solvent. SCO's position, financially, absent a transfusion of fairy dust, is looking grim, even to my financially unsophisticated eyes. No doubt you'll see many things I miss, but even I can see they appear to be sinking. So, does that mean Me Inc isn't lighting up the sky yet?

Here are the filings:

09/30/2008 - 568 - Motion to Approve /Debtors' Motion for Approval of Stipulation for Relief from Automatic Stay with Respect to IPO Plaintiffs Filed by The SCO Group, Inc.. Hearing scheduled for 11/20/2008 at 09:30 AM at US Bankruptcy Court, 824 Market St., 6th Fl., Courtroom #3, Wilmington, Delaware. Objections due by 11/13/2008. (Attachments: # 1 Notice # 2 Exhibit A # 3 Proposed Form of Order # 4 Certificate of Service and Service List) (Makowski, Kathleen) (Entered: 09/30/2008)

10/01/2008 - 569 - Debtor-In-Possession Monthly Operating Report for Filing Period August 2008 for SCO Operations, Inc. Filed by The SCO Group, Inc.. (Attachments: # 1 Certificate of Service and Service List) (Makowski, Kathleen) (Entered: 10/01/2008)

10/01/2008 - 570 - Debtor-In-Possession Monthly Operating Report for Filing Period August 2008 for The SCO Group, Inc. Filed by The SCO Group, Inc.. (Attachments: # 1 Certificate of Service and Service List) (Makowski, Kathleen) (Entered: 10/01/2008)

10/01/2008 - 571 - Certificate of No Objection (No Order Required) Regarding Tenth Monthly Application of Pachulski Stang Ziehl & Jones LLP, as Co-Counsel to the Debtors and Debtors in Possession, for the Period from June 1, 2008 through June 30, 2008 (related document(s)540 ) Filed by The SCO Group, Inc.. (Attachments: # 1 Certificate of Service and Service List) (O'Neill, James) (Entered: 10/01/2008)

The last document we don't have yet. A volunteer got the PACER information and then the courthouse went into upgrade-the-software mode, so it was too late. But we will plug it in as soon as we can.

I have a question for those of you who do understand the MORs. On SCO Operation's MOR [PDF] on page 4, I see under "Other Disbursements" $225,000 in "Security Deposits". What would that be? And I see zero for "Novell SVRx Fee". Page 7 shows who did get paid, a river of money flowing precisely away from Novell.

I see names on the list I don't recall appearing in bankruptcy court. For example, Bowne of Dallas, a company that apparently prints up legal documents. And Boetticher Hasse, which is a law firm in Germany. Then there is Broadridge, which first showed up as a creditor when SCO first filed for Chapter 11. Folks in the financial world don't speak English, the kind I can diagram, anyway, so I can't tell you precisely what they do for SCO, so here's Broadridge's self-description, for those of you who speak their lingo:

Broadridge is a leading full-service outsourcing provider to the global financial industry, capable of meeting the most demanding requirements for efficient, secure and scalable operational support. Our reach spans the world, and encompasses an extensive array of services - from account opening and securities transaction processing to correspondent clearing to document management and investor communications as well as full operational staff outsourcing. A steadfast source of processing support, we help financial services institutions and public companies increase productivity, streamline operations, enter new markets with new products more quickly, drive down back-office costs and better manage risk.

Presumably, the $13,552 they were paid in April was for new services.

Update: I thought it might be good to also present SCO's version of what has been happening in the IPO case, as told in its most recent 10Q for the period ending July 31, 2008, which means it does not include the latest agreement:

IPO Class Action Matter

In July 2001, we and several of its former officers and directors (the “Individual Defendants”) were named as defendants in class action complaints alleging violations of the federal securities laws in the United States District Court, Southern District of New York. On April 19, 2002, plaintiffs filed a Consolidated Amended Complaint, which is now the operative complaint. The complaint seeks unspecified damages and alleges violations of Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Plaintiffs allege that the underwriter defendants agreed to allocate stock in our initial public offering to certain investors in exchange for excessive and undisclosed commissions and agreements by those investors to make additional purchases of stock in the aftermarket at pre-determined prices. Plaintiffs allege that the Registration Statement for the Company’s initial public offering was false and misleading because it did not disclose these arrangements.

The action is being coordinated with approximately three hundred other nearly identical actions filed against other companies. On October 9, 2002, the court dismissed the Individual Defendants from the case without prejudice. This dismissal disposed of the Section 15 and 20(a) control person claims without prejudice, since these claims were asserted only against the Individual Defendants. On February 19, 2003, the Court denied the motion to dismiss with respect to us.

On December 5, 2006, the Second Circuit vacated a decision by the district court granting class certification in six “focus” cases, which are intended to serve as test cases. Plaintiffs selected these six cases, which do not include us. On April 6, 2007, the Second Circuit panel denied a petition for rehearing filed by the plaintiffs, but noted that the plaintiffs could ask the district court to certify a more narrow class than the one that was rejected.

Prior to the Second Circuit’s December 5, 2006 ruling, a majority of the issuers, including us, and their insurers had submitted a settlement agreement to the district court for approval. In light of the Second Circuit opinion, the parties agreed that the settlement could not be approved. On June 25, 2007, the district court approved a stipulation filed by the plaintiffs and the issuers terminating the proposed settlement. On August 14, 2007, the plaintiffs filed amended complaints in the six focus cases. The amended complaints include a number of changes, such as changes to the definition of the purported class of investors, and the elimination of the individual defendants as defendants. On September 27, 2007, the plaintiffs moved to certify a class in the six focus cases. On November 14, 2007, the issuers and the underwriters named as defendants in the six focus cases filed motions to dismiss the amended complaints against them. On March 26, 2008, the district court dismissed the Securities Act claims of those members of the putative classes in the focus cases who sold their securities for a price in excess of the initial offering price and those who purchased outside the previously certified class period. With respect to all other claims, the motions to dismiss were denied. We are awaiting a decision from the Court on the class certification motion.

Due to the inherent uncertainties of litigation, we cannot predict the ultimate outcome of this matter. We have notified our underwriters and insurance companies of the existence of the claims. We presently believes, after consultation with legal counsel, that the ultimate outcome of this matter will not have a material adverse effect on our results of operations, liquidity or financial position and will not exceed the $200,000 self-insured retention already paid or accrued by us.

Update 2: Bloomberg reports on October 28 that an agreement is near. More details from

We know a settlement is likely because Joel Haims, a partner at Morrison & Foerster, one of many Am Law 100 firms on either side of the case, submitted a letter asking a federal judge in Manhattan to delay hearings until January so the parties can finalize a settlement, according to Bloomberg.

Judge Shira Scheindlin of U.S. District Court in Manhattan granted the delay, court papers show.


Stipulation to Lift Stay on IPO Class Action and SCO's MORs Filed | 87 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
Corrections here please
Authored by: tiger99 on Monday, October 06 2008 @ 01:18 PM EDT
If needed, to assist PJ.

[ Reply to This | # ]

  • Epiq not Epic. - Authored by: Anonymous on Tuesday, October 07 2008 @ 07:02 PM EDT
Off topic here please
Authored by: tiger99 on Monday, October 06 2008 @ 01:20 PM EDT
Stuff that belongs on Groklaw but not related to the main article should go here. We do appreciate clickable links, where possible.

But no on-topic stuff in this thread, please.

[ Reply to This | # ]

Newspicks discussion here please
Authored by: tiger99 on Monday, October 06 2008 @ 01:22 PM EDT
Any discussion about Groklaw newspicks should go here. Please do indicate which
newspick item you are referring to in the title of your post.

[ Reply to This | # ]

IPO Plaintiffs?
Authored by: JamesK on Monday, October 06 2008 @ 01:26 PM EDT
Does this mean there are some investors who're not satisfied with the way SCOX
share price has soared? ;-)

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

[ Reply to This | # ]

Stipulation to Lift Stay on IPO Class Action and SCO's MORs Filed
Authored by: tiger99 on Monday, October 06 2008 @ 01:33 PM EDT
Interesting. They want to take whatever amount of their losses is covered by insurance, and not bother with the pittance left in the bankrupcy estate, which will possibly result in them getting their money quicker, or at least as much of it as they are likely to get.

Sense prevails sometimes. But I would have thought that they would have a case against certain officers of SCO personally too, or maybe that comes later? Or does the insurance company persue that to recover their losses? Also, have SCO violated criminal law here, by providing false financial information?

But whatever the answer to these questions, it is good just to see some action again!

[ Reply to This | # ]

Stipulation to Lift Stay on IPO Class Action and SCO's MORs Filed
Authored by: Anonymous on Monday, October 06 2008 @ 01:36 PM EDT
BPO - Business Process Operations - outsourcing core business functions to
another company. This could include outsourcing the whole IT department, to
providing customized financial software, or financial functions that would
normally be handled by in-house CFO, accountants, underwriters, etc.

So, was SCO outsourcing its operations or IT systems to another company?

[ Reply to This | # ]

Authored by: cbc on Monday, October 06 2008 @ 01:49 PM EDT
Sounds like a clerical agency to me. The typist kind. I suspect that SCO
really needs the other kind of cleric.

[ Reply to This | # ]

Folks in the financial world don't speak English,...
Authored by: jdg on Monday, October 06 2008 @ 01:53 PM EDT
Folks in the financial world don't speak English, the kind I can diagram,

I took the paragraph into a document so apply a measure of reading ease. The
result? Reading ease was 1.2 [grade level was 20]. I consider poor readability
to a sophisticated audience as being in the 30s, and aim to hit 50s or better
with clients when I write e-mails.

SCO is trying to appropriate the "commons"; don't let them [IANAL]

[ Reply to This | # ]

Kevin got Paid! and Novell's money.
Authored by: ChrisP on Monday, October 06 2008 @ 01:55 PM EDT
I see that from the middle of September '07 to the end of June '08 Kevin McBride
was paid $199,610, about 7.5% of the professional fees since the bankruptcy.
This is about $250,000 a year. I wonder what he does for that kind of money and
how it compares to the other law firms?

ISTR that Bezz mentioned there was something funny about accounting for the SVRx
license fees to due to Novell in a previous article. At an earlier hearing SCO
promised faithfully to pass the money on to Novell, so Judge Gross said no
temporarily to the imposition of a constructive trust on the money. SCO (old and
new despite what the APA says) by tradition only pays Novell once a quarter. If
this arrangement still holds you wouldn't expect a disbursement every month.

SCO^WM$^WIBM^W, oh bother, no-one paid me to say this.

[ Reply to This | # ]

"The courthouse PACER system has been down over the weekend"
Authored by: Steve Martin on Monday, October 06 2008 @ 01:56 PM EDT
Apparently it's still down, as of 1:55 PM EDT today (Monday).

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

[ Reply to This | # ]

Stipulation to Lift Stay on IPO Class Action and SCO's MORs Filed
Authored by: Cheers on Monday, October 06 2008 @ 02:04 PM EDT
Thought I'd sound in on this one...

It sounds as though they essentially outsourced the international arm of their
finance department.

What this dept usually does is manage risk and transactions across countries.
For example, if we go into a contract where I'll deliver some custom software to
you in 3 months, and you live in South Korea, and I live in the US, in the 3
months before the contract is complete, a lot can change in financial markets.
The role of the international finance group is to plan ahead so that they can
pay the contract with the correct currency, they have project currency
valuations, so they can determine what the prices should be as well as hedge the
value of holdings as needed.

It's actually an extremely complex process, and usually requires quite a few
people, as it's not just done on a sale basis, but needs to be done constantly
for every country you do business with.

It's easy for manufacturing firms who are moving huge inventories of product,
but more complicated for a software company who have less volume, higher
customization costs, etc. Many decide to outsource it because it wouldn't make
sense to pay for the manpower to do it.

[ Reply to This | # ]

Authored by: swmcd on Monday, October 06 2008 @ 02:12 PM EDT
Banking is difficult, and tedious, and exacting. There's always money coming and going; the depositors want interest; the borrowers want loans; the stockholders want profits; the SEC and the FDIC are breathing down your neck about your capitalization; everyone wants monthly statements—the whole thing is a hassle. If you don't want to deal with it, you hire Broadridge, and they do it all for you.

It's kind of like using sharecroppers. You get to be a farmer, but you don't have to actually—you know—farm.

[ Reply to This | # ]

  • Broadridge - Authored by: Anonymous on Monday, October 06 2008 @ 02:22 PM EDT
    • Broadridge - Authored by: Anonymous on Monday, October 06 2008 @ 02:29 PM EDT
      • Broadridge - Authored by: Anonymous on Monday, October 06 2008 @ 02:44 PM EDT
Other Disbursements
Authored by: Anonymous on Monday, October 06 2008 @ 04:27 PM EDT
On SCO Operation's MOR [PDF] on page 4, I see under "Other Disbursements" $225,000 in "Security Deposits". What would that be?

It's the security deposit on SCO's new premises in New Jersey.

[ Reply to This | # ]

Unrestricted cash
Authored by: Anonymous on Monday, October 06 2008 @ 04:50 PM EDT

The number to watch on the MOR's is unrestricted cash in SCO Operations. That's what's available to meet payroll, professional fees, lease payments, and other current obligations. When it runs out, SCO's DIP days are over.

I can't figure out how to create a table, but on another site, not mentionable here, I've posted the history of this number since the petition date. It started at just over $4 million and is now less than $1 million. The larger than average hit is due to a "security deposit" of $225,000 that SCO paid during the month, presumably on its new offices in New Jersey.

[ Reply to This | # ]

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