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After the Hearing: Reports From Our Eyewitnesses - Updated 7Xs
Monday, June 15 2009 @ 08:15 PM EDT

Our first full-length report is in from today's bankruptcy hearing.

MikeD, our first eyewitness to report in after the hearing, reports some shocking dialog, as you will see. Litigation takes a strong stomach, I must warn you, or a particular type of sense of humor. Happily, I have both. At one point, when it was pointed out to the judge by the lawyer for the U.S. Trustee's Office, Joseph McMahon, that there was a particular rule that the judge seemed not about to follow, Judge Kevin Gross asked, laughing, "What happens if I don't meet that deadline? Will they take me out back and shoot me?"

Sadly, MikeD had taken his 17-year-old son to the courtroom so he could see what our legal system is like, today of all days. And they wonder why some young people don't show respect to authority figures. Sorry, guys, but bankruptcy court is what it is. Notorious. There is a reason companies incorporate in Delaware, you know, no matter what state they are in physically. And it's not the view.

So, the bottom line of the day is that the proposed sale to Gulf-Cap-whatever-their-name-really-turns-out-to-be (see previous article) will have a hearing on July 16, as Webster earlier reported. So we will no doubt get to see the proposed agreement filed, and then objections, the usual song and dance. So, bottom line? Delay, delay, delay. It's too bad SCO can't package it up and sell delay. They'd make a fortune. It is what they are best at, I'd say. Update: Indeed, the date has changed to July 27, and from the Sign in Sheet [PDF] attached to the Minutes [PDF], we find out that both Ted Normand and Stuart Singer attended this event.

Here's our first eyewitness report, from MikeD:

Took my 17 year old son to see our courts in action. I believe five Groklaw members were there ...

All I can say is - Unbelievable!

SCO did it again. More delay.

It started off with a bang. SCO showed up with a sale and asset purchase agreement that was signed moments before. Darl McBride was late to the hearing. He told me during one of the breaks that he was late because he was signing the final agreement. That's right, this agreement was signed minutes before the hearing.

Mr. Spector gave ONE copy to the IBM/Novell table. That did not make them happy.

At this point the judge called for a short break for the attorneys to review the document. They divided the pages up at the table and passed them back and forth as they read them.

After 45 minutes, the judge came back in. Mr. Lewis from Novell and Mr. Levin from IBM both objected to being blindsided - again. They could not possibly review this contract in 45 minutes. They asked that the hearing follow the agenda and proceed on the motion to convert.

Mr. Spector spoke about how this was a new deal that had just been completed and that they should be heard. In fact he had eight witnesses that were there to speak. He did not even know who they all were.

The judged started waffling. We knew right then that SCO would get what they wanted.

IBM and Novell argued about fairness, deadlines, and sticking to the motion to convert. The did not object to SCO having a buyer. They felt that SCO should put forward a motion to sell..., but it should not be heard today. Even the Trustee was not happy.

The judge weighed the arguments and said he had to consider the sale, whether today or another day. Nonetheless it was a big piece of this bankruptcy proceeding.

IBM and Novell argued again about deadlines and fairness. They argued it should not be admitted today.

The judge said he agreed with their concerns. He wanted to know why it was so late.

So they went to an evidentiary hearing to see if the sale would be admitted. Darl took the stand and spoke of four different deals that they were considering in the last few months. An attorney for Berger Singerman, Frank Caplan, took the stand to talk about the deals and how hard they had been working on them.

Deals worked on:

LSC Holdings - DIP loan of $5 to $5 million. They would get portion of litigation winnings

Hank Phifteen (sp?) Funding of $2.5 million. They would get warrants

"Directors Deal" - they was referred to as the "Ralph" deal later. They would put up $1 million and get warrants and a portion of the litigation earnings.

If I have it right, the signed deal is with Stephen Norris / Merchant Bridge International. They are putting up $2.4 million. According to Mr. Spector, Novell and creditors all get paid. SCO leaves bankruptcy and then deals with IBM, and others.

At the end, the Judge is satisfied that SCO have been working really hard and that they were not trying to game the system and cause delay.

Then there was another break to figure out what to do. The lawyers huddled. A couple of us chatted with Darl about Nascar. Darl said he'll be happy when this is over and the can "go back to being a boring little company".

When they can back at 5:45 they all agreed that they needed more time to study with. With their busy schedules, the next hearing with be July 16. If that is a problem, then the day will be July 27.

But wait! What about the fifteen-day statute? Mr. McMahon spoke about that very issue. The judge joked and said, "What happens if I don't meet that deadline? Will they take me out back and shoot me?"

But wait! It gets better. July 16 is obviously more than 15 days. So the lawyers and the judge stipulated that July 16 will be 14 days. The judge asked for two days to decide. So that will make 15 days. Yes, Judge Gross has ruled that 31 days really equals 15 days. And all the lawyers agreed.

So the next hearing is July 16 - all day. First half will be to hear about the asset sale. Second half will be on the motion to convert to chapter 7.

One thing that was brought up several times about all the potential deals was how to package the assets for sale, but still giving SCO the rights they need to pursue the litigation. This was the biggest issue in all the deals.

It ended about 5:50 pm

We all left in disgust.

My son pointed out something on the way home. This hearing had been scheduled for Friday June 12. By giving SCO until Monday, they were able to pull another rabbit out of their hat.


So, they plan to pay all the creditors and Novell, eh? What about IBM?

Well, now you know why there is a system of appeals set up in the legal system. They don't take judges out and shoot them. They overrule them.

Of course, the judge's job in bankruptcy court is to help SCO, and if there is a real agreement, after all the false starts, he wants to give them a chance to make their case about it. On the other hand, a statute is a statute. Does he have that authority, to give them yet another chance? I don't know. We'll never know unless someone appeals, and by the time they do that, if anyone bothers, the delay is a fait accompli anyway. Capice?

The Salt Lake Tribune has a brief report on the day's events:

Facing life or death, officers of the embattled Utah software company signed a deal Monday just before walking into a federal bankruptcy courtroom for a hearing on motions to liquidate it. Instead, they proposed selling off the company's Unix business to a London-based firm, while keeping its licensing claims that are part of high-profile lawsuits involving IBM, Novell and other companies.

The SCO Group also would retain its mobile application business, an area where it sees big potential growth.... Under the new proposal, McBride remains as CEO, while President Jeff Hunsaker would move to direct the new company, along with a majority of SCO's 62 employees, said McBride. SCO would continue to pursue the lawsuits, he said.

At least the 62 employees will get to keep their health care, if this flies. Of course, none of the prior plans got airborne, so time will tell if this is just a delay tactic or a real deal. There just isn't enough evidence one way or the other. But there is some water under the bridge.

Update 2: Webster posted as a comment. He says Arthur Spector should be an executioner. You'd live forever. Here's the essence of his report:

SCO got its delay.

The hearing wasn't about the Motion to Convert at all.

The hearing wasn't about the Sale.

The hearing was about the delay in the Sale.

In the first five minutes all knew that SCO had a delay and the hearing would not be about the Motion to Convert.

I know you'll perhaps find this weird coming from me, but in point of fact, we don't yet know for sure that this plan isn't valid. We haven't read the proposed agreement yet. And we haven't read the transcript. The question is, does the judge have the authority to even consider a plan this late? If not, I hope someone appeals, just so this doesn't stand as a precedent if it is improper. But what about "unusual circumstances"? If that gives him a valid out and he took it, how outraged can I be? Disappointed, yes. Frustrated, yes. But outraged? He hasn't been watching SCO for six years the way we have.

But please don't write disrespectfully. This is Groklaw. I'm about respect for the judge and the process and the legal system, and that holds whether I agree with a particular decision or not. If there were ever clear evidence of judicial fraud or corruption, obviously that would be different, but if it's just a matter of disagreeing, please do so with a respectful tone while you are here.

Some of you were furious with a magistrate judge long ago, when a decision went a way you didn't like. Do you remember? Some of you felt frustrated by a judge in Utah too. But it worked out fine in the end, didn't it? I warned you not to expect too much from today, did I not? SCO games the system, in my opinion, and we've watched them so long, we see it before a new judge would, and so if the judge doesn't see it yet, he doesn't see it yet. So what? Look at the overview. Linux is doing fine. We're not paying a SCO tax. Was that SCO's plan?

Litigation is a marathon, not a sprint. And it's not for sissies. All that happened is that SCO gets to try to persuade the judge that it has a real plan this time. That's all. The plan may not fly any more than the last ones did. The thing about litigation is not to worry about the ups and downs, or at least not to lose your balance. Instead, just move forward effectively. That's what the really great lawyers do.

I think I speak for all of us here in saying thank you to IBM and Novell for standing up to SCO and never giving in and never giving up. If we are feeling frustrated, imagine how they feel? I also want to say how meaningful it is to me that the US Trustee's Office filed an objection. And a big thank you to our two eyewitnesses in the courtroom today, MikeD and Webster, for their reports.

Update 3: A third eyewitness, RFD, has now posted a timeline of the day's events:

Here is a timeline I developed from my notes

2:08 Hearing opens--Judge Gross presiding.

2:09 Pro hoc vice motions approved.

2:14 SCO has signed a new purchase and sale agreement! Debate begins over how to proceed. Mr Spector (SCO) indicates that he will call 8 witnesses. Someone arrives with copies of the agreement that was just signed. One copy is give to Novell, IBM, and the US Trustee to share.

2:16 Recess to allow for review of the agreement.

2:55 Hearing resumes. IBM objects to hearing witnesses about the sale. Argues that it is unfair to the creditors to consider this last minute surprise.

3:02 Judge Gross quips "This is about as close to a Perry Mason situation that a bankruptcy court gets"

3:20 Judge Gross asks SCO to "make the case" that SCO should be permitted to make a late response. A mini trial began on the issue of whether the new purchase agreement should be considered in connection with the motions to convert. Two witnesses were called to testify about the circumstances surrounding the execution of this agreement.

3:20 Darl McBride sworn in as a witness. On direct by Mr. Spector, Mr. McBride described the events leading to the agreement

3:30 Darl McBride steps aside to permit Franklin Caplan to testify and leave in time to attend to an important family matter. Mr. Caplan takes the stand. On direct by Mr. Spector, he testified about negotiating the deal. Real purchaser is in London-he did not reveal the name. He is not sure what role Mr. Norris has, but he did sign the agreement. "Retained Litigation Rights" were a big issue. There were other potential deals. LSC Holdings was negotiating with SCO. Hank .... was also negotiating a deal ("Hank Deal"). Several Directors were also trying to put a deal together ("Ralph Deal").

3:47 Cross exam by Mr. Lewis (Novell). Eric LeBlan is the London purchaser.

3:52 Cross by Mr. Levin (IBM). Asked about "retained litigation rights"--how and when it arose

4:03 Mr. Caplan steps down.

4:04 Recess

4:15 McBride resumes stand. Direct by Mr. Spector. Platinum Equity and others came forward expressing interest.

4:26 Cross by Mr. Lewis.

4:36 Cross by IBM

4:40 McBride steps down. IBM has "no witnesses." Mr Spector, in closing, argues why the Court should permit the late filing.

4:46 Mr. Lewis argues for Novell. Points out how many times SCO has come in at the last minute and blindsided the opposition.

4:51 Mr. Levin for IBM. Argues that SCO has shown no respect for deadlines and that "last minute surprises" are the norm for SCO, not the exception.

4:56 Jack McMahon for US Trustee. Are there "unusual circumstances" within the meaning of the Statute? (I think that is what he said, I could barely hear him)

4:58 Mr. Spector closes

5:03 Judge Gross: Rules that the evidence concerning the new deal will be allowed.

5:04 Recess while lawyers consider how to proceed.

5:41 Hearing resumes. Mr Levin summarizes discussion on schedule. New hearing date July 16 (tentative) July 27 (backup)--the hearing will be on the motions to convert and the motion for sale.

5:53 Hearing adjourned

I think this timeline clarifies some things. The parties didn't agree that 31 days are really 15. The judge ruled the way he did, and they immediately worked with what they had to work with, which is to have a hearing, with their fuller opportunity to object. On Mr. LeBlan, here are some links for you to get started:
A profile

LinkedIn profile

MerchantBridge website - click on the news page, and you'll see what this business is [I'm now told there is a lot of Flash going on.]

Corporate Watch [PDF] on UK companies in Iraq, including Merchant Bridge:

58. MerchantBridge


£22,072,550 from Iraqi investors

MerchantBridge was appointed 'lead advisor' to the Iraqi

Ministry of Industry and Minerals for the 'Lease of Industrial

Factories Programme,' (Jan 2004).

In September 2005

MerchantBridge launched the Mansour Bank, with $38.5m; 90% from Iraqi investors.

9. MerchantBridge

£22.07m (capitalisation)


'lead advisor' to Iraq Ministry of Industry and Minerals for factory lease programme (Jan 2004)

Launched Mansour Bank (Sep 2005), capitalised at $38.5m; 90% from Iraqi investors.

Update 4: And now we have another eyewitness report, from Charlie Turner, the report that hid in my spam catcher for a day. I think you will agree that it is worth the wait:
First attempt at a report:

I will start by pointing out that my note-taking skills are limited. What follows must be taken as a summary of what I heard and understood, could recollect, and was able write down, not a word-for-word or verbatim of what was said in court today. Also, my apologies to any whose names I got wrong or misspelled, or any other errors.

Arguing today for SCO was Arthur J. Spector
For Novell was Adam A. Lewis
For IBM was Richard Levin
For the US Trustee was Joseph J McMahon
I believe those were the only counsel to address the court from the lectern.

1:50 - People involved in the case begin arriving. (I don't want to appear to be stereotyping, but I base that assumption on the fact the these folks all are dressed formally, and take seats up front.)

1:58 - Still signing in... (must be lawyers appearing today if they are they are signing in, I'm guessing)

2:04 - People still arriving.....

2:07 - Judge Gross enters courtroom and hearing begins. Ted Normand and Stuart Singer are appearing as special counsel. Judge Gross notes that there are ample opening statements.

Mr. Spector suggests that while this is Judge Gross' courtroom, on account of things that have just happened, opening statements should be dispensed with, and the court should get right to testimony (I am guessing testimony relating to what has just been dumped on the court and parties involved).

Mr. Levin: We can't just dispense with opening statements and proceed to testimony. We have not seen the document yet. If this is sprung on us, we can't complain. [Mr. Levin and Mr. McMahon confer.]

2:10 Document is still not in court room.

Someone states that document was just signed at 1:50 pm.

Document arrives.

Mr. Levin: This was just sprung on us at the last moment.

Mr. Spector (I believe) said the purchase and sale agreement was just executed in the last few minutes.

Mr. Levin: Only 1 copy for 3 parties.

Mr. Spector: We were prejudiced, too. If we can not get this done today, then 1 more day.

Judge Gross: We will try to get it done today

2:15 - Judge Gross: We will recess for 10-15 minutes for IBM, Novell, and UST to read over the purchase and sale agreement.

More copies of the P&S arrive. Darl arrives. More people arrive. What should have started 15 minutes ago is still trying to get started, and not doing very well, at that.

2:18 - Clerk: We will be resuming in a few moments.

2:47 - Mr. Singer and Mr. McMahon exit the court room together (conference?).

2:51 - Mr. Singer and Mr. McMahon return. (This could have been Mr. Spector and Mr. McMahon. My ability to keep up with what is going on is beginning to fall behind.)

Mr. Levin(I think) asks if these are copies, or originals.

Mr. Spector (I believe) asks someone named Frank: Are these copies?

Mr. Levin: (I believe) says “They should be originals.” Tosses stack of documents on table. Doesn't appear very happy.

2:53 - Mr. Levin: Proceed with motion to convert as originally scheduled. SCO can file a motion to bring the P&S before the court. The court should proceed to convert or dismiss as scheduled.

Mr. Spector: Not asking for approval of the P&S today. They have documents to proceed as scheduled. The purpose of this is to show one of many unusual circumstances. We have a sale that can close in 30 days; by June 15th. We have testimony to show there won't be any money lost in the next 30 days. We have a shareholder prepared to underwrite any losses for the next 30 days.

In opening statement, I will cover what the witnesses will cover. Mr. McBride will show a backstop (for this deal, I assume). Can Mr. Singer reserve his opening statement? Mr. McBride may “take some time”.

Judge Gross: This is about as close to a Perry Mason situation as a bankruptcy judge can experience. [Much laughter in the court room.]

Mr. Spector: We would like to do as much as we can, and come back within 15 days. [Along the way, Mr. Spector states that this is a terminal event.]

Mr. Lewis: Talks about putting this in someone else's hands. This is not the first time this has happened. We can't cross examine on the testimony this day without preparation. This is not a terminal event. We can proceed with motion to convert today, and trustee can consider P&S later. Suggests SCO wants to get to the end of the appeal process. I understand bankruptcy, I've been doing bankruptcies for 30 years. I understand that the court must be flexible. This is taking flexibility to an extreme. I request proceeding as scheduled.

Judge Gross: If they come in tomorrow with this, wouldn't have to take this into consideration?

Mr. Lewis: We are giving the debtor another extension. Why should we separate cross examination from direct testimony when we have them here? (There had been a suggestion by SCO counsel that direct testimony should happen today, and cross examination could be done at a later date. Both IBM and Novell said this wouldn't work.)

Judge Gross: This might be significant. This thing may turn out to be a complete nothing. I just don't know.

Mr. Levin: Stephen Norris (deal) has been before the court 15, 16 months. This discussion has been going on for months. At some point, the court must say there is a deadline. This court should, must hold to the deadline.

Judge Gross: I want to hear evidence concerning the concerns of Mr. Levin. Why are we here today, not 6 months ago.

Mr. Spector: We still don't have the clarity. Let Darl McBride tell you the highlights. Let's get to it. Let us call our witnesses. We are not looking to extend this. Your honor is right that this is crucial not to convert. We want to complete the sale, close the case, pay the creditors, and go on our merry way.

Mr. Lewis: This is a debtor motion for leave to file an extension.

Judge Gross: Why should I consider this motion?

Mr. Lewis: New evidence might be grounds to file late opposition.

Judge Gross: I need to know why I should consider this, why they should be allowed to file this.

(cT: I forgot to note the time for a while. I think it was around 3:10 when the court allows Mr. Spector to go ahead and call witnesses and present evidence.)

Mr. Spector: Here goes my off-the cuff-opening statement. SCO had 2 possible deals, the 363 (cT: I think that is what Mr. Spector called it) deal, and if that didn't work out, a stand-alone deal. Around late December 2008, early January 2009, Darl McBride received many phone calls saying don't do this (the 2 deals); we would like to sponsor. We would like to sponsor this. As of the day I wrote the response to the motion to convert, we had 4 deals in front of us. A large part of time was given to the other suitors who were out in front (of SNCP). I was shocked walking over here today to learn that the deal was signed.

Mr.Spector: Calls Darl McBride as first witness.

3:23 - Mr. McBride is sworn in.

Mr. Spector: May we dispense with pedigree? It is on the record.

Judge Gross: Yes.

Mr. Spector: Why is it that we showed up the last second. Please explain why it took this long to get here. When did you first meet Stephen Norris?

Mr. McBride: About a year ago.

Mr. Spector: What about?

Mr. McBride: Investing in SCO. Mr. Norris had a group from the middle east that wanted to invest in the company. They talked for several weeks. Eventually, the legal team from the mid-east group [had] a problem with the Utah ruling, the August 2007 ruling. Around December 2008/January 2009 the plan was a 363 asset sale, to come back with a sale or revamp the company into a non development company that would make money.

[Mr. Spector remembers that he has a witness to call who has a 4:30 flight he must catch. He asks the court if he may have Mr. McBride step down, and call the witness with the tight schedule. The court agrees.]

Mr. Levin: what is the topic of testimony to be?

Mr. Spector: Why it took so long.

Mr. Spector calls Franklin Caplan.

Mr. Spector: Can we waive swearing in of an attorney?

Mr. Levin: He is an attorney? That's appropriate.

Mr. Spector: When did you first come into the picture?

Mr. Caplan: Roughly the beginning of 2009 on a deal not before the court now. I became involved in this (current) deal approximately 3 to 4 weeks ago. (Mr Caplan explains the deal, mentions a reduced contract that explains precisely what was being sold, what was not being sold. That the big issue was how SCO could do a sale, and still protect and retain its rights regarding the Novell, IBM, etc litigation. That the bucket of assets changed significantly and frequently. What did SCO need to retain to continue Novell/IBM?

Mr. Spector: Other than SNCP/SCO, was this the same cast of characters as before?

Mr. Caplan: No.

Mr. Spector: What was Mr. Norris' role?

Mr. Caplan: I'm not certain.

Mr. Spector: Before that (3 or 4 weeks ago), there was no lawyer for the buyer?

Mr. Caplan: No.

Mr. Caplan went on to explain his work on this deal. He mention that there were many elaborate discovery statements, and that Alan S. Pearce worked on it.

Mr. Spector: What were you doing about noon today?

Mr. Caplan: I was in Philadelphia to close the purchase/sale agreement.

Mr. Spector: What were you doing at 1:00 pm?

Mr. Caplan: I was emailing Brian (cT: I didn't hear the last name) about the deal.) The contract hit about 1:15, maybe 1:10. It was black lined. At about 1:30, we finished the document. (cT: Mr. Caplan also said that the document was finished about 2:00. I think that was a reference to when it was signed)

Mr. Spector: Let's go back now. Were there other deals you were working on?

Mr. Caplan: Yes. LSC Holders (cT: Holdings?) Between 5 and 6 and one half million dollars for acquisition of a range of equities.

Mr. Spector: Was this considered the “Leading Horse” by BSF and SCO?

Mr. Caplan: Yes.

Mr. Spector: Tell the court about the others.

Mr. Caplan: A third deal, the Hank deal, subscriptions for warrants in SCO. $2.5 million with a share of the litigation proceeds, if any.

Mr. Spector: Did the Hank deal have any face to face (cT: my notes are sparse here, I believe this to mean any face to face meetings involving Mr. Caplan).

Mr. Caplan: 3 occasions. The 4th deal, (cT: this deal was referred to as the Ralph deal. I don't remember who first used that term during the proceedings) It was a bit of a hybrid. One of the directors of SCO would invest new money. Others would make a commitment to invest a minimum of $1 million for warrants similar to the Hank deal, with a share of litigation proceeds, if any.

(Mr. Spector asked about a David Marks. I believe the question was regarding his involvement with Mr. Caplan regarding these deals.)

Mr: Caplan: My view of David Marks was that he was assisting me.

Mr. Spector: Were all 4 deals still alive this past weekend?

Mr. Caplan: Yes.

Mr. Spector: One more question, when was the last time you were in a court room.

Mr. Caplan: This morning.

3:45 - Mr. Lewis: How many more witnesses on this narrow issue?

Mr. Spector: Maybe 3, 4.

Mr. Lewis: [ begins cross examination] The bucket of assets transferred in the sale, has this bucket ever come up before?

Mr. Caplan: I was involved in York, parsing of what was held back, not involved or discussed.

Mr. Lewis: When you decided to sign the deal today, was it complete?

Mr. Caplan: No. there will be cleanup, fixes, changes. There was no time to fix it.

Mr. Lewis: May there be other issues?

Mr. Caplan: I am not aware of any.

3:50 - Mr. Levin: What law firm are you with?

Mr. Caplan: Berger Singerman.

Mr. Levin: What is your specialty?

Mr. Caplan: Business transactions and ? (cT: I didn't hear the second item).

Mr. Levin: No focus in IP?

Mr. Caplan: No. Copyright and trademarks occasionally.

Mr. Levin: Was Mr. Lambert (cT: I may be wrong on that name) involved before you became involved?

Mr. Caplan: I'm not sure.

Mr. Levin: Did Berger Singerman consider SCO's standing to continue litigation as described in the APA to be important?

Mr. Caplan: I believed/ believe it was important to be able to maintain litigation.

Mr. Levin: When did discussion of the Ralph deal, deal #4, begin?

Mr. Caplan: Roughly 2 and one half weeks ago.

Mr. Levin: The Hank deal, #3?

Mr. Caplan: About the same time.

Mr. Levin: LSC?

Mr. Caplan: A little bit prior, possibly by a week.

Mr. Levin: You received the document at 1:15 today?

Mr. Caplan: Yes.

Mr. Levin: You were able to review the changes in 10 to 15 minutes?

Mr. Caplan: We came to a decision by approximately 2:00 pm.

Mr. Levin is finished, and Mr. Caplan steps down and leaves.

4:02 - Mr. Spector: If I may have a minute to find out who is here from Brian Cave (cT: perhaps Bryan Kabe, or Bryan Cabe, this must be a firm of some kind, rather than a person. Probably the Brian I heard earlier when I couldn't hear the last name)

Judge Gross: We will recess for 5 to 10 minutes.

Darl McBride returns to the stand.

Mr. Spector: Was there any significant change in the landscape between Stephen Norris and York regarding GCP now?

Mr. McBride: Besides the dollar amount, was there any significant change?

Mr. Spector: Was there any difference between SNCP the second time around?

Mr. McBride: L.A. Platinum Equities was involved in the York deal, 60 days of negotiations between February and April 2009. Merchant Bridge International of London from early 2009 to current time on the new deal. (cT: I think I heard the name Eric LeBlan mentioned in connection with this). A big difficulty has been that our arch enemy IBM is engaged with a lot of attorneys. It has been difficult to find a firm that doesn't have someone with a conflict. Our goal from the beginning has never been to delay, our goal has been to get things going. The deal with GCP is the Unix business customers, partners, etc. To hand this off to somebody who will carry that forward, so it is not our problem after today going forward. We wanted a deal that doesn't prejudice our employees or customers.

Mr. Lewis and Mr. Levin cross examined; my right hand had gone numb, and I had to stop taking notes for a while to give it some rest.

4:36 - Mr. McBride steps down.

Mr. Spector: It's not like we've been sandbagging it, We've been working our rear ends off. No sandbagging! No gamesmanship! The buyer is willing to pay 2 and one half times the debt.

Mr. Lewis: If you look, what you see is a debtor who hasn't produced anything. Now struggles to produce at the last minute. This isn't the first time. This has been ongoing. One reason after another why the debtor couldn't get something together. Deals started to come out of the woodwork about the time the motion to convert was filed. As a matter of course, we are being blind sided by the debtor at the last moment. Reading the contract, this deal could close in 90 days or longer. We think the debtor has been lax. The debtor waits to the last moment and files something. It is going to be the same story the court has heard again, and again, and again.

Mr. Levin: If the court considers the APA in regards to the motion to convert, there is ample reason to address if the document should affect the motion to convert. The 6-5-2009 deadline was the reason the creditors allowed the 30 day extension, and then some. Mr Spector referred to the June 5 deadline as a soft deadline. The debtor does not respect the court's deadline. The debtor should not be allowed to flout this court's procedural deadlines.

4:55 - Mr. Levin concludes.

Mr. McMahon: (cT: I couldn't hear much of what he had to say. I thought I heard commentary about whether or not this new deal really represents an unusual circumstance.)

Mr. Spector: There are no local rules about what must be put into a response. The creditors say, "There they go again." Well, yeah, here we go again. It's got to be a likely rehabilitation, we've got that.

Mr. Singer has an expert witness he wants to get testimony from today. She is from out of town, and must leave tonight.

Judge Gross: We're mixing up issues here. I am going to allow evidence of potential sale to be presented. It is evidence this court ought to consider.

5:03 Conference between attorneys about proceeding. Another recess is called.

5:15 Mr. Singer and others leave the court room quickly. Groups of attorneys are talking in several places in the hallway/lobby.

5:23 - Darl, and Jeff Hunsaker (I believe), are called out of the court room.

5:25 - Mr. Spector requests 2 more people out of the court room.

5:33 - People start flowing back into court.

5:38 - Judge Gross returns

Mr. Levin: Put everything off until a date which would be the day for the sale/purchase motion to be heard, about 30 days hence. There need to be discovery schedules, interim deadlines, telephonic hearing, main hearing for a morning and afternoon, or an afternoon and the next morning.

Judge Gross: I will need until tomorrow to check on other matters. Should we have a back up date? July 20, 24, 27? (There are schedule conflicts with 20 and 24, so 27 is chosen).

It was suggested by someone that the day of hearing will be considered the 15th day after. I gather from the discussion this relates to when the Judge must rule.

Judge Gross: Let me give myself at least a day.

Mr. Lewis: We would be happy with 2 or 3.

Judge Gross: A day will be sufficient. Ok, 2 days. 2 day after the hearing will be the 15th day.

Mr. McMahon: Certain things must show that the marketing effort is complete.

Mr. Spector: Given all that has to be done, maybe we should push back to the 27th, forget the 16th. (cT: I did not hear a decision about this)

Court was adjourned.

Hahahahahaha. I don't know which part of this report is funnier, Darl blaming IBM for being late with a deal, because all the lawyers in the world, he seems to be complaining, tie in to IBM with some conflict or other or Arthur Spector swearing there is no sandbagging going on.

This is farce. So, so funny. Runners up are Mr. Lewis saying "That's appropriate," when informed Caplan is an attorney. I also will treasure Mr. Spector telling the court he was shocked to learn on the way over that a deal was signed, and then Mr. Caplan being asked by IBM's Mr. Levin what firm he is with, and he says it is the same firm as Mr. Spector.

I seriously, seriously doubt this is a real deal, after reading this. As Mr. Caplan admitted, there could be some changes. My read is they are hoping to out wait the appellate court. So we get to enjoy this breathless, and I must say priceless, performance art while we wait.

Update 5: And now Webster has his notes available. He says he's sorry if there are errors, and there almost certainly are, particularly on who was speaking, as he thinks he mixed up Mr. Levin and Mr. Lewis at one point. But rather than edit by later memory, and knowing we will eventually have a transcript for certainty, he presents the notes as he took them. I see his notes confirm that neither IBM, Novell or the US Trustee agreed to the delay. It was the judge. That means an appeal is possible; whether they will bother, of course, is another question.

[Your reporter apologizes for the delay. This is partial but touches on all. It may be too late. Where recording fails, memory has had to risk failing in filling. Levin and Lewis are probably interchangeable. Questions may be confused with answers, etc. ...etc ...]

Hearing of June 15

Please Rise [A few minutes after 2 PM]


Spector: The briefs are the openers. We should get right into the witnesses. There are things that happen. This is SCO. Things you didn't plan on happen routinely.

Levin interrupts: No openers. Spector should put on witnesses. Give it in opening. “I'll ask our friends if they want it.”

Levin confers with group.

Levin: We don't need an opening statement. We need to see the document.

Spector: It is not in the courtroom. It is being copied.

Judge Gross: It was just signed. They obviously have a plan. Do you want five or ten minutes.

Levin: The statute demands 15 days. We go over the 15 day limit.

Judge Gross: I will return in 5 or ten minutes.

Spector: It is a purchase and sale agreement. Everything is signed, sealed and delivered. It is the only copy in the courtroom. The rest is still being marked for exhibit.

Judge Gross: When can we expect the other copies?

Spector: We can do this. I didn't know we had this. This is bankruptcy every thing is accelerated. We can put it into evidence through Mr. McBride's testimony.

Judge Gross: How many witnesses?

Levin: We are relying on the record.

Judge Gross: I have a list of eight.

Spector: I think it can be done today.. If not one more day.

Judge Gross: I am prepared to exceed our normal time.

[Break. The Judge leaves the bench at 2:15.]

{IBM, Trustee, Novell have to go over the document in ten minutes.}

{Break was at 2:15 Resume at 2:55, forty minutes]

Levin: This confirmed what we already suspect. It is too complicated to do it today.

Our proposal is to proceed as we started. The Debtors can bring a motion for bidding and sale.

Debating the question for approval of sale itself invalidates the sale process. This is an improper way to bring up a sale.

We are entitled to notice. We propose that the court proceed with the motion to convert as planned. We object to witnesses on the sale and ask Mr. Spector to put forth beforehand the topic of the eight witnesses. We don't know who the witnesses are and the topics that they will address.

Spector: Let me tell you what we are asking for. We have the documents. We don't ask for bid procedures. ...

It is like talking about what we are talking about. It is an “unusual circumstance” to pay the creditors in full. We have a sale that can close in 30 days. Before July 15. We have testimony not to lose money. We have a stockholder ready to underwrite any money lost over the extra time.

The case could go sideways again. We have a case to make. We object to their objecting to the way we do it. If your honor says don't do it, don't do it.

I will highlight what they will testify to. McBride will testify about the sale and the backstop. Mr. Nielson about SCO finances and thirty days. You can take the risk to protect the creditors. We are going to ask Mr. Singer to reserve his statement of opening for the defense proofs. I will handle the litigation. The Movants say they don't have any witnesses. Mr. McBride won't finish today.

Judge Gross: I knew the dramatics were going to happen. This is about as close to a Perry Mason situation that a bankruptcy judge gets!

Spector: If they need more time, they probably do. One of the documents is 50 pages. We can come back within the 15 days.

Judge Gross: Mr. Lewis: Pleasure to have you here.

Mr Lewis: A terminal event? Putting this whole process into someone else's hand? A terminal event does not change the rules of procedure. This is not the first time this has happened. They were not quite ready yet before and then they withdrew it. We could come back. We can't cross examine a witness properly about the sale. We don't have time.

Let's do what this is set for.

The Debtor gets continuance of what is scheduled for today. Mr. Lewis has to travel. It [SCO] wants to get to the end of the appeal. It is about buying time. There is no reason not to go ahead today. I was going to object on the grounds regarding IBM that it is too late. I have been doing bankruptcy for 30 years. It is too late. We should not be going ahead on the record that it is too late for. They have been working on this for I don't know how long. It is not new.

Judge Gross: If they came in with a sale tomorrow, wouldn't the judge have to take that into consideration?

Lewis: We need a sale on an organized basis.

Judge Gross: I agree with that.

Lewis: They are getting an extension due to this last minute business. We can't separate direct examination and cross examination.

Judge Gross: I can't close my eyes to a very, very significant development in this case.

Lewis: Don't turn this into a sale motion hearing. We're not ready for it. It is really unfair. This may turnout to be a complete nothing.

Trustee: It is signed by Stephen Norris of SNCP. This is not new. Negotiations have been going on or off for 16 months. It is a dynamic process. This court should enforce deadlines.

Judge Gross: Let me make a suggestion. I have an evidentiary motion. I would like to hear evidence regarding Mr. Levin's concerns. Why is there an agreement today? As a preliminary matter we can examine what the negotiations have been why we are here today instead of 6 months ago. I want to know why it took until now and not adjourn this hearing.

Spector: I am sorry to put Mr. Lewis in this situation. ..We have no problem with their concerns interest of time, take the record in an ordinary matter. It is very awkward. Let Mr McBride tell you the highlights. Let us call our witnesses. Sorry to Mr. Lewis. We don't have a solution for him. July is open so let's plan on it.

We plan to close the sale, dismiss the bankruptcy, and pay the creditors, fully pay Novell. IBM we will meet in Court. That is an elegant end to this case.

Lewis: We should treat this as the debtor's motion to file a late opposition or newly discovered evidence. The new evidence is not going to go to the substance of the sale, but why it took them so long. But the practical result will explain why they file late.

Spector: I will make my off-the-cuff opening that evidence presented by Mr. McBride will show that after the debtor filed the plan of January 9, potential interests said don't do that. We would like to be your sponsor. One call was from Mr. Norris; York also called. Talks started again. Other parties contacted the debtor. As of today I wrote this response, I had 4 deals on the table. It was a horse race. The Deal team had 4 deals at one time. Until it was signed there was no expectation of this GCP deal.

The Brian Cave folks of GCP... I was shocked that it was signed. That is my viewpoint.

Darl McBride to the stand.

He was directed to swear with his hand on the Bible.

He gave his name, but Spector dispensed with the pedigree of the witness since the Judge noted it was had at a previous hearing.

Spector: Why do we have this deal at the last second? Why the easy way? When did you first meet Mr. Norris?

McBride: We met Mr. Norris a year and a half ago. The subject regarded investing in S-C-O. He had middle east investors.

Mr. Spector: How long did those talks last?

Mr. McBride: Several weeks. We filed something with this court. That proposal had problems due to the legal team for the Middle East investors doing some due diligence. They had problems with the decision in Utah. How do you buy a house if you can't figure out the title?

Mr. Spector: What was that plan?

Mr. McBride: It involved the sale or revamping of the company to a non-production model.

Mr. Spector: Interrupts his own Direct examination to substitute Mr. Franklin Caplan as a witness since he had a funeral. He is the deal attorney for the law firm involved. Franklin Caplan (FK) took the stand.

[Swearing was waived since he is an attorney.]

Mr. Spector: Please identify yourself.

FK: I am an attorney. On one prior occasion I worked on a deal that didn't occur.

Mr. Spector: Did you work on the deal before the court today.

FK: I became involved 3 to 4 weeks ago. There has been a lot of Mumbo Jumbo regarding the sale due to questions about the assets. What was the IP? The major sticking point is the assets and IP. The question was did the bucket of assets change.

Mr. Spector: Please explain.

FK: They materially and frequently it changed. It was difficult to determine what did SCO need to maintain standing and the prosecution of the litigation. It was the issue of retained litigation rights. The principal businessman is in London. The principal is in London. I am not certain of Norris' role. I have not been aware of Mr. Norris.

When a law firm on the other side, Brian Cave, became involved, we met a month ago. There was no lawyer before Cave.

Mr. Spector: Did the new group do new due diligence?

FK: I was not involved with due diligence. There have been elaborate disclosure schedules from the York deal that were updated. Scheduling was difficult. Brian Cave had a team; we had a team; SCO had a team.

Mr. Spector: What were you doing at noon today?

FK: I was in a Pachulski conference room to finalize and sign an agreement.

Mr. Spector: At 1 PM?

FK: I was at bankruptcy court. I was taking an Advil. I was emailing Brian Cave regarding a contract. We knew about the time. We needed to read it so we were anxious. It hit at 1:15. We had to finalize it after the suggestions of last night were put in it. At 1:30 it was revised. It was signed at the Hotel Dupont around 2 PM.

Mr. Spector: Three and a half weeks ago were there any other deals? GCP??

FK: There were three other deals. One was a plan sponsored by LSC holdings. It accelerated after this deal. It was 5 or 6 million dollar loan with an acquisition of a range of equity post bankruptcy.

Mr. Spector: Was there a lead deal up to Saturday the week before last?

FK: At the same time a third deal by Hank Bidesky, regarding a subscription for warrants with funding into SCO in the range of 2.5 million and up. Consideration would be a share of the litigation proceeds if there are any.

Mr. Spector: Pascal Peter Prozzyk[?] was the attorney.

FK: We were working simultaneously.

Mr. Spector: Were there any face to face meetings?

FK: The principals met 3 times face to face. Bidesky met this past weekend. I worked Saturday morning with the Bidesky deal.

The fourth deal was a bit of a hybrid- it asked for simultaneous commitments from shareholders and directors. A minimum of a million dollars of the consideration was warrants. There were conversion rights. Also a share of the litigation proceeds if there were any.

It was all happening simultaneously. David Marx assisted me. The last contact was Saturday. I thought there was going to be a combo deal of fourth deal. Horse race was a good term since it was Belmont Saturday.

Mr. Spector: Was there a deal with GCP on June 5?

Mr. Spector: Like Columbo, permit me one more time. When were you last in a Courtroom?

FK: 1987.

Mr. Levin asks regarding other witnesses.

Mr. Spector: We may call Brian Cave.

Mr. Lewis now cross-examines FK.

Mr. Lewis: Who is the person in London named Eric LeBlon.

FK: I don't know who is affiliated with him. I don't know. I don't know who they re affiliated with.

Mr. Lewis: This bucket of assets-- had that issue come up before?

FK: The issue of assets was not so important as the mobility products. The IP was relevant.

Mr. Lewis: Do you recall the SNCP deal?

FK: I recall very little.

Mr. Lewis: Were you satisfied that the agreement was in final form?

FK: It is conceivable that the product is accurate but not the litigation assets. There was no time to fix it. In bankruptcy court it can be fixed. In general this type of work is very fast for a complicated document. We collaborated very well especially those who had been around.

Mr. Levin examines the witness.

Mr. Levin: We offer our condolences.

Mr. Levin: [some question]

FK: I work at the Berger Singerman law firm. Mr Lambert handled it before. Dan was the principal man in transactions. He would have been handling the deals.

Mr. Levin: Is that your specialty?

FK: No. My focus is on Real Estate -- copyright and trademarks occasionally. I have a working knowledge copyrights and trademarks.

Mr. Levin: “What SCO needed to prosecute litigation”- how did that come up?

FK: We had to sell the business with hold backs. We had to carve out litigation and proceeds. That is what is involved and what happens if the lawsuits are successful.

FK: I took over. I had to plan to sell the business and retain the litigation on my watch. Dan Lambert left on vacation for 6 days.

Mr. Levin: It was convenient to use the term “standing” to maintain control of legal fees?

Mr. Lewis: Was the description critical to SCO pursuing the litigation?

FK: I believe that it was important to maintain the litigation and be successful at it.

Mr. Lewis: When was the initial draft?

FK: It came out of our office accompanied by revisions by Brian Cave. There was the OSC[?] deal prior to other two deals. I became aware of those deals when they first arose . We were so active.

Mr. Lewis: You got a revised document at 1:10 this PM?

FK: We cam to a decision at the hotel. Close to 2 PM.

Mr. Lewis: You accepted all the Brian Cave provisions?

FK: We talked about one and decided not to press the issue.

You may step down and you are excused.

McBride retakes the witness stand.

Mr. Spector: Was there any change in the legal landscape legal in the Summer of '08 in regard to the bench trial.

McBride: Yes, the claim of 40 million against us turned into 2.5 million. In that bench trial our IP situation was clarified. Judge Kimball recognized the sale of the Unix business to us. He recognized that the post 95 copyrights belonged to SCO and the SCOsource licensing. Finally he blessed the right to UNIX Business.

Mr. Levin: Did this make any difference to Norris?

McBride: Yes, the investment firm were open after this new ruling.

Mr. Levin: What happened?

McBride: There was 363 Sale interest. But ..and then a deal with others appeared and we were approached by other parties.

Mr. Levin: Who else other than Norris?

McBride: A LA group, Platinum Equity, who buys software companies. There was a call from Charlie Hale from York. We discussed a deal. It was a 60 day negotiation with him. This was a February to April time frame. We talked with London Base with Eric LeBlon. He works with ME [?] investment group. They have put a substantial amount of energy into due diligence.

Mr. Levin: Were you getting other attorneys involved?

McBride: Yes, but the problem we have is that other law firms get conflicted out due to conflicts with IBM. It is a recurring problem... Eventually we got an attorney.

Our goal has never been delay. We wanted to put a deal together. I have done thirty-five deals. This is the hardest and smallest. What do we own? That is the problem. The deal with is like a house foundation and but we have to deal it away but keep a part. We need it to benefit our employees and customers and resellers. We Don't want to prejudice them.

[Witness' phone dials!] I leaned on the speed dial button. [Shuts it off.]

We owed Novell forty million. Then 2.5... That may be zero before the summer is over.

With this deal we are splitting this up and taking care of people. It has not been a short cut.

Mr. Levin: When did you get board approval to sign with GCP?

[Q & A re timing of board approval.]

. . . McBride: May I make one more comment...

Cross by Levin of IBM

Mr. Levin: Do you recall hearing from someone regarding the lease?

Mr. Levin: Do you recall testifying SCO left off trying to make a deal?

Mr. Levin: Do you recall testimony of last Spring?

McBride: I don't remember.

Mr. Levin: Is it true SCO stopped trying to find a deal?

McBride: We took a breather.

Mr. Levin: Isn't it true that you resumed deal efforts?

McBride: Yes I haven't stopped.

Mr. Levin: Do you recall the SNCP deal last Spring on the calendar?

McBride: Yes.

Mr. Levin: Do you recall that deal didn't go forward?

McBride: Yes.

Mr. Levin: Do you recall SNCP wanted to restructure the deal? ...

Mr. Levin: Did the question of litigation come up? ...

Mr. Levin: When did it come up first?

McBride: In the York deal it came up. It is hard to move forward with the current ruling.

Mr. Levin: Did litigation come up... what to do with litigation? You were going to hold on to litigation as in the current deal..? ....

Mr. Levin: I'm focusing on the issue not the people. ...

Mr. Levin: Do you recall the third motion to extend?

McBride: The debtor needed to know outcome of trial. ..

Mr. Levin: Do you recall the debtor argued that it had to get appeal on file to consider a transaction?

McBride: We did say that.

Mr. Levin: Do you recall saying people needed to know the appeal was on file?

Mr. Levin: Do you recall asking for Board approval in the last couple of days. When were they asked?

McBride: In the last few days. We submitted questions in general.. what we were talking about.

They posted a deposit of 250K. That was a material change.

Mr. Levin: ....?

McBride: ...correct no one knew.

Mr. Levin: Was the other side ready to sign two days ago?

McBride: Yes...pending changes we wanted to make. Before it was things they wanted to make.

Mr. Levin: No further questions.

Mr Lewis: ......?

McBride: The Middle East Legal team... Norris had troubles with Utah Court. Also York withdraw for the same reason.

Mr. Lewis: ...?

McBride: Norris came forward with new group. I met them later in '08. We were seriously engaged in 2009.

Mr. Lewis: ...?

McBride: We just got Board approval a few days ago. The board approved it for us to sign off on what we signed.

Mr. Lewis: Did the board see exactly what you signed after the revisions you speak of?

.....[Objection Argumentative]

Mr. Lewis: Did they approve the deal that wasn't signed until today?

McBride: I recall that York, Charlie Hale came to me and there was a writing that Your Honor didn't understand how a deal could get done. That came up in the York deal. That make it difficult for them.

You May step down.

Spector: We don't wish to call any more witnesses. We are resting on issue of late filing.

Mr. Lewis: We rely on the record of the last 21 months.

Spector: We showed how the sausage was made. It's not like we have been sandbagging. The Court ruled that we hold the business that we own. I don't know what else we could have done. We signed a deal. I apologize for doing it this way. The only other way we could have done it is in the middle of McBride's testimony. We are not sandbagging. There is no gamesmanship here.

If you are worried about creditors, we've have got them covered in this deal. The creditors and Novell are covered. The others we will take care of in court. I don't see why this isn't an acceptable deal.

Mr Lewis: If you look at the big picture what you see is a debtor a debtor that hasn't produced anything. Last minute is the rule in this case not the exception.

“There is no other way I can do it,” Counsel apologizes. Papers are being brought as we speak. We have to look at it. These deals come out of the woodwork when the motions to convert got filed. ... June ... September ... Now we have a sale agreement!

We are not in a position to assess that today. ... I recall the SNCP deal.

We disapprove because of the way, as a matter of course, we are being blindsided at the last moment. ... because the Debtor wasn't doing its job. It is uncanny.

In terms of the effect of all this... It is an unspoken premise, ...that if the court grants the motion to convert today, this all disappears. We don't know that.

A neutral party could be more thoughtful than so far as the litigation is concerned.

If the deal doesn't happen, we go forth. They don't have to close for 90 days. How are we covered?

This Court has to rule on the motion to convert. We are talking about putting a neutral person in charge.

We think the debtor has been lax. They wait for the perfect opportunity to come along. When it doesn't, they ask the court at the last minute for an accommodation. There is no certainty this is really the deal. The talk about the rush. “We have to change it again.” It is going to be the same story.

Judge Gross: What will happen if I don't decide in the 15 days? Will they take me out an shoot me?

> Mr. Levin: There was a stipulation to file an opposition by June 5. They filed late. They were late. Will the court enforce its own deadlines? We would like to have the agreement. Today is the real deadline. These negotiations have been going on since January. Norris group put in substantial effort the last nine months.

We don't believe debtor should flout the court's procedural rule. It should be taken up in a motion for sale.

Trustee McMahon: Briefly ...

[Can't hear him.]

Spector: These are“unusual circumstances.” There is a likelihood of rehabilitation. We can continue in business and serve customers. In regard to deadlines and rules. Since there was no formal pretrial, [flexible procedures are ok.] Here are unusual circumstances. Nothing in the local rules that what we have to say here is it. This is what we want to argue. We did not violate any rule. Now we have some new fact. The record is clear. We didn't stall. This isn't gamesmanship. It is life in the messy trenches.

I am intruding on our time. I have until 6 pm. There are all the other unusual circumstances. We are never going to get to trial today. Mr. Singer has a witness an expert. We will let her in ...

Can we use the remaining time to get Mr. Singer's case out of the way.

Judge Gross: We are mixing up issues. I must...look at the big picture. I have not heard evidence that this deal was manufactured to stall today's hearing. The big picture has to take the deal into account. That includes a potential sale of assets. I will allow evidence of the sale. Whether it is contrary to deadlines or not, I am not sure. But it is evidence that I should hear.

So proceed now or later.

Mr. Levin: May we have a few moments?

[Break at 5:02 PM]


Mr. Levin: There are common issues to sale and convert motions. ...So put it off to a date to approve the sale and hear it all at the once in thirty days. We need interim dates of filing the sale motion and an APA. We need a possible telephonic hearing if dates are not agreed by counsel. We are talking about middle of July.

Judge Gross: I have a number of things scheduled on the 16th so I must shift other parties. So I will try and schedule for the 16 and set a potential backup date. the 27th. Let me give myself just a day. Let's do two days for a decision. One day hearing then two days to issue the decision. That is how we will handle that.

Trustee: We will spend time to set the deadlines today...for the sale motion and APA amendments, the discovery schedule, written submissions, the witness list and prospective testimony. There may be bidding on this sale. ...Procedures motion and bidding.

Judge Gross: The US trustee may have a problem with no bidding.

Trustee: I don't think we need a two-tiered structure for discovery. I have to show that the marketing effort was concerned.

Mr.Levin: ...and a deadline for SCO to change any of the sale motion.

[Spector moves to push it back to the 27th because the other side wants discovery. ]

So, there you have it. Isn't it odd Mr. Caplan has no clear idea of Mr. Norris' role? Yet it's his signature on the deal, according to these notes. Who is the actual buyer, then? Gulf, or GCP, is supposedly him, no? Maureen O'Gara writes []:
Stephen Norris, one of the original founders of the chi-chi Carlyle Group, and his current equity arm Gulf Capital Partners LLC – the money is reportedly coming from Saudi Arabia unless the White House stops it – are offering $2.4 million for what remains of SCO’s Unix business plus its mobility technology....

If SCO winds up with the Unix copyrights after all it only gets to run with them for 10 years then they revert to Gulf Capital Partners.

Heavens to Murgatroyd! Ten years of SCO "running with" the Unix copyrights would be unfortunate...

Update 6: We have one more report, this one from Groklaw's UD:

I haven't been to a BK proceeding for a while because of scheduling conflicts or they appeared too mundane, but this one sure made up for the lack of excitement lately.

First off, all the big guns were there - Stuart Singer, James O'Neill, Ed Normand, Arthur Spector, Ryan Tibbits and Darl McBride for SCO and Adam Lewis, Richard Levin, Laurie Silverstein and Joseph McMahon opposing. Plus there were numerous other attorneys present and what appeared to be a number of appropriately dressed witnesses in the gallery. Looks like there were 6-7 Groklaw'ers there as well.

Proceedings start a little late and the judge suggests they proceed right to testimony rather than give opening statements because of the large number of witnesses to appear. Mr. Spector starts off with his bombshell that a bunch of stuff happened right before the hearing, because "after all, this is SCO". They have just signed a sale agreement but they are waiting for copies to be made. While he is talking a woman comes in with what appears to be the original and Mr. Spector gives it to the other lawyers so they can start looking it over. Spector says they didn't know it was going to come together so fast. Judge Gross expresses concern that with the 8 witnesses and this new material we might not finish today, but Spector expresses hope that we can, or maybe use one additional day. At 2:15 Judge Gross gives a temporary adjournment so the other parties can look over the document and hopefully copies will arrive.

So during the break there is lots of reading/hushed conversations, people going into the hallway for side conversations, etc., and things don't get started again until 2:53.

Mr. Levin says they've confirmed what they suspected and that the deal is far too complicated for them to analyze in 30, 45 or even 60 minutes. He wants to continue the hearing as scheduled and not turn this into a sale approval. The sale process has not been validated, and the sale motion is improper at this time. He'd like an opening statement from SCO so they have some idea of what's coming up.

Mr. Spector says they will file a sale motion because this is a done deal. He says it is terminal to this proceeding. There is a credible belief that this deal will be closed in the next 30 days. They have a stockholder that is ready to compensate for any losses in the next 30 days as well. He objects to IBM, etc. saying this can't be done now. He's going to have Darl give testimony about the deal and they have a game plan for presenting their evidence. They really wanted to have this done a few days ago but it just came together.

Judge Gross quips that "This is as close to a Perry Mason moment as a bankruptcy judge is going to get". Chuckles throughout the courtroom....

Mr. Lewis contests that this is a terminal event. Was procedure followed? This isn't the first time something like this has happened in this case. There's not enough time to process all the info they were just given. Did SCO do this to buy time? Mr. Lewis has scheduling conflicts that keep him from coming back in the next 15 days to settle the matter. He insinuates that SCO is game-playing and that this last-minute deal making is something we've seen before. Past last-minute deals have fallen through. We should continue the hearing as scheduled on the original issues.

The Judge is concerned that he should consider the sale motion because of possible benefit to creditors. Mr. Lewis says the court should consider it but on a more organized basis. Fairness is important. They can testify now to their interpretation of the agreement but there may be other interpretations as well. Need more time to analyze. Judge Gross says he cannot turn a blind eye to this significant development, and it may have bearing on the decision to convert. Mr. Lewis wants to be present for any proceedings since he has been so intimately involved so far - doesn't want to send a sub and SCO knows his schedule is full.

Mr. Levin says this deal was signed by Stephen Norris, and suggests this deal was ongoing for 16 months. Why the last-minute dealings? SCO missed the dealing for filing (June 5). Bankruptcy is a dynamic situation, but the deal is past due.

The judge asks for arguments on the merits - not the substance - of the sale agreement.

Mr. Spector doesn't want adjournment now. They didn't want to do it this way. They didn't know Mr. Lewis's schedule was so busy. They've done lots of investigating to get this deal done. For now, we should continue with testimony as scheduled, and they'll introduce tidbits as they relate to the sale. Let's do it now. Let's call witnesses. They don't want to delay/extend the hearing. He has time in July if Mr. Lewis can make it then. He'd really like to close the sale, dismiss the case and pay the creditors.

Some back and forth between the judge and litigants about whether he should consider the sales agreement and whether they should proceed today or adjourn.

Mr. Spector says Darl got other offers besides this one (4 total), and this one came to be the front runner only in the past few days. They were going back and forth between SCO and GCP all morning.

Darl gives some general testimony about the deal and who is involved and how the Utah decision resolved some issues they had with previous deals gone bad.

Mr. Spector notices the time and asks to have Mr. Caplan testify now because he has other commitments pending shortly.

Mr. Caplan was the lawyer who closed the deal today for SCO and testifies about the complicating issues, the time frame he had to work them out, making sure SCO retained the right to continue the lawsuits (primary focus), etc. They just got the final contract at 1:10-1:15 this afternoon, did a quick review and Darl signed around 1:45.

There were also three other deals in the works. One was from LSC Holdings ($5-6 million loan post-bankruptcy) and that was the front runner as late as last week. Another deal was from Hank Bysdie(???) and was for $2.5 million+ to fund litigation. Last deal was direct investment from SCO board member - $1 million minimum to get share of litigation proceeds (named the "Ralph" deal).

Mr. Lewis and Mr. Levin both cross-examined Mr. Caplan. Mr. Lewis was concerned that this deal was done so quickly that should they be expecting amendments? Is it *really* final?

Darl goes back on the stand at 4:15 and goes into details about the various negotiations (details available on request). Basically they quizzed him about why the last-minute deal, if Stephen Norris was so involved in the past. It was hard to get attorneys because IBM uses so many law firms. We really wanted to get this done quickly. Board gave approval for this deal very recently and gave him certain bounds to work within - the agreement falls within those bounds.

Mr. Spector apologizes again for bringing the deal at the last minute, but he had to present it because it happened. Out of his control. He's not sandbagging. The agreement covers all the creditors (including Novell).

Mr. Lewis says to look at the overall picture. This isn't the first last-minute deal they've brought, and they always have an excuse. All these deals came right after the motion to convert. Even though SCO says it's a great deal, they need more time to analyze it. He says he's been blindsided by the sale proposal. We won't know how the motion to convert would have gone because we never got that far. This deal is not certain to close and could fall through like all the others.

The judge asks what would happen if he didn't have a decision in the next 15 days (specified in statute). Chuckles in the courtroom since everyone is aware that there won't be another hearing for at least a month.

Mr. Levin questions if the court should allow the sale document to be admitted in the conversion case since the deadline for submission was 6/5. Negotiations were ongoing last 5 months, so why didn't they consider 6/5 as the deadline instead of the court date? They shouldn't be allowed to flout the court's rules.

Mr. McMahon says something about statutes and what constitutes an unusual circumstance and the admissibility of this sale motion now (Mr. McMahon, please speak a little louder and more clearly).

Mr. Spector says it is an unusual circumstance. We didn't violate any local rules - I checked! They just presented a new fact that just happened. And it is likely to provide rehabilitation.

Judge Gross says these issues are difficult. He doesn't think the deal was done to stall the case and will allow evidence relating to the sale. He allows a short recess for the lawyers to confer and work out a schedule. 35 minutes later the lawyers come back and agree to a full-day hearing on either 7/16 or 7/27. They agree the judge will have 2 days after the hearing to reach a judgment. They discuss additional deadlines for discovery, witness lists, etc. Will there be further bidding?

Hearing ends just before 6pm just as my writing hand cramps up...

Update 7: We now have color-coded transcript as text for you, from the court's PDF.


After the Hearing: Reports From Our Eyewitnesses - Updated 7Xs | 477 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
The creditors get paid?
Authored by: alansz on Monday, June 15 2009 @ 08:23 PM EDT
It will be interesting to see if the creditors get paid in cash or
"paid" in SCO stock... (Here, Novell, you get a bunch of stock that
will be valuable if we manage to convince a jury to award us your billions and
billions of dollars)

[ Reply to This | # ]

Corrections here
Authored by: bezz on Monday, June 15 2009 @ 08:27 PM EDT
If any.

[ Reply to This | # ]

Newspick Comments
Authored by: bezz on Monday, June 15 2009 @ 08:28 PM EDT
Please include the title in the subject line.

[ Reply to This | # ]

Why Novell and IBM agreed to July 16
Authored by: Anonymous on Monday, June 15 2009 @ 08:28 PM EDT
Because if they didn't, then they would have had 15 days to review the sale and
find all the holes, and they wanted the time to do it right.

IANAL, but that's what I think happened.


[ Reply to This | # ]

Short story on sltrib
Authored by: Anonymous on Monday, June 15 2009 @ 08:28 PM EDT

[ Reply to This | # ]

OT, the Off Topic thread
Authored by: bezz on Monday, June 15 2009 @ 08:29 PM EDT
Always other interesting things to discuss.

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After the Hearing: Reports From Our Eyewitnesses
Authored by: Anonymous on Monday, June 15 2009 @ 08:30 PM EDT

They overrule them.

I don't think so. I think SCO has "won" (i.e. won another delay) yet again. SCO getting delays is a bit like Congress legislating extensions to the duration of copyright. Each extension is finite, but there is no end to the number of times they can do it.

It may be interesting to see where the money really comes from.

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After the Hearing: Reports From Our Eyewitnesses
Authored by: Anonymous on Monday, June 15 2009 @ 08:31 PM EDT
You know, the more I think about it, the more I think this is really all about
Ralph Yarro. He got tossed out of his great money-making situation (Canopy),
given only SCO on his way out the door. I think a big part of the reason things
are going the way they are is that Yarro won't let go of his personal dreams of
big money, and SCO is the only ticket to riches that he has left. So he will
fight forever to keep that dream from (totally) dying, and he has enough control
of SCO to make sure that SCO does what he wants.

Disclaimer: I don't know Ralph Yarro. This is just my impression from the way
events have gone.


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Are you really surprised?
Authored by: Anonymous on Monday, June 15 2009 @ 08:36 PM EDT
The law doesn't matter. Morals certainly don't matter. Having been a part of
legal proceedings, long ago I completely gave up on this system. What is
interesting here is not that "SCO once again got exactly what they
wanted," but to watch all the layers and ex-lawyers keep talking about how
the system will ultimately work (how justice will prevail), to see all of them
one by one see it from the non-lawyer side of things, how normal people get to
"see" justice.

SCO will be around for years yet. Mark my words (and yeah, I would like these
people to get jail time, but they won't).

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Did they Continue the Hearing?
Authored by: Anonymous on Monday, June 15 2009 @ 08:45 PM EDT
Wouldn't that get around the time limitation?

Hearing started more of less timely and the Judge issued his ruling with 15 days
of the conclusion of the hearing, the hearing just took a long time.

[ Reply to This | # ]

I'll take it as reliable
Authored by: bezz on Monday, June 15 2009 @ 08:46 PM EDT
But wait! What about the fifteen-day statute? Mr. McMahon spoke about that very issue. The judge joked and said, "What happens if I don't meet that deadline? Will they take me out back and shoot me?"
I'm amazed a judge would say that from the bench. I'd like to know if the US Trustee's representative objected and got that reply or if he, too, stipulated to a month being 15 days. If that was his answer to an objection, then we have a real problem with this judge's ruling. Ummm, it's the law? Are your rulings not supposed to follow the law?

I wonder if there are problems between this judge and the US Trustee's office. A judge responding so disrespectfully when a matter of law is pointed out is incredible. I have previously noted that I thought this judge had a clear understanding of what should be happening for SCO to reorganize. After today's Drama Queen event and a comment like that, I'm beginning to wonder.

[ Reply to This | # ]

Why have rules of procedure?
Authored by: Anonymous on Monday, June 15 2009 @ 08:50 PM EDT

Does this happen often in bankruptcy cases? Apparently, the judge's discretion
is unlimited and nullfies the rules of procedure.
What an amazing attitude.

So, come July 27, the deal has fallen through. What happens to Gross's
reputation? How does he react? How many Perry Mason moments do we get?

Let's check the timeline. Judge McConnell's term on the 10th Circuit ends Aug.
31. Still got time for another month's delay.
(By the way, who's replacing him?)

How's your spidey sense now, PJ?

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After the Hearing: Reports From Our Eyewitnesses
Authored by: Steve Martin on Monday, June 15 2009 @ 08:53 PM EDT

But wait! What about the fifteen-day statute? Mr. McMahon spoke about that very issue. The judge joked and said, "What happens if I don't meet that deadline? Will they take me out back and shoot me?"

First off: IANAL. There. That's on the table.

That being said.... Oh, Yes, This Will Be Appealed. As much as I hate to show disrespect for a sitting judge, how in the world can he say this into the record and not expect to be appealed as a matter of law??

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

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Authored by: Anonymous on Monday, June 15 2009 @ 09:03 PM EDT
PJ in a post of the last few days wrote of the unthinkable, of the option of
corruption, and perhaps all SCO have to do is give Gross enough to, well I can't
recall the exact words, but I think PJ meant something along the lines of
"not look too bad while giving them what they want".

Then there was the hearing today.

This is a coincidence.

[ Reply to This | # ]

Ah, everybody gets to go on vacation
Authored by: Anonymous on Monday, June 15 2009 @ 09:05 PM EDT

Have a nice Fourth, everyone. Oh, and Labor Day, too. Maybe Thanksgiving,
Christmas and New Year's. Valentine's, Easter and Memorial Day.

[ Reply to This | # ]

I want to see the money
Authored by: Anonymous on Monday, June 15 2009 @ 09:13 PM EDT
If there are *any* conditions associated with the money, what-so-ever, the judge
needs to decide against this "deal".

The only way that the judge should allow a sale is if all of the creditors are
immediately paid, in full and in cash.

If the "buyers" actually want to put up enough money, in cash, to pay
*all* of the creditors in full, to buy the rights to a long series of appellate
coin flips, I don't know how you can stop them.

However, I personally do not believe that anyone is really that foolish. In the
end, I think that it is more likely that the delay caused by this manoeuvre will
end up squandering any chance for the creditors to get paid anything.

Even if SCO was to win on the current appeal, they will still lose in the end.
They have no case. They have no evidence. They never have. What a racquet!

[ Reply to This | # ]

After the Hearing: Reports From Our Eyewitnesses
Authored by: Anonymous on Monday, June 15 2009 @ 09:24 PM EDT
The Salt Lake Tribune says:

"Instead, they proposed selling off the company's Unix
business to a London-based firm, while keeping its
licensing claims that are part of high-profile lawsuits
involving IBM, Novell and other companies."

This seems to be an admission that one can run the
UNIX business without the copyrights, no?

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Reports From Our Eyewitnesses
Authored by: webster on Monday, June 15 2009 @ 09:33 PM EDT
[I sent emails to PJ during the breaks.

I typed throughout but editing will take longer than the hearing itself. Other
reports and transcripts will be better. Don't hold your breath. I have to
travel again tomorrow. Anyway there are other reports. But in summary the
report of Delay is delayed.]

SCO got its delay.

The hearing wasn't about the Motion to Convert at all.

The hearing wasn't about the Sale.

The hearing was about the delay in the Sale.

In the first five minutes all knew that SCO had a delay and the hearing would
not be about the Motion to Convert.

Complete and utter victory for SCO. Wasted expense for all.

They should just move to wait for the Court of Appeals. No one is going to buy
in without at least a partial reversal.

Judge Gross still thinks that SCO is a business that happens to have some
unfortunate litigation --not a litigation campaign that happens to have an
unfortunate business.

If Gross had ordered conversion today, SCO would have cash on the barrel for BK
dismissal tomorrow. They would get an "equity loan" somewhere. They
can't lose control. They are trying to wear the opposition down, or rather up,
to their price.

The deal has 90 days to close. If the Court of Appeals affirms the decision
before hand, the deal will abort.

Gross is trifling a bit, but there are risks for him either way. SCO plans to
drain out if they don't get an appeal. Gross has given in to them.

SCO will keep throwing that curve ball until someone shows they can hit it. If
SCO doesn't get its way, more delay from July 27. No 29. The Judge has given
himself a two day deadline. SCO objected! Told the Judge to take as much time
as he wanted.

SCO brought up the issues of sandbagging and blindsiding repeatedly so that they
could deny them. Apparently they did not protest too much. Gross brought it
hook, line and sinker on the first cast.

Spector should be an executioner - you could live forever.

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After the Hearing: Reports From Our Eyewitnesses
Authored by: Stumbles on Monday, June 15 2009 @ 10:21 PM EDT
So... there is your Perry Mason moment. To bad McBribe/SCO/Boise is making a
mockery of our legal system, and all the while from the Judges statement.... he
could care less about the authority provided him.

You can tuna piano but you can't tune a fish.

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After the Hearing: Reports From Our Eyewitnesses
Authored by: Anonymous on Monday, June 15 2009 @ 10:53 PM EDT
But wait! It gets better. July 16 is obviously more than 15 days. So the lawyers
and the judge stipulated that July 16 will be 14 days. The judge asked for two
days to decide. So that will make 15 days. Yes, Judge Gross has ruled that 31
days really equals 15 days. And all the lawyers agreed.

Is this precedence? Can we expect other lawyers in other cases to refer to this
case in their untimely filings? so that no mater what the time line is, 31 days
still equals 15?

And can SCO use this again, in arguing for yet another delay? like this:

Judge: SCO, you were late filing your response to responses to objections to
objections to motion xxx.

SCO: yea, your honor, we were just getting ready to address this, it's well
settled law, ummm 31 days is actually 15 - you said so, yourself on June 15,
remember that?

IBM, Novell lawyers: Objection! Your honor, SCO is at most being highly
speculative, and at best mis-characterizes your prior ruling

Judge: Overruled! I did indeed state that, so, yes - SCO, proceed...

what a sad day, indeed

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Authored by: Yossarian on Tuesday, June 16 2009 @ 12:06 AM EDT
>According to Mr. Spector, Novell and creditors all get paid

What about the SUSE arbitration, it is on pretty big $$$$.

Why not lift the stay on that first, see the results, and
only then decide if SCO can pay *all* creditors off.

[ Reply to This | # ]

  • SUSE? - Authored by: bezz on Tuesday, June 16 2009 @ 12:25 AM EDT
    • SUSE? - Authored by: Anonymous on Tuesday, June 16 2009 @ 02:00 AM EDT
    • SUSE? - Authored by: DaveJakeman on Tuesday, June 16 2009 @ 06:47 AM EDT
Did someone show the judge the money?
Authored by: Anonymous on Tuesday, June 16 2009 @ 12:37 AM EDT
But please don't write disrespectfully. This is Groklaw. I'm about respect for the judge and the process and the legal system, and that holds whether I agree with a particular decision or not. If there were ever clear evidence of judicial fraud or corruption, obviously that would be different, but if it's just a matter of disagreeing, please do so with a respectful tone while you are here.

Is the money real? Do the creditors really get paid, or does Leap Tide (or whoever they are) get a chance to back out, leaving the creditors with nothing?

If the judge said "show me the money", and SCO's new partners showed it to him, then it's pretty hard to see how IBM and Novell can object based on their status as creditors. They're there ostensibly because they want to get paid the money that is owed them. If they get paid, they can't start objecting that they don't really want to get paid. That would be acting in bad faith.

Without seeing the actual deal it's hard to say for sure. However, if there is real cash being offered on the barrel head, then I can't fault the judge. If the creditors get paid in full, then they have no cause for complaint so far as the bankruptcy is concerned.

Where a problem could arise is if payment is made contingent upon SCO winning its appeal or if the "buyer" can change his mind, or if they are paid in IOUs rather than in cash. In that case, the creditors (IBM and Novell) will be put in the position of bearing all the risk while a third party receives all the benefit. That is something that should not pass muster.

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What a revoltin' development this is!
Authored by: jbb on Tuesday, June 16 2009 @ 01:04 AM EDT
I appreciate your kind words asking us (law newcomers) to not be outraged. Unfortunately, if a newcomer has been watching this from the beginning, it is extremely hard to not get the impression that the entire system is totally rigged. From a newbie's perspective, it is like playing a game against someone (perhaps at a Carny sideshow) where the rules keep changing in such a way that it is impossible to win.

You tell us that things worked out fine in Utah. Since I'm new to the game, I can't see that because nothing has been finalized. The SCO management has not changed, there has been absolutely no punishment whatsoever. Zero. Nada. Zilch. If one believes (as many of us do) that SCO's plan all along was never to win, but to simply delay this thing as long as possible then it seems that SCO has been winning every step of the way.

I hope this is not disrespectful, but it seems to me that SCO has been telling big whopping lies for six years now and has never been called out on it and is still telling big whopping lies today. ISTM that the system is horribly broken for such antics to be allowed to go on for so long. What good is it if "eventually" it will all work out if we are all dead and buried by the time that happens?

PJ, you've had a lot of experience with the system so you know how it works and you know that it works. But for someone who only knows the system through what they've seen in the SCO wars, it seems horribly broken and unfair. I don't think anyone involved is corrupt. Even BS&F are "just doing their job". But from what I've seen so far, the system is so broken, it does not work at all and we should just scrap the whole thing and start over.

At the very least, if someone is found to be telling big whopping lies over and over, then shouldn't there be some way for this to be communicated instead of letting them go to a different judge and start over with a clean slate?

I'm sure you're right PJ, but it is as if you've been telling us to watch this fabulous acrobat and all we've seen for six years is him slipping on banana peels and falling in the mud. Since we don't know the system except by what we've seen here, Utah can't count as a win (to us) because nothing happened expect words were said and papers were shuffled. ISTM that either the judges need to catch on to the lies much quicker or we need fewer judges involved in each case.

You just can't win with DRM.

[ Reply to This | # ]

Judge Gross comment..!?!?
Authored by: LocoYokel on Tuesday, June 16 2009 @ 01:12 AM EDT
"What happens if I don't meet that deadline? Will they take me out back and shoot me?"
Given that attitude towards the law from a sitting judge is it any surprise that the common citizen no longer has any respect for the courts and the law?

At what point does someone file a judicial misconduct complaint, or whatever the situational equivalent is, against Gross for violating deadlines mandated in blackletter law? An appeal seems insufficient as this judge needs censure and not merely overturning.

IMO. IANAL, etc...

Waiting for the games I play to be released in Linux, or a decent Windows emulator, to switch entirely.

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Who gets the Unix business?
Authored by: Anonymous on Tuesday, June 16 2009 @ 01:44 AM EDT

The Salt Lake Tribune says:

Instead, they proposed selling off the company's Unix business to a London-based firm

But, they also say:

Part of the proposed deal would sell SCO's Unix software products -- which run computers for businesses -- to Gulf Capital Partners LLC, a group formed by Stephen Norris of Stephen Norris & Co. Capital Partners and other investors.

So, the question is, who is the real buyer, and what is their plan for the business? That may not interest people who just want to see SCO crushed, but it will interest SCO's remaining customers.

[ Reply to This | # ]

After the Hearing: Reports From Our Eyewitnesses
Authored by: Anonymous on Tuesday, June 16 2009 @ 03:15 AM EDT
In SCOGBK#750 the Trustee wrote (Footnote 11):
U.S.C. § 1112(b)(3) requires that this Court commence a hearing on the U.S.
Trustee’s conversion motion
“not later than 30 days after the filing of the motion . . . unless the movant
expressly consents to a continuance for a
specific period of time . . . .” The U.S. Trustee consents to the initial
scheduling of this motion for June 12.
The Judge has not held such a hearing. The Judge laughs at the law, at the
Trustee, and asks "Wattcha gonna doo den?".

[ Reply to This | # ]

What is this justice system like?
Authored by: Anonymous on Tuesday, June 16 2009 @ 03:40 AM EDT
Really! What is this justice system like? I'll tell you what it's like. It's
like Windows.

Windows has a lot of vulnerabilities. So there's a windows malware out there,
viruses, trojans, rootkits, what have you, exploiting these vulnerabilities.

Justice system has a lot of vulnerabilities. So there's justice system malware
out there, exploiting these vulnerabilities.

SCO is justice system malware.

[ Reply to This | # ]

27th Update
Authored by: Ian Al on Tuesday, June 16 2009 @ 04:54 AM EDT
Now, over to our roving reporter, Tricia Takanawa. Tricia...

Thankyou Tom. I'm standing on the steps of the courthouse with a large gathering
of disgruntled crabs. Mr. Crab...

Call me 'Hermit'.

Hermit, you seem shocked by todays proceedings as do the rest of the group. What
has got you all so upset?

Well, it's the shell company.

Shell company?

Yes. We heard that a shell company had made a last minute request to appear here
at the court.

And, what was the problem with that?

Well, the shell company turns out not to have any shells, already. Things are
really tight for the Hermit family and we expected this company to put things
right. In the event, they were just here to help out a guy with a big hat and no
cattle and he turned out not to have any hat either.

Who do you hold responsible for this turn of events?

It's that Norris person. He doesn't have just three shell companies with no
shell, he has dozens. If one goes phutt, he just conjures up more. It's time for
Norris to shell out with the shells or shut up.

Thankyou, Mr. Crab. This is Tricia Takanawa handing you back to Tom Tucker in
the studio.

Ian Al

Linux: Viri can't hear you in free space.

[ Reply to This | # ]

Will there be a Unix business much longer?
Authored by: Anonymous on Tuesday, June 16 2009 @ 06:10 AM EDT
SCO's brush with the angel of chapter seven and the Sor-Ox requirements had to
have put a lot of tiger teams and/or skunk works in to high gear at SCO's
customers. The question is how long will it take for them to make the move from
SCO to something else?


[ Reply to This | # ]

How Much Money?
Authored by: WWWombat on Tuesday, June 16 2009 @ 06:12 AM EDT

The report implies the cash injection is only $2.4 million.

Over on page 6 of Novell's reply (on this 10th June story), Novell claim that SCO has $2.4 million cash, alongside post-petition liabilities of $4.8 million, and pre-petition liabilities of $6.9 million). Accounts receivable are only $1.4 million. All based on their reading of the MORs.

An injection of $2.4 million doesn't look like it's going to get all the creditors repaid.

[ Reply to This | # ]

Game Plan 9 From Outer Space.
Authored by: Ian Al on Tuesday, June 16 2009 @ 06:26 AM EDT
So, is it just the Denver gaming laws, or is this a real APA?

It seems plain to me that this is just gaming the court. The key part of the
plan was to create an unusual circumstance that the judge could not reject. That
was the only way out of conversion for SCOG.

The unusual circumstance had to deal with the issues that helped sink previous
game plans.

First, the accredited creditors had to be paid off in full. Following the Novell
bench trial this could be achieved with a far smaller nominal sum than was the
case for the York deal. IBM are accredited with being owed only a few thousand
dollars which is why SCOG spent so much of their motion objecting to the
conversion stressing that IBM had no chance of increasing that indebtedness
because of the litigation. Part of the credit settlement process is the
unilateral reduction in the level of debt by some of the 'quiet partners'
sitting around the table to help SCOG out.

Second, it could not be a single deal whereby no one else was in the bidding
race. That's why Darl listed the four plans including Yarro's billion dollar...
I'm sorry, I'll read that again. ...million dollar bailout.

Thirdly, it could not possibly be anywhere near the table until the court had
actually convened. Otherwise, even the judge would have had his question
answered. He asked 'would the APA still go through if the appeal failed?'. He
would have seen that the deal went south if the 30 day period ended in a month
with an 'a', a 'j' or an 'e' in it.

Fourthly, Ms. Conlon [admission pro hac vice movant's local counsel] has stated
that there was 'a typo' in the motions and that she represents Gulf Capital
Advisory, LLC, a Delaware LLC. This company was registered on 9th April, 2009
with file number 4673545. This also became clear at the last minute to ensure no
one had a chance to confirm that the only capital in the company was to be found
in the name. Folk had even less chance to find out who the principles (lack of
principles?) of the company are. So many shells: a girl gets confused.

Finally, through one of the mirrors and past the smoke we find that the company
that will actually buy the operations part of the business is London based. So
who is the APA actually with? Why did they not have legal counsel in court?
Perhaps the deal was so rushed, they didn't have time! Don't even get me started
with conveyance of copyrights. What is the chance that an APA that started to be
put together in May this year has the schedule of assets to be included written
into the APA in an accurate, legal and integrated manner?

So, how could Judge Gross be so stupid as to be taken in by this game? I don't
think he was taken in for one minute. I think he knows it is a sham. The thing
is, if SCOG appealed the conversion, it would go before the district court who
are not at all as well informed as Judge Gross. Even if Judge Gross attended the
regular poker game with the district court judges, they would still have to
grant the appeal and direct Judge Gross to stay the conversion and review the
APA bid. So the judge has chosen the path of least delay and IBM and Novell
stipulated that Christmas comes early this year to give them enough time to
eviscerate the sham. Why was the US Trustee so irate? Because the sham had been
timed so that the Judge could not tell the US Trustee what was on his mind. The
best he could do was say that he had no choice: he had to delay consideration of
the conversion and evaluate the bid. The next meeting will have both the bid and
the conversion on the table. If the bid is eviscerated, SCOG will have
difficulty coming up with another last minute scam and even more with appealing
the conversion.

Still, I never believed they would pull it off this time, so what do I know?

Ian Al

Linux: Viri can't hear you in free space.

[ Reply to This | # ]

What happens if I don't meet that deadline? Will they take me out back and shoot me?
Authored by: Anonymous on Tuesday, June 16 2009 @ 06:45 AM EDT
This is when you wish that Clint Eastwood would suddenly appear and say
something like "Do you feel lucky judge?"


[ Reply to This | # ]

Merchant Bridge International - the PIPE Fairy?
Authored by: tiger99 on Tuesday, June 16 2009 @ 07:57 AM EDT
Would those be the people who sold the London Bridge, and allegedly tried to sell the Brooklyn Bridge?

Or seriously, I wondered if are they a front for someone else?

Did we know anything about them? Google brings up 3 references, so it seems that they own an airline known as Golfe Clearsky, and Baroness Chalker is a director. And there the trail ends.

As they were said to be a London company (presumably UK, could of course be London, Ontario, at least 10 in the US, one in the Pacific and one in Australia too), I looked them up on Companies House, and the nearest name is MERCHANTBRIDGE & CO. LTD.

Company No. 03200494
Here is their pestilential Flash web site, so I can't provide any deeper links. (It is most unprofessional to use Flash for your entire site, as it causes lots of compatibility problems, and annoys people, but BSF have done the same, probably for the same reason, to prevent deep linking.) However it does become apparent that SCO is petty cash to these guys, and if you select the "OUR BUSINESS" tab, you will see a heading "PRIVATE EQUITY". Perhaps they are the eagerly anticipated PIPE Fairy?

I will leave it to others more competent in this area to investigate further.....

[ Reply to This | # ]

After the Hearing: Reports From Our Eyewitnesses
Authored by: Anonymous on Tuesday, June 16 2009 @ 08:07 AM EDT
PJ Said:
"I know you'll perhaps find this weird coming from me, but in point of
fact, we don't yet know for sure that this plan isn't valid. We haven't read the
proposed agreement yet. And we haven't read the transcript. The question is,
does the judge have the authority to even consider a plan this late? If not, I
hope someone appeals, just so this doesn't stand as a precedent if it is
improper. But what about "unusual circumstances"? If that gives him a
valid out and he took it, how outraged can I be? Disappointed, yes. Frustrated,
yes. But outraged? He hasn't been watching SCO for six years the way we

Judge Gross said he did not see *evidence* this was a delay tactic, so in the
interest of the creditors and the estate the plan needs to be considered.

[ Reply to This | # ]

Consider if it were a debtor other than SCO
Authored by: Anonymous on Tuesday, June 16 2009 @ 09:03 AM EDT
The principle that bankruptcy judges have a large degree of discretionary
latitude in this sort of matter is fundamentally sound.

Consider a debtor with better bona fides than SCO, say frex, GM, or Six Flags,
or K-Mart, or any of the airlines.

Surely we should expect a judge to have the discretion to extend the deadline to
consider a hail mary offer that would keep a business running as a going
concern, rather than being liquidated in chapter 7.

That of course assumes judges can recognize when debtors are gaming the system,
as opposed to putting in good faith efforts to reorganize, and that appeals can
be filed and heard rapidly.

There are probably also nuances in bankruptcy law that make it preferable to
rule in favor of the debtor, even in error, as opposed to strictly adhering to

And as for the "what are they going to do" comment, while it was
artless, it's certainly true enough, especially if bankruptcy judges are
expected to exercise that much latitude in dealing with debtors and potential
sales deals. And as we well know, judges come in all manner of temperaments and
speaking ability. Reactions would undoubtedly be different if he had something
like "while this offer shaves far too close to the deadline, I feel it's
only right to allow the debtors and creditors time to examine this offer if it's
at all possible to keep the debtor solvent as a an ongoing concern," or
something to that effect.

Of course, in this particular case, it's certainly a waste of time. But as a
general principle, it shouldn't be surprising to see bankruptcy judges
exercising this kind of latitude.


[ Reply to This | # ]

After the Hearing: Reports From Our Eyewitnesses
Authored by: Anonymous on Tuesday, June 16 2009 @ 09:27 AM EDT
In all the courts so far, the IBM and Novell lawyers
are getting a real lesson in law (or at least
lawyering). It's like David and Goliath except
David's the bad guy.

[ Reply to This | # ]

For us,That's good.
Authored by: Anonymous on Tuesday, June 16 2009 @ 09:33 AM EDT
Think about it. What we want is a conclusion to the SCO vs IBM trial. This is
where the real stuff that concern us is. And SCO won't survive this trial, if
only because they'll have to pay IBM's discovery fees... of 100 millions for
those "every lines of Dynix, AIX and CVS since 1980".

As for the US justice system being broken... Well, too late. The US is the only
country in this world where you can go in front of a judge with no evidence at
all and get away with it. SCO did it 3 times. Good layering from SCO's
attorneys? Maybe, but pushing deadlines after deadlines beyond the ridiculous
are the judge's responsibility, not SCO's.

[ Reply to This | # ]

90 days or more - After the Hearing: Reports From Our Eyewitnesses
Authored by: Anonymous on Tuesday, June 16 2009 @ 10:23 AM EDT
I saw a post at another site, which will remain nameless, that. My question is
can one of the Groklaw attendees confirm the following?

1. SCOx will retain the litigation business.

I assume this is so presumably the BS&F contract remains intact.

2. Some stockholder will "guarantee" SCOX's operating deficits until

By this I assume that the continued bleeding of capital losses, both legal and
"normal" business mis-management.

3. The deal is to be executed in 90 days.

That poster happened to notice that is when the appeal decision is expected.

So even though an agreement has been signed, the agreement might not be executed
if the appellate decision goes the wrong way.

So one month from now, everything will depend on how believable is this

Even so, it appears that the bond for Novell will not get posted until the deal
is executed, and that might not happen.

Can we expect Novell to refile for conversion to be heard on the 16th if the
stockholder proves deficient?

To my mind, very little has changed in regards to SCO's position. They are
still asking all their creditors to gamble that the appellate court will send
the case back for jury trial. The only difference is a stockholder has said he
or she will make good any losses until the hearing.

Yes, a number of people want the final crunch, and it seems long overdue. This
is the same deal that fell through last December. I understand now why PJ keeps
refering to a marathon. But even a marathon comes to an end.

In this case SCO has managed to spin it out to their desired wait for the
appeals decision to come down.

Now regarding that, do any Groklaw readers out there remember complaining that
SCO was being given way too much leeway, and the response was always the judge
wants to make sure the decision was not reversed on appeal?

Raise your hands.

Let us hope that his careful consideration did in fact make his decision appeal

I am sure the IBM and Novell lawyers are thoroughly sick of this case and want
it to be over. All this delay is costing both companies money that they have
no chance on getting back. And depending on the stockholder, that individual
may well go bankrupt after this is done, so neither company will be able to get
any money from that stockholder.

If you wonder why I think either company might go after the stockholder, it is
not because that individual is a stockholder, but think on who the stockholder
might be. SCOx is a tightly held company.

[ Reply to This | # ]

Keep a sense of perspective
Authored by: Anonymous on Tuesday, June 16 2009 @ 10:52 AM EDT
The financial markets are not impressed by yesterday's events. No shares of
SCOXQ.PK have been traded this morning yet. The asking price for up to 5,000
shares is still $0.15 per share. At that price, there still seem to be no

[ Reply to This | # ]

Who's negotiating
Authored by: jpvlsmv on Tuesday, June 16 2009 @ 11:01 AM EDT
Is there a reason why the new management (either a chapter 11 trustee or in
chapter 7) would not be able to continue and complete the negotiation with these
hypothetical investors?

It seems to me like there is nothing key about the current management in the

Couldn't the various movants for conversion request at least an overseer for the
negotiations to make sure they move forward?


[ Reply to This | # ]

The Novell Next step
Authored by: Anonymous on Tuesday, June 16 2009 @ 11:06 AM EDT
PJ (or perhaps someone else) said that a good lawyer must consider ALL
possibilities. If this statement is true then Novell's and IBM's lawyers must
have prepared for the HIGH probability that an event on the order of the one
that occurred would occur.

[ Reply to This | # ]

Authored by: UncleJosh on Tuesday, June 16 2009 @ 11:18 AM EDT
SCO seems to really want the outcome of the appeal, apparently believing it is
going to "go their way". As Novell and IBM have pointed out, the best
they are going to get is an over ruling of the trial judge's decisions and
remand for whatever (possibly jury trial on various issues). However, just for
the purposes of discussion let us suppose that the appeals court just affirms
the lower court's decisions (all of them), the worst possible outcome for SCO.
Then what? Appeal to the Supreme Court? What happens to the currently
contemplated purchase agreement?

[ Reply to This | # ]

Hank Phifteen
Authored by: Anonymous on Tuesday, June 16 2009 @ 11:57 AM EDT

"Hank Phifteen" is probably Hank Feinstein of Gagnon Securities, a fund manager who touted SCOX during one of the last earnings calls in March 2007. He seems to have been the only institutional investor in the world stupid enough to be still buying in the quarter when SCO went bankrupt. This was discussed on the site that dare not speak its name here, but you can find it on Google, if you're immune to find-PJ cooties.

[ Reply to This | # ]

Gladstone said it more than a century ago
Authored by: sgtrock on Tuesday, June 16 2009 @ 12:35 PM EDT
"Justice delayed, is justice denied."

This isn't a marathon, PJ. It's a bad, bad, BAD joke, and we're the butt of it.

[ Reply to This | # ]

Selling the Unix business?
Authored by: paul_cooke on Tuesday, June 16 2009 @ 12:51 PM EDT
can they do that? surely Novell gets to veto on it as it isn't really SCO's to

Use Linux - Computer power for the people: Down with cybercrud...

[ Reply to This | # ]

Isn't selling assets part of the Ch. 7 process?
Authored by: vb on Tuesday, June 16 2009 @ 01:02 PM EDT
I don't quite understand why the trustee motion to convert (to Ch. 7) was
ignored because of an asset sale proposal.

How is finding an asset buyer going to help operate their business? As I
understand it, emerging from Ch. 11 means that the business is ready to move
forward and operate as a going concern. How is finding an asset buyer going to
help with the creation of a reorganization plan? I believe that a court
approved reorganization plan is required to exit Ch. 11.

It looked like SCO came running into the courtroom yesterday with "We've
got a buyer!". Fine - convert to Ch. 7 and proceed to sell the assets.

I'm confused on why an asset purchase that moves the company towards liquidation
is being used as an reason NOT to liquidate.

[ Reply to This | # ]

More reports to come?
Authored by: Anonymous on Tuesday, June 16 2009 @ 01:20 PM EDT
"I believe five Groklaw members were there ..."

Have the other three attendees nothing to add?

[ Reply to This | # ]

Doesn't make sense
Authored by: Anonymous on Tuesday, June 16 2009 @ 02:54 PM EDT
After reviewing what Merchant Bridge has to say about their history, business,
and executives (education & experience), I am at at loss to understand how
SCO's business could possibly be of legitimate interest to them. Merchant
Bridge works on a large scale, where I would suppose that even the idea of
giving SCO several million might cost them more than the value of the deal (in
terms of executive time and lost opportunity elsewhere).

While one might readily expect them to be investors in some high-tech venture,
providing funds, banking and business contacts, etc., they are unprepared to
take over some tired, worn-out version of Unix, vend it, and support it in
limited niche markets, even if the appropriate SCO people went over in the deal.
Nor would it be profitable to them to have it brought up to date for resale to
another company. I suppose they could give it away, but not much more.

My suspicion is that there is more here than meets the eye.

[ Reply to This | # ]

After a nuclear holocaust, the only thing left alive will be roaches... and the SCO Group.
Authored by: JamesK on Tuesday, June 16 2009 @ 03:10 PM EDT

Self Assembling Möbius Strip - See other side for details.

[ Reply to This | # ]

The plan may not fly any more than the last ones did.
Authored by: overshoot on Tuesday, June 16 2009 @ 03:56 PM EDT
Yes, but it buys them another "14" days to come up with another plan to spring a few minutes before the hearing in July!

Betting on the Court's patience with this game may not be much of a plan, but it's the only one in evidence. And who knows? The horse may learn to sing.

[ Reply to This | # ]

A couple observations
Authored by: bezz on Tuesday, June 16 2009 @ 09:57 PM EDT
Mr. Spector: Not asking for approval of the P&S today. They have documents to proceed as scheduled. The purpose of this is to show one of many unusual circumstances. We have a sale that can close in 30 days; by June 15th. We have testimony to show there won't be any money lost in the next 30 days. We have a shareholder prepared to underwrite any losses for the next 30 days.
That last line is important. Besides an assets sale (that will require more time to complete), SCO is preemptively taking out the argument for continued losses that will result by giving them more time.

I think they knew the unusual circumstances they presented in their reply to the motions to convert were not going to work. So, on with creating the unusual circumstances. These lines suggest to me this deal is going to be every bit as bad as the York and SNCP v0.1 deals.

Mr. Lewis: [ begins cross examination] The bucket of assets transferred in the sale, has this bucket ever come up before?

Mr. Kaplan: I was involved in York, parsing of what was held back, not involved or discussed.

Mr. Lewis: When you decided to sign the deal today, was it complete?

Mr. Kaplan: No. there will be cleanup, fixes, changes. There was no time to fix it.

York. Fantastic. A deal that was not ready for the emergency hearing to approve it and did not even spell out what was being sold. Not to worry, if SCO had sold some of Novell's property, Novell could litigate with who SCO sold it to.
Mr. Kaplan: Berger Singerman.

Mr. Levin: What is your specialty?

Mr. Kaplan: Business transactions and ? (cT: I didn't hear the second item).

Mr. Levin: No focus in IP?

Mr. Kaplan: No. Copyright and trademarks occasionally.

Mr. Levin: Was Mr. Lambert (cT: I may be wrong on that name) involved before you became involved?

Mr. Kaplan: I'm not sure.

So reminiscent of York. Rushed through at the last minute by someone who does not specialize in an area critical to the case. This APA should be an incredible read.

SCO better pull through with a sound APA and not lose any more money before the next hearing. Of course, how are we going to know that with the frequency and delinquency of its MOR's. Anyways, if they don't have something confirmable this time, it won't matter how long SCO babbles in opposition to convert because the important mind will be made up. Judge Gross went out on a limb for them and if this is another train wreck, he is going to look bad.

[ Reply to This | # ]

Part 2 of my report:
Authored by: charlie Turner on Tuesday, June 16 2009 @ 10:38 PM EDT
Another observation from the hearing. It was interesting watching/ listening to
Darl McBride on the stand. As Mr. Spector was questioning him (his own lawyer,
mind you), he would answer the question, and then start to speak on beyond the
response necessary to answer the question. (I could not tell/see if he was
getting cues from his counsel, or catching himself on his own, but he still
appears to have trouble knowing when to stop speaking in public, and on the
record.) He would then cut himself off.
When Mr. Spector was finished questioning Mr. McBride, he (Mr. Spector) turned
and started walking back to his table. Mr. McBride blurted out, "Can I say
one more thing?" Mr. Spector turned around and (I believe) looked at both
Mr. McBride, and Judge Gross. Judge Gross said "NO!" Mr. McBride gets
up and starts to step down from the witness stand. Mr. Spector had to tell Mr.
McBride twice that he must remain on the stand for cross examination. Mr.
McBride finally sits back down and remains quiet.

[ Reply to This | # ]

Thanks to our reporters.
Authored by: Ian Al on Wednesday, June 17 2009 @ 04:16 AM EDT
Now we have seen all the reports, I feel that we have an excellent feel for the
sights, sounds, smells, drama and the proceedings.

You might feel unhappy with what you were able to capture for us, but I think
you underestimate your achievement.

Thank you for your sterling contributions.

Ian Al

Linux: Viri can't hear you in free space.

[ Reply to This | # ]

Where was the Trustee?
Authored by: Anonymous on Wednesday, June 17 2009 @ 10:00 AM EDT

It seems odd to me that the Trustee doesn't show up more prominently in our
reporter's notes about the hearing.

If the Trustee had been assertive: "Judge, we can take care of any sale
after conversion." then the whole thing would have been different.

IamNotaLawyer - probably obvious

[ Reply to This | # ]

Three Possibilities:
Authored by: DaveJakeman on Wednesday, June 17 2009 @ 02:23 PM EDT
1. This Perry Mason moment was SCO's dastardly plan to make an end run around
the motions to convert being heard, giving them an extension until their
imagined appeal victory ruling, bypassing the deadline specified by statute.

2. It's a genuine, signed deal that SCO didn't have time to finish off
properly. Darl knew what would ensue after 2 pm if he didn't go into the
hearing with the deal signed. The deal wasn't finished and he wasn't happy with
it. He had no choice but to sign. SCO bought options on an airborne pig.

3. It's a genuine, signed deal that SCO just managed to get wrapped up minutes
before the hearing.

Take your pick.

[ Reply to This | # ]

Value of the "Unix Business"
Authored by: Anonymous on Wednesday, June 17 2009 @ 02:50 PM EDT
So, old-SCO bought the "unix business" from Novell for what? $100

And one of the arguments in the trial was that they wouldn't have done that
without being sure to get the copyrights.

Now they are going to sell the "unix business" for what? $2.5
million? And still no copyrights.

Do you think they will now claim $97.5 million in damages from IBM/Novell for
diminishing the value of their business?

[ Reply to This | # ]

    If all those people are interested ...
    Authored by: Anonymous on Wednesday, June 17 2009 @ 08:03 PM EDT
    Why don't they simly submit their own plan to buy SCO?

    [ Reply to This | # ]

    Update 5
    Authored by: DaveJakeman on Thursday, June 18 2009 @ 09:48 AM EDT

    Thanks for the write-up Web! Loved this bit:

    Mr. Levin: Is it true SCO stopped trying to find a deal?

    McBride: We took a breather.

    Mr. Levin: Isn't it true that you resumed deal efforts?

    McBride: Yes I haven't stopped.

    Barrel, fish, gun.

    [ Reply to This | # ]

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