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SCO Responds to IBM and Novell Objections to the Sale, as text
Thursday, July 23 2009 @ 09:34 PM EDT

Here's SCO's response [PDF] to IBM and Novell's Objections to SCO's proposed sale to unXis and Novell's opposition to SCO's Notice of Cure, as text.

The most interesting detail is that Darl McBride admits, or should I say claims, that he paid Stephen Norris $100,000 out of Darl's personal funds for Mr. Norris' efforts to "put together a group of investors". First, why would that be normal or even needed if SCO's business is such a wonderful investment? Does it not scream desperation? And second, where are they, these lined-up investors? Where's the money? IBM told the court that in its recent deposition of Mr. Norris, Norris admitted there's no one who has signed on the dotted line.

Other interesting points: SCO says it is not assuming the 1995 APA between it and Novell, and that contract also isn't going to unXis. SCO also says it didn't know the score about Mark Robbins' allegedly fraudulent conduct and payments to him weren't about the unXis deal, so it's irrelevant:

IBM's argument to the contrary notwithstanding, as a matter of law, anything unsavory that Mr. Robbins, who had nothing to do with unXis or the instant transaction, is alleged to have done does not call into question Debtors' disclosures or the good faith of the Debtors or the proposed sale.
Footnote 8 is a fascination, about Mark Robbins, on the same theme of painting Mr. Robbins' connection to things SCO as tenuous:
8 Mark Robbins, the person who introduced Mr. McBride to Mr. Norris and who held himself out loosely as Mr. Norris's partner, had promised to repay Mr. McBride for the $100,000 Mr. McBride advanced to Mr. Norris. Separately, Mr. McBride loaned Mr. Robbins directly nearly $200,000 unrelated to anything pertaining to the Debtors. Mr. Robbins has not repaid any of these amounts to Mr. McBride.
Why, if Robbins has nothing to do with all this, would he offer to repay the money Darl says he paid to Norris? Riddle me that, Batman. And "Mark Robbins ... who *held himself out loosely* as Mr. Norris's partner"???? Do they think we have lost our long term memory? Here's what *SCO* and SNCP put in the press release back in February of 2008, The SCO Group Announces Reorganization Plan to Include $100 Million Financing by Stephen Norris Capital Partners, about the first "deal":
About Stephen Norris Partners

Stephen Norris & Co. Capital Partners, L.P. is a private equity investment partnership formed to (i)"co-invest" alongside well established and successful private equity and leveraged buyout firms, (ii) take advantage of the business experience and relationships of its Investment Committee, including Steve Norris' long-standing relationships and substantial private equity experience.

Mr. Norris co-founded The Carlyle Group, a private equity and LBO firm in Washington, D.C, where he served as a founder and managing director until 1995. During his tenure in the investment business, Mr. Norris has made, directed or participated in over 125 leveraged buyouts, venture capital and real estate equity investments totaling more than $6.0 billion, and yielding an average annual internal rate of return (IRR) of over 38%. Mr. Norris structured and negotiated investments over $1.0 billion on behalf of a prominent Middle Eastern investor in Citicorp, Euro Disney, and the Four Seasons Hotel Company. These investments have returned well over $10 billion. In 1990, Mr. Norris was appointed by former President George H.W. Bush and confirmed by the U.S. Senate as one of the five members of the $68 billion Federal Retirement Thrift Investment Board. During his tenure, Mr. Norris successfully advocated for the right of Federal employees to allocate a greater portion of their savings to public equities.

Mr. Norris' partner, Mark Robbins has extensive experience in structured finance and private equity as co-founder and managing partner of Peninsula Advisors. Mr. Robbins has managed and originated over $1.2 billion in private placements. Mr. Robbins has developed and engineered structured investments, business valuation models and diversified financial products in excess of $10 billion. Mr. Robbins has served as Investment Director and lead negotiator with several leading financial institutions.

I couldn't make this stuff up.

You can sum it up like this what SCO wants from the judge:

Pursuant to the Motion, the Debtors request the Court to approve a transaction that will enable payment in full of allowed claims, including the establishment of an effective surety for the disputed claim of Novell. Subject to the Court's approval and following the closing of the sale, the Debtors plan to seek the dismissal of these chapter 11 Cases and preserve, post-bankruptcy, business assets and litigation claims that provide meaningful prospects for substantial returns on shareholder equity. The proposed sale is good for creditors, good for the Debtors and good for their customers, employees and shareholders.
The mobility assets will pay off for shareholders? Since when? How many years has SCO been claiming that this business is just about to really take off? And surety for Novell's claims? They jest. Novell has already pointed out that they look to get nothing and that there is no provision at all, even a specious one, for IBM:
18. Third, the alleged protection for Novell's ability to recover on a judgment against the Debtors in the form of the Letter of Credit Sun (the "Novell LC") is to a very real extent illusory (and, therefore, along with it, the alleged $5.25 million sale price). First, the $2.85 million Novell LC already falls far short of the current judgment in the District Court Action over $3.5 million. In this regard, the PSA expressly says that Unxis will not be liable for any excess of a final judgment for Novell over the amount of the Novell LC. (PSA, Article 3.3(c)(iii).) This fact conflicts directly with the representation by the Debtors at the June 15 hearing quoted above: that the PSA will assure Novell of 100% payment.6 This representation is all the more disturbing if, as the Debtors claimed on June 15, the PSA was in final form.

19. But it gets worse. The Novell LC evaporates on December 31, 2009 if not drawn by then, with Unxis completely relieved of any obligation to pay or contribute to any judgment for Novell. (PSA, Article .3(c)(iv).). This might happen if the Tenth Circuit does not rule on the Debtors' appeal of the District Court Action by then or reverses and remands for further proceedings that do not result in an enforceable judgment by then. As with the inadequate amount of the Novell LC just discussed, this expiration term in the PSA again means that the Debtors' representation to the Court that the PSA assures Novell of 100% payment was and is false.

20. Note also that there is no provision for payment of IBM and other counterparties to the Litigation.

SCO's response says it will extend the deadline for evaporation from December 31, 2009 until June 30, 2010.

SCO at one point describes the financial package, and the description includes this:

...together with additional consideration in the form of assumption of certain liabilities at Closing, defined as the Assumed Liabilities, which the Debtors project at $150,000.
That figure leaped off the page for me. I can't help it. Isn't that more or less the amount of the Microsoft Licensing claim it just transferred to LNS? I'm not saying it's the case, but one can't help but notice that, putting our imaginations to work, if Microsoft transferred the claim for, say, a dollar, and the claim ultimately paid LNS $150,000 or so, it'd be just the right amount to reimburse unXis for the assumption of liabilities. Plus, I haven't forgotten SCO's desire to fulfill its alleged moral duty to pay York respecting the last proposed reorganization plan, even though it died before coming to fruition and there was no contractual duty to pay them. That was, at the high end, $150,000 also:
4. SCO believes that as a business and moral matter SCO should make the $50,000 payment to York under the Term Sheet (which it did finalize) or the $150,000 payment to York under the terms of the Asset Purchase Agreement (which was virtually completed at the time SCO and York abandoned the transaction.
LNS and York seem to share at least one principal. You don't suppose ...? But where does Microsoft fit in this picture? What is it to them?

What else is in SCO's response? Add some assertions regarding no wrongdoing having occurred and several episodes of SCO sobbing about its business, and you have the entire picture. SCO alleges that the only reason IBM and Novell are objecting is they are so scared of the litigation. No. Really. They say that:

Certain of Novell's and IBM's allegations are not well-founded -- as will be reflected by evidence at the hearing on this motion -- and serve only to sling mud on the Debtors and the proposed purchaser, unXis, Inc. ("unXis"), and undermine their mutual good faith efforts to effectuate a sale that will provide for the payment in full of all creditor claims and the Debtors' emergence from bankruptcy.
Except the judge has already said that he won't listen to anything about the litigation. They forgot to mention that the US Trustee objected too. Oracle put in a limited objection. Well, SCO doesn't care what anyone says. They do whatever they please. I have a cat like that.

And SCO, as is its wont, refuses to be specific in advance. How much fun would hearings be without Perry Mason moments?

Finally, some of the points raised by the Objections are best addressed at the hearing on the Motion, and will be so addressed at that time.
Like, at a time when no one will be prepared to answer or even ask any appropriate questions. Perfection. SCO perfection. And later in the document SCO says this:
Both IBM and Novell argue that none of these four requirements have been met. At the Sale Hearing, the Debtors will satisfy their burden of proof on each point.
Um. How about a hint in advance so IBM and Novell and the US Trustee can prepare? Nope. SCO doesn't want to tell and no one can make them, is what I get from this document. Either that, or they really don't know yet what they are going to do and say. That is possible, and here's a hint it might be the case:
5. Transfer of Retained SCO Rights. The PSA Article 12 language drew close scrutiny in the Objections. The Objections addressed scenarios and circumstances that are different from those the Debtors and unXis intended to address in the PSA. The PSA Amendment therefore will amend Article 12 of the PSA, to remove uncertainties regarding insolvency events and alleged "ipso facto" clauses. The PSA Amendment will also clarify the parties' original intent by stating that the license granted to unXis in Section 12.1 confers on unXis the status, rights and protections afforded to a licensee under 365(n) of the Bankruptcy Code.
If it were already written, presumably they'd say they fixed it and tell how, as they did with specificity regarding the date of evaporation of unXis's requirement to pay Novell.

I'll show you the sobbing part now:

In stark contrast, IBM and Novell are out for themselves and seek only to avoid the consequences of their wrongful exploitation of the UNIX computer code for the benefit of their LINUX-related business. It is telling that with one possible minor exception, no other creditor has filed an objection to the sale.

Overall, IBM and Novell are disingenuous in criticizing the Debtors for seeking to retain litigation rights. SCO Group's principal business and prospects were devastated by the taking of its intellectual property, which IBM bundled in a competing free product that is critical to its business, while Novell pronounced that SCO does not own the intellectual property in question and sought to waive SCO's own infringement claims to SCO's further detriment. It is absolutely appropriate, arguably absolutely necessary, for the Debtors to take actions to clarify and enforce their intellectual property rights, enjoin violations, and recover damages. Novell has done this is suing Microsoft, by way of example. Novell, IBM and SCO Group each have spent tens of millions of dollars litigating these claims, and the litigation has been widely followed, precisely because much is at stake.

Dude, Novell won. You lost. Get over it. No one harmed you if you don't own the copyrights. And if the contract says Novell can block your litigious moves, that's what the judge said the contract says. That isn't harm to you. It's harm to Novell that it had to go into court and deal with bogus claims to establish the obvious. As for IBM, I believe it is going to wipe the floor with you, as I'm certain you know by now, even if by some miracle the copyrights became yours after all. That's because you have been unable to demonstrate any meaningful infringement.

Speaking of ingenuous.

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

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE

In re:

THE SCO GROUP, INC., et al., 1

Debtors.
Chapter 11

Case Number 07-11337 (KG)
(Jointly Administered)

Hearing Date: July 27, 2009 at 9:00 a.m. (prevailing Eastern time)

DEBTORS' RESPONSE TO OBJECTIONS AND OPPOSITIONS OF NOVELL AND
INTERNATIONAL BUSINESS MACHINES CORPORATION TO THE DEBTOR'S
MOTION FOR AUTHORITY TO SELL PROPERTY OUTSIDE THE ORDINARY
COURSE OF BUSINESS FREE AND CLEAR OF INTERESTS AND FOR APPROVAL
OF ASSUMPTION AND ASSIGNMENT OF EXECUTORY CONTRACTS AND
UNEXPIRED LEASES IN CONJUNCTION WITH SALE

The above-referenced debtors in possession (collectively, the "Debtors"), hereby submit their response to the objections and oppositions that were filed by Novell (the "Novell Objection") and International Business Machines Corporation ("IBM") (the "IBM Objection") (collectively, the "Objections") in response to the Debtors' Motion for Authority to Sell Property Outside the Ordinary Course of Business Free and Clear of Interests and for Approval of Assumption and Assignment of Executory Contracts and Unexpired Leases in Conjunction with Sale (the "Motion").2 It is telling that the only two creditors opposing the Motion are those that are defendants in the lawsuits filed by one of the Debtors in which the parties collectively have spent many tens of millions of dollars in litigating claims. The Objections must be seen for what

they are: an attempt to cut-off the claims in litigation regardless of the effect on the creditors, customers, employees and shareholders of the Debtors.

Pursuant to the Motion, the Debtors request the Court to approve a transaction that will enable payment in full of allowed claims, including the establishment of an effective surety for the disputed claim of Novell. Subject to the Court's approval and following the closing of the sale, the Debtors plan to seek the dismissal of these chapter 11 Cases and preserve, post-bankruptcy, business assets and litigation claims that provide meaningful prospects for substantial returns on shareholder equity. The proposed sale is good for creditors, good for the Debtors and good for their customers, employees and shareholders.

IBM and Novell suppose and argue, without support, that in proposing this sale, the Debtors' management is concerned singularly about itself. In fact the converse is true. IBM and Novell are interested only in putting SCO out of business so it cannot pursue its legal claims against them.

Certain of Novell's and IBM's allegations are not well-founded -- as will be reflected by evidence at the hearing on this motion -- and serve only to sling mud on the Debtors and the proposed purchaser, unXis, Inc. ("unXis"), and undermine their mutual good faith efforts to effectuate a sale that will provide for the payment in full of all creditor claims and the Debtors' emergence from bankruptcy.

On the other hand, certain of the objection points raise legitimate questions concerning the Purchase and Sale Agreement (the "PSA"). The Debtors and unXis themselves identified a few terms of the proposed sale and PSA that warranted amendment, including some points raised in the Objections. These amendments are described below and referred to as "PSA

2

Amendments." The Debtors will request the Court to approve the PSA Amendments when they seek the approval of the Motion.

Finally, some of the points raised by the Objections are best addressed at the hearing on the Motion, and will be so addressed at that time.

For the reasons stated in the Motion and herein, and after the Court has considered all of the evidence presented at the scheduled July 27, 2009 hearing, the Objections should be overruled and the Motion granted.

PSA AND PSA AMENDMENTS

UnXis proposes to acquire the Debtors' Unixware and Open-Server business and related assets for a purchase price stated in the PSA that will pay or make adequate provision for all allowed claims against the Debtors' estates, while preserving the Debtors' Mobility applications and Litigation Claims for the benefit of the Debtors' equity holders. The proposed purchase price is $5.25 million, consisting of the following: (a) a $250,000 deposit, plus (b) $2.15 million in the form of a letter of credit to be drawn at Closing (the "Letter of Credit-Balance"); plus (c) the Letter of Credit-Sun to be posted at Closing in the amount of $2.85 million;3 together with additional consideration in the form of assumption of certain liabilities at Closing, defined as the Assumed Liabilities, which the Debtors project at $150,000.

The Debtors, unXis, IBM, and Novell all agree that certain provisions of the PSA require amendment or clarification. The Debtors and unXis are finalizing an Amendment to the PSA

3

(the "PSA Amendment") which, as of filing of this Response is in a working draft state and which is projected to be signed by the Debtors and unXis and filed with the Court prior to the hearing. The PSA Amendment will address the following concerns as articulated in the Objections and as noted independently by Debtors and unXis:

1. Timing. Termination Date & Letter of Credit Balance. The PSA Amendment will extend the Termination Date (the last day to close the transaction) from September 13, 2009 to September 30,2009. The PSA Amendment will also clarify the deadline by which the Letter of Credit-Balance must be posted. Section 3.2 of the PSA provided that the Letter of Credit-Balance must be posted on or before the 5th Business Day after entry of the Sale Order. The PSA Amendment will change this to require that the Letter of Credit-Balance must be posted by the sooner of that time or in any event by Closing. The PSA Amendment also will provide that unXis may pay $2.15 million in immediately available funds at closing, instead of posting the Letter of Credit-Balance.

2. Purchase Price & Assumed Liabilities. The PSA Amendment will confirm the calculation of the Purchase Price as of the contract date, including the Debtors' projected $150,000 in Assumed Liabilities, and will also confirm that unXis has the continuing right to direct changes in the Assumed Liabilities within the time periods ending at the hearing, as provided in Section 7 .1 (c) of the PSA.

3. Clarification regarding the Novell APA. The PSA Amendment will further confirm the parties' decision that the Novell APA is not being assumed or assigned.

4. Letter of Credit-Sun and Appeal. The PSA Amendment will provide minor clean-up in two respects. The August 31, 2009 date projected for a ruling from the Tenth Circuit on the appeal from Novell's Judgment (the "Appeal") will be extended to September 30, 2009. The

4

Debtors are advised by the Tenth Circuit clerk's office that appellate decisions have been issued on matters heard the same day as the Appeal, and since Judge McConnell heard the Appeal, intends to retire from the bench on August 31st, and plans to issue opinions on his matters before he retires, the Appeal should be decided by August 31st. In addition, the PSA Amendment will revise the draw or retention contingencies relating to the Letter of Credit-Sun to address specifically the monetary damages portion of the Judgment (there are other aspects of the Judgment and Appeal that have no relevance to the Letter of Credit-Sun). Also, the PSA Amendments will extend from December 31, 2009 until June 30, 2010, the outside date by which the Letter of Credit-Sun must be drawn, if at all.

5. Transfer of Retained SCO Rights. The PSA Article 12 language drew close scrutiny in the Objections. The Objections addressed scenarios and circumstances that are different from those the Debtors and unXis intended to address in the PSA. The PSA Amendment therefore will amend Article 12 of the PSA, to remove uncertainties regarding insolvency events and alleged "ipso facto" clauses. The PSA Amendment will also clarify the parties' original intent by stating that the license granted to unXis in Section 12.1 confers on unXis the status, rights and protections afforded to a licensee under 365(n) of the Bankruptcy Code.

LEGAL STANDARD FOR SALE OUTSIDE THE ORDINARY COURSE OF BUSINESS

Giving effect to the proposed amendments included in PSA Amendment summarized above, and as noted below in addressing other issues Novell and IBM raised, there is no basis for the bad faith and fairness arguments in the Objections. As noted in the Motion, sales of assets outside the ordinary course of business are governed by section 363(b) of the Bankruptcy Code and Bankruptcy Rule 6004(f). The use, sale, or lease of property of the estate, other than in the

5

ordinary course of business, is authorized when there is a sound business justification for such action. See Comm. of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1070 (2d Cir. 1983). Both Novell and IBM acknowledge this point. See Novell Objection at p. 11; IBM Objection at p. 10.

The Objections wrongly assert that the Debtors have a burden to "prove," in the Motion, why the Court should approve the sale. Rather, the Debtors' responsibility to introduce evidence in support of the Motion arises at the hearing, and the Debtors will bear and discharge this burden at the hearing. The Debtors will provide ample evidence to meet each one of the predicates or requirements that need to be established or satisfied in order to approve a sale outside the ordinary course of business, including those that this Court identified in In Exaeris, Inc., 380 B.R. 741, 744 (Ban. D. DeL. 2008): (1) there is a sound business purpose for the sale; (2) the proposed sale price is fair; (3) the debtor has provided adequate and reasonable notice; and (4) the buyer acted in good faith.

Both IBM and Novell argue that none of these four requirements have been met. At the Sale Hearing, the Debtors will satisfy their burden of proof on each point.

1. Sound Business Purpose

As this Court knows, the Debtors have been attempting to effectuate a sale of their assets throughout these chapter 11 cases. The signing of the PSA was anything but an eleventh hour and fifty-ninth minute attempt to stave off conversion of these cases or the appointment of a chapter 11 trustee. In the months preceding the June 15,2009 hearing on the motions to convert, the Debtors had been in intensive and continuing negotiations on four separate transactions. These, summarized for the Court in testimony taken on June 15th, followed a number of earlier attempts to achieve new capitalization or a sale of assets. Ultimately, the Debtors approved and

6

moved forward with the proposed sale to unXis now before the Court because it was and is the best deal available for the Debtors and their creditors as well as their customers, employees and shareholders.

Novell contends that the "last minute gambit" of the PSA (Novell Objection Section 6) somehow demonstrates that the proposed sale is nothing but a ".. . headlong and heedless attempt to avoid conversion and loss of control of the Litigation." Actually, not. The timing within which the PSA was finalized, approved and filed demonstrates that it came together in its own time, albeit a time-frame that bumped against a deadline - the June 15 hearing. The Debtors had been working on various transactions well in advance of June 15, and while that hearing date had nothing to do with the Debtors' longstanding efforts to effectuate a transaction, the fact is that the unXis deal ripened when it did, and it should come as no surprise that the Debtors and unXis saw good reason to complete the PSA if possible prior to a hearing on conversion. Nothing captures attention quite like a deadline with possible consequences. Motions to convert fit this bill. The timing was inconvenient, but ultimately propitious, since the PSA was in fact completed.

IBM and Novell are not interested in the welfare of the creditor body at large or the Debtors' shareholders. They have accused the Debtors' management of misusing these cases, and sought to convert these cases to chapter 7 as a litigation strategy to benefit themselves, at the direct expense of the Debtors, and particularly their shareholders. In fact, the Debtors' management continues to address and perform their fiduciary duties to all creditors and all shareholders. In stark contrast, IBM and Novell are out for themselves and seek only to avoid the consequences of their wrongful exploitation of the UNIX computer code for the benefit of

7

their LINUX-related business. It is telling that with one possible minor exception, no other creditor has filed an objection to the sale.4

Overall, IBM and Novell are disingenuous in criticizing the Debtors for seeking to retain litigation rights. SCO Group's principal business and prospects were devastated by the taking of its intellectual property, which IBM bundled in a competing free product that is critical to its business, while Novell pronounced that SCO does not own the intellectual property in question and sought to waive SCO's own infringement claims to SCO's further detriment. It is absolutely appropriate, arguably absolutely necessary, for the Debtors to take actions to clarify and enforce their intellectual property rights, enjoin violations, and recover damages. Novell has done this is suing Microsoft, by way of example. Novell, IBM and SCO Group each have spent tens of millions of dollars litigating these claims, and the litigation has been widely followed, precisely because much is at stake.

At the July 27th hearing, the Debtors will provide evidence from which "the Court can make an informed decision on the relationship of the sale price to the value of the assets being sold," and why there is a sound business purpose for the sale. Exaeris, 380 B.R. at 744-45.

2. Proposed Sale Price is Fair

IBM focuses its primary objections to the sale price on the Letter of Credit-Sun terms,5 and the Closing and termination provisions, all of which IBM contends are unfair.6 As is well

8

known and as will be shown again at the hearing on the Motion, the Debtors have been diligently trying to sell their assets throughout the pendency of these cases. The terms the Debtors were able to obtain from unXis are the best available, reached after thoroughly testing the market for a higher or better deal, and by pursuing potential sales with various other potential purchasers and investors.

IBM contends that the Debtors were held hostage by last minute negotiations and the absolute need to produce an agreement on any terms. This misrepresents the nature of the negotiations. The last minute negotiations on the PSA were not about price at all, but rather, concerned the Retained Rights and divestiture events. The price was negotiated well in advance.

IBM suggests that the PSA is unfair as relates to the Letter of Credit-Sun, in that it provides for a lower purchase price if higher value assets are conveyed (in other words, if the litigated copyrights and contract rights turn out not to be owned by Debtors). This mischaracterizes the transaction. The consideration for shareholders is the same. The Letter of Credit-Sun addresses the uncertainty everyone has had and continues to have as to the extent of Debtor liabilities (because of the monetary damages under the Novell judgment). The Letter of Credit-Sun is a device that protects Novell's claim and shareholder equity whether the $2.5 million Novell judgment is affirmed or reversed. This allows the transaction to close, which confers value on Debtors' shareholders.

As to objections relative to the posting of letters of credit by closing and the termination of the Letter of Credit-Sun on December 31, 2009 if it is not drawn by that date, the PSA Amendment addresses those concerns as summarized above.

9

3. Debtors Have Provided Adequate and Reasonable Notice of Proposed Sale

It appears that only Novell objects to the adequacy of the sale notice as IBM did not raise the issue. This argument is baseless as the Debtors have complied with the notice requirements of Bankruptcy Rules 2002 and 6004. Specifically, the Motion includes a copy of the PSA, it sets forth terms of the proposed sale, and it was served on all parties required.

Novell implies that the PSA may not have been completed on the afternoon of June 15th, because "crucial" schedules and exhibits were not delivered to Court with the signed PSA itself. Novell cites statements concerning the status of exhibits and schedules at the time the PSA was presented on June 15th (the PSA exhibits and schedules "would be ready shortly, perhaps even before the hearing concluded. Indeed, the Debtors said, they (sic) copies should be available in minutes" (Novell Objection Section 6, quoting 6/15 Tr. 9:24-10:3). Novell quotes a statement that the document "was still being copied" because it had just been signed and was "enormous" (citing to 7/15 Tr. 7:23-8:4).

The remarks quoted in the sentence immediately above actually pertained to a report about copying the PSA itself (6/15 Tr. 7:17-8:1). Testimony at the June 15th hearing focused on the fact that negotiations and drafting were complicated by the need to describe accurately which assets were being sold and which were not (6/15 Tr. 39:8-41:5); and that scheduling was elaborate and had been very difficult (6/15 Tr. 42:12-24); and that it was conceivable that later clean-up might be required (6/15 Tr. 52:1-23). The Debtors did not mislead the Court or the parties about the status of schedules.

Novell complains that schedules and exhibits were delivered late and that the "Debtors could not state positively whether the crucial Novell-Santa Cruz APA that was at the heart of the litigation was to be assumed or not (it was not). (Novell Objection Section 9). The fact is that

10

the Novell APA was never listed as an assumed asset in the PSA or in any schedules. The schedules and exhibits were being developed simultaneously with the PSA. The PSA states what is being sold and what is not, and provides that the list of contracts to be assumed by unXis may change at the direction of unXis.

The Debtors believe that the PSA would not have been executed without agreement on all material terms. The PSA itself is crucial as to material terms. The schedules and exhibits identify various details so as to elaborate on and give further effect to the substance of PSA. As it turned out, there were some inconsistencies in the scheduling - considered minor by the parties - and these were being noted and fixed on June 15th and for a time thereafter.

Novell's question about whether the Novell APA was to be assumed was a fair one. It prompted a careful second look by the Debtors and unXis, to ensure that they had gotten it right the first time. They did, and confirmed that information for Novell. The bottom line is that the Debtors have made clear that the Novell-Santa Cruz APA is not being assumed and is not part of the sale.

As to particular notice issues raised by Novell, none have merit. First, if the Debtors seek to have their chapter 11 cases dismissed after a sale, then they will bring that before the Court with an appropriate motion, which itself will be noticed to all creditors. Second, there is no requirement in the rules or 363 requiring a sale motion to set forth "substantiated projections of debts to be paid and the results of future operations." Novell Objection, p. 11.

The notice of the proposed sale and of the purchased assets was certainly adequate as to Novell as can be seen by the vigorous objection that it filed.

4. Buyer (and the Debtors) Have Acted in Good Faith

11

The major thrust of IBM's Objection seems to be that the sale is not in good faith, primarily in two ways: a) the so-called "poison pill provision" in the Purchase and Sale Agreement, and b) "undisclosed payments" in connection with the proposed sale. Neither of these arguments has merit.

a. There is no Poison Pill

As noted above, the PSA Amendment will clarify Article 12 of the PSA and resolve the so-called poison pill problem that IBM identified by eliminating "ipso facto" consequences.

b. No Payments Requiring Disclosure Have Been Made

IBM mistakenly argues that "discovery has unearthed undocumented payments by the Debtors' affiliates in connection with the PSA that have not been previously disclosed to the Court." IBM Objection at p. 16. This is a red-herring asserted by IBM simply to make it appear that the Debtors have done something improper. The Debtors have made all disclosures required, both to the Court and to the creditors of these estates.

First, neither of the Debtors made any of the payments of which IBM complains. Rather, the payments in question were made in 2008 by non-debtors: (a) a $100,000 payment by a non-debtor Japanese subsidiary, SCO Japan, Ltd., for work Stephen Norris Capital Partners, LLC performed in connection with studies and analysis of the BRICMEA emerging markets,7 and (b) $100,000 by Darl McBride from his own personal funds to Mr. Stephen Norris as payment to Mr. Norris for his efforts in helping to put together a group of investors, possibly to acquire some or all of the Debtors' assets or to further other business opportunities.8 No property of the estate

12

was or is at issue. Nothing improper was done.9 The estates were not depleted, and if anything, gained value by the services performed.

Second, the payments in question had nothing to do with the proposed sale to unXis that is before the Court. This is important because the deposition testimony was clear, and the evidence produced at the hearing will be clear to the Court, that while Mr. Robbins first introduced Mr. Norris to Mr. McBride at the end of 2007, Mr. Robbins had nothing to do with the services provided by Mr. Norris (other than, perhaps, the proposal by a different group of investors much earlier in the case), and most importantly, with the present transaction with unXis. IBM refers to the Disclosure Statement that the Debtors filed in January of 2009. See IBM Objection, p. 9. IBM fails to mention, however, that Mr. Robbins' alleged fraudulent activity first came to light in late January, 2009, after the filing of the Disclosure Statement. IBM's argument to the contrary notwithstanding, as a matter of law, anything unsavory that Mr. Robbins, who had nothing to do with unXis or the instant transaction, is alleged to have done does not call into question Debtors' disclosures or the good faith of the Debtors or the proposed sale.

For all of the foregoing reasons, and in light of the evidence that the Debtors anticipate presenting to the Court on July 27, 2009, the Debtors respectfully request entry of an order granting the relief requested in the Motion, as well as granting any other and further relief the Court deems just and proper, and overruling both the Novell Objection and the IBM Objection.

Dated: July 22, 2009

13

PACHULSKI STANG ZIEHL & JONES LLP

/s/ Kathleen P. Makowski
Laura Davis Jones (Bar No. 2436)
James E. O'Neil (Bar No. 4042)
Kathleen P. Makowski (Bar No. 3648)
[address, phone, fax, emails]

and

BERGER SINGERMAN, P.A.
Arthur J. Spector
[address, phone, fax, email]
Co-Counsel for the Debtors


1 The Debtors and the last four digits of each of the Debtors' federal tax identification numbers are as follows: (a) The SCO Group, Inc., a Delaware corporation, Fed. Tax Id. #2823; and (b) SCO Operations, Inc., a Delaware corporation, Fed. Tax ID. #7393.

2 Unless otherwise noted, all defined terms used herein shall have the same meaning as used in the Motion.

3 The Letter of Credit-Sun is being posted in favor of the Debtors as surety for the Final Judgment in Novell's favor, on the appeal of which the Tenth Circuit is expected to rule shortly. Novell misleadingly argues that the $2.85 milion amount of the Letter of Credit-Sun is insufficient because it falls short of the current judgment amount. See Novell Objection, p. 7. Novell fails to mention that the Debtors are already holding approximately $625,000 specifically for Novell, which, when coupled with the $2.85 milion Letter of Credit-Sun, provides the amount needed to pay Novell in full in the event that the Debtors' appeal to the Tenth Circuit on that issue fails.

4 An ostensible objection to the Motion was received from a company named Ms MIS Sunay Computers Pvt. Ltd. that is organized under the laws of India. It really does not object to the sale. Rather, it merely asserts, albeit belatedly and long after the bar date, a very old claim against the Debtors' predecessors.

5 IBM made reference to the testimony of Mr. Stephen Norris, the designated witness for unXis at its Rule 30(b)(6) deposition, and that he did not provide specifics regarding the sources of capital for the PSA closing. See IBM Objection, p. 9. Respectfully, that is a closing issue, not one as to whether the sale price is fair.

6 Novell simply argued that the question of price remains unsettled as the "Debtors negotiated from desperation."

7 BRICMEA stands for Brazil, Russia, India, China, Middle East, and Africa.

8 Mark Robbins, the person who introduced Mr. McBride to Mr. Norris and who held himself out loosely as Mr. Norris's parner, had promised to repay Mr. McBride for the $100,000 Mr. McBride advanced to Mr. Norris. Separately, Mr. McBride loaned Mr. Robbins directly nearly $200,000 unelated to anything pertaining to the Debtors. Mr. Robbins has not repaid any of these amounts to Mr. McBride.

9 In fact, in his deposition, Mr. Norris testified that he was not retained as a consultant by the Debtors, he has never been paid a penny by the Debtors, and neither Debtor has ever made him any promise of compensation.

14


  


SCO Responds to IBM and Novell Objections to the Sale, as text | 205 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
OT - Off topic thread starts here
Authored by: Totosplatz on Thursday, July 23 2009 @ 09:41 PM EDT
Please make links clicky

---
Greetings from Zhuhai, Guangdong, China; or Portland, Oregon, USA (location
varies).

All the best to one and all.

[ Reply to This | # ]

Comic Relief Thread starts here!
Authored by: Totosplatz on Thursday, July 23 2009 @ 09:44 PM EDT
Don't we need one of these?

---
Greetings from Zhuhai, Guangdong, China; or Portland, Oregon, USA (location
varies).

All the best to one and all.

[ Reply to This | # ]

Corrections if needed
Authored by: jesse on Thursday, July 23 2009 @ 09:46 PM EDT
thank you.

[ Reply to This | # ]

News Picks thread starts here
Authored by: Totosplatz on Thursday, July 23 2009 @ 09:47 PM EDT
Please make links clicky

---
Greetings from Zhuhai, Guangdong, China; or Portland, Oregon, USA (location
varies).

All the best to one and all.

[ Reply to This | # ]

SCO's Responds to IBM and Novell Objections to the Sale, as text
Authored by: Anonymous on Thursday, July 23 2009 @ 09:52 PM EDT
"And second, where are they, these lined-up investors? Where's the money?
Where's the money? IBM told the court that in its recent deposition of Mr.
Norris, Norris admitted there's no one who has signed on the dotted line.
"

So there is no financial guarantee for the deal,
and in that case it would seem the court has no reason whatsoever to approve it.
In its response SCO doesn't address this issue. So unless SCO shows up at the
hearing with cash on the barrelhead, it's all over.

Do I have this right?

[ Reply to This | # ]

SCO's Responds to IBM and Novell Objections to the Sale, as text
Authored by: Steve Martin on Thursday, July 23 2009 @ 09:56 PM EDT

Okay. Let me see if I understand.

  • Darl McBride paid Stephen Norris $100,000 out of his own pocket for work Norris did in lining up investors to help bail TSG out.

  • Later on in this filing we are told that "Mr. Robbins had nothing to do with the services provided by Mr. Norris."

If these two statements are true, then why (according to Footnote 8) did Robbins promise that he'd repay the $100k that McBride advanced to Norris? Out of the goodness of his heart??

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

[ Reply to This | # ]

Best cliffhanger ever
Authored by: Anonymous on Thursday, July 23 2009 @ 09:59 PM EDT
SCO just keeps getting in tighter and tighter
spots ... and keeps coming up with a last
second way to last long enough to get into
the next tighter spot.

Whatever will happen on July 27? Can they
do it one more time?

[ Reply to This | # ]

"The Debtors have made all disclosures required...."
Authored by: SirHumphrey on Thursday, July 23 2009 @ 10:32 PM EDT
If that were true, then Judge Wells, Judge Kimball, IBM, Novell, Red Hat,
Autozone, Daimler-Chrysler, the Linux community and Blind Freddy would know WITH
SPECIFICITY, EXACTLY what code infringes, and how a company that bought only the
rights to MARKET a product, could then OWN the product.

[ Reply to This | # ]

Could lack of specificity finally get them
Authored by: Anonymous on Thursday, July 23 2009 @ 10:34 PM EDT
And SCO, as is its wont, refuses to be specific in advance. How much fun would hearings be without Perry Mason moments?
Could the judge rule that since SCO failed to resolve ALL the objections at the hearing that he will appoint a trustee. After all they have had 21 months now to find a solution that would appease the creditors.

[ Reply to This | # ]

SCO's Responds to IBM and Novell Objections to the Sale, as text
Authored by: Anonymous on Thursday, July 23 2009 @ 10:54 PM EDT
It's late, my eyes are bleary, but I didn't see anywhere they tried to tap dance around the "poisoned pill" provision in the PSA. Where unXis automagically gets the rest of SCO's business if the court converts them to Chap. 7 or a trustee is appointed.

That's one of the most mind blowing clauses in a long series of mind blowing clauses. It's like telling the court, "You think you can convert us to Chap. 7 or appoint a trustee? Think again sucker."

[ Reply to This | # ]

A Bit of irony
Authored by: Anonymous on Thursday, July 23 2009 @ 11:08 PM EDT

It seems ironic that one business that SCO failed to exploit
has ruined the very business that they are trying to say is
their future.

The mobile business is being overrun by *nix based phones.
Between iPhones, and all the various Linux phones making
funky mobile frameworks useless. I don't think anyone needs
what they are selling.

You watch, Windows, Symbian and RIM are about to be
displaced by Android, LiMo, and iPhones. If SCO would have
put some effort into marketing to the embedded market, there
could be some future for them. They chose some middle ground
using desktop PCs as servers, was in the right direction,
but they stopped there.

[ Reply to This | # ]

Scary stuff - SCO's Responds to IBM and Novell Objections to the Sale, as text
Authored by: Anonymous on Thursday, July 23 2009 @ 11:10 PM EDT
"Norris was appointed by former President George H.W. Bush and confirmed by
the U.S. Senate as one of the five members of the $68 billion Federal Retirement
Thrift Investment Board. During his tenure, Mr. Norris successfully advocated
for the right of Federal employees to allocate a greater portion of their
savings to public equities."

I bet they are really, really grateful.

Wasn't it the DOJ under Bush that gave MS a finger tap for their illegal
monopolistic activities?

[ Reply to This | # ]

Chapter 11 trustee, until appeal ruling
Authored by: Anonymous on Thursday, July 23 2009 @ 11:25 PM EDT

Seems to me leaving it in Chapter 11 until the appeal ruling comes,
but getting this circus out of management's hands might be the best
way serve creditors. Once SCO loses the appeal, the trustee will
already be up to speed and Chapter 7 can proceed seamlessly.

This management is so toxic, a neutral trustee might be the only
way to attract a real buyer.

[ Reply to This | # ]

What Sort of Market Analysis was Mr. Norris Paid For?
Authored by: Anonymous on Friday, July 24 2009 @ 12:02 AM EDT
Rather, the payments in question were made in 2008 by non-debtors: (a) a $100,000 payment by a non-debtor Japanese subsidiary, SCO Japan, Ltd., for work Stephen Norris Capital Partners, LLC performed in connection with studies and analysis of the BRICMEA emerging markets

Stephen Norris is a banker and deal maker. Why would he be paid to do a market analysis for SCO? What experience would he have to offer in the markets for software?

Mr. Robbins first introduced Mr. Norris to Mr. McBride at the end of 2007

So Robbins introduced Norris to McBride in 2007, several months after SCO filed for bankruptcy. In 2008 SCO Japan paid Norris a nice round $100,000 to do market research for them.

The timeline that I see is:

  1. Fall 2007 - SCO files bankruptcy.
  2. End of 2007 - Robbins introduces McBride to his business partner Norris.
  3. 2008 - SCO Japan pays Norris a nice round $100,000 for undefined "research".
  4. 2008 - McBride "lends" $300,000 to Robbins, including $100,000 that would go to Norris.
  5. January 2009 - Robbins is alleged to have been engaged in fraud.
  6. July 2009 - This information is reported to the court by IBM.

So, Robbins has allegedly absconded with $200,000 of McBrides money, and provided nothing tangible in return. Meanwhile, Norris has also ended up with $200,000 of McBride's and SCO's money, and done very little of value for it. McBride and SCO ended up with millions of dollars of Novell's money and are fighting to hang onto it. I'm wonder who's worse?

[ Reply to This | # ]

Depositions
Authored by: Anonymous on Friday, July 24 2009 @ 12:24 AM EDT
I wonder if Mr. Broederick and Mr Tibbets were deposed today? It is absolutely

amazing that SCO's attorney's game the system as much as they do. No
wonder they get the $$$'s

wjarvis

[ Reply to This | # ]

metaphors thread
Authored by: Anonymous on Friday, July 24 2009 @ 12:48 AM EDT
Inspired by Webster's brilliant "fighting with their pants down"
imagery in a post to the previous article, nominate your best metaphors for the
current situation of the main actors:

IBM's lawyers:
- have scented blood
- already have their jaws around SCO; serious shaking is about to commence

Darl & co:
- can finally see dorsal fins circling
- are finally showing indications they realize they're up a creek.
- are so far up the Amazon they're in the Atacama
- are not just up a creek, they're above a waterfall
- the waterfall is Angel Falls, and they have no other means of getting down
from the tepui

SCO's lawyers:
- are still tap-dancing after the lights have gone out
- surely see now that once IBM will inevitably crush the marrow from SCO's
bones

Given that IBM and Novell will next feast on Darl and friends in their
individual capacities, but will find the money long dissipated, IBM will be
thinking about restitution from a certain law firm that accepted SCO stock, and
knew or should have known very early on that SCO's claims were baseless.
Fighting naked is not a new strategy for SCO: the emperor's clothes vanished
with Blepp's briefcase.

Puns allowed in this thread too:
I don't think Spector will be clanking chains any time soon.

[ Reply to This | # ]

SCO's Responds to IBM and Novell Objections to the Sale, as text
Authored by: itsnotme on Friday, July 24 2009 @ 01:02 AM EDT
I was wondering to myself what the Judge must be thinking. I'm almost sure that
the Judge was trying to get SCO to put everything on the table BEFORE the
hearing which was why he had the teleconference and his orders.

Then SCO goes and tells everybody that they'll say what they have to say at the
hearing which kind of (in my opinion) defeated what the Judge was trying to do.

SCO has really never given fair notice from what I've read up until now, and
supposedly sales/deals go through faster and better if there's more prior notice
and this just had NO prior notice at all.

Considering the Judge's order ordered that there be no mention of the things
OUTSIDE of the bankruptcy itself and SCO has mentioned things outside of the
bankruptcy in the motion they just filed, it'll be interesting to see how the
hearing goes on the 27th.

Judge: I said you couldn't talk about that!
SCO: But I said it in one of my motions so that means I can say it!

[ Reply to This | # ]

Lets not get too excited(I hope I'm wrong)
Authored by: complex_number on Friday, July 24 2009 @ 02:17 AM EDT
and count on SCO going Chapter 7 being an odd on cert at the next court
hearing.

I certainly want to get this thing over and done once and for all but SCO and
their Lawyers have been shown time & time again very able to prevarrocate
and delay things almost ad-infinitum.
The tone of their response leads me to think that there is still something to
play for and that they will try to confuse the Judge with more slight of hand
and given his past record and despite the tone his last orders SCO will get away
and prolong our agony into the Autumn.

I don't have real fact to back up my statements above but it is just a feeling
and I'd certainly advise some caution and personally, I'm not getting my hopes
up that it will all be over soon as much as I wish it would be.


---

Ubuntu & 'apt-get' are not the answer to Life, The Universe & Everything which
is of course, "42"

[ Reply to This | # ]

SCO's Responds to IBM and Novell Objections to the Sale, as text
Authored by: Yossarian on Friday, July 24 2009 @ 02:42 AM EDT
>Except the judge has already said that he won't listen to anything about the
litigation.

Yes, so?

If I were the judge I'd do two things:
1) Tell Darl to move the big circus tent to some other
court room, appeal court included.

2) Nominate a trustee to:
a) Run SCO day-to-day operations.
b) Report to the court about the *actual* state of SCO.

[ Reply to This | # ]

Would You Buy SCO?
Authored by: Anonymous on Friday, July 24 2009 @ 04:25 AM EDT
I didn't think so. So why would York be interested (if they are)? The founder of York, James G. Dinan, is reported to be a billionaire, putting him in the same league as Bill Gates and his pal Warren Buffett. He didn't accumulate that wealth making foolish investments.

I've tried to find a connection between York and Microsoft, or Bill Gates, or Bill Gates' father, or the Bill and Melinda Gates Foundation, or Warren Buffet, or Nathan Myhrvold (alleged Microsoft patent troll), and so far I've found nothing.

In my searches, I did come across an interesting Fortune article, "Cashing in on litigation" which mentions York and our friends Boies Schiller & Flexner. Could this be part of their interest?

dc-houston

[ Reply to This | # ]

Do they think we have lost our long term memory?
Authored by: SpaceLifeForm on Friday, July 24 2009 @ 04:25 AM EDT
Yes, they do. That is what happens to people
who end up with a corrupted mind: They have
lost their long term memory, and also believe
that others are of like mind.

One of the key facets of the attacks on freedom
over the many past decades, is the belief that
if you attack long enough, and slow enough, and
most importantly, attack in very subtle manners,
that those being attacked will never notice.

Money - Short-term thinking - loss of long term memory.


---

You are being MICROattacked, from various angles, in a SOFT manner.

[ Reply to This | # ]

Value of SCO
Authored by: dodger on Friday, July 24 2009 @ 06:05 AM EDT
The value of SCO in this litigious world is in their 'Intellectual Property' as
it relates to litigation, not their 'IP' as relates to UNIX or Unixware. The SCO
lawsuit will go down in history as the Granddaddy of Lawsuits, where the product
is the lawsuit itself. I believe that the lawsuit is still interesting to the
PIPE Fairy in that it ties the competition into knots. The case can be
generalized to pertain to any technological or other business. So long as our
court system does not prevent misuse, such a business will florish.

[ Reply to This | # ]

Exhibits and Objections.
Authored by: rfrazier on Friday, July 24 2009 @ 06:30 AM EDT
Judge Gross's order requires Hearing exhibits to exchanged by noon on July 23,
2009, and objections by 4pm on July 24.

Doesn't this preclude the introduction of documents not seen by the other side
prior to the hearing? So, when SCOG tries to introduce a new, untested, version
of the APA, the judge can say that this is inconsistent with his order. And
that his decision will be based on what was on the table at 4 pm July 24, and
discussion of that (and only that).

Indeed, I could be mistaken, but I read his order as an explicit warning that
there would be no more Perry Mason moments.

Best wishes,
Bob

[ Reply to This | # ]

Wheel's Spinning, Place Your Bets
Authored by: TheBlueSkyRanger on Friday, July 24 2009 @ 07:50 AM EDT
Hey, everybody!

So...what are the odds the judge will actually buy this? I mean, that little
eruption the other day notwithstanding, he has cut SCO a seemingly unnatural
amount of slack.

Monday is a loooooooooooooong way away.

Dobre utka,
The Blue Sky Ranger

[ Reply to This | # ]

What I want to know is...
Authored by: Anonymous on Friday, July 24 2009 @ 08:06 AM EDT
If Mr. McBride is using his personal funds to make payments to actors in this
drama, does that make it easier for Novel (and later IBM) to go after him for
what they're owed?

[ Reply to This | # ]

  • Veil piercing - Authored by: Anonymous on Friday, July 24 2009 @ 12:04 PM EDT
How can SCO keep going like this without being a viable business?
Authored by: TiddlyPom on Friday, July 24 2009 @ 08:16 AM EDT
As a UK rather than USA citizen and having followed this sorry saga from the
beginning (and the beginning of Groklaw as well), I am amazed that SCO has been
allowed to drag this out for so long.

1) They clearly have no viable business plan (despite claiming to the contrary
several times).
2) All of their claims (except perhaps some very minor ones) have been
invalidated.
3) They have some very real claims again them (by Novell) of which they have not
paid a cent.

If it had been in the UK, (New) SCO would have been liquidated long before now
as a non-viable business unable to pay for its liabilities.

How much longer do we have to wait - and more importantly who gets SCO's
assets/licenses? SCO have dragged this case out for SIX YEARS now!

As a Linux user, I think it is time we had closure in this. We haven't heard
the last in terms of litigation since Microsoft seemed to have picked up where
SCO left off (now there's a surprise...) but this chapter should have been
closed YEARS AGO.

Hopefully the judge might close off this sorry state of affairs soon.

---
Microsoft Software is expensive, bloated, bug-ridden and unnecessary.
Use Open Source Software instead.

[ Reply to This | # ]

SCO Responds to IBM and Novell Objections to the Sale, as text
Authored by: Anonymous on Friday, July 24 2009 @ 08:40 AM EDT
"SCO Group's principal business and prospects were devastated by the taking
of its intellectual property, which IBM bundled in a competing free product that
is critical to its business, while Novell pronounced that SCO does not own the
intellectual property in question and sought to waive SCO's own infringement
claims to SCO's further detriment."

These guys are a piece of work, shouting "Mine! Mine!" when it
(Linux) isn't and having no proof to the contrary, nor being able to produce any
shred of proof. Where are the MIT "deep-divers"? Where is the mountain
of evidence? Mr. McBride needs to wake up. The only cause for the devastation of
SCO's "principal business and prospects" is their own greed.

[ Reply to This | # ]

An Examination of the Hearing September 16, 2008 Under a New Light
Authored by: webster on Friday, July 24 2009 @ 09:01 AM EDT

When did Norris get payments to make a deal for SCO?

Who made the payments? How much? Were any of them before September 16?

McBride admits the payment of $100,000. That makes Norris an agent of McBride. Since McBride is CEO of SCO, SCO knows Norris is working to make them a deal. He is their agent.

Who did Norris talk to? Did they know he was paid by McBride? Was he to get a cut of any deal? Did the potential partners know the score?

You can be sure IBM knows all this and more.

How does this Norris payment disclosure cast the hearing of September 16? Let's review it.

Hearing of September 16, 2008

Argument by Spector, p. 8, line 23: [Sorry, no time to fix the lines in the blockquotes!]

The -- the Norris deal that you read about in the 24 first plan would have cost us 85 percent, perhaps, of our 25 equity. And there -- he wasn't just handing over 75 to 100 8 Spector - Argument 1 million dollars because he was a nice guy, although I'm sure 2 he is. It was because he was basically taking over the 3 company. With the change that has been wrought since July 4 16th from the positive viewpoint, a better deal can be had. 5 Not only that, Mr. Norris and his friends and partners don't 6 have to come to -- to us with $100 million to deal with a $40 7 million bogey, which is the Novell claim of $30 million plus. 8 Now, the whole deal starts to look differently, doesn't have 9 to take 85 percent of the equity. He doesn't have to put in 10 $100 million and there's a lot that has to change.
Now doesn't that make Norris sound like an investor and not an agent? Norris has $100 million under the right conditions. What do you think Judge Gross thought? We presume Spector didn't know. He better hope no one says he did.

McBride talking to Norris about a deal is meaningless since he is his agent. Norris talking to someone about a deal might be significant if it gets somewhere. As an agent he can go yell over Obama's, the vice president's and Bill Gates fences about SCO and then return and tell McBride they are not very interested right now. All of it is true. It is extremely suspicious that Norris supposedly refused to name the investors upon the advice of counsel in the IBM deposition. One suspects the unsaid investors will not back him up. Ergo the misled Spector is misleading the judge. Does the following passage also mislead?

People have evaluated the strength of our 20 cases. The people we're doing business with, as you can see, 21 York came in and said, we saw and we're willing to take the 22 risk because we believe. Norris and his investors did the 23 same. With -- with the skepticism that this Court, Novell, 24 IBM and we shared, how can we do a deal with this bogey, this 25 question mark over our heads, people came knocking on our 10 Spector - Argument 1 doors and said let's see if we can do a deal around it.
Here again he is talking about Norris as an investor, not a paid agent of SCO. Talking to Norris is like McBride talking to himself or nobody. If Norris won't say who, it can't be cross-checked. Attorney Lewis argued against the plan. Do you think knowing Norris was an agent would have bolstered his argument? at page 24.
Our main objections to that plan, Your Honor, were, 10 one, there was a -- an impairment -- an impaired class not 11 allowed to vote issue, which the debtor acknowledged in court. 12 And, secondly, there was no information about Steven Norris 13 Capital Partners and its financial resources. There was no 14 assurance that that plan would ever actually happen, because 15 we didn't know whether Steven -- what -- what the conditions 16 were on the money that Steven Norris was supposed to advance 17 nor did we know the conditions on Steven Norris's ability to 18 get that money as well. That's why it disappeared.
He also made the following uncanny argument without knowledge of Norris payments:
We had our doubts about the Steven 24 Norris deal and -- and, apparently, Steven Norris didn't want 25 to go public as it were with real information. You -- the 26 Lewis - Argument 1 Court may recall that part of the Steven Norris deal was a 2 little up-front money for just being willing to be a plan 3 sponsor. That disappeared and that may have been their real 4 motive. And, so, I think you -- there just -- what we have is 5 a debtor that really has nothing to offer or, if it does, 6 could do it today.
If everyone knew that Norris was a paid poser, this argument would have been persuasive. Norris was pursuing deals because he was paid, not because he wanted to score a lucrative investment. Without facts you can not guage motives and credibility. Certainly the Judge can't. Look how the following argument would be bolstered if the Judge knew Norris was an agent. Norris as an interested investor is far more convincing than Norris as a paid agent for SCO. One implies he is willing to put up his own money. The other implies he isn't. At page 30:
And I submit, 9 Your Honor, that the debtor wants this endless protection 10 because it really has nothing there to propose at the moment. 11 And if it does, it could do so now. It could do another 12 Steven Norris deal if that was a real deal without giving up 13 needless equity because the claims are so much smaller if the 14 plan could duly provide for the claims in that fashion.
It gets far worse in the testimony. Look at this exchange:
24 BY MR. SPECTOR: 25 Q What happened after the York deal fell apart? Any other 44 McBride - Direct 1 deals out there that came -- came knocking? 2 A Yes. Steven Norris Capital Partners.
Steven Norris came knocking with a deal! Mr. Spector, do you now think that Mr. Norris may have come a knocking because he was paid one or two hundred thousand dollars? How much was that per knock? One has to presume that Mr. McBride did not brief his attorneys on his payment of $100,000 dollars of his own money to Mr. Norris. He forgot about it.

Without knowing Norris status the following item that was ruled hearsay, can't be evaluated:

There was a significant point in the Norris deal that 3 was negative towards us that in the very tail end of due 4 diligence with a large Middle East investor, where they were 5 very close to getting a deal done, they raised, in fact, the 6 question of an article that was in the press that was 7 headlined, "SCO owns -- owes 95 percent of its UNIX royalties 8 to Novell."
Did that due diligence include a disclosure that Norris was a paid agent? Did the investor have this problem or was it Norris? How can we know if he won't disclose the Middle East investor? How do we know it is true if he won't disclose the investor even confidentially? Not knowing Norris' role hear makes a lie of the whole hearing.

It goes on and on, p. 47:
5 BY MR. SPECTOR: 6 Q Mis -- Mr. McBride, in the course of the due diligence 7 that Steve Norris Capital Partners undertook with you, were 8 you required to answer any questions? 9 A Yes.
Now do you think it is possible to cross examne this statement without knowing that Norris was a paid agent? How diligent could any financial disclosure be without Norris role clarified. If Norris were asked if he were working for SCO would he have denied it since McBride paid him at this point?

The fakery of it all is that they were using Norris to pretend interest in a deal. McBride can talk to his agent all day long and imply he is busy with potential investors. Notice he likes to say "Steven Norris Capital Partners" as if he were talking to more than one investor.

The dance continues at page 56:

12 What does -- do you perceive the best option for the 13 debtor is to reorganize and get out of bankruptcy? 14 A I believe the best option is to complete a deal with 15 Steve Norris Capital Partners, bringing in an amount of 16 capital that's not 100 million like we talked about before, 17 but is enough money to take care of our issues to exit 18 bankruptcy, to fund the UNIX business going forward and to let 19 the existing estate stay back and complete its claims that it 20 has on the SCO Source front.
That is saying nothing when you realize Norris is a paid agent willing to seek but not finance himself. They withheld this information to be more persuasive before the judge.

The absence of this information totally distorts the questions and the import of the answers. Here is an example from the cross-examination of McBride by Lewis at p. 82:
McBride - Cross(Lew) 1 A Steve's been active from February up until now. 2 Q Okay. Anyone else have you been discussing with now? 3 I'm not going to ask you to identify anybody just yet and I 4 may not at all. 5 A We've -- we've had some other potential opportunities 6 that have arisen mostly around our mobility business. But 7 with respect to the main thing that we've been talking about, 8 it's all been with Steve.
"[I]t's all been with Steve. So SCO has only been talking with their paid agent Norris. Norris isn't making a deal. He is trying to get someone to make a deal. It is like McBride talking to Tibbetts, another SCO employee. They aren't going to make a deal. It is totally misleading --a fraud, --strike that, --a material omission.

Norris is referred to as a "main contact." P. 82, line10. He is shortley thereafter referred to as a "partner." line 21. It goes on to distort even this little inquiry:

25 Q All right. So, other than the big deal with Steve 83 McBride - Redorect(Spe) 1 Norris, you had other -- other things brewing? 2 A Yes, and I guess --
It is not a big deal to be talking with your own agent who is trying to find a big deal.

Look how it distorts Lewis closing argument opposing exclusivity, p. 91:

And, in fact, Your Honor, what we really heard today 11 was there's only one party out there. It's Stephen Norris 12 Capital Partners. And Stephen Norris Capital Partners has 13 known what the deal is at least since July 16th, if not 14 sooner, in terms of what the basic contours might be. In 15 fact, it was happy to file a plan before when it knew nothing 16 and knew much less about the outcome.
He is thinkng of Norris as a "party out there," not a paid agent. Imagine what his argument would be with the truth: "Your honor, they have their agent Norris out there and he can't find anybody." The way things are Lewis and the Judge are misled to believe SCO has found money man Norris who is looking for more capital on his own. Mr. Norris is clearly very interested. Clearly McBride made some promises and he had to get Norris money by hook or by crook --strike that, --one way or another, but not openly, --and carefully.

So you see that "Steve" has been presented as a willing, independent, interested party in investing, and getting others to invest in SCO. He isn't independent, interested or willing. He is a paid hustler and he has just hustled SCO. It was good while it lasted. Someone finally stumbled on the right question.

SCO was afraid of the litigation so they shielded themselves with the bankruptcy. They didn't lose nearly as bad as they thought they would against Novell. Now they are stuck in bankruptcy fearing chapter 7 when they don't need that much to avoid it. That's why this new deal looks so suspicious --as if they are paying themselves with Norris' suspicious funds and promises. They are going to have to answer specifically.

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documents judge ordered?
Authored by: Anonymous on Friday, July 24 2009 @ 09:04 AM EDT
Where are those documents the judge ordered? Didn't they not give those out, as
ordered?

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Still just an option
Authored by: YetAnotherSteve on Friday, July 24 2009 @ 09:06 AM EDT
IBM objection paragraph 36: "the Purchasers can wait until at least
mid-September to see if the Tenth Circuit's ruling is favorable to the Debtors
before having to close on the deal ... If it is unfavorable, the Purchaser can
choose to close for that amount or choose not to close ... It is an option for
about 5% of the total purchase price."

SCO's "cure" seems to be moving that decision to 13th September to
30th September. I don't see how that helps.

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Carlyle Group alumni...
Authored by: Guil Rarey on Friday, July 24 2009 @ 09:21 AM EDT
Okay, Stephen Norris co-founded the Carlyle Group and Charles C. Hale (remember
him?) from York Capital and LNS LLC, with its long tradition of existence for
the last 45 days or so -- the private equity guys at York Capital who are
presumptively** his bosses are also ex-Carlyle Group guys.

Can we look to the Carlyle Group for magic toadstools and other places where
Pipe Fairies hide?

**I say presumptive because this is a private equity deal and the two principals
listed on York's web site as the co-heads of their private equity group both
have 2 common prior stops on their CV, one of them being The Carlyle Group.

So now we need to run down the connections between the following guys and SCO
and other intriguing parties (*cough*Microsoft*cough*)

Stephen Norris
Charles C. Hale
Zalman Jacobs
Luis Medeiros

The latter 2 are Hale's bosses. If Norris co-founded the Carlyle Group,
presumably they worked for him there. Which proves nothing excepts establishes a
networking connection and makes it worth pursuing in greater detail.

---
If the only way you can value something is with money, you have no idea what
it's worth. If you try to make money by making money, you won't. You might con
so

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Translation
Authored by: Anonymous on Friday, July 24 2009 @ 11:23 AM EDT
Nah, nah, nah, you can't make me!

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German contribution the Norris
Authored by: Anonymous on Friday, July 24 2009 @ 11:46 AM EDT
I just read on Linux.org that t$COg is claiming that the contribution attributed
to $CO Germany actually (allegedly) came from $CO Japan, which is apparently not
involved in all this litigation. Anyone actually believe this? I'll bet this
is actually the result of some creative bookkeeping.

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Business dynig? Call Darl..
Authored by: HockeyPuck on Friday, July 24 2009 @ 01:07 PM EDT
He has $100,000 to shell out. No, this response does nothing but ask more
questions why? If this money has something, anything to do with SCO; isn't there
some legal issues with receiving money from a SCO CEO that you are dealing with?
Can someone help me here? SCO's response (paraphrased). It was no one's business
how Darl spent his own money. I disagree when the person receiving the money has
direct ties and is working for SCO. SCO is a public company; yes? Would not the
SEC be interested in such dealings?

I love the SCO spin on Novell's claims of copyrights and this bankruptcy. The
judge said no more litigation garbage talk from SCO. And here they are again
"Novell claims that they still own copyrights" (Oh, I guess the legal
interpretation of the contract means nothing, not to mention the total
disrespect to the Judge, Court and his ruling). Well this is SCO; the truth, the
whole truth or what ever benefits SCO most, so help me God. I know they were
directed not to do this in the conference call or in court. But they try at
every turn.

At this point, the judge will have to see through this charade. I think he is
cracking down on what is possible and what is real. I think he has good
intentions, letting SCO off time and time again. After all, there are people's
lives at stake (though SCO folk best be job searching). But I have a feeling the
"buck" stops here.

Last but not least; the ever evolving PSA. Uh, wasn't the final deal supposed to
have been done and in stone? Is it me or is SCO unilaterally changing an already
signed deal? Do you smell SCO asking for more time to get it right? Yuk, yuk...
I don't think so this time SCO. You have worn out your welcome.

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PJ: "I have a cat like that"
Authored by: The Mad Hatter r on Saturday, July 25 2009 @ 01:54 AM EDT

Um, pardon, but every cat I've ever had has been like that. Cat's are egocentric
to the extreme. However they don't lie, they don't sue people, they are clean,
affectionate, and totally wonderful animals.

It's to bad that the management at TSCOG weren't cats. The world would be a
better place.


---
Wayne

http://crankyoldnutcase.blogspot.com/

[ Reply to This | # ]

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