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Novell Objects to Yarro's Proposed Loan to SCO
Friday, February 26 2010 @ 06:04 PM EST

I'm sure this was expected. Novell opposes SCO's Trustee's Motion for PostPetition Financing to essentially have Ralph Yarro and unnamed others provide SCO a loan to keep the corpse breathing long enough to make it through trial, I suppose, and I expect we may see more oppositions filed:

02/26/2010 - 1065 - Objection Novell's Opposition to the Trustee's Motion for PostPetition Financing (related document(s) 1051 ) Filed by Novell, Inc., SUSE Linux GmbH (Greecher, Sean) (Entered: 02/26/2010)

We're working on a chart, showing the new plan compared to the York plan that was not accepted earlier. We should have it by later tonight or early tomorrow, and I'll comment more fully then. Meanwhile, I know you want to read the latest.

Update: Are they kidding with this plan? They are putting all SCO's hopes on the litigation, with the loan apparently to fund SCO until it can get there, but look at the results:

9. The real beneficiaries of the risk are the holders of the Debtors' equity, including Mr. Yarro, who Novell believes is a major shareholder. Both the Debtors and now the Trustee have been willing to risk the creditors' recovery essentially for the benefit of equity. If the litigation thrives, equity stands to profit. If the case miscarries (or even enjoys only limited success), however, equity largely is no worse off than it was before the chapter 11 cases were filed.
Look at footnote 5, where Novell explains just one aspect of the proposal:

5 For sake of example, if the Debtors were to win the $5 billion judgment from IBM that they have demanded, and if SNCP actually lent $2 million to the Debtors, SNCP's Loan Fee would be $330 million for making this $2 million loan. Even assuming a judgment against IBM much more consonant with the boundaries of possibility, let alone reality, say, $50 million, SNCP would get, in addition to its interest, a "loan fee" of $3 million for its $2 million loan, plus all fees and expenses of SNCP (with any fees and expenses in excess of $50,000 further diluting the Litigation Proceeds).

Loan up to $2 million, get back $330 million? Are they kidding? Who *are* these people that they even dare to make such an offer in public?

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

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE

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

Debtors.

Chapter 11

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

Ref. Dkt No. 1051

Objection Deadline: February 26, 2010 at 4:00 p.m. (prevailing Eastern time)
Hearing: March 5, 2010 at 11:00 a.m. (prevailing Eastern time)

NOVELL'S OPPOSITION TO THE TRUSTEE'S
MOTION FOR POSTPETITION FINANCING

Novell, Inc. and SUSE Linux GmbH (together, "Novell") hereby objects to the Motion of Chapter 11 Trustee for Order (I) Authorizing Debtor's Estates to Obtain Postpetition Financing [etc.] (filed February 18, 2010) (the "Motion") of Edward N. Cahn, as chapter 11 trustee (the "Trustee") of debtors The SCO Group, Inc., and SCO Operations, Inc. (together, "SCO" or the "Debtors"). By the Motion, the Trustee asks the Court to approve very costly, super-priority financing to be used only for funding litigation against Novell and International Business Machines Corporation and for payment of post petition expenses; none of the proceeds is set aside for payment of prepetition creditors. Novell asks this Court to approve the proposed financing, if at all, only after careful consideration of the issues it raises and only on terms that protect Novell as a creditor and other creditors.

I. BACKGROUND

1. At the beginning of these cases, and as recently as September of 2008, the Debtors claimed that they could pay creditors in full.1 Since that time, as the Debtors (and now the Trustee) have pursued bet-the-company litigation against Novell and International Business Machines Corporation ("IBM") at any cost, the estates steadily have shrunk. The Motion

represents the inevitable outcome of this unabated focus on the perceived prospect of a major win in the litigation, for if the Motion is granted, the creditors surely will recover nothing unless the litigation succeeds. Novell submits that putting this last nail in the creditors' (and it is one of those creditors along with being a litigant) coffin when there are other alternatives, simply cannot be justified, especially since the real beneficiaries of the Trustee's gamble are SCO's owners. The propriety of the proposed financing is even more dubious in light of other questions and issues the Motion raises.

2. From the September 2007 outset of these chapter 11 cases, the Debtors' position was that all creditors would be paid in full no matter what. On April 2, 2008, they told this Court in connection with an abortive proposed plan of reorganization, "The only people who should care about these metrics and the other things will be the stockholders and perhaps Mr. McMahon or the U.S. Trustee because creditors will be getting cash on the barrel at the point of confirmation, so why do they care?" (4/2/08 Tr. 11:6-10).2 Five months (and more missteps) later, they were still saying the same thing: "We always have intended to pay them [the creditors, including Novell] in full. We still can pay them in full, [even] if the worse [sic] should happen." (9/16/08 Tr. 88:19-25). On that occasion, the Court granted them a further extension of exclusivity based in part on that representation.

3. By the time IBM, Novell and the United States Trustee made their motions to convert the cases in the Spring of 2009, it was clear that payment in full of creditors was a vanished dream absent a breakthrough result in the litigation. As Novell wrote,

As Novell and others pointed out, however, despite their repeated promises to propose a confirmable plan, the Debtors not only have failed to do so, but have lost $8.65 million since the Debtors filed these cases on business operations alone. . . .

....

Novell's counsel observed at the March 30 hearing that these losses mean that unless the Debtors some day achieve a fantastic

2

win in the Novell litigation, the Debtors will be unable to pay creditors in full. (3/30/09 Tr. 20:3-21.) That is because the Debtors now show total assets of $8.3 million, of which the most important (Unrestricted Cash of $728,537, net Accounts Receivable of $1.4 million) total but $2.1 million; by contrast the Debtors state that prepetition liabilities (without the still-unliquidated claims of IBM or others in litigation with them) total $6.9 million and postpetition liabilities total $4.84 million. (March 31, 2009 MOR, Balance Sheet.) Similarly, the Debtors report that their assets have declined almost 50% since the filing of the cases from $15 million to the present $8.3 million, while their prepetition liabilities have increased almost fourfold from $1.9 million to the present $6.9 million (evidently, the Debtors have chosen not to reflect large unliquidated liabilities in their reporting). (Id.)
(Novell's Motion for Conversion (filed May 11, 2009) (the "Motion to Convert") 8-9; see also Memorandum Opinion (filed August 5, 2009) (the "Conversion Opinion") 6.) In granting the motions to dismiss, the Court observed:
These bankruptcy cases have been pending for 23 months. Were the Court to approve the Sale Motion [which the Debtors had used to try to counter the motions to dismiss], Debtors [sic] sole business would be the Litigation . . . . [A]ll that the Debtors would have to show for their millions of dollars of post-petition losses is the Litigation. The Court is now unwilling to continue to wait while the Debtors' losses mount . . . .
(Conversion Opinion 9.) Elsewhere in the same decision, the Court wrote that the Debtors' losses were "staggering." (Id. at 11.) The Court concluded, "[T]he Court must take action to protect the estate and its creditors. The outcome and time to reach finality of the Litigation are both too uncertain, while the continuing losses are not." (Id. at 9 (emphasis added).)

4. Unfortunately, it is clear that the estate's resources nevertheless have continued to dwindle since the Trustee was appointed. The Trustee has only just filed the October 2009 monthly operating reports. The Debtors' assets had shriveled to $6.7 million from the $8.3 million reported in March of 2009, unrestricted cash had declined from $728,537 in March to just $397,912, and losses on operations before reorganization costs had swollen from $8.65 in March to $10.667 million.3 And although the results for November, December and January are

3

as yet still unreported by the Trustee, there is no reason to believe that things have gotten anything but worse.

II. THE FINANACING

5. And they are about to get potentially a lot worse -- indeed, as bad as they can be: hopeless -- for general unsecured creditors if the Court grants the Motion. Here is a summary of the most important features of the credit facility for which the Motion seeks approval:

Lender. The lender is a "newly-formed" entity called Seung Ni Capital Partners, L.L.C. ("SNCP"). The Motion identifies Ralph Yarro, the Debtors' former Chairman, as the person who formed SNCP. The Motion does not disclose who the members of SNCP are or where SNCP's money is coming from.

Amount and Use. The Motion asks the Court for authority to borrow up to $2 million for the purposes of: (1) funding the Novell and IBM litigation, including payment of Messrs. Tibbitts and Broderick to help with it; and (2) payment of expenses of administration of the chapter 11 case. It does not provide for use of the proceeds to pay any prepetition claims. The lenders can reduce the $2 million commitment at its sole pleasure upon one days' notice.

Lien and Priority. The lender will be granted a super-priority lien in virtually all of SCO's assets. It will also be granted a super-priority expense of administration claim (giving it the right to first payment of cash if the lien otherwise proves inadequate for repayment in full).

Cost. There are two principal components to the cost of the loan:

Interest and Related Charges. Basic interest is 6.6% per annum. Default interest adds another 6%. There is also a late charge of 5% of any defaulted payment.

Loan Fee. The credit agreement provides for a "Loan Fee" that is payable come hell or high water (absent a default by the lender) in addition to the amount of the loan and interest or other charges. The fee really is an investment. It is 6.6% of what might be called the lender's supported share of any recovery of any kind whatsoever in the litigation by settlement or judgment, including such items as attorneys' fees awarded to SCO. Specifically, it is 6.6% of: (a) the percentage of the $2 million commitment that the lenders actually lend TIMES (b) the gross recovery in the litigation. In the example used in the Motion, if the lenders

4

actually lend $1.5 million of the $2 million commitment and the gross litigation recovery is $25 million, the "fee" is $1,237,500.

Other. The credit agreement also has a kind of most favored nation provision that automatically modifies the terms of the loan to match any "more expensive" terms that the Trustee may obtain from any other lender in the future.

Repayment.

Basic Loan. The Trustee must repay the loan and all interest upon maturity, default, dismissal or conversion of the bankruptcies to chapter 7, or the resignation or incapacity of the Trustee unless a person acceptable to the lender is appointed to replace him. Maturity is October 31, 2011. In addition, the Trustee must use the proceeds of any sale of "Core Assets" -- assets other than the litigation -- to pay down any existing loan indebtedness whenever any such sale occurs.

Loan Fee. The Loan Fee must be paid when the litigation proceeds become available.

III. ANALYSIS

6. From these terms and in light of what is known for sure about the estates' condition, it is crystal clear that if the Trustee loses the litigation or manages only a middling judgment, there will be absolutely nothing with which to pay general unsecured creditors (including Novell, which has a claim of around $3 million). Already, as of the October 2009 monthly operating reports, at best the estates could pay unsecured creditors only a miniscule dividend out of existing cash. Nor does it appear that the cash will be augmented in any material way. So far the Trustee has been unable in his six full months in office to sell any of the estates' assets to generate any other funds. If the Motion is granted but the litigation fails to produce meaningful results, even the little that is left will be subject to super-priority lien and claim for to $2 million or more. Creditors, who were told that they would be paid in full as recently as September of 2008, will be blanked.

7. Such a result is inequitable. It improperly shifts the risk of the litigation from equity to creditors.

5

8. The main purpose of the loan contemplated by the Motion is funding the litigation. Who benefits by this gamble? Nominally, the creditors may if the gamble succeeds materially, since they might recover more than what they could possibly recover now after the Debtors and Trustee have spent their money chasing the litigation for the last 30 months or so. But if the litigation fails, then the unsecured creditors are the losers because they will get nothing. In short, their upside is limited (and they never should have even had to worry about an upside had the cases been conducted properly), and their downside is a total washout.

9. The real beneficiaries of the risk are the holders of the Debtors' equity, including Mr. Yarro, who Novell believes is a major shareholder.4 Both the Debtors and now the Trustee have been willing to risk the creditors' recovery essentially for the benefit of equity. If the litigation thrives, equity stands to profit. If the case miscarries (or even enjoys only limited success), however, equity largely is no worse off than it was before the chapter 11 cases were filed.

10. Equity should not thus get a free ride speculating on the litigation at the creditors' expense. If the claims in the litigation are so valuable, those who will benefit most by them -- equity -- should have been willing long go to buy them from the estates. But equity has not done so. And the reason why that is so is obvious: why should equity spend a penny to exploit the litigation if it can get the Debtors, estates and Trustee to pay for the opportunity with the creditors' money, instead? This situation begs an answer to the question, "If the gamble on litigation flops, who will protect the creditors against the use of their money?" Certainly, equity has not offered to do that, and the Trustee has not made any arrangements for that purpose, either.

11. Novell submits that it is time to end this de facto subordination of the rights of creditors to equity. It is contrary to the priority of creditors over equity in bankruptcy. See, e.g.,

6

Bankruptcy Code §§ 727(a), 1129(b)(2). It is still possible that a sale of portions of the Debtors' business (or a reasonable settlement that is based upon protecting the creditors rather than catering to equity's dreams of a litigation gold mine) could produce some proceeds that might help the creditors materially (and perhaps even equity), but only if those assets are not subjected to a super-priority lien and claim for up to $2 million more.

12. The Motion also presents various disclosure issues:

A. The loan's terms are very oppressive. For example, the so-called "Loan Fee", entitling the lender to a fixed percentage of any litigation proceeds, is really an investment in the litigation, not a typical loan fee based on the amount of the loan. Moreover, that percentage is not de minimis.5 But the Motion does not detail these important terms. And it simply quotes many of the major terms at length rather than summarizing them (that is, providing something of a road map) and referring the reader to the relevant sections in the attached copy of the credit agreement. See Fed. R. Bankr. P. 4001(c)(1)(B). Only by reading the transactional documents would a reader have a full appreciate for, e.g., the significance of the Loan Fee.

B. There is no information on the lender, SNCP, other than that it is "newly formed" and that former SCO chairman Ralph Yarro is associated with it. Questions such as who are its members and what if any is their relationship to the Debtors, what are its financial resources, and whether there are any side deals or understandings remain unaddressed and unanswered,6 in a manner that is frustratingly reminiscent of prior forays of the Debtors. (See, e.g., the Debtors' Joint Plan of Reorganization; Motion to Convert 4-5; Conversion Opinion 6; Debtors' Motion to Sell Property Outside the Ordinary Course of Business [etc.] (dated and filed June 22, 2009) (Stephen Norris signatory to agreement on behalf of buyer

7

UNIXIS); Conversion Opinion 9-10 (Court doubts "parties' good faith".)

C. The Motion claims that its request for super-priority status for the lender is justified because the Trustee could not find any better terms, but it fails to detail the Trustee's efforts. If the claims in the litigation were so promising as to warrant risking the creditors' potential recoveries (if such a risk ever were warranted), that the terms of the Motion's credit agreement are the best the Trustee could generate calls for some persuasive evidence.7

D. The Motion supplies no current financial about the estates, and the most recent information available is in the October 2009 MORs, the most recent reports available, but which are a full calendar quarter short of being current. Though as Novell has indicated above, the chances are that there is virtually nothing left in the estates, the Trustee nevertheless should be required to provide contemporary financial information about the estates to support his claim that there is no other way to finance the Debtors than through the terms of the Motion.

13. Finally, it bears adding that the lender, SNCP, is also in essence speculating for its benefit at the expense of creditors by getting a super-priority lien and claim to protect its investment in the litigation that will wipe out the creditors if the litigation fails. SNCP is, in essence, using the creditors' money to support the litigation for its own profit, a profit that could be quite handsome, indeed. Moreover, this opportunity for SNCP is virtually risk free. If the Debtors fail in their litigation, SNCP has a super-priority claim for the total amount loaned (plus all of SNCP's fees and expenses) that is senior to all other creditors (including Novell).8 Moreover, the Motion provides SNCP with virtually friction-free remedies for a default by

8

supplying advance stay relief that, arguably, would be available even on a loss in the litigation since that result might constitute a Material Adverse Effect that gives rise to an Event of Default. This virtual gift to SNCP at the creditors' expense is inequitable, too.

CONCLUSION

The Motion is probably the last opportunity for the Court to take steps to protect creditors in case the litigation central to the Debtors' and Trustee's concept of the purpose of these cases proves unsuccessful. Novell respectfully submits that the Court should not approve the Motion unless a reliable mechanism is established for ensuring that creditors get paid no matter the outcome of the litigation. In any event, the Court should deny the Motion until after there is proper disclosure and an evaluation of the propriety of its terms.

Dated: February 26, 2010
Wilmington, Delaware

YOUNG CONAWAY STARGATT & TAYLOR, LLP
/s/ Sean T. Greecher
James L. Patton (No. 2202)
Michael R. Nestor (No. 3526)
Sean T. Greecher (No. 4484)
[address, phone]

-- and --

MORRISON & FOERSTER LLP
Adam A. Lewis
[address, phone]

-- and --

MORRISON & FOERSTER LLP
Larren M. Nashelsky
[address, phone]

Counsel for Novell, Inc. and SUSE GmbH

_______________

1 The Debtors made the same claim just last summer in connection with their motion to sell that responded to the motions to convert of Novell and others. But by that time, and with all that had happened in between, no one was taking those claims seriously any more.

2 "Tr." refers to "Transcript".

3 The Debtors' accounts receivable appear to have held at $1.4 million.

4 As of September 13, 2007, the Debtors certified that Mr. Yarro personally owned in the aggregate 5,505,949 shares of stock in the SCO Group, Inc. -- making him the company's largest individual shareholder by a wide margin. See Certification Concerning Equity Security Holders, filed with The SCO Group, Inc.'s voluntary petition [Docket No. 1].

5 For sake of example, if the Debtors were to win the $5 billion judgment from IBM that they have demanded, and if SNCP actually lent $2 million to the Debtors, SNCP's Loan Fee would be $330 million for making this $2 million loan. Even assuming a judgment against IBM much more consonant with the boundaries of possibility, let alone reality, say, $50 million, SNCP would get, in addition to its interest, a "loan fee" of $3 million for its $2 million loan, plus all fees and expenses of SNCP (with any fees and expenses in excess of $50,000 further diluting the Litigation Proceeds).

6 A recent check of the Delaware Secretary of State's records online does not disclose the formation of SNCP. The Court will recall an earlier incident where the Debtors promoted a deal with an new entity that also had not, in fact, been formed yet.

7 Indeed, it is ironic that after six months in office with the assistance of capable counsel and professional advisors (Ocean Park) of his choosing, the Trustee has neither been able to sell any of the Debtors' assets nor find reasonable financing. After all, the Debtors convinced this Court to allow them to stay in control by claiming that if they were successful in the Tenth Circuit, investors and lenders would flood out of the woodwork. Of course, that has not happened. The Trustee has not sold any assets and has been unable to find any financing except from an entity affiliated with a long-time insider on the most egregious terms, entity that, moreover, may be related to Stephen Norris Capital Partners (note the identical initials -- SNCP), a party that has been in the background throughout these proceedings waiting for a moment of weakness to capitalize on the Debtors' (and now the Trustee's) financial distress and anxiety to prosecute the litigation.

8 Hence, Mr. Yarro benefits not only as an insider/shareholder if the litigation succeeds, but as a lender even if it does not. If there are other shareholders who also are affiliated with SNCP, the same will be true of them.

9


  


Novell Objects to Yarro's Proposed Loan to SCO | 260 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
Novell spells it out.
Authored by: Anonymous on Friday, February 26 2010 @ 06:17 PM EST
I do hope that the fix is *not* in.

[ Reply to This | # ]

Novell Objects to Yarro's Proposed Loan to SCO
Authored by: Anonymous on Friday, February 26 2010 @ 06:17 PM EST

Novell might not need to actually win this motion. If they can delay until after the trial completes, then maybe a decision to convert to Chapter 7 will be obvious. On the other hand, SCO just keeps going ...

Anyone places bets on when SCO will be shut down?

[ Reply to This | # ]

Novell Objects to Yarro's Proposed Loan to SCO
Authored by: Anonymous on Friday, February 26 2010 @ 06:32 PM EST

My favorite bits:

Footnote 5 on page 7: "For sake of example, if the Debtors were to win the $5 billion judgment from IBM that they have demanded, and if SNCP actually lent $2 million to the Debtors, SNCP’s Loan Fee would be $330 million for making this $2 million loan. Even assuming a judgment against IBM much more consonant with the boundaries of possibility, let alone reality, say, $50 million, SNCP would get, in addition to its interest, a “loan fee” of $3 million for its $2 million loan, plus all fees and expenses of SNCP (with any fees and expenses in excess of $50,000 further diluting the Litigation Proceeds)."

Core issue: "SNCP is, in essence, using the creditors’ money to support the litigation for its own profit, a profit that could be quite handsome, indeed."

Footnote 7 on page 8: "The Trustee has not sold any assets and has been unable to find any financing except from an entity affiliated with a long-time insider on the most egregious terms, entity that, moreover, may be related to Stephen Norris Capital Partners (note the identical initials – SNCP) (...)."

I am surprised and shocked about the behavior of the Trustee. Is he not supposed to act in the interest of the creditors? Can he really agree to a deal as bad as this one under his mandate?

[ Reply to This | # ]

Yarro poaches IBM Linux engineer for Sumavi startup
Authored by: Anonymous on Friday, February 26 2010 @ 06:36 PM EST
A start-up closely backed by Yarro, Sumavi.com, has secured a IBM expert on the Linux Cluster admin tool, xCAT, to be its CTO.

I believe the start-up was first initially called "Nuevana : Data Center Virtualization from a Heavenly Source". Nuevana.com had a website that went live about November, 2009 with little information, it redirects to a Sumavi page presently.

The IBM Linux engineer, who is writing a book on xCat, gave notice on Jan 26, 2010, according to his very active twitter feed. He started work at the unnamed biz on Feb 1st, and is now cited as the CTO of Sumavi.com.

Sumavi appears to be a GUI + dedicated appliance to work as an "idiot friendly" front end to xCAT. This is a laudable goal and a genuine entrepeneurial idea, insofar as the GPL rights in the sources of xCAT are protected.

The cost to Yarro for poaching an engineer likely don't exceed $150,000/year. Yarro may be in this for blood sport with IBM. Yarro doesn't show much ability to organize substantial capital recently. The recently opened Voonami server farm is cabinets without the servers installed (according to Yarro's own web posting).

Yarro is also recently promoting his flying bottle drink idea--- called Zimbi or Xymbiot. This is the brainstorm of his brother Justin. Zimbi had a test market launch in Utah starting late January.

I don't think the Zimbi, Voonami or Sumavi launches indicate that Yarro has been "promised" a settlement that will make him rich. Alternatively, he may be coming to realization he needs to work for a living, and is backing a number of ideas hoping that one will work

[ Reply to This | # ]

Corrections here please
Authored by: Tufty on Friday, February 26 2010 @ 06:37 PM EST
Lets keep up the good work


---
Linux powered squirrel.

[ Reply to This | # ]

Off topic thread
Authored by: Tufty on Friday, February 26 2010 @ 06:38 PM EST
Off tropic as well


---
Linux powered squirrel.

[ Reply to This | # ]

Newspicks here
Authored by: Tufty on Friday, February 26 2010 @ 06:44 PM EST
Read all abaaart it!


---
Linux powered squirrel.

[ Reply to This | # ]

Comes docs please
Authored by: Tufty on Friday, February 26 2010 @ 06:45 PM EST
Nice and tidy


---
Linux powered squirrel.

[ Reply to This | # ]

Interesting.
Authored by: Anonymous on Friday, February 26 2010 @ 06:55 PM EST
Reading the Novell submission, the following just hit me:

In the coming case in Salt Lake City. where it is claimed that SCO has nothing
to lose, perhaps Novell looks at the matter the same way. We all hope that SCO
is the one which will lose there, and in a more just world the case would not
even be taking place.

But, just picking a figure out of the air, suppose that the outcome is in favor
of SCO, and SCO wins two million dollars in "damages" from Novell. The
result would then be that SCO owes to Novell only a million instead of three
million. Not very helpful to SCO, actually. And Novell does not imagine that it
was going to get any of that money anyway.

[ Reply to This | # ]

Crib notes: this isn't a "loan", it's a back-door sale
Authored by: Anonymous on Friday, February 26 2010 @ 06:59 PM EST
When - not if, when - SCO run out of money, Yarro gets all of their assets. Or
rather, whomever gave Yarro the money gets all SCO's assets.

We're getting a glimpse here of the cat behind the paw.

[ Reply to This | # ]

Bombshell !! Me, Inc. to be sold!
Authored by: _Arthur on Friday, February 26 2010 @ 07:21 PM EST
SCO seems to be selling Me, Inc and the Mobility busimess to .... Darl McBride
!!!

Docket #1066 Motion For Sale of Property

with the assorted #1067 Motion to Shorten Notice
as usual.

[ Reply to This | # ]

Waiting for the day
Authored by: Anonymous on Friday, February 26 2010 @ 07:28 PM EST
I'm waiting for the day PJ finally admits that the US legal system does not in
fact work, and that there is no justice to be obtained from it.

When this is all over, even if IBM and Novell win the cases, they lost long ago,
as have we all.

[ Reply to This | # ]

Docket # 1066
Authored by: Silurian on Friday, February 26 2010 @ 07:28 PM EST
Now on epiq. Prepare yourselves friends. tSCOg agrees to sell the Mobility
Business. The buyer? Darl McBride - kid you not. The amount? $35,000 - kid you
not.

This could be funny, but ...

PS: How about the amazing Unix Virtual, anyone remember the fantastic UNIX
Virtual? Must be worth millions, surely?

PPS: How about Cloud, anyone remember Cloud? Vaporized by alien weapons systems,
mabe?




[ Reply to This | # ]

Brazen...
Authored by: Vic on Friday, February 26 2010 @ 07:33 PM EST
I'm not surprised Novell is objecting.

From page 4 of Novell's objection :-

"The lenders can reduce the $2 million commitment at its
sole pleasure upon one days' notice."

So this isn't a backdoor scam to buy out all the litigation opportunity for $2m.
It's a scam to buy out the litigation for $1.

Vic.


---
http://solectronics.co.uk
Solving problems with Free Software

[ Reply to This | # ]

  • Brazen... - Authored by: Tufty on Friday, February 26 2010 @ 07:39 PM EST
  • Brazen... - Authored by: Anonymous on Saturday, February 27 2010 @ 09:41 AM EST
  • OTOH... - Authored by: Anonymous on Saturday, February 27 2010 @ 11:25 PM EST
  • Brazen... - Authored by: Anonymous on Monday, March 01 2010 @ 12:51 PM EST
This will be fun - you just *know* its a trap.
Authored by: SilverWave on Friday, February 26 2010 @ 08:49 PM EST
.

---
RMS: The 4 Freedoms
0 run the program for any purpose
1 study the source code and change it
2 make copies and distribute them
3 publish modified versions

[ Reply to This | # ]

It's getting more pathetic...
Authored by: Anonymous on Friday, February 26 2010 @ 09:04 PM EST
... as it gets closer and closer to the end.

A fourth try at the exact same kind of garbage deal that Gross rejected three
times already? Sale of the "promising" non-lawsuit future of the
company for $35K?

This act is on its last legs. I don't mean the lawsuits, but SCO is circling
the drain. I know, there's a big difference between "mostly dead" and
"all dead", but this sure looks like we've reached the "going
through their pockets for loose change" stage...

MSS2

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Wow - this is so powerful
Authored by: Gringo on Friday, February 26 2010 @ 09:23 PM EST

"Equity should not thus get a free ride speculating on the litigation at the creditors’expense. If the claims in the litigation are so valuable, those who will benefit most by them – equity – should have been willing long go to buy them from the estates. But equity has not done so. And the reason why that is so is obvious: why should equity spend a penny to exploit the litigation if it can get the Debtors, estates and Trustee to pay for the opportunity with the creditors’ money, instead?"

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Novell Objects to Yarro's Proposed Loan to SCO
Authored by: Gringo on Friday, February 26 2010 @ 09:29 PM EST

The Motion supplies no current financial about the estates, and the most recent information available is in the October 2009 MORs, the most recent reports available, but which are a full calendar quarter short of being current. Though as Novell has indicated above, the chances are that there is virtually nothing left in the estates, the Trustee nevertheless should be required to provide contemporary financial information about the estates to support his claim that there is no other way to finance the Debtors than through the terms of the Motion.

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The REAL reason for the Darl Deal: Indemifies Cahn from Darl's suit re Options
Authored by: Anonymous on Friday, February 26 2010 @ 10:13 PM EST
Stolen from the ever insightful El Corton's post on another venue:
The real reason for the sale to Darl

The ridiculous Section 363 motion to sell Darl the mobility business for a token amount, with no auction, has a single purpose: to bribe Darl not to sue Cahn or Blank Rome.

Included in the bloated documentation of this de minimis deal (several times more than the documentation of the SNCP deal, which, as Novell points out, is potentially worth hundreds of millions) is a proposed APA, which includes this amazing single sentence:

6.2 McBride's Release of Seller. Darl McBride, on behalf of himself and, as applicable, on behalf of his successors, heirs, assigns, representatives, agents, advisors, and attorneys, does, to the fullest extent permitted by law, hereby fully and irrevocably release, forever discharge and covenant not to sue Seller or its direct and indirect parents, subsidiaries and affiliates, divisions, assignees, stockholders, members, partners, officers, directors, managers, employees, representatives, agents, advisor, and attorneys (collectively, the "Seller Parties"), of, from, and with respect to, any and anll manner of claims, rights, actions, causes of actions, suits, liens, obligations, accounts, debts, demands, agreements, promises, liabilities, controversies, costs, expenses and fees (including attorneys' or other professionals' fees) whatsoever, whether arising in law or equity, whether based on any federal, state or foreign law or right of action, mature or unmatured, contingent or fixed, liquidated or unliquidated, known or unknown, accrued or unaccrued, that any of them had, now has, or alleges to have or have had, from the beginning of the world and thereafter arising by virtue of or in any manner related to any actions or inactions with respect to the Seller Parties or its affairs on or before the Closing Date; provided, however, that nothing herein shall be deemed to contitute a release, discharge or covenant not to sue with repect to any claim, action, cause of action or suit arising out of this Agreement or with any stock options held or claimed to be held by Darl McBride.
This has got to be one of the funniest paragraphs I've ever seen in a contract. It looks like something from the script of a Groucho Marx movie. It says Darl can't sue Cahn for anything that happened between the "beginning of the world" and the closing date, except for shareholder actions. That's what Cahn really wants out of this deal: for Darl to piss off.

All text above was El Corton's. He picked out the core, Cahn trades Darl for a "No Lawsuits" disclaimer.

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Chapter 7
Authored by: ak on Saturday, February 27 2010 @ 02:51 AM EST
Novell submits that it is time to end this de facto subordination of the rights of creditors to equity. It is contrary to the priority of creditors over equity in bankruptcy...
It is still possible that a sale of portions of the Debtors' business (or a reasonable settlement that is based upon protecting the creditors rather than catering to equity's dreams of a litigation gold mine) could produce some proceeds that might help the creditors materially (and perhaps even equity) ...
The Motion is probably the last opportunity for the Court to take steps to protect creditors in case the litigation central to the Debtors' and Trustee's concept of the purpose of these cases proves unsuccessful.

These lines are nothing less than suggestions for the US Trustee and the court to move to Chapter 7 on March 5, 2010

[ Reply to This | # ]

Remember not finding the exact name SCNP was incorped under. Quote PJ "it all comes out eventua
Authored by: Anonymous on Saturday, February 27 2010 @ 04:08 AM EST
Remember not being able to find SCNP incorporation? There
was a similar name in Fla, and something close in Delaware,
but no exact match to (I think) SCNP LLC? If I recall
correctly, a call to the company had the secretary hanging
up when asked the exact name of the corp?

In the below quote, Novel names no names, so something rings
a bell. I don't have time right now to go back through
Groklaw and other docs to get all the details, but I think
my memory is correct on this one.

A recent check of the Delaware Secretary of State’s records
online does not disclose the formation of SNCP. The
Court will recall an earlier incident where the Debtors
promoted a deal with an new entity that also had not, in
fact,
been formed yet.

Dennis H.

[ Reply to This | # ]

Why the contrast between this document and 1066 (and all that)?
Authored by: benw on Saturday, February 27 2010 @ 04:48 AM EST
Darl's "Motion For Sale Of Property" was an i's-dotted t's-crossed
work of lawyering. It clearly and soberly sets out intention, background,
citations, etc. It looks like a piece of business being transacted. And it is
utterly meaningless. The money, the technology, and the assets being transferred
have no real value in terms of this case.

The contrast between that and this document is so extraordinary it seems almost
pointed. You can compare the Darl document and the Yarro document and look
point-by-point. Where the Yarro document uses a fanciful $2 million
"loan" on weird terms to promise some magic riches, the Darl one is
paying money for some old servers and stuff. The Yarro one is a backed by a
mysterious inchoate "SNCP" outfit, the Darl one has a cheque for the
down-payment that amounts to the price of a used car.

I don't even know how to begin to speculate about what it might mean, but I have
to feel that there's some reason that one player on the SCO side of this farce
filed a document that could almost been seen as a refutation of another's.

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  • Yes, but - Authored by: Anonymous on Saturday, February 27 2010 @ 04:02 PM EST
What are they saying?
Authored by: Ian Al on Saturday, February 27 2010 @ 05:15 AM EST
The Motion is probably the last opportunity for the Court to take steps to protect creditors in case the litigation central to the Debtors' and Trustee's concept of the purpose of these cases proves unsuccessful.
When I read this I thought 'well, they got that right'. Then I realised that I had not asked myself what they were saying. I have been coached (by 'you know who') to understand that lawyers don't say anything they don't need to say.

I can only surmise what they are saying. My thoughts are as follows,

'We've pointed out that these are the only funds that the debtors or the trustee have been able to line up since the start of the bankruptcy. The trustee has said that, without this, it is the end for SCOG. If you agree this deal the creditors will get nothing. If you reject this deal or insist that the demands of the bankruptcy system for such sale/investment deals are met, then SCOG will not survive anyway because the defects of the deal are unrepairable without the investor walking away. If you decide to protect the creditors in the face of this deal, there will be no more opportunities to protect the creditors, which is your raison d'etre, because SCOG is done.'

I find that surmise very unsatisfactory. Are Novell trying to avoid discussion of SCOG's chances of benefiting commercially from anything they are likely to win in the litigation? They have already been explicit about their view of that by explaining what SNCP would get in the case of various levels of litigation success.

Can anyone help me out with what Novell are driving at, here? I get the feeling that it might be important.

---
Regards
Ian Al

PJ: 'Have you read my open letter?'

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Aggressive
Authored by: maroberts on Saturday, February 27 2010 @ 07:01 AM EST
A lot of the other legal filings seem quite mild in comparison to the language
used in this one. It doesn't seem to hold back in saying how ridiculous the
proposed deal is...


Is this a change of legal tack for Novell, who seem to have been quite courteous
up to now?

[ Reply to This | # ]

p, R2 and the rest
Authored by: MadScientist on Saturday, February 27 2010 @ 08:42 AM EST
I have just finished reading over the exhibit calculating SCO's supposed losses.


To cut to the chase the technique used was ordinary least squares regression - a
frequentist technique. This method also features in Bayesian methodology and the
results here would be the same.

There are three models used here. The first is in s52. It was used to determine
the fixed and variable proportions of cost of sales. This is pretty much
standard stuff. The variable portion was ~17% and the fixed ~83%.

The second in s53 was the proportion of sales in a given period that SCO spent
of marketing and sales. This is a bit more controvertial. Marketing normally
leads sales - at least one would hope so. Normally one would use a lagged
regression here - marketing and sales for period t-1 against sales for period t.
If the period t is very long or if sales have a long lag period the lagging
might need adjusting. You can use the current period is the response time
between sales and marketing lies with the period. These considerations do not
seem to have been discussed in this.

The model is being used to see where SCO spends its money. It seems that if SCO
recieves X amount in revenue it allocates a proprtion of that revenue in the
same period to marketing. This may be how it works - the expert has testified
that she held extensive discussions with the staff so presumably it is correct.


The third model in s54 was of admin expenses vs sales. Unsuprisingly the was no
correlation.

The BIG questions here arise as to the sources of the data.

"36. [F]or this reason, I do not rely on the RRG forecasts except in the
absence of a reasonable alternative."

"41. [I]n computing lost revenues, I rely on SCO internal
forecasts only in the absence of a relevant independent analyst forecast."

"44. [I] rely on Deutsche Bank's vendor license revenue forecast because it
was produced by an external analyst, and is more conservative than SCO's
internal forecast."

Picking and chosing data like this - not to mention the use of the vendors own
projections - is simply not cricket. There is exactly a snowball's chance in
Hell that this would pass muster in any peer reviewed journal. Im certain the
expert knows this also. This looks like 'best guess' work - given the absense of
anything else to work with Im thinking that this is what this is.

+++++++++++++++++++++

There are also sections that simply cannot be allowed to stand without
chalenge:

"Novell's actions described above were a substantial factor in undermining
SCO's ability to sell its SCOsource products.

Novell's assertions created confusion in the
market and precluded seo from reassuring partners and potential customers that
its ownership of the copyrights was uncontested, resulting in lost SCOsource
revenues. My
review of the depositions of SCO personnel involved in the SCOsource program and
with direct customer contact revealed that customers were deterred from
purchasing SCOsource
licenses by Novell's actions."

This may or may not be true. I think this is one for the judge and jury to
decide.

++++++++++++++++++++++

"[W]here the price movements are unexplained by factors affecting the
market as a whole, and are statistically
significant, a "causal connection" is established between the event
considered and the price movements."

This is reasonable as it stands but the important price here is
"unexplained". This is where the fun starts. Explanatory variables,
statistical models, analytic techniques - the list goes on. Underlying this
assumption is the Efficient Market Theory which is now discredited.

All that having been said this sort of analysis can be very valuable if its done
correctly. Ask Apple and other companies about the allocation of share options.
The problem for me with this is that this statement does not contain any
evidence that the share price moved because of the announcement. There are as we
say 'no controls for this experiment'. The expert knows this - that I sure of.

To me this simply looks like someone trying to pull wool over the court's eyes.
This looks like something a lawyer would come up with rather than an expert. An
expert knows or can be presumed to know that one has to included 'controls'
(alterative explantory variables) in such a study before anyone would accept it.


I'm afraid the good professor has not done her reputation any favours producing
this nonsense.

[ Reply to This | # ]

Where in the world is SNCP?
Authored by: Anonymous on Saturday, February 27 2010 @ 12:12 PM EST
"A recent check of the Delaware Secretary of State’s records online does
not disclose the formation of SNCP. The
Court will recall an earlier incident where the Debtors promoted a deal with an
new entity that also had not, in fact,been formed yet."

The above says SNCP is not a currently extant Delbeware corporation but I didn't
see anything in the document that said SNCP was a Delbeware corporation. Or did
I miss this?

LSMFT

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Novell Objects to Yarro's Proposed Loan to SCO
Authored by: wvhillbilly on Saturday, February 27 2010 @ 12:53 PM EST
Anybody want to bet SNCP *is* Steven Norris Capital Partners, just with another
name? Novell suspects they are, and I certainly do.

I'm amazed the trustee would even consider such a crazy deal as this. SNCP look
like a bunch of loan sharks to me.

----

Desperate people doing desperate things...

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

[ Reply to This | # ]

What in the world is SNCP?
Authored by: jbb on Saturday, February 27 2010 @ 02:25 PM EST
Spay and Neuter your Corporate Pests?

---
You just can't win with DRM.

[ Reply to This | # ]

The last 6 pages are missing.
Authored by: symbolset on Saturday, February 27 2010 @ 03:54 PM EST

And they're interesting pages too!

[ Reply to This | # ]

(and they never should have even had to worry about an upside...
Authored by: Anonymous on Sunday, February 28 2010 @ 01:00 AM EST
...had the cases been conducted properly.)

Is this a shot directly at judge Gross or what?

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Some Clues
Authored by: webster on Sunday, February 28 2010 @ 05:36 PM EST
.

It is obvious that Messrs. Yarro and McBride are concerned that their lottery
tickets in the SCO litigation might expire with SCO's inability to finance the
expense of more extended litigation at least until they win something of at
least nuisance significance in the upcoming jury trial. The lawyers are taken
care of, but they are apparently not forthcoming with paying for copying,
serving, hotels, meals and travel, to say nothing of witness care. It must be
getting very tight since Yarro and McBride themselves are proposing to dig
into their own pockets to fund the tubes into the vegetative SCOrpse that
embodies the billions in claims deriving from obsolete UNIX code whosoever's
it might be.

Cahn's price is not nearly as high as Y & M's, but the terms and numbers
aren't in line yet. Cahn just ought to put the litigation rights up for bid.
That
automatically puts Novell's judgment as the starting bid. Outbid Novell or
extinguish the suit. IBM would have a secondary interest also. A little deal
with creditors and all could make out and save. They could even kick in a
little for Cahn to send on the UNIX business. Gross willing, all is possible.

What could Y & M do? Take him out and shoot him?

[One surmises that Novell, IBM, Red Hat and other SCO opponents have taken
advantage of low SCO prices to hedge their prospects in this litigation. They
have availed themselves of cheap cushions should a series of unimaginable,
legal adversities unfold. Under the radar and under the rules, one has to
provide for a bankrupt opponent. This is another reason to keep things fair
among SCO shareholders. Y & M would love to abuse them.]

Novell opposes and speaks up for the creditors. They criticize the
nondisclosure of terms, the expense, the parties and the super-priority given
to the lender. If Cahn would put such terms up for bidding, Novell could win
the loan and give themselves a super-priority if they lost. Cahn could even
write himself a reasonable super-priority for enhancing the prospects of the
bankrupt estate.

Novell's nondisclosure complaints are pervasive. There are the nondisclosure
of the terms and parties to the loan agreement, and the continuing
nondisclosure of the state of SCO which is more than a quarter behind. Cahn
bears the responsibility for this.

Novell should fight this tooth and nail. Success would flush out cash or a
guise of the PIPE Fairy who started it all. Cahn hears the current sweet talk
of
jury trial. It has replaced the appeal. Yet that appeal is still out there,
quiet
but dangerous.

~webster~

.

[ Reply to This | # ]

Maybe its PIPE money funneled through Yarro's VC
Authored by: Anonymous on Monday, March 01 2010 @ 12:16 AM EST
Could this money be coming from the same PIPE that has been driving this
action from the beginning. Easily disguised this way. Why would Yarro want to
throw money down a dry hole?

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Trustee Judgement
Authored by: biochem_guy on Monday, March 01 2010 @ 05:13 PM EST
You know, I think it is time the Office of the US Trustee asked the appointed
trustee, Judge Cahn, just what he thinks he is doing: no MOR's and very
questionable judgement in bringing forth this proposed "loan". It
seems to this person that he's demonstrating serious incompetence, and the
Office of the US Trustee is not doing their duty to let this go.

---
Chemistry is cool!

[ Reply to This | # ]

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