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SCO Has a Bid; Would Like More - Updated
Tuesday, October 23 2007 @ 05:21 PM EDT

SCO has filed a Motion to Approve Emergency Motion of the Debtors for An Order (A) Approving Asset Purchase Agreement, (B) Establishing Sale and Bidding Procedures, and (C) Approving the Form and Manner of Notice of Sale [PDF]. It asks the court to let it happen. There are more filings, which I'll put up here shortly, but I was pretty sure you'd want to know about this one immediately.

SCO wants to sell off certain of its Unix assets, namely "certain related claims in litigation, as well as certain transfer, cross-license and related agreements pertaining to the Hipcheck product line and Me Inc. Mobile intellectual property." They say York Capital Management wishes to buy them. Or, more precisely, the Purchaser is "a newly formed entity affiliated with one or more funds managed by JGD Management Corp. d/b/a York Capital Managment".

I guess this plan sounds better to SCO than paying Novell and going into Chapter 7. Here's the APA [PDF]. I seriously wonder how SCO can get the court to agree to sell off its assets, when it owes already more than it can pay, according to the likely Utah court's view, on a hope and a dream about SCOsource. But hey, nothing in this case is normal. And I'm not so sure about some of the players, either.

Among the excluded assets are "Seller's litigation with Novell and IBM, and its claims and choses in action other than the Linux Litigation." The total purchase price, SCO says, consisting of cash and non-cash components is "in the estimated aggregate amount of up to $36,000,000". SCO has to reimburse up to $50,000 of York's fees and expenses in connection with the deal. And if York is designated as "stalking horse" under the Bid Procedure Order, and if others outbid York, SCO has to pay them a $780,000 breakup fee and reimbursement of all expenses incurred by York up to $300,000. Hey, big spender.

So, you tell me: which of them is most nuts? They want to have an auction on who wants to sue AutoZone and resurrect SCOsource? Hey, folks. The line starts here. Don't push.

And here are all of today's filings:

149 - Filed & Entered: 10/23/2007
Motion to Approve (B)
Docket Text: Motion to Approve Emergency Motion of the Debtors for An Order (A) Approving Asset Purchase Agreement, (B) Establishing Sale and Bidding Procedures, and (C) Approving the Form and Manner of Notice of Sale Filed by The SCO Group, Inc.. (Attachments: # (1) Exhibit A # (2) Exhibit B # (3) Proposed Form of Order) (O'Neill, James)

150 - Filed & Entered: 10/23/2007
Memorandum of Law
Docket Text: Memorandum of Law in Response to Novell, Inc.'s Motion for Relief from Automatic Stay to Proceed with District Court Action to (I) Apportion Revenue from Scosource Licenses and (II) Determine SCO's Authority to Enter into Scosource Licenses, etc (related document(s)[89] ) Filed by The SCO Group, Inc.. (Attachments: # (1) Certificate of Service & Service List) (Werkheiser, Rachel)

151 - Filed & Entered: 10/23/2007
Motion to Shorten Time (B)
Docket Text: Motion to Shorten Time Motion to Fix a Hearing Date and Shorten Time on Emergency Motion of the Debtors for an Order (A) Approving Asset Purchase Agreement, (B) Establishing Sale and Bidding Procedures, and (C) Approving the Form and Manner of Notice of Sale (related document(s)[149] ) Filed by The SCO Group, Inc.. Hearing scheduled for 11/6/2007 at 11:00 AM at US Bankruptcy Court, 824 Market St., 6th Fl., Courtroom #3, Wilmington, Delaware. Objections due by 11/1/2007. (Attachments: # (1) Proposed Form of Order) (O'Neill, James)

152 - Filed & Entered: 10/23/2007
Operating Report
Docket Text: Debtor-In-Possession Monthly Operating Report for Filing Period September 2007 for The SCO Group, Inc. Filed by The SCO Group, Inc.. (Attachments: # (1) Certificate of Service and Service List) (O'Neill, James)

153 - Filed & Entered: 10/23/2007
Operating Report
Docket Text: Debtor-In-Possession Monthly Operating Report for Filing Period September 2007 for SCO Operations, Inc. Filed by The SCO Group, Inc.. (Attachments: # (1) Certificate of Service and Service List) (O'Neill, James)

As you can see, SCO would like the shorten the time to object (or wake up and smell the coffee, joke, joke) and thus they'd like the court to add their emergency motion to the November 6th hearing. It seems they wrote up the terms of the proposed sale in such a way that they need to finish this off by November 9. Like that was not within their control. So, pretty please could SCO hold an auction asap? And SCO has also filed its monthy operating report for September and its response to Novell's request to lift the stay so it can get back to Utah and try to get some of its money before SCO spends it all.

Are these guys a hoot or what? I simply love watching SCO dance. Gold star to whoever finds Waldo first. He's got to be hiding in the bushes somewhere.

If you look at the proposed APA (note there are two versions, the second, later dated one signed only by Darl McBride, beginning on page 14 of Exhibit A), you will see that the buyer is a Delaware corporation. Where else? In this brochure [PDF] York Capital Management describes its investment style as "opportunistic" and "event driven". Well. Perfect. Love this sentence: "Adding incremental beta risk into a portfolio can help create alpha." Say. They talk like Darl. This is a match made in heaven. Here's what's listed in the "Transferred Assets" column:

Except for the Excluded Assets, the Seller will sell, assign, transfer and convey to Purchaser all right, title and interest in and to the assets, properties and rights of Seller used or useful in connection with the operation of the SCO Unix Business or Seller as conducted in the past, present or proposed to be conducted, tangible and intangible, pursuant to Section 363 of the United States Bankruptcy Code (the "Transferred Assets"_. The Transferred Assets shall include, without limitation, all of the following: (a) all tangible personal property, supplies, computers, printers, equipment, furniture, fixtures, goods and other similar assets; (b) all rights and benefits under agreements, contracts, leases, licenses, instruments, general intangibles, commitments and understandings, written or oral, identified in writing by Purchaser to Seller (the "Designated Contracts"); (c) all trade names, trademarks, service marks and service names (including, without limitation, registrations, licenses and applications pertaining thereto), together with all goodwill associated therewith (the "Trademarks"); (d) all (i) customer and client lists, vendor lists, catalogues, data relating to vendors, promotion lists and marketing data and other compilations of names and requirements, (ii) telephone numbers, internet addresses and web sites, and (iii) other material information related to Seller's business; (e) all source code, object code, computer programs, designs, processes, drawings, schematics, blueprints, copyrights, copyright applications, inventions, processes, know-how, trade secrets, patents, patent applications and other proprietary information, including, but not limited to, the registered copyright applications, inventions, processes, know-how, trade secrets, patents, patent applications and other proprietary information (collectively with the Trademarks, the "Intangible Property Rights"); (f) all inventories and work in process of Seller; (g) all accounts, accounts receivable, notes receivable, chattel paper, documents, and all other receivables of any type or nature of Seller including, but not limited to, all accounts receivable arising from bona fide transactions for the sale of licenses or maintenance or services, entered in good faith, involving existing products of Seller entered into in the ordinary course or business that meet agreed upon requirements; (h) any cause of action, claim, suit, proceeding, judgment or demand, of any nature, of or held by Seller against any third parties (except to the extent such suit is an Excluded Asset), including, but not limited to, those lawsuits pertaining to the Linux operating system in which the Seller is presently engaged and all present and future enforcement rights against third parties (other than IBM and Novell) pertaining to the Linux operating system (the "Linux Litigation"); (i) all goodwill associated with Seller's business and the Transferred Assets, including all of the Intangible Property Rights; and (j) all rights in and to any governmental and private permits, licenses, certificates of occupancy, franchises and authorizations, to the extent assignable, used in or relating to Seller's business or the Transferred Assets.

Only SCO would dream of selling its good will, after what appears to be a deliberate running of the company's once good name into the ground, and think they deserve to be paid for it. I note on page 4 that SCO excludes "certain assets and rights relating to employee benefits to be mutually agreed." Hahahaha. Don't want to forget the employees. SCO retains all the liabilities, pretty much, except York, as I'll call the Purchaser, has to pay all litigation expenses that arise after the closing on Linux litigation. And SCO gets to put $10 million in a "Litigation Credit Facility to fund litigation expenses", and York "shall be granted warrants for a 20% interest up to $100,000,000, in any and all litigation net ... proceeds..." I kid you not. The second version has Darl's initials on handwritten changes, dated October 22, but the same changes are incorporated into the one that indicates it was signed on the 19th, with the Managing Director's initials but no date. Now, if I were a paralegal on the deal, that would raise my eyebrows a little. This is a loan. If SCO doesn't pay the interest, what happens I wonder? They crush their knee caps? Nah. It says if and when SCO emerges from bankruptcy, York will let SCO continue to use the credit, but at that point York gets "a first-priority security interest in all of its assets without restriction". Which I believe would ace Novell nicely.

Wait. There's more. SCO gets a cut of any successful Linux litigation, and get this: "Seller shall agree to allow Purchaser to create an incentive plan for key members of the Seller management team required by Purchaser in order to pursue the Linux Litigation." Hmm. Who could that be? Let's guess. I say Darl. Let's face it. They can't do this without him. Not any more. He knows too much.

I get why SCO wants this. They get money to pursue an appeal, and Novell gets nothing. The mind simply reels with thoughts as to why anyone would buy, though. They haven't been paying attention? There are shareholders behind the deal who don't want to be left holding the bag and figure trying for an appeal and holding SCOsource just in case is better odds than what they are otherwise facing? More delay? The bankruptcy delays the Utah court; now this delays the bankruptcy. Or is there a player still hoping to get the copyrights away from Novell? So after SCO sells its assets and keeps the liabilities, what business will SCO be in? Is this not Baystar's pipe dream? Just focus on the IBM/Novell litigation, Baystar urged SCO long ago.

Or is it as simple as it looks -- that someone very much wants Linux to be kept under a perpetual, manufactured legal cloud and is willing to pay a lot of money to get it? Or simpler still: that SCO has no intention of exiting Chapter 11, or pursuing the litigation except in a pro forma sense, but can't say so until all the money is poofed? That this is Darl's "So long, Suckas" moment?

I'm telling you, they'll be making movies about all this one day. This is on such a grand and ridiculous scale, nothing less than a Movie of the Week, for sure.

Update: SCO has now filed an 8K in which it describes its move like this:

On October 22, 2007, the Company entered into an agreement whereby a purchaser intends to acquire substantially all assets used by the Company in connection with its SCO UNIX Business and certain related claims in litigation, and to provide financing to the Company, pursuant to Section 363 and 364 of the Bankruptcy Code. On October 23, 2007, the Company filed a motion with the Bankruptcy Court relating to this proposal. The motion, which is on file with the Bankruptcy Court, describes the details of the proposed transaction.

There can be no assurance that the Bankruptcy Court will approve the proposed transaction or that final documentation will be reached on terms satisfactory to all parties.

Well, that's truthful. I doubt the court will approve it as is. This is, by the way, the first SEC filing on behalf of the SCO Group signed by Ken R. Nielsen, the temp Chief Financial Officer.


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