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Reports from the Hearing - Updated 2Xs
Friday, November 16 2007 @ 06:29 PM EST

Whew! We were represented at the hearing, and here's our first report:
Both sides of the courtroom were packed with the lawyers. At least 7 more than on the sign-in sheet. Bert Young flew in to testify regarding CFO, but was never called upon.

The MVP of the day goes to Richard Levin. He was articulate and on-point, and connected with Judge Gross about proceeding at a controlled and orderly pace.

The meat of the matter was that SCO and York were unpersuasive in convincing the court of the "emergency" situation that required hyper-accelerated timelines.

There are more still schedules, exhibits and motions still to be filed. Credit facility. Cross licensing agreement. Security agreement. Sale motion. Sale order.

York wanted another hearing, on at least the bid-procedures to be filed, on this coming Tuesday. The Court said it can all wait until 12/5.

Both sides agreed to handle confidential documents as per normal protocols, and not to get wound up in complex negotiations on drafting special confidentiality agreement language.

And SCO is to provide a witness list enumerating anyone they currently plan on calling to testify based on objections that have already been filed.

Lots of lawyers. If you look on the sign in sheet [PDF], you'll see some heavy guns have joined this wild and crazy party. This is so not about just little ole SCO. York is now represented by three law firms. *Three*. IBM sent in some heavy guns.

First, IBM sent not only David Marriott but also Laurie Silverstein, a heavy hitter when it comes to bankruptcy, with a specialty of representing unsecured creditors. She's with Potter, Anderson & Corroon, and her bio there includes this:

Mrs. Silverstein has been recognized by Chambers USA: America's Leading Lawyers for Business since its inception as "smart and aggressive" and "the first point of call for unsecured creditors."

So IBM has two law firms now, plus no doubt they have in-house counsel.

Who's the new guy for York? Jeffrey W. Levitan, whose bio at Proskauer, a famous firm, by the way, tells us this:

Jeffrey W. Levitan, a recognized member of the Bankruptcy and Corporate Reorganization Bar, is a partner in Proskauer Rose LLP's Bankruptcy and Reorganization Practice Group. Throughout the past twenty years, Jeffrey has had significant involvement in many large and complex corporate reorganizations. He represents and has represented a broad range of clients in Chapter 11 proceedings and restructurings, including debtors, funders of reorganization plans, secured creditors, trustees and creditors committees....

Jeffrey has represented numerous investors and acquirors of financially distressed assets including Mauser-Werke in its acquisition of the assets of Russell-Stanley Corp. pursuant to a prepackaged plan of reorganization, Wycoff and Bayonne Hospitals in their acquisitions of three hospitals from St. Vincent’s Medical Center, and one of the co-proponents of the Olympia & York Chapter 11 Plan. On the creditors' side, Jeffrey represented groups of U.S. Bondholders in opposing two Section 304 proceedings seeking recognition of Argentine restructuring, and represented ML Media in connection with its claims and joint venture interests in the Adelphia bankruptcy cases. He also was retained by the unsecured creditors committee in the Chapter 11 cases of LogoAthletic, Inc., Apex One, Inc. and Scoreboard Inc. He has also represented numerous other claimants, both secured and unsecured, in pursuing claims against debtors.

Jeffrey has represented major licensors in bankruptcy cases involving the sports industry, including SLM International; Fleer/Skybox; Pinnacle Brands Inc.; Starter Corporation; Genesis Direct, and Fruit of the Loom/Pro Player. Also, Jeffrey represented the National Hockey League in connection with the Chapter 11 case filed by the Pittsburgh Penguins and represents numerous professional sports leagues and teams in connection with insolvency related matters.

Finally, Jeffrey has been involved in numerous out-of-court loan restructurings.

Jeffrey is a member of the Bankruptcy and Reorganization Committee of the New York City Bar Association and is a member of the American Bankruptcy Institute.

In 2006, he was listed as one of the 2006 New York Super Lawyers, in the field of bankruptcy. Reading the titles of papers he's authored is depressing enough: "Dismiss That Lawsuit! Recent Delaware Governance Decisions Restrict Creditor Litigation Against Boards of Troubled Companies and Distressed Debt Investors” and "All’s Fair in Love, War and Restructuring: Solutia Bondholders Denied “Equal and Ratable” Lien Status - Implied Covenant of Good Faith Does Not Trump Explicit Indenture Provisions” are two titles. All's fair in love and war -- that feels familiar. Isn't that SCO's theme song?

So, everyone is sending their best. To haggle over some assets that have very questionable worth. Might this be about something else entirely?

Update 1: Mike has a report for us now too:

Today was a very confusing hearing. The judge alluded to meetings in chambers. He also had documents that we did not have so some things did not make much sense.

#1 - Approval of Dorsey & Whitney

A lawyer from Dorsey addressed some concerns of the Trustee.

- Paid on a straight hourly basis. They are being paid by Boies
- Expenses to be paid by the estate
- Will represent SCO in litigation.
- Made some supplement disclosures as requested by the Trustee.

#3 - Motion to approve CFO solutions

Mr. Spector spoke of the ongoing issues with the Trustee. The issues are not resolved. Bert Young was there to testify, but he never got the chance. Deferred until Dec. 5 hearing.

#2 - Approval of Boies, Schiller

I must have missed this one. I do not think it has been resolved with the Trustee.

#4 - Motions on Asset Purchase

Well, things got interesting here. SCO provided copies of the proposed APA to IBM and Novell just before the hearing. Mr. Spector wanted to speak to this issue. Mr. Levin and Mr. Lewis had much to say about it. They wanted the issue deferred until the Dec. 5 hearing so they would have time to absorb the 55-page APA. Mr. Spector spoke of a soon-to-come "credit facility" and "cross license agreement." He wanted a hearing held next Tuesday.

Judge Gross suggested that all the parties confer to see if the could come to agreement on the APA. Both Mr. Lewis and Mr. Levin said basically that they could talk, but they did not see any way they could reach agreement especially since they had not even had a chance to read the APA. So there was a break from 2:30 to 3:15. When they came back they all agreed that they did not agree and more time was needed.

Mr. Spector spoke of York's need to close the deal by year's end. He argued that the next hearing should be 11/20 so there was time to get the deal done.

Judge Gross asked Mr. Spector if there was a reason they could not immediately begin marketing (if there are other interested buyers). Mr. Spector said yes -- there was a reason they could not start marketing now. He said something along they lines of "We have to determine what it is we are selling" -- which brought a good round of laughter from the Novell/IBM table.

Mr. Levin spoke of the assets not being identified. He did not think the York deal closing by year end was realistic. Even if SCO were to do a "private sale" he did not see how it can be done by 12/31. He spoke of York's statements that they had been looking at SCO since 2005, so what's the hurry?

Mr. Lewis jumped on the same bandwagon. He said if York walked away, too bad. He also said closing by year-end was unrealistic.

Mr. Spector introduced Mr. McNutt. Mr. McNutt said that SCO was under a "death sentence" when they finally get back to Judge Kimball. York wants the Unix software business. He wanted to come back Tuesday to discuss the APA. He said there were "compelling business reasons" why they need to close the deal by year end (but neither he nor Mr. Spector ever stated what those reasons are).

Novell was arguing to slow down and do it the right way. SCO and York were arguing to speed things up.

The judge agreed with Novell. The issue will be discussed at the Dec. 5 hearing. Judge Gross said it's important to get it right. He sounded like he was not going to be pushed into hasty decisions, regardless of what SCO and York want. He said "there is a fine line between inconvenience and prejudice". He said he felt the line had been crossed and therefore agreed to Dec. 5 to give Novell and IBM the time they need to review everything.

SCO will get the remaining documents relating to the proposed sale to Novell and IBM by 11/20. Objections are due Nov 30, and replies to those are due by noon on Dec. 4.

I think not all of the APA's schedules and exhibits, if any, will be public. There was discussion on confidentiality and whether formal motions were needed. With prodding from the judge, they all agreed that they would keep the documents confidential among themselves. It sounded like many of the exhibits and schedules relating to the sale will be filed under seal.

There were armies of lawyers there this time. I counted 17 between both sides. There were 3 Groklaw members there. One was going to try and get a copy of the sign in sheet so we can get an accurate list of all the players. Mr. McBride came over and shared some small talk with the 3 of us during the 45-minute break.

David Marriott was there but did not address the judge.

One observation. Beware of Mr. Levin. At one point Mr. Spector said something about a formal objection being needed. Mr. Levin went to the podium and said "Judge, I object". Then he looked at Mr. Spector and said, "Now you have your formal objection on the record". SCO is clearly trying to push the sale through before the end of the year. Novell feels that's just not going to happen. So about everything has been deferred until the Dec. 5 hearing at 10:00 am.

Mr. Levin represented IBM, and he and Mr. Lewis for Novell made a good tag team today.

This round went to Novell....

The hearing ended at 4:00 pm.

It sounds from MikeD's description like the Cluetrain has arrived at the Judge Gross station in Delaware.

Update 2: We have another report now from Groklaw's UD:

Hi PJ,

Just got back from today's hearing a little bit ago and thought I'd send a quick synopsis of what transpired. I'll try to send a more detailed description later.

For some reason the beginnings of these proceedings seem to cover a bunch of points faster than I can write them down, so I'll stick to what was actually covered.

A new lawyer (I think his name is Eric Schiabel) was speaking for SCO making the case that BSF should be able to consult with SCO on this case because even though they are not bankruptcy lawyers, they are very familiar with SCO's business matters and have a lot to offer. Plus they have spent a lot of time already and want to be paid, even though I think they didn't file for certain fees on time. He started off with some explanations about how they are paid hourly by BSF but SCO pays the fees. I think he also said something about waiving the fees from the debtor.

Mr. Spector started talking about the CFO Solutions issue. They want to hire Ken Neilsen, to be paid hourly from CFO Solutions. He has a witness here to testify (Bert Young) that it is proper to do so in this case because he has experience in similiar cases and is an expert in financial and securities matters. After hearing from Mr. Spector what he would say, we never actually hear from Mr. Young. He continues that SCO needs a CFO because it's the eve of their end of financial year.

Mr. McMahon, the US Trustee, says he doesn't plan on interviewing the witness. He had a conversation with Mr. Spector on the way to the courtroom that gave him some new insight into the situation, and they might be able to work things out in the hallway.

Then we get the news that the APA was filed at 1:00 today. All the supporting materials are not filed yet, but more on that later. Mr. Lewis speaks for Novell and says he wants to read the APA because he has concerns about what is being offered for sale. He says how can the assets be given a fair value if they may not be clearly determined yet? He is skeptical that meaningful discussions can be held on this issue today.

Mr. Levin for IBM takes the podium, and says he has numerous issues regarding the bid procedures. They were going to see if they could go into another meeting room to try to resolve them before the 3:00 part of the hearing but doubted that 39 minutes was long enough to do so. He posits that it may make sense to continue this discussion to the later (12/5) hearing, but that since all the parties are here now they can continue talking about it. Judge Gross also doubts this is going to be resolved today.

Mr. Spector speaks for SCO and goes into a little history of the APA saying they had hoped to have it and all supporting materials before the 11/6 hearing, but more and more issues kept coming up as it was being drafted. They had a bunch of people working non-stop in NY and finally got it done. Parts that are still being worked on are the debt service agreement and the cross-licensing agreement and supporting exhibits and schedules. They hope to have them soon. He asks the judge to not adjourn the hearing, but continue it at 3:00 because that is when Mr. McNutt from York was supposed to appear.

Mr. Levin states that he understands Mr. Spector wants to resolve things, but he just brought up a whole host of issues (APA) that are just being put on the table and there is no way they can resolve them in a half hour. He thinks the hearing should be continued to 12/5.

Mr. Lewis agrees with Mr. Levin. There are too many complicated questions that need to be discussed and carefully considered. Plus this motion really isn't an "emergency" any more.

Mr. McMahon agrees and wants to continue the matter to 12/5.

Mr. Spector says let's wait until 3:00-3:15 to make the decision to continue to 12/5. (He wants Mr. McNutt to be able to speak)

After the break, SCO's lawyers now include Mr. McNutt and Mr. Rosser and another gentleman whose name I didn't hear mentioned, but he looks just like the actor that plays the father in the movie American Pie.

The CFO Solutions matter is continued to the 12/5 hearing, but Mr. Spector says they will endeavor to resolve it before then. His partner, Dan Lampert (?) states that they are prepared to go ahead with discussing the bid procedures today.

Mr. Lewis says that there is so much new material to go over that it would be best to continue the matter to 12/5. He says it may be possible he might need to ask for discovery after he reviews everything.

Mr. Levin also wants the bid procedures issue stayed until 12/5. They haven't even seen the exhibits and schedules to the APA and they seem to hold the bulk of the APA's terms.

Mr. McMahon agrees things should be stayed. The podium has a revolving-door feel to it by now. The line forms to the left -- and to the right.

Mr. Spector says that the other attorneys are making this sound more complicated than it is. They don't need to go over the APA in as much detail as they say they do. If this issue is put off until 12/5, then how can they possibly close the sale before 12/31 -- York's cutoff date? (Now we see why this rush is coming now). Sale terms have changed over the course of negotiations, but the sale cutoff has always remained firm. They have to have time to market the IP so they can get its fair market value -- possibly higher than the current offer.

Judge Gross says they can start marketing it now, if they want.

Mr. Spector replies that there are issues with what assets are being marketed (chuckles from most of the opposing lawyers). Then he goes off into a "what if" scenario where they would take the sale private, and no bidding would occur. He later says he just used this as a verbal flourish, and he was not serious (and because the other lawyers are objecting to it in their remarks).

Mr. Levin says that SCO has been working on this deal since 2005, and why has it suddenly turned into a 6-week deadline? What's the rush? The holidays are upon us; year-end issues will complicate matters as it is. He says a private sale would not be warranted without further disclosures.

Mr. Lewis says he is anxious for the estate to generate some revenue -- "after all, we are creditors too". He might not care if York walks on this deal, because there might be a better deal out there. They need to set a procedure and stick with it (don't take sale private). It's not realistic to expect a sale by the end of the year, and it's not in the estate's best interest.

Mr. McNutt is given his chance at the microphone. He says they're not railroading SCO into a bad business deal. There is a great deal of urgency because the debtor is under a pending death sentence. They're about to have a substantial judgement made against them in litigation. (Basically, he's saying, "they need our money"). We are an investment firm, he explains, and they want to get these Unix assets into their fund before year's end. This is just a small, simple deal and not as complicated as it's being made out to be. He thanks the judge for his patience.

Judge Gross says he is a patient man. Emergencies create inconveniences, but the parties here are not just being inconvenienced -- they are being prejudiced. If we go too quickly, the creditors will be prejudiced. He will continue the matter to 12/5. It's not realistic to proceed without more study. It'd be a huge mistake to make a judgement now.

Both sides are to file their positions by 11/30 noon, objections by 12/4 noon.

SCO says they have the sale motion almost done and they'll file by 11/30.

I forget who for the other side says that if it's that close to being ready, why wait until the 30th and only give them a few days to review it? Everyone is popping in and out of their seats now.

SCO submits that they will file their sale motion along with the schedules and exhibits for the APA by this coming Tuesday. Also the credit service and cross licensing portions of the APA as well.

Mr. Levin talks about the need for confidentiality agreements to be in place (for bidders too). Judge Gross agrees.

The hearing on 12/5 will also discuss something about filing some things under seal.

Mr. McNutt wants to make another plea on behalf of York to get this resolved quickly. This delay is not helping his client. It's a simple IP agreement but they want to make sure there is no dispute about what assets they're buying.

Some back and forth discussions about each side noticing the other about their proposed witnesses and objections to witnesses. Both sides agree to play fair.

The 12/5 hearing is scheduled for 10:00 AM.

Well, it looks like I don't have it in me to keep it brief, so there's no more detailed version to follow. I imagine the CFO issues will probably be resolved before the next hearing because it sounded like they were making progress and just have a few more things to look into. SCO and York really were hoping that filing the APA would create movement in the bid/sale agreement arena because they really want this deal to go through asap if not sooner. However, with so much being put on the table at one time, calmer heads are prevailing, and it's just going to have to wait until the 5th. Hopefully we can go over the documents as well when they are filed next week.


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