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SCO Answers Novell's Objection to Renewing Leases and more
Monday, January 07 2008 @ 12:03 PM EST

More bankruptcy news. SCO has answered [PDF] Novell's Objection to SCO's request to "assume" two of its leases, the one in New Jersey and the one in Utah with Canopy Group. And it has filed separately a "Fifth Amendment" [PDF] to that "sublease" which seems to be extending the lease for just one year, not until 2010 like the New Jersey lease, so I wonder if SCO realizes Novell has a point. And one of the SCO lawyers filed a notice of no objection to its bill, so it's "heigh ho, heigh ho, it's down the drain we go" for more of SCO's money. Or is it Novell's?

SCO complains about having to defend its lease renewal -- it's just a normal business decision, they argue, and they shouldn't really have to spend extra to defend it:
1. The Debtors filed the Motion of the Debtors to Approve the Assumption of Nonresidential Real Property Leases with GRE Mountain Heights Property LLC and Canopy Properties, Inc.... seeking approval of their business decision to extend the New Jersey and Utah Leases, and in so doing reduce the space rented and the monthly rent required for such facilities -- typically a noncontroversial matter that does not require an inordinate expenditure of administrative expense to defend, especially where reduction in administrative expense to the estate is the issue raised.

That's SCO's story. Novell's if you recall, goes like this:

Novell, Inc... hereby submits this objection ... to the Motion of the Debtors... seeking to "assume" two expiring office leases pursuant to Code section 365(a) under terms and conditions that -- to the extent disclosed at all -- impose substantial administrative expense burdens on already financially-strained estates whose futures are in serious doubt. Novell urges the Court to deny the Motion as not merely failing to meet the business judgment test for motions to assume, but also for being yet another in a series of cryptic, unjustified and inexplicable decisions by the Debtors in these chapter 11 cases.

Inexplicable because no one can imagine SCO still in business in three years, not even in one. And of course the real problem SCO has is nobody much trusts them to be trying to pay Novell what it likely owes them. That is the crux of the problem SCO faces, and so their cynical huffiness over having to explain more expenditures of what Novell considers its money, not SCO's, is a bit over the top.

Wait. If this is the Fifth Amendment to the Canopy lease, where are 1-4? For that matter, where is the lease itself? Is it identical to New Jersey's? That's the one we saw already. Last I noticed, SCO was saying that the Canopy lease wasn't finished. Did we ever get to see that? If so, I've dropped a stitch. In their Motion [PDF], SCO said that because the Canopy lease wasn't finished, it would file "a copy of the form of amendment to the Utah Lease and a summary of the amendments" under notice of filing once it was done. Where is the summary? For that matter, where is the justification for the assumption of the leases as sound business judgment? SCO argues that a motion doesn't have to prove all that. They'll tell us at the hearing:

The Debtors will demonstrate at the January 8, 2008 hearing that in addition to the bases pled in the Motion, other sound business reasons support the assumption of the amended leases.

Which gives Novell no opportunity to prepare to rebut. Pleasant.

I'd say, though, that it's perfectly natural to want some explanation for further indebtedness in a picture where observers aren't so clear how SCO is going to pay its rent going forward, in a context where SCO is trying to sell off all its assets except for Me Inc., which, as Darl confessed at the recent 341 Creditors Meeting, isn't lighting up the sky. But SCO argues the court shouldn't second guess its sound business decisions unless they are clearly unreasonable or give evidence of bad faith.

Hmm... bad faith.... I wonder if it's wise for SCO to bring *that* subject up?

Here's what SCO tells about the terms of the Canopy lease proposed:

  • it's extended for one year
  • SCO gives up 9,738 "Rentable Square Feet", which is almost half
  • the annual rent goes down to $252,560 from $524,883
  • the Debtor's percentage share of the operating cost goes down from 53.05% to 30.6%
  • if SCO fails to pay the rent, and owes more than $1,000, Canopy can give notice, written notice, and if SCO doesn't clear the debt in 10 business days, Canopy will have the right to terminate the lease on 30 days' written notice.

See? SCO says, we're *reducing* our expenses -- you should be happy. But the question remains: is SCO going to be able to pay the rent at all? The New Jersey lease is an obligation until 2010. If SCO ends up in Chapter 7, which seems imminent, then what happens with that debt? Does it go ahead of other creditors?

Here are all the filings:

291 - Filed & Entered: 01/03/2008
Notice of Service
Docket Text: Notice of Service Notice of Filing (I) Fifth Amendment to Sublease Agreement Between The SCO Group, Inc. and Canopy Properties, Inc. and (II) Summary of Amendments to Utah Lease (related document(s)[278] ) Filed by The SCO Group, Inc.. (Attachments: # (1) Exhibit A # (2) Certificate of Service and Service List) (O'Neill, James)

292 - Filed & Entered: 01/04/2008
Reply (A)
Docket Text: Reply to Novell's Objection to Debtors' Motion to Approve the Assumption of Nonresidential Real Property Leases (related document(s)[288], [278] ) Filed by The SCO Group, Inc. (Attachments: # (1) Exhibit A # (2) Certificate of Service and Service List) (O'Neill, James)

293 Filed & Entered: 01/04/2008
Notice of Matters Scheduled for Hearing (B)
Docket Text: Notice of Agenda of Matters Scheduled for Hearing Filed by The SCO Group, Inc.. Hearing scheduled for 1/8/2008 at 10:00 AM at US Bankruptcy Court, 824 Market St., 6th Fl., Courtroom #3, Wilmington, Delaware. (Attachments: # (1) Certificate of Service and Service List) (O'Neill, James)

294 - Filed & Entered: 01/04/2008
Certificate of No Objection
Docket Text: Certificate of No Objection (No Order Required) Regarding First Monthly Application of Pachulski Stang Ziehl & Jones LLP, as Co-Counsel to the Debtors and Debtors in Possession, for the Period from September 14, 2007 through September 30, 2007 (related document(s)[274] ) Filed by The SCO Group, Inc.. (Attachments: # (1) Certificate of Service and Service List) (Werkheiser, Rachel)

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