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An Objection to SCO's proposed reorganization raises questions about SNCP
Wednesday, February 27 2008 @ 11:02 PM EST

Time to catch up with numerous filings in the bankruptcy. Folks heard about the proposed reorganization and may be smelling money in the air, I gather, because here comes a creditor, Citi Financial, who's decided it's worth it now to hook a car to the creditors' train and send in their lawyers. We'll see if there really is any money, though. Another creditor, Main 10, has transferred its claim to Argo Partners, and another set of SCO's monthly operating reports were filed. And there's another pro se Objection [PDF], this time to the reorganization plan.

It's considerably more interesting than the previous one and raises some valid questions, although I continue to wish they had been brought to the US Trustee's Office. One good thing is it's been filed early enough that others can build on it, should they choose to. And the research done, as seen in the exhibits attached to the Declaration in Support [PDF] of the objection, raises another issue, not directly highlighted in the objection: what entity exactly is offering to do this deal? The SCO press release about the proposed deal may be inaccurate in an important aspect. Either that or the MOU is. The press release stated that Stephen Norris Capital Partners was doing the deal, that it was a limited partnership, without specifying in which state, and it listed Norris as "managing partner" of SNCP:

"We saw a tremendous investment opportunity in SCO and its vast range of products and services, including many new innovations ready or soon to be ready to be released into the marketplace," said Stephen Norris, managing partner for SCNP....

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.

While the press release says that SNCP is a partnership, the MOU says it's a deal between SCO and STEVE NORRIS CAPITAL PARTNERS, LLC and it defines SNCP as "Stephen Norris Capital Partners, LLC" and it further says it's a Delaware limited liability company ("Investment Team: Stephen Norris Capital Partners, LLC, a Delaware limited liability company ("SNCP").").

So my first question has to be: which type of entity is doing this deal? An LP or the LLC? And which LLC? Is it a Delaware LLC, which the objector searched for and can't find, or a Florida LLC, which he did find? Is there any such Delaware LLC? If so, it must be very recently formed if the objector's search couldn't find it. The objector asked SCO's lawyers, and they say they've asked SCO and will get back to him. What's that about? Did they do any checking on this proposed deal to make sure it isn't flim flam? Which entity is really doing this deal? And which one has the money, if any of them? How do you know? And if it's an LLC, who is guaranteeing the money? An LLC means limited liability company, and that means what it says.

There is a Stephen Norris & Co. Capital Partners, LP formed in New York in 2005. There is also a Florida LLC, formed in July of 2007, Stephen Norris Capital Partners, LLC, as you can see in Exhibit C. But where is the Delaware LLC? And if it's an LLC doing the deal, why did the press release say it was the partnership? You can't be a managing partner of an LLC, and that is what the press release said Stephen Norris is. This, to me, raises some deep worries.

That's my question, but here are the important concerns raised in the Objection: does SNCP really have the $95 million it is offering to loan in the event Novell, IBM and Red Hat obtain money judgments? How do you know? There isn't so far any evidence that it has that kind of money or any history of creditworthiness, according to the objection. Was SNCP, LLC just formed? If so, how do you measure creditworthiness? And where's the money? Exhibit E is an affidavit by Norris, filed in a lawsuit that was eventually dismissed on jurisdictional grounds. Norris stated in that 2007 affidavit:

7. In late 2005 in New York, GMG and I formed Stephen Norris & Co. Capital Partners, L.P. (the "Partnership"). Since its inception, the Partnership has conducted limited or no business operations, including any co-investment transactions.

In the unlikely event that SCO were to prevail, how about the windfall to SNCP at the expense of security holders -- is it appropriate, if SNCP doesn't actually have $95 million and thus isn't actually putting up a dime? But the most substantive concern raised is this:

I. THE DEFINITIVE DOCUMENTS MUST BE INCLUDED IN THE DISCLOSURE STATEMENT AND FILED 25 DAYS BEFORE THE HEARING.

4. The Motion describes what appears to be a promising plan of reorganization. Unfortunately, the Debtors are not proposing an adequate review schedule.

5. The Motion candidly states that the "Debtors concede that the Plan Sponsor Protections seek extraordinary relief from the Court"... and that the "Debtors acknowledge the lack of precedent for the Settlement Compensation and Sale Compensation components of the Plan Sponsor Protections"...Despite this, the Debtors propose not to reveal the details of the extraordinary relief that they are requesting until the day that objections are due.

6. This is the schedule set forth in the Debtors' motion:

February 14: Filing of the Motion and the Memorandum of Understanding ("MOU").

February 29: Filing of the Debtors' Joint Plan of Reorganization (the "Plan") but not "the definitive agreements contemplated thereby (the 'Definitive Documents')". (Motion at p. 1)

February 29: Filing of the Disclosure Statement in Connection with Debtors' Joint Plan of Reorganization (the "Disclosure Statement"), also sans Definitive Documents. (Id.)

March 26, 4:00 P.M.: Deadline for objections to the Motion and for objections to approval of the Disclosure Statement. (Id.)

March 26 (unspecified hour): Filing of the Definitive Documents. (Id.)

April 2: Hearing on the Motion and on approval of the Disclosure Statement. (Id.)

7. The debtors are proposing to file the Disclosure Statement 33 days before the hearing, in compliance with the requirement that it be filed at least 25 days before the hearing (F. R. Bankr. P. 3017). However, it is clear that this Disclosure Statement will be inadequate for evaluating the Plan, because it will not include any of the Definitive Documents. The Debtors are proposing to file the Definitive Documents separately, and to do so a mere five business days before the hearing, with is zero days before objections are due....

18. The Motion, as currently scheduled, seeks extraordinary relief on extraordinarily short notice. I respectfully request that the Court deny the Motion if the Definitive Documents, including the Firm Financing Commitment, have not all been filed at least 25 days prior to the hearing.

This is a valid concern, in my view. Here's the Amended Notice [PDF] setting forth the deadline SCO proposed for objections to be filed, March 26, which is the same day that SCO says in its Motion [PDF] that it will file "the forms of the Definitive Documents" with the details of the financing, which is five days before the hearing. I had not noticed this important detail. It reminds me of the hearing on the leases. Last-minute revelations are SCO's MO, of course. What might that indicate?

Here are the filings:

357 - Filed & Entered: 02/22/2008
Operating Report
Docket Text: Debtor-In-Possession Monthly Operating Report for Filing Period January 2008 for the SCO Group, INc. Filed by The SCO Group, Inc.. (Attachments: # (1) Certificate of Service) (O'Neill, James)

358 - Filed & Entered: 02/22/2008
Operating Report
Docket Text: Debtor-In-Possession Monthly Operating Report for Filing Period January 2008 for SCO Operations, Inc. Filed by The SCO Group, Inc.. (Attachments: # (1) Certificate of Service) (O'Neill, James)

359 - Filed & Entered: 02/22/2008
Objection
Docket Text: Objection to Debtors' Motion to Approve Settlement
Compensation or Sale Compensation and Expense Reimbursement To Plan Sponsor (related document(s)[346] ) Filed by Alan P. Petrofsky (Attachments: # (1) Declaration of Alan P. Petrofsky) (Petrofsky, Alan)

360 - Filed & Entered: 02/25/2008
Certification of Counsel
Docket Text: Certification of Counsel Regarding Second Monthly Fee Application of Mesirow Financial Consulting, LLC as Financial Advisors to the Debtors for Compensation and Reimbursement of Expenses for the Period from December 1, 2007 through December 31, 2007 (related document(s)[313] ) Filed by Mesirow Financial Consulting, LLC. (Selzer, Sandra)

361 - Filed & Entered: 02/26/2008
Transfer/Assignment of Claim
Docket Text: Transfer/Assignment of Claim. Transfer Agreement 3001 (e) 1 Transferor: Main 10(Amt. $2,000.00) To Argo Partners. Filed by Argo Partners. (Gold, Matthew)

362 - Filed & Entered: 02/26/2008
Notice of Appearance(B)
Docket Text: Notice of Appearance Filed by Citi Financial Inc.. (Attachments: # (1) Certificate of Service) (Martin, Robert)

363 - Filed & Entered: 02/26/2008
Motion to Appear pro hac vice (B)
Docket Text: Motion to Appear pro hac vice of Kim B. Andres. Receipt Number 150884, Filed by Citi Financial Inc.. (Martin, Robert)

364 - Filed & Entered: 02/27/2008
Certificate of No Objection
Docket Text: Certificate of No Objection (No Order Required) Regarding Fourth Monthly Application of Pachulski Stang Ziehl & Jones LLP, as Co-Counsel to the Debtors and Debtors in Possession, for the Period from December 1, 2007 through December 31, 2007 (related document(s)[320] ) Filed by The SCO Group, Inc.. (Attachments: # (1) Certificate of Service and Service List) (Werkheiser, Rachel)


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