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Dorsey & Whitney File 6th Monthly Bill in SCO Bankruptcy - SCO Global - Updated
Wednesday, May 14 2008 @ 04:15 AM EDT

I mentioned that I have been trying to figure out why SCO's corporate law firm, Dorsey & Whitney, in their sixth monthly bill is seen working on corporate documents for SCO Global, Inc. On March 18, 2008 of the bill's Exhibit D, we see on page 5 of the PDF a notation that paralegal C. Peters organized "corporate records files SCO Global, Inc.":
Organize corporate records files SCO Global, Inc. (1.25), review disclosure schedules and e-mail messages from client concerning disclosure schedules (.3); discuss schedules with D. Marx and update schedules according to conversation with same (1.3)

What is SCO Global? Why now? And why does SCO Global keep cropping up? I first noticed SCO Global's corporate documents mentioned in Dorsey & Whitney's first bill, and I asked at the time what SCO Global does, but I didn't follow through. This time, I did. After following the thread as far as I can, it seems that at a minimum, SCO Global is one of the US subsidiaries that SCO wants to sell, as you can see by the now withdrawn York deal's proposed and withdrawn ABA, where it is listed as a signatory Seller. I'll show you what I've found.

Here is a screen capture of the signature line:

I wonder how I didn't notice it before now. Again, here are the filings for the Dorsey bill:

471 - Filed & Entered: 05/09/2008
Application for Compensation
Docket Text: Monthly Application for Compensation Sixth Monthly Fee Application of Dorsey & Whitney LLP for the Period March 1, 2008 through March 31, 2008 Filed by Dorsey & Whitney LLP. Objections due by 5/29/2008. (Attachments: # (1) Exhibit A # (2) Exhibit B # (3) Exhibit C # (4) Exhibit D # (5) Notice of Sixth Monthly Fee Application) (Schnabel, Eric)

SCO Global

So what precisely is SCO Global, Inc.? If we go to our friend Google, we find that it was listed as a subsidiary of SCO Group, Inc. back in 2002 in a SCO Group, Inc. 10K for 10/31/02. Formerly, in the year 2001, which is when it seems to have started. since you don't see it on the list in 2000, it was called Caldera Global, Inc. and the notations say it's a wholly owned "US Company". Here's the latest list of subsidiaries, as of 10/31/07 anyway, of SCO subsidiaries, and we see SCO Global on the list:

SCO Operations, Inc. - United States - Wholly owned
SCO Global, Inc. - United States - Wholly owned
SCO Software (UK) Ltd. = United Kingdom - Wholly owned
SCO Japan, Ltd. - Japan - Wholly owned
SCO Canada, Inc. - Canada - Wholly owned
The SCO Group (Deutschland) GmbH - Germany - Wholly owned
The SCO Group (France) Sarl - France - Wholly owned
SCO Software (India) Private Ltd. - India - Wholly owned
ME Inc. - United States - Wholly owned
Cattleback Intellectual Property Holdings, Inc. - United States - Wholly owned

I don't see SCO China, and that's because it's a joint venture, not a subsidiary, I gather:

In connection with the Company’s acquisition of the server and professional services groups from The Santa Cruz Operation, it acquired a 30 percent ownership interest in SCO Software, China; a joint venture in China. This investment is being accounted for using the equity method. As of October 31, 2007, the Company’s investment balance in SCO Software, China was $497,000, which is included other assets.

Me Inc. is now listed as a wholly owned subsidiary, as you see. You'll recall that Darl McBride told the U.S. Trustee's trial attorney at the October 341 Creditors' Meeting about Me Inc.:

McMahon: Exhibit 18A references Me Inc. Was that an entity formed by the Debtors, or is that an aquisition?

McBride: That was formed by us, it's a wholly owned sub.

McMahon: What was its business purpose? What is its business purpose?

McBride: Its business purpose is basically an entity to put our mobility assets into. To date, we haven't actually transferred those in there, but it is set up, it is the, the marketing tag-line, if you will, a marketing moniker for our mobility product line. But, because we don't have substantial amount of revenue flowing there yet, we have not gone through the process yet of moving all the assets in to Me Inc. But that is the, that has been and continues to be the plan. So right now the assets of Me Inc and the liabilities of Me Inc are just booked under Operations.

(87:50)

Spector: May I inquire, booked under Operations or under Group?

Acheson: Well, it's in the same set of books with Operations...

McBride: It rolls up under Operations...

Acheson: It's a U.S. entity.

McBride: But the longer term plan would be to split it off from Operations, and at that point it would report into Group. I mean, the entity reports into Group right now, but I'm just saying the operations and people and the operations of the mobility product lines are still held under Operations. And part of what we'd be trying to do going forward from a reorganization standpoint would be to place more emphasis on this.

Here's the list of subsidiaries that Darl McBride listed when SCO first filed for Chapter 11 bankruptcy:

In addition to Operations, SCO Group has the following subsidiaries located both in and outside the United States as follows:

a. SCO Global, Inc. (U.S.);
b. Me, Inc. (U.S.);
c. Me Software Limited (U.S.);
d. Cattleback Holdings, Inc. (U.S.);
e. SCO Canada, Inc. (Canada);
f. SCO Software (UK) Ltd. (United Kingdom);
g. SCO Japan, Ltd. (Japan);
h. The SCO Group (Deutschland) GmbH (Germany);
i. The SCO Group (France) SarI (France); and
j. SCO Software (India) Private Ltd. (India).

The list keeps changing. I don't know what happened to Me Software Limited. Poof. But I gather from all I've found that this is why Dorsey & Whitney is working on its corporate documents -- because SCO Global is part of whatever SCO keeps trying to hand off. It was part of the York deal that was withdrawn, and apparently it is still part of what SCO is trying to now sell to the Stephen Norris folks.

None of the above tells us what SCO Global is or what it does. It is tempting to lean to the thought that it is the services part of their business. SCO press releases, like this example from 2005, usually included this line: "SCO Global Services provides reliable localized support and services to partners and customers." This old press release mentions that "SCO Global Services is a service mark of Caldera International, Inc." I can't resist pointing out that you'll note that it also says "UNIX and UnixWare, used under an exclusive license, are registered trademarks of The Open Group in the United States and other countries," just as a little footnote to history. I think it is likely, then, that SCO Global is the services end, but I don't know it as a fact.

After all, Santa Cruz Operation also had back in 1994 something called SCO Global Access, according to this press release reproduced on Interesting People:

WICHITA, KS AND SANTA CRUZ, CA, SCO FORUM94 (August 22, 1994) -- (NASDAQ:SCOC) In a revolutionary spin on business use of the Information Superhighway, The Santa Cruz Operation, Inc. (SCO) and Pizza Hut, Inc. today announced "PizzaNet," a pilot program that enables computer users, for the first time, to electronically order pizza delivery from their local Pizza Hut restaurant via the worldwide Internet.

Pizza Hut will launch the PizzaNet pilot in the Santa Cruz area on August 22 and use it to study the feasibility of expanding the program to other cities in the U.S. and around the world. Technology for the pilot program includes the SCO Global Access product, an integrated Internet business server solution. The SCO Global Access incorporates advanced NCSA Mosaic software for browsing the Internet, and the custom "PizzaNet" application software developed by SCO's Professional Services organization.

"The worldwide Internet, along with SCO Global Access software, present us with exciting new opportunities to offer home delivery services to our customers," said Jon Payne, Pizza Hut MIS Director of POS Development. "The PizzaNet pilot will help us study the technical feasibility and gauge customer response to these new services, while taking an important step toward integrating our restaurants with the Information Highway."

To participate in the PizzaNet Pilot, customers in the Santa Cruz area need computers with Internet access and any version of Mosaic, such as Windows, Mac, or UNIX. Customers use the Internet's World Wide Web to access the centralized PizzaNet server at Pizza Hut Headquarters in Wichita, Kansas. This 486 system runs SCO Open Server and SCO Global Access software, using the Mosaic and Hypertext Transfer Protocol to present customers with a customized menu page for ordering pizza deliveries. Mosaic is widely used at many technology companies, government agencies, and universities. It is rapidly being adopted by many business and home users in response to the continuing availability of new and innovative business and information services.

The customer uses the menu pages to enter name, address, and phone information, along with orders for pizza and beverages. The order is then transmitted via the Internet back to Wichita, and then relayed via modem and conventional phone lines to the SCO Open Server system at the customer's nearest Pizza Hut restaurant. The local restaurant can then telephone first-time users to verify orders. All money changes hand at the point of delivery.

"Pizza Hut already runs home delivery applications on SCO Open Server at over 1,000 restaurants, and that makes it relatively easy to integrate this new application into their operations for the pilot," said Doug Michels, SCO's Executive Vice President and Chief Technical Officer. "The primary challenge was to create a graphical menu page that makes it easy and convenient for customers to order pizza. The Mosaic component of the SCO Global Access product provided the ideal set of graphical tools needed for this application."

About SCO Global Access

The SCO Global Access product family provides the foundation for businesses to develop integrated Internet server solutions. The Global Access family consists of a supplement for SCO Open Server systems as well as an integrated desktop product for testing the waters of the Internet.

Santa Cruz Internet users can access PizzaNet by entering http://www.pizzahut.com. To obtain more information on SCO via the Internet, enter http://www.sco.com.

Pizza Hut, a subsidiary of PepsiCo., is the world's largest pizza distribution company, with more than 8,200 restaurants and delivery units in the U.S. and more than 2,500 units in 87 countries. Voted "Best Pizza Quality" in a Restaurant & Institutions consumer poll, Pizza Hut is the recognized leader of the $17 billion dollar pizza category.

SCO is the world leader for UNIX servers (Source: IDC 1994). Businesses and governments use SCO Open Systems Software to run their critical operations, accessing information across local, national, and international boundaries and networks. SCO sells and supports its products in more than 80 countries through a worldwide network of distributors, resellers, systems integrators, and OEMs.

SCO, the SCO logo, The Santa Cruz Operation, Open Desktop, and Open Server are trademarks or registered trademarks of The Santa Cruz Operation, Inc. in the U.S.A. and other countries. All other brand or product names are or may be trademarks of, and are used to identify products or services of, their respective owners.

I know. It's so cute and quaint. But if you think about it, what Me Inc. seems to do isn't that far off in concept from this old plan, is it? So whether this is the same as SCO Global, or is a part of it, and another part is the services offerings, I don't know. This is what I've found, and no doubt someone out there will know.

Update: Services in connection with Me Inc. as the reason why SCO Global comes into the sale makes sense in light of this recent press release from SCO and Franklin Covey:

FranklinCovey and The SCO Group Form Strategic Relationship to Bring Collaborative Mobile Planning Tools to Market

SALT LAKE CITY, April 22 /PRNewswire/ -- FranklinCovey (NYSE: FC), a global leader in effectiveness training, productivity tools and assessment services, and The SCO Group (Pink Sheets: SCOXQ.PK) a leading provider of UNIX software technology and mobile services announced today that they have formed a strategic relationship to market, sell and distribute new collaborative mobile planning tools developed by Me Inc., a wholly owned subsidiary of The SCO Group.

The tools, which feature Me Inc. mobile technology, will provide users with real-time access to plan and coordinate schedules, track goals, set appointments, manage and delegate tasks and utilize multimedia, all from their smart phone or PC client. The first round of new products will be available in early summer.

"FranklinCovey is pleased to enter into this agreement with Me Inc., to bring our customers new and powerful mobile planning tools that improve individual and business productivity," said Jeff Anderson, senior vice president, product management at FranklinCovey. "Me Inc.'s technology helps to fill the growing demand in the marketplace for effective mobile technologies that improve personal and group productivity rather than complicate it. The more we have worked with this collaborative product, the more convinced we are of its capability to move the needle for consumers and professionals looking for next generation mobile solutions."

Our subsidiary, Me Inc., has been working for a number of years on developing mobile technologies that help individuals and businesses take greater control over their lives and improve their effectiveness, whether at work, at home or on the go, all from the palm of their hand," said Jeff Hunsaker, president and chief operating officer of SCO Operations. "We identified FranklinCovey as the industry leader in providing tools and training for increasing personal and professional effectiveness and are excited about their stated vision and commitment to bring this product to market. We believe this partnership will be very beneficial to both companies and look forward to announcing and rolling out this new and unique mobile technology very soon."

Yet, if they need to outsource services, what services group would be useful to sell? Perhaps all they want is the name, since I recall Stephen Norris and Jeff Hunsaker mentioning that what attracted them was the future services possibilities in connection with global customers:

"Not only will this deal position us to emerge from Chapter 11, but it also marks an exciting future for our business," said Jeff Hunsaker, President and Chief Operating Officer of SCO Operations. "This significant financial backing is positive news for SCO's customers, partners and resellers who continue to request upgrades and rely upon SCO's UNIX services to drive their business forward."

SNCP has developed a business plan for SCO that includes unveiling new product lines aimed at global customers. This reorganization plan will also enable the company to see SCO's legal claims through to their full conclusion.

"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 SNCP. "We expect to quickly develop these opportunities, and to stand behind SCO's existing base of customers and partners."

I can see the name alone, not to mention the customer lists, having value in that connection. End Update.]

What is clear is that whatever SCO Global is, SCO thinks it is part of whatever it would like to sell, or at least tell the court it would like to sell. We see that pointblank in the dropped York deal, but this bill from Dorsey & Whitney is talking about March. The York deal was a dead duck by then. Clearly there was and is a plan SCO Global is part of, but it hasn't come into full relief to us outsiders yet. But we are watching it form, bit by bit, in these monthly bills and in the reorganization proposals. It seems odd that a company can be in bankruptcy, and there is so little known or readily available about what its subsidiaries do.

Another detail from the bill - the payments

If you look at the order authorizing Dorsey & Whitney to serve as SCO's Special Counsel [PDF], it says Dorsey is to do regulatory and corporate stuff, and it can work on the prior litigation, but it is not to handle the bankruptcy. They can advise SCO's bankruptcy team, but they are not allowed to represent SCO in the bankruptcy.

Exhibit D gives the breakdown of what tasks they handled for SCO in this particular time period, and as you'd expect, it's corporate stuff, like SCO's appointing Jeff Hunsaker to be the President of SCO Operations, and meetings of the compensation committee, that sort of thing.

A six monthly bill is a milestone in bankruptcy court, I gather, since there is a special 6th Monthly Notice required. This month, they'd like $21,693.25, plus $895.56 in expenses. Prior monthly bills went like this, first the ones approved in full:

9/14/07-10/31/07 - $57,585.75 - Expenses: $6,129.29
11/1/07-11/30/07 - $26,456.50 - Expenses: $527.93
12/1/07-12.31.07 - $12,568.50 - Expenses: $1,735.12

Then the next two bills were approved in part, so far:

1/1/08-1/31/08 - $22,799.25 ($18,239.40 approved) - Expenses: $276.15
2/1/08-2/29/08 - $53,966.00 (43,172.80 approved) - Expenses: $745.61

Why is there that difference, I wondered? On page 5 of this Application, it states that the court authorized applications on an interim basis, on notice to everyone who might object, and if they don't object within 20 days, then they can file a Notice of No Objection with the court, and then after that, SCO can pay the following:

Upon expiration of the Objection Deadline, the Professional may file a certificate of no objection with the Court after which the Debtors are authorized to pay each professional an amount ... equal to the lesser of (i) 80 percent (80%) of the fees and 100 percent (100%) of the expenses requested in the Monthly Fee Application... and (ii) 80 percent (80%) of the fees and 100 percent (100%) of the expenses not subject to an objection, unless an objection has been lodged against specific fees and/or expenses or the Court orders otherwise.

The Administrative Order [PDF], which issued on October 4, 2007, says the same thing on page 3, that all the professionals should get 80%. So why did Dorsey & Whitney get 100% until the end of December of 2007? I believe it's because of this wording in paragraph 2 on page 2:

Except as may otherwise be provided in other orders of this Court authorizing the retention of specific professionals, all Professionals in these cases shall seek interim monthly payment of Compensation in accordance with the following procedures...

So we need to look to the retention order [PDF] which approved Dorsey & Whitney as Special Counsel -- on November 19, 2007, nunc pro tunc back to the petition date on September 14. And in fact, on page 3 of that retention order, it says this:

ORDERED that, in its first noticed monthly fee application, Dorsey shall seek to and, if authorized pursuant to the applicable procedures relating to professional fee applications, may apply the Retainer to the Unbilled Claim, and thereafter, Dorsey shall apply the remainder of the Retainer to the final fees and expenses approved on an interim basis for payment pursuant to procedures in place relating to the allowance and payment of professional fees...

If you look at SCO's Initial Monthly Operating Report [PDF], on page 33, we find that indeed Dorsey & Whitney were paid a retainer on September 11, 2007 in the amount of $100,000. That's on the eve of the bankruptcy, which makes it all in the clawback category, at least in theory. I gather it took Dorsey until the end of December to work through that pile of cash, after which it began to bill under the process in place for all professionals, 80% interim payments.

One final note. If you look at the breakdown of who is paid at what rate at Dorsey & Whitney, on page 8 of the PDF of Exhibit D, we see a J. Hamilton, Trainee, being paid at what seems a rather high rate, $310/hour, higher than D. Marx, Associate, at $270/hr. That seems strange. Perhaps it's a mistake. Either that, or he or she is being trained as a partner. Kidding.


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