SCO has filed its proposed plan. I have only quickly skimmed it, but what I see immediately is that it wishes to sue Linux users, and it lists a Java patent, and I'm guessing there may just be a connection someday. Who knows? SCO loves to sue, I've decided.
It wants to sell some of the Mobility business, retaining part of it, along with selling the Unix business and "many of [SCO's] subsidiaries" to an entity called UnXis. I've never heard of it either. Think there might be trademark issues? Try going to Google and search for "unXis Delaware" and you get a list of UNIX jobs and such. The APA is signed by Stephen Norris. If you go to Delaware Division of Corporations, you'll find there is a UNXIS, Inc. incorporated this month, on the 12th. You'll find the part about suing other Linux users on page 3 of the Motion, paragraph 5.
SCO will retain the litigations, and I gather the plan is to make them as close to counterclaim-proof as one can be. We'll read the details together. If they provide them. I note the opening words say that the APA is attached as Exhibit A, "without voluminous schedules and exhibits". I don't know about IBM, Novell, and the US Trustee's Office, but I would prefer to read those voluminous schedules and exhibits, myself. They say it'll be posted someday on their website.
[Update 2: SCO has posted a FAQ on their website, that makes me wonder if this is really a sale or just a renaming. Let me show you some key paragraphs.
Notice how they describe the "sale", which seems to be more rearranging the deck chairs on the Titanic and calling it unXis -- I've highlighted the significant bits:
Overview By the way, did you catch the part about "other potential defendants" in addition to Novell, IBM, Red Hat and AutoZone? Everybody pretty much goes to unXis, leaving McBride as captain of the Good Ship SCO, and he gets to sue and sue and sue, while the assets have gone to unXis, so if SCO loses all the litigation, then the victors get no spoils and can't be be made whole by the legal process. But what particularly struck me is SCO saying that they will be able "to move the UNIX business forward with unXis in a very exciting way." "With unXis"? In what sense? Is SCO selling to itself? It starts to hint that this is more a renaming, taking in some new management who seem to have financial expertise, and SCO keeps skipping along as unXis, with the dangerous litigation spun off safely into a litigation troll. Is that not what you see? For example, notice this Q and A:
unXis to Acquire SCO's UNIX Business
On Monday, June 15th, SCO notified the bankruptcy court that The SCO Group had signed a definitive Purchase and Sale Agreement with unXis, Inc. (unXis) which we believe should help resolve in our favor the motions by IBM and Novell (and the US Trustee) to convert our Chapter 11 bankruptcy case to a case under Chapter 7 liquidation. This sale of the UNIX business, and some mobility assets, to unXis would favorably resolve the bankruptcy for our creditors, customers, shareholders and partners. ...
The Court has set the date of July 27 th to review the agreement and motions and has stated that it will enter a decision within a few days thereafter. SCO is confident and optimistic that the agreement with unXis will satisfy all conditions and parameters to allow SCO to pay its creditors, satisfy any legal claims, emerge from bankruptcy and to move the UNIX business forward with unXis in a very exciting way.
The Purchase and Sale Agreement (PSA) has been signed by The SCO Group and certain of its subsidiaries as sellers and unXis, as buyer, pursuant to which the UNIX product business will be sold to unXis. unXis has been organized by Gulf Cap Partners LLC and the MerchantBridge Group. MerchantBridge is a London-based private equity and direct investment company with strong links in the Middle East and a prestigious pedigree of transactions in the telecommunications and related sectors (www.merchant-bridge.com). Gulf Cap Partners was formed by a number of private equity professionals from the US and the Gulf to take advantage of the substantial changes in the private equity markets brought about by the financial crisis (www.gulfcappartners.com). Both Gulf Cap Partners and MerchantBridge will take an active role in the management of unXis.
A few of the key components of the PSA are as follows:
- The buyer's management team is expected to consist of new and existing SCO management that will lead the UNIX business forward.
- The SCO Group will continue with certain natively grown Me Inc. mobility applications and continue its efforts to reach a successful conclusion of litigation issues related to Novell, IBM, RedHat, and AutoZone and other potential defendants. Darl C. McBride will continue as CEO of The SCO Group.
- Most of the current SCO staff, including developers, support personnel, sales and marketing are expected to join unXis.
- All UNIX products as well as the SCO Mobile Server products will be sold to unXis.
- OpenServer and UnixWare product lines will be kept up to date and maintained into the future with new product roadmaps.
- Significant investment will be put into "virtualization" products.
- Significant investment will be made to develop and market a next generation UNIX operating system platform.
SCO customers and partners can feel confident that they will be able to continue to purchase licenses, receive support and development for the core SCO UNIX products now and into the future.
Q: How do I continue to purchase SCO licenses and receive SCO technical support
during this transition time? How can SCO continue to provide support if all the employees went to unXis, if SCO and unXis are really two different entities and not just a renaming of the company into two parts? And get a load of this:
A: SCO will continue as a separate entity until the purchase agreement is
approved by the Bankruptcy Court and the transaction is closed. Customers will
continue to purchase SCO licenses from their respective SCO distributor and/or
reseller. This process has not changed.
For customers with a current SCO support contract, SCO will continue to provide
support, honor, and fulfill all existing UNIX product commitments. In short,
business continues without interruption, even after the asset sale is approved
and the asset purchase agreement is finalized.
Additionally, with certain
exceptions, most customers of unXis will not be subject to claims by SCO.
In short, SCO will sue some of unXis' customers? Most? Existing litigation? You might want to think about what that means for you, if you are considering becoming a unXis customer or staying as one, if this division and renaming is approved. -
End Update 2.]
Q: Will unXis be involved in, or exposed to, the existing litigation?
A: No. unXis has no interest in any SCO litigation and will focus on developing
new generation systems addressing the current and future needs of its customer
base. Upon approval of the court, unXis and its major customers will be fully
protected against the existing litigation.
Here are the filings, for your reading pleasure:
06/22/2009 - 814 - Quarterly Application for Compensation [Sixth] and Reimbursement of Expenses as Co-Counsel to the Debtors and Debtors-in-Possession, for the Period from January 1, 2009 through March 31, 2009 Filed by Pachulski Stang Ziehl & Jones LLP. Objections due by 7/13/2009. (Attachments: # 1 Notice # 2 Exhibit A# 3 Exhibit B# 4 Exhibit C# 5 Certificate of Service and Service List - Fee App# 6 Certificate of Service and Service List - Notice only) (Jones, Laura Davis) (Entered: 06/22/2009) Mark Billion? Who is that? Perfect name for a SCO lawyer filing this plan, I must say. Must be from Central Casting. No. Just a Pachulski, Stang attorney. They've filed another bill, as you see.
06/22/2009 - 815 - Motion For Sale of Property under Section 363(b) /Debtors' Motion for Authority to Sell Property Outside the Ordinary Course of Business Free and Clear of Interests and for Approval of Assumption and Assignment of Executory Contracts and Unexpired Leases in Conjunction With Sale Filed by The SCO Group, Inc.. Hearing scheduled for 7/27/2009 at 09:00 AM at US Bankruptcy Court, 824 Market St., 6th Fl., Courtroom #3, Wilmington, Delaware. Objections due by 7/20/2009. (Attachments: # 1 Notice # 2 Exhibit A - Part 1 # 3 Exhibit A - Part 2 # 4 Exhibit B # 5 Exhibit C) (Billion, Mark) (Entered: 06/22/2009)
Here is the paragraph about suing:
5. In summary, the Purchase and Sale Agreement provides that the Purchaser will buy and the Debtors will sell generally, the Debtors' UNIX business and many of its subsidiary companies, and certain of their Mobility products. The Debtors will retain certain Mobility applications, their cash, their accounts receivable, and their litigation and related claims against International Business Machines Corporation, Novell, Inc., AutoZone Corporation, Red Hat and certain Linux users which are not material customers of UnXis (excluding certain large-scale users of Linux servers) that are claimed to have infringed against UNIX copyrights....
I suppose that could mean the DaimlerChryslers of the world, the companies that signed contracts with AT&T and Santa Cruz, never imagining that a day would come when a SCO Group would arise, with the contracts in its teeth, looking for blood. Of course, SCO would have to get Novell off its back first, and then it would have to prove it owns the copyrights, and then it would have to prove infringement of specific copyrighted materials, not one step of which SCO has so far been able to accomplish.
But look at the yearning, the determination to do harm to Linux. Is it not a bit like the feeling you get watching a horror movie?
On selling off many of the subsidiaries, I surely hope IBM and Novell and the US Trustee's Office looks closely at the money flow.
Here's a screenshot of the filing in Delaware:
If anyone can help doing text of the APA itself, Exhibits A and A2, I'd appreciate it a lot. Since SCO mentioned at the last hearing that they used the failed York APA as a template, you probably can too. It might be interesting to compare them, anyway.
Here's the Motion as text. As I was doing the HTML, I couldn't help but notice that it says that if the court of appeals overturns the Utah court, then the letter of credit for the benefit of Novell, Inc. will be extinguished. When would that happen, though? After it goes all the way to the Supreme Court?
Update: I don't think SCO necessarily intends for Novell to get paid. And I am not convinced Mr. Norris and unXis are in this venture with a whole heart. Take a look at this part of the APA [PDF], page 21, at the bottom of the page, about the letter of credit being set aside to pay Novell, if the appeals court affirms:
(iii) in the event that an amount in excess of the face amount of the Letter of Credit-Sun is owed and payable to Novell, Purchaser shall have no obligation to pay all or any portion of such excess; and What? Say, what? UnXis pays out nothing if there is no ruling by August 31? Or, even worse, they pay nothing if SCO doesn't draw on the letter of credit by December 31, 2009? How in the world would that happen, when they already set it up SCO only pays Novell after the appeal is final, IIRC? If the court remands part of the case, and there is a jury trial, do you sincerely believe it will be over, including appeals, by December 31st? Me neither. In short, I don't see how this could be considered a guarantee to pay Novell what is due. Do you? Same old, same old. SCO is nothing if not consistent. I gather, then, that the deal dies on August 31, unless SCO prevails on appeal in some manner. So, it's SCO, asking the bankruptcy court to let Norris once again join SCO in getting a delay based on a wing and a prayer, hoping against hope the appeals court rules favorably and in time. But Norris risks nothing if SCO goes splat on or prior to August 31. Note the stalking horse fee, though. They never leave that out, do they? That's how much Mr. Stephen Norris and whoever is funding this little detour really believes in SCO.
(iv) in the event that (A) on or prior to August 31, 2009 the District Court Sun Agreement Judgment is neither affirmed in whole or in part nor reversed and/or remanded in whole or in part or (B) for any reason whatsoever, the Letter of Credit-Sun is not drawn by SCO Group or Escrow Agent on behalf of and in the name of SCO Group on or before December 31 2009, the Letter of Credit-Sun shall terminate and SCO Group shall have no rights with respect thereto and Purchaser shall have no obligation to pay such portion of the Purchase Price.
As for SCO, it wants a delay, but I suspect this APA is sending a message to IBM to buy them on the 27th, and make this headache go away. I hope IBM doesn't, but that's how I read this document.
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
THE SCO GROUP, INC., et al.,1
Case Number 07-11337 (KG)
Hearing Date: July 27, 2009 at 9:00 a.m. (prevailing Eastern time)
Objection Deadline: July 20, 2009 at 2:30 p.m. (prevailing Eastern time)
DEBTORS' MOTION FOR AUTHORITY TO SELL PROPERTY OUTSIDE
THE ORDINARY COURSE OF BUSINESS FREE AND CLEAR OF INTERESTS AND
FOR APPROVAL OF ASSUMPTION AND ASSIGNMENT OF EXECUTORY
CONTRACTS AND UNEXPIRED LEASES IN CONJUNCTION WITH SALE
The above-referenced debtors in possession (collectively, the "Debtors"), by undersigned
counsel, pursuant to 11 U.S.C. §§ 105(a), 363(b) and (f), and 365, and Rules 2002(a)(2), 6004(a),
(b), (e), (c), (f) and (h), 6006, 9007 and 9014 of the Federal Rules of Bankruptcy Procedure, seek
(a) Authorizing the Debtors to sell certain described assets (the
"Purchased Assets"2); outside the ordinary course of business and
free of interests to unXis, Inc. (the "Purchaser"), pursuant to the
terms of a Purchase and Sale Agreement, a true copy of which
(without voluminous schedules and exhibits) is attached hereto as
Exhibit A (the "Sale");
(b) approving the Debtors' assumption and assignment of certain described executory
contracts and unexpired leases ("Assumed Executory Contracts") in connection with
the Sale; and
(c) granting such other and further relief as the Court deems appropriate.
I. RELEVANT BACKGROUND3
1. The Debtors seek authority to sell the Purchased Assets outside the ordinary
course of business and free and clear of all liens, claims, interests and encumbrances, with the
exceptions of the Assumed Liabilities and Permitted Encumbrances as detailed in the Purchase
and Sale Agreement, in order to maximize the value thereof and preserve value for the benefit of
2. The Debtors' goal has been to preserve their businesses and the marketability and
value of their assets for the benefit of creditors and equity holders. With that goal in mind, and
as amply supported by the testimony received in Court at the hearing on June 15, 2009, and
otherwise, the Debtors have worked diligently nearly non-stop since these cases were
commenced to find and negotiate a transaction to sell the Purchased Assets.
3. Specifically, among many other such efforts with other interested parties, the
Debtors spent many weeks trying to conclude a transaction with York Capital Management in
late 2007 and early 2008. Thereafter, in February, 2008, the Debtors filed a plan based largely
around a sale of some of its assets to Steve Norris Capital Partners. These previous efforts
foundered on the uncertainty of the Debtors' right to transfer certain rights and intellectual
property necessary for a purchaser to successfully operate its business plan surounding UNIX.
4. As generally testified by the Debtors' Chief Executive Officer, Darl C. McBride,
on June 15, 2009, negotiations with respect to a sale of the UNIX assets became somewhat less
complex upon the receipt of a ruling by the United States District Court for the District of Utah
on June 16, 2008 (the "Final Judgment"), that clarified the Debtors' title to the UNIX
intellectual property in the following ways:
A. The Final Judgment confirmed that SCO owns the UNIX business,
and that, although Novell retained older UNIX copyrights, SCO
did obtain other "ownership" rights and, therefore had the right to
release claims relating to those ownership rights.
5. In summary, the Purchase and Sale Agreement provides that the Purchaser will
buy and the Debtors will sell generally, the Debtors' UNIX business and many of its subsidiary
companies, and certain of their Mobility products. The Debtors will retain certain Mobility
applications, their cash, their accounts receivable, and their litigation and related claims against
International Business Machines Corporation, Novell, Inc., AutoZone Corporation, Red Hat and
certain Linux users which are not material customers of unXis (excluding certain large-scale
users of Linux servers) that are claimed to have infringed against UNIX copyrights. The
foregoing was an extremely broad generalization; readers are directed to the actual Purchase and
Sale Agreement for much more precise detail, and ultimately to the Schedules and Exhibits to the
Purchase and Sale Agreement which will be made available at this website:
http://ww.sco.com/company/legal/unxisagreement. In return for those assets, the Purchaser will
pay the Debtors $2.4 million, made up of the $250,000.00 on deposit in the Trust Account of
Berger Singerman, P.A., plus $2,150,000.00 payable by delivery of a letter of credit at the
B. The Final Judgment confirmed that Novell never owned or had any
license to OpenServer.
C. The Final Judgment confirmed that SCO had the right to conduct
its SCOsource licensing business without payment to Novell.
D. The Final Judgment confirmed that Novell had no right to claim
any UnixWare royalties after December 2002 and that the
requirements for that royalty obligation were never met.
closing of the transaction (the "Closing"). In addition, the Purchaser will post a letter of credit
for the benefit of Novell, Inc., which shall be used, if necessary, to contribute to the full payment
of the judgment against the Debtor, The SCO Group, Inc., held by Novell, Inc., arising from
litigation still pending in the United States District Court for the District of Utah, and on appeal.
Should that judgment be set aside by the United States Court of Appeals for the Tenth Circuit,
the letter of credit shall be extinguished, and none of such funds will be available to the Debtors.
Also, the Purchaser will assume certain identified Assumed Liabilities.
II. RELIEF REQUESTED
6. By this Motion, the Debtors request entry of an order, in the form attached hereto
as Exhibit B authorizing the Sale to the Purchaser pursuant to the terms of the Purchase and Sale
Agreement (the "Sale Order") and the approval of the Debtors' assumption and assignment of
the Assumed Contracts.
A. The Purchase and Sale Agreement
7. The proposed Purchase and Sale Agreement in the form of Exhibit A provides for
the Sale of the Purchased Assets, with pertinent terms4 including:
Purchased Assets: |
"Purchased Assets" described in Section 2.2 of the Purchase and Sale Agreement including, but not limited to:|
(A) All Equity Interests and other interests of the SCO Group
in each of the Purchased Subsidiaries;
(B) All Assumed Executory Contracts;
(C) All Products of the Sellers except certain mobility and
personal productivity Products; and
(D) All technology and intellectual property used by Sellers in
the business (except as noted below).
(E) See Section 2.2 of the Purchase and Sale Agreement for
additional items that are included in the definition of
|-|| Purchased Assets.|
| Excluded Assets|
Section 2.3 and Exhibit
| United States Patent No. 6,931,544, "Method and Apparatus for
Executing Multiple JavaTM Application on a Single JavaTM
Virtual Machine," issued August 16, 2005, and all foreign
counterparts thereof, and all extensions, reissues, and
reexaminations thereof (collectively, the "Java Patent"), with
certain limitations set forth in Section 2.3 of the APA, and
Pending SCO Litigation Claims as defined in the Purchase and
Sale Agreement. See Section 2.3 and Exhibit D of the Purchase
and Sale Agreement for additional items (including cash and
accounts receivable) that are included in the definition of
Certain mobility and personal productivity Products.
Retained SCO Rights |
| SCO Group retains its claims in pending litigation against
Novell, IBM, AutoZone and Red Hat, and the rights in
copyrights and contracts claimed by the SCO Group in the
Novell litigation that are finally determined in the pending
Novell litigation to belong to the SCO Group, for the purposes
of continuing the pending litigation and also asserting claims
against third parties on the grounds that the Linux operating
system and Linux-based products infringe those rights. The
Purchaser and its present and future material customers
(excluding certain large-scale users of Linux servers) are
protected against and released from such claims by SCO Group.
These rights become vested in the Purchaser upon the
occurance of certain events, and in any event at the end of 10
| Assumed Liabilities|
Section 2.4; Schedule
| "Assumed Liabilities" described in Section 2.4 and Schedule
Schedule 2.4(a) of the Purchase and Sale Agreement as follows:|
(A) All Liabilities related to the Purchased Assets, to the extent
such Liabilities are expressly set forth in Schedule 2.4(a); and
(B) All executory obligations under the Assumed Executory
Contracts first arising after the Closing.
| Excluded Liabilities |
| "Excluded Liabilities" described in Section 2.5 of the Purchase
and Sale Agreement including, but not limited to:
(A) Any Liabilities arising out of or related to Excluded Assets,
including Liabilities first arising or accruing prior to Closing
under Assumed Executory Contracts; and
|-|| (B) Any Contracts of the Subsidiaries and all Liabilities arising
thereunder, other than Assumed Executory contracts and related
Liabilities as set forth in Section 2.4(b).|
Purchase Price: |
| The aggregate purchase price for the Purchased Assets is up to
(i) $5,400,000.00 payable by delivery of: (a) the Cash Deposit;
(b) the Letter of Credit-Balance; and (c) the Letter of Credit-Sun, and (ii) assumption of the Assumed Liabilities. See
Sections 3.1-3.3 of the Purchase and Sale Agreement for details
of the Purchase Price.|
Cash Deposit: |
Section 3.1, 3.2 and
| $250,000.00 (in the possession of the Escrow Agent). The Cash
Section 3.1, 3.2 and Deposit will be forfeited to the Sellers if the Purchase and Sale
Agreement is terminated by the Sellers due to a breach by the
Purchaser pursuant to section 4.4(f) of the Agreement.|
Purchase and Sale
| This is a private sale; no auction is contemplated. However, if
the Court determines that an auction is necessary, or if the Court
accepts a higher or otherwise better bid at the Sale Hearing, the
Purchase and Sale Agreement includes certain stalking horse
protections for the Purchaser, including a break-up fee in an
amount equal to 4% of the Purchase Price.|
4.2(g) and 4.2(h);
One condition of closing is an employment agreement, in a
Section form satisfactory to the Purchaser, regarding certain persons identified in Exhibit E. Another condition of closing is a non-compete agreement with the CEO of the SCO Group.|
| An agreement by the Sellers not to engage in a competitive
business for a period of 5 years (3 years in the UK) after the
Closing Date in the U.S., Canada, France, Germany, India, Japan,
the UK, and all of the countries in which the Sellers have
provided products and services through distributors or resellers
(except as otherwise provided for in Article XII of the Purchase
and Sale Agreement).|
Closing Deadline: |
| The closing deadline is set forth in the definition of
"Termination Date" in section 1.1.|
Use of Proceeds:|
| As contemplated by the Letter of Credit-Sun, some portion of
the Purchase Price, based on terms and conditions set forth in
subsection 3.3(a)-(c), will be paid to Novell, Inc.|
| The Sellers have the right to retain copies of Books and Records
that are included in the Purchased Assets.|
| Subsection (viii) of the defined term Sale Order contemplates
that that Order determine that the Purchaser is not a successor to
the Sellers or otherwise liable for any of the Excluded
Liabilities and permanently enjoining each and every holder of|
|-|| any of the Excluded Liabilities from commencing, continuing or
otherwise pursuing or enforcing any Action or Encumbrances
against Purchaser or the Purchased Assets related thereto.|
Sale Free and Clear of |
|Subsection (ii) of the defined term Sale Order contemplates that that Order approving the Sale of the Purchased Assets to
Purchaser be free and clear of all Encumbrances (other than
Permitted Encumbrances) whatsoever under Section 363 of the
Bankruptcy Code and any other applicable sections of the
Bankruptcy Code on the terms and conditions set forth in the
Purchase and Sale Agreement including, specifically and
without limitation, the release and covenant in Section 12.3, and
authorizing Sellers to proceed with the transaction.|
Relief from Bankruptcy|
| Subsection (iii) of the defined term Assumption and
Assignment Order contemplates that that Order provide, in part,
that the provisions of Bankruptcy Rule 6004(h) will not apply
and that there would be no stay of execution under Rule 62(a)
of the Federal Rules of Civil Procedure.|
B. The Sale Hearing
8. The hearing to consider authorizing the proposed sale of the Purchased Assets as
contemplated by the Purchase and Sale Agreement and to approve the assumption and assignment
of Assumed Contracts incident to the Sale will be held on July 27, 2009.
III. AUTHORITY FOR RELIEF
C. Sales Pursuant to 11 U.S.C. § 363(b) and Bankruptcy Rule 6004(f)
9. Sales of assets outside the ordinary course of business are governed by section
363(b) of the Bankruptcy Code and Bankruptcy Rule 6004(f). Section 363(b)(1) of the
Bankruptcy Code provides, in pertinent part that, "(t)he trustee, after notice and a hearing, may
use, sell or lease, other than in the ordinary course of business, property of the estate." 11 U.S.C.
§ 363(b)(1). The use, sale, or lease of property of the estate, other than in the ordinary course of
business, is authorized when there is a sound business justification for such action. See Comm.
of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1070 (2d Cir. 1983);
In re Phoenix Steel Corp., 82 B.R. 334, 335-36 (Bankr. D. Del. 1987) (stating that judicial
approval under section 363 of the Bankruptcy Code requires a showing that the proposed action
is fair and equitable, in good faith and supported by a good business reason).
10. The business judgment rule is a "policy of judicial restraint born of the
recognition that directors are, in most cases, more qualified to make business decisions than are
judges." International Ins. Co. v. Johns, 874 F.2d 1447. 1458 n.20 (11th Cir. 1989). In that
regard, "(w)here the debtor articulates a reasonable basis for its business decisions (as distinct
from a decision made arbitrarily or capriciously), courts will generally not entertain objections to
the debtor's conduct." See Committee of Asbestos-Related Litigants v. Johns-Manville Corp. (In
re Johns-Manville Corp.), 60 B.R. 612, 616 (Ban. S.D.N.Y. 1986) (citation omitted). When a
valid business justification exists, the law vests the debtor's decision to use property out of the
ordinary course of business with a strong presumption that "in making a business decision the
directors of a corporation acted on an informed basis, in good faith and in the honest belief that
the action taken was in the best interests of the company." See Official Comm. of Subordinated
Bondholders v. Integrated Res., Inc. (In re Integrated Res., Inc.), 147 B.R. 650,656 (S.D.N.Y.
1992) (citations and internal quotations omitted).
11. Lastly, as noted in In re Trans World Airlines, Inc., 2001 WL 1820326, *4 (Bankr.
D. Del. April 2, 2001), "a § 363(b) sale transaction does not require an auction procedure."
Accord Fed. R. Bankr. P. 6004(f)(1) (providing for "Public or Private Sale.") (Emphasis Added);
Ramsay v. Vogel, 970 F.2d 471,473 (8th Cir. 1992) ("Under Bankruptcy Rule 6004(f)(1) such a
sale may be "by private sale or by public auction."); Local Rule 6004-1(b)(iv)(D) (requiring, in
part, that sales motions disclose whether an auction is contemplated). The Court also noted that
"(t)he auction procedure has developed over the years as an effective means for producing an
arm's length fair value transaction." Id.
12. For the reasons explained herein, the decision by the Debtors to enter into the
Purchase and Sale Agreement with the Purchaser is one that is well within the scope of their
business judgment, and the sale can and shall proceed without an auction. In any event an auction
is not practicable here primarily because the Debtors cannot afford having an investment banker
run the process, there is simply no time left to do so in light of the July 27, 2009 hearing date, and
this Court directed at the June 15, 2009 hearing that there would be no auction but, instead, that
the Court would rule on or shortly after the July 27th hearing whether to authorize this sale.
Regardless, the purpose of an auction, to produce "an arm's length fair value transaction," id., has
in fact been met in this case by the significant prior sale efforts made by the Debtors as referenced
D. Assumption And Assigment of Executory Contracts and Unexpired Leases
13. The assumption and assignment of the Assumed Contracts is an integral
part of the proposed sale and should be approved by the Court. Section 365(a) of the Bankruptcy
Code provides, in pertinent part, that a debtor in possession, "subject to the court's approval,
may assume or reject any executory contract or unexpired lease of the debtor." 11 U.S.C.
§365(a). By enacting section 365(a) of the Bankruptcy Code, Congress intended to allow a
debtor in possession to assume those leases/contracts that benefit the estate, and to reject those
that are of no value or are burdensome to the estate. See Cinicloa v. Scharffenberger, 248 F.3d
110, 119 (3d Cir. 2001); Leland v. Gardinier, Inc. (In re Gardinier, Inc.), 831 F.2d 974, 976
n. 2 (l1th Cir. 1987); In re Whitcomb & Keller Mortgage Co., Inc., 715 F.2d 375,379 (7th Cir.
14. It is well established that decisions to assume or reject executory contracts or
unexpired leases are matters within the "business judgment" of the debtor. See Gardinier,
831 F.2d at 976 n.2; In re G. Survivor Corp., 171 B.R. 755, 757 (Bankr. S.D.N.Y. 1994)
(noting that "(i)n determining whether a debtor may be permitted to reject an executory
contract, courts usually apply the business judgment test. Generally, absent a showing of bad
faith, or an abuse of discretion, the debtor's business judgment will not be altered") (citations
omitted); see also NLRB v. Bildisco & Bildisco, 465 U.S. 513, 523 (1984); Sharon Steel Corp.
v. National Fuel Gas Dist Corp., 872 F.2d 36, 40 (3d Cir. 1989). Accordingly, courts
approve the assumption or rejection of an executory contract or unexpired lease unless
evidence is presented that the debtor's decision to assume or reject was "so manifestly
unreasonable that it could not be based on sound business judgment, but only on bad faith, or
whim or caprice." In re Richmond Metal Finishers, Inc., 756 F.2d 1043, 1047 (4th Cir. 1985).
15. Adequate business justification exists to merit judicial approval of the proposed
assumption and assignment of the Assumed Contracts. The Assumed Contracts are valuable
assets of the Debtors' estates and represent an integral part of the proposed sale of the
Purchased Assets. To the extent that the Debtors can assign them as part of the sale, the sale
will generate cash which the estate can use to satisfy claims and avoid or reduce potential claims
against the estate.
16. Section 365 of the Bankruptcy Code authorizes a debtor to assume and assign an
executory contract if the debtor:
(A) cures, or provides adequate assurance that (it) will
promptly cure, such default other than a default that is a breach
of a provision relating to the satisfaction of any provision (other
than a penalty rate or penalty provision) relating to a default
arising from any failure to perform nonmonetary obligations
under an expired lease of real property, if it is impossible for the
trustee to cure such default by performing nonmonetary acts at
and after the time of assumption, except that if such default
arises from a failure to operate in accordance with a
nonresidential real property lease, then such default shall be
cured by performance at and after the time of assumption in
accordance with such lease, and pecuniary losses resulting from
such default shall be compensated in accordance with the
provisions of this paragraph;
(B) compensates, or provides adequate assurance that the
trustee will promptly compensate, a party other than the debtor
to such contract or lease, for any actual pecuniary loss to such
party resulting from such default; and
(C) provides adequate assurance of future performance under
such contract or lease. . . .
(f)(2) The trustee may assign an executory contract or
unexpired lease of the debtor only if -
(A) the trustee assumes such contract or lease in accordance
with the provisions of this section; and
(B) adequate assurance of future performance by the
assignee of such contract or lease is provided, whether or not
there has been a default in such contract or lease.
See 11 U.S.C. §§ 365(a), (b)(1), (f)(2). Accordingly, section 365 of the Bankruptcy Code
authorizes the proposed assumptions and assignments of executory contracts and unexpired
leases, provided that the defaults under such contracts are cured and adequate assurance of future
performance is provided.
17. It is well settled that the meaning of "adequate assurance of future performance"
depends on the facts and circumstances of each case, but that a contract counterpart is not
required to receive an absolute guarantee of future performance. See, e.g., In re Glycogensys,
Inc., 352 B.R. 568, 578 (Bankr. D. Mass. 2006) ("(I)t is appropriate to evaluate the financial
condition of the assignee and the likelihood that the non-debtor party will receive the benefit of
its bargain from the assignee"); Carlisle Homes, Inc. v. Arrari (In re Carlisle Homes, Inc.), 103
B.R. 524, 538 (Bankr. D. N.J. 1989) (adequate assurance of future performance does not mean
absolute assurance that debtor will thrive and pay rent); In re Natco Indus., Inc., 54 B.R. 436,
440 (Bankr. S.D.N.Y. 1985) (same). The Debtors will provide all parties to executory contracts
and unexpired leases to be assumed and assigned pursuant to this Motion with an opportunity to
be heard, and in connection with the Sale Hearing, the Debtors will provide evidence that all
requirements for the assumption and assignment of the Assumed Contracts to be assigned to the
Purchaser will be satisfied. Thus, the Debtors respectfully submit that, by the conclusion of the
Sale Hearing, assumption and assignment of the Assumed Contracts should be approved.
E. Procedures Regarding Cure Amounts
18. To facilitate the sale and the assumption and assignment of the Assumed
Contracts, the Debtors propose to serve a notice of assumption and assignment and of the
proposed cure amounts relating to such Assumed Contracts in the form annexed hereto as
Exhibit C (the "Assumption Notice") no later than 15 days prior to the Sale Hearing and
request that the Court approve the following procedure for fixing any cure amounts owed on all
19. The Debtors will attach to the Assumption Notice their calculation of the undisputed
cure amounts that the Debtors believe must be paid to cure all prepetition defaults under all
Assumed Contracts (the "Cure Amount"). The Debtors request that if a non-debtor party to
any Assumed Contract disputes the Cure Amount or objects to the assumption and/or assignment
of an Assumed Contracts that such party be required to file an objection (the "Cure Objection")
on or before 4:00 p.m. (prevailng Eastern Time) five calendar days prior to the Sale Hearing
(the "Cure Objection Deadline") and serve a copy of the Cure Amount Objection so as to be
received no later than 4:00 p.m. (prevailing Eastern Time) on the same day, upon (a) the
United States Trustee, [address], Wilmington, Delaware 19801; (b) counsel
for the Debtors: Berger Singerman, P.A., Att.: Arthur J. Spector, Esq., [address] Ft. Lauderdale, Florida 33301; (c) the Debtors: c/o Mr. Ryan Tibbitts, General
Counsel, The SCO Group, Inc., [address] Lindon, Utah 84042; and (d) counsel for
the Purchaser: Leslie Allen Bayles, Esq., Bryan Cave LLP, [address]
Chicago, Illinois 60601.
20. If any such party fails to timely file and serve a Cure Amount Objection by the
Cure Objection Deadline, such party shall (i) be forever barred from objecting to the Cure
Amount and from asserting any additional cure or other amounts with respect to such Assumed
Contracts and the Debtors shall be entitled to rely solely upon the Cure Amount; and (ii) be
deemed to have consented to the assumption and assignment of such Assumed Contracts and
shall be forever barred and estopped from asserting or claiming against the Debtors, the
Purchaser (or a higher and better bidder at the Sale Hearing as determined by the Court) or any
other assignee of the relevant Assumed Contracts that any additional amounts are due or defaults
exist, or conditions to assumption and assignment must be satisfied under such Assumed Contracts.
21. If a Cure Amount Objection is timely filed, the Cure Amount Objection must
set forth (i) the basis for the objection, and (ii) the amount the party asserts as the Cure Amount.
After receipt of the Cure Amount Objection, the Debtors will attempt to reconcile any differences
in the Cure Amount believed by the non-debtor party to exist. In the event, however, that the
Debtors and the non-debtor party are unable to consensually resolve the Cure Amount
Objection, the Debtors will segregate any disputed Cure Amount pending the resolution of
any such disputes by this Court or mutual agreement of the parties.
22. Based on the foregoing, the Debtors respectfully request that the Bankruptcy
Court approve the assumption and assignment of the Assumed Contracts.
F. The Proposed Notice of the Sale Hearing Is Appropriate
23. The Debtors have marketed these assets (and others) diligently for most of the
previous 21 months and the marketplace has spoken. The Debtors believe that the transaction
contemplated by the Purchase and Sale Agreement is the highest and best offer for the sale of the
Purchased Assets available. The Debtors believe that the consideration offered by the Purchaser
is the highest that the Debtors can reasonably attain at this point in time, given the damage that
has occurred to UNIX over nearly the last decade. But of additional importance to the Debtors, it
is the Debtors' belief that the Purchaser is the best party to whom to entrust the stewardship of the
Debtors' UNIX business, and that the interests of the Debtors' employees, resellers and customers
will be best served with the Purchaser in control of the UNIX business. Under Bankruptcy Rule
2002(a) and (c), the Debtors are required to notify creditors of the proposed sale of the Purchased
Assets, including a disclosure of the deadline for filing any objections to the sale and the time and
place of the hearing to consider the sale and any objections thereto. The Debtors request that the
notice of the Sale Hearing, and the deadline to file objections to the Sale, be deemed adequate if
(a) Within three business days after the filing of this Motion, the Debtors,
or their agent, serve by first class mail, postage prepaid, copies of this
Motion and all exhibits thereto, including the Purchase and Sale
Agreement (without Schedules and Exhibits), which documents include
the date, time and place of the Sale Hearing, and the time fixed for filing
of objections to the proposed sale, upon the following entities
(collectively, the "Notice Parties"):
i. the United States trustee;
ii. all creditors entitled to receive notice pursuant to Bankruptcy Rule 2002;
24. Prior to the Sale Hearing, the Debtors or their agent will file an affdavit of service
of this Motion.
iii. all taxing authorities who have filed claims or are listed in
the Debtors' schedules;
iv. all parties that have requested special notice pursuant to
Bankruptcy Rule 2002; and
v. all persons or entities known to the Debtors that have
asserted an interest in, all or any portion of the Purchased
Assets, including entities that previously pursued a
transaction with the Debtors for these assets.
25. The Debtors submit that the notice procedures herein comply fully with
Bankruptcy Rule 2002 and are reasonably calculated to provide timely and adequate notice of the
sale by auction to the Debtors' creditors and other parties-in-interest, as well as those entities that
previously expressed an interest to the Debtors in, purchasing the Purchased Assets.
IV. RELIEF UNDER BANKRUPTCY RULE 6004(h) IS APPROPRIATE
26. Bankruptcy Rule 6004(h) provides that an "order authorizing the use, sale, or lease
of property... is stayed until the expiration of 10 days after entry of the order, unless the court
orders otherwise." Fed. R. Ban. P. 6004(h). The Debtors request that any order authorizing
them to sell the Purchased Assets pursuant to the Purchase and Sale Agreement be effective
immediately by providing that the 10-day stay under Bankruptcy Rule 6004(h) will not apply.
27. The purpose of Bankptcy Rule 6004(h) is to provide sufficient time for an
objecting party to appeal before an order can be implemented. See Advisory Committee Notes to
Fed, R. Ban. P. 6004(h). Although Bankruptcy Rule 6004(h) and the Advisory Committee
Notes are silent as to when a court should "order otherwise" and eliminate or reduce the 10-day
stay period, Collier on Bankruptcy suggests that the 10-day stay period should be eliminated to
allow a sale or other transaction to close immediately "where there has been no objection to the
procedure." 10 COLLIER ON BANKRUPTCY, ¶ 6004.10 (15th rev. ed. 2006). Collier further
suggests that if an objection is overruled, and the objecting party informs the court of its intent to
appeal, the stay may be reduced to the amount of time actually necessary to seek a stay, unless the
court determines that the need to proceed sooner outweighs the interests of the objecting party. Id.
28. The Debtors request that the Court rule that the 10-day stay period under
Bankruptcy Rule 6004(h) not be implemented or, in the alternative, if an objection to the sale is
filed, reduce the stay period to the minimum amount of time needed by the objecting party to seek
a stay pending appeal.
29. Notice of this Motion has been or will be given to the following parties or, in lieu
thereof, to their counsel, if known: (i) the Office of the United States Trustee; (ii) the creditors
holding the 20 largest unsecured claims against the Debtors' estates (on a consolidated basis);
(iii) all creditors of the Debtors; (iv) those entities that previously expressed to the Debtors an
interest in pursuing a transaction for the purchase of the Purchased Assets; and (v) any party that
has filed a request for notices with this Court prior to the date of this Motion. The Debtors
submit that, in light of the nature of the relief requested, and the July 27, 2009 Sale Hearing
Date, no other or further notice need be given.
WHEREFORE, the Debtors respectfully request entry of an order in the form attached
hereto granting the relief requested herein, as well as granting any other and further relief the
Court deems just and proper.
Dated: June 22, 2009
PACHULSKI STANG ZIEHL & JONES LLP
Laurie Davis Jones (Bar No. 2436)
James E. O'Neill (Bar No. 4042)
Kathleen P. Makowski (Bar No. 3648)
[address, phone, fax, email]
BERGER SINGERMAN, P.A.
Arthur J. Spector
[address, phone, fax, email]
Co-Counsel for the Debtors
The Debtors and the last four digits of each of the Debtors' federal tax identification numbers are as follows:
(a) The SCO Group, Inc., a Delaware corporation, Fed. Tax Id. #2823; and (b) SCO Operations, Inc., a Delaware
corporation, Fed. Tax ID. #7393.
All capitalized terms not defined herein shall have the meanings ascribed to them in the Purchase and Sale
Agreement (Asset Sale Pursuant to 11 U.S.C. Section 363) (the "Purchase and Sale Agreement") attached hereto
as Exhibit A and incorporated herein.
For greater detail regarding the background of the Debtors' business and events leading up to the filing of these
cases, the Debtors refer the Court and parties to the Declaration of Darl C. McBride, Chief Executive Officer of the
Debtors, in Support of First Day Motions (Docket No.3) fied on the Petition Date and incorporated herein.
The terms set forth herein are summary in nature only. All interested persons are respectfully directed to the
Purchase and Sale Agreement attached hereto as Exhibit A for a complete recitation of all of the terms and
conditions of the sale of the Purchased Assets to the Purchaser.