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Lots of Reactions to SCO's Latest Bankruptcy Moves - Updated 3Xs - York lurking in the shadows?
Wednesday, July 22 2009 @ 09:47 PM EDT

So much is happening at once in the SCO bankruptcy. Novell has filed a Response [PDF] to SCO's Notice of Cure Amounts. Oracle has filed a limited objection [PDF] to SCO's Notice of Cure Amounts and is sending in a lawyer [PDF]. IBM is adding yet another lawyer, Noah J. Phillips [PDF]. Oracle has a claim listed on Exhibit A [also continued here], but it says it has no clue what contract is involved.

Microsoft Licensing has transferred its $158,954 claim [PDF] to a third party, LNS. If Microsoft gets paid and Novell doesn't, I'd certainly like to know why.

[Update: Two quick things: Want to see something odd? Google the phone number given for LNS. It takes you to Hale Global, to contact info for Charles C. Hale. If you recall, as I didn't but a reader did, there is a "Charlie Hale" at York. One of our eyewitnesses, Webster, at the June 15th hearing noted that Darl McBride testified that one of the calls he got was from a Charlie Hale from York. Hale Global says it "specializes in acquiring, managing, and growing information technology companies." Isn't that weird? I have no idea what, if anything, it means. I also haven't yet been able to find any LNS LLC listed in the NYS corporate records. Maybe it's new? And here's York Capital Management's contact info, and you'll notice the phone number is almost the same as for Hale Global/LNS, the only difference being York ends with 1300, and Hale/LNS ends with 1337. The rest is identical. Is Microsoft trying to transfer its claim to York? Why would it? And why would York want that claim? My brain is exploding. I honestly don't know what it all means, but it's too odd not to tell you about.

Second, here's some info on a claims transfer. You can sell it cheap now, and let the new owner of the claim try to get profit from getting more money from the bankruptcy, while you are free of the whole process. Sometimes a notice of transfer means a change of name.]

Pachulski Stang submitted another bill [PDF], this one for May. I don't see any notations regarding possible deals. If you recall, in Berger Singerman's bill for May, we saw one deal referenced, but here there is no sign even of one, at least not that I could find.

Update 2: LNS was just formed this month:

File Number: 4706188
Incorporation Date /
Formation Date: 07/06/2009 (mm/dd/yyyy)
Entity Name: LNS LLC
Entity Type: GENERAL
Residency: DOMESTIC State: DE
City: DOVER County: KENT
State: DE Postal Code: 19904
If you look at the proposed APA with York, back in the day, the one that died on the vine, you find it was signed on behalf of York by Charles C. Hale:
With a copy (which shall not constitute notice) to:

Berger Singerman, P.A.
Attention: Arthur J. Spector, Esq.

If to Purchaser, to:

c/o York Capital Management
Attention: Adam J. Semler, CFO and Charles C. Hale, Managing Director

So, as an anonymous commenter phrased it who tracked this piece down, "Charles C. Hale (Hale Global) meet Charles C. Hale (York Capital Management)." And here's some background from ZoomInfo Groklaw member Dodge Rules found: - [Cached Version]
Published on: 3/1/2007 Last Visited: 3/1/2007

Dr Emil Girczyc, President and CEO Charles Hale, Chairman of the Board Paul Bogonis, Vice President of Finance, Treasurer Kiyoshi Makino, Director, Japanese Operations Ilana Achimeir, General Manager, Israeli Site, Co-Founder Amir Schreiber, Vice President R&D, Co-Founder

... Charles Hale, Chairman of the Board

Mr. Hale led Summit's buyout in 2002 and became its chairman while also serving as its Chief Financial Officer for the first year.Mr. Hale also serves as General Partner of Divestiture Growth Capital (DivestCap) and is an executive with Sage Capital Growth (Sage), an affiliated fund.Previous to Summit Design, Mr. Hale was the Chief Financial Officer of SightLine Systems Corporation for its turnaround, and later became CEO.Prior to Sightline, Mr. Hale was an executive with Deutsche Bank AG's buyout fund, DB Capital Partners LP, where he specialized in technology buyouts. Before DB Capital, Mr. Hale was a Senior Analyst in Technology Corporate Finance at Alex Brown & Sons.Mr. Hale received an MBA, with honors, from Harvard Business School, and a B.A. from Yale University.

Amazing, no? If this is the same Charles Hale, there is now an X on the treasure map. And IBM is still doing discovery.

If you follow one of the links on the page, to find out what Summit Design was about, you need to then go to Wayback to find it. [Update: That page has gone walkabout. But you can find the same press release here.] The press release tells us what Summit Design did or does:

Summit Design is a supplier of industry-leading software solutions that address engineering challenges met during the specification and implementation design phases of complex hardware/software systems. Emerging and established electronics companies worldwide rely upon Summit's ESL solutions to analyze system trade-offs for rapid arrival at an optimized design specification. In turn, companies choose Summit's HDL solutions to ensure swift and successful specification implementation. Summit Design's advanced ESL and HDL solutions help system and SOC companies to deliver products that meet their performance and power targets in less time and with reduced schedule risk. Summit Design is headquartered in Burlington, Mass. with offices throughout the US, Europe, Japan, Israel, and ROA.
The press release was about Hale, Chairman of the Board, bringing in a new CEO and President, and here's a quotation from the new guy:
Summit Design, Inc., the world leader in electronic system-level (ESL) design solutions and methodologies, today announced that Dr. Emil Girczyc has joined the company as president and CEO. Emil assumes the role of President and CEO from Charles Hale, Chairman of the Board at Summit Design and former acting CEO for the company....

"Summit has targeted the key opportunity in ESL -- ensuring that complex embedded system designs deliver the desired functionality and performance within the requisite power consumption constraints before proceeding to the time-consuming task of design implementation," said Dr. Girczyc. "Given the tremendous depth of expertise within the Summit team and the excellence of its ESL solutions and methodology, I am very excited about leading Summit at this time of rapid growth in embedded system design complexity."

-- End update 2.]

Update 3: Here's the link between the two Mr. Hales:

Mr. Charles Hale is a Managing Director at York Capital Management. He joined the firm in 2007. Mr. Hale focuses on private equity with a special emphasis on technology. Previously, he was the Chief Executive Officer of SightLine Systems Corporation. Mr. Hale served as President of DivestCap Management Corporation. He was an Associate with DB Capital Partners, L.P. where Mr. Hale specialized in tech¬nology buyouts from 2001 to 2002. From 1997 to 1999, he held various ... operational roles for Inso Corporation. From 1995 to 1997, Mr. Hale was a Senior Analyst in Technology Corporate Finance at Alex. Brown & Sons. He holds a B.A. from Yale University, where Mr. Hale was elected to Phi Beta Kappa, and an M.B.A., with Honors, from Harvard Business School.
-- End Update 3.]

[ Update 4, July 24, 2009: Some of the links above have been cleansed of the phone numbers, as of Friday. We are busy trying to reconstruct.]

Pachulski Stang were owed $60,000 or so in April, and SCO paid them around $10,000. So SCO has not kept current with the bills. This bill is for another $19,917, plus expenses of $1,006.07, so they're not keeping even. They are now in the hole to Pachulski Stang for $71,904.59.

The bill's almost all about dealing with the three motions to convert SCO from Chapter 11 to Chapter 7 filed by IBM, Novell, and the US Trustee. I see on page 1 that on May 18, there was a teleconference with Arthur Spector and James O'Neill on the motions to convert and "hearing strategy". That has the ring of truth. I never bought that "we just signed this deal on the courthouse steps so we don't have all the schedules and exhibits" stuff. By the way, the exhibits that were supposedly 500 pages turned out to be 70. If you read Novell's Objection to the sale, you'll see Novell didn't miss that.

Then for the next couple of days, you find the lawyers researching notice requirements for hearing on motions to convert. On the 19th, we find a note about "Research notice requirements for notice of hearing on motions to convert" and "Draft email correspondence to James O'Neill regarding timing of service on equity security holders concerning motion to convert". They revise notice of motion and then on the 21st and the 26th, we see another hearing strategy session. The latter includes "professionals" in the session, which I would assume would be the experts they wanted to come and testify at the hearing. Then there is another hearing strategy session on the 29th. And then the month comes to an end.

You know what I don't see? Any indication of any talks or information about any deals in the works. There is one notation about a call from an "R. Vad" about his SCO stock. But wouldn't you think that there'd be some notation about the deals they told us at the hearing were feverishly going on, if they really were?

Here are the filings:

07/20/2009 - 849 - Limited Objection To and Rights Reservation Regarding The Notice of Cure Amounts In Connection With The Assumption and Assignment of Unexpired Leases and Executory Contracts ('Limited Objection") (related document(s) 832 ) Filed by Oracle USA, Inc. (Huggett, James) (Entered: 07/20/2009)

07/20/2009 - 850 - Certificate of Service Oracle USA, Inc.'s Limited Ojection To and Rights Reservation Regarding The Notice of Cure Amounts In Connection With The Assumption and Assignment of Unexpired Leases and Executory Contracts ("Limited Objection") Filed by Oracle USA, Inc.. (Huggett, James) (Entered: 07/20/2009)

07/20/2009 - 853 - Affidavit/Declaration of Service and Service List of Epiq Bankruptcy Solutions, LLC, Regarding Notice of Cure Amounts in Connection with the Assumption and Assignment of Unexpired Leases and Executory Contracts (and Individualized Cure Schedule) (related document(s) 832 ) Filed by The SCO Group, Inc.. (Makowski, Kathleen) (Entered: 07/20/2009)

07/20/2009 - 854 - Monthly Application for Compensation [Twenty-First] and Reimbursement of Expenses as Co-Counsel to the Debtors and Debtors in Possession for the Period from May 1, 2009 Through May 31, 2009 Filed by Pachulski Stang Ziehl & Jones LLP. Objections due by 8/10/2009. (Attachments: # 1 Notice # 2 Exhibit A # 3 Certificate of Service and Service List) (O'Neill, James) (Entered: 07/20/2009)

07/21/2009 - 855 - Transfer/Assignment of Claim. Transfer Agreement 3001 (e) 2 Transferor: Microsoft Licensing, Inc. To LNS LLC. Filed by LNS LLC. (Morris, Matthew) (Entered: 07/21/2009)

07/22/2009 - 857 Motion to Appear pro hac vice . Receipt Number 0000, Filed by Oracle USA, Inc.. (Attachments: # 1 Certification of Counsel to be Admitted Pro Hac Vice) (Huggett, James) (Entered: 07/22/2009)

07/22/2009 - 858 - Response // Novell's Response to the Debtors' Notice of Cure Amounts Filed by Novell, Inc., SUSE Linux GmbH (related document(s) 833 , 832 ). (Attachments: # 1 Exhibit A) (Greecher, Sean) (Entered: 07/22/2009)

07/22/2009 - 859 - Motion to Appear pro hac vice for Noah J. Phillips. Receipt Number 158584, Filed by IBM Corp.. (Silverstein, Laurie) (Entered: 07/22/2009)

I see an Oracle OEM agreement from 1991 listed on page 19 of Exhibit A, part 1 [PDF]. But they are also listed on page 71 of part 2 [PDF]. And there are more, but if Oracle has no clue, I certainly don't. Novell has similar issues. What contracts is SCO talking about? The descriptions, Novell says, are "wholly inadequate". But a bigger issue is that SCO is purporting to transfer SVRX licenses, and it can't do that. The Utah court already ruled that it can't do anything with those licenses without Novell's permission. It reminds the court that SCO has no equitable interest in those royalties from those license agreements. It can neither assume nor assign those licenses without Novell's consent:

By the same token, given Novell's right to direct re-assignment of the SVRX Licenses to itself, Novell can be seen as the equitable owner/licensor of those licenses, which are licenses of copyrights Novell still owns. hence, even if SCO were trying to (and could) assume the APA, as well, it cannot assign the SVRX Licenses without Novell's consent since they are copyright licenses. Sunterra Corp. Novell does not give that consent.

Finally, SCO cannot assume the APA without also curing all defaults under it. Those defaults clearly include SCO's failure to pay the millions of dollars of SVRX Royalties embedded in the District Court's judgment. It has neither done so nor offered to do so.

Here are some details of Oracle's limited objection filing:
1. In connection with the Debtors' Motion For Authority to Sell Property Outside the Ordinary Course of Business ("Sale Motion"), the Debtors filed and served the Cure Notice. Exhibit "A" to the Cure Notice identifies Oracle as a contract counter-party with certain contracts to be assumed and assigned through the Sale Motion.

2. Based on the descriptions provided in the Cure Notice, Oracle is unable to identify the contracts described. No date, title or specific license agreement is identified. Without additional information from the Debtors, Oracle is unable to determine either which contract(s) the Debtors seek to assume and assign or the appropriate cure amount owed under the targeted contract(s).

3. Oracle has contacted Debtors' counsel in an attempt to obtain clarification regarding the contracts identified in the Cure Notice. It will continue to seek to resolve this concern prior to the hearing. However, to reserve its rights to be heard, if necessary, once this information is obtained, Oracle files this Limited Objection.

4. unXis, Inc. ("unXis") has been identified as the purchaser of the Debtors' assets. It appears that no auction is contemplated. If UnXis, Inc. is the eventual purchaser, and Oracle obtains the other information needed to allow it to consent to the proposed transfer, such as proper identification of the contracts and payment of the resultant cure amount, Oracle also, pre-assignment would need confirmation of unXis' willingness to execute an Oracle Assignment Agreement.

5. For these reasons, Oracle requests that the Court deny, at this time, the Debtors' request for an order authorizing assumption and assignment of any Oracle executory agreement in the absence of Oracle's consent.

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