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To read comments to this article, go here
Dear Judge Gross - A Letter from SCO - Updated 4Xs: IBM Responds & Novell too & SCO Files Amendments to 1995 APA
Friday, July 31 2009 @ 01:49 PM EDT

SCO has sent a letter to Judge Gross, in which it agrees to an auction and the appointment of someone to oversee the auction:
07/31/2009 - 878 - Letter to the Honorable Kevin Gross Filed by The SCO Group, Inc.. (O'Neill, James) (Entered: 07/31/2009)

They also say they will accept "the involvement of an examiner under 11 USC section 1104 to advise the Debtors' board and to report to the Court on the sale process and the outcome of any auction." They suggest this is harmonious with comments made at the hearing in closing arguments, but if that were so, why a letter? Because, I suspect, they worry it didn't go so well at the hearing.

They also say this should alleviate concerns, but I have a few left. Like, what exactly are they selling? Novell's assets again? Where's the rehab plan after the sale? Who pays IBM and Novell? What about the poison pill? The last-minute Amendment that no one had time to consider at the last hearing? Who's in charge? And some of us remember a very odd auction in Florida.

Update: IBM's Response:

IBM has responded promptly:

07/31/2009 - 879 - Letter dated July 31, 2009 from Richard Levin, Esq. to the Honorable Kevin Gross (related document(s) 878 ) Filed by IBM Corp.. (Silverstein, Laurie) (Entered: 07/31/2009)

IBM points out that the appointment of an examiner would require a motion and there isn't any such motion. There is, however, a motion requesting the appointment of a trustee to convert the cases to Chapter 7. The court can instead appoint a trustee in Chapter 11 under USC Section 1112(b). That is properly before the court.

Second, IBM continues, the proposed duties of the examiner in SCO's request are only to advise the board and report to them about the sale of the assets "offered for sale in the current motion". What? What? What? That leaves the board in control of evaluating proposals. IBM would like a neutral to oversee the process, not SCO's board. IBM points out the following:

The offer from LNS Acquisition LLC that was introduced into evidence at the hearing last Monday, July 27, 2009, was not limited to the assets offered for sale in the current sale motion. IBM believes that a full and fair auction can be conducted only if the seller considers all bids for the debtors' assets, not just those selected by debtors.
I see IBM may have concern about flimflam auctions. So it suggests, should the court wish to appoint an examiner, that the role be expanded beyond SCO's proposed limits:
IBM's concern about the proposal to limit the examiner's role could be addressed by an order under the second half of Section 1106(b) ("any other duties of the trustee that the court orders the debtor in possession not to perform") expanding the role. As long as the Court's order made clear that the examiner would have all the rights, powers, functions and duties of a trustee with respect to the sale of any or all assets of the estates outside the ordinary course of business and with respect to the settlement of any litigation and that the debtors in possession were prohibited from participating in any aspect of any such sale or settlement except as specifically requested by the examiner, IBM would not object to the appointment of an examiner. IBM believes, however, that crafting such an order is an unnecessary distraction when a simple order for the appointment of a trustee is pending before this Court and would fully suffice.
Whew. See why you want your attorney to be a true expert in the specialty field you are involved in litigation in? Richard Levin, the Cravath attorney who wrote this letter, had to respond very fast to SCO's proposal. Both letters were written and filed with the court today. That means Levin had to know the bankruptcy law so well he could immediately remember a section of the law to be able to offer an alternative to SCO's proposal, just in case the judge was tempted, on top of pointing out the odd bits of the proposal. It's stunning lawyering to me. And it's why you always ask a lawyer you are thinking of hiring, have you handled this type of case before?

And why is it SCO doesn't want a bid from LNS Acquisitions? And why does IBM seem to want its bid considered? I don't know, but I think we can now guess that the picture is more complex than we originally suspected.

Is this not fun to watch? I love this stuff.

Update: Novell's Response:

Novell has filed a letter [PDF] now too. It has this on its mind:

We have received the Debtors' letter of July 31, 2009, offering to hold an auction of certain of Debtors' assets supervised by an examiner. No motion seeking anything like that relief is before the Court. Even if it were, Novell does not believe that this proposal satisfies Novell's concerns.
I gather Novell has some of the same concerns I mentioned, like what exactly is going to be sold? For how much? And:
Novell also expressed well-founded concerns over the nature of the assets sold and retained, the interrelationship between those assets and the Asset Purchase Agreement with Novell, and the business judgment of management and their fidelity to the interests of creditors. The Debtors' July 31 letter does not solve those problems. Instead it tends to confirm Novell's position that the Debtors' management has employed myopic judgment, trying to hang on to its alleged claims and a portion of its Mobility business to the exclusion of all other concerns.
Novell therefore opposes the new SCO brainstorm and asks the court to rule on the motions already before the court, "submitted to the Court after the conclusion of evidence and arguments on July 27". Here's the docket entry for Novell and in the meantime, SCO has filed the amendments we heard about at the hearing. Well, I only remember one amendment being mentioned, but there are two:

07/31/2009 - 880 - Letter to Judge Gross Regarding Debtors' Letter of July 31, 2009 Regarding Auction of Assets Filed by The SCO Group, Inc.. (Greecher, Sean) (Entered: 07/31/2009)

07/31/2009 - 881 - Notice of Service of Amendments 1 and 2 to September 19, 1995 Asset Purchase Agreement Between Novell, Inc. and the Santa Cruz Operation, Inc. (related document(s) 815 ) Filed by The SCO Group, Inc.. (Attachments: # 1 Amendment 1# 2 Amendment 2# 3 Certificate of Service and Service List) (Makowski, Kathleen) (Entered: 07/31/2009)

As you can see, the first filing is listed as having been done by SCO, but it's not. It's by Novell's attorney, Adam Lewis, at Morrison & Foerster. It's harder for the clerk to get it right when it's just a letter. Motions and other court filings clearly have headers that identify what the document is and whose document it is. With a letter, it's not as clear. We have Amendment 1 [PDF] already, and Amendment 2 is filed with the SEC, so I won't pay to get them again. But why? SCO is filing Amendments 1 & 2 to the 1995 Novell/Santa Cruz APA? Now? Whatever for? I will make one devilish guess. It would like the judge to consider how wonderful its prospects are if it can only get a turnaround on appeal in the Novell , where it believes Amendment 2 is vital to its success. The judge clearly stated that such evaluations would not be in this mix, but you know SCO. If the judge tells them at a hearing their time is up, they say, "No, it's not."

Alternatively, the angelic interpretation would be that since they say this filing is in connection with docket number #815, the proposed sales agreement, it could mean that SCO is a such a stickler for doing things right, it noticed that it attached the APA but not the two amendments, it now wishes to be thorough, cross every T and dot all the I's because this is SCO, and that's how they roll.

Update 4: Now that I got all the documents at least made available, and briefly described, I had time to think a little, and I see another reason for the SCO letter, aside from what has been so ably said by IBM and Novell. I recall Mr. Levin at the Jund 15th hearing, IIRC, asking SCO if the board had approved the last-minute proposal. He said yes, but of course they couldn't have approved that exact document, because the story was it was only signed as they all walked into the courtroom. Darl said something to the effect that the board had approved the idea of it, a parameter of what would be OK. No doubt the same question would be asked again, so this makes it official, in case that would be a stumbling block to the judge, that the board has now OK'd the sale. I don't know if this means they OK'd the last minute amendment, because I don't see it referred to by SCO. But I'm working mighty fast, so it's possible I missed something. Or else SCO has. Did that amendment ever get filed with the court so the public can view it?

Here's SCO's letter as text, and after that IBM's, and then Novell's [the links will take you directly there]:

**************************

[Pachulski Stang letterhead]
James E. O'Neill

July 31, 2009

CONFIDENTIAL

The Honorable Kevin Gross
United States Bankruptcy Court for the
District of Delaware
[address]

Re: The SCO Group, Inc, et al.
Chapter 11 Case No. 07-11337 (KG)

Dear Judge Gross:

The Debtors have now had a chance to consult with their board of directors and wanted to inform the Court that the Debtors would consent to an auction of the subject assets (i.e., those offered for sale in the current motion), and the appointment of an examiner to oversee the sale should the Court so direct. The Debtors agree to the involvement of an examiner under 11 U.S.C. 1104 to advise the Debtors' board and to report to the Court on the sale process and the outcome of any auction. The appointment of an examiner should alleviate the concerns expressed at the hearing that a third party would need to be involved in the process to make sure it is fair to all bidders.

We are sending a copy of this letter to the United States Trustee and the other movants (Novell and IBM). The Debtors believe that this proposal is in line with comments made at trial, including some made during closing arguments.


The Hon. Kevin Gross
July 31, 2009
Page 2

Mr. Spector and I wanted to convey this information to the Court on behalf of the Debtors. We appreciate the Court's consideration and patience in these matters. The Debtors look forward to moving ahead with the sale in this fashion and will work to accommodate the parties' schedules if the Court permits them to proceed in this manner.

Respectfully,

[signature]

James E. O'Neill

cc: William K. Harrington, Esquire (via email)
Joseph J. McMahon, Jr. Esquire
Adam A. Lewis, Esquire (via email)
Richard Levin, Esquire (via email)
Ryan E. Tibbitts, Esquire (via email)
Arthur J. Spector, Esquire (via email)

*****************************
*****************************

[Letter head]

CRAVATH, SWAINE & MOORE LLP

July 31, 2009

In re SCO Group, Inc., Chapter 11 Case No, 07-11337

Dear Judge Gross:

We have received a copy of the letter sent to you today by SCO Group, Inc, in this matter. On behalf of our client International Business Machines Corporation (IBM), we note the following in response.

First, the appointment of an examiner requires a motion under 11 U.S.C. 1104(c). There is no such pending motion, The request for the appointment of a trustee, by contrast, is the subject of the pending motions to convert the cases under 11 U.S.C. 1112(b). Under 11 U.S.C. 1104(a)(3), the Court may order the appointment of a trustee in lieu of converting the cases. Unlike the proposed consent to the appointment of an examiner, the request for the appointment of a trustee is properly before the Court.

Second, the proposed consent to the appointment of an examiner limits the scope of the examiner's duties to advising the debtors' board of directors and reporting to the court on "an auction of the subject assets (i.e., those offered for sale in the current motion)", The offer from LNS Acquisition LLC that was introduced into evidence at the hearing last Monday, July 27, 2009, was not limited to the assets offered for sale in the current sale motion. IBM believes that a full and fair auction can be conducted only if the seller considers all bids for the debtors' assets, not just those selected by the debtors.

Third, the question of the scope of the assets to be included in an auction exemplifies and underscores why IBM believes that the appointment of an examiner does not adequately address the concerns stated at the hearing. The proposed examiner's role would be limited. Consistent with the statutory description of an examiner's duties in 11 U.S.C. 1106(b), the examiner would only "advise the Debtors' board and to report to the Court on the sale process and the outcome of any auction", thus leaving the debtors' boards in complete control of the process and the evaluation of alternative proposals. As

(1)

we emphasized at the hearing, we believe it is important at this very late stage in these chapter 11 cases that a neutral control the process and the decision making.

IBM's concern about the proposal to limit the examiner's role could be addressed by an order under the second half of 1106(b) ("any other duties of the trustee that the court orders the debtor in possession not to perform") expanding the role. As long as the Court's order made clear that the examiner would have all the rights, powers, functions and duties of a trustee with respect to the sale of any or all assets of the estates outside the ordinary course of business and with respect to the settlement of any litigation and that the debtors in possession were prohibited from participating in any aspect of any such sale or settlement except as specifically requested by the examiner, IBM would not object to the appointment of an examiner. IBM believes, however, that crafting such an order is an unnecessary distraction when a simple order for the appointment of a trustee is pending before this Court and would fully suffice.

Sincerely,

/s/ Richard Levin
Richard Levin

The Honorable Kevin Gross
United States Bankruptcy Judge
United States Bankruptcy Court for the District of Delaware
824 N. Market St., 6th Floor
Wilmington, Del. 19801

Copy to: Arthur J. Spector, Esq.
Copy to: Jamie O' Neill, Esq.
Copy to: William K. Harrington, Esq.
Copy to: Joseph J, McMahon, Esq.
Copy to: Adam A. Lewis, Esq,

(2)

*********************
*********************
*********************

MORRISON | FOERSTER

[Letter head]

July 31, 2009

Honorable Kevin Gross
United States Bankruptcy Court
District of Delaware
824 North Market Street, 6th Floor
Wilmington, DE 19801

Re:


In re SCO Group, Inc. et al.
United States Bankruptcy Court
District of Delaware
Case No. 07-11337 (KG)

Dear Judge Gross:

We have received the Debtors' letter of July 31, 2009, offering to hold an auction of certain of Debtors' assets supervised by an examiner. No motion seeking anything like that relief is before the Court. Even if it were, Novell does not believe that this proposal satisfies Novell's concerns.

We understand Debtors' proposal to be that the contemplated auction would be limited to the assets Debtors proposed to sell in the Third Sale Motion. As the evidence and arguments presented in the various objections to the sale motion, in the motions to convert, and at the July 27 hearing on those motions indicate, the price of the particular assets being sold was not the only problem with the Third Sale Motion. Novell also expressed well- founded concerns over the nature of the assets sold and retained, the interrelationship between those assets and the Asset Purchase Agreement with Novell, and the business judgment of management and their fidelity to the interests of creditors. The Debtors' July 31 letter does not solve those problems. Instead, it tends to confirm Novell's position that the Debtors' management has employed myopic judgment, trying to hang on to its alleged claims and a portion of its Mobility business to the exclusion of all other concerns.

(1)

MORRISON | FOERSTER

Honorable Kevin Gross
July 31, 2009
Page Two

Novell therefore opposes the Debtors' revised proposal and asks the Court to rule on the motions that were submitted to the Court after the conclusion of evidence and arguments on July 27.

Sincerely,

[Signature]

Adam A. Lewis

cc:





William K. Harrington, Esq. (via email)
Richard Levin, Esq. (via email)
Joseph J. McMahon, Jr, Esq. (via email)
James E. O' Neill, Esq. (via email)
Arthur J. Spector, Esq. (via email)
Ryan E. Tibbitts, Esq. (via email)

(2)


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