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SCO Files Notice of Cure Amounts. Again.
Sunday, October 17 2010 @ 04:46 PM EDT

Here we go again, another Notice of Cure Amounts. Here's the one SCO filed in 2009, when it tried unsuccessfully to sell off the assets, if you'd like to compare. We've been through this process before, so you know that it only matters if the sale is approved, which will be determined on November 8th at the hearing about whether the happy highest bidder for SCO's assets is acceptable to the court. Also, anyone on this list can complain, and there is outlined a process for that. Hopefully some of you will be able to attend on November 8th. It should be a hoot. The auction is October 25th, unless they change the date.

Here are the filings, and I must warn you that Exhibit A-3 is 490 pages:
1184 - Filed & Entered: 10/15/2010
Notice of Service
Docket Text: Notice of Service // Notice of Cure Amounts in Connection With the Assumption and Assignment of Executory Contracts and Unexpired Leases (Hearing Date: 11/8/10 at 10:00 a.m.; Objection Deadline: 10/25/10 at 4:00 p.m.; Adeq. Obj. Deadline: 11/1/10 at 12:00 p.m.) (related document(s)[1141], [1161]) Filed by Edward N. Cahn, Chapter 11 Trustee for The SCO Group, Inc., et al.. (Attachments: # (1) Exhibit A-1 # (2) Exhibit A-2 # (3) Exhibit A-3) (Fatell, Bonnie)
Exhibit A-2 starts with a list of cure amounts for assumed contracts (packaged product related), and it lists $73,436.91 as the amount owed to Novell for "UNIX SVRX Royalty collections due", and in 2009 they listed it at $13,129.51. On page 27 of Ex.A-1, I see the agreement with Franklin Covey Product Sales is listed. I guess that means Darl didn't get that. And once again the AutoZone agreement is listed. As if AutoZone will ever speak to SCO again as long as it lives. It probably still wakes up screaming from nightmares. And on page 17, three contracts with IBM are listed, dated 1990, 2001 and 2004, listed as "Engineering Services Agreement". Then on page 11, a "Distributor Agreement" dated 1995 is listed, and given the date, one can't help but wonder if they are transferring the license at the center of the IBM litigation.

On page 5, we find out who the contractors are that I believe used to be employees:

Babkin, Sergey, UNIX Mtnce
Chawla, Rohit, OS development & mtnce
Dubois, John, OS development & mtnce
Gilbert, Eileen, HR
Hunsaker, Jeff, Business Consulting
Rawal, Mahesh, Sales, marketing consulting
Zimmerman, Dean, Marketing consulting
Amato, Daniel, Sales Latin America
Boland, John, Sales Europe
They are certainly going down with the ship. Interesting to see that Jeff Hunsaker is still on board.

And speaking of faithful service, can you believe that there have been 1,184 filings in this bankruptcy, beginning in September of 2007, and Groklaw has covered them all? I can't believe it myself. For a girl who always hated bankruptcy law, I think I deserve a medal.

Update: Some are asking, What's a cure amount? Here's an article in Findlaw that explains it quite thoroughly. One snip:

The United States Court of Appeals for the Fifth Circuit recently clarified the operation of the Bankruptcy Code where two sections of the Code intersect: section 1141(d), which provides for the discharge of certain debts arising before the date a plan is confirmed, and section 365, which deals with the assumption of executory contracts. In Century Indemnity Company v. NGC Settlement Trust (In re National Gypsum Company), the Fifth Circuit held that the discharge provisions of the Bankruptcy Code cannot be read to provide for the discharge of amounts in default under assumed contracts in a manner that would nullify the cure requirements of section 365 of the Bankruptcy Code. In addition, the Fifth Circuit held that the debtor has responsibility to assure that the nondebtor party to a contract is on notice of the debtor's intention to assume the contract.

Section 365 of the Bankruptcy Code grants debtors the right to assume or reject their executory contracts, subject to court approval. An executory contract is defined as one where neither party to the contract has fully performed the contract. Because a debtor's assumption of an executory contract forces the nondebtor party to continue to perform under the contract when a bankruptcy filing might make it hesitant to do so, the Bankruptcy Code provides certain protections for the nondebtor party. If a debtor wishes to assume an executory contract, it must cure any existing defaults or it must provide adequate assurance that any defaults will be cured promptly. In addition, it must provide adequate assurance that it will continue to perform under the contract.

Section 1141(d) of the Bankruptcy Code states that, except as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan of reorganization discharges the debtor from any debt that arose before confirmation. The issue in National Gypsum was whether the discharge provisions of section 1141(d) could be interpreted so as to extinguish the cure requirement of section 365 of the Code.

That's an article titled, No Discharge of Default Amounts Under An Assumed Contract, by Melissa I. Hoffman of Weil, Gotshal & Manges LLP. So already you can see that the overview is that SCO wants to get rid of any obligations so it can transfer everything it wants to in the auction/sale. Why is that difficult? For one thing, a bankrupt can choose if it wants to honor and keep executory contracts, like leases. An executory contract is one where at least one side hasn't finished what it's supposed to do under the terms. The bankrupt can choose to terminate and wipe it out, but if SCO wants to transfer a contract, then it has to affirm it, I think, first, to keep it alive. I'm guessing it wants to keep the IBM license agreement alive and kicking, but I don't recall it doing so yet. But if it does want to keep it alive and then transfer, it has to cure anything owed or due. And what it thinks is owed or due might not match what the other party thinks is owed or due. Hence the notice.

Another issue is whether the new owner of the contract is able to fulfill his side of the terms. If you go to the reports from the hearing on whether SCO could try to sell the assets, you will see this all being discussed, with Novell raising all these issues. Also HP had a do-not-sue agreement with SCO from way back, and it wanted assurances that any new owner of their contract would honor that. Unfortunately, we don't have a transcript yet, but you will surely see the issue of cure amounts discussed and it will be front row and center in the upcoming November 8 hearing. Here's a bit of what Novell is concerned about, that SCO seems to want to sell off assets without assuming or curing, from my notes listening to the audio:

Novell reserved rights, not objecting to order. SCO gave a lengthy response, that what Novell has asserted that the trustee is required to assume the APA and that would have to cure monetary defaults. SCO responds that based on court's rulings, SCO believes it doesn't have to assume the contract, that they've been running the business and will continue to do so. They are not assuming, because the court's rulings have mooted that as a requirement.

David Capucilli of Morrison & Foerster for Novell, standing in for Adam Lewis: No objection to the sale right now. Premature. But to the extent that SCO is selling assets without cure or assumption. SVRX assets. They must assume and assign. Whether rights are being sold that are under APA; APA is it executory contract? If those two are answered yes, then the question is do they have to assume and cure?

Don't want to argue that now. Foreseeable that a party could come in with a different deal, so not necessary to argue it now.

So this notice is the line in the sand, whereby everyone gets to know what SCO is trying to slough off, and they will have their opportunity now to object.

Finally, here's Bankruptcy Code 365 and 1141, and you are looking for paragraph d. The part I can't help but wonder about is this part of it:

(3) The confirmation of a plan does not discharge a debtor if—
(A) the plan provides for the liquidation of all or substantially all of the property of the estate;

(B) the debtor does not engage in business after consummation of the plan; and

(C) the debtor would be denied a discharge under section 727 (a) of this title if the case were a case under chapter 7 of this title.

There's probably some explanation of how SCO can dump its assets, go out of business, pay nobody anything, and still call it a Chapter 11 reorganization. But I can't see how.

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