After the Hearing: Reports From Our Eyewitnesses - Updated 5Xs

by Pamela Jones
Groklaw

June 15 2009

MikeD, our first eyewitness to report in after the hearing, reports some shocking dialog, as you will see. Litigation takes a strong stomach, I must warn you, or a particular type of sense of humor. Happily, I have both. At one point, when it was pointed out to the judge by the lawyer for the U.S. Trustee's Office, Joseph McMahon, that there was a particular rule that the judge seemed not about to follow, Judge Kevin Gross asked, laughing, "What happens if I don't meet that deadline? Will they take me out back and shoot me?"

Sadly, MikeD had taken his 17-year-old son to the courtroom so he could see what our legal system is like, today of all days. And they wonder why some young people don't show respect to authority figures. Sorry, guys, but bankruptcy court is what it is. Notorious. There is a reason companies incorporate in Delaware, you know, no matter what state they are in physically. And it's not the view.

So, the bottom line of the day is that the proposed sale to Gulf-Cap-whatever-their-name-really-turns-out-to-be (see previous article [ http://www.groklaw.net/article.php?story=20090615122117389 ]) will have a hearing on July 16, as Webster earlier reported. So we will no doubt get to see the proposed agreement filed, and then objections, the usual song and dance. So, bottom line? Delay, delay, delay. It's too bad SCO can't package it up and sell delay. They'd make a fortune. It is what they are best at, I'd say.

Here's our first eyewitness report, from MikeD:

Took my 17 year old son to see our courts in action. I believe five Groklaw members were there ...

All I can say is - Unbelievable!

SCO did it again. More delay.

It started off with a bang. SCO showed up with a sale and asset purchase agreement that was signed moments before. Darl McBride was late to the hearing. He told me during one of the breaks that he was late because he was signing the final agreement. That's right, this agreement was signed minutes before the hearing.

Mr. Spector gave ONE copy to the IBM/Novell table. That did not make them happy.

At this point the judge called for a short break for the attorneys to review the document. They divided the pages up at the table and passed them back and forth as they read them.

After 45 minutes, the judge came back in. Mr. Lewis from Novell and Mr. Levin from IBM both objected to being blindsided - again. They could not possibly review this contract in 45 minutes. They asked that the hearing follow the agenda and proceed on the motion to convert.

Mr. Spector spoke about how this was a new deal that had just been completed and that they should be heard. In fact he had eight witnesses that were there to speak. He did not even know who they all were.

The judged started waffling. We knew right then that SCO would get what they wanted.

IBM and Novell argued about fairness, deadlines, and sticking to the motion to convert. The did not object to SCO having a buyer. They felt that SCO should put forward a motion to sell..., but it should not be heard today. Even the Trustee was not happy.

The judge weighed the arguments and said he had to consider the sale, whether today or another day. Nonetheless it was a big piece of this bankruptcy proceeding.

IBM and Novell argued again about deadlines and fairness. They argued it should not be admitted today.

The judge said he agreed with their concerns. He wanted to know why it was so late.

So they went to an evidentiary hearing to see if the sale would be admitted. Darl took the stand and spoke of four different deals that they were considering in the last few months. An attorney for Berger Singerman, Frank Kaplan, took the stand to talk about the deals and how hard they had been working on them.

Deals worked on:

LSC Holdings - DIP loan of $5 to $5 million. They would get portion of litigation winnings

Hank Phifteen (sp?) Funding of $2.5 million. They would get warrants

"Directors Deal" - they was referred to as the "Ralph" deal later. They would put up $1 million and get warrants and a portion of the litigation earnings.

If I have it right, the signed deal is with Steven Norris / Merchant Bridge International. They are putting up $2.4 million. According to Mr. Spector, Novell and creditors all get paid. SCO leaves bankruptcy and then deals with IBM, and others.

At the end, the Judge is satisfied that SCO have been working really hard and that they were not trying to game the system and cause delay.

Then there was another break to figure out what to do. The lawyers huddled. A couple of us chatted with Darl about Nascar. Darl said he'll be happy when this is over and the can "go back to being a boring little company".

When they can back at 5:45 they all agreed that they needed more time to study with. With their busy schedules, the next hearing with be July 16. If that is a problem, then the day will be July 27.

But wait! What about the fifteen-day statute? Mr. McMahon spoke about that very issue. The judge joked and said, "What happens if I don't meet that deadline? Will they take me out back and shoot me?"

But wait! It gets better. July 16 is obviously more than 15 days. So the lawyers and the judge stipulated that July 16 will be 14 days. The judge asked for two days to decide. So that will make 15 days. Yes, Judge Gross has ruled that 31 days really equals 15 days. And all the lawyers agreed.

So the next hearing is July 16 - all day. First half will be to hear about the asset sale. Second half will be on the motion to convert to chapter 7.

One thing that was brought up several times about all the potential deals was how to package the assets for sale, but still giving SCO the rights they need to pursue the litigation. This was the biggest issue in all the deals.

It ended about 5:50 pm

We all left in disgust.

My son pointed out something on the way home. This hearing had been scheduled for Friday June 12. By giving SCO until Monday, they were able to pull another rabbit out of their hat.

MikeD

Well, now you know why there is a system of appeals set up in the legal system. They don't take judges out and shoot them. They overrule them.

Of course, the judge's job in bankruptcy court is to help SCO, and if there is a real agreement, after all the false starts, he wants to give them a chance to make their case about it. On the other hand, a statute is a statute. Does he have that authority, to give them yet another chance? I don't know. We'll never know unless someone appeals, and by the time they do that, if anyone bothers, the delay is a fait accompli anyway. Capice?

The Salt Lake Tribune has a brief report [ http://www.sltrib.com/technology/ci_12595750 ] on the day's events:

Facing life or death, officers of the embattled Utah software company signed a deal Monday just before walking into a federal bankruptcy courtroom for a hearing on motions to liquidate it. Instead, they proposed selling off the company's Unix business to a London-based firm, while keeping its licensing claims that are part of high-profile lawsuits involving IBM, Novell and other companies.

The SCO Group also would retain its mobile application business, an area where it sees big potential growth.... Under the new proposal, McBride remains as CEO, while President Jeff Hunsaker would move to direct the new company, along with a majority of SCO's 62 employees, said McBride. SCO would continue to pursue the lawsuits, he said.

Update 2: Webster posted as a comment. He says Arthur Spector should be an executioner. You'd live forever. Here's the essence of his report:

SCO got its delay.

The hearing wasn't about the Motion to Convert at all.

The hearing wasn't about the Sale.

The hearing was about the delay in the Sale.

In the first five minutes all knew that SCO had a delay and the hearing would not be about the Motion to Convert.

But please don't write disrespectfully. This is Groklaw. I'm about respect for the judge and the process and the legal system, and that holds whether I agree with a particular decision or not. If there were ever clear evidence of judicial fraud or corruption, obviously that would be different, but if it's just a matter of disagreeing, please do so with a respectful tone while you are here.

Some of you were furious with a magistrate judge long ago, when a decision went a way you didn't like. Do you remember? Some of you felt frustrated by a judge in Utah too. But it worked out fine in the end, didn't it? I warned you not to expect too much from today, did I not? SCO games the system, in my opinion, and we've watched them so long, we see it before a new judge would, and so if the judge doesn't see it yet, he doesn't see it yet. So what? Look at the overview. Linux is doing fine. We're not paying a SCO tax. Was that SCO's plan?

Litigation is a marathon, not a sprint. And it's not for sissies. All that happened is that SCO gets to try to persuade the judge that it has a real plan this time. That's all. The plan may not fly any more than the last ones did. The thing about litigation is not to worry about the ups and downs, or at least not to lose your balance. Instead, just move forward effectively. That's what the really great lawyers do.

I think I speak for all of us here in saying thank you to IBM and Novell for standing up to SCO and never giving in and never giving up. If we are feeling frustrated, imagine how they feel? I also want to say how meaningful it is to me that the US Trustee's Office filed an objection. And a big thank you to our two eyewitnesses in the courtroom today, MikeD and Webster, for their reports.

Update 3: A third eyewitness, RFD, has now posted a timeline of the day's events:

Here is a timeline I developed from my notes

2:08 Hearing opens--Judge Gross presiding.

2:09 Pro hoc vice motions approved.

2:14 SCO has signed a new purchase and sale agreement! Debate begins over how to proceed. Mr Spector (SCO) indicates that he will call 8 witnesses. Someone arrives with copies of the agreement that was just signed. One copy is give to Novell, IBM, and the US Trustee to share.

2:16 Recess to allow for review of the agreement.

2:55 Hearing resumes. IBM objects to hearing witnesses about the sale. Argues that it is unfair to the creditors to consider this last minute surprise.

3:02 Judge Gross quips "This is about as close to a Perry Mason situation that a bankruptcy court gets"

3:20 Judge Gross asks SCO to "make the case" that SCO should be permitted to make a late response. A mini trial began on the issue of whether the new purchase agreement should be considered in connection with the motions to convert. Two witnesses were called to testify about the circumstances surrounding the execution of this agreement.

3:20 Darl McBride sworn in as a witness. On direct by Mr. Spector, Mr. McBride described the events leading to the agreement

3:30 Darl McBride steps aside to permit Franklin Kaplan to testify and leave in time to attend to an important family matter. Mr. Kaplan takes the stand. On direct by Mr. Spector, he testified about negotiating the deal. Real purchaser is in London-he did not reveal the name. He is not sure what role Mr. Norris has, but he did sign the agreement. "Retained Litigation Rights" were a big issue. There were other potential deals. LSC Holdings was negotiating with SCO. Hank .... was also negotiating a deal ("Hank Deal"). Several Directors were also trying to put a deal together ("Ralph Deal").

3:47 Cross exam by Mr. Lewis (Novell). Eric LeBlan is the London purchaser.

3:52 Cross by Mr. Levin (IBM). Asked about "retained litigation rights"--how and when it arose

4:03 Mr. Kaplan steps down.

4:04 Recess

4:15 McBride resumes stand. Direct by Mr. Spector. Platinum Equity and others came forward expressing interest.

4:26 Cross by Mr. Lewis.

4:36 Cross by IBM

4:40 McBride steps down. IBM has "no witnesses." Mr Spector, in closing, argues why the Court should permit the late filing.

4:46 Mr. Lewis argues for Novell. Points out how many times SCO has come in at the last minute and blindsided the opposition.

4:51 Mr. Levin for IBM. Argues that SCO has shown no respect for deadlines and that "last minute surprises" are the norm for SCO, not the exception.

4:56 Jack McMahon for US Trustee. Are there "unusual circumstances" within the meaning of the Statute? (I think that is what he said, I could barely hear him)

4:58 Mr. Spector closes

5:03 Judge Gross: Rules that the evidence concerning the new deal will be allowed.

5:04 Recess while lawyers consider how to proceed.

5:41 Hearing resumes. Mr Levin summarizes discussion on schedule. New hearing date July 16 (tentative) July 27 (backup)--the hearing will be on the motions to convert and the motion for sale.

5:53 Hearing adjourned

A profile [ http://www.google.com/profiles/107459267684341943365 ]

LinkedIn profile [ http://www.linkedin.com/pub/eric-le-blan/0/579/473 ]

MerchantBridge website [ http://www.mbih.com/ ] - click on the news page, and you'll see what this business is [I'm now told there is a lot of Flash going on.]

Corporate Watch [ http://www.corporatewatch.org.uk/download.php?id=59 ] on UK companies in Iraq, including Merchant Bridge:

58. MerchantBridge

http://www.mbih.com

Financial/consulting

£22,072,550 from Iraqi investors

MerchantBridge was appointed 'lead advisor' to the Iraqi

Ministry of Industry and Minerals for the 'Lease of Industrial

Factories Programme,' (Jan 2004).

In September 2005

MerchantBridge launched the Mansour Bank, with $38.5m; 90% from Iraqi investors.

Corporate Watch: "CORPORATE CARVE-UP - THE ROLE OF UK CORPORATIONS IN IRAQ, MARCH 2003-MARCH 2006" [ http://www.corporatewatch.org/download.php?id=41 ]:

9. MerchantBridge

£22.07m (capitalisation)

http://www.mbih.com

Financial

'lead advisor' to Iraq Ministry of Industry and Minerals for factory lease programme (Jan 2004)

Launched Mansour Bank (Sep 2005), capitalised at $38.5m; 90% from Iraqi investors.

First attempt at a report:

I will start by pointing out that my note-taking skills are limited. What follows must be taken as a summary of what I heard and understood, could recollect, and was able write down, not a word-for-word or verbatim of what was said in court today. Also, my apologies to any whose names I got wrong or misspelled, or any other errors.

Arguing today for SCO was Arthur J. Spector
For Novell was Adam A. Lewis
For IBM was Richard Levin
For the US Trustee was Joseph J McMahon
I believe those were the only counsel to address the court from the lectern.

1:50 - People involved in the case begin arriving. (I don't want to appear to be stereotyping, but I base that assumption on the fact the these folks all are dressed formally, and take seats up front.)

1:58 - Still signing in... (must be lawyers appearing today if they are they are signing in, I'm guessing)

2:04 - People still arriving.....

2:07 - Judge Gross enters courtroom and hearing begins. Ted Normand and Stuart Singer are appearing as special counsel. Judge Gross notes that there are ample opening statements.

Mr. Spector suggests that while this is Judge Gross' courtroom, on account of things that have just happened, opening statements should be dispensed with, and the court should get right to testimony (I am guessing testimony relating to what has just been dumped on the court and parties involved).

Mr. Levin: We can't just dispense with opening statements and proceed to testimony. We have not seen the document yet. If this is sprung on us, we can't complain. [Mr. Levin and Mr. McMahon confer.]

2:10 Document is still not in court room.

Someone states that document was just signed at 1:50 pm.

Document arrives.

Mr. Levin: This was just sprung on us at the last moment.

Mr. Spector (I believe) said the purchase and sale agreement was just executed in the last few minutes.

Mr. Levin: Only 1 copy for 3 parties.

Mr. Spector: We were prejudiced, too. If we can not get this done today, then 1 more day.

Judge Gross: We will try to get it done today

2:15 - Judge Gross: We will recess for 10-15 minutes for IBM, Novell, and UST to read over the purchase and sale agreement.

More copies of the P&S arrive. Darl arrives. More people arrive. What should have started 15 minutes ago is still trying to get started, and not doing very well, at that.

2:18 - Clerk: We will be resuming in a few moments.

2:47 - Mr. Singer and Mr. McMahon exit the court room together (conference?).

2:51 - Mr. Singer and Mr. McMahon return. (This could have been Mr. Spector and Mr. McMahon. My ability to keep up with what is going on is beginning to fall behind.)

Mr. Levin(I think) asks if these are copies, or originals.

Mr. Spector (I believe) asks someone named Frank: Are these copies?

Mr. Levin: (I believe) says “They should be originals.” Tosses stack of documents on table. Doesn't appear very happy.

2:53 - Mr. Levin: Proceed with motion to convert as originally scheduled. SCO can file a motion to bring the P&S before the court. The court should proceed to convert or dismiss as scheduled.

Mr. Spector: Not asking for approval of the P&S today. They have documents to proceed as scheduled. The purpose of this is to show one of many unusual circumstances. We have a sale that can close in 30 days; by June 15th. We have testimony to show there won't be any money lost in the next 30 days. We have a shareholder prepared to underwrite any losses for the next 30 days.

In opening statement, I will cover what the witnesses will cover. Mr. McBride will show a backstop (for this deal, I assume). Can Mr. Singer reserve his opening statement? Mr. McBride may “take some time”.

Judge Gross: This is about as close to a Perry Mason situation as a bankruptcy judge can experience. [Much laughter in the court room.]

Mr. Spector: We would like to do as much as we can, and come back within 15 days. [Along the way, Mr. Spector states that this is a terminal event.]

Mr. Lewis: Talks about putting this in someone else's hands. This is not the first time this has happened. We can't cross examine on the testimony this day without preparation. This is not a terminal event. We can proceed with motion to convert today, and trustee can consider P&S later. Suggests SCO wants to get to the end of the appeal process. I understand bankruptcy, I've been doing bankruptcies for 30 years. I understand that the court must be flexible. This is taking flexibility to an extreme. I request proceeding as scheduled.

Judge Gross: If they come in tomorrow with this, wouldn't have to take this into consideration?

Mr. Lewis: We are giving the debtor another extension. Why should we separate cross examination from direct testimony when we have them here? (There had been a suggestion by SCO counsel that direct testimony should happen today, and cross examination could be done at a later date. Both IBM and Novell said this wouldn't work.)

Judge Gross: This might be significant. This thing may turn out to be a complete nothing. I just don't know.

Mr. Levin: Stephen Norris (deal) has been before the court 15, 16 months. This discussion has been going on for months. At some point, the court must say there is a deadline. This court should, must hold to the deadline.

Judge Gross: I want to hear evidence concerning the concerns of Mr. Levin. Why are we here today, not 6 months ago.

Mr. Spector: We still don't have the clarity. Let Darl McBride tell you the highlights. Let's get to it. Let us call our witnesses. We are not looking to extend this. Your honor is right that this is crucial not to convert. We want to complete the sale, close the case, pay the creditors, and go on our merry way.

Mr. Lewis: This is a debtor motion for leave to file an extension.

Judge Gross: Why should I consider this motion?

Mr. Lewis: New evidence might be grounds to file late opposition.

Judge Gross: I need to know why I should consider this, why they should be allowed to file this.

(cT: I forgot to note the time for a while. I think it was around 3:10 when the court allows Mr. Spector to go ahead and call witnesses and present evidence.)

Mr. Spector: Here goes my off-the cuff-opening statement. SCO had 2 possible deals, the 363 (cT: I think that is what Mr. Spector called it) deal, and if that didn't work out, a stand-alone deal. Around late December 2008, early January 2009, Darl McBride received many phone calls saying don't do this (the 2 deals); we would like to sponsor. We would like to sponsor this. As of the day I wrote the response to the motion to convert, we had 4 deals in front of us. A large part of time was given to the other suitors who were out in front (of SNCP). I was shocked walking over here today to learn that the deal was signed.

Mr.Spector: Calls Darl McBride as first witness.

3:23 - Mr. McBride is sworn in.

Mr. Spector: May we dispense with pedigree? It is on the record.

Judge Gross: Yes.

Mr. Spector: Why is it that we showed up the last second. Please explain why it took this long to get here. When did you first meet Stephen Norris?

Mr. McBride: About a year ago.

Mr. Spector: What about?

Mr. McBride: Investing in SCO. Mr. Norris had a group from the middle east that wanted to invest in the company. They talked for several weeks. Eventually, the legal team from the mid-east group [had] a problem with the Utah ruling, the August 2007 ruling. Around December 2008/January 2009 the plan was a 363 asset sale, to come back with a sale or revamp the company into a non development company that would make money.

[Mr. Spector remembers that he has a witness to call who has a 4:30 flight he must catch. He asks the court if he may have Mr. McBride step down, and call the witness with the tight schedule. The court agrees.]

Mr. Levin: what is the topic of testimony to be?

Mr. Spector: Why it took so long.

Mr. Spector calls Franklin Kaplan.

Mr. Spector: Can we waive swearing in of an attorney?

Mr. Levin: He is an attorney? That's appropriate.

Mr. Spector: When did you first come into the picture?

Mr. Kaplan: Roughly the beginning of 2009 on a deal not before the court now. I became involved in this (current) deal approximately 3 to 4 weeks ago. (Mr Kaplan explains the deal, mentions a reduced contract that explains precisely what was being sold, what was not being sold. That the big issue was how SCO could do a sale, and still protect and retain its rights regarding the Novell, IBM, etc litigation. That the bucket of assets changed significantly and frequently. What did SCO need to retain to continue Novell/IBM?

Mr. Spector: Other than SNCP/SCO, was this the same cast of characters as before?

Mr. Kaplan: No.

Mr. Spector: What was Mr. Norris' role?

Mr. Kaplan: I'm not certain.

Mr. Spector: Before that (3 or 4 weeks ago), there was no lawyer for the buyer?

Mr. Kaplan: No.

Mr. Kaplan went on to explain his work on this deal. He mention that there were many elaborate discovery statements, and that Alan S. Pearce worked on it.

Mr. Spector: What were you doing about noon today?

Mr. Kaplan: I was in Philadelphia to close the purchase/sale agreement.

Mr. Spector: What were you doing at 1:00 pm?

Mr. Kaplan: I was emailing Brian (cT: I didn't hear the last name) about the deal.) The contract hit about 1:15, maybe 1:10. It was black lined. At about 1:30, we finished the document. (cT: Mr. Kaplan also said that the document was finished about 2:00. I think that was a reference to when it was signed)

Mr. Spector: Let's go back now. Were there other deals you were working on?

Mr. Kaplan: Yes. LSC Holders (cT: Holdings?) Between 5 and 6 and one half million dollars for acquisition of a range of equities.

Mr. Spector: Was this considered the “Leading Horse” by BSF and SCO?

Mr. Kaplan: Yes.

Mr. Spector: Tell the court about the others.

Mr. Kaplan: A third deal, the Hank deal, subscriptions for warrants in SCO. $2.5 million with a share of the litigation proceeds, if any.

Mr. Spector: Did the Hank deal have any face to face (cT: my notes are sparse here, I believe this to mean any face to face meetings involving Mr. Kaplan).

Mr. Kaplan: 3 occasions. The 4th deal, (cT: this deal was referred to as the Ralph deal. I don't remember who first used that term during the proceedings) It was a bit of a hybrid. One of the directors of SCO would invest new money. Others would make a commitment to invest a minimum of $1 million for warrants similar to the Hank deal, with a share of litigation proceeds, if any.

(Mr. Spector asked about a David Marks. I believe the question was regarding his involvement with Mr. Kaplan regarding these deals.)

Mr: Kaplan: My view of David Marks was that he was assisting me.

Mr. Spector: Were all 4 deals still alive this past weekend?

Mr. Kaplan: Yes.

Mr. Spector: One more question, when was the last time you were in a court room.

Mr. Kaplan: This morning.

3:45 - Mr. Lewis: How many more witnesses on this narrow issue?

Mr. Spector: Maybe 3, 4.

Mr. Lewis: [ begins cross examination] The bucket of assets transferred in the sale, has this bucket ever come up before?

Mr. Kaplan: I was involved in York, parsing of what was held back, not involved or discussed.

Mr. Lewis: When you decided to sign the deal today, was it complete?

Mr. Kaplan: No. there will be cleanup, fixes, changes. There was no time to fix it.

Mr. Lewis: May there be other issues?

Mr. Kaplan: I am not aware of any.

3:50 - Mr. Levin: What law firm are you with?

Mr. Kaplan: Berger Singerman.

Mr. Levin: What is your specialty?

Mr. Kaplan: Business transactions and ? (cT: I didn't hear the second item).

Mr. Levin: No focus in IP?

Mr. Kaplan: No. Copyright and trademarks occasionally.

Mr. Levin: Was Mr. Lambert (cT: I may be wrong on that name) involved before you became involved?

Mr. Kaplan: I'm not sure.

Mr. Levin: Did Berger Singerman consider SCO's standing to continue litigation as described in the APA to be important?

Mr. Kaplan: I believed/ believe it was important to be able to maintain litigation.

Mr. Levin: When did discussion of the Ralph deal, deal #4, begin?

Mr. Kaplan: Roughly 2 and one half weeks ago.

Mr. Levin: The Hank deal, #3?

Mr. Kaplan: About the same time.

Mr. Levin: LSC?

Mr. Kaplan: A little bit prior, possibly by a week.

Mr. Levin: You received the document at 1:15 today?

Mr. Kaplan: Yes.

Mr. Levin: You were able to review the changes in 10 to 15 minutes?

Mr. Kaplan: We came to a decision by approximately 2:00 pm.

Mr. Levin is finished, and Mr. Kaplan steps down and leaves.

4:02 - Mr. Spector: If I may have a minute to find out who is here from Brian Cave (cT: perhaps Bryan Kabe, or Bryan Cabe, this must be a firm of some kind, rather than a person. Probably the Brian I heard earlier when I couldn't hear the last name)

Judge Gross: We will recess for 5 to 10 minutes.

Darl McBride returns to the stand.

Mr. Spector: Was there any significant change in the landscape between Stephen Norris and York regarding GCP now?

Mr. McBride: Besides the dollar amount, was there any significant change?

Mr. Spector: Was there any difference between SNCP the second time around?

Mr. McBride: L.A. Platinum Equities was involved in the York deal, 60 days of negotiations between February and April 2009. Merchant Bridge International of London from early 2009 to current time on the new deal. (cT: I think I heard the name Eric LeBlan mentioned in connection with this). A big difficulty has been that our arch enemy IBM is engaged with a lot of attorneys. It has been difficult to find a firm that doesn't have someone with a conflict. Our goal from the beginning has never been to delay, our goal has been to get things going. The deal with GCP is the Unix business customers, partners, etc. To hand this off to somebody who will carry that forward, so it is not our problem after today going forward. We wanted a deal that doesn't prejudice our employees or customers.

Mr. Lewis and Mr. Levin cross examined; my right hand had gone numb, and I had to stop taking notes for a while to give it some rest.

4:36 - Mr. McBride steps down.

Mr. Spector: It's not like we've been sandbagging it, We've been working our rear ends off. No sandbagging! No gamesmanship! The buyer is willing to pay 2 and one half times the debt.

Mr. Lewis: If you look, what you see is a debtor who hasn't produced anything. Now struggles to produce at the last minute. This isn't the first time. This has been ongoing. One reason after another why the debtor couldn't get something together. Deals started to come out of the woodwork about the time the motion to convert was filed. As a matter of course, we are being blind sided by the debtor at the last moment. Reading the contract, this deal could close in 90 days or longer. We think the debtor has been lax. The debtor waits to the last moment and files something. It is going to be the same story the court has heard again, and again, and again.

Mr. Levin: If the court considers the APA in regards to the motion to convert, there is ample reason to address if the document should affect the motion to convert. The 6-5-2009 deadline was the reason the creditors allowed the 30 day extension, and then some. Mr Spector referred to the June 5 deadline as a soft deadline. The debtor does not respect the court's deadline. The debtor should not be allowed to flout this court's procedural deadlines.

4:55 - Mr. Levin concludes.

Mr. McMahon: (cT: I couldn't hear much of what he had to say. I thought I heard commentary about whether or not this new deal really represents an unusual circumstance.)

Mr. Spector: There are no local rules about what must be put into a response. The creditors say, "There they go again." Well, yeah, here we go again. It's got to be a likely rehabilitation, we've got that.

Mr. Singer has an expert witness he wants to get testimony from today. She is from out of town, and must leave tonight.

Judge Gross: We're mixing up issues here. I am going to allow evidence of potential sale to be presented. It is evidence this court ought to consider.

5:03 Conference between attorneys about proceeding. Another recess is called.

5:15 Mr. Singer and others leave the court room quickly. Groups of attorneys are talking in several places in the hallway/lobby.

5:23 - Darl, and Jeff Hunsaker (I believe), are called out of the court room.

5:25 - Mr. Spector requests 2 more people out of the court room.

5:33 - People start flowing back into court.

5:38 - Judge Gross returns

Mr. Levin: Put everything off until a date which would be the day for the sale/purchase motion to be heard, about 30 days hence. There need to be discovery schedules, interim deadlines, telephonic hearing, main hearing for a morning and afternoon, or an afternoon and the next morning.

Judge Gross: I will need until tomorrow to check on other matters. Should we have a back up date? July 20, 24, 27? (There are schedule conflicts with 20 and 24, so 27 is chosen).

It was suggested by someone that the day of hearing will be considered the 15th day after. I gather from the discussion this relates to when the Judge must rule.

Judge Gross: Let me give myself at least a day.

Mr. Lewis: We would be happy with 2 or 3.

Judge Gross: A day will be sufficient. Ok, 2 days. 2 day after the hearing will be the 15th day.

Mr. McMahon: Certain things must show that the marketing effort is complete.

Mr. Spector: Given all that has to be done, maybe we should push back to the 27th, forget the 16th. (cT: I did not hear a decision about this)

Court was adjourned.

This is farce. So, so funny. Runners up are Mr. Lewis saying "That's appropriate," when informed Kaplan is an attorney. I also will treasure Mr. Spector telling the court he was shocked to learn on the way over that a deal was signed, and then Mr. Kaplan being asked by IBM's Mr. Levin what firm he is with, and he says it is the same firm as Mr. Spector.

I seriously, seriously doubt this is a real deal, after reading this. As Mr. Kaplan admitted, there could be some changes. My read is they are hoping to out wait the appellate court. So we get to enjoy this breathless, and I must say priceless, performance art while we wait.

Update 5: And now Webster has his notes available. He says he's sorry if there are errors, and there almost certainly are, particularly on who was speaking, as he thinks he mixed up Mr. Levin and Mr. Lewis at one point. But rather than edit by later memory, and knowing we will eventually have a transcript for certainty, he presents the notes as he took them. I see his notes confirm that neither IBM, Novell or the US Trustee agreed to the delay. It was the judge. That means an appeal is possible; whether they will bother, of course, is another question.

[Your reporter apologizes for the delay. This is partial but touches on all. It may be too late. Where recording fails, memory has had to risk failing in filling. Levin and Lewis are probably interchangeable. Questions may be confused with answers, etc. ...etc ...]

Hearing of June 15

Please Rise [A few minutes after 2 PM]

Introductions.

Spector: The briefs are the openers. We should get right into the witnesses. There are things that happen. This is SCO. Things you didn't plan on happen routinely.

Levin interrupts: No openers. Spector should put on witnesses. Give it in opening. “I'll ask our friends if they want it.”

Levin confers with group.

Levin: We don't need an opening statement. We need to see the document.

Spector: It is not in the courtroom. It is being copied.

Judge Gross: It was just signed. They obviously have a plan. Do you want five or ten minutes.

Levin: The statute demands 15 days. We go over the 15 day limit.

Judge Gross: I will return in 5 or ten minutes.

Spector: It is a purchase and sale agreement. Everything is signed, sealed and delivered. It is the only copy in the courtroom. The rest is still being marked for exhibit.

Judge Gross: When can we expect the other copies?

Spector: We can do this. I didn't know we had this. This is bankruptcy every thing is accelerated. We can put it into evidence through Mr. McBride's testimony.

Judge Gross: How many witnesses?

Levin: We are relying on the record.

Judge Gross: I have a list of eight.

Spector: I think it can be done today.. If not one more day.

Judge Gross: I am prepared to exceed our normal time.

[Break. The Judge leaves the bench at 2:15.]

{IBM, Trustee, Novell have to go over the document in ten minutes.}

{Break was at 2:15 Resume at 2:55, forty minutes]

Levin: This confirmed what we already suspect. It is too complicated to do it today.

Our proposal is to proceed as we started. The Debtors can bring a motion for bidding and sale.

Debating the question for approval of sale itself invalidates the sale process. This is an improper way to bring up a sale.

We are entitled to notice. We propose that the court proceed with the motion to convert as planned. We object to witnesses on the sale and ask Mr. Spector to put forth beforehand the topic of the eight witnesses. We don't know who the witnesses are and the topics that they will address.

Spector: Let me tell you what we are asking for. We have the documents. We don't ask for bid procedures. ...

It is like talking about what we are talking about. It is an “unusual circumstance” to pay the creditors in full. We have a sale that can close in 30 days. Before July 15. We have testimony not to lose money. We have a stockholder ready to underwrite any money lost over the extra time.

The case could go sideways again. We have a case to make. We object to their objecting to the way we do it. If your honor says don't do it, don't do it.

I will highlight what they will testify to. McBride will testify about the sale and the backstop. Mr. Nielson about SCO finances and thirty days. You can take the risk to protect the creditors. We are going to ask Mr. Singer to reserve his statement of opening for the defense proofs. I will handle the litigation. The Movants say they don't have any witnesses. Mr. McBride won't finish today.

Judge Gross: I knew the dramatics were going to happen. This is about as close to a Perry Mason situation that a bankruptcy judge gets!

Spector: If they need more time, they probably do. One of the documents is 50 pages. We can come back within the 15 days.

Judge Gross: Mr. Lewis: Pleasure to have you here.

Mr Lewis: A terminal event? Putting this whole process into someone else's hand? A terminal event does not change the rules of procedure. This is not the first time this has happened. They were not quite ready yet before and then they withdrew it. We could come back. We can't cross examine a witness properly about the sale. We don't have time.

Let's do what this is set for.

The Debtor gets continuance of what is scheduled for today. Mr. Lewis has to travel. It [SCO] wants to get to the end of the appeal. It is about buying time. There is no reason not to go ahead today. I was going to object on the grounds regarding IBM that it is too late. I have been doing bankruptcy for 30 years. It is too late. We should not be going ahead on the record that it is too late for. They have been working on this for I don't know how long. It is not new.

Judge Gross: If they came in with a sale tomorrow, wouldn't the judge have to take that into consideration?

Lewis: We need a sale on an organized basis.

Judge Gross: I agree with that.

Lewis: They are getting an extension due to this last minute business. We can't separate direct examination and cross examination.

Judge Gross: I can't close my eyes to a very, very significant development in this case.

Lewis: Don't turn this into a sale motion hearing. We're not ready for it. It is really unfair. This may turnout to be a complete nothing.

Trustee: It is signed by Steven Norris of SNCP. This is not new. Negotiations have been going on or off for 16 months. It is a dynamic process. This court should enforce deadlines.

Judge Gross: Let me make a suggestion. I have an evidentiary motion. I would like to hear evidence regarding Mr. Levin's concerns. Why is there an agreement today? As a preliminary matter we can examine what the negotiations have been why we are here today instead of 6 months ago. I want to know why it took until now and not adjourn this hearing.

Spector: I am sorry to put Mr. Lewis in this situation. ..We have no problem with their concerns ..in interest of time, take the record in an ordinary matter. It is very awkward. Let Mr McBride tell you the highlights. Let us call our witnesses. Sorry to Mr. Lewis. We don't have a solution for him. July is open so let's plan on it.

We plan to close the sale, dismiss the bankruptcy, and pay the creditors, fully pay Novell. IBM we will meet in Court. That is an elegant end to this case.

Lewis: We should treat this as the debtor's motion to file a late opposition or newly discovered evidence. The new evidence is not going to go to the substance of the sale, but why it took them so long. But the practical result will explain why they file late.

Spector: I will make my off-the-cuff opening that evidence presented by Mr. McBride will show that after the debtor filed the plan of January 9, potential interests said don't do that. We would like to be your sponsor. One call was from Mr. Norris; York also called. Talks started again. Other parties contacted the debtor. As of today I wrote this response, I had 4 deals on the table. It was a horse race. The Deal team had 4 deals at one time. Until it was signed there was no expectation of this GCP deal.

The Brian Cave folks of GCP... I was shocked that it was signed. That is my viewpoint.

Darl McBride to the stand.

He was directed to swear with his hand on the Bible.

He gave his name, but Spector dispensed with the pedigree of the witness since the Judge noted it was had at a previous hearing.

Spector: Why do we have this deal at the last second? Why the easy way? When did you first meet Mr. Norris?

McBride: We met Mr. Norris a year and a half ago. The subject regarded investing in S-C-O. He had middle east investors.

Mr. Spector: How long did those talks last?

Mr. McBride: Several weeks. We filed something with this court. That proposal had problems due to the legal team for the Middle East investors doing some due diligence. They had problems with the decision in Utah. How do you buy a house if you can't figure out the title?

Mr. Spector: What was that plan?

Mr. McBride: It involved the sale or revamping of the company to a non-production model.

Mr. Spector: Interrupts his own Direct examination to substitute Mr. Franklin Kaplan as a witness since he had a funeral. He is the deal attorney for the law firm involved. Franklin Kaplan (FK) took the stand.

[Swearing was waived since he is an attorney.]

Mr. Spector: Please identify yourself.

FK: I am an attorney. On one prior occasion I worked on a deal that didn't occur.

Mr. Spector: Did you work on the deal before the court today.

FK: I became involved 3 to 4 weeks ago. There has been a lot of Mumbo Jumbo regarding the sale due to questions about the assets. What was the IP? The major sticking point is the assets and IP. The question was did the bucket of assets change.

Mr. Spector: Please explain.

FK: They materially and frequently it changed. It was difficult to determine what did SCO need to maintain standing and the prosecution of the litigation. It was the issue of retained litigation rights. The principal businessman is in London. The principal is in London. I am not certain of Norris' role. I have not been aware of Mr. Norris.

When a law firm on the other side, Brian Cave, became involved, we met a month ago. There was no lawyer before Cave.

Mr. Spector: Did the new group do new due diligence?

FK: I was not involved with due diligence. There have been elaborate disclosure schedules from the York deal that were updated. Scheduling was difficult. Brian Cave had a team; we had a team; SCO had a team.

Mr. Spector: What were you doing at noon today?

FK: I was in a Pachulski conference room to finalize and sign an agreement.

Mr. Spector: At 1 PM?

FK: I was at bankruptcy court. I was taking an Advil. I was emailing Brian Cave regarding a contract. We knew about the time. We needed to read it so we were anxious. It hit at 1:15. We had to finalize it after the suggestions of last night were put in it. At 1:30 it was revised. It was signed at the Hotel Dupont around 2 PM.

Mr. Spector: Three and a half weeks ago were there any other deals? GCP??

FK: There were three other deals. One was a plan sponsored by LSC holdings. It accelerated after this deal. It was 5 or 6 million dollar loan with an acquisition of a range of equity post bankruptcy.

Mr. Spector: Was there a lead deal up to Saturday the week before last?

FK: At the same time a third deal by Hank Bidesky, regarding a subscription for warrants with funding into SCO in the range of 2.5 million and up. Consideration would be a share of the litigation proceeds if there are any.

Mr. Spector: Pascal Peter Prozzyk[?] was the attorney.

FK: We were working simultaneously.

Mr. Spector: Were there any face to face meetings?

FK: The principals met 3 times face to face. Bidesky met this past weekend. I worked Saturday morning with the Bidesky deal.

The fourth deal was a bit of a hybrid- it asked for simultaneous commitments from shareholders and directors. A minimum of a million dollars of the consideration was warrants. There were conversion rights. Also a share of the litigation proceeds if there were any.

It was all happening simultaneously. David Marx assisted me. The last contact was Saturday. I thought there was going to be a combo deal of fourth deal. Horse race was a good term since it was Belmont Saturday.

Mr. Spector: Was there a deal with GCP on June 5?

Mr. Spector: Like Columbo, permit me one more time. When were you last in a Courtroom?

FK: 1987.

Mr. Levin asks regarding other witnesses.

Mr. Spector: We may call Brian Cave.

Mr. Lewis now cross-examines FK.

Mr. Lewis: Who is the person in London named Eric LeBlon.

FK: I don't know who is affiliated with him. I don't know. I don't know who they re affiliated with.

Mr. Lewis: This bucket of assets-- had that issue come up before?

FK: The issue of assets was not so important as the mobility products. The IP was relevant.

Mr. Lewis: Do you recall the SNCP deal?

FK: I recall very little.

Mr. Lewis: Were you satisfied that the agreement was in final form?

FK: It is conceivable that the product is accurate but not the litigation assets. There was no time to fix it. In bankruptcy court it can be fixed. In general this type of work is very fast for a complicated document. We collaborated very well especially those who had been around.

Mr. Levin examines the witness.

Mr. Levin: We offer our condolences.

Mr. Levin: [some question]

FK: I work at the Berger Singerman law firm. Mr Lambert handled it before. Dan was the principal man in transactions. He would have been handling the deals.

Mr. Levin: Is that your specialty?

FK: No. My focus is on Real Estate -- copyright and trademarks occasionally. I have a working knowledge copyrights and trademarks.

Mr. Levin: “What SCO needed to prosecute litigation”- how did that come up?

FK: We had to sell the business with hold backs. We had to carve out litigation and proceeds. That is what is involved and what happens if the lawsuits are successful.

FK: I took over. I had to plan to sell the business and retain the litigation on my watch. Dan Lambert left on vacation for 6 days.

Mr. Levin: It was convenient to use the term “standing” to maintain control of legal fees?

Mr. Lewis: Was the description critical to SCO pursuing the litigation?

FK: I believe that it was important to maintain the litigation and be successful at it.

Mr. Lewis: When was the initial draft?

FK: It came out of our office accompanied by revisions by Brian Cave. There was the OSC[?] deal prior to other two deals. I became aware of those deals when they first arose . We were so active.

Mr. Lewis: You got a revised document at 1:10 this PM?

FK: We cam to a decision at the hotel. Close to 2 PM.

Mr. Lewis: You accepted all the Brian Cave provisions?

FK: We talked about one and decided not to press the issue.

You may step down and you are excused.

McBride retakes the witness stand.

Mr. Spector: Was there any change in the legal landscape legal in the Summer of '08 in regard to the bench trial.

McBride: Yes, the claim of 40 million against us turned into 2.5 million. In that bench trial our IP situation was clarified. Judge Kimball recognized the sale of the Unix business to us. He recognized that the post 95 copyrights belonged to SCO and the SCOsource licensing. Finally he blessed the right to UNIX Business.

Mr. Levin: Did this make any difference to Norris?

McBride: Yes, the investment firm were open after this new ruling.

Mr. Levin: What happened?

McBride: There was 363 Sale interest. But ..and then a deal with others appeared and we were approached by other parties.

Mr. Levin: Who else other than Norris?

McBride: A LA group, Platinum Equity, who buys software companies. There was a call from Charlie Hale from York. We discussed a deal. It was a 60 day negotiation with him. This was a February to April time frame. We talked with London Base with Eric LeBlon. He works with ME [?] investment group. They have put a substantial amount of energy into due diligence.

Mr. Levin: Were you getting other attorneys involved?

McBride: Yes, but the problem we have is that other law firms get conflicted out due to conflicts with IBM. It is a recurring problem... Eventually we got an attorney.

Our goal has never been delay. We wanted to put a deal together. I have done thirty-five deals. This is the hardest and smallest. What do we own? That is the problem. The deal with GCP...it is like a house foundation and but we have to deal it away but keep a part. We need it to benefit our employees and customers and resellers. We Don't want to prejudice them.

[Witness' phone dials!] I leaned on the speed dial button. [Shuts it off.]

We owed Novell forty million. Then 2.5... That may be zero before the summer is over.

With this deal we are splitting this up and taking care of people. It has not been a short cut.

Mr. Levin: When did you get board approval to sign with GCP?

[Q & A re timing of board approval.]

. . . McBride: May I make one more comment...

Cross by Levin of IBM

Mr. Levin: Do you recall hearing from someone regarding the lease?

Mr. Levin: Do you recall testifying SCO left off trying to make a deal?

Mr. Levin: Do you recall testimony of last Spring?

McBride: I don't remember.

Mr. Levin: Is it true SCO stopped trying to find a deal?

McBride: We took a breather.

Mr. Levin: Isn't it true that you resumed deal efforts?

McBride: Yes I haven't stopped.

Mr. Levin: Do you recall the SNCP deal last Spring on the calendar?

McBride: Yes.

Mr. Levin: Do you recall that deal didn't go forward?

McBride: Yes.

Mr. Levin: Do you recall SNCP wanted to restructure the deal? ...

Mr. Levin: Did the question of litigation come up? ...

Mr. Levin: When did it come up first?

McBride: In the York deal it came up. It is hard to move forward with the current ruling.

Mr. Levin: Did litigation come up... what to do with litigation? You were going to hold on to litigation as in the current deal..? ....

Mr. Levin: I'm focusing on the issue not the people. ...

Mr. Levin: Do you recall the third motion to extend?

McBride: The debtor needed to know outcome of trial. ..

Mr. Levin: Do you recall the debtor argued that it had to get appeal on file to consider a transaction?

McBride: We did say that.

Mr. Levin: Do you recall saying people needed to know the appeal was on file?

Mr. Levin: Do you recall asking for Board approval in the last couple of days. When were they asked?

McBride: In the last few days. We submitted questions in general.. what we were talking about.

They posted a deposit of 250K. That was a material change.

Mr. Levin: ....?

McBride: ...correct no one knew.

Mr. Levin: Was the other side ready to sign two days ago?

McBride: Yes...pending changes we wanted to make. Before it was things they wanted to make.

Mr. Levin: No further questions.

Mr Lewis: ......?

McBride: The Middle East Legal team... Norris had troubles with Utah Court. Also York withdraw for the same reason.

Mr. Lewis: ...?

McBride: Norris came forward with new group. I met them later in '08. We were seriously engaged in 2009.

Mr. Lewis: ...?

McBride: We just got Board approval a few days ago. The board approved it for us to sign off on what we signed.

Mr. Lewis: Did the board see exactly what you signed after the revisions you speak of?

.....[Objection Argumentative]

Mr. Lewis: Did they approve the deal that wasn't signed until today?

McBride: I recall that York, Charlie Hale came to me and there was a writing that Your Honor didn't understand how a deal could get done. That came up in the York deal. That make it difficult for them.

You May step down.

Spector: We don't wish to call any more witnesses. We are resting on issue of late filing.

Mr. Lewis: We rely on the record of the last 21 months.

Spector: We showed how the sausage was made. It's not like we have been sandbagging. The Court ruled that we hold the business that we own. I don't know what else we could have done. We signed a deal. I apologize for doing it this way. The only other way we could have done it is in the middle of McBride's testimony. We are not sandbagging. There is no gamesmanship here.

If you are worried about creditors, we've have got them covered in this deal. The creditors and Novell are covered. The others we will take care of in court. I don't see why this isn't an acceptable deal.

Mr Lewis: If you look at the big picture what you see is a debtor ...is a debtor that hasn't produced anything. Last minute is the rule in this case not the exception.

“There is no other way I can do it,” Counsel apologizes. Papers are being brought as we speak. We have to look at it. These deals come out of the woodwork when the motions to convert got filed. ... June ... September ... Now we have a sale agreement!

We are not in a position to assess that today. ... I recall the SNCP deal.

We disapprove because of the way, as a matter of course, we are being blindsided at the last moment. ... because the Debtor wasn't doing its job. It is uncanny.

In terms of the effect of all this... It is an unspoken premise, ...that if the court grants the motion to convert today, this all disappears. We don't know that.

A neutral party could be more thoughtful than so far as the litigation is concerned.

If the deal doesn't happen, we go forth. They don't have to close for 90 days. How are we covered?

This Court has to rule on the motion to convert. We are talking about putting a neutral person in charge.

We think the debtor has been lax. They wait for the perfect opportunity to come along. When it doesn't, they ask the court at the last minute for an accommodation. There is no certainty this is really the deal. The talk about the rush. “We have to change it again.” It is going to be the same story.

Judge Gross: What will happen if I don't decide in the 15 days? Will they take me out an shoot me?

> Mr. Levin: There was a stipulation to file an opposition by June 5. They filed late. They were late. Will the court enforce its own deadlines? We would like to have the agreement. Today is the real deadline. These negotiations have been going on since January. Norris group put in substantial effort the last nine months.

We don't believe debtor should flout the court's procedural rule. It should be taken up in a motion for sale.

Trustee McMahon: Briefly ...

[Can't hear him.]

Spector: These are“unusual circumstances.” There is a likelihood of rehabilitation. We can continue in business and serve customers. In regard to deadlines and rules. Since there was no formal pretrial, [flexible procedures are ok.] Here are unusual circumstances. Nothing in the local rules that what we have to say here is it. This is what we want to argue. We did not violate any rule. Now we have some new fact. The record is clear. We didn't stall. This isn't gamesmanship. It is life in the messy trenches.

I am intruding on our time. I have until 6 pm. There are all the other unusual circumstances. We are never going to get to trial today. Mr. Singer has a witness an expert. We will let her in ...

Can we use the remaining time to get Mr. Singer's case out of the way.

Judge Gross: We are mixing up issues. I must...look at the big picture. I have not heard evidence that this deal was manufactured to stall today's hearing. The big picture has to take the deal into account. That includes a potential sale of assets. I will allow evidence of the sale. Whether it is contrary to deadlines or not, I am not sure. But it is evidence that I should hear.

So proceed now or later.

Mr. Levin: May we have a few moments?

[Break at 5:02 PM]

RESUME 5:39

Mr. Levin: There are common issues to sale and convert motions. ...So put it off to a date to approve the sale and hear it all at the once in thirty days. We need interim dates of filing the sale motion and an APA. We need a possible telephonic hearing if dates are not agreed by counsel. We are talking about middle of July.

Judge Gross: I have a number of things scheduled on the 16th so I must shift other parties. So I will try and schedule for the 16 and set a potential backup date. the 27th. Let me give myself just a day. Let's do two days for a decision. One day hearing then two days to issue the decision. That is how we will handle that.

Trustee: We will spend time to set the deadlines today...for the sale motion and APA amendments, the discovery schedule, written submissions, the witness list and prospective testimony. There may be bidding on this sale. ...Procedures motion and bidding.

Judge Gross: The US trustee may have a problem with no bidding.

Trustee: I don't think we need a two-tiered structure for discovery. I have to show that the marketing effort was concerned.

Mr.Levin: ...and a deadline for SCO to change any of the sale motion.

[Spector moves to push it back to the 27th because the other side wants discovery. ]

Stephen Norris, one of the original founders of the chi-chi Carlyle Group, and his current equity arm Gulf Capital Partners LLC – the money is reportedly coming from Saudi Arabia unless the White House stops it – are offering $2.4 million for what remains of SCO’s Unix business plus its mobility technology....

If SCO winds up with the Unix copyrights after all it only gets to run with them for 10 years then they revert to Gulf Capital Partners.

08:15 PM EDT

Copyright 2009 http://www.groklaw.net/ - http://creativecommons.org/licenses/by-nc-nd/3.0/