[This is the unofficial transcript posted at scofacts.org of the proceeding of which a copy of the official audio recording can be found here: mp3; tar of the original FTR files.

See also the hearing's agenda, minutes, and sign-in sheet.
See http://scofacts.org/bankruptcy.html for links to recordings of other hearings in this case.
Scofacts is not endorsed by the "SCO Group" Delaware corporation, nor by any of the registered owners of "SCO" trademarks.

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Motion Hearing, March 5, 2010

IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE
In re: The SCO GROUP, INC., et al., Debtors.	Chapter 11 Case No. 07-bk-11337-KG (Jointly Administered)

(The debtors' current names, file numbers at the Delaware Division of Corporations, and Rule 1005 information (IRS employer identification ("EID") numbers and all names used within the six years before the filing of their petitions (September 14, 2001 to September 14, 2007)) are as follows: (1) The SCO Group, Inc., Del. Corp. #3266987, EID 87-0662823, which was named "Caldera International, Inc." prior to May 16, 2003; and (2) SCO Operations, Inc., Del. Corp. #3187414, EID 97-0617393, which was named "Caldera Systems, Inc." prior to September 23, 2002.)

Friday, March 5, 2010
11:00:00 Eastern Daylight Time (-0400)

Before the Honorable Kevin Gross, U.S. Bankruptcy Judge

Courtroom 3, 824 N Market St Fl 6, Wilmington DE 19801
Courtroom clerk: Sherry Scaruzzi
Audio recording operator: Jennifer Pasierb

Agenda and Minutes

(See also the "Omnibus Hearing Order" (Docket No. 1032, January 8, 2010), the "Notice of Rescheduled Omnibus Hearing" (Docket No. 1050, February 16, 2010), the "Amended Notice of Agenda of Matters Scheduled For Hearing on March 5, 2010 at 11:00 A.M." (Docket No. 1078, March 4, 200), and the "Minute Entry" (Docket No. 1083, March 5, 2010).)

Item 1: "Status Report from Edward N. Cahn, Chapter 11 Trustee for the Debtors' estates"

Pre-hearing status (per agenda): "This matter will be going forward as a status conference only."
Post-hearing status (per minutes): "Status report given from Edward N. Cahn, Chapter 11 Trustee"

Item 2: "Motion of Chapter 11 Trustee for Order (I) Authorizing Debtors' Estates to Obtain Postpetition Financing and to Grant Security Interests and Superpriority Administrative Expense Status Pursuant to 11 U.S.C. secs. 105, 363(c), 364(c), 364(e) and 507(b); (II) Modifying the Automatic Stay Pursuant to 11 U.S.C. sec. 362; and (III) Granting Other Relief" (Docket No. 1051, February 18, 2010), with Exhibit A (#1051-3), proposed order (#1051-4), and notice (#1051-2), setting objection deadline of February 26, 2010 and hearing date of March 5, 2010.

Order (Docket No. 1053, February 18, 2010) moving objection deadline to March 1, 2010.
Order (Docket No. 1062, February 23, 2010) moving objection deadline back to February 26, 2010.
Novell's objection (Docket No. 1065, February 26, 2010).
Petrofsky's objection (Docket No. 1068, February 28, 2010), with exhibits A and B.
Trustee's "Notice of Filing of Additional Documents Related to Financing Motion" (Docket No. 1077, March 4, 2010), with exhibits A, B, C, D, E, and F.
Pre-hearing status (per agenda): "The hearing on this matter will go forward"
Post-hearing status (per minutes): "Motion Approved - ORDER SIGNED"
"Order (I) Authorizing Debtors' Estates to Obtain Postpetition Financing and to Grant Security Interests and Superpriority Administrative Expense Status Pursuant to 11 U.S.C. secs. 105, 363(c), 364(c), 364(e) and 507(b); (II) Modifying the Automatic Stay Pursuant to 11 U.S.C. sec. 362; and (III) Granting Other Relief" (Docket No. 1084, March 5, 2010)

Participants

Identified Speakers (in order of appearance)

	Sherry Scaruzzi Deputy Clerk of Court 824 N Market St Fl 6, Wilmington DE 19801
	Hon. Kevin J. Gross (Pennsylvania bar #27160, admitted 1978 (inactive); Delaware bar #209) United States Bankruptcy Judge (appointed 2006) 824 N Market St Fl 6, Wilmington DE 19801 (image from `http://ecf.deb.uscourts.gov/cgi-bin/show_case_doc?232,109446,0,,`)
	Bonnie Glantz Fatell (Pennsylvania bar #34377, admitted 1981; Delaware bar #3809, admitted 1999) Attorney for Edward N. Cahn, chapter 11 trustee Blank Rome LLP 1201 N Market St Ste 800, Wilmington DE 19801 (image from `http://www.blankrome.com/siteFiles/headshots/A7E4C445CFFD9AA6ED9527B7880C35C5.jpg`)
	Edward Norman Cahn (Pennsylvania bar #8007, admitted 1960) Chapter 11 trustee, pro se Blank Rome LLP 1201 N Market St Ste 800, Wilmington DE 19801 (image from `http://www.blankrome.com/siteFiles/headshots/856D0F637D30F6DC0803C1A380035683.jpg`)
	Mark E. Fisler Witness for Edward N. Cahn, chapter 11 trustee Managing Director, Ocean Park Advisors LLC 6033 W Century Blvd Ste 1290, Los Angeles CA 90045 (image from `http://goldenovaleggs.com/sections/company/board-directors/images/mark_fisler.jpg`)
	Adam Aiken Lewis (California bar #88736, admitted 1979; Delaware admission pro hac vice (dkt. #44), September 18, 2007) Attorney for creditors Novell, Inc. and Suse Linux Gmbh (appearing telephonically) Morrison & Foerster LLP 425 Market St, San Francisco CA 94105 (image from `http://mofo.com/images/attorney/407.jpg`)
	Alan P. Petrofsky Equity Security Holder, pro se (appearing telephonically) PO Box 6263, San Rafael CA 94903 (image from `http://petrofsky.org/csua-alpetrof-mirror/al-head.gif`)
	Mona Lyman Burton (Utah bar #5399, admitted 1989) Attorney for proposed lender Ralph Yarro (no PHV admission on file) (appearing telephonically) Holland & Hart LLP 60 E South Temple Ste 2000, Salt Lake City UT 84111 (image from `http://www.hollandhart.com/images/people/printbiographic/Burton_Mona2.jpg`)

Other Appearances (in order listed on sign-in sheet)

	Stanley Byron Tarr (New York Bar #4311205, admitted 2005) Attorney for Edward N. Cahn, chapter 11 trustee (no PHV admission on file) Blank Rome LLP 1201 N Market St Ste 800, Wilmington DE 19801
	Laurie Selber Silverstein (Delaware Bar #2396, admitted 1985) Attorney for Creditor International Business Machines Corp. Potter Anderson & Corroon LLP 1313 N Market St Fl 6, Wilmington DE 19801 (image from `http://www.potteranderson.com/assets/images/72.jpeg`)
	Joseph James McMahon, Jr. (Pennsylvania Bar #77570, admitted 1996; Delaware Bar #4819) Attorney for Acting United States Trustee Roberta A. DeAngelis United States Department of Justice 844 King St Rm 2207, Wilmington DE 19801 (image from `http://ecf.deb.uscourts.gov/cgi-bin/show_case_doc?193,109446,1,,`)
	Michael Richard Nestor (Delaware Bar #3526, admitted 1996) Attorney for Creditor Novell, Inc. Young Conaway Stargatt & Taylor 1000 West St Fl 17, PO Box 391, Wilmington DE 19899 (image from `http://www.ycst.com/inc/attimage.php?att=72`)
	Richard B. Levin (D. Columbia Bar, admitted 1976; New York Bar #4412862, admitted 2006; Delaware admission pro hac vice (dkt. #99), October 4, 2007) Attorney for Creditor International Business Machines Corp. (appearing telephonically) Cravath, Swaine & Moore LLP 825 Eighth Ave, New York NY 10019 (image from `http://www.cravath.com/biospdfs/RLevinWebBio.pdf`)

AUDIO AND INCOMPLETE, UNOFFICIAL, UNCERTIFIED TRANSCRIPT

Audio

Index

(11:06:00/+00:00:00) Please rise

(11:06:45/+00:00:45) (Trustee's interim report)

(12:10:39/+01:04:39) (Trustee's argument in support of financing motion)
(12:16:10/+01:10:10) (Novell's objection)
(12:20:54/+01:14:54) (Petrofsky's objection)
(12:23:29/+01:17:29) (Trustee's reply)
(12:29:10/+01:23:10) (Novell's sur-reply)
(12:31:28/+01:25:28) (Petrofsky's sur-reply)

(12:32:44/+01:26:44) (Court's ruling)

(12:38:15/+01:32:15) *** RECESS ***

Transcript

(11:06:00/+00:00:00) CLERK:Please rise.

(11:06:04/+00:00:04) THE COURT: Good morning, everyone. Thank you, and please be seated. It's a pleasure to see you all, with improving weather.

(11:06:11/+00:00:11) MS. FATELL: Finally.

(11:06:11/+00:00:11) THE COURT: Yes.

(11:06:12/+00:00:12) MS. FATELL: Good morning, your Honor.

(11:06:13/+00:00:13) THE COURT: Good morning, Ms. Fatell.

(11:06:14/+00:00:14) MS. FATELL: Bonnie Fatell, from Blank Rome, on behalf of the trustee, uh, Edward Cahn, on --

(11:06:19/+00:00:19) THE COURT: Yes.

(11:06:20/+00:00:20) MS. FATELL: -- for the SCO Group. Um, Your Honor, we, um, have two items on for today. We have a brief status report from the trustee, and then we have a contested hearing on, uh, debtor financing.

(11:06:31/+00:00:31) THE COURT: Yes.

(11:06:31/+00:00:31) MS. FATELL: So if it, uh, please the Court, I'd like to turn it over to the trustee for a report as to what's been going on in the case.

(11:06:37/+00:00:37) THE COURT: Please.

(11:06:38/+00:00:38) MS. FATELL: Thank you.

(11:06:38/+00:00:38) THE COURT: Thank you, Ms. Fatell. Mr. Cahn, welcome back sir. It's good to see you.

(Trustee's interim report)

(11:06:45/+00:00:45) MR. CAHN: Uh, thank you, Judge Gross. If your Honor pleases, uh, this is, uh, the trustee's interim report to the Court.

(11:06:53/+00:00:53) There has been considerable activity in regard to the debtors' affairs. My financial advisors have recommended that costs be curtailed. I concurred with this advice, and the number of employees has been reduced, and other cost-saving measures have been placed in effect.

(11:07:10/+00:01:10) We are taking, uh, we are in the process of closing some foreign subsidiaries, and consolidating others. My financial advisors have visited the offices of the European subsidiaries. They are developing plans for closing and -- and/or consolidating those offices. This process is complex, because, uh, some foreign jurisdictions confer economic rights on terminated employees.

(11:07:34/+00:01:34) THE COURT: Yes.

(11:07:35/+00:01:35) MR. CAHN: On your docket today is the issue of a prioritized loan to the debtor. After the tenth circuit decision, I thought it would be relatively easy to secure a loan. However, in light of the banking crisis, no banks or factors would entertain an application. Although hedge funds expressed some interest, their initial terms were far too onerous, and I rejected them summarily.

(11:07:59/+00:01:59) The loan transaction presented for your approval was the best we could do under the circumstances, and is crucial to our litigation success.

(11:08:07/+00:02:07) We have relocated our office in Lindon, Utah to less expensive space. We have undertaken to sell assets that are nong-- no longer useful, and have been successful in that regard, to some extent. We are in the process of attempting to s-- uh, sell a segment of the debtors' business, and that issue may be -- may be before you in the near future, and we are marketing some of our intellectual property, uh, not germane to our litigations.

(11:08:36/+00:02:36) On the litigation front, our claims against Novell will be tried before a jury next week. The trial is expected to take three weeks. I will be attending the first and perhaps the third week of the trial. Uh, the court has uh, uh, held that, uh, the jury's not to know that I am the, uh, trustee in bankruptcy and the main plaintiff, so my -- I won't be at counsel table and I won't be introduced to the jury.

(11:09:02/+00:03:02) THE COURT: Okay.

(11:09:03/+00:03:03) MR. CAHN: I continue to hold the opinion that the cases against Novell and IBM should be pursued aggressively. Pre-trial activity confirms this opinion. Opposing counsel has filed nineteen motions in limine plus three Daubert motions. I have prevailed on all of the Daubert motions and most of the motions in limine. My counsel has also filed motions in limine, and in my view, the rulings of the court -- court are positive for the debtors', uh, litigation. My lawyers are well prepared to proceed with a trial. I note, however, that defense counsel is equally well prepared. Unless you have questions, this concludes my report.

(11:09:42/+00:03:42) THE COURT: I think you've answered all of my questions, and I appreciate the, uh, the very thorough and succinct report, Mr. Cahn. Thank you.

(11:09:49/+00:03:49) MR. CAHN: Thank you, Judge Gross.

(11:09:51/+00:03:51) THE COURT: Thank you.

(11:09:56/+00:03:56) MS. FATELL: Your Honor, we next turn to the contested matter, which is the trustee's motion, uh, for approval to enter into, uh, debtor financing. We have two objections filed, one by Novell and one by Alan Petrofsky.

(11:10:09/+00:04:09) THE COURT: Yes.

(11:10:09/+00:04:09) MS. FATELL: Yesterday we filed, um, some additional documents. There was a blackline of the credit agreement, which reflects just some minor changes, nothing substantive; a blackline of the proposed order, which, at the appropriate time, I'll be happy to walk the Court through.

(11:10:23/+00:04:23) THE COURT: Yes.

(11:10:23/+00:04:23) MS. FATELL: A stock pledge agreement, a security agreement, a collateral agent agreement, and evidence of the, uh, principal lender having incorporated his, uh, his newly formed company, with respect to financing.

(11:10:35/+00:04:35) THE COURT: Yes, in Utah. Yes.

(11:10:36/+00:04:36) MS. FATELL: Yes. Um, your Honor, what I'd like to do is call Mark Fisler to the stand, and put on testimony to support our motion.

(11:10:42/+00:04:42) THE COURT: I think that's appropriate. Thank you.

(11:10:43/+00:04:43) MS. FATELL: Thank you.

(11:10:50/+00:04:50) THE COURT: Good morning, sir.

(11:10:50/+00:04:50) MR. FISLER: Good morning, your Honor.

(11:10:52/+00:04:52) THE COURT: If you will stand in the witness stand, uh, while you're sworn, that would be the right procedure. Thank you, Mr. Fisler.

(11:10:59/+00:04:59) CLERK: Please raise your right hand and place your left hand on the Bible. State your full name and spell your last name for the record.

(11:11:03/+00:05:03) MR. FISLER: Mark Fisler. Spelling F like Frank, I, S like Sam, L-E-R.

(11:11:09/+00:05:09) CLERK: Do you solemnly swear to tell the truth, the whole truth, and nothing but the truth, so help you God?

(11:11:12/+00:05:12) MR. FISLER: I do.

(11:11:13/+00:05:13) CLERK: Please be seated.

(11:11:14/+00:05:14) MR. FISLER: Thank you.

(11:11:16/+00:05:16) THE COURT: You may proceed whenever ready, Ms. Fatell.

(11:11:18/+00:05:18) MS. FATELL: Thank you, your Honor. Good morning, Mr. Fisler.

(11:11:21/+00:05:21) MR. FISLER: Good morning, Ms. Fatell.

(Direct examination of Mark Fisler by Ms. Fatell for the trustee)

(11:11:22/+00:05:22) Q: Can you describe for the Court your background, very briefly?

(11:11:25/+00:05:25) A: Um, briefly stated, uh, twenty-five years of corporate finance, uh, investment banking and executive management experience. Um, uh, essentially most of that investment banking and management consulting, with a brief stint as an executive.

(11:11:39/+00:05:39) Q: And you're presently employed by what company?

(11:11:41/+00:05:41) A: Ocean Park Advisors.

(11:11:43/+00:05:43) Q: And what is your role with the, um, with the trustee, and the debtors' estates?

(11:11:47/+00:05:47) A: Um, Ocean Park Advisors is the financial advisor to, uh, to chapter 11 trustee.

(11:11:52/+00:05:52) Q: Okay. Um, how long have you been working for the trustee?

(11:11:55/+00:05:55) A: Uh, we have been working for the trustee since September of 2009.

(11:11:59/+00:05:59) Q: And, um, what has been the primary focus of OPA, Op-- I'll call it OPA, Ocean Park Advisors. What has been the primary focus of OPA during that time?

(11:12:08/+00:06:08) A: Um, initially, we really came in to get our arms around what was going on with the operations so we could make recommendations to the trustee as to what we were seeing in terms of financial health, liquidity, cash runway, um, take a view on the assets, since there was, uh, a prior offer for those assets, um, and -- and consider, uh, ones that could, uh, could derive some cash for the estate. Um, and -- and really what, uh, ended up as an outgrowth is that we, uh, we determined that as a first matter of priority that we needed to preserve cash capital and, uh, delve into an immediate restructure of -- of the company.

(11:12:48/+00:06:48) Q: Okay, and then, um, are you als-- you also then looked at financing, is that correct?

(11:12:54/+00:06:54) A: That is correct. As part of the restructuring effort, um, while we did not have a view initially as to exactly what the size, uh, and approriate structure for the financing would be, uh, we felt that at the appropriate time that we would want to approach the capital markets and -- and see if we could get some, uh, cash capital for the company.

(11:13:13/+00:07:13) Q: Uh, the trustee stated that you've undertaken some asset sales. Can you just very briefly tell us about that, and we'll get into more detail later on that.

(11:13:20/+00:07:20) A: Okay. Um, there are really, as I see it, um, four buckets, three kind of smaller buckets, and then of course, the -- the core asset, which is the operating business. Um, to enumerate the non-core assets, um, there is some intellectual property, uh, as Judge Cahn referenced, uh, there is a patent that is not core to the business that we believe has some value and we have undertaken a sales effort on it. Um, there is some de minimus assets that a motion has, uh, been, uh, put before and approved by this court. Really it's excess, um, uh, equipment and -- and other, uh, needs -- other things that the company doesn't need. Um, and finally, um, there is a non-core line of business, uh, known as the mobility, uh, products. Um, this is a business that, while it has traction in the marketplace, they are in fact selling some applications, uh, they -- the company simply doesn't have the resources to appropriately grow that effort and -- and support it, uh, given their dur-- distressed situation. So we have, um, uh, done a sales process on that, we're sort of, uh, towards the tail end of that, and we'll shortly be back to the Court with a sales motion, uh, hearing.

(11:14:32/+00:08:32) Q: Okay, great, thank you. Let me go back to the, um, the -- the cash position of the company, and -- and the restructuring efforts. When OPA first became involved in September of 2009, what was the company's financial condition?

(11:14:46/+00:08:46) A: Um, we we arrived on the scene, uh, really within a few business days of -- of being in Lindon Utah and visiting with the executives, it was quite clear to us, um, that it was crisis mode. Um, really the situation was, that while they did have some cash resources, some of those were restricted, um, some of those dollars were in various foreign subsidiaries around the world, and when focusing on the debtor specifically, um, we were really taking a view of how many payrolls could we last. And, uh, in visits with the CFO and controller, it was really quite clear that we were probably looking at a couple of payroll cycles and we would be out of cash.

(11:15:24/+00:09:24) Q: Sounds pretty bleak.

(11:15:25/+00:09:25) A: Very.

(11:15:26/+00:09:26) Q: Um, so can you give us, uh, a report -- give the Court a report of, uh, what you've done to restructure --

(11:15:33/+00:09:33) A: Sure

(11:15:34/+00:09:34) Q: -- on behalf of the trustee and for the estate?

(11:15:36/+00:09:36) A: Okay. Um, really, just to kind of chronologically go through it. As I mentioned, um, uh, it was our belief very quickly that the company was in crisis mode. Um, we really put a lock-down on all expenditures, and, uh, and really took approvals to a very low level, um, in -- in -- in terms of, um, what we would allow to be expended. We were examining every expense. Um, and -- and then we went right into, um, conversations with the executives as to what would be their plan to bring expenses into line with what the revenue forecast obviously was, because clearly we weren't going to make it from a liquidity point of view.

(11:16:15/+00:10:15) Um, it was determined that, um, there were really two phases to look at in a restructuring sense. One that I'll characterize as an affordable one, one that we could do quickly, uh, and domestically. And two, one that was more expensive both from a legal and wind-down cost perspective, but also, um, as Judge Cahn, um, alluded, uh, in -- in the European, uh, jurisdictions it's not employment at will, there is severence obligations and -- and -- and that's expensive, and -- and so, we knew that given the cash resources, we were going to have to delay tackling that issue, even though we knew that there was, um, savings to be had there.

(11:16:55/+00:10:55) Um, so our -- our first focus was to look at, all right, the total expenses was around 10.9 million, um, relative to run-rate revenues, at that time of about 8 million, it's declined since then. Um, and so, we -- we needed to get low-hanging fruit cuts. We were successful in phase one through a combination of RIF employees, uh, intense focus on nonpayroll expense, inclusive of, um, as was referenced, uh, the premises, and various contracts that could be eliminated, in reducing expenses from 10.9 million to 7.2 million.

(11:17:32/+00:11:32) Um, so quite successful, and we were able to do that quite quickly. Um, really by the end of October, early November, um, those, uh, cuts were -- were put in place.

(11:17:44/+00:11:44) Q: And, um, did that include some senior-level executives as well?

(11:17:47/+00:11:47) A: Yes. Really, um, I would say it was a bit top heavy, in terms of the RIF. It was -- it was certainly, uh, as focused at the chief level as well as the Indian level, so to speak. Um, you know, unfortunately, there really wasn't a role for, um, certain of the -- of the top executives. Um, some executives actually elected, when we were going through this process, to depart, uh, on their own volition, um, which really in part did our job for us, uh, in terms of accomplishing what it -- what we needed to.

(11:18:18/+00:12:18) Q: When you say RIF, what -- what are you referring to?

(11:18:20/+00:12:20) A: Reduction in force.

... (12 MINUTES NOT YET TRANSCRIBED) ...

(11:30:09/+00:24:09) Q: Okay. Um, the negotiations. Tell us about Mr. Yarro. He's an insider, isn't he?

(11:30:14/+00:24:14) A: Yes he is.

(11:30:15/+00:24:15) Q: And what is his relationship with the company?

(11:30:17/+00:24:17) A: His -- his former role with the company was chair of the board of directors. Um, he is a significant shareholder today.

(11:30:23/+00:24:23) Q: Is he getting more stock as part of this -- this loan transaction?

(11:30:27/+00:24:27) A: No.

(11:30:28/+00:24:28) Q: And would you say that the negotiations were arm's length?

(11:30:32/+00:24:32) A: Absolutely.

(11:30:33/+00:24:33) Q: And, do you -- is it your view that these are commercially reasonable terms?

(11:30:38/+00:24:38) A: Yes, I --

(11:30:38/+00:24:38) Q: And --

(11:30:39/+00:24:39) A: -- you know, and -- and really the best evidence we have for that is the robust and transparent process that we conducted here. Um, Ocean Park Advisors has no prior relationship whatsoever with Mr. Yarro, and really, uh, we viewed our role as the -- as the trustee's advisor, to -- to ensure that we do the best deal for the estate.

(11:30:58/+00:24:58) Q: Okay. Is Mr. Yarro the only lender?

(11:31:01/+00:25:01) A: No, he is not. Um, in fact, um, he is a minority of -- of the ultimate two million dollar loan that we're prepared to close. Um, he is approximately twenty percent of the two million dollars in proceeds, and so the eighty percent is comprised by -- and I'm going to be a little bit rough in my numbers here, but we believe it's somewhere thirteen to fourteen total lenders will be funding the, uh, the two million dollar loan.

(11:31:24/+00:25:24) Q: Of various amounts?

(11:31:25/+00:25:25) A: Of various amounts ranging from ten thousand dollars in participation up to six hundred thousand.

(11:31:31/+00:25:31) Q: And, who lined up all of those additional lenders?

(11:31:34/+00:25:34) A: Mr. Yarro did.

(11:31:36/+00:25:36) Q: And do you know anything about them? Are they also insiders? Are they stockholders?

(11:31:40/+00:25:40) A: Some of them are. Um, there are, um, and I'm going from memory here, but there -- there is two or three additional, uh, within that list, that are, uh, former board members, or had, uh, a relationship in a employee consultant sort of role in their past. Um, there is a subset that -- that currently own shares in the company today. Um, and there are some that have no past relationship whatsoever.

(11:32:02/+00:26:02) Q: Okay. And, um, on behalf of the trustee, did you actually negotiate with thirteen or fourteen different people?

(11:32:09/+00:26:09) A: We did not. Um, Mr. Yarro really brought them to the table, and I would say ninety-five percent of my discussions were direct with him. There were limited instances where I was asked to respond, uh, to some questions directly to particular participants, but in general it was through Mr. Yarro.

(11:32:27/+00:26:27) MS. FATELL: Okay. I'd like to hand you an exhibit and walk through how the loan proceeds will be used, if I may. May I approach, your Honor?

(11:32:38/+00:26:38) THE COURT: Yes, thank you, Ms. Fatell, you certainly may. Thank you.

(11:32:47/+00:26:47) Trustee Exhibit 1, for identification at the moment.

(11:33:03/+00:27:03) Q: Mr. Fisler, can you identify, uh, trustee's 1, which I just handed you?

(11:33:08/+00:27:08) A: Yes, this is an analysis that was prepared by Ocean Park Advisors in concert with, um, the executives of SCO, and essentially what this analysis attempts to do is to forecast the liquidity of the company over a thirteen week period of time. Um, you know, taking into account, uh, various asssumptions on revenues, expenses, uh, the debtor loan, its -- its structural features and where the buckets of the proceeds would, uh, would go. Um, it's two pages in total. The first page is focused on the operations, so the core operation asset, the operation business, the operating system cells, and the second page of which is focused on the separately accounted-for litigation budget.

(11:33:50/+00:27:50) Q: Okay. Let's -- if -- if we may, let's just quickly walk through this ...

... (14 MINUTES NOT YET TRANSCRIBED) ...

(11:47:31/+00:41:31) Q: Okay. Um, let me just very quickly, um, talk about asset sales, and you touched on it before, so I don't want to get into too much detail, but, uh, let me ask you, one of the, um, the issues that's been raised is why hasn't the company just shut down, sold off all of its assets? Why is it going this route?

(11:47:53/+00:41:53) A: Our view, in drawing upon our many years of investment banking experience, and, if you don't mind, I'm going to use sort of an analogy, here. Um, let's assume that we're a real estate agent and we're selling a house. Uh, our view of the crisis situation is that there's a for-sale sign in the front yard of this house, but the roof is on fire. So, how exactly do you think you're going to sell a house that's in that circumstance? You just, you simply cannot.

(11:48:18/+00:42:18) Um, I think another analogy would be, if you were to get into negotiation, and the company was in past negotiation with potential buyers, um, when you're in crisis and you're running out of cash, the other side invariably knows that. And it's sort of like being in the ninety degree heat with an ice cube in your hand, hoping to sell that ice cube, but, well, the other guy's just going to watch you hold that ice cube and watch it melt. Um, the implication for price and recovery for the estate simply is not good.

(11:48:44/+00:42:44) Um, so it was our recommendation, that, let's -- let's triage this thing appropriately and properly. Let's develop a cash runway for this company that allows us to then go through an orderly and comprehensive sale process for the company in total. If our backs are to the wall and we have to sign a deal in two weeks, the recovery for the estate is going to be significantly lower, in our opinions, than it would be if we could go through a proper, uh, transparent, uh, bid process, where, sure, we'll invite in past people who've shown interest and who in fact have lied -- laid some offers on the table. But we're happy to invite some other people to the table as well. We're happy to conduct a process, and if we have the time to do so, um, that -- that this cash flow, uh, can potentially provide in terms of runway, we think the result's better. While we haven't undertaken to say, here's the valuation of the company today and here's the valuation tomorrow. Um, it's just our instinct, and I think we're right, that it's -- it's -- there's a better valuation result in the offing with an orderly process than there would be with a shortened one.

(11:49:48/+00:43:48) Q: Okay. Um, is it your view, then, that the financing is going to preserve or indeed maximize the value of the estate assets?

(11:49:55/+00:43:55) A: Absolutely.

(11:49:57/+00:43:57) Q: Okay, um, and is it your -- are -- are -- have you -- I think you've reported, and I just want to make sure this is on the record -- you feel that this is market terms, this transaction?

(11:50:08/+00:44:08) A: Most definitely.

(11:50:10/+00:44:10) Q: And again, this was an arm's length negotiation?

(11:50:13/+00:44:13) A: Yes.

(11:50:13/+00:44:13) MS. FATELL: Okay. Your Honor, I don't have any further questions.

(11:50:15/+00:44:15) THE COURT: All right. Ms. Fatell, thank you.

(11:50:16/+00:44:16) MS. FATELL: Thank you.

(11:50:18/+00:44:18) THE COURT: Anyone in the courtroom or on the, uh, telephone with questions for Mr. Fisler?

(11:50:24/+00:44:24) MR. LEWIS: Your Honor, it's Adam Lewis. Um, I do have a couple of questions.

(11:50:28/+00:44:28) THE COURT: Yes, Mr. Lewis, certainly, you may proceed, sir. It's good to hear your voice.

(11:50:31/+00:44:31) MR. LEWIS: Thank you, your Honor. I appreciate being allowed to appear by telephone.

(11:50:34/+00:44:34) THE COURT: Certainly.

(11:50:35/+00:44:35) MR. LEWIS: Good morning, Mr. Fister -- Ms. Fisler. I'm, uh, Adam Lewis. I'm counsel for Novell and, uh, Suse in this, uh, chapter 11 case.

(Cross-examination of Mark Fisler by Mr. Lewis for Novell)

(11:50:43/+00:44:43) Q: How are you?

(11:50:44/+00:44:44) A: Just fine. And yourself?

(11:50:45/+00:44:45) Q: I'm fine, thanks. Um, I just have a few questions. Um, first of all, uh, as you heard, the trial is about to begin next week and it's going to take three weeks, uh, at least it's scheduled for three weeks. Um, is there a reason why this financing couldn't wait, uh, for three weeks, for the outcome of that trial?

(11:51:12/+00:45:12) A: Um, you know, it's our belief that, uh, um, we need to put the financing in place directly, and not as a function of the outcome of the trial one way or the other. Uh, time is of the essence in these things. It's absolutely clear that the debtor does need money, um, and -- and we have to go on the assumption that, you know, perhaps the case doesn't go SCO's way, and that, um, that they're going to need capital available to wind up their affairs, to sell their assets, um, and -- and waiting we don't think is -- is in the estate's interests.

(11:51:45/+00:45:45) Q: Let me ask you a followup question. It is in part already, uh, presaged by your previous answer, and that is, has -- have you or Ocean Park, uh, made any effort to analyze the financial situation of the debtors, uh, in light of, uh, creditor claims and so on, if SCO loses the trial?

(11:52:08/+00:46:08) A: Um, we've looked at what the obligations of the company are, so we -- we have at least looked at that, uh, uh, so, our -- we're aware of unsecured obligations of the company, and -- and this, obviously, the inclusion of this new, uh, this new, uh, asset.

(11:52:27/+00:46:27) Q: Is -- is it your view that there will be funds to pay the unsecured creditors if SCO loses the trial?

(11:52:33/+00:46:33) A: Um, as I indicated previously, we've not done a valuation analysis, but it is our view that yes, there will be money for creditors left over.

(11:52:41/+00:46:41) Q: You have that view, but you've not done a valuation analysis that supports it.

(11:52:44/+00:46:44) A: That's correct.

(11:52:46/+00:46:46) Q: Okay. Now, you -- you mentioned, uh, that the reason that you didn't want to shut the company down, uh, immediately post-trustee-appointment, and I suppose post your engagement, was that it would be like trying to sell a house on fire. Would it also be fair to say that, uh, your attempts to find this financing were attempts to find financing for a house on fire?

(11:53:19/+00:47:19) A: Um, clearly we're finding financing for, uh, for a distressed company, but let me be clear here. Before we finalized terms for the debtor, we had already made significant cuts from 10.9 million to 7.2 million. The fire was out, by the time we were entered into final negotiations.

(11:53:42/+00:47:42) Q: So you don't believe that the -- the company is in an-- in any great distress at the moment?

(11:53:45/+00:47:45) A: We've lengthened the -- I mean, let's just be clear here, from my prior testimony, there was a couple of payrolls left in this company. Um, there's a runway today for the company, that did not exist previously. So, absolutely, we've -- we've put the fire out.

(11:54:01/+00:48:01) Q: Okay. Um. Do you -- do you know why, um, the lender entity, which is documented in the, uh, documents that are attached to both the original motion and to the revised, uh, uh, filings of the other -- of yesterday, uh, indicate that the, uh, uh, the borrower was, uh, the lender was going to be a Delaware limited liability company, and do you know why it changed to a Utah company?

(11:54:43/+00:48:43) A: No.

(11:54:44/+00:48:44) MR. LEWIS: Okay. I have no further questions, your Honor.

(11:54:48/+00:48:48) THE COURT: All right, Mr. Lewis, thank you. Anyone else?

(11:54:52/+00:48:52) MR. PETROFSKY: Yes, your Honor. This is, uh, Al Petrofsky, pro se.

(11:54:55/+00:48:55) THE COURT: Yes, Mr. Petrofsky.

(11:54:57/+00:48:57) MR. PETROFSKY: Good morning, thank you.

(11:54:58/+00:48:58) THE COURT: Yes, sir.

(11:54:59/+00:48:59) MR. PETROFSKY: Uh, yes, I just have one or two questions, if I may.

(11:55:01/+00:49:01) THE COURT: You may.

(11:55:03/+00:49:03) MR. PETROFSKY: Uh, thank you. Uh, good morning, Mr. Fisler.

(11:55:05/+00:49:05) MR. FISLER: Good Morning, Mr. Petrofsky.

(Cross-examination of Mark Fisler by Mr. Petrofsky, pro se)

(11:55:07/+00:49:07) Q: Um, my first question is have -- have any of these lenders, uh, signed any agreements yet?

(11:55:14/+00:49:14) A: Um, we've, you know I'd have to defer to counsel on this. I don't know if we've, uh, exactly signed the agreements. I think we're in a position to sign them, but I don't know that we have signed agreements in the end.

(11:55:25/+00:49:25) Q: Okay. So as far as you know, then, no.

(11:55:28/+00:49:28) A: As far as I know, no.

(11:55:31/+00:49:31) Q: Okay, and can you ex-- explain why an agreement wasn't -- why you weren't able to -- to actually get them to sign on the dotted line before we came to the hearing?

(11:55:42/+00:49:42) A: Oh, well, le-- If I may, I mean, the -- the -- the documents are, you know, negotiated and finalized at this point. Um, I think, mechanically it was as between the attorneys as to the precise process of when the signatures would be on the document.

(11:55:58/+00:49:58) Q: Okay, can the, um -- uh, the date that the, uh -- I'm sorry, I can't remember the exact term that's used in the contract, but, uh, this March 8th is the date that the, uh, the funds would, uh, have to be produced, is that correct?

(11:56:12/+00:50:12) A: Correct.

(11:56:14/+00:50:14) Q: And is that a date that the -- that the lenders specified had to be March 8th?

(11:56:19/+00:50:19) A: That was specified by us.

(11:56:20/+00:50:20) Q: That's specified by you.

(11:56:21/+00:50:21) A: Uh-hum.

(11:56:22/+00:50:22) Q: And does that have something to do with the trial?

(11:56:24/+00:50:24) A: No, I -- I -- I think, uh, I think to some degree, it's -- it's the start of the trial. We -- we were wanting to close this financing either just prior to or, uh, right at the start of the trial. Um, that was sort of our deadline. We worked quite quickly, uh, to do what we have done to obviously be here for this hearing, and March 8th happened to be the day. So, we're -- we're right at the eve -- you know, the eve, or the start of the trial.

(11:56:51/+00:50:51) Q: Okay. And -- now is it -- could you tell me is it your understanding that, um, after these documents are executed, the lenders could then reduce the loan amount as much as they wanted, on one day's notice, --

(11:57:05/+00:51:05) A: No.

(11:57:06/+00:51:06) Q: -- is that correct? No.

(11:57:07/+00:51:07) A: No.

(11:57:08/+00:51:08) Q: Is there any provision for the lenders to unilaterally reduce the loan amount?

(11:57:12/+00:51:12) A: Not that I'm aware of.

(11:57:16/+00:51:16) MR. PETROFSKY: Okay. Okay, I have no further questions at this time. Thank you very much.

(11:57:27/+00:51:27) THE COURT: All right, thank you Mr. Petrofsky. Anyone else? All right. Ms. Fatell, any -- any redirect?

(11:57:36/+00:51:36) MS. FATELL: Just a few redirect, if I may, your Honor.

(11:57:38/+00:51:38) THE COURT: Yes.

(11:57:40/+00:51:40) MS. FATELL: Um, let me start with some of Mr. Petrofsky's questions, and see if we can clarify things.

(Re-direct examination of Mark Fisler by Ms. Fatell for the trustee)

(11:57:45/+00:51:45) Q: Uh, is there a closing scheduled on the financing?

(11:57:48/+00:51:48) A: Yes.

(11:57:49/+00:51:49) Q: And is there a -- when is the closing scheduled for?

(11:57:51/+00:51:51) A: Monday morning.

(11:57:52/+00:51:52) Q: Is, um, entry of an order approving the financing a condition to closing?

(11:57:57/+00:51:57) A: Yes.

(11:57:57/+00:51:57) Q: Okay. Um, have wire instructions been provided to all of the lenders?

(11:58:02/+00:52:02) A: Yes.

(11:58:03/+00:52:03) Q: Has there been communication with all of the lenders with respect to the amount that they've committed?

(11:58:08/+00:52:08) A: Yes.

(11:58:09/+00:52:09) Q: Uh, do you have any reason to believe that any of those lenders will not put in their -- their funds?

(11:58:13/+00:52:13) A: No.

(11:58:15/+00:52:15) Q: Once the lenders fund -- and that's to occur Monday morning?

(11:58:18/+00:52:18) A: Yes.

(11:58:19/+00:52:19) Q: Is there any basis on which they would reduce the amount of the loan after that?

(11:58:24/+00:52:24) A: No.

(11:58:25/+00:52:25) Q: So once the loan is funded, it's funded.

(11:58:27/+00:52:27) A: Correct.

(11:58:29/+00:52:29) Q: And, how much do you anticipate is -- is committed, for the two million dollars -- up to the two million dollars?

(11:58:34/+00:52:34) A: All of it.

(11:58:35/+00:52:35) Q: Okay. Okay. Um, let me go to the recovery for creditors, if I may. Um, OPA has not conducted a formal valuation of the assets of the company, you stated.

(11:58:49/+00:52:49) A: Correct.

(11:58:50/+00:52:50) Q: Do you have some sense, have you had any, um, discussions out in the market as to what the assets might bring if in fact you were able to sell them at the beginning of the case, or since the -- and -- the beginning of the trustee's appointment, I should say, or since then?

(11:59:07/+00:53:07) A: Yes. Um, and -- and, you know, look, I can sort of give you general views on that.

(11:59:12/+00:53:12) Q: Right.

(11:59:13/+00:53:13) A: Um, I -- I think as the Court is aware, there was a five and a half million dollar offer on the table. Um, discussions with that party continue. Interest level is high. Um, we've actually been approached unsolicited by a party not previously involved with the company, who's started financial diligence with us, um, and would be a competitor, to -- to that proposal. Um, and -- and so there've been discussions, really, kind of all along. But I want to be clear, here, we didn't want to sell the house that was falling down. We wanted to fix the house and then sell the house. And have a runway to do a process. Um, um, so, you know, the answer very directly is, uh, yet -- yes, we've, uh, we've been in discussions.

(11:59:53/+00:53:53) You know, as to -- as to value, you know, we're -- we're still talking at least with the prior people who were involved, in the range of the offers they were making previously. Um, it's our belief that with a competitive and transparent process, with competition, um, that we've -- we should be able to come in, you know, in the -- at least in the range of -- of prior offers.

(12:00:17/+00:54:17) Q: And, you'll have sufficient funds to pay the secured loan back?

(12:00:22/+00:54:22) A: Yes.

(12:00:22/+00:54:22) Q: And there will then be funds available to make a distribution to creditors?

(12:00:26/+00:54:26) A: Yes.

(12:00:27/+00:54:27) Q: Okay. Um, one could argue then, that if you sold the company today, or, up until this time, without the loan, that you could have paid off all the creditors, and -- and they'd be in a better position. Is that your view?

(12:00:42/+00:54:42) A: No, it's -- it's -- it's really not. Um, we think that, and again I'm just going to focus in on operations here and go back to my -- my prior testimony, um, we felt that the company was, in a hurried fashion, filing up a sales motion with a -- with a party, and -- and hadn't necessarily considered all the alternatives that might be out there for the purchase of the company. There wasn't the robust negotiation, um, and -- and searching, that we're used to seeing in a process like this. Uh, we didn't see, uh, a call list that numbered thirty or forty or fifty, we didn't see a back-up bidder, for example, uh, really in the -- in the context of what we would be used to seeing, um, and -- and so we felt that the offer was potentially low, and the only reason we could come up with was, it was a hurried offer out of, uh, you know, negotiated under duress, um, and that we felt that if we could fix the house, so to speak, develop a runway, that we would increase the value of the asset. And, uh, we think that's better for the estate, and inappropriate to do in this circumstance.

(12:01:48/+00:55:48) Q: Your runway right now takes you through the trial and beyond. Um, if the trial is favorable toward SCO, do you think that will impact the value that you can obtain for the company?

(12:01:59/+00:55:59) A: Yes. Um, it definitely clears up an issue. Uh, when you look at the structure of the transaction from the summer, it was a transaction that was really selling the customer list and the blue sky of the employees that were around with knowledge. Um, all -- virtually all of the key IP was stripped out, and could not be sold, due to the, uh, um, uh, to the situation there, that it's, uh, that it's disputed. Um, while there are people at the table now that are happy to pursue in that vein, um, if we clear things up, uh, clearly on the copyrights, you know, I -- I think that can only serve to increase the interest level in the company itself, and if I've got more people, uh, in a room competing for an asset, the implication to price is positive.

(12:02:45/+00:56:45) MS. FATELL: Okay. May I have a moment, your Honor?

(12:02:46/+00:56:46) THE COURT: You may. Certainly, Ms. Fatell.

(12:03:05/+00:57:05) Q: The claim of Novell is an unsecured claim, is that correct?

(12:03:08/+00:57:08) A: Correct.

(12:03:09/+00:57:09) Q: Is there any portion of, uh, the company's funds set aside with respect to that claim?

(12:03:14/+00:57:14) A: Um, well yes, there is -- there is an escrow of, I believe, this is from memory, of approximately six hundred twenty-five thousand dollars, and that is set aside.

(12:03:22/+00:57:22) Q: Okay. That's not the full amount of their claim, though.

(12:03:24/+00:57:24) A: That is not.

(12:03:24/+00:57:24) Q: Okay. So they are an unsecured cl-- creditor at this point.

(12:03:27/+00:57:27) A: Correct.

(12:03:28/+00:57:28) Q: Okay. Your Honor, I have no further questions -- at -- questions.

(12:03:31/+00:57:31) THE COURT: All right, I -- I have just one quick question. Forgive me I just, um, could help -- could use some clarification if you can, Mr. Fisler.

(Examination of Mark Fisler by the Court)

(12:03:39/+00:57:39) Q: Uh, in a footnote on page seven of Novell's objection, they raise the possibility that if the debtors were to win a five billion dollar judgment, uh, and, uh, the lender actually lent the entire two million dollars to the debtor, that the loan fee would then be three hundred thirty million dollars, based upon the litigation factor.

(12:04:06/+00:58:06) A: Uh-hum.

(12:04:06/+00:58:06) Q: Uh, is -- is that a correct calculation -- uh, well, not so much calculation, but -- because I don't need the exact number, but is that a possibility, that it would be that large a number?

(12:04:15/+00:58:15) A: Yes.

(12:04:16/+00:58:16) THE COURT: Okay, all right.

(12:04:18/+00:58:18) MR. LEWIS: Your Honor, it's Adam Lewis, may I ask just a couple questions on re-cross?

(12:04:22/+00:58:22) THE COURT: Yes.

(12:04:23/+00:58:23) MR. LEWIS: Thank you, your Honor.

(Re-cross-examination of Mark Fisler by Mr. Lewis for Novell)

(12:04:25/+00:58:25) Q: Mr. Fisler, um, do I understand you to have just testified that you believe that in the two years that the, uh, case was in charge of the debtor-in-possession it made no what you would describe as robust efforts to sell its assets, that you could discern?

(12:04:41/+00:58:41) A: Um, look, uh, we got involved as -- as my further testimony has said, really in September. Um, we have not undertaken to fully examine, um, every last conversation the debtor might have had. Um, it's just I -- I -- I did not see a classic marketing procette -- uh, process for the core assets to, uh, in the tens, uh, or as much as a hundred different parties, I -- I did not find that in my, uh, in my examination and diligence on what the company has done. To say that there were no efforts, not a correct statement. But to say that it, you know, it -- it falls short of what we would want to do as a third-party advisor, is a fair statement.

(12:05:22/+00:59:22) Q: Okay. Now, um, uh, have you de-- determined what sales price it would take for assets, uh, if the debtor loses the litigation, in order to provide enough funds, uh, for, um, uh, some money to reach unsecured creditors?

(12:05:45/+00:59:45) A: You know, that's a -- that -- that -- that's an analysis that's a little bit more complicated than your question suggests, um, because it -- it's really dependent upon timing. If -- if the debtor were to lose in the next three weeks, it's important to note that a lot of these loan proceeds are still around, um, to pay themselves off. Um, and so really you've got a secured loan that's significantly less than two million. Let's -- let's just say for argument's sake maybe it's a half a million dollars, uh, that's been used at that point, half a million or six hundred thousand. So, the -- the loan sort of pays it off -- itself off to -- to -- to some amount, and then you'd have to look at where's the balance of that coming from, from a proposed sale. Um, you know, again, this is just off the top of my head, if we took -- we were still able to sell the company for five and a half million dollars, half million would go to the loan and interest, um, the rest of the five million dollars would -- would be available, uh, for distribution.

(12:06:43/+01:00:43) Q: And that would -- and -- and do you know how much of it would be consumed by claims that would be prior to those of the creditors, the unsecured creditors?

(12:06:51/+01:00:51) A: Um, precise amounts, no, but, um, you know, you're looking at, order of magnitude number, probably in the, uh, three to four million dollar range.

(12:07:01/+01:01:01) Q: Um, finally, um, do you know who the, uh, uh, members are of the lender entity, the actual members?

(12:07:11/+01:01:11) A: Yes, I -- I -- I know them at least by name on a list.

(12:07:15/+01:01:15) Q: Now, I -- I -- I want to be clear, here. I'm not necessarily talking about the lenders who are listed in Exhibit A. Uh, I'm asking about the members of the lender en-- the formal members of the lender entity, which appears to be a Utah LLC.

(12:07:29/+01:01:29) A: Oh, the -- the legal entity.

(12:07:31/+01:01:31) Q: Yeah.

(12:07:32/+01:01:32) A: Um, well, look, I -- I, uh, I -- I don't know who, perhaps, the other members of that LLC would be, um, I only know, uh, the entity in so far as Ral-- it's Ralph Yarro's entity.

(12:07:44/+01:01:44) Q: Okay, and, um, do you know, uh, whether the funds that the named lenders in the exhibits, uh, uh, are coming from? Are they their personal funds, are they getting their funds from somewhere else, do you know?

(12:07:58/+01:01:58) A: Um, my understanding is it's coming from the named parties, that it isn't, uh, it isn't, uh, there isn't somebody else behind those names.

(12:08:06/+01:02:06) MR. LEWIS: Okay. I have no further questions, your Honor. Thank you, again.

(12:08:10/+01:02:10) THE COURT: All right, Mr. Lewis. Ms. Fatell, did that raise any for redirect?

(12:08:13/+01:02:13) MS. FATELL: I just wanted to clarify one -- one response --

(12:08:15/+01:02:15) THE COURT: Please.

(12:08:16/+01:02:16) MS. FATELL: -- uh, that Mr. Fisler made.

(Re-re-direct examination of Mark Fisler by Ms. Fatell for the trustee)

(12:08:17/+01:02:17) Q: I think the question was, um, how much was ahead of creditors, and your response was three to four million dollars.

(12:08:25/+01:02:25) A: Oh, no, and that -- I -- I'm sorry if I was confusing on that point. I was trying to do sort of a more full-blown calculation off the top of my head. Um, in terms of what would be ahead of unsecured creditors, um, I -- I was really sort of trying to mentally say that, uh, there would still be debtor loan proceeds available, so there would still be a secured loan left over, which means you'd probably have a half a million dollars that would be ahead of creditors. Uh, and there are some administrative claims, um, that exist as well, but, um, I don't quite have that total here, but let's say it's less than a million dollars.

(12:09:03/+01:03:03) MS. FATELL: Okay. Thank you, your Honor.

(12:09:05/+01:03:05) THE COURT: Thank you.

(12:09:08/+01:03:08) MR. PETROFSKY: Your Honor?

(12:09:09/+01:03:09) THE COURT: Yes.

(12:09:10/+01:03:10) MR. PETROFSKY: Al Petrofsky. May I ask another question, please?

(12:09:12/+01:03:12) THE COURT: Yes.

(12:09:13/+01:03:13) MR. PETROFSKY: Okay. Thank you.

(Re-cross-examination of Mark Fisler by Mr. Petrofsky, pro se)

(12:09:15/+01:03:15) Q: Uh, Mr. Fisler, uh, if the order is signed today and all the contracts are signed today, and, um, the lenders do not wire the funds on Monday, what recourse would the estates have?

(12:09:26/+01:03:26) A: Um, I'm -- I'm not familiar with what the recourse would be, but, um, we -- we wouldn't have any obligation, obviously, with respect to the debtor loan. Um, so I mean, if it doesn't close, we don't have commitments to them on the one hand, but in terms of legal recourse, I'd have to defer to counsel.

(12:09:44/+01:03:44) Q: Okay, and would -- is -- is it your understanding that, uh, uh, you'd still be obligated to pay the, uh, legal fee reimbursement, up to the fifty thousand dollar cap?

(12:09:53/+01:03:53) A: No, if this deal doesn't close, we do not pay the fifty thousand.

(12:09:56/+01:03:56) Q: Okay, and, uh, just one other question about that cap. Is that fifty thousand dollars, um, per each of the fourteen lenders, or is that the total for all lenders?

(12:10:05/+01:04:05) A: Total.

(12:10:06/+01:04:06) MR. PETROFSKY: Total. Okay, thank you very much.

(12:10:08/+01:04:08) MR. FISLER: Uh-hum.

(12:10:09/+01:04:09) THE COURT: All right.

(12:10:11/+01:04:11) MS. FATELL: I have no further questions, your Honor.

(12:10:13/+01:04:13) THE COURT: All right, Ms. Fatell, thank you, and Mr. Fisler, you may step down, sir, and thank you.

(12:10:16/+01:04:16) MR. FISLER: Thank you, your Honor.

(12:10:18/+01:04:18) MS. FATELL: Your Honor, I have no further witnesses, so, if the Court would like, I'm prepared to make a -- just a very brief argument.

(12:10:24/+01:04:24) THE COURT: All right, and I assume that no one on the telephone has, uh, any witnesses to present?

(12:10:30/+01:04:30) MR. LEWIS: No, your Honor, thank you.

(12:10:31/+01:04:31) THE COURT: All right, then -- then, uh, we will proceed to argument.

(12:10:37/+01:04:37) MS. FATELL: Thank you, your Honor, and -- and I will be very brief.

(Trustee's argument in support of financing motion)

(12:10:39/+01:04:39) Uh, your Honor, I think the testimony has, uh, very strongly supported that the debtor has a need for financing, and that, um, through the restructuring efforts which kept this company alive beyond the first two weeks that the trustee was appointed, um, there have been a number of cuts and, um, tight-beltening, that has occurred, but, nevertheless, the company still does not have sufficient funds to satisfy all of its obligations, uh, including all of its professional fees, and professional fees are an obligation of the estate, so I don't think we can just dismiss those obligations.

(12:11:14/+01:05:14) Um, the -- the market has been tested. There's been testimony that there were -- I believe the testimony was up to twelve people, um, that expressed an interest, a great number signed NDAs, there were serious discussions, and in fact there were two term sheets that were negotiated. So, um, even though this transaction is with an insider, your Honor, we believe that there clearly has been a -- a process, a transparent process, and a process that has been tested against the market in order to get the best deal that we could for this debtor.

(12:11:49/+01:05:49) This is an unusual type of loan. It's a small loan. It's only two million dollars, so that automatically precruded a -- precluded a lot of lenders from having any interest. Um, it has a -- a contingent piece, and it's clearly an upside, and these lenders are lending as well as, in some respects investing, on the hope that there will be, uh, success in the litigation and that they will benefit from that. They are not getting more stock. Uh, we know that there was an arms-length lend-- lender out there that wanted the same exact terms, and in fact wanted a ten percent -- percentage of -- of loan recoveries.

(12:12:25/+01:06:25) Um, with respect to the -- the footnote that the Court referenced, um, yes, if there's a five billion dollar recovery there will be a huge recovery for these, uh, for these lenders, but, your -- your Honor, everybody benefits --

(12:12:38/+01:06:38) THE COURT: Yes.

(12:12:38/+01:06:38) MS. FATELL: -- if that's the case, so I --

(12:12:39/+01:06:39) THE COURT: Yes.

(12:12:40/+01:06:40) MS. FATELL: -- you know, that is an extreme example, but it's an example.

(12:12:44/+01:06:44) Um, your Honor, the obligation for the -- for the trustee is to satisfy the requirements under section 364(c) in requesting approval of post-petition financing. First, we have been unable to obtain unsecured credit, which was the testimony. Uh, the testimony was, secondly, that the -- that the credit transaction is necessary to preserve the assets of the estates, and thirdly that the terms of the transaction are fair, reasonable, and adequate given the circumstances of both the borrower as well as the proposed lender. And as I said this is a unique type of loan, um, but um, I have to say that the trustee and the estate are, um, appreciative that Mr. Yarro did step forward and that he was able to pull together some other lenders so that we could get through this difficult time, and if in fact we are going to do a full-fledged sale of all of the assets, we now have a runway so we can do that in an orderly way, and we can complete the restructuring so we really have core assets that are at their maximum value, that we can sell.

(12:13:51/+01:07:51) Um, there were two objections that were filed, uh, Novell and Mr. Petrofsky. Your Honor, um, I don't think that, with respect to Novell, that this is a subordination of the rights of creditors to equity. If anything, this will maximize recoveries to creditors. Um, I don't think it's improperly shifting the risks of litigation from equity to creditors. Again, this litigation, as the trustee has testified twice now and reported to the Court, is viewed as a valuable asset of the estate and it's one that needs to be preserved and pursued, and we believe that the financing assists the estate in being able to do that.

(12:14:32/+01:08:32) Um, there was a comment in, uh, the Novell objection, that the financing doesn't provide for payment of prepetition claims. I think it's pretty unusual, your Honor, that debtor financing -- I call it debtor rather than debtor-in-possession --

(12:14:46/+01:08:46) THE COURT: Yes.

(12:14:46/+01:08:46) MS. FATELL: -- because this is not a debtor in possession, but that, you know, similar financing for a DIP would provide for payment to unsecured creditors. If there's a payment, that will through the plan process, um, not from -- from debtor financing.

(12:15:00/+01:09:00) Um, again, I -- I don't believe that, um -- with respect to the other issues raised by Novell, I think we've really addressed -- addressed all of those.

(12:15:10/+01:09:10) As far as the, uh, the main issues raised by Mr. Petrofsky.

(12:15:13/+01:09:13) The testimony was that the fifty thousand dollar expense is only paid if the fund -- if the loan is funded. Um, it is not like a break-up fee that they get irrespective.

(12:15:23/+01:09:23) Um, there has been significant testimony into the, um, assets and profitability of the -- of the business and the restructuring efforts, so, um, I think that issue has been addressed.

(12:15:35/+01:09:35) As far as the history of funding, your Honor, we have no history with this company. We started with a -- a clean slate, uh, in the end of August, early September, and this is the financing that we've been able to raise, and we think that it is reasonable under the circumstances, that it is commercially reasonable, that it is market, that it is necessary for this debtor, um, and that it will benefit the estate. And, um, with that, I ask the Court to approve the financing.

(12:16:03/+01:10:03) THE COURT: All right.

(12:16:03/+01:10:03) MS. FATELL: Thank you, your Honor.

(12:16:03/+01:10:03) THE COURT: Thank you, Ms. Fatell.

(12:16:06/+01:10:06) MR. LEWIS: Your Honor, Adam Lewis. May I?

(12:16:08/+01:10:08) THE COURT: You certainly may, Mr. Lewis.

(Novell's objection)

(12:16:10/+01:10:10) MR. LEWIS: Thank you, your Honor. Um, I -- I'd like to say as a preliminary matter, that, uh, although it's not part of this argument, uh, I wanted to comment very quickly on some of, uh, the trustee's comments to the Court at the beginning, uh, if only to say that, uh, uh you heard the trustee's opinion of the litigation and what's transpired so far. Uh, we were not there, um, and uh, and, uh, I think, uh, to the extent the Court is taking those comments into consideration at all in ruling on this motion, I ask the Court to hold its judgment on that. We will all know what the -- what the right answer is before too long. Um, no litigant is going to get up and say, your Honor, we had a bad day.

(12:16:52/+01:10:52) THE COURT: Right.

(12:16:53/+01:10:53) MR. LEWIS: So, uh, that's a preliminary remark. Uh, next, your Honor --

(12:16:56/+01:10:56) THE COURT: You never -- I've learned not to read judges' rulings for the ultimate outcome of the case, of course.

(12:17:02/+01:11:02) MR. LEWIS: Thank you, your Honor. Um, the -- the -- the, uh, as to this loan itself, I think the key issue here is whether it's really urgent to make this decision today, instead of, uh, after the trial in Utah. Uh, we all know that the trial -- the outcome of the trial in Utah is likely to be quite significant for all aspects of this case, and for the value of the assets of this case. And we're only talking about three or four weeks, perhaps, uh, because we have a jury trial, so it's not the sort of matter that the judge is going to take under submission, except for the equitable relief that's being sought there. Um, so we're probably going to have a verdict, uh, you know, uh, not long after that three weeks. And, uh, in the meantime, I don't think we've heard anything in the testimony today that indicates that, uh, the company can't make it that far, uh, in terms of being able to prosecute the litigation, uh, robustly.

(12:18:14/+01:12:14) Um, and we haven't heard, uh, anything that tells us that, uh, that the unsecured creditors are not going to be sacrificed, if the litigation turns out badly for the estate. We've heard, uh, some kind of general vague, uh, ideas about what the value of the assets might be, but no one has sat down, including Mr. Fisler, to calculate exactly what the dollars are that are going to be owed, and what the dollars are -- are likely to be owed at the end of this proceeding, and, and uh, and, and, uh, and try to get some sense of what kind of, uh, return would be necessary from the -- from the assets after that, and how long it would take and how much it would take to get to that point, to provide some definitive, uh, or at least some reliable evidence, on whether in fact, as Novell and Suse have argued here, the creditors are not being sacrificed to this gamble. And if the gamble turns out well for the estate, that's wonderful, but if it doesn't, uh, I think we still have every chance that the unsecured creditors are going to see nothing here, uh, or very little, uh, and that, uh, as a consequence it makes much more sense, I believe, to hold off on this financing until we see what the outcome of the trial is, and then everybody's position is going to be a whole lot clearer, probably.

(12:19:35/+01:13:35) Uh, one final point, your Honor. We still don't really know who the lender is, the entity. Uh, in the documents, it is a Delaware LLC, whose members were not identified there. In the, uh, in the articles -- the first page of the articles that were -- were attached to the filing by the estate yesterday, uh, it is now a Utah LLC. Um, and, um, and, uh, curiously the, uh, the filing did not include the entire LLC document, but only the first page. So we don't know who the members are, we don't know who's signing for it, we don't know really anything about the -- the -- the -- the lender itself. Um, and -- and I don't understand why, uh, we haven't got full disclosure on that.

(12:20:22/+01:14:22) Uh, so, but ultimately, your Honor, I -- I think again, the basic point here is, we're only talking about three more weeks. It -- it -- I didn't really hear anything in the testimony that indicated that if this weren't done now, uh, the estate and the creditors would be materially prejudiced, uh, uh, as contrasted with, wha-- if -- were it reconsidered in a few weeks. Thank you, your Honor.

(12:20:46/+01:14:46) THE COURT: Thank you, Mr. Lewis. Mr. Petrofsky, did you wish to be heard?

(12:20:51/+01:14:51) MR. PETROFSKY: Uh, yes, please. Thank you.

(12:20:53/+01:14:53) THE COURT: Yes.

(Petrofsky's objection)

(12:20:54/+01:14:54) MR. PETROFSKY: Um, well, I -- I'm struggling to get ready here. Um, this -- first of all, this -- this motion was on very short notice, in terms of we got the real -- some of the documents we didn't get until yesterday. We didn't get documentation of anything that's been going on since the end of October until yesterday. Uh, and I still haven't seen the cash-flow, uh, analysis that was presented to the Court this morning.

(12:21:18/+01:15:18) Um, tha-- that being said, uh, some of the -- most of the points in my objection have been addressed to some extent, uh, and we do have the testimony that the fifty thousand dollar fee is only, uh, is only payable if the funds are produced.

(12:21:32/+01:15:32) Um, and the -- and the trustee has at least presented some kind of restructuring that -- uh, and testimony regarding that.

(12:21:40/+01:15:40) Um, let's see, as -- uh, as Mr. Lewis was just talking about, there's still this strangeness about the, uh, the entity. Again -- uh, the proposed order says that the deal is with Seung Ni Capital Partners, LLC, and, according to documentation yesterday, uh, it's actually with a different entity, Seung Ni Capital, LLC, in Utah. And, um, according to the states' websites, neither of those entities exist. Um, uh, a Utah LLC doesn't exist until the articles of organization have been filed with the, uh, department of corporations. Um, I don't know why the -- the, uh, the trustee is showing us something stamped with Utah, uh, tax commission. Um, let's, uh -- and again, you -- you go to the -- the actual Utah department of corporations, it -- it says that there's no such entity yet.

(12:22:33/+01:16:33) And, um, so, again, I -- I just don't see why -- why we're getting everything at the last second here, and it seems clear that it's related to the start of the trial on Monday, and the fact that, you know, the most likely time for a settlement is in the next couple days here.

(12:22:49/+01:16:49) Um, there doesn't appear to be any real obligation if -- if the, um, order is signed today, and the loan agreements are signed today, the obligation doesn't come until Monday. If there's no settlement, the lenders can all just walk away. If there's a settlement, well, then they can produce the funds and profit quite handsomely. So, I -- I don't -- I don't think that's appropriate.

(12:23:12/+01:17:12) Um, and, uh, that's all I have to say. Thank you very much for hearing me.

(12:23:20/+01:17:20) THE COURT: All right, Mr. Petrofsky. Thank you. Anyone else. Ms. -- yes, Ms. Fatell, please, if -- if you'd like to respond.

(Trustee's reply)

(12:23:29/+01:17:29) MS. FATELL: Your Honor, when we filed the, um, the notice yesterday with the additional documents, uh, the only thing that had been provided to us was a scanned copy with the first page of the articles of incorporation. Um --

(12:23:41/+01:17:41) THE COURT: And I assume that the tax department is like our secretary of state for filing purposes?

(12:23:46/+01:17:46) MS. FATELL: Your Honor, this will -- I -- I now have the complete filing, if I may hand that up to the Court.

(12:23:50/+01:17:50) THE COURT: Yes, please. Thank you.

(12:24:09/+01:18:09) MS. FATELL: Your Honor, Mr. Yarro, who is the, um, who is the, uh, the manager of the company, is represented by Holland and Hart, which is a reputable law firm, um, and they do practice in Utah, and I have to assume that if, um, they were advising him and this is where these articles were filed, and I -- I'm certain that they assisted him in the preparation of them, that that is the correct place to file them. I -- I'm not a Utah lawyer, so I can't respond out of my own knowledge. Um --

(12:24:40/+01:18:40) MS. BURTON: Your Honor?

(12:24:41/+01:18:41) THE COURT: Yes.

(12:24:42/+01:18:42) MS. BURTON: My name is Mona Burton. I'm Mr. Yarro's attorney.

(12:24:46/+01:18:46) THE COURT: Oh yes, Ms. Burton. Welcome.

(12:24:49/+01:18:49) MS. BURTON: I -- I can probably answer the question that's before the Court.

(12:24:53/+01:18:53) THE COURT: I'm sorry I didn't rec-- I didn't realize that you were on the phone. Thank you.

(12:24:57/+01:18:57) MS. BURTON: Yes. The Utah state tax commission is an appropriate office for the filing of articles of organization, particularly in counties that outly, from Salt Lake County, and, uh, the -- the organization is effective as of the date of filing the documents with Utah state tax commission. However, as Mr. Petrofsky noted, uh, the filing won't actually be reflected on the state's website for a while, and it often takes two to three weeks. So it doesn't surprise me that when he checks the state's website, it did not show a -- a formation of the company, but the company was formed by the filing of the articles with the, uh, Utah state tax commission.

(12:25:43/+01:19:43) THE COURT: Thank you, and as I recall, in Delaware, I -- I just speak from -- from my knowledge of Delaware law, there is a -- a, um, a related document, uh, a formation agreement document that here in Delaware we do not file. Is there anything else that needs --

(12:25:58/+01:19:58) MS. BURTON: That's correct. Yes.

(12:25:59/+01:19:59) THE COURT: Is there anything else that needs to be filed in Utah in order to make this, uh, formation of this company effective?

(12:26:08/+01:20:08) MS. BURTON: No, your Honor.

(12:26:08/+01:20:08) THE COURT: Okay. Thank you.

(12:26:11/+01:20:11) MS. FATELL: Thank you, I did not realize Ms. Burton was on the phone, so thank you. I -- I appreciate that.

(12:26:13/+01:20:13) THE COURT: I didn't either. I -- I apologize to Ms. Burton. I -- I should have seen that.

(12:26:18/+01:20:18) MS. FATELL: Your Honor, I -- I believe that the testimony really does bear out that the estate needs this money, irrespective of the litigation. Uh, the estate is, uh, while it operating, on an operational level, cash flow positive over the thirteen week period, week to week it is not cash flow positive, and there also, as the, um, testimony was, uh, presented, and the cash flow budget was presented to the Court, there is a significant amount of money that has not been paid, that is an administrative claim, and would have to be paid ahead of unsecured creditors in any event, whether there was a sale or not.

(12:26:54/+01:20:54) Um, this financing will give the company a runway to complete the restructuring, which means that it will need that few hundred thousand dollars to deal with the European restructuring. It will enable the company to cut down its operational expenses. It will enable the company contin-- to continue to operate more profitably. And it will better position it for sale. And to deny this loan at this time, um, this is the decision of the -- the business judgment of the trustee, --

(12:27:26/+01:21:26) THE COURT: Yes.

(12:27:26/+01:21:26) MS. FATELL: -- based on his advice from his financial advisors and the people who are working at the company and most familiar with the market, with the assets, with the operational needs. Uh, it is their opinion that this fund-- this loan is needed now. And, um, quite frankly, we believe that if we wait until after the litigation, we don't know if the company will be in a financial -- what the financial position will be at that time. We don't know how long the litigation will go on. While it's scheduled for a three week trial, there could be appeals. Um, and so, to hold this in abeyance when the testimony has been very clear that the company needs these funds now, again, irrespective what direction the litigation goes in, um, I think it would be a great detriment to the estate to not allow this to -- to be paid at this time -- to be, uh, funded at this time.

(12:28:18/+01:22:18) With respect to the valuation, um, we have not asked OPA to undertake a formal valuation, but again, the testimony was that based on the numbers that were presented to this court before the trustee was appointed, and subsequent discussions with those parties and some other interested parties, we believe that there is interest in buying these assets. We don't think we're going to get the greatest value if we r-- were to shut down and sell them today. We think through all of the restructuring efforts, uh, which this loan will enable us to complete, that we will increase the value. And, therefore, we think that it is only to the -- to the detriment of the estate and creditors if this loan is not approved and if we're required basically to shut down and -- and have a fire sale. So, again, we ask that the Court approve the loan.

(12:29:05/+01:23:05) MR. LEWIS: Your Honor --

(12:29:06/+01:23:06) THE COURT: Thank you.

(12:29:06/+01:23:06) MR. LEWIS: -- this is Adam Lewis. May I just have another one minute?

(12:29:08/+01:23:08) THE COURT: Yes.

(12:29:09/+01:23:09) MR. LEWIS: Thank you, your Honor.

(Novell's sur-reply)

(12:29:10/+01:23:10) I -- I -- first of all, um, I think the test here is not whether -- is not a business judgment test. This is a superpriority, out of the ordinary course, line of credit, and the test here is, at a minimum, what's in the best interests of creditors. So, the fact that the trustee has looked at this, and his advisors have looked at it, and they think that it's a good idea, uh, isn't enough to meet the requirement for approving it.

(12:29:36/+01:23:36) I think counsel's remarks just now kind of bear out the argument that we've been making here. Counsel notes that, uh, you know, if -- if, uh, if the trial doesn't go well, um, then, uh, you know, uh, they may not be in such a great position to sell the assets, and that's exactly the point. Uh, we ought to know what's going to happen, at least at the trial level. I -- I acknowledge, everybody knows that there may be appeals, but -- but I think everybody also believes, uh, that the outcome of the trial itself may have a significant impact on things, including what the likely future of the company is, and its ability to sell all of its assets. Um, and, and when we know what that situation is, we may be in a much better position to assess whether this long runway that we're talking about funding, or at least getting under way with this funding, is really advisable.

(12:30:33/+01:24:33) And that's the whole point. We're not talking, your Honor, if -- if -- if -- if this were a situation where the -- uh, we're talking about a trial that's going to happen in six months, uh, maybe we would have a different story in terms of whether the financing really needs to be approved today. But, when we're talking about a trial that's going to be happening in -- starting Monday, and is not going to take all that long, uh, at least at the trial court level, uh, and where the outcome of the trial could have a significant impact on what the restructuring that we keep hearing about really ought to look like, I say, uh, that -- that it would be more prudent to wait for a few weeks, when we really still haven't heard any reason why the company can't make it through the trial, uh, with its current situation. Thank you, your Honor.

(12:31:19/+01:25:19) THE COURT: I thank you, Mr. Lewis.

(12:31:21/+01:25:21) MR. PETROFSKY: Your Honor, this is Al Petrofsky. May I respond to, uh, counsel for Mr. Yarro?

(12:31:26/+01:25:26) THE COURT: Cer-- yes, please.

(Petrofsky's sur-reply)

(12:31:28/+01:25:28) MR. PETROFSKY: Thank you, um, I believe -- I'm sorry, just a second here. Um, I believe she said the date of filing with the tax commission is the -- the effective date of the formation of the LLC.

(12:31:42/+01:25:42) THE COURT: Yes.

(12:31:44/+01:25:44) MR. PETROFSKY: I just wanted to provide the Court with some citations. Um, the Utah code, um, title 48, section 2c-402, um, subsection 3, says the company shall be considered formed as of the time, day, month, and year indicated by the division's stamp or seal on the articles of organization -- the stamp from the division. And in, uh, let's see, section, uh, title 48, section 2c-102(6), it says that the division is the division of corporations and commercial code of the Utah department of commerce.

(12:32:26/+01:26:26) So, I -- I don't know. There -- there you have it. That's -- that's what the code says to me. I don't -- I don't know why the, uh, filing it with the tax division would be consider-- considered, um, uh, to meet those requirements. That -- that's all I had to add. Thank you.

(12:32:41/+01:26:41) THE COURT: All right, thank you Mr. Petrofsky.

(Court's ruling)

(12:32:44/+01:26:44) Well, I've -- I've -- I've heard from a -- an attorney licensed in Utah that, uh, the articles of incorporation have been properly filed, and, uh, I will accept that rese-- representation, of course. Um.

(12:32:58/+01:26:58) Let me say this, you know, this has been a very, very difficult case, and I recognize that, uh, um, the litigation, which is about to start next week, is really at the core of the case at this point, and I, uh, one of the reasons that I am satisfied that, uh, Mr. Cahn is the right person for this job, uh, and I acknowledge my gratitude to the office of the United States trustee, is that, uh, as a former judge, and, uh, and a -- a licensed attorney, he is, uh, very capable of making, um, a judgment about the litigation, and that was one of the main concerns that I had in -- in having a chapter eleven trustee appointed was that, uh, I thought that someone woul-- had to take an independent view of the litigation, and, uh, and that has certainly been accomplished.

(12:33:53/+01:27:53) I'm pleased with Mr. Cahn's report, that, uh, he is very active in, uh, taking steps towards the restructuring, and has cut costs dramatically. So that certainly also, uh, is -- is of -- of importance here, and, uh, and, uh, and I, uh, appreciate Mr. Cahn's efforts and those of his -- of his counsel. I've heard very, um, credible testimony from Mr. Fisler, uh, the financial advisor for the, uh, for the debtor.

(12:34:26/+01:28:26) And I am going to grant the motion, because I am satisfied that based upon that testimony, um, the, uh, the requirements of section 364 have been met, and namely, that, uh, there is clearly a need for the financing, and, uh, I think there is a need for the financing right now. There are significant administrative creditor claims, and thos-- they are considered creditors too, as far as the, uh, th-- th-- their best interests are concerned. Um, and I agree that at the conclusion of the trial, we may find ourselves in a different situation to obtain the financing. Um, so I think this is the time and the need is now. Uh, I think that the financing is necessary to preserve the assets of the debtors' estates. And I am satisfied, particularly based upon the testimony about the marketing efforts, and -- and we all know the difficulty in obtaining financing, that the terms are fair, uh, reasonable, and adequate, and, uh, for all those reasons, I will approve the, um, the motion. I grant the motion, and -- and -- and approve the financing. And be very interested and wait with bated breath for the results of the trial.

(12:35:44/+01:29:44) MR. CAHN: So will we, your Honor.

(12:35:46/+01:29:46) THE COURT: I'm sure.

(12:35:47/+01:29:47) MS. FATELL: Thank you, your Honor. If I may approach, we do have a blacklined order and I can walk the Court through the changes.

(12:35:50/+01:29:50) THE COURT: Please, yes, Ms. Fatell, that's fine.

(12:35:56/+01:29:56) MR. LEWIS: Your Honor, um, may I just ask -- it's Adam Lewis -- is this the same blackline as was submitted yesterday.

(12:36:01/+01:30:01) THE COURT: Yes, it is. Ms. Fatell has indicated it -- it is, Mr. Lewis. Thank you.

(12:36:04/+01:30:04) MR. LEWIS: Thank you.

(12:36:05/+01:30:05) THE COURT: Yes.

(12:36:11/+01:30:11) MS. FATELL: Your Honor, most of the changes are, um, minor, um, technical changes. At the beginning it -- we just wanted to make it clear that the trustee was signing this solely in his capacity as trustee and on behalf of the estate, so we've made some minor language changes --

(12:36:27/+01:30:27) THE COURT: I see that, Ms. Fatell, yes.

(12:36:28/+01:30:28) MS. FATELL: -- in that regard.

(12:36:29/+01:30:29) THE COURT: Yes.

(12:36:30/+01:30:30) MS. FATELL: Um, the-- the -- there are really just two points, uh, that I want to direct the Court to. Paragraph fourteen.

(12:36:39/+01:30:39) THE COURT: I am there, yes.

(12:36:40/+01:30:40) MS. FATELL: We just wanted to make it perfectly clear that the, uh, debtors' estates' obligation to pay the loan fee, which is the percentage out of the litigation proceeds, survives the prepayment or the payment of the note, and any other obligations under the credit agreement.

(12:36:54/+01:30:54) THE COURT: Okay.

(12:36:55/+01:30:55) MS. FATELL: So that was one change, and then the second change is on the following page at the end of paragraph fifteen. Um, we wanted also to make it clear, and this was a, uh, an important point for the trustee, that in the event that there is a default, and that the lenders are entitled to proceed against their collateral that, uh, as they liquidate assets that there will be fund set aside and we will make certain that -- we call it the employee carve-out amounts -- that there will be funds to pay all obligations to employees as of the, uh, the date of -- of the, uh, the time that the truste-- that the, excuse me, that the secured creditor takes over, and, it -- essentially it's a carve out, so that we can make sure we --

(12:37:37/+01:31:37) THE COURT: That is an important -- that is important.

(12:37:39/+01:31:39) MS. FATELL: Thank you, yes.

(12:37:39/+01:31:39) THE COURT: Thank you, Ms. Fatell, for -- for seeing to that, and, uh, I certainly appreciate that a-- that additional language.

(12:37:46/+01:31:46) MS. FATELL: And with that, your Honor, we're -- we ask the Court to sign the order.

(12:37:48/+01:31:48) THE COURT: All right, and with that then, I will sign the order --

(12:37:51/+01:31:51) MS. FATELL: Thank you very much, your Honor.

(12:37:52/+01:31:52) THE COURT: -- as submitted.

(12:37:53/+01:31:53) MS. FATELL: And that concludes our hearing today.

(12:37:54/+01:31:54) THE COURT: All right.

(12:37:56/+01:31:56) VOICE: Thank you, your Honor.

(12:37:57/+01:31:57) THE COURT: Thank you all for your in-- your, um, presentations, which are -- are always helpful to the Court, obviously, and, um, I wish all a good weekend, and, uh, we will stand in recess.

(12:38:15/+01:32:15) *** RECESS ***

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