Links: Scofacts homepage; Bankruptcy page

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 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.
RCS revision info: $Id: SCO-Group-bankruptcy-1103-unofficial-transcript.html,v 1.7 2010/09/06 03:59:09 al Exp $


Motion Hearing, April 7, 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.)

Wednesday, April 7, 2010
3:00 p.m. Eastern Daylight Time (15:00 -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 "Notice of Agenda of Matters Scheduled For Hearing on April 7, 2010 at 3:00 p.m." (Docket No. 1102, April 5, 2010), and the "Minute Entry" (Docket No. 1103, April 7, 2010).)

(See the docket page (linked to from the Scofacts bankruptcy page) for a complete listing of all publicly filed documents in this case.)

Item 1: "Motion of the Chapter 11 Trustee for Order Under 11 U.S.C. 105(a), 363, and 365 and Fed. R. Bankr. P. 2002, 6004, 6006 and 9014 (A) Approving the Sale of Mobility Business Free and Clear of All Liens, Claims, Interests and Encumbrances Pursuant to 11 U.S.C. § 363, (B) Authorizing and Approving the Assumption and Assignment of Certain Executory Contracts in Connection Therewith, and (C) Granting Related Relief" (Dkt. No. 1066, February 26, 2010), with Exhibit A (#1066-3) (proposed order), Exhibit B (#1066-4) (Fisler declaration), Exhibit C (#1066-5 through #1066-10) (asset purchase agreement), Exhibit D (#1066-11) (assumption notice), and notice of motion (#1066-2), setting objection deadline of March 8, 2010 and hearing date of March 15, 2010.

Participants

See also the "SIGN-IN-SHEET" (#1103-2)

Identified Speakers (in order of appearance)

Sherry Scaruzzi
Deputy Clerk of Court
824 N Market St Fl 6, Wilmington DE 19801
Kevin Gross autograph Hon. Kevin J. Gross (Delaware bar #209, admitted 1978)
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 G. Fatell 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 N. Cahn 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 Fisler Mark E. Fisler
Proffered 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)
Joseph James McMahon, Jr. 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://new.abanet.org/disability/Lists/Lawyer%20Spotlights/Attachments/22/mcmahon.jpg)

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

Sean T. Greecher Sean T. Greecher (Delaware bar #4484, admitted 2004)
Attorney for creditor Novell, Inc.
Young Conaway Stargatt & Taylor
1000 West St Fl 17, PO Box 391, Wilmington DE 19899
(image from http://youngconaway.com/files/Professional/50828587-c971-4644-9541-491329695985/Presentation/Photo/Img1379B_250x331.jpg)
Stanley Byron Tarr 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
(image from http://web.archive.org/web/20071007144548/www.akingump.com/img/attorney_pics/2497.jpg)
Laurie Selber Silverstein 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)
Alan P. Petrofsky 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)

AUDIO AND UNOFFICIAL, UNCERTIFIED TRANSCRIPT

Audio

Index

(15:01:10/+00:00:00) Please rise
(15:01:39/+00:00:29) (Trustee's interim report)
(15:05:17/+00:04:07) (Fatell's follow-up report)
(15:06:53/+00:05:43) (Mobility Sale Motion)
(15:13:22/+00:12:12) (Court's ruling)
(15:15:02/+00:13:52) ***RECESS***

Transcript

(15:01:10/+00:00:00) CLERK: Please rise.

(15:01:14/+00:00:04) Kevin Gross autograph THE COURT: Good afternoon everyone. Thank you and please be seated.

(15:01:17/+00:00:07) Bonnie G. Fatell MS. FATELL: Good afternoon, your Honor.

(15:01:18/+00:00:08) Kevin Gross autograph THE COURT: Ms. Fatell, good afternoon.

(15:01:19/+00:00:09) Bonnie G. Fatell MS. FATELL: Bonnie Fatell on behalf of the SCO Group.

(15:01:22/+00:00:12) Bonnie G. Fatell Uh, your Honor, we're here for one matter on the agenda, but before we do that, if the Court would indulge us, we'd like the trustee to make a presentation.

(15:01:29/+00:00:19) Kevin Gross autograph THE COURT: It would be a pleasure. Thank you, Ms. Fatell.

(15:01:33/+00:00:23) Kevin Gross autograph Mr. Cahn, good afternoon.

(15:01:35/+00:00:25) Edward N. Cahn MR. CAHN: If the Court please, your Honor.

(Trustee's interim report)

(15:01:39/+00:00:29) Edward N. Cahn This is another interim report, uh, to your Honor. On Tuesday, March 30th, 2010, a federal jury in Salt Lake City determined that SCO did not own the UNIX copyrights. I had previously reported to you that in my opinion, SCO's claims against Novell were slightly better than fifty percent.

(15:02:01/+00:00:51) Edward N. Cahn I was in Salt Lake City for four days to observe the trial, and thereafter I received daily transcripts. I had several telephone conferences with the trial team during the proceedings. Our trial team was well prepared, as were our expert witnesses. The case was competently presented on both sides.

(15:02:21/+00:01:11) Edward N. Cahn I was extremely disappointed in the verdict because the evidence in my view preponderated in favor of SCO. Ourl -- our trial team reported that court observerers anticipated a S-- a SCO verdict. Prior to submission of the case to the jury, the Court granted SCO's motion to dismiss Novell's slander claim, for lack of evidence of damages, and the Court denied Novell's motion to dismiss SCO's claim for punitive damages. The Court found that SCO had submitted sufficient proof for the punitive damage claim to go to the jury.

(15:02:59/+00:01:49) Edward N. Cahn Attorney Fatell will report to you on our future recommendations as to how the issues before your court should be brought to a conclusion. Judge Stewart in Salt Lake City will be making several rulings which could affect our recommendations, and therefore we will not be in a position today to be definite about them. We will be filing a renewed Rule 50 motion for judgment as a matter of law, and i-- and in the alternative, a Rule 59 motion for a new trial.

(15:03:27/+00:02:17) Edward N. Cahn Also, Judge Stewart must decide, in a non-jury context, whether Novell can in good faith require SCO to abandon claims against IBM and others, and whether UNIX and Unixware copyrights should belong to SCO under the equitable concept of specific performance.

(15:03:44/+00:02:34) Edward N. Cahn Judge Stewart is quite prompt, and we expect rulings in the next several months. He has set an aggressive schedule for filing briefs and requests for findings of fact and conclusions of law. The-- those are due April 15th, eight days from today.

(15:04:00/+00:02:50) Kevin Gross autograph THE COURT: Okay.

(15:04:01/+00:02:51) Edward N. Cahn MR. CAHN: I would be remiss if did not call to your attention the remarks of Judge Stewart as he sent the jury to deliberate. He said, one last thing, counsel, I'm very sincere when I say this, in the ten years I have been a judge, I have never had a collection of such fine attorneys in the courtroom at one time. I want to thank you not only for your competence but in particular for your professionalism. The way that you have treated one another and the way that you have dealt with court personnel, and the Court, has been genually-- genuinely appreciated, in case that has been hotly contested, and the stakes are very high, and you have acquitted yourselves extraordinarily well, and you do have the sincere gratitude of the Court.

(15:04:43/+00:03:33) Edward N. Cahn Although the jury disagreed with SCO's position, I'm confident that the opinion I gave you that the case had merit and should be aggressively pursued, was sound. I remain of the opinion that we should have prevailed. Unless you have any questions, this completes the interim report.

(15:05:01/+00:03:51) Kevin Gross autograph THE COURT: No, Mr. Cahn. I appreciate the report, and, uh, I know that you're disappointed in the result, um, and we'll see how things play out from here. Thank you.

(15:05:16/+00:04:06) Kevin Gross autograph Ms. Fatell.

(Fatell's follow-up report)

(15:05:17/+00:04:07) Bonnie G. Fatell MS. FATELL: Thank you, your Honor. Uh, just to, um, follow up on a couple of points, in terms of, uh, where we -- where the -- where the case stands, as reported at the last hearing by Mark Fisler from Ocean Park Advisors, uh, we have undertaken a restructuring of SCO to reduce costs, and that process is continuing. Uh, with the debtor loan and the costs savings, we anticipate that SCO will continue to operate and proceed with an orderly liquidation.

(15:05:45/+00:04:35) Bonnie G. Fatell Uh, in that regard, as the Court is aware, we filed a motion, um, to sell ds-- de minimus assets. Uh, we've also filed the motion to sell the motili-- mobility business, which is before your Honor today, and we've filed, uh, a motion to sell a patent, which is going to be heard on April 20th I believe.

(15:06:02/+00:04:52) Kevin Gross autograph THE COURT: All right.

(15:06:03/+00:04:53) Bonnie G. Fatell MS. FATELL: Okay.

(15:06:04/+00:04:54) Kevin Gross autograph THE COURT: Yes.

(15:06:04/+00:04:54) Bonnie G. Fatell MS. FATELL: Um, since the, uh, trustee's appointment, we have had discussions with interested parties regarding sale of the SCO operating business, and we expect in the next few weeks that we will be working with OPA to prepare those assets for sale. Uh, we'll engage in a preliminary marketing effort, and hopefully we'll identify a stalking-horse bidder and be before the Court with bid procedures and a -- a sale motion, uh, in due course.

(15:06:33/+00:05:23) Bonnie G. Fatell Uh, at the same time, as described by the trustee, we are continuing to address the various pending motions in the Novell litigation, and we are still assessing the estate claims against IBM.

(15:06:45/+00:05:35) Bonnie G. Fatell Uh, unless the Court has any questions, we'll turn to the hearing -- the agenda for today.

(15:06:50/+00:05:40) Kevin Gross autograph THE COURT: That's fine. Thank you, Ms. Fatell. Let's do that.

(Mobility Sale Motion)

(15:06:53/+00:05:43) Bonnie G. Fatell MS. FATELL: Okay, thank you. Your Honor, there's one matter before the Court. It is uncontested, there were no objections filed, and it's the motion, uh, of the Chapter 11 trustee to approve the sale of the mobility business free and clear of all liens and claims.

(15:07:06/+00:05:56) Bonnie G. Fatell Um, I'm pleased to report to the Court that upon filing the motion and advertising, which we'll go into in more detail in a moment, it did result in our receiving a competing bid --

(15:07:17/+00:06:07) Kevin Gross autograph THE COURT: Good

(15:07:17/+00:06:07) Kevin Gross autograph BF -- and therefore, we did have an auction this past Monday, on August [sic] 5th. Uh, Me Inc Holdings, which was the original, uh, bidder, was the successful bidder at an increased purchase price of one hundred thousand dollars, up from the thirty-five thousand that was in the original, uh, asset purchase agreement.

(15:07:34/+00:06:24) Kevin Gross autograph Your Honor, in support of the motion I'd like to proffer the testimony of Mark Fisler. Mark is here in the, uh, courtroom today.

(15:07:42/+00:06:32) Kevin Gross autograph THE COURT: Yes. Good afternoon.

(15:07:43/+00:06:33) Mark E. Fisler MR. FISLER: Good afternoon, your Honor.

(15:07:44/+00:06:34) Bonnie G. Fatell MS. FATELL: And if called to testify, Mr. Fisler would state as follows: that he is the managing director of Ocean Park Advisors and was retained as the financial advisor and investment banker to the chapter 11 trustee.

(15:07:58/+00:06:48) Bonnie G. Fatell The sale of the mobility business began in December, two-- uh, 2009, when OPA -- that's Ocean Park Advisors -- met with Mr. Darl McBride, who is the former CEO of SCO Group, to discuss Mr. McBride's interest in the possible purchase of the mobility business line. On December 15th, Mr. McBride delivered a draft letter of intent to OPA that outlined the relevant terms of a purchase of the mobility business.

(15:08:25/+00:07:15) Bonnie G. Fatell Mr. Fisler would further testify that he reviewed the letter of intent with the trustee, and it was determined that OPA should proceed to negotiate an asset purchase agreement.

(15:08:35/+00:07:25) Bonnie G. Fatell From December 15th 2009 until January 15th, 2010, Mr. Fisler would state that he engaged in arms-length negotiations with Mr. McBride on the salient business terms of the asset purchase agreement.

(15:08:49/+00:07:39) Bonnie G. Fatell While negotiating the terms of the letter of intent and the asset purchase agreement with Mr. McBride, OPA conducted a process to create competition for the assets, to determine if Mc-- Mr. McBride's offer represented the market value of the mobility business.

(15:09:05/+00:07:55) Bonnie G. Fatell Mr. Fisler would testify that the following steps were taken. After consulting with SCO, a list of twelve targets was compiled, of persons and entities that might have an interest in acquiring the mobility assets. Uh, a teaser was -- describing the assets was, um, prepared, in concert with the company, and over a two week period, all of the sales targets were contacted, either via telephone, email, or both. Um, while some of the targets contacted considered the assets for a period of time, ultimately none of them indicated an interest in pursuing the assets.

(15:09:40/+00:08:30) Bonnie G. Fatell Upon filing the sales motion, OPA placed an ad in the local papers in Salt Lake City, indicating that the asset purchase agreement had been entered into for the sale of the mobility business, and invited interest parties to contact OPA.

(15:09:55/+00:08:45) Bonnie G. Fatell Mr. Fisler would testify that between March 3rd and March 10th, OPA was contacted by three interested parties. Um, they exchanged due diligence information, and of the three, one provided a, uh, OPA with a letter of intent, and an associated deposit.

(15:10:14/+00:09:04) Bonnie G. Fatell After the letter of intent was received from the competing bid -- bidder, rather, it was determined that it would be in the estate's best interest to conduct an auction, and the auction was scheduled and held on March [sic] 5th. Each had, as I indicated, given a, um, a good faith deposit prior to the auction.

(15:10:30/+00:09:20) Bonnie G. Fatell Two parties attended the auction: Me Inc Holdings, represented by Mr. McBride, and a company called Mobile Solutions -- Mobile Business Solutions, excuse me. Uh, the auction was conducted telephonically, and a court reporter was present to record the proceedings.

(15:10:48/+00:09:38) Bonnie G. Fatell Mr. Fisler would testify that the original asset purchase agreement with Me Inc was for a license of the intellectual property, and that the competing bidder wanted to purchase the intellectual property in its entirety, and consequently prior to the auction it was determined that the estate would best be served by selling the intellectual property as opposed to licensing it, and a minimum bid of one hundred thousand dollars was set.

(15:11:12/+00:10:02) Bonnie G. Fatell Uh, that decision was explained to each of the bidders prior to the auction. There was a brief recess, and the parties were invited to submit new bids. When the auction reconvened, Me Inc Holdings bid at the minimum amount of one hundred thousand dollars, and Mobile Business Solutions declined to bid. Me Inc Holdings was declared the winner of the auction, and that would conclude the proffer from Mr. Fisler.

(15:11:37/+00:10:27) Bonnie G. Fatell MS. FATELL: Thank you. Thank you, Ms. Fatell. Does anyone wish to cross-examine, or be heard?

(15:11:46/+00:10:36) Kevin Gross autograph THE COURT: All right.

(15:11:47/+00:10:37) Bonnie G. Fatell MS. FATELL: Just give me a moment.

(15:11:57/+00:10:47) Bonnie G. Fatell To correct the record, your Honor, apparently --

(15:11:59/+00:10:49) Kevin Gross autograph THE COURT: You were saying March and I --

(15:11:59/+00:10:49) Bonnie G. Fatell MS. FATELL: -- I stated the auction was in March --

(15:12:01/+00:10:51) Kevin Gross autograph THE COURT: -- yes --

(15:12:01/+00:10:51) Bonnie G. Fatell MS. FATELL: -- and it was in April. Thank you.

(15:12:02/+00:10:52) Kevin Gross autograph THE COURT: And I was about to just indicate that for purposes of the record, but, uh, it caused me to think for a minute.

(15:12:10/+00:11:00) Bonnie G. Fatell MS. FATELL: It was this past Monday.

(15:12:11/+00:11:01) Kevin Gross autograph THE COURT: Yes.

(15:12:14/+00:11:04) Bonnie G. Fatell MS. FATELL: Uh, with that, your Honor, we would submit that the sale of the mobility business is in the best interest of the estate, is the result of arm's-length good faith negotiations, and reflects market value. No objections were filed.

(15:12:26/+00:11:16) Bonnie G. Fatell There have been minor changes made to the APA, your Honor, just to reflect the new purchase price from thirty-five thousand to a hundred thousand.

(15:12:32/+00:11:22) Kevin Gross autograph THE COURT: Yes.

(15:13:02/+00:11:52) Bonnie G. Fatell MS. FATELL: Um, there -- and the new payment terms. There had been a provision in the agreement that provided for an income participation. That now has been removed since it's an all cash purchase. Um, there is also a new provision that SCO will license back the intellectual property for its internal purposes only. Um, the APA also listed that there were two contracts that would be assumed and assigned. In fact, there's only one contract that will be assumed and assigned, and that's the contract with Franklin Covey.

(15:13:02/+00:11:52) Kevin Gross autograph THE COURT: Yes.

(15:13:02/+00:11:52) Bonnie G. Fatell MS. FATELL: That's C-O-V-E-Y. Um, and there is no cure obligation due for that, your Honor. Um, closing is anticipated to occur this Friday, April 9th, and the transfer of the assets will begin promptly and conclude within the next thirty days.

(15:13:18/+00:12:08) Bonnie G. Fatell Um, and with that, your Honor, we would ask that the Court approve the sale of the mobility business to Me Inc Holdings.

(Court's ruling)

(15:13:22/+00:12:12) Kevin Gross autograph THE COURT: All right, thank you. Well, I, um, based upon the, uh, the evidence presented by way of proffer, I am satisfied that the marketing and, uh, sale effort was, um, conducted in good faith and thoroughly; that, uh, the auction is certainly the best test of value, uh, under the circumstances; the, uh, the terms are fair and reasonable and in the best interests of the debtor's estate; and I will be pleased to, uh, approve the sale.

(15:13:54/+00:12:44) Bonnie G. Fatell MS. FATELL: Thank you, your Honor. I have a -- an revised order with just some minor --

(15:13:57/+00:12:47) Kevin Gross autograph THE COURT: Okay.

(15:13:57/+00:12:47) Bonnie G. Fatell MS. FATELL: -- revisions.

(15:13:58/+00:12:48) Kevin Gross autograph THE COURT: Please approach, and I will look. Thank you, Ms. Fatell.

(15:14:02/+00:12:52) Kevin Gross autograph Good to see you.

(15:14:03/+00:12:53) Bonnie G. Fatell MS. FATELL: It's nice to see you.

(15:14:10/+00:13:00) Bonnie G. Fatell Uh, your Honor, I think the changes are really only, uh, ministerial.

(15:14:14/+00:13:04) Kevin Gross autograph THE COURT: Yes.

(15:14:15/+00:13:05) Bonnie G. Fatell MS. FATELL: So there are no substantive changes --

(15:14:17/+00:13:07) Kevin Gross autograph THE COURT: Excellent.

(15:14:17/+00:13:07) Bonnie G. Fatell MS. FATELL: -- to the agreement.

(15:14:17/+00:13:07) Kevin Gross autograph THE COURT: Okay.

(15:14:18/+00:13:08) Bonnie G. Fatell MS. FATELL: To the order, rather.

(15:14:20/+00:13:10) Kevin Gross autograph THE COURT: And I assume that the revised, uh, asset purchase agreement, it should not be attached to the order, is that correct?

(15:14:25/+00:13:15) Bonnie G. Fatell MS. FATELL: It is not attached to the order, your Honor. Once it's completed, we will file it of record with the Court.

(15:14:30/+00:13:20) Kevin Gross autograph THE COURT: That's fine. Great.

(15:14:41/+00:13:31) Kevin Gross autograph All right. I've signed the order.

(15:14:44/+00:13:34) Bonnie G. Fatell MS. FATELL: Thank you, your Honor. That concludes our hearing.

(15:14:45/+00:13:35) Kevin Gross autograph THE COURT: All right.

(15:14:46/+00:13:36) Bonnie G. Fatell MS. FATELL: Thank you very much.

(15:14:46/+00:13:36) Kevin Gross autograph THE COURT: Thank you all. It's good to see you all. I'll make special mention of Mr. McMahon, who hasn't been in court here for a while before me. It's good to see you again.

(15:14:53/+00:13:43) Joseph J. McMahon, Jr. MR. MCMAHON: Thank you, your Honor. Good to see you.

(15:14:54/+00:13:44) Kevin Gross autograph THE COURT: All right, everyone.

(15:14:55/+00:13:45) Joseph J. McMahon, Jr. MR. MCMAHON: I-- I-- I-- I've been around.

(15:14:56/+00:13:46) Kevin Gross autograph THE COURT: I'm sure you have, and busy.

(15:14:59/+00:13:49) Kevin Gross autograph We'll stand in recess. Good to see everyone. Good afternoon.

(15:15:02/+00:13:52) ***RECESS***


$Id: SCO-Group-bankruptcy-1103-unofficial-transcript.html,v 1.7 2010/09/06 03:59:09 al Exp $