[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: part 1 mp3; part 2 mp3; part 3 mp3; part 4 mp3; Full FTR CD.

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.

RCS revision info: $Id: SCO-Group-bankruptcy-813-unofficial-transcript.html,v 1.6 2010/03/29 04:08:58 al Exp $]


Motion Hearing

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 eight years before the filing of their petitions (September 14, 1999 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.)

Monday, June 15, 2009
14:07:10 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 "Amended Notice of Agenda of Matters Scheduled for Hearing on June 15, 2009, at 2:00 P.M." (Docket No. 806, filed June 15, 2009) and the "Minute Entry" (Docket No. 813, June 19, 2009)).

Item 1: "Motion of the United States Trustee to Convert Cases to Cases Under Chapter 7" (Docket No. 750, May 5, 2009), with proposed order (#750-3) and notice (#750-2), setting objection deadline of May 26, 2009 and hearing date of June 12, 2009.

Item 2: "Motion of International Business Machines Corporation for an Order Converting the Debtors' Chapter 11 Bankruptcy Cases to Cases Under Chapter 7 of the Bankruptcy Code" (Docket No. 751, May 11, 2009), with proposed order (#751-3) and notice (#751-2), setting objection deadline of June 1, 2009 and hearing date of June 12, 2009.

Item 3: "Novell's Motion for Conversion" (Docket No. 753, May 11, 2009), including notice thereof, setting objection deadline of June 5, 2009 and hearing date of June 12, 2009. (Note: no proposed order was filed (in violation of Local Rule 9013-1(f)))

Item 4: "Debtors' Motion to File Under Seal Debtors' Appendix to Their Response to Motions to Dismiss or Convert" (Docket No. 784, June 8, 2009), with proposed order (#784-2)

So-called "Objections": there were three letters to the Court that the deputy clerks gave docket captions of type "objection", which the debtors then listed as "objections" in the hearing agenda. However, none of the letters purported to be formal objections, none of them were written by counsel, and none of them were from parties that are natural persons entitled to appear without counsel.

Minutes: The "Proceedings" section of the minutes cryptically says nothing about the disposition of any of the four agenda items, merely reporting: "HEARING HELD. AGENDA ITEMS: Parties will discuss when to return to court for Sale hearing - Sale hearing scheduled 7/27/09". From the recording it is clear that at the hearing the three conversion motions were continued to an indefinite future date, with the understanding that a date of either July 16 or July 27 would be determined in follow-up consultations with chambers, and that the same date would be used for hearing an anticipated sale motion. It appears that the July 27 date was then settled on at some point during the four days between the hearing and the entry of the minutes.

Participants

See also the "SIGN-IN-SHEET" (#731-2)

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 (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,,)
James E. O'Neill III James E. O'Neill III (Pennsylvania Bar #44247, admitted 1985; Delaware Bar #4042, admitted 2001)
Attorney for Debtors The SCO Group, Inc. et al.
Pachulski Stang Ziehl & Jones LLP
919 N Market St Fl 17, PO Box 8705, Wilmington DE 19899
(image from http://pszjlaw.com/assets/images/1504.jpeg)
Stuart Harold Singer Stuart Harold Singer (Florida Bar #377325, admitted 1983; Delaware admission pro hac vice by oral order during hearing, June 15, 2009)
Attorney for Debtors The SCO Group, Inc. et al.
Boies Schiller & Flexner LLP
401 E Las Olas Blvd Ste 1200, Fort Lauderdale FL 33301
(image from http://www.bsfllp.com/lawyers/data/:v_get/latest/0019/_res/id=sa_Pic2)
Arthur Jay Spector Arthur Jay Spector (New York Bar #3748621, admitted 1975; Florida Bar #620777, admitted 2002; Delaware admission pro hac vice (dkt. #49), September 18, 2007)
Attorney for Debtors The SCO Group, Inc. et al.
Berger Singerman, P.A.
350 E Las Olas Blvd Ste 1000, Fort Lauderdale FL 33301
(image from http://www.bergersingerman.com/images/image_bio/Arthur_Spector.gif)
Richard B. Levin 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.
Cravath, Swaine & Moore LLP
825 Eighth Ave, New York NY 10019
(image from http://web.archive.org/web/20040806085447/www.skadden.com/bioImages/836.jpg)
Adam Aiken Lewis Adam Aiken Lewis (California Bar #88736, admitted 1979; Delaware admission pro hac vice (dkt. #44), September 18, 2007)
Attorney for Creditor Novell, Inc.
Morrison & Foerster LLP
425 Market St, San Francisco CA 94105
(image from http://www.mofo.com/images/attorney/407.jpg)
Darl Charles McBride Darl Charles McBride
Witness for Debtors The SCO Group Inc., et al.
President of The SCO Group, Inc.
355 S 520 W, Lindon UT 84042
(image from http://sco.com/images/execs/McBride34.jpg)
Franklin Hoff Caplan Franklin Hoff Caplan (Massachusetts Bar, admitted 1981 (inactive); Florida Bar #759333, admitted 1988)
Witness for Debtors The SCO Group, Inc. et al.
Berger Singerman, P.A.
200 S Biscayne Blvd Ste 1000, Miami FL 33131
(image from http://www.bergersingerman.com/images/image_bio/Frank%20Caplan%20NEW.jpg)
Joseph James McMahon, Jr. autograph 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,,)

Other Attendants (listed on sign-in sheet or mentioned during proceedings)

Edward John Normand Edward John "Ted" Normand (New York Bar #2783447, admitted 1996; Delaware admission pro hac vice by oral order during hearing, June 15, 2009)
Attorney for Debtors The SCO Group, Inc. et al.
Boies Schiller & Flexner LLP
333 Main St, Armonk NY 10504
(image from http://www.bsfllp.com/lawyers/data/:v_get/latest/0065/_res/id=sa_Pic3)
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://www.ycst.com/inc/attimage.php?att=43)
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)
3618 Alameda Apt 5, Menlo Park CA 94025
(image from http://scofacts.org/SCO-BK-hearing-pics-Petrofsky-skirt-malfunction.png)
Kenneth Ray Nielsen Kenneth Ray Nielsen
Potential Witness for Debtors The SCO Group Inc., et al.
Chief Financial Officer of The SCO Group, Inc.
355 S 520 W, Lindon UT 84042
(image from http://media.collegepublisher.com/media/paper985/stills/4393afc45b2d4-81-1.jpg)
Alan Stephen Pearce Alan Stephen Pearce (New York Bar #1555408, admitted 1966)
Potential Witness for Debtors The SCO Group Inc., et al.
Bryan Cave, LLP
1290 Avenue of the Americas, New York NY 10104
(image from http://bryancave.com/files/Professional/4261a7a6-94ed-4109-9195-99762a8eaada/Presentation/Photo/ap3.jpg)
Ryan E. Tibbitts Ryan E. Tibbitts (Utah Bar #4423, admitted 1984)
Potential Witness for Debtors The SCO Group Inc., et al.
General Counsel of The SCO Group, Inc.
355 S 520 W, Lindon UT 84042
(image from http://www.sco.com/2005forum/breakouts/images/rtibbitts_reg.gif)
William M. Broderick autograph William M. Broderick
Potential Witness for Debtors The SCO Group Inc., et al.
Director of Software Licensing of The SCO Group, Inc.
355 S 520 W, Lindon UT 84042
(image from http://ecf.utd.uscourts.gov/cgi-bin/show_case_doc?260,21594,9)

AUDIO AND UNOFFICIAL, UNCERTIFIED TRANSCRIPT

Audio

Index

(14:07:10/1+00:00:00) Please rise
(14:07:36/1+00:00:26) Oral pro hac vice motions
(14:08:17/1+00:01:07) Procedural discussion and announcement of a sale agreement that was executed just minutes ago
(14:15:34/1+00:08:24) Recess

(14:54:14/2+00:00:00) Please rise
(14:54:25/2+00:00:11) Initial discussion about whether sale agreement should be considered
(15:12:04/2+00:17:50) Court suggests a separate trial on the evidentiary question
(15:13:14/2+00:19:00) Procedural discussion
(15:20:20/2+00:26:06) Start of trial on the debtors' oral motion for the sale agreement to be allowed as evidence when the conversion motions are tried
(15:24:19/2+00:30:05) Direct examination of Darl Charles McBride by Mr. Spector for SCO
(15:29:29/2+00:35:15) Direct examination of Franklin Caplan by Mr. Spector for SCO
(15:47:20/2+00:53:06) Cross-examination of Franklin Caplan by Mr. Lewis for Novell
(15:52:10/2+00:57:56) Cross-examination of Franklin Caplan by Mr. Levin for IBM
(16:03:31/2+01:09:17) Recess

(16:15:59/3+00:00:00) Please rise
(16:16:18/3+00:00:19) Resumed direct examination of Darl Charles McBride by Mr. Spector for SCO
(16:26:23/3+00:10:24) Cross-examination of Darl Charles McBride by Mr. Lewis for Novell
(16:35:46/3+00:19:47) Cross-examination of Darl Charles McBride by Mr. Levin for IBM
(16:40:55/3+00:24:56) Debtors' argument
(16:45:06/3+00:29:07) Novell's opposition
(16:51:41/3+00:35:42) IBM's opposition
(16:55:23/3+00:39:24) U.S. Trustee's opposition
(16:56:52/3+00:40:53) Debtors' reply
(17:01:34/3+00:45:35) End of trial; Court's ruling
(17:04:41/3+00:48:42) Recess

(17:40:32/4+00:00:00) Please rise
(17:40:40/4+00:00:08) Scheduling discussion, including movants' consent, per 11 U.S.C 1112(b)(3), to: (1) the hearing on the conversion motions being continued to July 16 or 27; and (2) the conversion decision deadline being extended from June 30 to July 20 or 29
(17:52:17/4+00:11:45) Recess

First Session

(audio: 14:07:10 to 14:15:36 (4MB mp3))

(14:07:10/1+00:00:00) CLERK: Please rise.

(14:07:15/1+00:00:05) Kevin Gross autograph THE COURT: Good afternoon, everyone. Thank you, and please be seated. Well --

(14:07:24/1+00:00:14) James E. O'Neill III MR. O'NEILL: Good afternoon, your Honor.

(14:07:24/1+00:00:14) Kevin Gross autograph THE COURT: -- Mr. O'Neill, Good afternoon.

(14:07:26/1+00:00:16) James E. O'Neill III MR. O'NEILL: Your honor, James O'Neill, Pachulski, Stang, Ziehl, and Jones, appearing today on behalf of the Debtors. With me today, as the court knows, my co-counsel Mr. Arthur Spector,

(14:07:35/1+00:00:25) Kevin Gross autograph THE COURT: Yes.

(Oral pro hac vice motions)

(14:07:36/1+00:00:26) James E. O'Neill III MR. O'NEILL: And also appearing today at counsel table are special counsel in this case, Stuart Singer and Ted Normand --

(14:07:43/1+00:00:33) Kevin Gross autograph THE COURT: Yes.

(14:07:43/1+00:00:33) James E. O'Neill III MR. O'NEILL: -- from the Boies, Schiller firm.

(14:07:44/1+00:00:34) Kevin Gross autograph THE COURT: Welcome, gentlemen.

(14:07:45/1+00:00:35) Stuart Harold Singer MR. SINGER: Thank you, your Honor.

(14:07:46/1+00:00:36) James E. O'Neill III MR. O'NEILL: Mr. Singer has appeared before your Honor --

(14:07:48/1+00:00:38) Kevin Gross autograph THE COURT: He certainly --

(14:07:48/1+00:00:38) James E. O'Neill III MR. O'NEILL: -- before in this case.

(14:07:49/1+00:00:39) Kevin Gross autograph THE COURT: Yes.

(14:07:50/1+00:00:40) James E. O'Neill III MR. O'NEILL: Both of these gentlemans are good -- members of the bar in good standing in the courts where they hail from. Mr. Normand from New York, Mr. Singer is admitted in the federal courts in Florida, so we would ask that they be permitted to appear pro hac vice today, for today's proceedings.

(14:08:07/1+00:00:57) Kevin Gross autograph THE COURT: Yes. You certainly are--

(14:08:08/1+00:00:58) James E. O'Neill III MR. O'NEILL: And we'll follow up with motions.

(14:08:08/1+00:00:58) Kevin Gross autograph THE COURT: You certainly are admitted for this -- for this hearing, gentlemen.

(14:08:11/1+00:01:01) Stuart Harold Singer MR. SINGER: Thank you

(14:08:12/1+00:01:02) Kevin Gross autograph THE COURT: And welcome to you.

(14:08:13/1+00:01:03) James E. O'Neill III MR. O'NEILL: Thank you, your Honor. I'm going to turn the podium over to Mr. Spector, your Honor.

(14:08:15/1+00:01:05) Kevin Gross autograph THE COURT: All right.

(Procedural discussion and announcement of a sale agreement that was executed just minutes ago)

(14:08:17/1+00:01:07) Arthur Jay Spector MR. SPECTOR: (inaudible)

(14:08:18/1+00:01:08) Kevin Gross autograph THE COURT: Actually, I guess it's -- it's not your motion, but you may as well make the introduction.

(14:08:22/1+00:01:12) Arthur Jay Spector MR. SPECTOR: I was going --

(14:08:22/1+00:01:12) Kevin Gross autograph THE COURT: I was thinking, if I may just express that I see that we have a number of witnesses, and certainly I think the briefs that I've reviewed constitute very ample opening statements if not more, and I was thinking if it's all right with everyone we would just proceed right to the testimony.

(14:08:40/1+00:01:30) Arthur Jay Spector MR. SPECTOR: Your Honor, of course, this is your courtroom. I was going to introduce our worthy adversaries --

(14:08:45/1+00:01:35) Kevin Gross autograph THE COURT: Of course.

(14:08:45/1+00:01:35) Arthur Jay Spector MR. SPECTOR: -- first, because it is their burden. However, on the point you just raised, there are things that have happened since the response and the reply.

(14:08:53/1+00:01:43) Kevin Gross autograph THE COURT: Okay.

(14:08:54/1+00:01:44) Arthur Jay Spector MR. SPECTOR: Things that have happened literally minutes ago.

(14:08:56/1+00:01:46) Kevin Gross autograph THE COURT: Okay.

(14:08:56/1+00:01:46) Arthur Jay Spector MR. SPECTOR: This is SCO, Judge (laugh).

(14:08:57/1+00:01:47) Kevin Gross autograph THE COURT: Absolutely.

(14:08:59/1+00:01:49) Arthur Jay Spector MR. SPECTOR: And I think it would be helpful to you to know what else is out there that you didn't read.

(14:09:04/1+00:01:54) Kevin Gross autograph THE COURT: I did not mean to foreclose anything such as you're suggesting.

(14:09:08/1+00:01:58) Arthur Jay Spector MR. SPECTOR: Okay, so, I mean, normally it's a finite --

(14:09:11/1+00:02:01) Richard B. Levin MR. LEVIN: Your Honor.

(14:09:12/1+00:02:02) Kevin Gross autograph THE COURT: Mr. Levin.

(14:09:12/1+00:02:02) Richard B. Levin MR. LEVIN: Excuse me for interrupting.

(14:09:13/1+00:02:03) Kevin Gross autograph THE COURT: Yes.

(14:09:13/1+00:02:03) Richard B. Levin MR. LEVIN: Richard Levin, Cravath, Swaine, and Moore, for IBM. Good afternoon, your Honor.

(14:09:16/1+00:02:06) Kevin Gross autograph THE COURT: Welcome to you, good afternoon.

(14:09:19/1+00:02:09) Richard B. Levin MR. LEVIN: You suggest that we dispense with opening statements. If we are going to do that -- and we haven't been heard from on that subject yet -- what Mr. Spector was about to propose was an opening statement --

(14:09:29/1+00:02:19) Kevin Gross autograph THE COURT: Yes.

(14:09:29/1+00:02:19) Richard B. Levin MR. LEVIN: -- on things that were not previously in the papers. If we are going to dispense with them, and he has evidence about that, we suggest that he put it on the witness stand. And perhaps we should -- can have a moment to confer on whether -- of course, as Mr. Spector said, this is your courtroom and we will follow your dictates, but if you are asking for our view on that, I'd like just a moment on that.

(14:09:48/1+00:02:38) Kevin Gross autograph THE COURT: Okay.

(14:09:49/1+00:02:39) Arthur Jay Spector MR. SPECTOR: Your honor, there was a little debate in house, whether I just do it in the cross-- in the direct examination of one of our witnesses and say, I show you exhibit so-and-so, and then just spring it on everybody as a big surprise, and -- and -- and -- or, give it in the opening statements so, you know what an opening statement is, your Honor: you will hear testimony from so-and-so about so-and-so. And so I'm thinking that it's a good idea in this case that we do it that way. That's why I say that.

(14:10:17/1+00:03:07) Kevin Gross autograph THE COURT: Well, I guess I'll ask our friends for IBM and for Novell and from the United States Trustee's office, do you want it sprung on you, or would you like a little bit of an opening argument?

(14:10:28/1+00:03:18) Richard B. Levin MR. LEVIN: Well, uh, interesting, your Honor, if we say we want it sprung, then you'll say we can't complain that it was sprung on us.

(14:10:33/1+00:03:23) Kevin Gross autograph THE COURT: That's right.

(14:10:35/1+00:03:25) Richard B. Levin MR. LEVIN: May we have just a moment to confer.

(14:10:36/1+00:03:26) Kevin Gross autograph THE COURT: Sure.

(14:10:55/1+00:03:45) Richard B. Levin MR. LEVIN: Your honor, we think it would be appropriate if Mr. Spector were going to produce a document for the witness to authenticate or identify, that we don't need his opening statment, we need to see the document. And perhaps we can look at that before we -- before the witnesses are called.

(14:11:17/1+00:04:07) Arthur Jay Spector MR. SPECTOR: Not a problem.

(14:11:17/1+00:04:07) Kevin Gross autograph THE COURT: All right --

(14:11:17/1+00:04:07) Arthur Jay Spector MR. SPECTOR: The document isn't in the courtroom yet, it's still being photocopied, it's enormous.

(14:11:22/1+00:04:12) Kevin Gross autograph THE COURT: Okay.

(14:11:23/1+00:04:13) Arthur Jay Spector MR. SPECTOR: And we're making five copies of it, so, we -- here three, and two to your -- so, that's why -- if they looked at it, they're going to say, you dropped this on us now? Well, the truth of the matter is it was just signed, as -- two -- you know, ten to two.

(14:11:39/1+00:04:29) Kevin Gross autograph THE COURT: Well, let me -- let me make a suggestion, because we shouldn't proceed, obviously, by -- by confusion. Would you like five or ten minutes to take a look at what it is, and then when I come back, I could come back in and you would at least have a better sense of what position you want to take, Mr. Levin?

(14:11:58/1+00:04:48) Richard B. Levin MR. LEVIN: Yes, especially since Mr. Spector represents that it's enormous. I was going to say, your Honor, that -- I appreciate his comment about this being sprung on us at the last moment and a surprise and this is so huge and how can you deal with this -- um, the statute requires the court to decide this matter within fifteen days after the hearing.

(14:12:21/1+00:05:11) Kevin Gross autograph THE COURT: Yes.

(14:12:21/1+00:05:11) Richard B. Levin MR. LEVIN: We've already given additional time. Only three days at SCO's request, but some additional time because of the Court's calendar. If this is going to go into a trial about a new document that just was created this afternoon, I don't know how we're going to stay within the fifteen day limit, but we'll take a look and let you know what we think.

(14:12:38/1+00:05:28) Kevin Gross autograph THE COURT: Well, rather than speculate, why don't we -- why don't you share that document and then I will uh -- I will return in five or ten minutes, if that's acceptable.

(14:12:46/1+00:05:36) Richard B. Levin MR. LEVIN: We look forward to the sharing.

(14:12:47/1+00:05:37) Arthur Jay Spector MR. SPECTOR: Let me just tell to your Honor so you don't have to just listen in on us. It's a -- this is a purchase and sale agreement that was just executed a few minutes ago. It's in the works forever --

(14:12:57/1+00:05:47) Kevin Gross autograph THE COURT: Okay.

(14:12:58/1+00:05:48) Arthur Jay Spector MR. SPECTOR: -- but the -- everything is now signed, sealed, and delivered. All the schedules, all the exhib-- all that's together. It only just happened as I was walking over to court.

(14:13:06/1+00:05:56) Kevin Gross autograph THE COURT: All right.

(14:13:06/1+00:05:56) Arthur Jay Spector MR. SPECTOR: And so I will give -- this is the only copy in the courtroom. One of the counsel in the back handed it up to me, it's her copy.

(14:13:13/1+00:06:03) Kevin Gross autograph THE COURT: Oh, fine.

(14:13:14/1+00:06:04) Arthur Jay Spector MR. SPECTOR: The rest of them are still being marked for exhibits, so I'll give this to Mr. Levin, and the rest of them can share it, I guess.

(14:13:19/1+00:06:09) Kevin Gross autograph THE COURT: Mr. Levin.

(14:13:20/1+00:06:10) Richard B. Levin MR. LEVIN: Well, okay, then we'll need a little more time, since there are three parties here and we have only one copy. When can we expect the other copies to arrive?

(14:13:30/1+00:06:20) Arthur Jay Spector MR. SPECTOR: Minutes, I mean --

(14:13:32/1+00:06:22) Kevin Gross autograph THE COURT: In minutes, it sounds like.

(14:13:33/1+00:06:23) Arthur Jay Spector MR. SPECTOR: It's leg-- logistics. Your honor, I know there's a fifteen day limit. We can do this. Now, if they say they're prejudiced by the late delivery, well, so are we. I didn't know I had it or I didn't have it when I prepared this case for trial. So I have two different cases to try today, which, right?

(14:13:49/1+00:06:39) Kevin Gross autograph THE COURT: Right.

(14:13:50/1+00:06:40) Arthur Jay Spector MR. SPECTOR: So, it's tough. This is bankruptcy. Everything is done in an accelerated basis --

(14:13:55/1+00:06:45) Kevin Gross autograph THE COURT: Understood.

(14:13:56/1+00:06:46) Arthur Jay Spector MR. SPECTOR: -- and we do the best we can. The suggestion I have is, they can -- we'll put it into evidence through Mr. McBride's testimony. They'll have their copies. If they are not prepared to cross-examine on it, not a problem, we still have fifteen days. We can come back on another date, your honor's suiting. And they can then -- do it then. I don't think we should stop the presses for this.

(14:14:20/1+00:07:10) Kevin Gross autograph THE COURT: No, I understand, and -- and let me ask, how many witnesses, on the movants' side, will you be presenting?

(14:14:26/1+00:07:16) Richard B. Levin MR. LEVIN: We are relying on the record in the Court, your Honor.

(14:14:29/1+00:07:19) Kevin Gross autograph THE COURT: Okay, and Mis-- Yes, the Debtors.

(14:14:31/1+00:07:21) Arthur Jay Spector MR. SPECTOR: I'll tell you the names.

(14:14:32/1+00:07:22) Richard B. Levin MR. LEVIN: Excuse me, except to the extent of any cross-examination.

(14:14:34/1+00:07:24) Kevin Gross autograph THE COURT: I have a list, I think it's eight, it looks like. Is that roughly right?

(14:14:36/1+00:07:26) Arthur Jay Spector MR. SPECTOR: Well you know better than me. I can tell you the names, but I never did count them.

(14:14:42/1+00:07:32) Kevin Gross autograph THE COURT: There are --

(14:14:43/1+00:07:33) Arthur Jay Spector MR. SPECTOR: Eight might be right.

(14:14:43/1+00:07:33) Kevin Gross autograph THE COURT: Yes, I have a list of eight.

(14:14:44/1+00:07:34) Arthur Jay Spector MR. SPECTOR: Okay.

(14:14:45/1+00:07:35) Kevin Gross autograph THE COURT: Give me a sense how much time we're talking about, for your prese-- for the presentations.

(14:14:51/1+00:07:41) Arthur Jay Spector MR. SPECTOR: Your honor, I think this can be done today.

(14:14:53/1+00:07:43) Kevin Gross autograph THE COURT: Okay.

(14:14:54/1+00:07:44) Arthur Jay Spector MR. SPECTOR: Your honor, I'm not saying by six o'clock --

(14:14:55/1+00:07:45) Kevin Gross autograph THE COURT: Right.

(14:14:57/1+00:07:47) Arthur Jay Spector MR. SPECTOR: -- but if you give us some allowances, we might have it done today. If not, one more day.

(14:15:01/1+00:07:51) Kevin Gross autograph THE COURT: All right, and I know that everyone is here and we would like to finish it today, and I am certainly prepared and willing to, uh -- to exceed our normal time limits, so, let's see how we do, but I just wanted a general sense. So why don't we give a little bit of time to the movants to review the document. Hopefully additional copies will be here soon enough, and you'll have an opportunity at least to -- to not be surprised.

(15:15:24/1+01:08:14) Richard B. Levin MR. LEVIN: You mean to be less surprised.

(14:15:26/1+00:08:16) Kevin Gross autograph THE COURT: -- to be less surprised. Or at least -- well, I won't -- I won't comment any further, but at least we'll stand in recess then for maybe ten or fifteen minutes, hopefully. Thank you.

(14:15:34/1+00:08:24) *** RECESS ***

Second Session

(audio: 14:54:14 to 16:03:33 (33MB mp3))

(14:54:14/2+00:00:00) CLERK: Please rise.

(14:54:19/2+00:00:05) Kevin Gross autograph THE COURT: Thank you, please be seated. Mr. Levin.

(Initial discussion about whether sale agreement should be considered)

(14:54:25/2+00:00:11) Richard B. Levin MR. LEVIN: Your honor, thank you for accommodating us with a few extra minutes. Now I note, almost two fifty-five, we've had about forty minutes to look at the document.

(14:54:34/2+00:00:20) Kevin Gross autograph THE COURT: Yes.

(14:54:35/2+00:00:21) Richard B. Levin MR. LEVIN: And it confirmed what we suspected before we took the recess, which is, this is too complicated to understand in forty minutes, or even an hour and forty minutes. We understand how bankruptcy works, but we also understand how courts work and judicial procedures work.

(14:54:53/2+00:00:39) Richard B. Levin I think I speak on behalf of Novell and the U.S. Trustee as well when I say that our proposal your Honor is that we proceed with the motion as it existed when this hearing started, not as it changed after the -- after the hearing started. If the debtors wish to bring a motion to approve a bidding procedures and a sale, they are certainly able to do that.

(14:55:16/2+00:01:02) Richard B. Levin But for us to try to get into -- to -- to take a motion on a conversion and convert it into the question of the approval of the sale itself, on the theory -- and I -- the reason I say that is because, if -- if no, uh -- SCO proceeds now and says this shouldn't be converted because we have this sale, we've in effect validated the sale or the sale process in the face of a motion to convert.

(14:55:45/2+00:01:31) Richard B. Levin We think that's a bit improper way to bring a sale before this court, and we would be entitled to notice, in the absence of an extreme emergency, to have a bid procedures motion or a sale hearing on before this court. This is not the way to do it.

(14:56:06/2+00:01:52) Richard B. Levin We propose that the Court proceed with the motion to dismiss on the record as it existed. We will object to witnesses addressing the sale and the apparent agreement that we have in front of us, as irrelevant to that motion and procedurally improper. And we would ask Mr. Spector, before we start this hearing, in light of that, to describe the topic of each of the eight witnesses -- the topic that each of the eight witnesses will speak on -- not to describe their testimony, that's an opening statement, and we've already concluded to dispense with opening statements, but we simply don't know who the witnesses are or what the topic is that they'll be talking about. That's how we would propose to proceed, your Honor.

(14:56:51/2+00:02:37) Kevin Gross autograph THE COURT: Thank you, Mr. Levin. Anyone else?

(14:56:56/2+00:02:42) Richard B. Levin MR. LEVIN: Thank you, your Honor.

(14:56:57/2+00:02:43) Kevin Gross autograph THE COURT: Yes, Mr. Spector.

(14:56:58/2+00:02:44) Arthur Jay Spector MR. SPECTOR: Your honor.

(14:56:59/2+00:02:45) Kevin Gross autograph THE COURT: Mr. Spector.

(14:57:00/2+00:02:46) Arthur Jay Spector MR. SPECTOR: Let me tell you what we're not asking for. We're not asking for approval of the sale today.

(14:57:04/2+00:02:50) Kevin Gross autograph THE COURT: Right.

(14:57:05/2+00:02:51) Arthur Jay Spector MR. SPECTOR: We have to file a motion for that. Before you file a motion, I think the Court encourages us to actually have the sale. I think we've gone down the route before. So we have the documents that we can really now file a motion for sale. We don't intend to ask for bid procedures. We intend to do a sale to this party, without any further ado, and when the sale closes, get out of bankruptcy, pay the creditors in full -- it's part of my opening statement, okay, I'm going to be doing that, if you -- it's like w-- talking about talking about -- I'd like to actually say it and not just pretend to say it.

(14:57:39/2+00:03:25) Arthur Jay Spector We have a -- we have -- the purpose of this, judge, is to show one of the many unusual circumstances. Many cases -- and now I am going into an opening -- many cases address if there's a legitimate proposal to pay the creditors in full, that's an unusual circumstance that, that even if there were cause, would, would, uh, would counsel the Court to deny the motion.

(14:58:04/2+00:03:50) Arthur Jay Spector We have a sale that can close in thirty days. If your Honor grants a motion for 363 sale on June thirtieth, fifteen days from now, we have a proposal to close it before July fifteenth. We will, we will have testimony to show that we won't be losing money in those next thirty days, and why. We have backup ideas. There are other sug-- we have lots of other causes.

(14:58:29/2+00:04:15) Arthur Jay Spector For example, and I'm doing this without the preparation that I ought to be doing, we have a stockholder standing up ready to underwrite any losses in the next thirty days. We have money, real money, in case there are losses, in case the deal goes sideways again, which has been ha-- happened before. But we now -- we have the whole document -- the whole deal, done, finally. So, we have a case to make, Judge. They may not, but we do, and I object to having somebody asking the Court to say no, you can't present it this way, you have to present it that way.

(14:59:00/2+00:04:46) Arthur Jay Spector This is a terminal event in the life of these -- uh, cases -- the life of this -- these companies, and the ramifications your Honor knows about, or at least has some idea about from our response. This is not something we think we should be circumscribed about.

(14:59:15/2+00:05:01) Arthur Jay Spector We have an opening statement. We didn't agree -- your Honor says we don't do it, we don't do it, but we would-- we think, because as you just heard -- I've already told you two things you didn't know. Uh, that's part of our opening statement, and in the opening statement I will highlight what it is the witnesses will testify about.

(14:59:32/2+00:05:18) Arthur Jay Spector One of the things Mr. McBride will testify about -- he's one of our witnesses -- of course is the sale. He'll tell your Honor and the parties in interest, the highlights, the purpose, the deal -- of the deal. Mr. McBride's also going to testify about the backstop. Mr. McBride will help the Court understand Mr. Nielsen's testimony, which will precede it, about the financial situation of SCO, up to now and for the foreseeable next thirty days. And he'll -- the two of them will present that case to show why, even if there were losses before, your Honor can take the risk with us that the creditors will be protected in the next several days -- several days.

(15:00:14/2+00:06:00) Arthur Jay Spector And of course, we're going to ask Mr. Singer in our opening statement to -- to -- we're going to ask your Honor if we can have Mr. Singer reserve his opening statement to the beginning of our defense proofs, because we think that makes the most sense. It will be more understandable that way than bifurcating it in the middle of the opening statement that I make. I would like to handle all of the matters that don't involve the litigation. We have someone who knows it a lot better than I ever could.

(15:00:40/2+00:06:26) Arthur Jay Spector So, we have a game plan for the presentation of our proofs. You've heard the movants say that they don't have any witnesses. Well, we'd like to get on and give you our witnesses. Not all of them will take that long. Mr. McBride may take some time, of course. And if we don't have enough time today, all to the better for them. They can dissect the agreement --

(15:01:02/2+00:06:48) Arthur Jay Spector We're not talking about putting this off to January. We're talking about, within the fifteen days that your Honor has, if -- and I wasn't -- I was prepared -- I was hoping we would have this signed a couple days ago so we wouldn't have to go through the dramatics that we're going through today. I knew this was going to happen, and I would have liked to have been able to say they've seen it, we're ready to go -- uh, hard deadlines make deals close. Nothing else but.

(15:01:26/2+00:07:12) Kevin Gross autograph THE COURT: This is about as close to a Perry Mason situation as a Bankruptcy Judge gets.

(15:01:31/2+00:07:17) Arthur Jay Spector MR. SPECTOR: Judge, you should only know what it's like to be in my shoes.

(15:01:34/2+00:07:20) Kevin Gross autograph THE COURT: I can imagine.

(15:01:36/2+00:07:22) Arthur Jay Spector MR. SPECTOR: Okay, so, so the -- the point I'm trying to make is, we don't have to have hysterics. We know they're prejudiced by the late delivery of this, and we're not going to take advantage of that. If they decide that they need more time, they probably do. And by the way, those schedules are still being copied. This -- one of -- one exhibit alone, I've found out, is five hundred pages. That has to be delivered too, as part of the contract.

(15:01:57/2+00:07:43) Arthur Jay Spector So, we'd like to begin, make our opening statement, call our witnesses, do as much as we can today, and, in as much as it's likely that they'll want to have a chance to review the most important piece of evidence, we come back when your Honor says we can, within the fifteen days. We're not looking for any extraordinary relief.

(15:02:15/2+00:08:01) Kevin Gross autograph THE COURT: Understood.

(15:02:16/2+00:08:02) Arthur Jay Spector MR. SPECTOR: Thank you.

(15:02:18/2+00:08:04) Kevin Gross autograph THE COURT: Mr. Lewis.

(15:02:19/2+00:08:05) Adam Aiken Lewis MR. LEWIS: Thank you, your Honor.

(15:02:20/2+00:08:06) Kevin Gross autograph THE COURT: Good afternoon, sir. Welcome back.

(15:02:21/2+00:08:07) Adam Aiken Lewis MR. LEWIS: Thank you, your Honor, it's always a pleasure to be here.

(15:02:22/2+00:08:08) Kevin Gross autograph THE COURT: It's always a pleasure to have you here.

(15:02:24/2+00:08:10) Adam Aiken Lewis MR. LEWIS: Thank you. Your honor, I want to start with the comment that somehow this being a terminal event is the signal fact. It being a terminal event, if it is, and I don't think that it is, we're just talking about conversion to chapter seven. It's the debtor that wanted to have the case dismissed rather than having it converted to a seven. We're just talking about putting this whole process into someone else's hands for a while.

(15:02:50/2+00:08:36) Adam Aiken Lewis Um, but -- but more importantly than that, your Honor, the fact that it's allegedly a terminal event doesn't change the rules of procedure and the notions of due process and fairness, and this is not the first time in this case -- this is not the only time that we've been faced with some last minute thing to beat a deadline, that came in after the -- after the door had closed and we were trying to deal with it. And I -- the Court may remember another time that happened and we heard from -- from the debtor that oh, yeah, I guess we're kinda not quite ready yet, and we'll-- let's continue this, we'll come back, and of course then they withdrew it.

(15:03:30/2+00:09:16) Adam Aiken Lewis Now, we have this long agreement here, and yes, I suppose we could come back and cross-examine the witness about it. But your Honor, it's much more effective to be able to cross-examine a witness when he's there, right after he's given his testimony, rather than waiting until a week or two or three weeks later. Uh, but we can't possibly cross-examine, for example, a witness on the so-called agreement, because we can't possibly understand it in the time we have available today.

(15:04:02/2+00:09:48) Kevin Gross autograph THE COURT: I appreciate that.

(15:04:03/2+00:09:49) Adam Aiken Lewis MR. LEWIS: Um, and, and it's just -- for the debtor to say they're not trying to prejudice us, and all that -- it's just -- it is prejudicial. And furthermore, in terms of scheduling, your Honor, this was originally set for the twelfth, and the debtor asks to have it continued because someone wasn't available that day, and I advised the debtor in response that I had a very bad schedule the rest of the month, but I could do it today, and so we schedule it for today.

(15:04:39/2+00:10:25) Adam Aiken Lewis Your honor, I have, uh, I'm going back tomorrow on this matter one way or another, not today. I'm in Minneapolis / St. Paul the rest of the week starting Wednesday. I'm in the central valley of California, as they knew, most of the following week. I'm in Honolulu for depositions the beginning of the following week, so it's like July. And what this all amounts to, your Honor, is the debtor buying time, which is in its interest, because it wants to get to the end of the appeal, because it thinks that that's the end-all and be-all of this case, and, uh, and -- and this just works in its favor.

(15:05:21/2+00:11:07) Adam Aiken Lewis It's already had some extra time on this proceeding, and there's no reason why we shouldn't go ahead today on the record that was available by the deadlines.

(15:05:30/2+00:11:16) Adam Aiken Lewis I think the debtor's going to advise the Court that it's withdrawing its motion to, uh, to file certain IBM documents under seal. I would not have objected on the grounds that IBM was going to object, because I'm not a party to that confidentiality agreement. I was going to object on the grounds that it's too late.

(15:05:48/2+00:11:34) Adam Aiken Lewis We can't keep doing this at the last moment. And I understand bankruptcy. I've been doing it thirty years. And I understand there are some -- you have to be flexible and somewhat nimble, but this is really taking it to an extreme, and it's not the first time in this -- the debtor has already had accommodations, again and again from this court, and from the parties, and I just think today we should go ahead on the record which we have, and which was prepared, and the parties responded to and came prepared for.

(15:06:19/2+00:12:05) Adam Aiken Lewis We shouldn't be going ahead on a record that no one's prepared for, except the debtor, who's been apparently working on this -- maybe we'll find out someday it's been working on this a long some time and could have done this sooner. No way to test that today.

(15:06:33/2+00:12:19) Adam Aiken Lewis So, I ask the court to proceed with the hearing as originally scheduled on the original record to which parties referred in their papers, and if -- as, uh -- as counsel for IBM suggested, if they want to do something else in terms of a motion to sell, they're free to do that. Although --

(15:06:53/2+00:12:39) Kevin Gross autograph THE COURT: But I would have to take that into account. Let's assume that today we closed this record, and tomorrow they came in and said your Honor, we have a totally new development in this case, uh, we have a sale. Wouldn't the Court have to take that into consideration? --

(15:07:10/2+00:12:56) Adam Aiken Lewis MR. LEWIS: Your honor --

(15:07:11/2+00:12:57) Kevin Gross autograph THE COURT: -- Reopen this record? So, how is that different? How is this different?

(15:07:16/2+00:13:02) Adam Aiken Lewis MR. LEWIS: First of all, your Honor, there are deadlines the Court has to use in order to -- to render a decision on this ma--

(15:07:23/2+00:13:09) Kevin Gross autograph THE COURT: Understood.

(15:07:24/2+00:13:10) Adam Aiken Lewis MR. LEWIS: -- on this matter.

(15:07:25/2+00:13:11) Kevin Gross autograph THE COURT: Understood.

(15:07:26/2+00:13:12) Adam Aiken Lewis MR. LEWIS: And, um, if we're going to have something on a so-called sale, we should at least have it on some organized basis, not this basis.

(15:07:35/2+00:13:21) Kevin Gross autograph THE COURT: Oh, no, no. I agree with that.

(15:07:37/2+00:13:23) Adam Aiken Lewis MR. LEWIS: And the problem there, your honor, is my schedule, as the debtor has known since asking me to reset this thing, for the rest of the month is pretty well tied up. And so we are now in effect giving the debtor an extension, because of this last minute development. And there has to be at some point which fairness to the other parties is also important.

(15:07:59/2+00:13:45) Adam Aiken Lewis There's just way too much to go into with respect to this so-called sale to make it even rational to try to put on evidence and ask questions about it today. Debtor will get up, we're told, and testify what's in the agreement. That may be the debtor's interpretation of what's in the agreement. There may be other things in the agreement that are equally important to creditors, to my cr-- to my client.

(15:08:25/2+00:14:11) Adam Aiken Lewis How am I going to cross-examine on that, and why should we separate cross-examination from direct testimony, where you have a witness who's still up there and doesn't have a whole lot of time, as a consequence, to prepare his testimony -- to fit his testimony when he's finally cross-examined. That's the whole point of live trial and live cross-examination.

(15:08:46/2+00:14:32) Kevin Gross autograph THE COURT: Well, it isn't easy for the Court in this situation, but I certainly cannot close my eyes to what is potentially -- none of us know really for certain at this moment, I haven't even seen the agreement that you've looked at -- what is potentially a very, very significant development in this case.

(15:09:05/2+00:14:51) Adam Aiken Lewis MR. LEWIS: Your honor, I don't disagree it might be a significant development.

(15:09:09/2+00:14:55) Kevin Gross autograph THE COURT: And not only a significant development -- would have substantial bearing upon a motion to convert, if they have a very solid, um, agreement of sale that is in the best interest of these debtors' estates.

(15:09:20/2+00:15:06) Adam Aiken Lewis MR. LEWIS: I guess the problem your Honor is how to fit that opportunity into what's available now, and unfortunately the way things have panned out, as the debtor knows, trying to fit that in on the current schedule is going to be very, very difficult --

(15:09:34/2+00:15:20) Kevin Gross autograph THE COURT: I understand.

(15:09:35/2+00:15:21) Adam Aiken Lewis MR. LEWIS: -- for me, and I've been involved in this case from the beginning, for my client. I can't just send --

(15:09:38/2+00:15:24) Kevin Gross autograph THE COURT: No, no.

(15:09:39/2+00:15:25) Adam Aiken Lewis MR. LEWIS: -- someone else to do this, --

(15:09:40/2+00:15:26) Kevin Gross autograph THE COURT: I understand.

(15:09:41/2+00:15:27) Adam Aiken Lewis MR. LEWIS: -- um, but uh, you know, to meet the fifteen day requirement for the Court to rule on this matter. I'm not sure what the answer is, except I'm sure that the answer is not to turn this into a mini-hearing on this sale motion, when nobody could possibly address it in any rational fashion today. I mean, they've just finished it.

(15:10:03/2+00:15:49) Adam Aiken Lewis Now there may be other testimony that we can dispense with today, and we'll see about that, but, I guess that's my concern, is -- it's just really unfair -- and, and, and this thing may turn out to be a complete nothing of a sale. It may or may not be. I don't know. I can't say that it is, I haven't really had a chance to study it in any useful fashion.

(15:10:25/2+00:16:11) Kevin Gross autograph THE COURT: Okay. Mr. Levin.

(15:10:30/2+00:16:16) Richard B. Levin MR. LEVIN: Just to amplify on Mr. Lewis's points, your Honor. Two things. Number one, we haven't learned much about this agreement in the hour that we've had it, or the forty minutes we had to look at it, but the one thing we have learned is that it's signed by Stephen Norris, of Stephen Norris Capital Partners. That deal has been before this court for fifteen or sixteen months. This is not something that just arose last week and all of a sudden, it came up, it's a last minute development.

(15:11:04/2+00:16:50) Richard B. Levin Those negotiations had been going on or off -- I don't know, we have no idea -- for at least sixteen months. This court has deadlines. The local rules have deadlines. Had the debtor decided, well, we're not going to file our opposition by the, uh, you know, June fifth, which was the deadline, we're going to wait until June, uh, twelfth to file our opposition, just because, well, we couldn't quite get it ready, we've been working on it and working on it but we couldn't quite get it ready. At some point this Court says, there's a deadline, and you must meet the deadlines.

(15:11:39/2+00:17:25) Richard B. Levin I understand the inclination of a bankruptcy court to take any last-minute information into account. This is a dynamic process. As Mr. Lewis said, I've been doing this for a long time, and I understand it's a dynamic process and things change. But at some point, especially with somebody who's been at the table for sixteen months, this court can, and should, enforce deadlines. And this is past the deadline. We think it should proceed as -- as the record was set.

(Court suggests a separate trial on the evidentiary question)

(15:12:04/2+00:17:50) Kevin Gross autograph THE COURT: Well, let me make a suggestion, because what I've got before me right now is, in effect, a motion -- an evidentiary motion. And what I would like to do is to hear evidence concerning the concerns that Mr. Levin has raised. Why it is now come to -- why we have an agreement as of today.

(15:12:33/2+00:18:19) Arthur Jay Spector MR. SPECTOR: That's fine. That's part -- that's part of the presentation I will make, your Honor.

(15:12:36/2+00:18:22) Kevin Gross autograph THE COURT: Without the substance, but I think as a preliminary matter, I would like to know what the negotiations have been, why we are here today instead of six months ago, you know, evidence to that effect. And then, on that record, subject to cross-examination, uh, not on the merits, not on the substance, because I appreciate that the movants have difficulty cross-examining on the merits of this agreement, but I would just like to know whether or not I should in fact adjourn this hearing to take into consideration the agreement of sale.

(Procedural discussion)

(15:13:14/2+00:19:00) Arthur Jay Spector MR. SPECTOR: Your honor, we do not request an adjournment to the hearing. We are prepared --

(15:13:16/2+00:19:02) Kevin Gross autograph THE COURT: I understand.

(15:13:17/2+00:19:03) Arthur Jay Spector MR. SPECTOR: Right, and I am sorry about the situation we've put Mr. Lewis in. This is not the way I wanted to do it either, but I -- and this is -- you know, I knew Mr. Lewis had a problem this week. I didn't realize he was tied up for the whole month, and maybe if he told me that it didn't register. And I wasn't planning on having to say they'll need more time. I was planning to have this to them a few days ago.

(15:13:44/2+00:19:30) Arthur Jay Spector But we have no problem making the record your Honor asked for. It is part of our presentation of Mr. McBride's testimony. We also have the lawyers who negotiated this -- hundreds of thousands of dollars of legal fees just in the last month, probably, --

(15:13:59/2+00:19:45) Kevin Gross autograph THE COURT: Okay.

(15:14:00/2+00:19:46) Adam Aiken Lewis MR. LEWIS: -- to get the very difficult issues resolved. Your honor has an appreciation of how difficult some of these legal issues are when we still don't have the clarity of the tenth circuit ruling.

(15:14:09/2+00:19:55) Kevin Gross autograph THE COURT: Understood.

(15:14:10/2+00:19:56) Arthur Jay Spector MR. SPECTOR: We've -- we, okay, so yes, we can make that record, but in the interest of everybody's time, I would suggest that your Honor take the record in the ordinary manner.

(15:14:20/2+00:20:06) Kevin Gross autograph THE COURT: With the -- with the --

(15:14:21/2+00:20:07) Arthur Jay Spector MR. SPECTOR: And, and, and, take it under, you know, under advisement, that you could -- if, if your Honor thinks that there's some reason why it shouldn't come in -- this is a trial to a court -- you can take that into account when you make your ruling at the end. But think it's going to be very awkward to say okay, we're going to have a record -- we didn't prepare a record for the lawyers to come and testify. I was out of the picture, I can't even make a proffer of what all went on. My head was on doing this.

(15:14:47/2+00:20:33) Arthur Jay Spector So, uh, I -- I think the easiest way to do that is to let Mr. McBride tell you the highlights -- I can in an opening tell you the highlights, you'll know what they know -- it's just surface level, of course. Uh, but Mr. McBride is prepared to testify, and when asked, I can say, well, isn't this the same Mr. Norris? Well, yeah, it is, but it isn't really the Mr. Norris who we were negotiating with at the end, it was a different cast of characters, and things that --

(15:15:14/2+00:21:00) Arthur Jay Spector These questions are valid questions, but there are answers, and I shouldn't be getting up here trying to tell you -- tell you about them. I wasn't personally involved with those. So, again, I suggest, let's get to it. Let's, like Nike says, just do it. Let's call our witnesses, let them make their case.

(15:15:32/2+00:21:18) Arthur Jay Spector I appreciate the difficulty of Mr. -- Mr. Lewis. Uh, I don't know -- I don't have a solution for that. All I can suggest is -- and we are not looking to extend the time. We can produ-- if we started on time, if we had this two days ago, we could have possibly gotten this whole case in tonight. Not now. Doesn't look like we'll have enough time now.

(15:15:52/2+00:21:38) Arthur Jay Spector But, but it is in their hands, if they want to accommodate Mr. Lewis, and I'm not asking for this. I have a vacation planned also after that, but I-- you know, I'll make accommodations. Oh, I take that back, my -- my vacation's in August.

(15:16:06/2+00:21:52) Kevin Gross autograph THE COURT: Okay.

(15:16:07/2+00:21:53) Arthur Jay Spector MR. SPECTOR: July is open. So --

(15:16:08/2+00:21:54) Kevin Gross autograph THE COURT: Okay.

(15:16:09/2+00:21:55) Arthur Jay Spector MR. SPECTOR: -- so if, if they can't -- if we can't get that fifteen days in because of Mr. Lewis's difficult schedule, it's in their hands. I don't have a problem going to July first, July second, July seventh, July -- whenever it is that suits the Court's calendar.

(15:16:21/2+00:22:07) Arthur Jay Spector But, your Honor is exactly right when you say this is crucial. This is th-- this is how we satisfy the Court that it should not convert the case. That, and a couple of other bells and whistles of importance, but by no means are anything nearly as important as the fact that we're going to get -- and this is in manner of opening statement -- two point four million dollars. The claims, you will hear, are a million dollars or less.

(15:16:48/2+00:22:34) Arthur Jay Spector What we plan to do, with your Honor's blessing: close the sale, dismiss the case, pay the creditors in full, get no discharge of any Novell claim. We'll have -- we have a bond set aside to fully pay Novell. I'm wondering if they -- they may have missed that, they should be in favor of that. Uh, we have a bond set aside as part of this deal, to pay Novell in full. IBM, we'll meet them in court. No discharge, get out of bankruptcy with a dismissal, pay the creditors upon exit, and go upon our merry way.

(15:17:20/2+00:23:06) Arthur Jay Spector That is an elegant end to this case. All of that depends upon doing what we propose. So, again in the nature of opening, that's what our proposal would be.

(15:17:34/2+00:23:20) Kevin Gross autograph THE COURT: All right.

(15:17:37/2+00:23:23) Richard B. Levin MR. LEVIN: Your honor, I'm not going to argue the substance as my learned colleague did. I want to just try to put a procedural framework about what the Court suggested, and that is, as I hear the Court, you're saying we should treat this as the Debtors' motion for leave to file a late opposition.

(15:17:54/2+00:23:40) Kevin Gross autograph THE COURT: Or, or newly discovered evidence, or however we want to frame it. Yes, that's really what I think -- that's where I think we are. Now, it may make the order a little more unusual, less workable, but I think --

(15:18:14/2+00:24:00) Richard B. Levin MR. LEVIN: Your honor --

(15:18:14/2+00:24:00) Kevin Gross autograph THE COURT: -- I think that's -- that is how I would like to proceed. I'd like to know why I should consider this agreement of sale.

(15:18:22/2+00:24:08) Richard B. Levin MR. LEVIN: And your Honor, as I understand -- let me go back to what I suggested a moment ago and then -- of what you're going to consider. What I suggested I think fits with what the Court has proposed, and that is that the new evidence might be a grounds for allowing them to file a late opposition, and that's what they're going to show, but, what I think I hear the Court saying is the evidence in support of that motion to file a late opposition is not going to go to the substance of why it's good evidence, why it's a good deal, or why it should be pursued, but rather, why it took them so long.

(15:19:03/2+00:24:49) Kevin Gross autograph THE COURT: That's correct, but the la-- the pra-- I, I want you all to know that the practical result of my finding that they should have leave to file this and for the Court to consider this would be either we proceed today on the merits --

(15:19:18/2+00:25:04) Richard B. Levin MR. LEVIN: Yes.

(15:19:19/2+00:25:05) Kevin Gross autograph THE COURT: Or, we adjourn.

(15:19:21/2+00:25:07) Richard B. Levin MR. LEVIN: We understand that, your Honor, but we're first going to take whether they should be allowed to file this late document.

(15:19:27/2+00:25:13) Kevin Gross autograph THE COURT: Yes.

(15:19:27/2+00:25:13) Richard B. Levin MR. LEVIN: Thank you, your Honor.

(15:19:29/2+00:25:15) Kevin Gross autograph THE COURT: I think that's the way we have to proceed under these circumstances, and I do understand, again, I'm very sensitive, not only to a debtor being able to maintain its case, but as well to what's in the best interest of the creditors of these estates, of this estate, and that may very well mean this sale. So -- but in the first instance I need to know why I should be considering the evidence.

(15:19:57/2+00:25:43) Arthur Jay Spector MR. SPECTOR: So, your Honor, you're asking me to make a separate record, or to --

(15:19:59/2+00:25:45) Kevin Gross autograph THE COURT: Yes.

(15:19:20/2+00:25:06) Arthur Jay Spector MR. SPECTOR: -- begin with an opening and call my first witness, and I'll --

(15:20:02/2+00:25:48) Kevin Gross autograph THE COURT: I think to make a separate record here on the, um, permissibility of my considering your evidence.

(15:20:09/2+00:25:55) Arthur Jay Spector MR. SPECTOR: Well, in that case, I will make my off-the-cuff perfunctory opening on that --

(15:20:14/2+00:26:00) Kevin Gross autograph THE COURT: Okay.

(15:20:14/2+00:26:00) Arthur Jay Spector MR. SPECTOR: -- point and then call a witness.

(15:20:15/2+00:26:01) Kevin Gross autograph THE COURT: All right.

(Start of trial on the debtors' oral motion for the sale agreement to be allowed as evidence when the conversion motions are tried)

(15:20:20/2+00:26:06) Arthur Jay Spector MR. SPECTOR: The evidence will show, for Mr. McBride and perhaps others, that after the debtor filed its plan in January 2009 that provided for a 363 sale of parts of the business, and as a second alternative a stand-alone plan, if the price was not sufficient to cover what we needed to cover, that Mr. McBride received phone calls from a number of different sources saying don't do that, fall in with us, we'd like to be your sponsor, we'd like to buy the property itself. One of those calls was from the aforesaid Mr. Norris, and, frankly, we had other calls. I think York also called again, and others. And so, talks started again, and rather than proceed with a 363 sale, they warmed up those ashes and -- and saw wh-- see what -- to see what they could do.

(15:21:26/2+00:27:12) Arthur Jay Spector Skipping ahead to the current. In the meantime, other parties in interest contacted the debtor for various and sundry deals. As of the day I wrote this response, your Honor, we had four deals on the table, that I didn't know which one to address in my response. All of-- it was literally a horse race, and we jokingly considered who's out -- nose and -- who's in front, who's catching up and so forth. We had our deal team at Berger Singerman working on four deals at one time.

(15:22:06/2+00:27:52) Arthur Jay Spector And Mr. McBride, who I didn't -- was not intending to ask about this, but given the new subject matter I will have to go into this. We devoted a large part of our time to other suitors that were, until very recently, out in front. And we only -- and until we signed this deal, I had no expectation for sure that we were going to get a GCP deal.

(15:22:37/2+00:28:23) Arthur Jay Spector Mr. McBride will testify similarly, they were going back and forth while I was working on my opening statement today. Mr. Caplan was in Pachulski's office sending drafts back and forth to the Bryan Cave folks for CG -- GCP, Gulf Capital Partners, which is the investment banker for the deal, for the buyers. And, I got to say I was almost shocked when I got the phone call walking over here, that the deal was actually signed.

(15:23:10/2+00:28:56) Arthur Jay Spector MR. SPECTOR: So, that's the very high viewpoint. If you're going to want more details on that, I'm going to put Mr. McBride on the stand.

(15:23:18/2+00:29:04) Kevin Gross autograph THE COURT: Yes.

(15:23:19/2+00:29:05) Arthur Jay Spector MR. SPECTOR: May have to put Mr. Caplan, our deal, uh, partner, on the stand.

(15:23:24/2+00:29:10) Kevin Gross autograph THE COURT: Okay.

(15:23:24/2+00:29:10) Arthur Jay Spector MR. SPECTOR: May even wind up calling Bryan Cave's counsel, who are here, because that's just that deal. Mr. Caplan can tell you about all the other deals he was working on. He and Dan Lampert of our office were working on.

(15:23:35/2+00:29:21) Arthur Jay Spector And so, it was unbelievably stressful and hectic, and we didn't know what deal we were going to bring to this court, or -- if any. But, that's my proffer of my opening statement, and with that I'll call Mr. McBride as my first witness.

(15:23:49/2+00:29:35) Kevin Gross autograph THE COURT: Very well. Thank you Mr. Spector. Mr. McBride, good afternoon. If you'll remain standing while you're sworn, sir.

(15:24:00/2+00:29:46) 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.

(15:24:06/2+00:29:52) Darl Charles McBride MR. MCBRIDE: Darl Charles McBride. Last name is M-C capital B-R-I-D-E.

(15:24:11/2+00:29:57) CLERK: Do you solemnly swear to tell the truth, the whole truth, and nothing but the truth, so help you God?

(15:24:15/2+00:30:01) Darl Charles McBride MR. MCBRIDE: Yes, I do.

(15:24:16/2+00:30:02) CLERK: Thank you.

(15:24:17/2+00:30:03) Kevin Gross autograph THE COURT: You may proceed whenever you're ready.

(Direct examination of Darl Charles McBride by Mr. Spector for SCO)

(15:24:19/2+00:30:05) Arthur Jay Spector Q: Your name, please, for the record.

(15:24:21/2+00:30:07) Darl Charles McBride A: Darl Charles McBride.

(15:24:24/2+00:30:10) Arthur Jay Spector Q: Thank you -- forgot she already got to that.

(15:24:27/2+00:30:13) Arthur Jay Spector MR. SPECTOR: May I dispense with the pedigree, for this court --

(15:24:28/2+00:30:14) Kevin Gross autograph THE COURT: Yes

(15:24:29/2+00:30:15) Arthur Jay Spector MR. SPECTOR: -- part of it?

(15:24:29/2+00:30:15) Kevin Gross autograph THE COURT: Yes.

(15:24:30/2+00:30:16) Arthur Jay Spector MR. SPECTOR: Thank you.

(15:24:30/2+00:30:16) Kevin Gross autograph THE COURT: We have that on the record, I think, previously.

(15:24:32/2+00:30:18) Arthur Jay Spector MR. SPECTOR: All right, then. I was going to do it in my regular op-- but I'll pass on that.

(15:24:36/2+00:30:22) Kevin Gross autograph THE COURT: All right.

(15:24:37/2+00:30:23) Arthur Jay Spector Q: Mr. McBride, you've been in court, you've heard what the subject matter of this part of the trial is about?

(15:24:43/2+00:30:29) Darl Charles McBride A: Yes.

(15:24:44/2+00:30:30) Arthur Jay Spector Q: Okay. Basically, why is it that we showed up literally at the last second with a contract of this sort. Right, that was -- that's the issue?

(15:24:54/2+00:30:40) Darl Charles McBride A: Right.

(15:24:55/2+00:30:41) Arthur Jay Spector Q: Okay, please explain to the Court, uh, when -- oh, all right, all right, we'll do it the easy way, can you tell the Court why it took this long to get this deal here now?

(15:25:11/2+00:30:57) Darl Charles McBride A: Well, there's a lot of circumstances. If you want to talk to the very beginning of the -- when the case was filed, or talking --

(15:25:17/2+00:31:03) Arthur Jay Spector Q: Answer it any way you choose.

(15:25:18/2+00:31:04) Darl Charles McBride A: -- recently, okay.

(15:25:19/2+00:31:05) Richard B. Levin MR. LEVIN: Objection, your Honor. That -- that last comment from Mr. Spector confirmed what we feared over here. This calls for a very long narrative. Counsel should ask questions.

(15:25:29/2+00:31:15) Kevin Gross autograph THE COURT: All right --

(15:25:29/2+00:31:15) Arthur Jay Spector MR. SPECTOR: I'll go back --

(15:25:30/2+00:31:16) Kevin Gross autograph THE COURT: -- Yes, I sustain that.

(15:25:32/2+00:31:18) Arthur Jay Spector Q: When did you -- when did you first meet Mr. Norris?

(15:25:36/2+00:31:22) Darl Charles McBride A: I first met Mr. Norris about a year and a half ago.

(15:25:41/2+00:31:27) Arthur Jay Spector Q: And what was the subject matter of that meeting?

(15:25:44/2+00:31:30) Darl Charles McBride A: The subject matter was discussion about investing in our company, S-C-O.

(15:25:50/2+00:31:36) Arthur Jay Spector Q: Okay, and tell us what those negotiations were about at the first stage.

(15:25:55/2+00:31:41) Darl Charles McBride A: The first stage, Mr. Norris represented that he had a group of investors from the Middle East that were prepared to come in and invest in our company.

(15:26:08/2+00:31:54) Arthur Jay Spector Q: And did that -- how long did those talks last before we finally put something before the Court, if you can recall?

(15:26:16/2+00:32:02) Darl Charles McBride A: Um, we were talking for, I would say, several weeks, before we filed something with this court.

(15:26:24/2+00:32:10) Arthur Jay Spector MR. SPECTOR: Um, you Honor, I don't know if you want me to go into what that deal was. It's all on the record.

(15:26:28/2+00:32:14) Kevin Gross autograph THE COURT: It's a -- th-- I've --

(15:26:29/2+00:32:15) Arthur Jay Spector MR. SPECTOR: Okay.

(15:26:30/2+00:32:16) Kevin Gross autograph THE COURT: It's not necessary.

(15:26:31/2+00:32:17) Arthur Jay Spector MR. SPECTOR: Okay.

(15:26:32/2+00:32:18) Arthur Jay Spector Q: Um, eventually, what happened with that proposal?

(15:26:35/2+00:32:21) Darl Charles McBride A: Eventually, the legal team from the Middle East investment group that was doing due diligence had problems with the sale, or I'm sorry, the ruling that had come out of the Utah courtroom, which had been the reason that the York deal previous to the Norris deal had not gone through, and they --

(15:26:56/2+00:32:42) Arthur Jay Spector Q: Is that the ruling of 2007 you're speaking of?

(15:26:59/2+00:32:45) Darl Charles McBride A: Correct, August of 2007.

(15:27:03/2+00:32:49) Arthur Jay Spector Q: And they were unable to get their arms around this deal, was that a problem?

(15:27:07/2+00:32:53) Darl Charles McBride A: It was, it was like how you buy a house when you can't figure out if you have the title to it here.

(15:27:14/2+00:33:00) Arthur Jay Spector Q: All right, then -- skipping forward then to the, uh, end of December of '08, January, beginning of January of '09, do you remember authorizing me to file a plan on behalf of the companies?

(15:27:25/2+00:33:11) Darl Charles McBride A: Yes

(15:27:26/2+00:33:12) Arthur Jay Spector Q: All right, can you describe that plan for the -- for the Court?

(15:27:29/2+00:33:15) Darl Charles McBride A: Yes.

(15:27:30/2+00:33:16) Arthur Jay Spector Q: Just, just summary.

(15:27:31/2+00:33:17) Darl Charles McBride A: The summary of that plan was that we would have a 363 asset sale of our products businesses, and we would either come back to the court with a conclusion to that sale, or, in the alternative, we would come back and say we are going to revamp the company down into a smaller non-product development kind of company that would be profitable.

(15:27:59/2+00:33:45) Arthur Jay Spector MR. SPECTOR: Your Honor, it's just occurred to me --

(15:28:01/2+00:33:47) Kevin Gross autograph THE COURT: Yes.

(15:28:01/2+00:33:47) Arthur Jay Spector MR. SPECTOR: -- talking about people's schedules. I haven't spoken to Mr. Caplan about this eventuality, but I may want to ask Mr. McBride to step down and get Mr. Caplan. He has to -- he has an uncle who died in Philadelphia and he's got to go to a shiva, he's got to leave at four thirty. So, if I'm going to ask him any questions, it just occurs to me, it's almost three thirty now. I'd like to put him on so he can be gone before.

(15:28:25/2+00:34:11) Kevin Gross autograph THE COURT: All right.

(15:28:26/2+00:34:12) Arthur Jay Spector MR. SPECTOR: Is that, is that a problem for anyone?

(15:28:30/2+00:34:16) Richard B. Levin MR. LEVIN: Excuse me, your Honor, what is the topic of his testimony?

(15:28:33/2+00:34:19) Kevin Gross autograph THE COURT: He will -- go on, I'm sorry.

(15:28:34/2+00:34:20) Arthur Jay Spector MR. SPECTOR: The topic of the testimony is why it took so long, what the issues were that took us to this very minute to get the deal done.

(15:28:41/2+00:34:27) Kevin Gross autograph THE COURT: Yes. All right, that's certainly --

(15:28:43/2+00:34:29) Richard B. Levin MR. LEVIN: No objection, your Honor.

(15:28:44/2+00:34:30) Kevin Gross autograph THE COURT: -- I certainly understand, and I -- that's fine.

(15:28:46/2+00:34:32) Arthur Jay Spector MR. SPECTOR: Step down, please.

(15:28:48/2+00:34:34) Arthur Jay Spector I call Franklin Caplan to the stand.

(15:28:58/2+00:34:44) Kevin Gross autograph THE COURT: Mr. Caplan, if you will just step in the -- in the box. May we waive the swearing of an attorney? Or do you -- would you like him sworn?

(15:29:08/2+00:34:54) Richard B. Levin MR. LEVIN: He's an attorney, your Honor?

(15:29:09/2+00:34:55) Kevin Gross autograph THE COURT: Yes.

(15:29:10/2+00:34:56) Richard B. Levin MR. LEVIN: I think that's appropriate.

(15:29:11/2+00:34:57) Arthur Jay Spector MR. SPECTOR: Thank you, your honor.

(15:29:12/2+00:34:58) Kevin Gross autograph THE COURT: To waive -- to waive? Okay, you may just be seated. Thank you. Mr. Caplan, I lost an uncle myself and I rushed down to a funeral today and rushed back, so I certainly sympathize with you.

(15:29:23/2+00:35:09) Franklin Hoff Caplan MR. CAPLAN: I wonder if we're related, your Honor.

(15:29:25/2+00:35:11) Kevin Gross autograph THE COURT: I don't know. Vineland, New Jersey, of all places.

(15:29:28/2+00:35:14) Franklin Hoff Caplan MR. CAPLAN: Eh, different uncle.

(Direct examination of Franklin Caplan by Mr. Spector for SCO)

(15:29:29/2+00:35:15) Arthur Jay Spector Q: Frank, Frank would you please state your name and occupation for the record.

(15:29:32/2+00:35:18) Franklin Hoff Caplan A: Franklin Caplan. I'm an attorney.

(15:29:34/2+00:35:20) Arthur Jay Spector Q: And you were present during the colloquy with the Court and counsel regarding the purpose of this testimony?

(15:29:39/2+00:35:25) Franklin Hoff Caplan A: Yes.

(15:29:40/2+00:35:26) Arthur Jay Spector Q: Okay, can you explain, when did you first come into the picture, with respect to dealing with Mr. Norris or his various interests relative to SCO?

(15:29:52/2+00:35:38) Franklin Hoff Caplan A: On one prior occassion, prior to this transaction, roughly the beginning, I believe, of 2009, I'm not certain -- 2008, I'm not certain about the date, it was quite a while ago, and it pertained to a deal that didn't occur.

(15:30:11/2+00:35:57) Arthur Jay Spector Q: Did you, uh, partake in the negotiations and drafting of the deal that's before the Court now?

(15:30:16/2+00:36:02) Franklin Hoff Caplan A: Yes.

(15:30:17/2+00:36:03) Arthur Jay Spector Q: Tell the Court what difficulties you encountered in getting this deal done.

(15:30:22/2+00:36:08) Franklin Hoff Caplan A: I became involved in this episode approximately between three and four weeks ago. At that time, I came in to assist another colleague of mine who was projecting to go on a holiday. The timing within we were thinking that this deal had a chance to be reduced to a contract overlapped with his vacation plan. So, I became involved and jumped into a deal that had moved to a fairly evolved state, but which was substantially affected by, I wouldn't say so much disagreement about, but the need to explain precisely what it was that was being sold, what it was that was not being sold, and how, within the realm of assets not being sold, intellectual property that supported the litigation that's been I'm sure discussed in these proceedings from the beginning, could proceed such that SCO in prosecuting those cases wouldn't be compromised in its standing and would have the full array of rights that it intended to argue about in that proceeding.

(15:31:48/2+00:37:34) Arthur Jay Spector Q: And, so, that issue about how SCO can sell intellectual property, yet retain sufficient rights in that property to maintain lawsuits against IBM, Novell, and perhaps others, was the sticking point?

(15:32:05/2+00:37:51) Franklin Hoff Caplan A: That was the major sticking point. On top of that, the predictable array of buttoning-up points to make a document internally consistent took some time, but that was the sticking point.

(15:32:22/2+00:38:08) Arthur Jay Spector Q: Well, did the bucket of assets change at any time during your negotiation and drafting of this deal?

(15:32:29/2+00:38:15) Franklin Hoff Caplan A: The bucket of assets changed materially and frequently during our drafting of this deal. In one respect, pertaining to certain products that might or might not be included in the sale, but more importantly, and more difficult to manage from the draftsman's perspective, what exactly SCO needed to retain so as to be able to maintain standing and prosecute the litigation.

(15:32:58/2+00:38:44) Arthur Jay Spector Q: Are there any other issues of difficulty that you had to get around?

(15:33:04/2+00:38:50) Franklin Hoff Caplan A: There were conforming representations and warranties, uh, I view that and suggest that one should view that in the context of just making a document work. But it, but it, I think it's fair to say, and it would be accurate, that all of those, I'll call them housekeeping issues pertaining to this purchase and sale agreement, revolved mostly and materially around the issue of the retained litigation rights.

(15:33:30/2+00:39:16) Arthur Jay Spector Q: Other than the commonality of Mr. Norris and SCO, were these the same cast of characters that were purchasing, that you were dealing with the year before?

(15:33:38/2+00:39:24) Franklin Hoff Caplan A: No. Uh, the principal businessman, whom I've spoken to on the telephone once I believe, but only met by email otherwise, is not someone that I'd met previously.

(15:33:54/2+00:39:40) Arthur Jay Spector Q: And are you familiar with, uh, -- strike that. Where is this person that you are referring to located?

(15:34:04/2+00:39:50) Franklin Hoff Caplan A: London.

(15:34:05/2+00:39:51) Arthur Jay Spector Q: So you -- the principal of the buying group then is in London?

(15:34:08/2+00:39:54) Franklin Hoff Caplan A: Yes.

(15:34:09/2+00:39:55) Arthur Jay Spector Q: And Mr. Norris is not part of that buying group, he's part of the -- well, let me strike that. What is Mr. Norris's role, then?

(15:34:17/2+00:40:03) Franklin Hoff Caplan A: I'm not certain. Mr. Norris signed the document today. I met Mr. Norris for the first time this afternoon. I've not been aware of Mr. Norris weighing in on any of the negotiations although I believe he was copied on emails.

(15:34:34/2+00:40:20) Arthur Jay Spector Q: When did you first actually have a law firm to deal with, on the other side of the deal?

(15:34:40/2+00:40:26) Franklin Hoff Caplan A: I believe I met, uh, Mr. Pearce, who's in the courtroom from Bryan Cave, probably -- well again between three and half weeks ago or a month ago.

(15:34:55/2+00:40:41) Arthur Jay Spector Q: And before that there were no lawyers for the buyers, is that right?

(15:34:58/2+00:40:44) Franklin Hoff Caplan A: That's correct.

(15:34:59/2+00:40:45) Arthur Jay Spector Q: Okay.

(15:35:00/2+00:40:46) Franklin Hoff Caplan A: At least to my knowledge.

(15:35:02/2+00:40:48) Arthur Jay Spector Q: So this, did this new group of individuals behind the buying, behind the purchaser I should say, did they engage in new due diligence or were th-- use the old due diligence, or was it a combination?

(15:35:15/2+00:41:01) Franklin Hoff Caplan A: I believe it was a combination, although I wasn't primarily involved with the due diligence. There were a great many very elaborate disclosure schedules that had been developed from the York deal, that were delivered to Bryan Cave's team and were updated and swapped out as information changed.

(15:35:42/2+00:41:28) Arthur Jay Spector Q: What about schedules for this deal, how difficult was it to put together schedules for this deal?

(15:35:49/2+00:41:35) Franklin Hoff Caplan A: I perceived the scheduling was extremely difficult, although I wasn't working on it directly.

(15:35:54/2+00:41:40) Arthur Jay Spector Q: You had help on that?

(15:35:55/2+00:41:41) Franklin Hoff Caplan A: Yes. We had -- we had a team at our law firm, Bryan Cave had an extensive team of people, and SCO Group had an entire team dedicated only to responding to scheduling questions and missing information and the like.

(15:36:15/2+00:42:01) Arthur Jay Spector Q: What were you doing, uh, about Noon today?

(15:36:21/2+00:42:07) Franklin Hoff Caplan A: I was in the Pachulski conference room in Wilmington -- I drove here this morning from Philadelphia -- to hope, uh hopefully close, or sign, rather, finalize and sign, on this purchase agreement. At around noon today, I was engaged in electronic communication with Bryan Cave, a team of lawyers, exchanging comments principally on the subject of what we called the retained litigation rights.

(15:36:55/2+00:42:41) Franklin Hoff Caplan While that was occurring, there was shifting of disclosure information from one schedule to another, to describe assets that were to be sold, as opposed to assets that were to be retained.

(15:37:10/2+00:42:56) Franklin Hoff Caplan A: And what were you doing at one o'clock this afternoon?

(15:37:15/2+00:43:01) Franklin Hoff Caplan A: At one o'clock this afternoon I was taking an Advil. I was emailing, with, I think, increasing interest, Bryan Cave, as to whether we were actually going to see a contract. We were aware of the court start time at two o'clock today. We were aware of the need to read it, once it was delivered. And, at about one o'clock today it hadn't yet come, so we were anxious about that.

(15:37:47/2+00:43:33) Arthur Jay Spector Q: When did you finally see the contract?

(15:37:49/2+00:43:35) Franklin Hoff Caplan A: I think the contract hit at about one fifteen. It might have been one ten or approximately. We received a blackline. We -- it was not blacklined against a draft that we had circulated as a suggestion draft last evening. So it took a few minutes to create that opportunity to read what Bryan Cave was coming back to by way of final proposals, against that which we had suggested last evening.

(15:38:18/2+00:44:04) Franklin Hoff Caplan At about one thirty we had finished that review, and about quarter to two we decided we were ready to sign.

(15:38:26/2+00:44:12) Arthur Jay Spector Q: And where did you do the signing?

(15:38:28/2+00:44:14) Franklin Hoff Caplan A: The signing took place in the lobby at the Hotel du Pont.

(15:38:32/2+00:44:18) Arthur Jay Spector Q: At about quarter to two, or ten to two, or so?

(15:38:35/2+00:44:21) Franklin Hoff Caplan A: It finished at about two o'clock.

(15:38:37/2+00:44:23) Arthur Jay Spector Q: Two o'clock.

(15:38:38/2+00:44:24) Franklin Hoff Caplan A: I went back to Pachulski to create duplicate sets of the original document. I didn't pause to make photocopies because I believed the court hearing was going to commence at two o'clock.

(15:38:56/2+00:44:42) Arthur Jay Spector Q: Now let's, let's go back now. And, and, uh, three and a half weeks ago when you came in to help out, I think the partner's name you helped was Dan Lampert, right?

(15:39:06/2+00:44:52) Franklin Hoff Caplan A: That's correct.

(15:39:07/2+00:44:53) VOICE: Excuse me, could you --

(15:39:08/2+00:44:54) Arthur Jay Spector Q: Were there any --

(15:39:09/2+00:44:55) VOICE: Dan --

(15:39:09/2+00:44:55) Arthur Jay Spector MR. SPECTOR: Dan Lampert.

(15:39:10/2+00:44:56) VOICE: He's been here before, I think you know him.

(15:39:13/2+00:44:59) Arthur Jay Spector Q: Um, were there any other deals that you were working on while you were working on this Gulf Coast Partners deal?

(15:39:22/2+00:45:08) Franklin Hoff Caplan A: Um, yes.

(15:39:25/2+00:45:11) Arthur Jay Spector Q: Tell the Court about those deals.

(15:39:29/2+00:45:15) Franklin Hoff Caplan A: There were three other deals. One deal involved a plan sponsor, whose name was LSC Holdings, I believe. That deal was proceeding -- it accelerated shortly after this deal, the deal that's presented today, became rather fast and furious. As it accelerated it became apparent that what it was looking like was a plan and a DIP loan.

(15:40:10/2+00:45:56) Franklin Hoff Caplan Uh, I believe it was -- the negotiations were between five and six and a half million dollars of, uh, DIP loan and a plan that would result in the acquisition of a range of equity in SCO, um, post-confirmation. Post-bankruptcy, I guess.

(15:40:33/2+00:46:19) Arthur Jay Spector Q: Was there a time that it was the belief of the Berger Singerman and SCO team that that was the leading horse in the race for the deal?

(15:40:44/2+00:46:30) Franklin Hoff Caplan A: Yeah, there wa-- there was approx-- there was about a week -- there was about a week's time -- five-day maybe -- maybe into Saturday of the week before last, that that deal received the bulk of our attention.

(15:40:55/2+00:46:41) Arthur Jay Spector Q: Tell -- tell the Court about the other deals that we were working on.

(15:41:01/2+00:46:47) Franklin Hoff Caplan A: At the same time, there was a third deal that was proposed by a gentleman named Hank Bysteen (phonetic). This deal involved a subscription for warrants in SCO and a funding into SCO of approximately -- to be determined, but the range was I think between two and a half million dollars and up. And the consideration for that, in addition to warrants, would be a share of litigation proceeds if there are any.

(15:41:45/2+00:47:31) Arthur Jay Spector Q: Uh, by the way, who was your counterpart on the DIP loan plan sponsor deal. Who were the attorneys on the other side of that?

(15:41:52/2+00:47:38) Franklin Hoff Caplan A: The attorneys were Proskauer Rose. Uh, the lead lawyer in the deal was Peter, and I'm afraid I can't pronounce --

(15:41:59/2+00:47:45) Arthur Jay Spector Q: Was it Antoszyk?

(15:42:01/2+00:47:47) Franklin Hoff Caplan A: Yes, that's the name.

(15:42:02/2+00:47:48) Arthur Jay Spector Q: A-N-T-O-S-Z-Y-K?

(15:42:04/2+00:47:50) Franklin Hoff Caplan A: That's right. We, um, spent -- the same time we were working on this deal with the Bryan Cave attorneys we were working -- at various times more, probably never less, simultaneously with this Pro-- with the Proskauer lawyers.

(15:42:28/2+00:48:14) Arthur Jay Spector Q: Did the Hank deal have any face-to-face meetings between the parties, to your knowledge?

(15:42:38/2+00:48:24) Franklin Hoff Caplan A: I believe the parti-- I believe the principals met on at least three occasions that I'm aware of.

(15:42:44/2+00:48:30) Arthur Jay Spector Q: Weren't they in New York over this past weekend, meeting?

(15:42:48/2+00:48:34) Franklin Hoff Caplan A: I don't know that. I, I was on the telephone myself with Mr. Bysteen this weekend.

(15:42:55/2+00:48:41) Arthur Jay Spector Q: So as of this weekend that deal was still very much alive?

(15:42:59/2+00:48:45) Franklin Hoff Caplan A: This -- my Saturday morning was spent on that deal.

(15:43:01/2+00:48:47) Arthur Jay Spector Q: Saturday morning was -- on the Hank deal?

(15:43:03/2+00:48:49) Franklin Hoff Caplan A: Yes.

(15:43:05/2+00:48:51) Arthur Jay Spector Q: Tell the -- tell the judge about the fourth deal.

(15:43:08/2+00:48:54) Franklin Hoff Caplan A: The fourth deal was a bit of a hybrid. It involved the investment on the part of one of the directors of SCO of new moneys. It asked for a simultaneous commitment on the part of other directors, shareholders, or others who might be interested in making a commitment to invest, a sum of money the sum of which was, minimum, a million dollars.

(15:43:44/2+00:49:30) Franklin Hoff Caplan The consideration for that investment or those investments would be the issuance of warrants, um, with -- again with conversion rights similar to the Hank deal that would depend on various factors, and also a share of the litigation proceeds if there were any.

(15:44:02/2+00:49:48) Arthur Jay Spector Q: With whom did you work on the other side trying to document that deal?

(15:44:10/2+00:49:56) Franklin Hoff Caplan A: I confess a lack of memory. I -- it was happening simultaneously.

(15:44:15/2+00:50:01) Arthur Jay Spector Q: Well, let me ask you if this -- if I've got the right person. Was it David Marks?

(15:44:20/2+00:50:06) Franklin Hoff Caplan A: David Marks was assisting -- my view of David Marks was that he was assisting me in identifying corporate formality needs that SCO would need to accomplish to put SCO in a position to do the deal. David Marks is a lawyer at Dorsey.

(15:44:38/2+00:50:24) Arthur Jay Spector Q: When were you last in conversation with him on the fourth deal?

(15:44:44/2+00:50:30) Franklin Hoff Caplan A: Uh, Saturday.

(15:44:47/2+00:50:33) Arthur Jay Spector Q: So all of these deals were alive, as of this weekend?

(15:44:50/2+00:50:36) Franklin Hoff Caplan A: As of this weekend, my personal psychology was that it was more likely that we were going to perform either the Hank deal or the so-called Ralph deal, the fourth deal, or a combination of the two of them.

(15:45:04/2+00:50:50) Franklin Hoff Caplan It was yesterday around eleven o'clock in the morning when I realized that we were going to be working on this deal.

(15:45:15/2+00:51:01) Arthur Jay Spector Q: Was my analogy in my opening statement, about the horse race, is that something that was actually used, or?

(15:45:22/2+00:51:08) Franklin Hoff Caplan A: Well, yes, but it came about on Belmont Saturday, so I wouldn't take too much credit for it.

(15:45:29/2+00:51:15) Arthur Jay Spector Q: All right, so, this Saturday was June thirteenth. Our response deadline was, I'll submit to the Court, was June fifth. So, would it have been possible -- this is a rhetorical question -- for us to have highlighted in our response that we had a deal with Gulf Capital Partners on June fifth?

(15:45:47/2+00:51:33) Franklin Hoff Caplan A: Not in my opinion.

(15:45:49/2+00:51:35) Arthur Jay Spector MR. SPECTOR: Okay, um, that's all I have for the witness.

(15:45:58/2+00:51:44) Kevin Gross autograph THE COURT: All right, thank you, sir.

(15:45:59/2+00:51:45) Arthur Jay Spector MR. SPECTOR: By the way, w-- one more -- like Colombo, one more question.

(15:46:03/2+00:51:49) Arthur Jay Spector Q: When was the last time you were in a courtroom?

(15:46:05/2+00:51:51) Franklin Hoff Caplan A: I guess, this morning in speaking to some of the Bryan Cave attorneys, that it was 1987.

(15:46:11/2+00:51:57) Arthur Jay Spector MR. SPECTOR: Okay, thank you.

(15:46:13/2+00:51:59) Kevin Gross autograph THE COURT: Thank you, Mr. Spector. Mr. Levin?

(15:46:15/2+00:52:01) Richard B. Levin MR. LEVIN: Your Honor, since this is unplanned testimony, and unplanned cross-examination --

(15:46:21/2+00:52:07) Kevin Gross autograph THE COURT: Yes.

(15:46:22/2+00:52:08) Richard B. Levin MR. LEVIN: It would be helpful to know from Mr. Spector, which other witnesses he will have on this narrow issue. Other than Mr. McBride, of course, we know that.

(15:46:32/2+00:52:18) Arthur Jay Spector MR. SPECTOR: Depending on how it goes, I may be calling someone from Bryan Cave. I don't even know the names of the people. They're in the courtroom, and I may want to call them to get the other side of the deal. But I'm reserving that. I'm just giving the best I can tell you right now.

(15:46:45/2+00:52:31) Kevin Gross autograph THE COURT: All right.

(15:46:57/2+00:52:43) Arthur Jay Spector MR. SPECTOR: Mr. Tibbitts reminds me that there were people in our shop doing massive due diligence all this time. We may be calling Bill Broderick to testify about that, and we'll see. I hadn't considered it because I hadn't considered this whole thing yet.

(15:47:17/2+00:53:03) Adam Aiken Lewis MR. LEWIS: Good afternoon.

(15:47:19/2+00:53:05) Franklin Hoff Caplan MR. CAPLAN: Good afternoon, sir.

(Cross-examination of Franklin Caplan by Mr. Lewis for Novell)

(15:47:20/2+00:53:06) Adam Aiken Lewis Q: How are you?

(15:47:20/2+00:53:06) Franklin Hoff Caplan A: Fine, thank you.

(15:47:21/2+00:53:07) Adam Aiken Lewis Q: Good. I'm Adam Lewis. I represent Novell in this matter. I just have a very few questions for you. You gave some testimony about how you were dealing with someone in London. Do you recall that testimony?

(15:47:33/2+00:53:19) Franklin Hoff Caplan A: Yes, sir.

(15:47:34/2+00:53:20) Adam Aiken Lewis Q: Do you know who's affiliated with that person in London?

(15:47:37/2+00:53:23) Franklin Hoff Caplan A: Who is -- ?

(15:47:38/2+00:53:24) Adam Aiken Lewis Q: Who is affiliated with that person in London?

(15:47:40/2+00:53:26) Franklin Hoff Caplan A: You know, I -- I'd be -- I don't. I know his name is Eric le Blan. I don't know anything about him, really.

(15:47:47/2+00:53:33) Adam Aiken Lewis Q: And so you don't know whether -- whom else might have been behind whatever group he might be representing, or anything like that?

(15:47:55/2+00:53:41) Franklin Hoff Caplan A: I've assumed that Mr. Norris was.

(15:48:00/2+00:53:46) Adam Aiken Lewis Q: But you don't know.

(15:48:02/2+00:53:48) Franklin Hoff Caplan A: I don't know how they're related, in business or otherwise. Um, it -- it never really came up.

(15:48:08/2+00:53:54) Adam Aiken Lewis Q: Okay. Now, the bucket of assets and transfer of the litigation issue, that you testified to as being really the key issue I think you said, in terms of the negotiations -- is that a fair statement?

(15:48:29/2+00:54:15) Franklin Hoff Caplan A: Yes.

(15:48:30/2+00:54:16) Adam Aiken Lewis Q: Had that issue ever come up before for, uh, SCO -- the entire contemplated transactions?

(15:48:39/2+00:54:25) Franklin Hoff Caplan A: Insofar as I've been involved -- my major involvement was in the York, uh, attempted York deal from I think it was Christmas '07 approximately, and I don't -- the litigation was important, but the parsing of holding back intellectual property, insofar as I can remember, was much less important than was -- there was a certain class of mobility products that was not to be sold, and trying to describe that so it was clear what was and what wasn't being conveyed was more at issue in York.

(15:49:19/2+00:55:05) Adam Aiken Lewis Q: But it was an issue with York as well, whether larger or smaller?

(15:49:24/2+00:55:10) Franklin Hoff Caplan A: It was, it was -- relevant. I don't actually recall, I don't recall that anything like the type of negotiation that we went throught with respect to this deal, was pertinent in that York transaction.

(15:49:39/2+00:55:25) Adam Aiken Lewis Q: And in the prior SNCP deal, the Stephen Norris, the plan that was filed I think in the Spring of last year, do you recall whether that issue came up in that?

(15:49:49/2+00:55:35) Franklin Hoff Caplan A: I had very little involvement with that --

(15:49:51/2+00:55:37) Adam Aiken Lewis Q: Okay.

(15:49:52/2+00:55:38) Franklin Hoff Caplan A: I read a term sheet, and I didn't participate further.

(15:50:05/2+00:55:51) Adam Aiken Lewis Q: When you decided to sign the agreement today, were you satisfied that the agreement was in final form?

(15:50:15/2+00:56:01) Franklin Hoff Caplan A: Yes.

(15:50:16/2+00:56:02) Adam Aiken Lewis Q: Okay, you don't anticipate any amendments, changes, cleanups, fixes, issues that might have been overlooked?

(15:50:26/2+00:56:12) Adam Aiken Lewis Q: It's conceivable that a type of product that is intended not to be sold -- this is not pertinent to the litigation issues -- but a type of product that is not to be sold was accurately reflected as excluded in one place but not another place. Um, my -- my clients were aware of that. I believe the Bryan Cave team is aware of that, the decision was, there was no time to fix it, but there was an understanding that this Me, Inc. class of assets is not to be sold.

(15:51:04/2+00:56:50) Adam Aiken Lewis Q: Do you believe that there may be other issues that will need some cleanup later on because of the rushed nature of the negotiations?

(15:51:12/2+00:56:58) Franklin Hoff Caplan A: I'm not aware of any.

(15:51:13/2+00:56:59) Adam Aiken Lewis Q: Okay, do you think there might be, given your experience in trying to document deals?

(15:51:30/2+00:57:16) Franklin Hoff Caplan A: It -- I mean, just in general, this type of work, this was an extraordinarily fast process and a complicated document. At the same time, um, we collaborated very well, over the -- especially yesterday and this morning. Um, it's possible. It wouldn't shock anybody who's ever been around a transaction. But, as I sit here, I think we did a pretty good job, in getting this right.

(15:51:49/2+00:57:35) Adam Aiken Lewis MR. LEWIS: I have no further questions. Thank you, sir.

(15:51:53/2+00:57:39) Kevin Gross autograph THE COURT: Thank you, Mr. Lewis. Anyone else? Mr. Levin.

(15:52:00/2+00:57:46) Richard B. Levin MR. LEVIN: Thank you, your Honor. Good afternoon, Mr. Caplan, my name is Richard Levin, I represent IBM.

(15:52:04/2+00:57:50) Franklin Hoff Caplan MR. CAPLAN: Good afternoon.

(15:52:05/2+00:57:51) Richard B. Levin MR. LEVIN: First, condolences on your loss. I'm sorry you have to be here under these circumstances.

(15:52:09/2+00:57:55) Franklin Hoff Caplan MR. CAPLAN: Thank you.

(Cross-examination of Franklin Caplan by Mr. Levin for IBM)

(15:52:10/2+00:57:56) Richard B. Levin Q: I apologize if I didn't hear earlier, but what law firm are you with?

(15:52:14/2+00:58:00) Franklin Hoff Caplan A: Berger Singerman.

(15:52:16/2+00:58:02) Richard B. Levin Q: Oh, you are with Berger.

(15:52:26/2+00:58:12) Richard B. Levin You said that, uh, Mr. Lambert -- Lampert was handling the deal before you got involved?

(15:52:31/2+00:58:17) Franklin Hoff Caplan A: Yes.

(15:52:32/2+00:58:18) Richard B. Levin Q: Do you know how long he had been working at it?

(15:52:35/2+00:58:21) Franklin Hoff Caplan A: Not, not specifically. I believe that Dan is generally the principal lawyer on our transactional team that's involved with SCO, so, I'm surmising that whenever this latest round of transactions occurred, he would have been involved at the ti-- at the beginning.

(15:52:53/2+00:58:39) Richard B. Levin Q: But you don't know when that was.

(15:52:55/2+00:58:41) Franklin Hoff Caplan A: I don't.

(15:53:00/2+00:58:46) Richard B. Levin Q: What is your, uh, what is your specialty?

(15:53:04/2+00:58:50) Franklin Hoff Caplan A: Business transactions, real estate transactions.

(15:53:06/2+00:58:52) Richard B. Levin Q: Real estate primarily?

(15:53:08/2+00:58:54) Franklin Hoff Caplan A: Fifty-fifty.

(15:53:09/2+00:58:55) Franklin Hoff Caplan A: What is the other fifty

(15:53:11/2+00:58:57) Franklin Hoff Caplan A: Corporate and business transactions.

(15:53:13/2+00:58:59) Richard B. Levin Q: No particular focus on IP?

(15:53:15/2+00:59:01) Franklin Hoff Caplan A: No.

(15:53:16/2+00:59:02) Richard B. Levin Q: Does Mr. Lampert focus on IP?

(15:53:17/2+00:59:03) Franklin Hoff Caplan A: No. Both of us have probably similar level of experience with IP in the sense of deal lawyers who get involved in deals that involve IP but -- he's -- he -- he and I, I think have both been practicing around the same time, which is about twenty-three years, and in that time, uh, we confront copyrights and trademarks occasionally.

(15:53:48/2+00:59:34) Franklin Hoff Caplan I've never been around a patent and wouldn't know what it looked like, but, uh, I have, I think, a working knowledge of copyrights and tradmarks and intellectual property issues.

(15:54:02/2+00:59:48) Richard B. Levin Q: Uh, you testified earlier that there was extensive discussion on the -- on getting the assets in form, um, if I can say this right -- what SCO needed to maintain its ability to prosecute the litigation -- approximately your words. How did that, how did that issue come up, rather than just we're transferring all the rights to you?

(15:54:27/2+01:00:13) Franklin Hoff Caplan A: The deal structure, if I could put it in that term, was to, sell the business, quote-unquote, possibly with some holdbacks of certain types of products. The one that I mentioned earlier, Me, Inc., is an example of that carve-out.

(15:54:49/2+01:00:35) Franklin Hoff Caplan But, in any event, whatever the carve-out, to really carve out the litigation and whatever proceeds would derive from being successful with the litigation. And, that involved considerations of standing and considerations of what happens if they're successful in prosecuting claims that derive from that success, and trying to describe all that was what I was trying to allude to was that -- uh, most difficult issue in terms of documentation and structure.

(15:55:27/2+01:01:13) Richard B. Levin Q: Uh, and of course Mr. Lamburg had been in-- Lampert had -- apologize for mispronouncing his name continually, let me try that again. Mr. Lampert had been involved in that very issue before you got involved, right?

(15:55:40/2+01:01:26) Franklin Hoff Caplan A: I don't know for sure. Uh, let me -- someone will correct me if I'm wrong on this point -- I believe the first draft of the asset purchase agreement the, evolution of which is presented today, didn't have this issue articulated in any -- in any w-- in any way.

(15:56:07/2+01:01:53) Franklin Hoff Caplan I think this came about in discussing, you know, how this deal was actually going to work, and taking what struck me as not a generic asset purchase agreement, certainly SCO-tailored, but one that didn't really drill down in any kind of precise way this distinction between selling what I called the business a moment ago, and retaining the litigation.

(15:56:33/2+01:02:19) Franklin Hoff Caplan I think that altogether arose and happened on my watch. Now when I say my watch, my colleague Dan and others were involved in this negotiation and the documentation as well.

(15:56:48/2+01:02:34) Richard B. Levin Q: You said you took it over from him about four weeks ago when he was going on vacation. Has he come back from vacation yet?

(15:56:53/2+01:02:39) Franklin Hoff Caplan A: He's back from vacation.

(15:56:54/2+01:02:40) Richard B. Levin Q: How long was his vacation?

(15:56:56/2+01:02:42) Franklin Hoff Caplan A: Six days, I believe. Six bloody days. The -- we worked together during, uh, I think two weeks before he left. This was more about ramping up and being fluent on what was supposed to be happening. He was around for -- if I was in-- if I was involved in a month I would say he was around for all this -- all but six days.

(15:57:19/2+01:03:05) Richard B. Levin Q: And, and did the Berger Singerman legal team believe that this issue about what you characterized as standing was critically important to be able to maintain the litigation pending in Utah?

(15:57:33/2+01:03:19) Franklin Hoff Caplan A: I used the word standing. I'm not sure that SCO and the litigation team put it in quite precisely the same way. It was a convenient way for me to describe what I was trying to preserve. Personally I think that probably standing in the precise technical sense of what that means is affected by this, but I use that more as a convenient expression than as a litigation necessity or strategy.

(15:58:09/2+01:03:55) Richard B. Levin Q: Well then let me phrase this in a more general term, did you -- did the Berger Singerman legal team believe that this issue of the ability of SCO to continue to prosecute the litigation, and the -- describing it in the particular way that you did in the asset purchase agreement, was critical to SCO's ability to continue to process -- uh, prosecute the litigation?

(15:58:37/2+01:04:23) Arthur Jay Spector MR. SPECTOR: Uh, I'm going to object. He's asking about the Berger Singerman team. Uh, I think he's qualified to answer what he believed, but not as a team, there are multiple people on that team. I'll object to the question.

(15:58:50/2+01:04:36) Richard B. Levin MR. LEVIN: Then I'll ask --

(15:58:52/2+01:04:38) Kevin Gross autograph THE COURT: Yes.

(15:58:53/2+01:04:39) Richard B. Levin Q: -- the same question with what you -- with respect to what you believed, Mr. Caplan.

(15:58:56/2+01:04:42) Franklin Hoff Caplan A: Yeah, I believed, and believe, that it was important, to be able to maintain the litigation and to be successful at it, that we describe, this thing that I'm trying to articulate, correctly.

(15:59:15/2+01:05:01) Richard B. Levin Q: You mentioned, um, the initial draft of the purchase agreement. When was that initial draft?

(15:59:24/2+01:05:10) Franklin Hoff Caplan A: Uh, it preceded -- there was a draft that I inherited on a particular Sunday, whenever it was, I'll say a month ago roughly, and I believe that it came out of our office. And when I received it it was accompanied by a revision draft that was prepared by Bryan Cave. So my first review was to compare what Bryan Cave had done to our starting document.

(16:00:04/2+01:05:50) Richard B. Levin Q: You described three other deals. Do you know when those deals, when discussions over those deals began?

(16:00:15/2+01:06:01) Franklin Hoff Caplan A: With respect to what I call the Ralph deal, deal number four, roughly two and a half weeks ago. With respect to what I call the Hank deal, deal number three, roughly the same time. And with respect to the Proskauer deal, LSC, uh, a little bit prior to the time of the other two. Possibly the prior week.

(16:00:58/2+01:06:44) Franklin Hoff Caplan I think it's likely that I became aware of those deals approximately when they first arose, because we were so active during that time in trying to figure out what we were going to be doing.

(16:01:28/2+01:07:14) Richard B. Levin Q: And, you also testified that you got a revised document at one fifteen this afternoon?

(16:01:35/2+01:07:21) Franklin Hoff Caplan A: One ten, one fifteen.

(16:01:37/2+01:07:23) Richard B. Levin Q: And that you were able to review all those revisions and come to a decision within fifteen or twenty minutes? You and the client?

(16:01:44/2+01:07:30) Franklin Hoff Caplan A: I think we came to a decision at the hotel, so I'm thinking that it was probably close to two o'clock. I, uh, I came to the hotel last, because I stayed to print the document out, and I think that others were reading it while I was reading it too, and I had a conversation with our clients at the hotel, and that was the point in time that we decided to go with it.

(16:02:15/2+01:08:01) Richard B. Levin Q: So it's fair to say you accepted all of the revisions that Bryan Cave proposed at that point?

(16:02:20/2+01:08:06) Franklin Hoff Caplan A: We talked about one possible alternative wording on a point, and decided not to press the issue, and that was it.

(16:02:36/2+01:08:22) Richard B. Levin MR. LEVIN: Thank you, Mr. Caplan. I have no further questions, your Honor.

(16:02:39/2+01:08:25) Kevin Gross autograph THE COURT: Thank you, Mr. Levin. Excuse me. Mr. McMahon?

(16:02:42/2+01:08:28) Joseph James McMahon, Jr. autograph MR. MCMAHON: No (inaudible).

(16:02:43/2+01:08:29) Kevin Gross autograph THE COURT: No questions. All right, sir. Anything further?

(16:02:48/2+01:08:34) Arthur Jay Spector MR. SPECTOR: Thank you very much, Frank.

(16:02:49/2+01:08:35) Franklin Hoff Caplan MR. CAPLAN: Thank you. Thank you, your Honor.

(16:02:50/2+01:08:36) Kevin Gross autograph THE COURT: Thank you, Mr. Caplan, you may step down and you are excused, uh, when ready.

(16:02:55/2+01:08:41) Franklin Hoff Caplan MR. CAPLAN: Thank you, sir.

(16:02:59/2+01:08:45) Kevin Gross autograph THE COURT: Back to Mr. McBride?

(16:03:00/2+01:08:46) Arthur Jay Spector MR. SPECTOR: If I might have a minute to find out who here is from Bryan Cave and whether they might have anything to add.

(16:03:07/2+01:08:53) Kevin Gross autograph THE COURT: Absolutely.

(16:03:21/2+01:09:07) VOICE: Your honor, while that's going on, may we take a very short recess?

(16:03:24/2+01:09:10) Kevin Gross autograph THE COURT: Of course we may, at anyone's request.

(16:03:25/2+01:09:11) VOICE: Thank you.

(16:03:27/2+01:09:13) Kevin Gross autograph THE COURT: Five to ten minutes, certainly.

(16:03:28/2+01:09:14) VOICE: Thank you, your Honor.

(16:03:29/2+01:09:15) Kevin Gross autograph THE COURT: We stand in recess.

(16:03:31/2+01:09:17) *** RECESS ***

Third Session

(audio: 16:15:59 to 17:04:41 (23MB mp3))

(16:15:59/3+00:00:00) CLERK: Please rise.

(16:16:03/3+00:00:04) Kevin Gross autograph THE COURT: Thank you, everyone, please be seated.

(16:16:05/3+00:00:06) Arthur Jay Spector MR. SPECTOR: Your Honor, we'll recall Mr. McBride for the rest of his testimony.

(16:16:08/3+00:00:09) Kevin Gross autograph THE COURT: Thank you. Mr. McBride, you've already been sworn, you may just proceed.

(Resumed direct examination of Darl Charles McBride by Mr. Spector for SCO)

(16:16:18/3+00:00:19) Arthur Jay Spector Q: Mr. McBride, was there any significant change in the landscape between when the York deal was being negotiated and the first SNCP deal was negotiating on the one -- being negotiated on the one hand, versus when you were dealing with Gulf Capital Partners now, any significant change in the lan-- legal landscape?

(16:16:41/3+00:00:42) Darl Charles McBride A: Yes, there was a significant change.

(16:16:42/3+00:00:43) Arthur Jay Spector Q: What was that?

(16:16:44/3+00:00:45) Darl Charles McBride A: In the Summer of 2008, we had a bench trial in the Utah case regarding the forty million dollar judgment that we had hanging over our heads when we first showed up in this courtroom. And during that bench trial that amount was reduced from nearly forty million down to two and a half million dollars plus interest.

(16:17:05/3+00:01:06) Arthur Jay Spector Q: Besides the judgment amount, were there any intellectual property issues that made things easier or harder in your negotiations the second time around?

(16:17:12/3+00:01:13) Darl Charles McBride A: Yes, there were a couple of things that helped in that regard.

(16:17:16/3+00:01:17) Darl Charles McBride First of all, Judge Kimball recognized the sale of the UNIX business, that it was proper for us to be selling the UNIX products. Secondly, he recognized that post-1996 development work that had gone on, those copyrights did belong to S-C-O. And the general validation -- then there was a recognition that we were able to do our SCOsource licensing, which was an important piece for our litigation recovery.

(16:17:51/3+00:01:52) Darl Charles McBride And then finally he gave a general blessing of the fact that we did have the rights to run the UNIX business. Maybe that's back to point one.

(16:18:02/3+00:02:03) Arthur Jay Spector Q: Uh, so did that make it any different when you went to negotiate the deal the second time around with Mr. Norris and his different cast of characters?

(16:18:10/3+00:02:11) Darl Charles McBride A: Yes, as we went in to -- and I wouldn't call them cast of characters, because, uh, they're actually pretty solid investment firm, but -- the group that we're working with going back to Steve and his group on the second round, were -- let's say that it opened the door that had previously been shut by the other ruling.

(16:18:32/3+00:02:33) Arthur Jay Spector Q: Now, we were, when we stopped, we were asking what happened after you put up for public notice the sale of the assets through the 363 process, and the potential stand-alone plan, in the beginning of 2009. And you said you started getting -- maybe I didn't, maybe you didn't get this testimony -- did you say whether you got interest from people to not do a 363 sale and do a stand-- do a separate deal with these people?

(16:18:59/3+00:03:00) Darl Charles McBride A: We did receive interest. When we published in early January that we were going to go out and do a sale, we did get approached by various parties to try and consummate, uh, some kind of a plan (inaudible) a deal.

(16:19:11/3+00:03:12) Arthur Jay Spector Q: Now I recognize that we weren't prepared for this, and you may -- your memory may not be a hundred percent, but can you tell the Court, in addition to Mr. Norris, who we know about, who else contacted you to do a deal?

(16:19:22/3+00:03:23) Darl Charles McBride A: Yes, there was a group out of Los Angeles. Platinum Equity, buys a lot of software companies, they were a contender. We received a call from Charlie Hale, from the York deal -- who was the principal involved in the early York deal, and we spent sixty days negotiating with him. Uh --

(16:19:50/3+00:03:51) Arthur Jay Spector Q: And what time frame was this?

(16:19:53/3+00:03:54) Darl Charles McBride A: This is in the February through April time frame. Now, we, we -- during this period of time, the -- importantly, uh, Steve Norris and his partners had come forward with a new investment group that was London-based.

(16:20:08/3+00:04:09) Darl Charles McBride Eric le Blan, who works with Basil Al-Rahim out of London, and runs an investment group called Merchant Bridge International, came forward, and this was the second investment group we worked with Steve. And from the period of early 2009 up until current day, they have put a substantial amount of energy into due diligence, into going through and drafting documents, getting attorneys involved, and get us to the point where we are right now.

(16:20:47/3+00:04:48) Arthur Jay Spector Q: Talking about getting attorneys involved, was that an easy thing to do?

(16:20:52/3+00:04:53) Darl Charles McBride A: No. Actually, it was a process just to get attorneys involved. One of the -- the problems we have in our cases, and we haven't -- we've seen it not just in this case, but in various ones -- is other law firms typically get conflicted out because our archenemy, as it were, IBM, seems to have a lot of relationships with attorneys.

(16:21:13/3+00:05:14) Darl Charles McBride And, uh, and so I -- we went through a series of attorneys where they would get engaged, I think the first one was Latham and Watkins, and they were ready to go, and then they got conflicted out. Um, and, and there were -- I think there was another group along the way there. Um, but eventually we did get an attorney group here. So that -- that also caused some of the delay, from the Norris team's standpoint.

(16:21:35/3+00:05:36) Arthur Jay Spector Q: Was there any purpose, on SCO's part, to delay getting this deal done?

(16:21:41/3+00:05:42) Darl Charles McBride A: Our goal, from the beginning, has never been to delay. It's been to try and get things accelerated, to get things finished and completed.

(16:21:49/3+00:05:50) Arthur Jay Spector Q: How hard has the-- SCO been working to put a deal together finally?

(16:21:53/3+00:05:54) Darl Charles McBride A: Well, I've, I've done, uh, thirty-five, uh, deals, let's say, in my career, and this has by far been the hardest one. It's been the smallest one, and it's been the hardest one, which is a little bit weird.

(16:22:06/3+00:06:07) Darl Charles McBride The, the problem point always keeps coming down to this ruling of what do we own and what do we not own. And it's compounded in the deal we're talking about with Merchant Bridge International, and -- and with Gulf Capital Partners, um, because we're talking about taking what's already a rough foundation of a house, if you will, and then talking about splitting that up. You know, how do we --

(16:22:33/3+00:06:34) Darl Charles McBride And so the general deal with Gulf Capital Partners is, um, the UNIX business, that we've been in this courtroom many months now talking about how critical the customers are, the core operating systems they run are. How do we take our customers, our partners, our products, our resellers, that whole ecosystem of UNIX, and hand it off to somebody that will take that forward.

(16:22:57/3+00:06:58) Darl Charles McBride And an important part of the Gulf Capital Partners deals isn't just the money that we get in going forward, but they're committed to fund it going forward, that they will take it and move it forward.

(16:23:07/3+00:07:08) Darl Charles McBride Now, that's not our concern, from here forward, once the deal is done.

(16:23:11/3+00:07:12) Arthur Jay Spector Q: Who-- Whose benefit would that be?

(16:23:13/3+00:07:14) Darl Charles McBride A: Well, that would be to the benefit of, of our customers and employees, and partners and resellers, many of whom are in the room here today. So that was, uh, one of the things that we've tried to do from the beginning of these cases is to --

(16:23:27/3+00:07:28) The Splendiferous HipChecking Contraption of Darl Charles McBride (a beep) (probably DTMF 8 (852 Hz and 1336 Hz))

(16:23:28/3+00:07:29) Darl Charles McBride -- to -- to not prejudice --

(16:23:29/3+00:07:30) The Splendiferous HipChecking Contraption of Darl Charles McBride (ring)

(16:23:30/3+00:07:31) Darl Charles McBride -- our key partners. Whether it was, um, --

(16:23:35/3+00:07:36) The Splendiferous HipChecking Contraption of Darl Charles McBride (ring)

(16:23:37/3+00:07:38) Arthur Jay Spector Q: Whose phone is that?

(16:23:38/3+00:07:39) Darl Charles McBride A: I don't know.

(16:23:41/3+00:07:42) The Splendiferous HipChecking Contraption of Darl Charles McBride VOICE (telephonic): Sorry I'm not available right now --

(16:23:41/3+00:07:42) Arthur Jay Spector MR. SPECTOR: Your phone!

(16:23:42/3+00:07:43) Darl Charles McBride MR. MCBRIDE: That was mine, sorry about that. That was weird, I just leaned up against it --

(16:23:44/3+00:07:45) Kevin Gross autograph THE COURT: That happens.

(16:23:45/3+00:07:46) Darl Charles McBride MR. MCBRIDE: -- and I hit a speed dial.

(16:23:46/3+00:07:47) Kevin Gross autograph THE COURT: Yes, yes, it's happened to me.

(16:23:47/3+00:07:48) Darl Charles McBride MR. MCBRIDE: Think I'm going to take that out. That's dangerous. Sorry about that, your Honor.

(16:23:50/3+00:07:51) Kevin Gross autograph THE COURT: That's all right.

(16:23:52/3+00:07:53) Darl Charles McBride A: Um, we've been trying to get a deal that takes care -- that doesn't prejudice employees, does not prejudice customers, but at the same time we respect that we may owe Novell some money. Originally it was -- we thought we owed them forty million, now it's down to two and a half, and that may be zero before the summer is over, but if we owe them money, then we're committed to pay them, and this deal accounts for that.

(16:24:15/3+00:08:16) Darl Charles McBride Um, we're committed to taking care of employees, taking care of customers, creditors, and also shareholders are an important piece of the pie.

(16:24:24/3+00:08:25) Arthur Jay Spector Q: And so, I guess your answer to my question, were you trying to slow things down, your answer to that is?

(16:24:31/3+00:08:32) Darl Charles McBride A: No. We were -- trying to get it done. I guess the whole point of that diatribe was to let you know that we're dealing with something that's very complicated, and the whole idea of splitting this up and taking care of this group of people over here and getting a contract that works for Merchant Bridge and Gulf Capital Partners and still works for the estate, has not been a short putt.

(16:24:53/3+00:08:54) Arthur Jay Spector Q: When did you get the board's approval to sign a deal with Gulf Capital Partners?

(16:24:58/3+00:08:59) Darl Charles McBride A: Um, that came about just a couple of days ago.

(16:25:01/3+00:09:02) Arthur Jay Spector Q: That was after the response deadline, wasn't it?

(16:25:04/3+00:09:05) Darl Charles McBride A: Yes.

(16:25:05/3+00:09:06) Arthur Jay Spector Q: And when I was preparing the response on behalf of your company, did I know, did you know, what deal, if any, we would have, to present to the Court today?

(16:25:13/3+00:09:14) Darl Charles McBride A: No, and I know that there was one point in time you mentioned to me that you're -- you're -- you were dizzy.

(16:25:20/3+00:09:21) Arthur Jay Spector Q: I'm still dizzy.

(16:25:21/3+00:09:22) Darl Charles McBride A: -- which I think related to the -- the deals, but I'm not sure.

(16:25:25/3+00:09:26) Arthur Jay Spector MR. SPECTOR: All right. Um. That's all I have for this witness, your Honor, on this topic.

(16:25:32/3+00:09:33) Kevin Gross autograph THE COURT: Thank you, Mr. Spector.

(16:25:34/3+00:09:35) Arthur Jay Spector MR. SPECTOR: Um, you -- you don't get to leave.

(16:25:37/3+00:09:38) Darl Charles McBride MR. MCBRIDE: Can I make one more comment?

(16:25:38/3+00:09:39) (Laughter)

(16:25:41/3+00:09:42) Darl Charles McBride MR. MCBRIDE: I guess not.

(16:25:43/3+00:09:44) Arthur Jay Spector MR. SPECTOR: No, you don't get to leave right now.

(16:25:44/3+00:09:45) Kevin Gross autograph THE COURT: Oh no, no, you're about to be cross-examined, Mr. McBride, I'm sorry.

(16:25:46/3+00:09:47) Darl Charles McBride MR. MCBRIDE: Okay.

(16:25:47/3+00:09:48) (silence)

(16:26:04/3+00:10:05) Adam Aiken Lewis MR. LEWIS: Your Honor, Mr. Levin, who tried to recruit me many years ago as I was coming out of law school --

(16:26:09/3+00:10:10) Richard B. Levin MR. LEVIN: Darn, missed that one!

(16:26:10/3+00:10:11) Kevin Gross autograph THE COURT: Ha, ha.

(16:26:12/3+00:10:13) Adam Aiken Lewis MR. LEWIS: -- always sends me up first.

(16:26:14/3+00:10:15) Kevin Gross autograph THE COURT: I see.

(Cross-examination of Darl Charles McBride by Mr. Lewis for Novell)

(16:26:23/3+00:10:24) Adam Aiken Lewis Q: Mr. McBride, do you recall a hearing in this court sometime a year ago this past Spring, in which SCO wanted to assume its -- a lease with its landlord, do you recall that hearing?

(16:26:40/3+00:10:41) Darl Charles McBride A: Generally, yes. I don't remember the details, but I know -- I remember the point in time, yes.

(16:26:43/3+00:10:44) Adam Aiken Lewis Q: Right, you remember the event.

(16:26:45/3+00:10:46) Darl Charles McBride A: Yes.

(16:26:46/3+00:10:47) Adam Aiken Lewis Q: And do you recall testifying at that hearing?

(16:26:48/3+00:10:49) Darl Charles McBride A: I, I don't remember. I know I've been up here a time or two, but I don't remember exactly.

(16:26:52/3+00:10:53) Adam Aiken Lewis Q: Okay. Do you recall testimony in which you were explaining that, um, SCO had, uh, left off trying to find a transaction for a while and had just resumed its efforts, and -- and that explained why it was -- the case had gotten so far, uh, without any resolution and that now you were starting to work again with SNCP. Do you remember that testimony at all, a year ago, last Spring?

(16:27:23/3+00:11:24) Darl Charles McBride A: I, I don't remember as -- what -- what I testified at that point in time.

(16:27:27/3+00:11:28) Adam Aiken Lewis Q: Okay. Is it true that at some point in the, perhaps early Spring of last year, SCO stopped trying to find a deal for a while?

(16:27:45/3+00:11:46) Darl Charles McBride A: I would say that we -- that there was a period of time where, after the original SNCP deal did not -- so we tried the York deal, we tried SNCP. I thi-- I -- as I recall at the end of the SNCP deal, there was, um, a lot of discussion about let's just see what happens in this trial, because if we owe forty million dollars, that's one capital need to solve. If it's less than that, then that's a different one. So there was probably that period of time where we took a breather.

(16:28:13/3+00:12:14) Adam Aiken Lewis Q: Isn't it also true that you, uh, resumed your efforts before the trial results?

(16:28:20/3+00:12:21) Darl Charles McBride A: I know that, uh, I've been, for the last year and a half, uh, practically non-stop in trying to get a deal in place. I know that during that period of time, there hasn't been a month go by that I haven't had some discussion with Steve Norris or other potential partners.

(16:28:37/3+00:12:38) Adam Aiken Lewis Q: Now, do you recall a hearing at which the SNCP deal of last Spring, a year ago last Spring, uh, was, uh, on the calendar. You recall that hearing? The SNCP plan?

(16:28:57/3+00:12:58) Darl Charles McBride A: Uh.

(16:28:58/3+00:12:59) Adam Aiken Lewis Q: Again, I'm not asking for -- do you just remember that a year --

(16:29:00/3+00:13:01) Darl Charles McBride A: I remember that --

(16:29:01/3+00:13:02) Adam Aiken Lewis Q: -- a year ago last April there was a hearing --

(16:29:02/3+00:13:03) Darl Charles McBride A: Yes

(16:29:03/3+00:13:04) Adam Aiken Lewis Q: -- on the SNCP plan.

(16:29:04/3+00:13:05) Darl Charles McBride A: Yes, yes.

(16:29:05/3+00:13:06) Adam Aiken Lewis Q: And do you recall that at that time, the debtor elected to not go forward with that plan that day? Do you recall that?

(16:29:11/3+00:13:12) Darl Charles McBride A: Yes.

(16:29:12/3+00:13:13) Adam Aiken Lewis Q: And do you recall that your counsel explained to the Court that the reason that had happened was that SNCP had wanted to restructure the deal, do you -- SCO and SNCP had begun to consider a different way to do the same deal?

(16:29:25/3+00:13:26) Darl Charles McBride A: Yes.

(16:29:26/3+00:13:27) Adam Aiken Lewis Q: Okay.

(16:29:32/3+00:13:33) Adam Aiken Lewis Now, has the question of how to handle the existing litigation in terms of what rights could or could not be transferred come up before the negotiations in this deal that you signed today?

(16:29:48/3+00:13:49) Darl Charles McBride A: I'm sorry, could you repeat that?

(16:29:50/3+00:13:51) Adam Aiken Lewis Q: You heard Mr. Caplan's testimony, correct?

(16:29:52/3+00:13:53) Darl Charles McBride A: Yes, uh-huh.

(16:29:53/3+00:13:54) Adam Aiken Lewis Q: And in his testimony, Mr. Caplan indicated that it was crucial to be sure that the debtor kept certain assets --

(16:30:01/3+00:14:02) Darl Charles McBride A: Right.

(16:30:03/3+00:14:04) Adam Aiken Lewis Q: -- because of concerns about being able to prosecute the litigation. Do you recall that?

(16:30:07/3+00:14:08) Darl Charles McBride A: Yes.

(16:30:08/3+00:14:09) Adam Aiken Lewis Q: Had that issue come up ever before, in the year and some odd, almost twenty months, that the -- that SCO's been in bankruptcy?

(16:30:15/3+00:14:16) Darl Charles McBride A: Yes.

(16:30:16/3+00:14:17) Adam Aiken Lewis Q: When did it first come up?

(16:30:19/3+00:14:20) Darl Charles McBride A: Um, it first came up as an issue in the York deal. I think Frank was accurate in his assessment, it wasn't as prominent as it is now, but -- but it was -- I think what happened in the York deal was when the ruling came from this court that it was hard to move forward with the current ruling, that -- that made it difficult. And then, at various steps along the way, there were discussions of that issue.

(16:30:51/3+00:14:52) Adam Aiken Lewis Q: And did it come up in the SNCP transaction of a year ago last April?

(16:30:58/3+00:14:59) Darl Charles McBride A: I don't remember. I don't recall, specifically, on that.

(16:31:01/3+00:15:02) Adam Aiken Lewis Q: But, what do with those assets -- you were, you were, you were going to hold on to the litigation in that --

(16:31:05/3+00:15:06) Darl Charles McBride A: Yes.

(16:31:06/3+00:15:07) Adam Aiken Lewis Q: -- deal, is that right?

(16:31:07/3+00:15:08) Darl Charles McBride A: Yes.

(16:31:11/3+00:15:12) Adam Aiken Lewis Q: Just as you are -- I think, from what we can see -- in your current plan?

(16:31:14/3+00:15:15) Darl Charles McBride A: One -- one of the differential -- yes, bu--

(16:31:17/3+00:15:18) Adam Aiken Lewis Q: Okay. Now --

(16:31:20/3+00:15:21) Darl Charles McBride A: It was with a different group of people that we were talking then than we are now, though.

(16:31:24/3+00:15:25) Adam Aiken Lewis Q: I understand. I'm focusing on the issue, not the people.

(16:31:25/3+00:15:26) Darl Charles McBride A: Okay.

(16:31:29/3+00:15:30) Adam Aiken Lewis Q: Now, in, uh, June of last year, there was a hearing, do you recall, on the debtors' motion for an extension of exclusivity. Do you recall that hearing, generally?

(16:31:45/3+00:15:46) Darl Charles McBride A: I don't remember specifics. I've been here a few times. I don't remember what that -- I remember --

(16:31:49/3+00:15:50) Adam Aiken Lewis Q: Do you recall, at, uh, in connection with that motion the debtor -- I think this was the third motion to extend exclusivity -- I can't remember, I think it was, but it was, I think, in June of last year, and the debtor was arguing that the trial had just taken place in the District Court of the balance of the issues, and really the debtor needs to know what the outcome of the trial was before it could proceed, do you recall that?

(16:32:17/3+00:16:18) Darl Charles McBride A: Yes, I do remember that now.

(16:32:20/3+00:16:21) Adam Aiken Lewis Q: And do you recall then in connection with the motion in September of last year to extend exclusivity yet again, the debtor argued that it really needed to get the appeal on file before people would be willing to consider some kind of transaction for the resolution of this case, do you recall that?

(16:32:43/3+00:16:44) Darl Charles McBride A: I remember the hearing and generally talking. I don't remember specifically what my testimony was at that point.

(16:32:48/3+00:16:49) Adam Aiken Lewis Q: Do you recall the argument, though?

(16:32:50/3+00:16:51) Darl Charles McBride A: Yes

(16:32:52/3+00:16:53) Adam Aiken Lewis Q: And you recall that that was the debtors' position in part, was that it needed to get -- that it -- that people who might be interested in the debtor needed to know the appeal was on file before they would come out of the woodwork, do you recall that?

(16:33:04/3+00:17:05) Darl Charles McBride A: I think that was -- was an issue.

(16:33:06/3+00:17:07) Adam Aiken Lewis Q: Okay.

(16:33:22/3+00:17:23) Adam Aiken Lewis You mentioned your board approval as being within the last couple of days.

(16:33:26/3+00:17:27) Darl Charles McBride A: Yes.

(16:33:27/3+00:17:28) Adam Aiken Lewis Q: Do you recall when the board was asked to consider the transaction?

(16:33:35/3+00:17:36) Darl Charles McBride A: Over the last few weeks we've briefed the board continually on this horse race that we've been in with the various horses on the track.

(16:33:47/3+00:17:48) Adam Aiken Lewis Q: Could you have submitted the transaction to the board before the last couple of days?

(16:33:54/3+00:17:55) Darl Charles McBride A: We, we did submit to them in substance. We've submitted to them generally what we were talking about. But again they were one of three other horses that we were evaluating.

(16:34:07/3+00:18:08) Adam Aiken Lewis Q: So the board chose not to act on that, for a while. Is that right?

(16:34:12/3+00:18:13) Darl Charles McBride A: We didn't have -- we had a material change in the Gulf Capital Partners deal that came up just last week, at the end of last week, which was they posted a deposit of two hundred and fifty thousand dollars, and so that was a material change that came up just last week.

(16:34:35/3+00:18:36) Adam Aiken Lewis Q: But no one knew that was going to come up before it did, is that right?

(16:34:40/3+00:18:41) Darl Charles McBride A: No, one of the -- the -- no, that's correct.

(16:34:43/3+00:18:44) Adam Aiken Lewis Q: Okay. So the board might have acted before that happened?

(16:34:50/3+00:18:51) Darl Charles McBride A: Well, they didn't have anything to act on before that. I mean you can only act on something that -- if the other side's ready to sign the deal, which we didn't have.

(16:34:58/3+00:18:59) Adam Aiken Lewis Q: Was the other side ready to sign the deal two days ago?

(16:35:04/3+00:19:05) Darl Charles McBride A: They were ready pending some changes that we wanted to make. Before, it was changes they wanted to make.

(16:35:12/3+00:19:13) Adam Aiken Lewis Q: Okay.

(16:35:13/3+00:19:14) (silence)

(16:35:33/3+00:19:34) Adam Aiken Lewis MR. LEWIS: Okay, I think I have no further questions. Thank you.

(16:35:35/3+00:19:36) Darl Charles McBride MR. MCBRIDE: Okay.

(16:35:38/3+00:19:39) Kevin Gross autograph THE COURT: Mr. Levin.

(16:35:41/3+00:19:42) Richard B. Levin MR. LEVIN: Thank you, your Honor. Good afternoon, Mr. McBride

(16:35:44/3+00:19:45) Darl Charles McBride MR. MCBRIDE: Hello, Mr. Levin.

(Cross-examination of Darl Charles McBride by Mr. Levin for IBM)

(16:35:46/3+00:19:47) Richard B. Levin Q: I want to make sure I understood what your testimony was earlier when you were first on the stand, and now. You said that the Middle Eastern legal team that Stephen Norris Capital Partners was representing in early 2008 had problems with the litigation in the Utah court and that was one of the reasons they withdrew their offer.

(16:36:15/3+00:20:16) Darl Charles McBride A: Correct.

(16:36:17/3+00:20:18) Richard B. Levin Q: And also that York had withdrawn for the same reason.

(16:36:21/3+00:20:22) Darl Charles McBride A: Correct.

(16:36:26/3+00:20:27) Richard B. Levin Q: And you said that Mr. Norris came forward with a new investor group, um, early in 2009, early this year, is that correct?

(16:36:37/3+00:20:38) Darl Charles McBride A: Yes. I actually first met them in the latter part of 2008, but they became seriously engaged in the early part of this year.

(16:36:47/3+00:20:48) Richard B. Levin Q: And from then until now they-- they've put a substantial amount of time into this transaction?

(16:36:51/3+00:20:52) Darl Charles McBride A: Yes.

(16:36:58/3+00:20:59) Richard B. Levin Q: You also said that the board approval came a few days ago, is that right?

(16:37:03/3+00:21:04) Darl Charles McBride A: Yes, that's correct.

(16:37:04/3+00:21:05) Richard B. Levin Q: So the board hasn't approved the final agreement that Mr. Caplan was describing there were still ongoing negotiations on even as late as this afternoon, is that right?

(16:37:12/3+00:21:13) Darl Charles McBride A: No, that's not right.

(16:37:14/3+00:21:15) Richard B. Levin Q: The board approved the agreement this afternoon or a few days ago?

(16:37:17/3+00:21:18) Darl Charles McBride A: They approved it a few days ago.

(16:37:18/3+00:21:19) Richard B. Levin Q: So, they didn't approve --

(16:37:19/3+00:21:20) Darl Charles McBride A: They approved us to sign off what was within the realm of what we signed off on.

(16:37:25/3+00:21:26) Richard B. Levin Q: So they didn't approve this particular--

(16:37:27/3+00:21:28) Darl Charles McBride A: Yes they did.

(16:37:29/3+00:21:30) Richard B. Levin Q: I'm not sure I understand --

(16:37:30/3+00:21:31) Darl Charles McBride A: What happens with boards is they give you latitude to sign within a certain range of things, and --

(16:37:35/3+00:21:36) Richard B. Levin Q: I didn't ask --

(16:37:35/3+00:21:36) Darl Charles McBride A: -- if you get the deal there, then you sign, and that's what we got to.

(16:37:39/3+00:21:40) Richard B. Levin Q: I didn't ask whether this agreement was within the latitude of what the board gave you. I asked whether the board approved this particular agreement.

(16:37:46/3+00:21:47) Darl Charles McBride A: Yes they did.

(16:37:47/3+00:21:48) Richard B. Levin Q: This particular one that didn't exist when they held their board meeting?

(16:37:50/3+00:21:51) Darl Charles McBride A: They approved this deal.

(16:37:51/3+00:21:52) Arthur Jay Spector MR. SPECTOR: Your hon-- objection. I think they're argumentative. I think the facts are on the record and we can just make our own conclusions from them. I object.

(16:37:58/3+00:21:59) Richard B. Levin MR. LEVIN: I'll withdraw the question, your Honor.

(16:37:59/3+00:22:00) Kevin Gross autograph THE COURT: All right.

(16:38:03/3+00:22:04) Richard B. Levin Q: You also testified, I think you said that the ruling from this court, I guess in-- although you didn't date it, but I recall it was in November of 2007 -- made it hard to move forward with the York deal?

(16:38:16/3+00:22:17) Darl Charles McBride A: I don't remember the time frame. It was sometime between, well it was sometime in that general time range.

(16:38:23/3+00:22:24) Richard B. Levin Q: But th-- did I get it right that you said that the ruling from this court made it hard to move forward with the York deal.

(16:38:30/3+00:22:31) Arthur Jay Spector MR. SPECTOR: Your honor, I (inaudible)

(16:38:32/3+00:22:33) Richard B. Levin MR. LEVIN: I'm asking the witness to confor-- to confirm what I thought I wrote down and heard --

(16:38:38/3+00:22:39) Darl Charles McBride MR. MCBRIDE: I --

(16:38:39/3+00:22:40) Richard B. Levin MR. LEVIN: -- during the testimony.

(16:38:40/3+00:22:41) Kevin Gross autograph THE COURT: I'll overrule the objection.

(16:38:45/3+00:22:46) Darl Charles McBride A: I recall that the York principal, Charlie Hale, came back to me, and there was a writing that came from this court, I don't remember exactly when it came from, but I believe your Honor made a written statement that you weren't -- didn't understand yourself how a deal could get done when so many issues were at issue in the District Court out in Utah.

(16:39:10/3+00:23:11) Darl Charles McBride And that's the statement that I was referring to that came up in the York deal. That was the statement that made it difficult for them to complete a deal with us.

(16:39:22/3+00:23:23) Richard B. Levin MR. LEVIN: Thank you, Mr. McBride. Your honor, I have no further questions.

(16:39:24/3+00:23:25) Kevin Gross autograph THE COURT: All right. Anything further?

(16:39:30/3+00:23:31) Arthur Jay Spector MR. SPECTOR: I have no redirect, your Honor.

(16:39:33/3+00:23:34) Kevin Gross autograph THE COURT: All right. Mr. McBride, you may step down now, sir.

(16:39:35/3+00:23:36) Darl Charles McBride MR. MCBRIDE: Thanks.

(16:39:50/3+00:23:51) Arthur Jay Spector MR. SPECTOR: Your honor, I think, we have other witnesses, but I don't want to belabor it. We -- I don't -- I don't think we wish to call any more witnesses on this point.

(16:39:56/3+00:23:57) Kevin Gross autograph THE COURT: On this poi-- Okay.

(16:39:57/3+00:23:58) Arthur Jay Spector MR. SPECTOR: Yeah.

(16:40:04/3+00:24:05) Kevin Gross autograph THE COURT: I think they're resting on the issue of the introduction of the agreement of sale into the record.

(16:40:11/3+00:24:12) Richard B. Levin MR. LEVIN: Your honor, as you can imagine, we would not have any witnesses on --

(16:40:14/3+00:24:15) Kevin Gross autograph THE COURT: Right.

(16:40:15/3+00:24:16) Richard B. Levin MR. LEVIN: -- that motion.

(16:40:16/3+00:24:17) Kevin Gross autograph THE COURT: Understood.

(16:40:17/3+00:24:18) Richard B. Levin MR. LEVIN: Um, and since it is their motion to, uh, excuse a late filing, I believe Mr. Spector would have the honor of arguing the motion.

(16:40:26/3+00:24:27) Kevin Gross autograph THE COURT: All right.

(16:40:28/3+00:24:29) Arthur Jay Spector MR. SPECTOR: Not until he tells me he doesn't have any witnesses. Then I come up to argue.

(16:40:30/3+00:24:31) Kevin Gross autograph THE COURT: Of course.

(16:40:32/3+00:24:33) Arthur Jay Spector MR. SPECTOR: All right, so now that the record, I guess, is closed evidentiary.

(16:40:35/3+00:24:36) Kevin Gross autograph THE COURT: Yes.

(16:40:36/3+00:24:37) Richard B. Levin MR. LEVIN: Uh, your -- I, you know, your Honor, there is a complete record in this court of all the procedings over the last twenty-one months. We are assuming that that is a part of the record on what we're proceeding.

(16:40:46/3+00:24:47) Kevin Gross autograph THE COURT: Of course.

(16:40:47/3+00:24:48) Richard B. Levin MR. LEVIN: Thank you.

(16:40:48/3+00:24:49) Arthur Jay Spector MR. SPECTOR: And I -- I wouldn't assume otherwise. The Court can always take notice of what occurred in its own court.

(16:40:54/3+00:24:55) Kevin Gross autograph THE COURT: Absolutely.

(Debtors' argument)

(16:40:55/3+00:24:56) Arthur Jay Spector MR. SPECTOR: But, uh, having said that, you know, when you're on the bench, things come before you, but they're -- you can appreciate, you see a slice of a case, you don't see how the sausage is made. This is the first time, I believe, that I can recall, any way, that we've actually showed how the sausage was made. And it's not a pretty sight in any case, and it wasn't pretty in this case. With all the different chefs and all the different ingredients that were going in, uh, we had -- well, I'm a -- I don't have to make a -- a dramatic, a poetic explanation about it. Your honor heard the testimony, I'm not going to reiterate it.

(16:41:37/3+00:25:38) Arthur Jay Spector We didn't know -- we didn't know until this court commenced today, that we had a deal. It's not like we've been sandbagging. We've been working our rear ends off for a long time. Even if Mr. Norris was the principal a year and a half ago, things happened in that time. Different people came to the table, than the original ones. A court ruled in Utah that the forty million dollars that we were looking at is now two and a half plus interest. Court ruled that we owned the business we thought we owned, with, of course, there are other issues that are still before the tenth circuit, but we dill-- did still have a business to sell.

(16:42:15/3+00:26:16) Arthur Jay Spector We had people coming to us as recently as this weekend who were better situated to take this deal -- or not this deal, a different deal -- than the folks who came to the table today.

(16:42:25/3+00:26:26) Arthur Jay Spector I don't know what else we could have done. We could have -- we could have sprung it in the middle of Mr. McBride's testimony. That's one way we could have done it, say all right Mr. McBride, you got anything interesting to say that happened today on the way to court? Oh yeah, we signed a deal. I didn't think -- the only other alternative to that is to do what we just did. And I apologize, it's not the way I want to do it. I don't think anyone wants to do it that way. But the fact of the matter, the evidence is plain, you heard Mr. Caplan testify about what was going on.

(16:43:55/3+00:27:56) Arthur Jay Spector I-- If you want to call it newly discovered evidence, I'm not really sure that's the appropriate -- it's really newly discovered facts, events. They were evolving. And I think your Honor hit the nail on the head before. If we were half way through a trial, and something happened that would chang-- was material, that would change it, you wouldn't say I'm sorry, you didn't tell us about it two weeks ago. Life doesn't play that way, you have to take what comes, and this is what came. And it's a material -- material issue for the life of this case and which way the court will go.

(16:43:30/3+00:27:31) Arthur Jay Spector There's no sandbagging, there's no gamesmanship. It's -- it's unfortunate that -- that it came as late as it w-- if I had my druthers we would have had it in time for me to write about it in the response. That was one of the deadlines that was called a soft deadline by everybody. I want to be able to say it in the response, here's an unusual circumstance, we've got a buyer who's going to pay two and a half times the amount of debt, uh, and we'll -- and we'll do it, now, before, uh, you could ever get it done with a Chapter Seven trustee and a 341, and, uh, due diligence the trustee has to do, starting all over -- we've got the deal done. If we're worried about creditors in the case, we've got them covered. Novell is covered. They've got a judgment. Novell is covered.

(16:44:14/3+00:28:15) Arthur Jay Spector I'm sorry if I'm deviating into the, the, the merits of the, uh, the deal, but I'll -- I'll cut it off pretty soon. The creditors and Novell are covered. Everybody else, under our scheme, as I suggested earlier, will be taken care of. That is IBM, Red Hat, we'll deal with them in court. There'll be no discharge, and we'll be on our way.

(16:44:35/3+00:28:36) Arthur Jay Spector I don't see why that isn't an acceptable deal to everybody in the courtroom, number one, and number two I don't see why we should be faulted for bringing this to your Honor when we did. We couldn't have done it any sooner.

(16:44:49/3+00:28:50) Kevin Gross autograph THE COURT: Thank you, Mr. Spector.

(16:44:51/3+00:28:52) Kevin Gross autograph THE COURT: Oh, Mr. Lewis, I see you've -- you've drawn the straw again.

(16:44:54/3+00:28:55) Richard B. Levin MR. LEVIN: Your honor, Mr. Lewis does such a much better job, that I wanted him to go first this time.

(16:44:58/3+00:28:59) Kevin Gross autograph THE COURT: All right.

(16:44:59/3+00:29:00) Adam Aiken Lewis MR. LEWIS: Your Honor, you're clearly on Mr. Levin's side.

(16:45:01/3+00:29:02) (Laughter)

(Novell's opposition)

(16:45:06/3+00:29:07) Adam Aiken Lewis MR. LEWIS: Your Honor, um, if you look at the picture here, not just sort of -- a little bit of testimony you got today, what you see -- but certainly some of the testimony that you got today is important. What you see is a debtor that has not been able to produce anything. Struggles to produce something at the very last moment. Counsel apologizes that he doesn't like to do things this way, and I'm sure he doesn't, but you know, your Honor, that's been the rule in this case, not the exception. That's happened every time.

(16:45:38/3+00:29:39) Adam Aiken Lewis We saw this with the York deal, it wasn't complete, and counsel was up here saying, gee your Honor, you know, it's not the way I would do it, but, you know, it's the best we could do. SNCP plan, it was the same thing. And now we're hearing it again. And we're not even able to evaluate it like we did with the SNCP and York deals because we don't have those papers in front of us in a timely fashion. And so -- I -- although I recall, it was one of those two, the papers were being brought as we spoke, as has happened again this morning.

(16:46:12/3+00:30:13) Adam Aiken Lewis So I think you have to look at this in the big picture, both in terms of the procedure in this -- that we've -- that we've lived with in this case, and also you have to look at it in terms of the debtor's opportunity and what the debtor explains was the problem. We've heard one reason after the other why the debtor couldn't get something together. Needed the -- needed the ruling in the district court. Needed the appeal to be on file, then everybody would come flooding out of the woodwork. Well that didn't happen. On any occasion.

(16:46:47/3+00:30:48) Adam Aiken Lewis And what you see today is, apparently, if you look at the timing, um, these deals all of a sudden started coming out of the woodwork about the time the motions to convert got filed, which is more than a coincidence, I suspect. And what was the debtor doing in all of this other time that it was telling this court that it was going to have a deal?

(16:47:12/3+00:31:13) Adam Aiken Lewis It told this court that in June for the extension asked for then, it told this court in September for the extension asked for then, gave the Court reasons why there was just one more little thing that had to be done, and everything would be on the table.

(16:47:26/3+00:31:27) Adam Aiken Lewis And now we have a sale agreement, which counsel represents does this, that, and the other thing. Of course, we're not in a position to assess that today, because we don't really know what's in it, we don't know what the terms and conditions are, we don't know what the outs are. I recall with the SNCP deal -- what we were able to look at -- the questions were more what doesn't it do, or what's -- what are the -- the King's Exes, than anything else.

(16:47:52/3+00:31:53) Adam Aiken Lewis Maybe this has it and maybe it doesn't, but once again, we're in a position where, because of the way this case has proceeded, not on occasion, but essentially as a matter of course, we in another position where we are blindsided at the last moment, becuase the debtor wasn't doing it's job, and only really started pressing, and other people only really started responding, when the motions to convert were filed. That's what it looks like to me. If you look at the timing, it's uncanny.

(16:48:24/3+00:32:25) Adam Aiken Lewis And so, um, and -- and in terms of the effect of all of this, uh, an unspoken premise of this whole dispute is, well, if the Court grants motion to convert today, this all disappears. We don't know that. Once again I want to emphasize, we didn't ask to have this case dismissed. We simply ha-- asked to have it transferred to the judgment of a neutral, who could consider what to do in a more thoughtful fashion than we think has been the case here, and who could at least shut down the money-losing operations in the business.

(16:49:06/3+00:33:07) Adam Aiken Lewis We're told, well Novell's covered because there's something in this deal. Well, if the deal doesn't happen, and we go on for another couple of months or weeks, if you -- if you -- one of the things I did see in this sale agreement is the closing is ninety days, or longer if they want to extend. And of course we don't know what the outs are.

(16:49:28/3+00:33:29) Adam Aiken Lewis So, how are we covered? We're only covered because the debtor wants you to conclude that what it says about the deal is not only in the deal, but the deal will close.

(16:49:41/3+00:33:42) Adam Aiken Lewis Those two things are certainly not obvious today, when this court has to rule, or in the next fifteen days, when this court has to rule, on the motions to convert.

(16:49:51/3+00:33:52) Adam Aiken Lewis And I want to emphasize again: we're not talking about a dismissal of this case. We're talking about putting a neutral in charge, who would be able to make some considered judgments that we think the record in this case -- and I want to go back to the motions to convert, and the whole record in the case -- uh, we think the debtor has demonstrated it lacks.

(16:50:14/3+00:34:15) Adam Aiken Lewis And it has always sort of waited for the perfect opportunity to come along, and then when somehow the opportunity doesn't come along, uh, they file something at the last moment and ask the court for some accommodation.

(16:50:30/3+00:34:31) Adam Aiken Lewis So I would ask the court to look at the record in this case -- you look at the facts, not the sort of semi-opinion testimony we heard here -- you look at the facts, there's no certainty this deal is really the deal. Mr. Caplan admitted this was rushed, there might be changes. I'll bet we're going to start hearing about all kinds of things that -- the sort of whoopses, and gee, we don't like to do it this way but we were so rushed now we have to change it again. It's going to be the same story this court has heard again and again and again, not just intermittently.

(16:51:02/3+00:35:03) Adam Aiken Lewis Thank you, your Honor.

(16:51:03/3+00:35:04) Kevin Gross autograph THE COURT: Thank you, Mr Lewis.

(16:51:11/3+00:35:12) Kevin Gross autograph THE COURT: Mr. Levin, I read your articles on the case law with great interest --

(16:51:16/3+00:35:17) Richard B. Levin MR. LEVIN: Thank you, your Honor.

(16:51:16/3+00:35:17) Kevin Gross autograph THE COURT: -- all the time. And what I -- I've just been wondering what happens if I -- if I don't decide it in fifteen days, do they take me out behind the building and shoot me?

(16:51:25/3+00:35:26) (Laughter)

(16:51:26/3+00:35:27) Richard B. Levin MR. LEVIN: You know, that's a little bit like that forty-five day automatic dismissal, uh --

(16:51:30/3+00:35:31) Kevin Gross autograph THE COURT: Yes.

(16:51:31/3+00:35:32) Richard B. Levin MR. LEVIN: -- for Chapter Seven. Yes, it's, uh -- Congress wasn't so good at, uh, the drafting this go-- last go around --

(16:51:38/3+00:35:39) Kevin Gross autograph THE COURT: Yes. That's what --

(16:51:39/3+00:35:40) Richard B. Levin MR. LEVIN: -- as I think we all agree.

(16:51:40/3+00:35:41) Kevin Gross autograph THE COURT: Absolutely.

(IBM's opposition)

(16:51:41/3+00:35:42) Richard B. Levin MR. LEVIN: Uh, your Honor, if the Court determines to consider this asset purchase agreement in connection with the motion to convert, I have a lot to say about it, in the few minutes I've had to think about it, and if the hearing gets adjourned or continued, I'll have perhaps some more thoughtful things to say about it than I can say on the fly this afternoon.

(16:52:06/3+00:36:07) Richard B. Levin Um, I want to discuss -- and I think there will be ample reason, which we will be able to address in that context, of whether that document should, uh, constitute unusual circumstances for the motion to dismiss -- convert, excuse me.

(16:52:26/3+00:36:27) Richard B. Levin I want to talk about wheth-- whether the Court should consider it --

(16:52:29/3+00:36:30) Kevin Gross autograph THE COURT: Yes.

(16:52:30/3+00:36:31) Richard B. Levin MR. LEVIN: -- and what's the hurry-up -- what's the hurry-up rush here.

(16:52:38/3+00:36:39) Richard B. Levin There are local rules that require oppositions to be filed by a num-- a certain number of days before the hearing. In this case, there was a stipulation with the other side that they would file their opposition by June fifth, and that was in exchange for our agreement to go not only just beyond the thirty days from when the motions were filed, but then a few days more beyond that.

(16:53:01/3+00:37:02) Richard B. Levin That was the deadline, and the question is whether this court is going to enfore its own deadlines. As Mr. Spector said just a moment ago, and I think this is the key, oh, that was just a soft deadline, we sure would have liked to have had this agreement in before the opposition, but we didn't, today was the real deadline.

(16:53:22/3+00:37:23) Richard B. Levin That's not the agreement that we had with the debtor, and that's not what these court -- this court's rules say. The testimony is clear that these negotiations have been going on at least since December, maybe we can say since January of this year, five to six months ago. Mr. McBride testified that the Norris-represented group, Merchant Bridge, has been putting in substantial effort on this, at least for the last five months.

(16:53:55/3+00:37:56) Richard B. Levin Yes, it's not always easy to get to an agreement, but if the parties understood that June fifth was really a deadline and not a "soft deadline", the parties would have found a way to get to an agreement, because deadlines do drive agreements, and what Mr. Spector is telling you is that the debtor does not respect this court's deadlines, but it sets its own. And it set the deadline at two o'clock this afternoon, as Mr. Caplan's testimony showed, that the agreement came in at one ten, they debated whether they should make any changes, they concluded that they shouldn't, we can only surmise because it was ten til two and they knew they had to have a signing, and that was what they considered the real deadline.

(16:54:38/3+00:38:39) Richard B. Levin Your Honor, we don't believe that the debtor should be allowed to flout this court's procedural rules in such a way, and have this considered as part of the motion to convert. It's entirely appropriate to have it considered on a motion to approve the sale, and we will take it up as a motion to approve the sale, but it shouldn't be heard as part of the motion to convert, and that's why we argued earlier that we were prepared to proceed on the record as it existed before this hearing started. Thank you, your Honor.

(16:55:08/3+00:39:09) Kevin Gross autograph THE COURT: Thank you. Anyone else?

(16:55:10/3+00:39:11) Arthur Jay Spector MR. SPECTOR: I think Mr. McMahon has a (inaudible).

(16:55:19/3+00:39:20) Kevin Gross autograph THE COURT: Good afternoon, Mr. McMahon.

(U.S. Trustee's opposition)

(16:55:23/3+00:39:24) Joseph James McMahon, Jr. autograph MR. MCMAHON: Good afternoon, and very briefly I just want to refer to a point that's made in our papers, your Honor, with respect to the cause for relief that's been put before the Court.

(16:55:34/3+00:39:35) Joseph James McMahon, Jr. autograph As your Honor knows, our office's motion specifically identifies one ground for relief, that's the substantial loss continuing, uh -- the -- the language is in the motion, and I don't feel a compelling need to recite the statute for the Court other than to point out in the text of our papers we do note that the exceptional -- I'm sorry, the unusual circumstances exception, uh, the way we read the statute, add to the BAPCPA, is an act that does not apply to that particular section of the statute.

(16:56:11/3+00:40:12) Joseph James McMahon, Jr. autograph And clearly whether this entire, I guess, proposal by the debtors, and the analysis by the Court, should be taken into account whether or not the motion can proceed on that individual ground alone. Meaning that, whether or not this is effectively a request by the debtors to defer a hearing on the motion to convert for unusual circumstances. And that, you know, that -- that is an issue which I think that the Court has to consider in ruling on the instant request by the debtors.

(16:56:49/3+00:40:50) Kevin Gross autograph THE COURT: All right, thank you Mr. McMahon.

(Debtors' reply)

(16:56:52/3+00:40:53) Arthur Jay Spector MR. SPECTOR: Taking the latter one first, your Honor, not only does "unusual circumstances" cover the -- the grounds that were alleged, it -- it also -- substantial -- unusual circumstances of debtor deal with the gross mismanagement, deal with the subsection j issue, all the other ones. So it would come in for those anyway. We have other evidence, on the -- we haven't got to the merits of our case, but we have other evidence on those other issues. It goes to the reasonable likelihood of rehabilitation for one thing. I mean, rehabilitation in the pure form of art -- form that is in the case law that has been cited by both sides -- exists when a company can continue in business, pay all its creditors, and -- and go a b-- and that will happen with this sale. It has to be relevant to that anyway. So, um, the -- the -- uh --

(16:57:48/3+00:41:49) Arthur Jay Spector I'd like to get more to the re-- talk about deadlines and rules. I was told by local counsel, and a review of the local rules confirms, there was -- there was no formal pretrial in this case. You would think that congress would have allowed courts to have pretrials in big matters like this, appointments of trustees and -- so you that you didn't have, uh, you know, trials on the fly like we're doing. But that's okay, we have to deal with what we have to deal with.

(16:58:16/3+00:42:17) Arthur Jay Spector But, there's no local rule that says what has to be in a response. So, they file a motion to convert, we say they will not make the case, they've got the burden, here are unusual circumstances. Uh, they have -- we may -- we may be able to show unusual circumstances -- we may not even say in the response -- all the response has to do is put the -- put it in issue.

(16:58:37/3+00:42:38) Arthur Jay Spector There's nothing in the local rules, there's nothing in practice, there's in the national rules or the Magna Charta that says we have to say in our response, oh by the way, here's what we're going to argue when we get there. I would have done it anyway, because I want to be persuasive, but there isn't any local rule, there isn't any deadline we violated. We gave a response, we gave it on the day of the deadline. It was pretty fulsome as it was. Now we have some new fact, that just happened.

(16:59:05/3+00:43:06) Arthur Jay Spector Now, this isn't technically a Rule 60 motion, under rule -- Federal Rule of Civil Procedure 60. It's not technically a 9023 motion, under Federal Rules of Bankruptcy Procedure, but if you use that by analogy, your Honor asked, we want to know if the debtors stalled, is this a gamesmanship, an--

(16:59:20/3+00:43:21) Kevin Gross autograph THE COURT: Right.

(16:59:22/3+00:43:23) Arthur Jay Spector MR. SPECTOR: I think the record's absolutely clear that it wa-- we didn't stall, it's not gamesmanship. They're not even arguing that it was, they're just basically saying, there they go again. Uh, yeah, I know, there we go again. But it isn't gamesmanship, it isn't stalling, not sandbagging, it's how life exists from time to time in the messy trenches. And, uh, there -- the, there just doesn't seem to be any reason why, under the parameters that your Honor set down for this mini-trial, why the Court should not take this into evidence and let us make our case to show why this deal is good -- by the way, there's other deals as well, now --

(17:00:00/3+00:44:01) Arthur Jay Spector I -- I'm intruding on our time, you have til six o'clock, and the reason I'm doing that is if your Honor allows us to bring this deal before your Honor, for the purpose of proving our case, not to sell -- not to approve the sale -- to prove that we have a likelihood of rehabiliation, remember it's got to be a reasonable likelihood of rehabilitation.

(17:00:21/3+00:44:22) Kevin Gross autograph THE COURT: Right.

(17:00:22/3+00:44:23) Arthur Jay Spector MR. SPECTOR: We've got that. We've also got an unusual circumstance, and that's just this, I -- I have other -- I never did get to my opening -- all the other unusual circumstances that we would bring to bear, your Honor. But, but, we have a trial to start, and we haven't started. Now if your Honor allows us to bring the deal before your Honor as evidence, we are never going to get the trial done today, anyway.

(17:00:48/3+00:44:49) Arthur Jay Spector And I'm intruding on my time just to say Mr. Singer has a suggestion. He's got a witness here who's an expert, she's come from somewhere else. Perhaps if your Honor then says, okay we'll let it in but we'll give you time to cross-examine, we'll adjourn this to another date, and we'll come back, and have Mr. McBride testify about the contract and you can cross-examine to your heart's content on that day. Can we use the remaining time -- I know I'm being presumptuous -- to let's get some witnesses on Mr. Singer's case out of the way, so that when we come back it will be strictly on the bankruptcy issues that we haven't really gotten to today? And I'm mix--

(End of trial; Court's ruling)

(17:01:34/3+00:45:35) Kevin Gross autograph THE COURT: Well, we're mixing up issues. Let me take one at a time on this, because the first one is difficult enough, and, you know, I think that Mr. Lewis stated it well when he said the Court has to look at the big picture, and I do, and I look at the record in this case. The big picture is what is in the debtors' best interest, the debtors' estates' best interest. That always has to be a bankruptcy court's concern and that is my concern here, and I don't think that anyone could take issue with that.

(17:02:12/3+00:46:13) Kevin Gross autograph I have not heard evidence which suggests that this deal that may or -- that --- that may, hopefully -- that will hopefully happen, was somehow manufactured simply to stall today's hearing. I don't believe that's the case, and in any event it can't stall it because we've commenced the hearing today, and it has to be decided within fifteen days, so, I think that any delay would be obviously of a minimal extent, and it really will, I think, turn upon counsel's schedules even more than mine, because I will make myself as available as I can.

(17:02:58/3+00:46:59) Kevin Gross autograph So under these circumstances, I just think that the big picture requires a bankruptcy judge to take into account all evidence which may relate in any way and bear upon what is in the bankruptcy estate's and its creditors' best interests, and that certainly includes a potential sale of assets, and for that reason, I am going to allow the evidence to be presented relating to this agreement of sale. I think it's a critical issue for the Court to consider.

(17:03:44/3+00:47:45) Kevin Gross autograph I -- I do, you know -- whether this is somehow contrary to deadlines or not, or whether it's late or whether it's new, I'm not really quite sure, but I know that it is evidence which this court ought to take into account in the big picture. That then brings us to the issue of whether we proceed now, or if the movants would like to have some time to investigate, take discovery, whatever, into this agreement of sale.

(17:04:21/3+00:48:22) Richard B. Levin MR. LEVIN: Your Honor, may we have a few moments to confer.

(17:04:23/3+00:48:24) Kevin Gross autograph THE COURT: You may, certainly. Take --

(17:04:24/3+00:48:25) VOICE: Thank you, your Honor.

(17:04:25/3+00:48:26) Kevin Gross autograph THE COURT: Take five or ten minutes. Perhaps even talk a little bit about scheduling, and talk with, uh, if you will, with Mr. Spector about his suggestion about testimony from the expert witness who is in court today.

(17:04:37/3+00:48:38) Richard B. Levin MR. LEVIN: Thank you, your Honor.

(17:04:38/3+00:48:39) Kevin Gross autograph THE COURT: Thank you.

(17:04:41/3+00:48:42) *** RECESS ***

Fourth Session

(audio: 17:40:32 to 17:52:19 (6MB mp3))

(17:40:32/4+00:00:00) CLERK: Please rise.

(17:40:35/4+00:00:03) Kevin Gross autograph THE COURT: Thank you, please be seated. Mr. Levin.

(Scheduling discussion, including movants' consent, per 11 U.S.C 1112(b)(3), to: (1) the hearing on the conversion motions being continued to July 16 or 27; and (2) the conversion decision deadline being extended from June 30 to July 20 or 29)

(17:40:40/4+00:00:08) Richard B. Levin MR. LEVIN: Your honor, thank you for accommodating our procedural interlude.

(17:40:44/4+00:00:12) Kevin Gross autograph THE COURT: Yes.

(17:40:35/4+00:00:03) Richard B. Levin MR. LEVIN: We hope it was productive. Here's what we have to propose, and I believe the debtors will agree with this.

(17:40:52/4+00:00:20) Richard B. Levin We believe there is a lot of common issues between the motion to approve the sale, which has not yet been filed but which will be filed shortly, and the motion to convert. I'm not saying they're all common issues but there is some overlap.

(17:41:04/4+00:00:32) Kevin Gross autograph THE COURT: Sure.

(17:41:04/4+00:00:32) Richard B. Levin MR. LEVIN: And in light of the developments today, on our side we would prefer to put everything off to a date which would be the date for the hearing on the motion to approve the sale, assuming it gets filed in the next few days, and we'll talk about that in a moment. Have everything heard at once, a combined hearing on the sale motion and the motion to convert, approximately thirty days hence, depending on the Court's calendar.

(17:41:31/4+00:00:59) Richard B. Levin We would need to agree on some interim dates as well, for example a deadline for filing the sale motion, a deadline for any amendments to the -- to the asset purchase agreement, and we will also talk about discovery schedules as well. I think those matters we can take offline with just counsel, and come back to the Court for a telephonic hearing if we cannot reach agreement on those, --

(17:41:59/4+00:01:27) Kevin Gross autograph THE COURT: Yes.

(17:42:00/4+00:01:28) Richard B. Levin MR. LEVIN: -- once we know what the hearing date will be, and the hearing date I think we agree, we would like to get a full day. Either a morning and an afternoon, or an afternoon and the next morning, either way. So, uh --

(17:42:12/4+00:01:40) Kevin Gross autograph THE COURT: So we're talking sometime - sometime roughly around the middle of July. Is that right?

(17:42:17/4+00:01:45) Richard B. Levin MR. LEVIN: Yes, your Honor. One -- one other point, if I may make, uh, Mr. Lewis --

(17:42:20/4+00:01:48) Kevin Gross autograph THE COURT: And Mr. Lewis's schedule is of importance to the Court as well.

(17:42:23/4+00:01:51) Richard B. Levin MR. LEVIN: Yes. Mr. Lewis's schedule would make it most convenient if the hearing were on July sixteen.

(17:42:29/4+00:01:57) Kevin Gross autograph THE COURT: July sixteen.

(17:42:30/4+00:01:58) Adam Aiken Lewis MR. LEWIS: I have a hearing the next day in front of Judge Sontchi. I would be here already, and my schedule is pretty tight until then. If that works for the Court. If not then we'll pick another day, because there are other people to consider, as well as the Court here, but if that works for the Court, that would be far and away the best for me.

(17:42:50/4+00:02:18) Kevin Gross autograph THE COURT: Well here's what I'm going to do. I'm going to try to -- I do have a number of things scheduled for the sixteenth, but if you will give me until tomorrow to check with those parties just to make sure that their matters are not urgent and I can shift them a day or so, then we --

(17:43:05/4+00:02:33) Adam Aiken Lewis MR. LEWIS: The Court's very kind, thank you.

(17:43:06/4+00:02:34) Kevin Gross autograph THE COURT: -- then we'll do that and we'll try and schedule it for the sixteenth.

(17:43:09/4+00:02:37) Richard B. Levin MR. LEVIN: That's very generous, your Honor. Is it, uh, should we put a backup date on right now, in case that doesn't work?

(17:43:17/4+00:02:45) Kevin Gross autograph THE COURT: Yes. I see, from my calendar, I have a lot of time either the twentieth of July, which is a Monday, or the twenty-fourth which is a Friday, or the twenty-seventh which is a Monday, I mean I'm --

(17:43:33/4+00:03:01) VOICES: (inaudible)

(17:43:34/4+00:03:02) Kevin Gross autograph THE COURT: Or the thir--

(17:43:35/4+00:03:03) Adam Aiken Lewis MR. LEWIS: Your Honor, the twenty-forth is -- the twentieth doesn't work for me because I'll be at the ninth circuit judicial conference, I'm one --

(17:43:41/4+00:03:09) Kevin Gross autograph THE COURT: Okay.

(17:43:41/4+00:03:09) Adam Aiken Lewis MR. LEWIS: -- of the lawyer reps there. So the twenty-fourth or the twenty-seventh, either one is okay with me.

(17:43:47/4+00:03:15) Kevin Gross autograph THE COURT: Any preferences from other -- from other folks.

(17:43:50/4+00:03:18) VOICE: Your Honor, I have a conflict on the twenty-fourth, but the twenty-seventh I think would work, if that --

(17:43:56/4+00:03:24) Kevin Gross autograph THE COURT: The twenty-seventh would work?

(17:43:57/4+00:03:25) Arthur Jay Spector MR. SPECTOR(?): It works for me as well, let's find out (inaudible) twenty-seventh (inaudible)

(17:44:02/4+00:03:30) Richard B. Levin MR. LEVIN(?): That's a little longer than I wanted.

(17:44:03/4+00:03:31) Adam Aiken Lewis MR. LEWIS(?): Yeah.

(17:44:04/4+00:03:32) Arthur Jay Spector MR. SPECTOR(?): -- twenty-seventh looks like the --

(17:44:06/4+00:03:34) Kevin Gross autograph THE COURT: All right, so --

(17:44:07/4+00:03:35) Richard B. Levin MR. LEVIN: We'd like that as a backup, your Honor.

(17:44:08/4+00:03:36) Kevin Gross autograph THE COURT: You bet.

(17:44:09/4+00:03:37) Richard B. Levin MR. LEVIN: It's a little longer than we'd like to go. One other --

(17:44:10/4+00:03:38) Kevin Gross autograph THE COURT: I know.

(17:44:10/4+00:03:38) Richard B. Levin MR. LEVIN: -- procedural point I'd like to make, Mr. Lew-- I told you he was better, he reminded me -- that that will be deemed to be the fifteenth day after the start of this hearing today.

(17:44:20/4+00:03:48) Kevin Gross autograph THE COURT: Okay.

(17:44:21/4+00:03:49) Richard B. Levin MR. LEVIN: The date of that hearing will be deemed to be the fifteenth day.

(17:44:22/4+00:03:50) Kevin Gross autograph THE COURT: All right.

(17:44:23/4+00:03:51) Arthur Jay Spector MR. SPECTOR: I didn't remember hearing that.

(17:44:25/4+00:03:53) Richard B. Levin MR. LEVIN: Well, I will let Mr. Spector comment on that. I mean, I'm -- of course we're willing to make it the twelfth or thirteenth day if your Honor needs a couple of days to decide, but we're not willing to let fifteen more days run after that.

(17:44:36/4+00:04:04) Kevin Gross autograph THE COURT: I understand.

(17:44:37/4+00:04:05) Arthur Jay Spector MR. SPECTOR: Your honor, that wasn't a subject of our discussion. I told him, I said make your proffer and I'm just going to nod head yes, but --

(17:44:43/4+00:04:11) Kevin Gross autograph THE COURT: Ha-ha-ha-ha-ha.

(17:44:44/4+00:04:12) Arthur Jay Spector MR. SPECTOR: -- I take that back now. What I would say is let us not agree on anything, let your Honor make the decision, because if you decide you're going to decide it that day, decide it that day.

(17:44:52/4+00:04:20) Kevin Gross autograph THE COURT: Let me give myself at least a day, to decide. And I -- look, I think the parties are accommodating one another, you're working hard. I don't want to do anything that, mmm -- you know, in any way interferes with those efforts. I think a day would be sufficient for my purposes, frankly.

(17:45:12/4+00:04:40) Richard B. Levin MR. LEVIN: Your honor, we're more than content for the Court to take two days or even three days. Part of the point is, we just want to know it's going to end, and --

(17:45:18/4+00:04:46) Kevin Gross autograph THE COURT: I agree.

(17:45:19/4+00:04:47) Richard B. Levin MR. LEVIN: -- it's going to end quickly.

(17:45:20/4+00:04:48) Kevin Gross autograph THE COURT: I agree. I'm just looking at my schedule. All right, let's do two days.

(17:45:24/4+00:04:52) Richard B. Levin MR. LEVIN: Okay,

(17:45:25/4+00:04:53) Kevin Gross autograph THE COURT: Let's do two days. Just to be --

(17:45:26/4+00:04:54) Richard B. Levin MR. LEVIN: We certainly want the court to have time to do a considered --

(17:45:28/4+00:04:56) Kevin Gross autograph THE COURT: Yes

(17:45:28/4+00:04:56) Richard B. Levin MR. LEVIN: -- decision and we don't want to create an artificial rush on that.

(17:45:33/4+00:05:01) Kevin Gross autograph THE COURT: Absolutely.

(17:45:34/4+00:05:02) Arthur Jay Spector MR. SPECTOR: I don't understand. We're going to try this for two days, your Honor, is that what --

(17:45:36/4+00:05:04) Kevin Gross autograph THE COURT: No, no, no. We're going to have the one-day hearing. Then I'll have two days to issue a decision.

(17:45:43/4+00:05:11) Richard B. Levin MR. LEVIN: Two days will be the fifteenth day.

(17:45:45/4+00:05:13) Kevin Gross autograph THE COURT: Because, I have only fifteen days under the r-- you know, under the -- under the code, and, um, I think that will be sufficient.

(17:45:56/4+00:05:24) Arthur Jay Spector MR. SPECTOR: All I'm saying your Honor, suggesting --

(17:45:58/4+00:05:26) Kevin Gross autograph THE COURT: Yes.

(17:45:59/4+00:05:27) Arthur Jay Spector MR. SPECTOR: I don't know judges who set their own deadlines for themselves.

(17:46:02/4+00:05:30) Kevin Gross autograph THE COURT: Ha. I don't mind do-- in this case, if it -- if it sort of helps things along I'm pleased to do it, and I think it's best sometimes to do a -- to get right to something. So that's -- that's how we'll handle that aspect.

(17:46:19/4+00:05:47) Richard B. Levin MR. LEVIN: Thank you, your Honor, and we will spend a few minutes after the hearing among ourselves trying to talk about some of those interim dates.

(17:46:25/4+00:05:53) Kevin Gross autograph THE COURT: All right.

(17:46:26/4+00:05:54) Richard B. Levin MR. LEVIN: And we'll wait to hear from your chambers on the July sixteenth --.

(17:46:28/4+00:05:56) Kevin Gross autograph THE COURT: -- about the sixteenth -- or the -- yes, or the twenty-seventh.

(17:46:30/4+00:05:58) Arthur Jay Spector MR. SPECTOR: You should tell the judge what types of deadlines we're going to set.

(17:46:34/4+00:06:02) Richard B. Levin MR. LEVIN: I thought I did.

(17:46:35/4+00:06:03) Kevin Gross autograph THE COURT: I think it was the, uh, the sale itself of course, the asset purchase agreement and any amendments to that, and discovery.

(17:46:43/4+00:06:11) Richard B. Levin MR. LEVIN: Sale motion --

(17:46:44/4+00:06:12) Kevin Gross autograph THE COURT: And I guess you ought to also talk about, perhaps, any additional submissions.

(17:46:48/4+00:06:16) Richard B. Levin MR. LEVIN: Yes. Okay, so let me review the bidding on that. The deadline for filing the sec-- motion to approve the sale.

(17:46:55/4+00:06:23) Kevin Gross autograph THE COURT: Right.

(17:46:57/4+00:06:25) Richard B. Levin MR. LEVIN: The, um, ---

(17:46:59/4+00:06:27) Kevin Gross autograph THE COURT: The, uh, --

(17:47:00/4+00:06:28) Richard B. Levin MR. LEVIN: -- deadline for any amendments to the -- any amendments to the asset purchase agreement.

(17:47:05/4+00:06:33) Kevin Gross autograph THE COURT: Yes.

(17:47:07/4+00:06:35) Richard B. Levin MR. LEVIN: Uh, a discovery schedule, and a deadline for further written submissions to the court.

(17:47:15/4+00:06:43) Kevin Gross autograph THE COURT: Right.

(17:47:16/4+00:06:44) Adam Aiken Lewis MR. LEWIS: Your honor, I was also thinking of, um -- some -- maybe the same deadline -- a deadline for submission of a list of direct witnesses and the scope of their testimony. Not the detail, but just --

(17:47:28/4+00:06:56) Kevin Gross autograph THE COURT: Right.

(17:47:29/4+00:06:57) Adam Aiken Lewis MR. LEWIS: -- something which allows parties to prepare so we're not all coming in here blind trying to figure out what we're going to be doing.

(17:47:34/4+00:07:02) Kevin Gross autograph THE COURT: I think --

(17:47:35/4+00:07:03) Adam Aiken Lewis MR. LEWIS: -- be a much more efficient hearing for that reason, too.

(17:47:36/4+00:07:04) Kevin Gross autograph THE COURT: I think that would be well.

(17:47:37/4+00:07:05) VOICE: (inaudible)

(17:47:39/4+00:07:07) Kevin Gross autograph THE COURT: A list of witnesses and just a -- at least an outline of what their testimony will -- will entail.

(17:47:45/4+00:07:13) Arthur Jay Spector MR. SPECTOR: (inaudible)

(17:47:49/4+00:07:17) Richard B. Levin MR. LEVIN: Your Honor, Mr. Spector advises me that there may actually be bidding on this sale -- not sure yet --

(17:47:55/4+00:07:23) Arthur Jay Spector MR. SPECTOR: No, no, sorry --

(17:47:56/4+00:07:24) Richard B. Levin MR. LEVIN: No? I -- I misspoke. Let's -- go ahead.

(17:47:59/4+00:07:27) Arthur Jay Spector MR. SPECTOR: Uh, when we were out in the hallway -- again, sausage -- uh, they proposed certain things to us, and one of them was bid procedures motions and bidding, that type stuff, and I quickly said No, that wasn't what our intention was, we're going to go with this deal, that was it. Uh, but we don't know that parties in interest might have -- if, if parties in interest took a different point of view, we're not sure we can foreclose them, and if there is such a thing as that, that the U.S. Trustee or a party in interest wants to --

(17:48:28/4+00:07:56) Kevin Gross autograph THE COURT: I was thinking that.

(17:48:29/4+00:07:57) Arthur Jay Spector MR. SPECTOR: You were?

(17:48:30/4+00:07:58) Kevin Gross autograph THE COURT: I was thinking that the United States Trustee might have an issue with no bidding --

(17:48:36/4+00:08:04) Arthur Jay Spector MR. SPECTOR: Right. The --

(17:48:37/4+00:08:05) Kevin Gross autograph THE COURT: -- and auction.

(17:48:38/4+00:08:06) Arthur Jay Spector MR. SPECTOR: -- the rule, which I have already marked, allows for this, and I just --

(17:48:41/4+00:08:09) Kevin Gross autograph THE COURT: I understand.

(17:48:42/4+00:08:10) Arthur Jay Spector MR. SPECTOR: -- read a case recently when the Court went into that. And then again, we've been doing nothing but testing the market for two years almost, so. I would be mak--

(17:48:49/4+00:08:17) Kevin Gross autograph THE COURT: Right.

(17:48:50/4+00:08:18) Arthur Jay Spector MR. SPECTOR: If I were taking that position, I would be making an argument about that. However, we wanted to leave the -- they wanted to leave the door open for that as a potential deadline for bid procedures, and I finally acquiesced because I didn't want to be difficult, and, uh, if Mr. Levin hadn't raised the (inaudible).

(17:49:08/4+00:08:36) Kevin Gross autograph THE COURT: Mr. McMahon.

(17:49:10/4+00:08:38) Joseph James McMahon, Jr. autograph MR. MCMAHON: Your Honor, uh, good evening, Joseph McMahon. I actually jumped in with respect to the marketing point. I don't think we need to get into scheduling a two-tiered structure at this point, bid procedures then a sale hearing. My point in the hallway was simply that I trust that the debtors will be serving their sale paper motions back on the parties that were described in the testimony.

(17:49:41/4+00:09:09) Kevin Gross autograph THE COURT: Certainly.

(17:49:42/4+00:09:10) Joseph James McMahon, Jr. autograph MR. MCMAHON: I doubt that they're aware of the terms of the finalized agreement. Certainly we weren't, walking in the courtroom. And, um, I think that's where we start on that point. Um, in light of the, you know, Mister -- uh, I'm sorry, in light of counsel's remarks regarding the length of these cases, we -- we've known what the state of SCO is and has been for a while, but I think that there are certain things that have to be demonstrated in order to show that the marketing effort was complete.

(17:50:15/4+00:09:43) Kevin Gross autograph THE COURT: Yes, and the last thing we need is one of these parties who was in negotiations with the debtor coming in at the sale hearing and saying, you know, we were prepared to do better, or we never were consulted, or whatever.

(17:50:29/4+00:09:57) Richard B. Levin MR. LEVIN: Well then, if I can phrase the last deadline that we should discuss, your --

(17:50:33/4+00:10:01) Kevin Gross autograph THE COURT: Yes.

(17:50:33/4+00:10:01) Richard B. Levin MR. LEVIN: -- Honor, as follows. We'll try to set a deadline for SCO, the debtors, to change any of the process in the sale motion that they will file in the coming days.

(17:50:46/4+00:10:14) (silence)

(17:50:51/4+00:10:19) Kevin Gross autograph THE COURT: That's fine.

(17:50:51/4+00:10:19) Richard B. Levin MR. LEVIN: In other words, I expect --

(17:50:52/4+00:10:20) Kevin Gross autograph THE COURT: Yes. Yes.

(17:50:53/4+00:10:21) Richard B. Levin MR. LEVIN: Understood?

(17:50:53/4+00:10:21) Kevin Gross autograph THE COURT: Understood.

(17:50:54/4+00:10:22) Richard B. Levin MR. LEVIN: Thank you, your Honor.

(17:50:55/4+00:10:23) Kevin Gross autograph THE COURT: Yes, Mr. Levin. That, that, that finally sunk in.

(17:50:59/4+00:10:27) Richard B. Levin MR. LEVIN: And I didn't mean it that way, I apologize.

(17:51:00/4+00:10:28) Kevin Gross autograph THE COURT: No, I understand that. All right.

(17:51:04/4+00:10:32) Arthur Jay Spector MR. SPECTOR: Your Honor, um, going back to dates, the sixteenth, I'm getting whispers that if we're going to have all this discovery and all this process, it may be necessary to push it back to the twenty-seventh, and, uh, because if we're really going to do -- if they don't do discovery, sixteenth is fine, but if we're going to have a lot of discovery, it may be, uh, --

(17:51:30/4+00:10:58) Kevin Gross autograph THE COURT: I'll tell you what, why don't you talk about that, because you'll know better perhaps what kind of discovery you're contemplating. I would hate to see anyone here lock in a schedule, only to regret it later, with vacations and the like. If you want the sixteenth, if the movants want the sixteenth, that's fine. I will do everything I can to get the sixteenth. Otherwise, if you prefer the twenty-seventh I know that that is open.

(17:52:00/4+00:11:28) Arthur Jay Spector MR. SPECTOR: We'll talk about it.

(17:52:02/4+00:11:30) Kevin Gross autograph THE COURT: All right. All right counsel. Anything further?

(17:52:04/4+00:11:32) Richard B. Levin MR. LEVIN: No, we'll report back to chambers, your Honor.

(17:52:05/4+00:11:33) Arthur Jay Spector MR. SPECTOR: We'll report back.

(17:52:06/4+00:11:34) Kevin Gross autograph THE COURT: Well, as usual it was an interesting hearing (laughter), and I'll look forward to the next one, so we'll stand in recess, but really, if you need me, get me on the phone tomorrow.

(17:52:15/4+00:11:43) VOICES: Thank you.

(17:52:16/4+00:11:44) Kevin Gross autograph THE COURT: Thank you. Good evening, everyone.

(17:52:17/4+00:11:45) *** RECESS ***


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