[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; part 5 mp3; part 6 mp3; part 7 mp3; Full FTR CD.
See also the hearing's agenda,
minutes, and sign-in sheet.
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-875-unofficial-transcript.html,v 1.4 2009/08/03 07:27:07 al Exp $]
|IN THE UNITED STATES
FOR THE DISTRICT OF DELAWARE
The SCO GROUP, INC., et al.,
Case No. 07-bk-11337-KG
(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, July 27, 2009
09:30:00 Eastern Daylight Time (-0400)
Before the Honorable Kevin Gross, U.S. Bankruptcy Judge
Courtroom 3, 824 N Market St Fl 6, Wilmington DE 19801
Courtroom clerk: Sherry Scaruzzi
Audio recording operator: Jennifer Pasierb
(See also the "Amended Notice of Agenda of Matters Scheduled for Hearing on July 27, 2009, at 9:30 A.M." (Docket No. 867, filed July 24, 2009), the "Order Re: Hearing to be Held on July 27, 2009" (Docket No. 856, July 21, 2009), and the "Minute Entry" (Docket No. 875, 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)
Item 5: "Debtors' Motion for Authority to Sell Property Outside the Ordinary Course of Business Free and Clear of Interests and for Approval of Assumption and Assignment of Executory Contracts and Unexpired Leases in Conjunction with Sale" (Docket No. 815, June 22, 2009), with Exhibit A, Purchase and Sale Agreement, part 1 (#784-3) and part 2 (#784-4); Exhibit B, proposed order (#784-5); Exhibit C, notice of cure amounts (#784-6); and notice of the motion (#784-2), setting objection deadline of July 20, 2009 and hearing date of July 27, 2009.
Minutes: The "Proceedings" section of the minutes says: "HEARING HELD. AGENDA ITEMS: #1 - #5 - All matters taken under advisement."
See also the "SIGN-IN-SHEET" (#731-2)
Deputy Clerk of Court
824 N Market St Fl 6, Wilmington DE 19801
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
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
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
Selber Silverstein (Delaware Bar #2396, admitted
Attorney for Creditor International Business Machines Corp.
Potter Anderson & Corroon LLP
1313 N Market St Fl 6, Wilmington DE 19801
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
Russell Marriott (New
York Bar #2682565, admitted 1995)
Attorney for Creditor International Business Machines Corp. (no PHV admission on file)
Cravath, Swaine & Moore LLP
825 Eighth Ave, New York NY 10019
Timothy Reynolds (New
York Bar #2772291, admitted 1996; Delaware
admission pro hac vice (dkt. #848), July 17, 2009)
Attorney for Creditor International Business Machines Corp.
Cravath, Swaine & Moore LLP
825 Eighth Ave, New York NY 10019
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
"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
Kevin Harrington (Pennsylvania
Bar #78367, admitted 1996 (inactive); Delaware Bar
Attorney for Acting United States Trustee Roberta A. DeAngelis
United States Department of Justice
844 King St Rm 2207, Wilmington DE 19801
|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
R. Doshi (New
York Bar #2910222, admitted 1998; pending
Delaware pro hac vice application (dkt. #857), filed July 22,
Attorney for Creditor Oracle USA, Inc. (appearing telephonically)
Day Pitney LLP
7 Times Square, New York NY 10036
E. Tibbitts (Utah
Bar #4423, admitted 1984)
Witness for Debtors The SCO Group Inc., et al.
General Counsel of The SCO Group, Inc.
355 S 520 W, Lindon UT 84042
|Michael Allen Jacobs (California
Bar #111664, admitted 1983; Delaware
admission pro hac vice (dkt. #171), October 31, 2007)
Attorney for Creditor Novell, Inc.
Morrison & Foerster LLP
425 Market St, San Francisco CA 94105
Witness for Debtors The SCO Group Inc., et al.
Chief Financial Officer of The SCO Group, Inc.
355 S 520 W, Lindon UT 84042
|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
Bayles (Illinois Bar,
admitted 2000; Delaware
admission pro hac vice (dkt. #808), June 15, 2009)
Attorney for Unxis, Inc. (but PHV admission was only for representing Gulf Capital Partners, LLC)
Bryan Cave LLP
161 North Clark St Ste 4300, Chicago IL 60601
|Stephen L. Norris (District of Columbia
Bar, admitted 1977 (inactive))
Witness for Debtors The SCO Group, Inc., et al.
President of Unxis, Inc.
(The only address on file for Unxis is the one for notices in §13.6 of the sale agreement: unXis, Inc., c/o MerchantBridge & Co, Ltd., Knowsley House, 173-176 Sloane Street, London SW1X 9QC, United Kingdom, Attention: Eric le Blan)
|Jeff Fred Hunsaker
Witness for Debtors The SCO Group Inc., et al.
President of SCO Operations, Inc.
355 S 520 W, Lindon UT 84042
Royer Donoho III (New
York Bar #2842961, admitted 1997)
Attorney for LNS Acquisition LLC and LNS Inc. (no PHV admission on file) (appearing telephonically)
590 Madison Ave, New York NY 10022
|Alan P. Petrofsky
Equity Security Holder, pro se (appearing telephonically)
3618 Alameda Apt 5, Menlo Park CA 94025
Alfredo Gonzalez (California
Bar #230614, admitted 2004)
Attorney for Debtors The SCO Group, Inc. et al. (no PHV admission on file)
Boies Schiller & Flexner LLP
333 Main St, Armonk NY 10504
Hoff Caplan (Massachusetts Bar, admitted 1981 (inactive); Florida Bar
#759333, admitted 1988)
Attorney for Debtors The SCO Group, Inc. et al. (no PHV admission on file)
Berger Singerman, P.A.
200 S Biscayne Blvd Ste 1000, Miami FL 33131
York Bar #4332284, admitted 2005)
Attorney for Debtors The SCO Group, Inc. et al. (no PHV admission on file)
Boies Schiller & Flexner LLP
333 Main St, Armonk NY 10504
Alan Bates (Florida Bar
#791431, admitted 2004)
Attorney for Debtors The SCO Group, Inc. et al. (no PHV admission on file) (appearing telephonically)
Berger Singerman, P.A.
350 E Las Olas Blvd Ste 1000, Fort Lauderdale FL 33301
(09:38:35/1+00:00:00) First Session
(09:41:09/1+00:02:34) (SCO's opening)
(10:00:40/1+00:22:05) (IBM's opening)
(10:05:00/1+00:26:25) (Novell's opening)
(10:18:44/1+00:40:09) (U.S. Trustee's opening)
(10:30:23/1+00:51:48) *** RECESS ***
(11:10:48/2+00:00:00) Second Session
(11:12:20/2+00:01:32) (Direct examination of Ryan E. Tibbitts by Mr. Spector for Debtors)
(11:19:07/2+00:08:19) (Court's examination of Ryan E. Tibbitts)
(11:20:16/2+00:09:28) (Cross-examination of Ryan E. Tibbitts by Mr. Marriott for IBM)
(11:21:31/2+00:10:43) (Cross-examination of Ryan E. Tibbitts by Mr. Jacobs for Novell)
(11:29:15/2+00:18:27) (Re-direct examination of Ryan E. Tibbitts by Mr. Normand for Debtors)
(11:34:12/2+00:23:24) (Direct examination of Kenneth Ray Nielsen by Mr. Spector for Debtors)
(11:47:03/2+00:36:15) (Cross-examination of Kenneth Ray Nielsen by Mr. Reynolds for IBM)
(12:15:57/2+01:05:09) (Cross-examination of Kenneth Ray Nielsen by Mr. Lewis for Novell)
(12:25:12/2+01:14:24) (Cross-examination of Kenneth Ray Nielsen by Mr. Harrington for the U.S. Trustee)
(12:27:08/2+01:16:20) (Re-direct examination of Kenneth Ray Nielsen by Mr. Spector for Debtors)
(12:42:14/2+01:31:26) (Re-cross-examination of Kenneth Ray Nielsen by Mr. Lewis for Novell)
(12:49:10/2+01:38:22) *** RECESS ***
(14:04:09/3+00:00:00) Third Session
(14:06:41/3+00:02:32) (Direct examination of Darl Charles McBride by Mr. Spector for Debtors)
(15:46:53/3+01:42:44) *** RECESS ***
(16:03:28/4+00:00:00) Fourth Session
(16:04:21/4+00:00:53) (Cross-examination of Darl Charles McBride by Mr. Marriott for IBM)
(16:23:44/4+00:20:16) *** RECESS ***
(16:43:48/5+00:00:00) Fifth Session
(16:44:06/5+00:00:18) (Resumed cross-examination of Darl Charles McBride by Mr. Marriott for IBM)
(17:31:38/5+00:47:50) (Cross-examination of Darl Charles McBride by Mr. Lewis for Novell)
(17:58:11/5+01:14:23) (Cross-examination of Darl Charles McBride by Mr. Harrington for the U.S. Trustee)
(18:05:47/5+01:21:59) (Re-direct examination of Darl Charles McBride by Mr. Spector for Debtors)
(18:44:21/5+02:00:33) *** RECESS ***
(18:57:38/6+00:00:00) Sixth Session
(18:59:38/6+00:02:00) (Direct examination of Stephen L. Norris by Mr. Spector for Debtors)
(19:23:11/6+00:25:33) (Cross-examination of Stephen L. Norris by Mr. Reynolds for IBM)
(19:38:20/6+00:40:42) (Re-direct examination of Stephen L. Norris by Mr. Spector for Debtors)
(19:47:07/6+00:49:29) (Direct examination of Jeff Fred Hunsaker by Mr. Spector for Debtors)
(20:20:24/6+01:22:46) *** RECESS ***
(20:28:30/7+00:00:00) Seventh Session
(20:30:24/7+00:01:54) (Oracle's objection resolved)
(20:33:58/7+00:05:28) (IBM's conversion argument)
(20:44:01/7+00:15:31) (Novell's conversion argument)
(20:46:55/7+00:18:25) (U.S. Trustee's conversion argument)
(20:49:59/7+00:21:29) (Debtors' conversion opposition and sale argument)
(21:19:28/7+00:50:58) (IBM's sale opposition and conversion reply)
(21:37:05/7+01:08:35) (Novell's sale opposition and conversion reply)
(21:46:16/7+01:17:46) (U.S. Trustee's sale opposition and conversion reply)
(21:48:42/7+01:20:12) (Debtors' sale reply)
(22:04:02/7+01:35:32) (Court promises ruling "certainly within a week")
(22:04:59/7+01:36:29) *** RECESS ***
(09:38:35/1+00:00:00) CLERK: Please rise.
(09:38:38/1+00:00:03) THE COURT: Good morning, everyone. Thank you, and please be seated.
(09:38:40/1+00:00:05) VOICES: Good morning, your honor.
(09:38:41/1+00:00:06) THE COURT: Good morning. Well, we are here for the motion to dismiss and motion to approve a sale, and I am ready, having reviewed all of the documents, and how shall we proceed? Mr. Spector, good morning.
(09:38:56/1+00:00:21) MR. SPECTOR: Good morning, your Honor. I suppose appearances would be helpful.
(09:39:00/1+00:00:25) THE COURT: Yes.
(09:39:01/1+00:00:26) MR. SPECTOR: My name is Arthur Spector. I'm here with my partner Frank Caplan over there --
(09:39:05/1+00:00:30) THE COURT: All right.
(09:39:06/1+00:00:31) MR. SPECTOR: -- representing SCO Group, Incorporated and SCO Operations, Incorporated, both of whom are debtors-in-possession in this case. With me also is our paralegal Carmen Cruz, who's going to try to keep things in order for us.
(09:39:18/1+00:00:43) THE COURT: Okay, welcome.
(09:39:19/1+00:00:44) MR. SPECTOR: And I'll let the other counsel -- of course, Mr. Tibbitts, general counsel of the debtors --
(09:39:23/1+00:00:48) THE COURT: Yes
(09:39:24/1+00:00:49) MR. SPECTOR: -- is here as well.
(09:39:25/1+00:00:50) THE COURT: Of course. Good morning, Mr. Tibbitts. Any other introductions?
(09:39:36/1+00:01:01) Good morning.
(09:39:37/1+00:01:02) MR. GREECHER: Good morning, your Honor. Sean Greecher from Young, Conaway, on --
(09:39:38/1+00:01:03) THE COURT: Yes, sir.
(09:39:39/1+00:01:04) MR. GREECHER: -- behalf of Novell, here with Adam Lewis, who you know.
(09:39:42/1+00:01:07) THE COURT: Absolutely. Mr. Lewis.
(09:39:43/1+00:01:08) MR. GREECHER: And I believe you've, uh, I believe you've met Michael Jacobs (inaudible).
(09:39:45/1+00:01:10) THE COURT: Yes, good to see you.
(09:39:50/1+00:01:15) Ms. Silverstein, good morning.
(09:39:51/1+00:01:16) MS. SILVERSTEIN: Good morning, your Honor. Laurie Silverstein for IBM, here with Richard Levin --
(09:39:55/1+00:01:20) MR. LEVIN: Good morning, your Honor.
(09:39:55/1+00:01:20) THE COURT: Of course. Mr. Levin, good to see you again.
(09:39:57/1+00:01:22) MS. SILVERSTEIN: Also David Marriott --
(09:39:58/1+00:01:23) MR. MARRIOTT: Good morning, your Honor.
(09:39:58/1+00:01:23) THE COURT: Mr. Marriott, yes, sir.
(09:39:58/1+00:01:23) MS. SILVERSTEIN: -- and Michael Reynolds will be addressing the Court.
(09:40:01/1+00:01:26) MR. REYNOLDS: Good morning, your Honor.
(09:40:01/1+00:01:26) THE COURT: All right, thank you. Mr. Reynolds, welcome.
(09:40:02/1+00:01:27) MR. O'NEILL: Good morning, your Honor.
(09:40:03/1+00:01:28) THE COURT: Good morning, Mr. O'Neill.
(09:40:04/1+00:01:29) MR. O'NEILL: I just wanted to say good morning. I'm here with Mr. Spector.
(09:40:05/1+00:01:30) THE COURT: All right.
(09:40:06/1+00:01:31) MR. O'NEILL: -- on behalf of the debtors.
(09:40:07/1+00:01:32) THE COURT: Thank you, thank you. Now I know that I had --
(09:40:10/1+00:01:35) MR. SPECTOR: We have, we have counsel from Boies, Schiller --
(09:40:12/1+00:01:37) MR. NORMAND: -- Good morning, your honor, this is Ted Normand from Boies, Schiller for the debtors.
(09:40:15/1+00:01:40) THE COURT: Good morning. Anyone else? Well, I know we talked about two and a half hours a side. That is, you know, a -- I'm not inflexible on that, of course, depending upon how things are moving along. I'll just be even handed with the amount of time. And if it looks like despite your best efforts it's taking a little bit longer obviously I'm not going to cut people off just because you've hit the -- the magic amount of time, but, uh, be -- I'll try and, you know, keep mind of the time, keep track of the time, and see how we go. Mr. Spector.
(09:40:55/1+00:02:20) MR. SPECTOR: Good morning again, your Honor. Am I on the clock yet?
(09:41:00/1+00:02:25) THE COURT: Not yet.
(09:41:01/1+00:02:26) MR. SPECTOR: Okay. I'm prepared to --
(09:41:02/1+00:02:27) THE COURT: Because there may be some preliminary matters, is that --
(09:41:04/1+00:02:29) MR. SPECTOR: Well, I was just going into my opening.
(09:41:06/1+00:02:31) THE COURT: Okay.
(09:41:07/1+00:02:32) MR. SPECTOR: Okay.
(09:41:08/1+00:02:33) THE COURT: All right.
(09:41:09/1+00:02:34) MR. SPECTOR: We're here today on two matters, SCO's motion to sell substantially all of their assets under section three sixty-three, and IBM's, Novell's, and the U.S. Trustee's motions to convert the cases.
(09:41:19/1+00:02:44) Putting aside the U.S. Trustee's motion for the time being, these motions by IBM and Novell to convert the cases to Chapter Seven, and even more so their objections to the sale to Unxis are baseless. Moreover, their reasons for filing the motions have nothing to do with their interest as alleged creditors hoping to be paid for their claims.
(09:41:42/1+00:03:07) They're active in these cases for one reason only, and that is to put SCO out of business in order to kill SCO's lawsuits against them. These parties, who call themselves creditors are subverting the purpose of Chapter Eleven, namely to keep a business in business in order to pay their just debts, preserve jobs, provide a return to stockholders if we're fortunate enough to have a solvent case.
(09:42:03/1+00:03:28) IBM and Novell want to kill SCO's business, and they care not a whit that they and the creditors, the legitimate creditors, will receive little or nothing in the process. Why in heaven's name does IBM care whether SCO sells its Unix business to Unxis? And that's (you-nexis) how that name's pronounced, we learned.
(09:42:19/1+00:03:44) THE COURT: Thank you.
(09:42:20/1+00:03:45) MR. SPECTOR: Why did IBM unleash its hordes of high-powered attorneys coast-to-coast to depose anyone who might dare to testify for SCO. What possible reason does IBM have to oppose the sale? The only reason is that by the sale, SCO would survive, and survive with the potent claims against IBM intact.
(09:42:41/1+00:04:06) IBM and Novell want to crush SCO, and soon, before the Court of Appeal can vindicate it. They know that once that happens, they will have to face juries to answer for what they have done to SCO.
(09:42:52/1+00:04:17) The sale to Unxis is complex technically, but simple in bankruptcy terms. It's complex because as you will hear and probably already know, the circumstances of this case make sale of the Unix business, an extremely difficult proposition. It is nevertheless quite simple from a bankruptcy perspective.
(09:43:12/1+00:04:37) There's a buyer willing and able, virtually unconditionally, to pay enough within a matter of days to permit SCO to pay all of their allowed claims in full. There is no more due diligence. There is nothing else for the SCO debtors -- or the sellers, to do, other than -- to satis-- to satisfy the closing -- other than to obtain an order from this court.
(09:43:34/1+00:04:59) The evidence will demonstrate the nearly nonstop efforts the debtor has made to market these assets to ensure that the estate would be getting a fair deal.
(09:43:44/1+00:05:09) The Court already knows, simply by its juxtaposition with these motions to convert, alleging continuing losses, that there is a good business reason to sell these assets under section 363 without a plan.
(09:44:32/1+00:05:57) But Novell and IBM will try to divert the Court's attention from the real section 363 issues and try to focus on all sorts of red herrings. We urge the Court to keep an eye on the ball, here, and remember that the purpose of court oversight of a sale, in bankruptcy, is the protection of the estate as a whole.
(09:55:03/1+00:16:28) As intimated earlier, a most unusual circumstance is that the debtors have insurance against any potential loss from now until August thirty-first, and most certainly through the date of the anticipated closing of the Unxis sale in a couple of weeks, in the form of a personal guarantee from the debtors' largest stock holder, Ralph Yarro.
(09:55:24/1+00:16:49) Mr. Yarro is committed to underwrite up to two hundred thousand dollars of losses, should they occur, so that the debtors' cash is not eroded when the Court grants the debtors extended life. There's no reason, if we're worried about true creditors, not to extend the life to August thirty-first, when the losses are being underwritten.
(09:59:58/1+00:21:23) THE COURT: Thank you, Mr. Spector. By the way, I failed to acknowledge Mr. Harrington's appearance for the United States Trustee. Good morning, Mr. Harrington.
(10:00:09/1+00:21:34) MR. HARRINGTON: Good morning, your Honor.
(10:00:22/1+00:21:47) MR. SPECTOR: Your honor, do you -- do you have a clock (inaudible)?
(10:00:24/1+00:21:49) THE COURT: I'm keeping track.
(10:00:25/1+00:21:50) MR. SPECTOR: Can you share it?
(10:00:26/1+00:21:51) THE COURT: Oh, that was fifteen minutes.
(10:00:28/1+00:21:53) MR. SPECTOR: Oh. I'm in -- I'm in business.
(10:00:32/1+00:21:57) THE COURT: Mr. Levin, good morning.
(10:00:33/1+00:21:58) MR. LEVIN: Good morning, your Honor. Richard Levin, Cravath, Swaine, and Moore for International Business Machines Corporation.
(10:00:40/1+00:22:05) Your honor, it was not IBM's original intention to oppose the sale of the assets proposed. There were just a few things in the sale agreement that concerned us when we read it.
(10:00:53/1+00:22:18) One was what we call the vanishing -- I'm sorry, the poison pill. The second was the vanishing Letter of Credit - Sun. We call that the solar eclipse --
(10:01:05/1+00:22:30) THE COURT: Ha, ha.
(10:01:06/1+00:22:31) MR. LEVIN: -- um, and the third was the need for the debtors to make a record to support the sale. But what we found out in discovery surprised us. And you see some of that reflected in our opposition paper.
(10:01:19/1+00:22:44) THE COURT: Yes, yes.
(10:01:20/1+00:22:45) MR. LEVIN: We found out that there were secret payments from the debtor and its CEO to Mr. Norris. There was a reduction in the purchase price for the, um, for an asset that is currently generating no revenue -- no material revenue. Um, there's the, as I said, the solar eclipse.
(10:01:44/1+00:23:09) We've learned that there's no committed financing for this transaction, and that the agreement is largely an option, for which the debtors have received a payment of two hundred fifty thousand dollars.
(10:01:55/1+00:23:20) We believe that we needed to call these matters to the Court's attention, and with them, we found it hard not to oppose the sale. What we found out we believe also supports the conversion motion, and we'll get into that in the evidence.
(10:02:12/1+00:23:37) Since then there's been a new development. This case is full of new developments. Last Thursday, your Honor, we received and, uh, by copy, of, and -- we saw a copy of an email to the Debtor the debtor received, a proposal from LNS Acquisition, LLC, which is an affiliate of DMEP Corporation, doing business as Hale Global, to acquire all of the assets of the debtor.
(10:02:43/1+00:24:08) We haven't had time since Thursday afternoon when this came in to evaluate whether it is a higher and better offer or whether it is not. But what it does tell us is that the idea -- in addition to all of the other problems that we have with the sale -- it does tell us that the idea of a private sale is not a good idea in this case.
(10:03:06/1+00:24:31) If you look at the structure of the sale agreement itself, there's no urgency to closing the sale. There's time to conduct an auction. We have a competing bidder.
(10:03:17/1+00:24:42) And I also might mention that the principal of LNS Acquisition is present in court today as is his counsel, who can represent to the Court that they are willing to participate in an auction. Obviously they're not ready to bid. It's a little early for that, but they're reviewed -- they'll represent that they've reviewed the Unxis agreement, and even in the face of that they're willing to bid, which suggests they would come up with something higher and better, otherwise, why bother?
(10:03:48/1+00:25:13) So we believe that there should be an auction, that this should not go by private sale. And because of the dynamics of this case, your Honor, and all of the other things that we will show during this case, we believe that this Court should exercise its discretion under 1104(a)(3) to order the appointment of a trustee to conduct that auction, rather than allowing SCO to conduct it itself, since it is so closely allied with the current bidder, it can't be a neutral party, a disinterested board of directors, in effect, to conduct an auction process, unless some independent directors were appointed at this point.
(10:04:30/1+00:25:55) So we believe that the fastest and easiest way to get there would be the prompt appointment of a Chapter Eleven trustee to conduct that auction.
(10:04:37/1+00:26:02) Your Honor, on the other hand, if the Court determines not to order an auction for this case, then, for the reasons we stated in our opposition, and as the evidence will show, we believe the sale should not be approved, and the case should be converted to Chapter Seven.
(10:04:52/1+00:26:17) THE COURT: All right, thank you, Mr. Levin. Mr. Lewis, good morning.
(10:05:00/1+00:26:25) MR. LEWIS: Good morning, your Honor. I don't have very much here as an opening. I think I just want to follow on a few points.
(10:05:05/1+00:26:30) THE COURT: Okay.
(10:05:06/1+00:26:31) MR. LEWIS: If you listened, especially to the beginning of the debtors' opening, what you heard, I think very clearly, was this case is all about the litigation. That's what this is about.
(10:05:17/1+00:26:42) And so, if that's what this is about, then in a sense part of what's confronting the Court today is, who should decide what to do with that litigation? The debtor has said repeatedly that we want to squash the debtor and crush the litigation. We've not asked for any such thing. We've asked for conversion to a Chapter Seven, for the appointment of a neutral to assess that litigation, given management's obvious commitment to it pretty much come what may.
(10:05:46/1+00:27:11) And I think that's still a really good idea here. So the sale should be disapproved, among other reasons, because a neutral needs to evaluate this whole approach to this case. And we have not had a neutral since the beginning of this case to do that. And you heard it again this morning. They won't concede that point, but that's what you heard. And I think it -- you heard it very, very clearly.
(10:06:10/1+00:27:35) And I want to reiterate again that we have not tried to end the litigation through this case. We have tried to get the litigation in the hands of someone who can approach it rationally. Maybe that someone will decide that the litigations are worth billions of dollars, and we will not see an end to it.
(10:06:29/1+00:27:54) Maybe that person will decide it's worth a whole lot less, and there's a lot of risks to the creditors, a lot of uncertainties, a lot of maybes, and a long way down the road, even if the case gets reversed in the tenth circuit, and the -- what's in the best interests of creditors is some other approach to the litigation, perhaps a settlement.
(10:06:47/1+00:28:12) But that's -- should be in the hands of someone whose judgment now can be trusted, and I don't think the Court or the creditors can trust the management of the debtor right now. That's just the way it is.
(10:10:24/1+00:31:49) THE COURT: Thank you, Mr. Lewis. Anyone else wish to be heard?
(10:10:29/1+00:31:54) MR. DOSHI: Your honor?
(10:10:29/1+00:31:54) THE COURT: Yes.
(10:10:30/1+00:31:55) MR. DOSHI: If I may interrupt on the phone for a second.
(10:10:34/1+00:31:59) THE COURT: Who is this?
(10:10:35/1+00:32:00) MR. DOSHI: This is Amish Doshi with Day Pitney on behalf of Oracle USA Inc.
(10:10:39/1+00:32:04) THE COURT: Yes, Mr. Doshi.
(10:10:41/1+00:32:06) MR. DOSHI: Good morning, your Honor. I just want to note my appearance for the record, and also note that we do not take any position with respect to this motion to convert issue, but at some appropriate time, when your Honor is ready, with respect to the sale motion and the assumption and assignment, or attempted assumption and assignment of any Oracle agreement, at that point I would like to be heard. We filed a limited objection, and I just wanted to note for the record that at some appropriate time I want an opportunity to be heard on that limited issue. Once again, we take absolutely no position with respect to this motion, and I don't want to interrupt the proceedings that are going on with respect to that.
(10:11:25/1+00:32:50) THE COURT: Thank you, Mr. Doshi. I certainly will give you an opportunity to be heard at the, uh, at the right time.
(10:11:28/1+00:32:53) MR. DOSHI: Thank you.
(10:11:29/1+00:32:54) THE COURT: Your honor, Mr. Levin. Uh, we have a procedural question.
(10:11:32/1+00:32:57) THE COURT: Okay.
(10:15:40/1+00:37:05) MR. SPECTOR: The record will be replete with testimony to show that the estate is getting a fair price, notwithstanding, as red herrings I told you were going to be coming up, on another deal.
(10:15:52/1+00:37:17) Um, Mr. Hale is not new to this court. Mr. Hale was the lead of York. Remember York. Because of York, we're in the position we're in now. Uh, we spent tons of money to try to bring that York deal home early in the case. Mr. Hale, you'll hear testimony -- I'm not -- I'm doing an opening -- no, don't put that on the clock, I'm responding to their argument. You're going to hear testimony --
(10:16:15/1+00:37:40) MR. LEVIN: Your Honor, excuse me, I just asked a procedural question of how we were going to handle --
(10:16:20/1+00:37:45) THE COURT: Yes.
(10:16:20/1+00:37:45) MR. LEVIN: -- the amendment. That's all I asked.
(10:16:22/1+00:37:47) MR. SPECTOR: Well, it -- it invol-- it invoked the idea of an auction. He says we can't do an auction without looking at it, so while we're talking about the auction -- um, while we're talking about the auction, Mr. Hale, through Global -- whatever it is, Hale Global, came back, and you'll hear Mr. McBride talk about it, he came back in the last several months before the sale -- he's one of those people who considered this offer and rejected it.
(10:16:46/1+00:38:11) Um, now, on Thursday of last week, while we're getting -- doing everything, getting documents, we get this email from him, copied to IBM's lawyer and Novell's lawyer by the way, uh, saying oh by the way here's what it is. Well, one of our deal partners disassembled it and said here's what the deal really is. We get to the merits of the deal -- if we get to the merits of the deal, it stinks.
(10:18:37/1+00:40:02) MR. HARRINGTON: Good morning, your Honor.
(10:18:38/1+00:40:03) THE COURT: Good morning.
(10:18:38/1+00:40:03) MR. HARRINGTON: William Harrington, for the office of the United States Trustee. I'm pinch-hitting for Joseph McMahon today.
(10:18:44/1+00:40:09) Your honor, I wanted to just get up briefly. There's been a lot of talk, mainly from the debtors, about what would happen, sort of post-sale, and some sort of structured dismissal, but that hasn't really been defined, there's no motion on the table.
(10:18:59/1+00:40:24) I know your Honor has read our motion. Our motion is very simple.
(10:19:02/1+00:40:27) THE COURT: Yes.
(10:19:03/1+00:40:28) MR. HARRINGTON: And I don't think the debtor really disputes what's contained in our motion. Although they sort of disputed it today, I don't think they dispute there's a continuing loss here. The reasonable likelihood of rehabilitation, I think they were sketchy as to what's going to happen with that.
(10:19:20/1+00:40:45) And the code talks about a plan, your Honor, and the debtors being able to propose a plan to prove unusual circumstances in the best interests of the creditors. That's not being discussed by the creditor-- by the debtors, and we have serious concerns about some sort of structured dismissal that doesn't follow the code, your Honor.
(10:19:42/1+00:41:07) There's two ways -- there's, I guess, three ways to get rid of a case in bankruptcy, and the first is a plan, and that's what is contemplated under the code and chapter eleven, that you'll get out through a plan, a reorganization. We're not -- no one's talking about doing that here.
(10:19:57/1+00:41:22) The second is to convert the case and let a chapter seven go through the claims and evaluate the claims and make distributions. And then the third would be a straight dismissal with no sort of structure to it, in certain circumstances.
(10:20:10/1+00:41:35) So, I did want to get up and rise because there is sort of a lingering discussion of a structured dismissal here, uh, with no sort of -- it's sort of an amorphous structured dismissal, it's been mentioned, but there's no kind of discussion as to what form that would take.
(10:20:25/1+00:41:50) Um, and, we believe your Honor the two ways out here are reorganization plan or a chapter seven trustee, and that's why we moved for conversion. Thank you, your Honor.
(10:20:36/1+00:42:01) THE COURT: Thank you, Mr. Harrington, thank you. All right, anyone else?
(10:20:42/1+00:42:07) MR. MARRIOTT: Your honor, David Marriott, if I may, for IBM.
(10:20:44/1+00:42:09) THE COURT: Of course.
(10:20:48/1+00:42:13) MR. MARRIOTT: I think it might be to everyone's advantage if we cleared some -- some procedural underbrush. We have provided the Court and counsel for the debtors a set of exhibits --
(10:20:59/1+00:42:24) THE COURT: Yes.
(10:21:00/1+00:42:25) MR. MARRIOTT: -- that we propose to move into evidence during the course of these proceedings, your Honor.
(10:30:01/1+00:51:26) MR. SPECTOR: Here are the other two.
(10:30:04/1+00:51:29) THE COURT: So we have declarations of Mr. Nielsen, Mr. Tibbitts, and Mr. Hunsaker, and that's what we'll review, and, you'll just let me know when you're ready to proceed, is that right, Mr. Marriott?
(10:30:15/1+00:51:40) MR. MARRIOTT: Yes, your honor. Thank you.
(10:30:17/1+00:51:42) THE COURT: Thank you. All right, we'll stand in recess as long as necessary.
(10:30:23/1+00:51:48) *** RECESS ***
(11:10:48/2+00:00:00) CLERK: Please rise.
(11:10:52/2+00:00:04) THE COURT: You may be seated. Thank you. Mr. Marriott, did you want to respond to the declarations? I mean, I know you're going -- you'll make -- you'll probably want to cross-examine. Not probably.
(11:11:07/2+00:00:19) MR. MARRIOTT: We will I believe have some objections to the content of the declarations, --
(11:11:11/2+00:00:23) THE COURT: All right.
(11:11:12/2+00:00:24) MR. MARRIOTT: -- but perhaps what makes sense is to have the witnesses called, and we can state our objections when they've adopted their declarations, which is, I assume, the procedure we will be following.
(11:11:19/2+00:00:31) THE COURT: Exactly.
(11:11:20/2+00:00:32) MR. MARRIOTT: Thank you.
(11:11:21/2+00:00:33) THE COURT: Thank you.
(11:11:24/2+00:00:36) MR. SPECTOR: So, uh. Do you want me to --
(11:11:26/2+00:00:38) THE COURT: Mr. Spector.
(11:11:27/2+00:00:39) MR. SPECTOR: How exactly do you want --
(11:11:28/2+00:00:40) THE COURT: Oh, I guess -- I guess we ought to call Mr. Tibbitts to the stand.
(11:11:30/2+00:00:42) MR. SPECTOR: All right, do I do that, now?
(11:11:32/2+00:00:44) THE COURT: Why not. I'll do it. Mr. Tibbitts.
(11:11:36/2+00:00:48) You may --
(11:11:36/2+00:00:48) MR. TIBBITTS: Do I need my declaration up there with me, or --
(11:11:39/2+00:00:51) THE COURT: Yes, I think that's a good -- you'll probably need that, Mr. Tibbitts.
(11:11:42/2+00:00:54) Is that all right, Mr. Marriott? Any objection?
(11:11:43/2+00:00:55) MR. MARRIOTT: That's fine by me, your Honor. I have no objection.
(11:11:46/2+00:00:58) THE COURT: Okay. And we will have you sworn, Mr. Tibbitts.
(11:11:53/2+00:01:05) CLERK: Please take the stand. Raise your right hand, place your left hand on the Bible. State your full name and spell your last name for the record.
(11:12:02/2+00:01:14) MR. TIBBITTS: Ryan E. Tibbitts, T-I-B-B-I-T-T-S.
(11:12:07/2+00:01:19) CLERK: Do you solemnly swear to tell the truth, the whole truth, and nothing but the truth, so help you God?
(11:12:12/2+00:01:24) MR. TIBBITTS: Yes, I do.
(11:12:13/2+00:01:25) THE COURT: Thank you, Mr. Tibbitts.
(11:12:17/2+00:01:29) When you're -- yes, you may proceed.
(11:12:20/2+00:01:32) Q: Mr. Tibbitts, do you adopt your declaration?
(11:12:23/2+00:01:35) A: Yes, I do.
(11:12:24/2+00:01:36) MR. SPECTOR: That it?
(11:12:25/2+00:01:37) THE COURT: Thank you.
(11:12:25/2+00:01:37) MR. SPECTOR: Okay.
(11:12:26/2+00:01:38) THE COURT: All right, now that's official.
(11:12:27/2+00:01:39) MR. MARRIOTT: Thank you, your Honor.
(11:12:28/2+00:01:40) THE COURT: Thank you. Mr. Marriott.
(11:12:31/2+00:01:43) MR. MARRIOTT: Uh, good morning, Mr. Tibbitts.
(11:12:33/2+00:01:45) MR. TIBBITTS: How are you.
(11:12:33/2+00:01:45) MR. MARRIOTT: Your Honor, if I may, I think, in the interests of expedition, what I'd like to do is state for the record our objections to certain paragraphs of Mr. Tibbitts' declaration --
(11:12:43/2+00:01:55) THE COURT: All right.
(11:12:44/2+00:01:56) MR. MARRIOTT: -- and then I have but a few questions for Mr. Tibbitts on behalf of IBM. Your Honor, we would object to paragraphs seven, eight, nine, ten, eleven, twelve, sixteen, and seventeen, on the grounds that they are speculative, not based on personal knowledge, and based on hearsay, for reasons that I believe are plain on the face of the document.
(11:13:24/2+00:02:36) I assume your Honor will take those objections under advisement if and when you consider the merits of the testimony and you don't wish to have further argument on that.
(11:13:32/2+00:02:44) THE COURT: Well, I suppose to the extent that I sustain your objections, you wouldn't have to cross-examine on those points.
(11:13:40/2+00:02:52) MR. MARRIOTT: I don't intend, your Honor, to cross-examine on those points. The speculative nature -- the testimony in those paragraphs, your Honor, speaks to what would happen in a world in which the tenth circuit court of appeals were to reverse Judge Kimball's decision in Novell's favor in the District Court in Utah. And Mr. Tibbitts' testimony, as your Honor knows, if you've had an opportunity to review this, --
(11:14:02/2+00:03:14) THE COURT: Yes.
(11:14:02/2+00:03:14) MR. MARRIOTT: -- lays out what his view of several possibilities in the event that event in the future -- that uncertain event in the future were to occur. It's our position that's -- that that is necessarily and inherently speculative. That it isn't and can't be based on personal knowledge. That it's based in parts on hearsay, and for those reasons alone your Honor not -- ought not take that into evidence. I don't believe there's much additional cross-examination to do about it if I think speaks for itself and on its face suffers from those problems. I have only, uh, several additional questions for Mr. --
(11:14:31/2+00:03:43) MR. JACOBS: If I could --
(11:14:32/2+00:03:44) THE COURT: You -- please.
(11:14:32/2+00:03:44) MR. JACOBS: If I may, this will be the first and last time that I disagree with Mr. Marriott today, but I actually think if you were to rule it would expedite my cross-examination at least, because if it -- I have to be concerned that it might come in, then I have to develop further aspects of the proposed testimony, so if --
(11:14:47/2+00:03:59) THE COURT: And forgive me, your name again?
(11:14:48/2+00:04:00) MR. JACOBS: Michael Jacobs, your Honor, I'm sorry.
(11:14:49/2+00:04:01) THE COURT: I'm sorry, Mr. Jacobs.
(11:14:50/2+00:04:02) MR. JACOBS: And I'm sorry for not being at the microphone also.
(11:14:51/2+00:04:03) THE COURT: No, I th-- I think we picked you up right there at the table.
(11:14:54/2+00:04:06) MR. MARRIOTT: And, to be clear, Mr. Jacobs, I believe, is the primary questioner of Mr. Tibbitts.
(11:14:58/2+00:04:10) THE COURT: Yeah, okay.
(11:14:59/2+00:04:11) MR. MARRIOTT: I'm principally stating IBM's objections, which I think your Honor should grant, and because I only have several questions it doesn't impede my examination in the way it will Mr. -- Mr. Jacobs.
(11:15:08/2+00:04:20) THE COURT: All right. Um, Mr. Spector, any response to the objection?
(11:15:16/2+00:04:28) MR. SPECTOR: Mr. Normand will handle this witness.
(11:15:18/2+00:04:30) THE COURT: All right Mist-- good -- good morning.
(11:15:19/2+00:04:31) MR. NORMAND: Good morning, your Honor. Ted Normand.
(11:15:20/2+00:04:32) THE COURT: Yes.
(11:15:21/2+00:04:33) MR. NORMAND: This goes to an issue that Mr. Spector addressed in the argument last week, so I have one broad point and one specific point.
(11:15:28/2+00:04:40) As a broad matter I'm not sure that the label speculative is of particular significance here. I mean what your Honor is charged with doing is, to some extent, making a prediction about how these claims are going to be resolved.
(11:15:39/2+00:04:51) I don't think there's any question that the pendency of the litigation is relevant. We're not going to address the merits, we're not trying to prove up the merits, but th--
(11:15:46/2+00:04:58) THE COURT: Right.
(11:15:46/2+00:04:58) MR. NORMAND: -- I don't think there's a question. IBM and Novell haven't gone so far as to say the pendency of the litigation is irrelevant. So, given its relevance, your Honor is charged with making one prediction or another about what might happen. That's my general comment.
(11:16:00/2+00:05:12) I would say specifically we have the general counsel of the company, who's been exposed to the proceedings and who, as a mechanism for your Honor to gain some knowledge through a witness about the company's view, trying to make the point that, you know, there's a reasonable prospect of rehabilitation, the company's view about how things might play out.
(11:16:18/2+00:05:30) Now, they're entitled to put up -- I think they can argue as attorneys, they can argue against it. The way we've chosen to do it is to use the general counsel of the company to argue about how he thinks, given his many-year exposure, his investment in the issues as a -- as the general counsel of the company, his non-stop experience with dealing with them. He's qualified to speak to what he thinks will happen upon any one of a number of events, in particular concerning the tenth circuit appeal.
(11:16:47/2+00:05:59) So, for both those reasons I think that Mr. Tibbitts should be permitted to testify to the substance of those paragraphs.
(11:16:52/2+00:06:04) THE COURT: Thank you, Mr. Normand. Anything further, Mr. Marriott?
(11:16:57/2+00:06:09) MR. MARRIOTT: Your honor, I would say simply that, without boring your Honor again with all the detail of our letter brief -- Mr. Levin's letter brief to the Court -- we laid out there why, your Honor, this testimony is inherently speculative, why it's been disallowed by courts in other jurisdictions. It is offered here, as I understand it, for the purpose of showing that this -- the debtors have some prospect of rehabilitation. And a -- an uncertain potential recovery, at a date uncertain in the funer-- future, your Honor, is necessarily and inherently speculative, and for the reasons set out in those papers and that I've otherwise stated here, it ought not, we respectfully submit, be allowed.
(11:17:33/2+00:06:45) THE COURT: Yes, Mis-- Mr. Jacobs.
(11:17:34/2+00:06:46) MR. JACOBS: Michael Jacobs, your Honor. For the record, Novell joins in IBM's objections to this testimony.
(11:17:38/2+00:06:50) THE COURT: All right. Mr. Normand?
(11:17:42/2+00:06:54) MR. NORMAND: One last word, your Honor.
(11:17:43/2+00:06:55) THE COURT: Yes.
(11:17:45/2+00:06:57) MR. NORMAND: It's important to note that part of what Mr. Tibbitts is testifying to in these paragraphs is -- is based on his personal experience, and that is, in particular, what he thinks will happen in the market, for lack of a better term, if there is some sort of reversal from the tenth circuit.
(11:17:59/2+00:07:11) That's an issue that he has grounds to address based on first-hand knowledge. And again I think we're -- we shouldn't get hung up on labels. Is it speculative? It's forward-looking, but that's the context in which everyone hear finds themselves. Of course your Honor knows that. And your Honor's task is to predict what's going to happen in the future, and Mr. Tibbitts has personal knowledge, based on which he can speak to that issue.
(11:18:23/2+00:07:35) VOICE: May I just --
(11:18:24/2+00:07:36) MR. MARRIOTT: One additional point, your Honor, raised by Mr. Norris's argument. A further problem with Mr. Tibbitts' testimony, your Honor, is that it is in effect improper lay opinion testimony. What Mr. Normand should have said, and what Mr. Tibbitts says at paragraph ten of his declaration, is that he will speak to the effect that he personally believes a decision by the tenth circuit court of appeals would have on the stock price and the market capitalization of the SCO Group. That is, if anything, your Honor, a classic question of expert opinion. It is not a question for a lay witness, independent of the other reasons for objection which we've laid out. Thank you, Judge.
(11:18:58/2+00:08:10) THE COURT: Thank you. Well, you know, Mis-- Mister -- let -- let me ask Mr. Tibbitts one question.
(11:19:07/2+00:08:19) Q: Mr. Tibbitts, as general counsel for SCO, is it your -- is it your responsibility -- there may be others -- but is it one of your responsibilities to monitor the litigations to which you refer in your declaration?
(11:19:22/2+00:08:34) A: Yes.
(11:19:23/2+00:08:35) THE COURT: Okay. Well, given the fact that Mr. Tibbitts is a lawyer, is general counsel, is charged with the responsibility of monitoring the litigation, I am going to overrule the objection except as it relates to what impact the litigation would have upon the stock prices, because I do not believe that Mr. Tibbitts, as a lawyer, has the expertise to opine on that, or to even speak to it as a fact -- as a matter of fact.
(11:19:51/2+00:09:03) But other than that, as far as what might happen, I think it goes to the weight of the evidence, I think we all know that this is based on surmise to a large extent, but nonetheless, as general counsel, I do think that Mr. Tibbitts ought to be entitled to testify -- or his -- his declaration, at least as to those points, should be admitted.
(11:20:13/2+00:09:25) MR. MARRIOTT: May I inquire, your Honor?
(11:20:14/2+00:09:26) THE COURT: Yes.
(11:20:15/2+00:09:27) MR. MARRIOTT: Thank you.
(11:20:16/2+00:09:28) Q: Mr. Tibbitts, in your declaration, you describe certain of the claims that the debtors have against Novell and IBM, correct?
(11:20:27/2+00:09:39) A: Yes.
(11:20:28/2+00:09:40) Q: You do not mention, however, in your declaration, any counterclaims that either Novell or IBM has against the debtors, correct?
(11:20:35/2+00:09:47) A: That's correct.
(11:20:36/2+00:09:48) Q: And in fact IBM has a number of counterclaims against debtors, correct?
(11:20:41/2+00:09:53) A: Uh --
(11:20:42/2+00:09:54) Q: Against the SCO Group, Inc.?
(11:20:44/2+00:09:56) A: Well, I know at one point they had a number of counterclaims and they dropped many of those. Uh, and I don't know if they have many claims left, or one or two. (noise) Sorry.
(11:20:53/2+00:10:05) Q: But, isn't a fact, Mr. Tibbitts, that IBM asserted more than ten counterclaims against the SCO Group, Inc., including four patent counterclaims, which were -- which patent counterclaims were dropped?
(11:21:07/2+00:10:19) A: Uh, I don't have the numbers in my head, but that sounds about right.
(11:21:09/2+00:10:21) Q: And IBM has asserted against the SCO Group counterclaims in addition to patent counterclaims, correct?
(11:21:15/2+00:10:27) A: Yes.
(11:21:16/2+00:10:28) Q: And those cases are pending, correct?
(11:21:17/2+00:10:29) A: Yes.
(11:21:18/2+00:10:30) Q: In fact IBM moved for summary judgment, for a declara-- with respect --
(11:21:22/2+00:10:34) MR. MARRIOTT: Withdrawn, your Honor. No further questions.
(11:21:24/2+00:10:36) THE COURT: All right, thank you. Mr. Jacobs, when you're ready, sir.
(11:21:31/2+00:10:43) Q: Mr. Tibbitts, let's talk first about the timing of a possible tenth circuit ruling. In your declaration you say that you have been advised -- that SCO has been advised, that Judge McConnell plans to rule on his cases prior to his departure date, do you recall that --
(11:21:48/2+00:11:00) A: Correct.
(11:21:48/2+00:11:00) Q: -- testimony in your declaration? What exactly has been said by whom to whom, sir?
(11:28:54/2+00:18:06) MR. JACOBS: Thank you, your Honor, no further questions.
(11:28:55/2+00:18:07) THE COURT: All right. Any re-direct, Mr. Normand?
(11:29:09/2+00:18:21) MR. NORMAND: Uh, just briefly, your Honor. Good morning, Mr. Tibbitts.
(11:29:12/2+00:18:24) MR. TIBBITTS: How are you.
(11:29:15/2+00:18:27) Q: Mr. Marriott had asked you about counterclaims, do you recall that?
(11:29:18/2+00:18:30) A: Yes.
(11:32:20/2+00:21:32) THE COURT: Mr. Tibbitts, you may step down, sir.
(11:32:21/2+00:21:33) MR. TIBBITTS: Thank you.
(11:32:22/2+00:21:34) THE COURT: Thank you.
(11:32:30/2+00:21:42) MR. SPECTOR: Uh, Mr. Tibbitts is going to go call Mr. Nielsen, who wou--
(11:32:31/2+00:21:43) THE COURT: Oh fine, good.
(11:32:32/2+00:21:44) MR. SPECTOR: -- who would have been our first, but we did -- now Mr. Tibbitts can stay here with us.
(11:32:37/2+00:21:49) THE COURT: Yes, he -- yes, he's entitled to stay.
(11:33:23/2+00:22:35) MR. LEVIN: Your Honor, may I just inquire how much time we've expended, in the interests of keeping everyone on the same page?
(11:33:28/2+00:22:40) THE COURT: You know, it's -- it's -- it's very difficult, because some of it -- a lot of it's been argument. I have you at the moment at fifteen minutes.
(11:33:37/2+00:22:49) MR. LEVIN: Thank you, Judge.
(11:33:38/2+00:22:50) THE COURT: And I have the other side at about twenty-five minutes.
(11:33:42/2+00:22:54) MR. SPECTOR: Your Honor, uh, I guess we call Ken Nielsen to the stand.
(11:33:44/2+00:22:56) THE COURT: Mr. Nielsen, thank you. If you'll just remain standing while you're sworn, Mr. Nielsen.
(11:33:50/2+00:23:02) MR. SPECTOR: So, I think they want you to (inaudible) this Bible.
(11:33:53/2+00:23:05) MR. NIELSEN: Ah, here it is.
(11:33:55/2+00:23:07) CLERK: If you could raise your right hand, place your left hand on the Bible. State your full name and spell your last name for the record.
(11:34:00/2+00:23:12) MR. NIELSEN: Kenneth Ray Nielsen, N-I-E-L-S-E-N.
(11:34:04/2+00:23:16) CLERK: Do you solemnly swear to tell the truth, the whole truth, and nothing but the truth, so help you God?
(11:34:08/2+00:23:20) MR. NIELSEN: I do.
(11:34:12/2+00:23:24) Q: Do you adopt your declaration, sir?
(11:34:16/2+00:23:28) A: Yes.
(11:34:17/2+00:23:29) Q: You know what that means?
(11:34:18/2+00:23:30) A: No. But I assume it means, do I -- is this my declaration?
(11:34:21/2+00:23:33) Q: Yes, and -- and you agreeing that that is accurate.
(11:34:24/2+00:23:36) A: Yes.
(11:34:26/2+00:23:38) THE COURT: Thank you.
(11:34:34/2+00:23:46) MR. REYNOLDS: Good morning, your Honor. Good morning, Mr. Nielsen.
(11:34:36/2+00:23:48) MR. NIELSEN: Good morning.
(11:34:38/2+00:23:50) MR. REYNOLDS: I'm Michael Reynolds from Cravath, Swaine, and Moore, in New York, on behalf of IBM. As a threshold matter, your Honor, I'd like to, on behalf of IBM, object to paragraphs twenty-eight to thirty-six of Mr. Nielsen's declaration, on the grounds that those -- the subjects described therein are beyond the scope of the topics that, uh, the debtors indicated Mr. Nielsen would be here to testify about.
(11:35:01/2+00:24:13) The topics that we were advised he would be testifying about were, and I quote, financial results and management steps to conserve, and did not relate to the topics that are addressed in the paragraphs I just listed.
(11:36:00/2+00:25:12) If I could further explain, your Honor.
(11:36:03/2+00:25:15) THE COURT: I was just waiting for a response, but go ahead. Please go ahead while you're there, Mr. Reynolds.
(11:36:06/2+00:25:18) MR. REYNOLDS: Yes if you had a chance to review those paragraphs briefly, you'll see they relate to the witness's views on various intercompany impact of, um, a conversion to chapter seven.
(11:36:18/2+00:25:30) THE COURT: Right.
(11:36:19/2+00:25:31) MR. REYNOLDS: And that's a topic that does not fall within the two that I mentioned, and in fact, during Mr. Nielsen's deposition I specifically asked him, just to make sure there was no chance of him going into this area, whether it was his intent to address this subject, and he was instructed by counsel not to go into that subject, even though I thought that was something that we were entitled to do in these depositions.
(11:44:38/2+00:33:50) MR. SPECTOR: Second, your Honor, and I may come back to this multiple times today, we showed up in court on the assigned date for trial on June fifteenth with eight live witnesses. Mr. Nielsen was one of them. They wouldn't have had one whit of discovery on that day, and we would have proceeded to trial.
(11:44:53/2+00:34:05) I know we brought in some evidence. We could have done that as the last witness at the trial, if we would -- if we want -- if we wanted to, we could have put that into evidence with the last of the eight witnesses and say, and here's the purchase and sale agreement that was inked three hours ago.
(11:45:08/2+00:34:20) And we would have had the trial, and they wouldn't have had anything for Mr. Nielsen, or anybody else. We've produced thousands and thousands of documents. They've had -- they 'posed everybody. Uh, none of that would have happened if we'd gone to trial on June fifteenth when we were scheduled to go.
(11:45:24/2+00:34:36) We're not begrudging we got six extra weeks, but it was all to the advantage of IBM, Novell.
(11:46:20/2+00:35:32) THE COURT: Well just look-- I think just for the -- for the sake of moving things along, I'm going to overrule the objection. I understand it. Um, but I think that Mr. Spector has made a good point, and that is, we had -- we had a hearing scheduled previously that did not proceed, and, uh, I will reluctantly overrule the objection. And I think a few of the paragraphs don't relate to the -- a few of the objected to paragraphs don't relate to the, uh, the foreign business.
(11:46:53/2+00:36:05) MR. REYNOLDS: Very well, your Honor. I'll do my best to ask questions --
(11:46:56/2+00:36:08) THE COURT: Okay.
(11:46:56/2+00:36:08) MR. REYNOLDS: -- on those topics, when we get to them. Uh, are we still in the morning? Good morning, Mr. Nielsen, again.
(11:47:03/2+00:36:15) Q: I would like to ask you, first, if you, um, have had a chance to review your declaration since you -- since you signed it.
(11:47:09/2+00:36:21) A: Yes.
(11:47:10/2+00:36:22) Q: Do you believe it to be true and correct in every way?
(11:47:14/2+00:36:26) A: Yes.
(12:15:31/2+01:04:43) MR. REYNOLDS: No further questions, your Honor.
(12:15:32/2+01:04:44) THE COURT: All right, Mr. Reynolds, thank you. Mr. Lewis, whenever you're ready.
(12:15:47/2+01:04:59) MR. LEWIS: Thank you, your Honor. Good afternoon, Mr. Nielsen.
(12:15:51/2+01:05:03) MR. NIELSEN: Mr. Lewis.
(12:15:52/2+01:05:04) MR. LEWIS: Adam Lewis, I represent Novell in this matter.
(12:15:57/2+01:05:09) Q: Um, to return to your testimony in your declaration and in response to questions from Mr. Reynolds today, about the incorrect information in your -- in the submission to the bankruptcy court in response to the motions to convert, do you recall that testimony, generally?
(12:16:15/2+01:05:27) A: Yes.
(12:18:05/2+01:07:17) Q: When was the last time the debtor filed a monthly operating report?
(12:18:10/2+01:07:22) A: Um, it would have been, mm, May in -- first week of -- second week of -- some time in June.
(12:19:22/2+01:08:34) Q: Did you make any effort to verify whether there was such an entity as Stephen Norris Capital Partners?
(12:19:28/2+01:08:40) A: Yes.
(12:19:29/2+01:08:41) Q: Okay, what did you do to do that?
(12:19:31/2+01:08:43) A: Um, we had already had some discussion with Mr. Norris before, and Capital Partners.
(12:19:36/2+01:08:48) Q: Did you verify the existence of this entity, any way? Check the secretary of state's records anywhere, something like that?
(12:19:44/2+01:08:56) A: No.
(12:19:52/2+01:09:04) Q: And this invoice is numbered ninety-eight eighty-seven, is that correct?
(12:19:59/2+01:09:11) A: Yes
(12:24:58/2+01:14:10) MR. LEWIS: I have no further questions, your Honor.
(12:25:00/2+01:14:12) THE COURT: Thank you, Mr. Lewis. Mr. Harrington.
(12:25:08/2+01:14:20) MR. HARRINGTON: Very briefly, your Honor. For the record, William Harrington, from the office of the United States Trustee.
(12:25:12/2+01:14:24) Q: Have you ever been a chapter seven trustee?
(12:25:15/2+01:14:27) A: No.
(12:25:18/2+01:14:30) Q: Are you aware that chapter seven trustees can operate a business?
(12:25:22/2+01:14:34) A: Yes.
(12:25:24/2+01:14:36) Q: Did you take that into account when you did your declaration?
(12:25:28/2+01:14:40) A: Yes.
(12:25:31/2+01:14:43) Q: So when you say, when the business terminates upon conversion, is that correct?
(12:25:37/2+01:14:49) A: Correct.
(12:25:39/2+01:14:51) Q: It is correct? or it's not correct?
(12:25:40/2+01:14:52) A: Well, it's not correct, but that's my assessment.
(12:27:00/2+01:16:12) THE COURT: Thank you, Mr. Harrington. Mr. Spector.
(12:27:08/2+01:16:20) Q: This is July twenty-seventh, correct?
(12:27:10/2+01:16:22) A: Correct.
(12:42:02/2+01:31:14) MR. SPECTOR: That's all I have on re-direct.
(12:42:03/2+01:31:15) THE COURT: All right. Thank you, Mr. Spector. Anything further? Mr. Lewis.
(12:42:12/2+01:31:24) MR. LEWIS: Your honor, I'm not going to call on this very long.
(12:42:14/2+01:31:26) Q: Uh, Mr., um, Nielsen, you testified that the six hundred and twenty-five thousand dollars that's currently being held in a trust account, on account of a Novell judgment, would be freed up if the tenth circuit reverses, do you recall that testimony?
(12:42:31/2+01:31:43) A: Yes.
(12:49:06/2+01:38:18) THE COURT: All right, counsel. Thank you.
(12:49:10/2+01:38:22) *** RECESS ***
(14:04:09/3+00:00:00) CLERK: Please rise.
(14:04:11/3+00:00:02) THE COURT: Thank you everyone, please be seated. I apologize that it's a little warm in here, but apparently it's a building problem, not just this courtroom. Anyone who would like to take off his jacket is welcome to do so. I would not be at all offended, so, however you're comfortable.
(14:04:31/3+00:00:22) MR. SPECTOR: Good afternoon, your Honor.
(14:04:32/3+00:00:23) THE COURT: Good afternoon.
(14:04:33/3+00:00:24) MR. SPECTOR: May we proceed?
(14:04:33/3+00:00:24) THE COURT: Yes.
(14:04:34/3+00:00:25) MR. SPECTOR: SCO calls Dur-- uh, Darl McBride to the stand.
(14:04:37/3+00:00:28) THE COURT: All right. Mr. McBride, hello.
(14:04:40/3+00:00:31) MR. MCBRIDE: How you doing.
(14:04:42/3+00:00:33) THE COURT: If you'll just remain standing while you're sworn.
(14:04:45/3+00:00:36) CLERK: If you could 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.
(14:04:51/3+00:00:42) MR. MCBRIDE: Darl Charles McBride. M-C-B-R-I-D-E.
(14:04:51/3+00:00:42) CLERK: Do you solemnly swear to tell the truth, the whole truth, and nothing but the truth, so help you God?
(14:04:59/3+00:00:50) MR. MCBRIDE: Yes, I do.
(14:05:00/3+00:00:51) CLERK: Please be seated.
(14:05:03/3+00:00:54) THE COURT: Whenever you're ready.
(14:05:04/3+00:00:55) MR. SPECTOR: Your honor, we discussed the last time we were here about the fact that this court has heard certain witnesses testify in the past at other hearings, and --
(14:05:12/3+00:01:03) THE COURT: Yes
(14:05:13/3+00:01:04) MR. SPECTOR: -- we could spend some time going through Mr. McBride's pedigree again, but I would ask your Honor to allow for the use of that testimony in prior hearings, rather than going through that again, if there's no objection.
(14:05:27/3+00:01:18) THE COURT: Any objection?
(14:05:29/3+00:01:20) MR. MARRIOTT: As to the pedigree, your Honor?
(14:05:30/3+00:01:21) THE COURT: Yes.
(14:05:30/3+00:01:21) MR. MARRIOTT: If by that we mean background as to where he went to school --
(14:05:31/3+00:01:22) THE COURT: Yes, education and so on.
(14:05:32/3+00:01:23) MR. MARRIOTT: No objection.
(14:05:33/3+00:01:24) THE COURT: All right. Thank you.
(14:05:34/3+00:01:25) MR. LEWIS: None here, your Honor.
(14:05:35/3+00:01:26) THE COURT: All right, Mr. Lewis, thank you, sir.
(14:05:37/3+00:01:28) MR. SPECTOR: You also, uh, stated that we would get the testimony from the last June fifteenth hearing would be, uh, brought into this record as well. I believe that was stated the last time.
(14:05:47/3+00:01:38) MR. LEWIS: Your honor, the June fifteenth testimony was on a specific narrow issue that this court set up to determine whether to even consider the purchase and sale agreement --
(14:05:59/3+00:01:50) THE COURT: Yes.
(14:06:00/3+00:01:51) MR. SPECTOR: -- and it was not for the general purposes, that I recall.
(14:06:03/3+00:01:54) THE COURT: I don't recall that either, so --
(14:06:04/3+00:01:55) MR. SPECTOR: I do recall that, --
(14:06:05/3+00:01:56) THE COURT: All right.
(14:06:05/3+00:01:56) MR. SPECTOR: -- your Honor. At the end of the hearing, you said we could take everything that was brought up at that hearing and use it here so we don't have to do it again.
(14:06:12/3+00:02:03) There was a lot of testimony regarding other deals and the like, and so I could abbreviate the testimony today by saying, you've testified about experiences and other deals -- not just Mr. McBride, but I think Mr. Caplan testified about it as well.
(14:06:30/3+00:02:21) THE COURT: Do you have a preference?
(14:06:32/3+00:02:23) MR. MARRIOTT: Your Honor, we don't have an objection to the incorporation of that testimony into this hearing.
(14:06:36/3+00:02:27) MR. SPECTOR: Thank you.
(14:06:37/3+00:02:28) THE COURT: Mr. Lewis, is that acceptable?
(14:06:38/3+00:02:29) MR. LEWIS: That's all right, your Honor.
(14:06:39/3+00:02:30) THE COURT: All right, then we will do that.
(14:06:40/3+00:02:31) MR. SPECTOR: Thank you.
(14:06:41/3+00:02:32) Q: Uh, Mr. McBride, describe the -- excuse me, please describe the original business of SCO Unix and Unixware.
(14:06:52/3+00:02:43) A: The original business really had two parts to it. One was a source licensing business, the other one was a products business. So, Unix is one of the major operating system platforms around the world, arguably the most powerful platform from a business standpoint. And large companies like IBM, Sun Microsystems, a number of companies from Japan, Hewlett-Packard, Dell, Oracle, and the like, uh lic-- took down licenses to that Unix operating system.
(14:07:27/3+00:03:18) Q: Stop for a second, you're using lingo. Took down, what does that mean?
(14:29:43/3+00:25:34) Q: How do you perceive the market reaction if SCO were to receive vindication from the tenth circuit?
(14:29:48/3+00:25:39) MR. LEWIS: Your honor, I have to object here, I'm -- I'm going to be doing Mr. McBride too, and this and the series of previous questions about how they would react if the revers-- I mean, that's a thoroughly and complete hypothetical. There are all kinds of -- as Mr. Jacobs said -- all kinds of possible forms of reversal, instructions, remand, and so on and so forth.
(14:30:10/3+00:26:01) I think what we're hearing here and assuming is that it's a virtual outright victory on various grounds for the debtor, but it's certainly an incomplete hypothetical, and I don't think these are proper questions, and I think the witness should not be allowed to answer them or offer opinion testimony on them.
(14:30:27/3+00:26:18) We don't even have yet any kind of groundwork for his competency to offer an opinion on the effect of a legal decision -- uh, which is probably in a pretty unpre-- I mean, it's one thing to talk about gee, I've been selling these things for years, and this is our track record, and I've been doing this marketing and that marketing study, and so on and so forth, and -- that's one thing.
(14:30:52/3+00:26:43) This is unprecedented. It's not like he -- the witness has prior experience, or we certainly haven't heard it, prior experience with this kind of situation and what the effect would be on marketing.
(14:31:04/3+00:26:55) You know, and so I think the testimony is incompetent, and I think the questions are incomplete hypotheticals, and I think the entire line should be shut down, and the prior answers should be stricken as a consequence. Thank you, your Honor.
(14:31:15/3+00:27:06) THE COURT: Mr. Marriott.
(14:31:16/3+00:27:07) MR. MARRIOTT: Simply joining that, your Honor.
(14:31:18/3+00:27:09) THE COURT: I have to agree with them.
(14:31:20/3+00:27:11) MR. SPECTOR: I can ask it better.
(14:31:20/3+00:27:11) THE COURT: I just think that it's -- it's too far-reaching and too uncertain and I will sustain the objection.
(14:31:25/3+00:27:16) MR. SPECTOR: It was too wide -- it was too wide of a question, too. He was right about that, because it didn't identify what part of it. I was supposing all of it, but -- and I wasn't clear about that. Let's take it piecemeal.
(14:31:37/3+00:27:28) Q: If the judgment, the money judgment suffered by SCO in favor of Novell were overturned, would there be any immediate benefit to SCO?
(14:31:48/3+00:27:39) A: Yes.
(14:31:49/3+00:27:40) Q: What would that be?
(14:31:50/3+00:27:41) A: Immediately, we would have six hundred and twenty-five thousand dollars released from an escrow account that has -- that has been reserved, and if that money part of the tenth circuit ju-- ruling was overturned, that would go out of escrow, and back into our bank account.
(14:32:09/3+00:28:00) Q: Would it do anything to your bal--
(14:32:10/3+00:28:01) MR. LEWIS: (inaudible)
(14:32:11/3+00:28:02) THE COURT: Mr. Lewis.
(14:32:11/3+00:28:02) MR. LEWIS: I have the same objection, your Honor.
(14:32:39/3+00:28:30) THE COURT: Well, but here's what's disturbing me a little bit. You know, with this line of questioning, it's as if you're getting the benefit of having established that you're going to win on the merits, when my ruling was that we weren't going to get into the merits of the litigation. So here, um, it's as if you had established your point on the merits, when you haven't even proven those issues -- based upon my ruling, I understand. I just think it's all so speculative.
(14:33:15/3+00:29:06) MR. SPECTOR: Well, your Honor, um --
(14:33:16/3+00:29:07) THE COURT: Because, for example, the judge, it -- it could be re-- it could be reversed, but an appeal could be taken, and then the six hundred twenty five thousand dollars might not be released immediately, and -- and, you know, there are just so many possibilities.
(14:33:32/3+00:29:23) MR. SPECTOR: All of that is quite true, and never is it the fact that a witness when it testifies has absolute certainty of the assumption that's going to be there. And all of that goes to the weight.
(14:38:45/3+00:34:36) THE COURT: Well I have enough trouble deciding my own cases, let alone somebody else's cases, and that's really the problem. I, I certainly am prepared to take notice of the fact that you have -- that the debtors have very serious litigation that's pending, and that if they prevail on that litigation, it is going to, uh, help their rehabilitation. I don't have a problem with that. But I do have a problem with the speculation about what it's going to do for employees and customers and that sort of thing. Um, I think as a general proposition, fine -- it's fine, but as a specific proposition it's problematic.
(14:39:23/3+00:35:14) MR. NORMAND: Your honor, uh, Mr. Normand, could I make, uh, two quick points?
(14:42:33/3+00:38:24) THE COURT: See, that's the problem I have, Mr. Normand, is, tech-- As I'm listening to the questions, each question that Mr. Spector is asking should begin "hypothetically, if", and we don't do hypotheticals with fact witnesses. We do hypotheticals with expert witnesses, and I don't think there's an expert witness who could possibly testify on the outcome of this -- of the pending litigation and appeal.
(14:45:42/3+00:41:33) THE COURT: Here's the practical problem. Mr. McBride can now testify as to all of the good things that will happen if there is victory on the appeal. Subsequently, I'll have cross-examination on what happens if they lo-- if you don't win on appeal. And it will counterbalance every thing that we've heard for the -- for however long it takes.
(14:46:03/3+00:41:54) So it is valueless to my decision what will happen if wonderful things happen.
(14:46:09/3+00:42:00) MR. SPECTOR: We understand the Court's ruling. We'll move on.
(14:46:11/3+00:42:02) THE COURT: And that -- and I'll sustain that -- the objection, and --
(14:46:13/3+00:42:04) MR. SPECTOR: We will move on.
(14:46:13/3+00:42:04) MR. LEWIS: Thank you, your Honor.
(14:46:14/3+00:42:05) THE COURT: -- we'll strike -- and we'll strike the, uh, the previous answers relating to the merits, or I should say the possible outcome.
(14:46:23/3+00:42:14) MR. LEWIS: Thank you, your Honor.
(14:46:24/3+00:42:15) MR. LEVIN: Excuse me one minute.
(14:46:32/3+00:42:23) THE COURT: Okay.
(14:46:33/3+00:42:24) VOICES: Thank you, your Honor.
(14:46:33/3+00:42:24) THE COURT: Yes.
(14:46:34/3+00:42:25) Q: When the cases commenced, did the debtors have some idea of an exit plan from chapter eleven?
(14:46:41/3+00:42:32) A: Yes.
(15:39:05/3+01:34:56) Q: So it's not your contract to assume or reject with Novell?
(15:39:08/3+01:34:59) A: That's my --
(15:39:08/3+01:34:59) Q: That would --
(15:39:09/3+01:35:00) A: That's my understanding.
(15:39:10/3+01:35:01) MR. JACOBS: Your -- your Honor, this is really way beyond the scope now and --
(15:39:14/3+01:35:05) THE COURT: It certainly is.
(15:39:15/3+01:35:06) MR. JACOBS: -- and go -- there's a lot of litigation history that goes to whether this -- this company, the SCO Group, is bound by the Asset Purchase Agreement. We object.
(15:39:23/3+01:35:14) THE COURT: I'll sustain the objection. I, I think that is beyond this witness's ability, um, to -- to testify.
(15:39:31/3+01:35:22) MR. SPECTOR: The, uh --
(15:39:32/3+01:35:23) THE COURT: Let me just point out, too, your two and a half hours has roughly been used up.
(15:39:38/3+01:35:29) MR. SPECTOR: Not mine, your Honor, not by my watch.
(15:39:39/3+01:35:30) THE COURT: You've been going for an hour --
(15:39:41/3+01:35:32) MR. SPECTOR: Two-oh-eight.
(15:39:42/3+01:35:33) THE COURT: -- an hour and a half, roughly.
(15:39:43/3+01:35:34) MR. SPECTOR: Right, and I had about --
(15:39:45/3+01:35:36) THE COURT: And you had about an --
(15:39:45/3+01:35:36) MR. SPECTOR: -- ten minutes.
(15:39:46/3+01:35:37) THE COURT: And you had about an hour --
(15:39:49/3+01:35:40) MR. SPECTOR: No, not, I didn't, your Honor.
(15:39:50/3+01:35:41) THE COURT: -- of use.
(15:39:51/3+01:35:42) MR. LEVIN(?): Yes, your Honor --
(15:39:52/3+01:35:43) MR. SPECTOR: No.
(15:39:52/3+01:35:43) MR. LEVIN: -- that is consistent with our timing.
(15:39:53/3+01:35:44) THE COURT: Yeah.
(15:39:53/3+01:35:44) MR. SPECTOR: I -- I didn't. I didn't. I wish we had a running clock because I was --
(15:39:58/3+01:35:49) VOICE: We do.
(15:39:58/3+01:35:49) MR. SPECTOR: -- careful --
(15:39:59/3+01:35:50) MORE VOICES: We do, your Honor.
(15:40:59/3+01:36:50) THE COURT: Well I've been tryi-- I've been keeping track, and I'm just saying. I'm not cutting you off, but --
(15:40:05/3+01:35:56) MR. SPECTOR: Well I've only got, maybe four or five more questions, maybe six more questions.
(15:40:08/3+01:35:59) THE COURT: All right. I'm -- I'm not cutting you off. I'd like to get all the evidence in.
(15:40:11/3+01:36:02) MR. SPECTOR: Are you, wait a minute, are you counting -- are you counting the colloquy? I thought you said the colloquy --
(15:40:15/3+01:36:06) THE COURT: No.
(15:40:16/3+01:36:07) MR. SPECTOR: -- wasn't going to count.
(15:40:18/3+01:36:09) THE COURT: No, I'm not.
(15:40:19/3+01:36:10) MR. SPECTOR: I wish I could get a running -- Someone let me know.
(15:40:20/3+01:36:11) THE COURT: But I don't have a stopwatch. Each time there's an objection, I don't stop it, you know, the, uh, the time.
(15:46:17/3+01:42:08) Q: Do you have any doubts about the, uh, the ability and desire of Unxis to close this deal promptly?
(15:46:22/3+01:42:13) A: No.
(15:46:23/3+01:42:14) MR. SPECTOR: All right. I have no further questions.
(15:46:47/3+01:42:38) THE COURT: And then we'll come back and then there'll be a brief interruption at that time. Thank you, counsel.
(15:46:53/3+01:42:44) *** RECESS ***
(16:03:28/4+00:00:00) CLERK: Please rise.
(16:03:30/4+00:00:02) THE COURT: Thank you, everyone. Please be seated. All right. Are you leading off, Mr. Marriott?
(16:03:37/4+00:00:09) MR. MARRIOTT: I am, your Honor, if the Court -- with the Court's permission.
(16:03:38/4+00:00:10) THE COURT: You may.
(16:03:40/4+00:00:12) MR. MARRIOTT: Thank you, Judge. Good afternoon, Mr. McBride.
(16:03:44/4+00:00:16) MR. MCBRIDE: Morning, Mr. Marriott.
(16:03:45/4+00:00:17) MR. MARRIOTT: Uh, fine, thank you, sir. I just, to, uh, expedite the examination, I have placed, in addition to the binders that are behind you, some ex-- some documents from those binders, including from defendants. They're to your far right, Mr. McBride. It may be most convenient if you just grab those. Those are in the binders. I think it will make it easier for you -- for you to follow along.
(16:04:06/4+00:00:38) MR. MCBRIDE: Right here?
(16:04:07/4+00:00:39) MR. MARRIOTT: May I approach, your Honor?
(16:04:08/4+00:00:40) THE COURT: Yeah, you may, Mr. Marriott, of course.
(16:04:09/4+00:00:41) MR. MCBRIDE: The other far right?
(16:04:11/4+00:00:43) Yeah, those are the ones I (inaudible)
(16:04:13/4+00:00:45) MR. SPECTOR: Just, just so it's clear, we're the debtors.
(16:04:15/4+00:00:47) MR. MARRIOTT: What did I say?
(16:04:17/4+00:00:49) MR. SPECTOR: Defendants.
(16:04:18/4+00:00:50) MR. MARRIOTT: Well I apologize. The Debtors.
(16:04:21/4+00:00:53) Q: Mr. McBride, you understand that IBM and Novell and the United States Trustee have made an application to have this case converted to Chapter Seven, right?
(16:04:31/4+00:01:03) A: Yes.
(16:04:32/4+00:01:04) Q: And SCO, the debtors, have opposed that application, correct?
(16:04:36/4+00:01:08) A: Yes.
(16:20:39/4+00:17:11) Q: Who was involved on behalf of debtors in negotiating the terms of the P.S.A. which is offered to this court for approval? Who were the individuals?
(16:20:50/4+00:17:22) A: Uh, the primary one would have been Jeff -- Jeff Hunsaker.
(16:20:58/4+00:17:30) Q: Okay, and who besides Jeff Hunsaker negotiated this proposed -- this deal, which is proposed for approval, with Unxis and its principals?
(16:21:07/4+00:17:39) A: Well, let's see, as far as negotiating, I think Jeff would have been the key guy. He would have ran it by me, would have ran it by our counsel, Ryan Tibbitts, our CFO Ken Nielsen.
(16:21:23/4+00:17:55) Q: Was anyone else involved in dealing with Mr. Hunsaker and with the proposed buyers?
(16:21:29/4+00:18:01) A: Well, there were a lot of people involved.
(16:21:32/4+00:18:04) Q: Who were they, Mr. McBride?
(16:21:33/4+00:18:05) A: Um, Andy Nagle was involved, he's director of engineering, Alan Raymond is our vice-president of North America sales, Hans Bayer is vice-president of international sales, um, --
(16:21:49/4+00:18:21) Q: Tell me about --
(16:21:50/4+00:18:22) A: -- there's probably others.
(16:21:50/4+00:18:22) Q: -- Hans Bayer, Mr. McBride, is he a capable man?
(16:21:53/4+00:18:25) A: Yes.
(16:21:54/4+00:18:26) Q: Is he honest?
(16:21:55/4+00:18:27) A: I believe so.
(16:21:56/4+00:18:28) Q: Is he trustworthy?
(16:21:58/4+00:18:30) A: I hope so.
(16:21:59/4+00:18:31) Q: Does he -- does he understand SCO's business?
(16:22:04/4+00:18:36) A: I -- I believe he understands it best when it's -- has to do with the Unix business.
(16:22:09/4+00:18:41) Q: Does he understand SCO's mobility business?
(16:22:12/4+00:18:44) A: I don't think he understands the mobile business that well.
(16:22:15/4+00:18:47) Q: Isn't it a fact, sir, that Mr. Bayer is the Vice-President of Worldwide Sales, with responsibility for overseeing, quote, all aspects of direct and channel sales of the company's Unix and Mobile products?
(16:22:28/4+00:19:00) A: He's vice-president over international sales.
(16:32:32/4+00:29:04) Q: Mr. McBride, is it not a fact that Mr. Bayer has responsibility for overseeing all aspects of direct and channel sales of the company's Unix and Mobile products?
(16:22:42/4+00:19:14) A: That's not my understanding.
(16:22:44/4+00:19:16) Q: So it's your testimony that Mr. Bayer has no responsibility with respect to SCO's mobile products?
(16:22:50/4+00:19:22) A: I don't believe I said that.
(16:22:51/4+00:19:23) Q: I'm asking you that. Is it your testimony that Mr. Bayer has no responsibility with respect to SCO's mobile products?
(16:22:57/4+00:19:29) A: He has responsibility for the mobile products as it relates to his area of the world.
(16:23:05/4+00:19:37) Q: So he has responsibility for SCO's mobile products, at some level?
(16:23:04/4+00:19:36) A: For -- for selling in the areas that he's in. But we don't really market the mobile products that much outside of the U.S. right now, so that's why he's very limited with respect to his understanding of the mobile products.
(16:23:17/4+00:19:49) MR. MARRIOTT: Thank you, Mr. McBride. Your honor, I move to strike the latter part of the answer, but mostly I want to be sensitive to the Court's time. It's almost four-thirty.
(16:23:22/4+00:19:54) THE COURT: Thank you, I appreciate that, and, um, I also am sensitive to your, you know, questioning, um, but I've got to take the call.
(16:23:32/4+00:20:04) MR. MARRIOTT: I will survive, Judge.
(16:23:32/4+00:20:04) THE COURT: Would five minutes make sense, or is this a good time to break for you?
(16:23:34/4+00:20:06) MR. MARRIOTT: This is a fine time to break.
(16:23:35/4+00:20:07) THE COURT: All right, then let's take -- I don't know how long it will last, maybe fifteen minutes, and we'll take about a fifteen minute recess. Thank you, everyone.
(16:23:44/4+00:20:16) *** RECESS ***
(16:43:48/5+00:00:00) CLERK: Please rise.
(16:43:51/5+00:00:03) THE COURT: Thank you, everyone, please be seated. All right. A successful call. Thank you. I thank everyone. And you may --
(16:44:01/5+00:00:13) MR. MARRIOTT: May I inquire, Judge?
(16:44:01/5+00:00:13) THE COURT: You may.
(16:44:02/5+00:00:14) MR. MARRIOTT: Thank you, your Honor.
(16:44:06/5+00:00:18) Q: Mr. McBride, after considering a purchase of the entire mobility business, Unxis discussed with SCO leaving behind the mobility business, correct?
(16:44:20/5+00:00:32) A: That's correct.
(16:48:05/5+00:04:17) MR. SPECTOR: Your Honor, I rise to object to the questions and the answers that read the exhibit, because the exhibit is what we objected to as hearsay. So, by reading it out loud, of course it comes into evidence, so, uh, I object to that line of questioning, and if we want to take on the, uh the objection, hearsay, we can do that now. This was something that they wanted to do at beginning, you said you wanted to hear it in context
(16:48:30/5+00:04:42) MR. MARRIOTT: Your Honor, I'm happy to have the argument now. I hope it won't count against my time.
(16:48:33/5+00:04:45) THE COURT: No.
(16:48:34/5+00:04:46) MR. MARRIOTT: What -- what I would say is that I think it might be useful to the Court to understand in full the context of the document, what it says and was it -- what it doesn't say, in ruling on the objections.
(16:48:44/5+00:04:56) There are three documents in dispute. The objections that have been made are one, hearsay and two, relevance. And I would submit your Honor that at least with respect to relevance, your Honor's going to need to appreciate in full what's in the document in order to make the ruling.
(16:48:56/5+00:05:08) My suggestion would be that we proceed with my being allowed to question in full the witness about the exhibit. Your honor can then at an appropriate time with the witness off the stand, hear whatever argument counsel wants to make on the subject. If you find that the document is inadmissable, the document can be stricken. Otherwise we're going to get, I'm afraid, bogged down in this without the Court having the benefit of the fullness of the document. May we proceed in --
(16:49:17/5+00:05:29) THE COURT: I, uh, yes, I will accept --
(16:49:18/5+00:05:30) MR. MARRIOTT: -- in that way, Judge?
(16:49:19/5+00:05:31) THE COURT: I will accept your -- your suggestion.
(16:49:20/5+00:05:32) MR. MARRIOTT: Thank you.
(16:55:03/5+00:11:15) Q: Take a look, if you would Mr. McBride, at exhibit MX-40. Take a look on the second page, this -- this is an email from Hans Bayer to Eric Le Blan and Stephen Norris dated June five, 2009, do you see that, sir?
(16:55:20/5+00:11:32) A: Yes.
(16:55:21/5+00:11:33) Q: That's just before the last hearing before the Court.
(16:55:23/5+00:11:35) MR. SPECTOR: Which exhibit number was that?
(16:55:24/5+00:11:36) MR. MARRIOTT: Forty.
(16:55:26/5+00:11:38) Your Honor, I want to make sure the Court has a-- has an opportunity to get there. Do you have this, Judge, before I--
(16:55:29/5+00:11:41) THE COURT: I have it, yes. I'm reading it now.
(16:55:30/5+00:11:42) Q: Okay. All right, take a look, if you would Mr. McBride, on the second page of the document. The third paragraph down begins, point five. Do you see that?
(16:55:39/5+00:11:51) A: Yes.
(16:55:41/5+00:11:53) Q: Um, and my question to you, sir, was, the portion of the mobility business retained by SCO actually has no value for new SCO, right?
(16:55:49/5+00:12:01) A: The question was what?
(16:55:51/5+00:12:03) Q: The portion of the mobility business retained by SCO actually has no value for new SCO.
(16:55:58/5+00:12:10) A: And you're saying that's?
(16:56:00/5+00:12:12) Q: I'm asking you if that's right.
(16:56:02/5+00:12:14) A: I -- Well I don't -- I don't believe that's totally correct.
(16:56:06/5+00:12:18) Q: Well, that's what Mr. Bayer told Mr. Norris, isn't it? Take a look at pa-- at poi-- for poi-- point five, where Mr. Bayer, vice-president of SCO says, quote, this proposal to leave Mobile behind with old SCO reflects my explanation of Darl's personal situation, and honestly speaking there could not be a better way of getting rid of something that actually has no value for new SCO. You see that?
(16:56:28/5+00:12:40) A: Yes.
(16:56:29/5+00:12:41) Q: And that's what Mr. Bayer said to Mr. Norris, the principal here of Unxis, right?
(16:56:33/5+00:12:45) A: Yes.
(16:56:35/5+00:12:47) Q: The concept, Mr. McBride, of Mobile, is a dream of yours, is it not?
(16:56:41/5+00:12:53) A: I don't know that it -- I came up with that in a dream.
(16:56:45/5+00:12:57) Q: Well --
(16:56:50/5+00:13:02) MR. MARRIOTT: Thank you for that moment of levity.
(16:56:52/5+00:13:04) Q: It is, whether or not you came up with it in a dream, it is a weird dream of yours, is it not?
(16:56:58/5+00:13:10) A: It is a -- is a product that -- the concept of Mobile is a product that I was the -- the principal driver of, and the Mobile product line includes the Mobile server and the -- the Mobile applications.
(16:57:15/5+00:13:27) Q: My question was, is it or isn't it a weird dream of yours?
(16:57:19/5+00:13:31) A: Like I said it wasn't -- didn't come to me in a dream, and it -- if it did, --
(16:57:22/5+00:13:34) Q: Well that's what Mist--
(16:57:23/5+00:13:35) A: -- it wasn't a weird one.
(16:57:24/5+00:13:36) Q: That's what Mr. Bayer told Mr. Norris, isn't it? Take a look at --
(16:57:26/5+00:13:38) A: Yes, and so the question is do you want me to interpret what Hans Bayer thinks is in my head, or do you want me to tell you what is in my head. I'm trying to understand what--
(16:57:32/5+00:13:44) Q: I want to know what's in your head, Mr. McBride.
(16:57:34/5+00:13:46) A: Yeah, so I -- I wouldn't represent Mobile as a weird dream of mine.
(16:57:37/5+00:13:49) Q: That, however, is what Mr. Bayer said to Mr. Norris, right? He said, quote, the whole concept of Mobile is another one of Darl's weird dreams, where he thought he had found the next big thing, but reality shows we have spent millions of dollars into developing something which nobody needs or wants. We have no customers and no revenue stream for our mobile products, and again he is chasing something which isn't for real.
(16:58:01/5+00:14:13) That's what he told Mr. Norris, right?
(16:58:02/5+00:14:14) A: Yes.
(16:58:03/5+00:14:15) Q: Now, is it fair to say that the Franklin Covey products are your beloved toy, Mr. McBride?
(16:58:11/5+00:14:23) A: No -- no, I wouldn't call them that.
(16:58:13/5+00:14:25) Q: That's what Mr. Brayer -- Mr. Bayer told Mr. Norris, isn't it?
(16:58:18/5+00:14:30) A: That -- that's what it, uh, says somewhere in here, yeah.
(16:58:21/5+00:14:33) Q: Take a look at the first page, second to last paragraph from the bottom. Quote, Darl is starting to realize now that he won't have any purpose in life any longer once the company was sold, and this seems to give him big headaches, as he'd have to find a new occupation where he most likely won't be in the center of gravity any longer, and won't have his beloved, quote, toy, close quote, Franklin Covey, any longer to play with. You see that?
(16:58:47/5+00:14:59) A: Yes.
(16:58:48/5+00:15:00) Q: And that's what Mr. Bayer told, uh, the proposed buyers here, correct?
(16:58:52/5+00:15:04) A: Yes.
(16:58:53/5+00:15:05) Q: Now, SCO, um, SCO kept a portion of its -- of its mobility business, you've testified, as part of this proposed transaction, right?
(16:59:02/5+00:15:14) A: Yes.
(16:59:03/5+00:15:15) Q: And, and you did that because you believed it could help you win big in the courtroom, and you were reluctant to give up your dream of having your day in court, right?
(16:59:11/5+00:15:23) A: That's not correct.
(16:59:12/5+00:15:24) Q: Okay. That's, however, what Mr. Bayer told Mr. Norris, right?
(16:59:16/5+00:15:28) A: That's what's in this email.
(16:59:21/5+00:15:33) Q: The only thing that is real for SCO, Mr. McBride, is its Unix business, right?
(16:59:27/5+00:15:39) A: That's not right.
(16:59:28/5+00:15:40) Q: Again that, however, is what Mr. Bayer told Mr. Norris, right?
(16:59:32/5+00:15:44) A: That's what it says here.
(16:59:33/5+00:15:45) Q: Take a look at page two, see the paragraph that says the only thing? Quote the only thing about SCO which is real for the Unix business, with its customers and partners and it -- and the employees generating cash -- I apologize, I ba-- read that badly. Let me try that again.
(16:59:49/5+00:16:01) The only thing about SCO which is for real is the Unix business with its customers and partners and the employees generating cash. Legal and Mobile are just Darl's hopes and dreams to win the jackpot in the lottery drawing. You see that?
(17:00:03/5+00:16:15) A: Yes.
(17:00:04/5+00:16:16) Q: There is in fact no money available, according to Mr. Bayer, for the new company, correct?
(17:00:12/5+00:16:24) A: When you say there's no money available,
(17:00:14/5+00:16:26) Q: Well, take a look at the top of page two, where Mr. Bayer says to Mr. Norris, quote, Jeff -- referring to Mr. Hunsaker -- thinks that only a direct conversation between either one of the two of you with Darl could resolve the standstill, as he tells me that Darl won't speak to him any longer, even if he mentions the deal to him, as Darl and the BOD -- referring I assume to board of directors -- and the BK -- referring I assume to bankruptcy lawyers -- simply thinks there is no money available to fund the new company. You see that?
(17:00:46/5+00:16:58) A: Yes.
(17:00:47/5+00:16:59) Q: And that's what Mr. Bayer told Mr. Norris, right?
(17:00:50/5+00:17:02) A: That's what's in here.
(17:17:53/5+00:34:05) Q: Mr. McBride, is it your testimony that you made, uh, this payment, from your own personal funds, to Mr. Norris, without any expectation of reimbursement by SCO?
(17:18:04/5+00:34:16) A: Yes.
(17:18:05/5+00:34:17) Q: Are you a wealthy man, Mr. McBride?
(17:18:06/5+00:34:18) A: Not as wealthy as you are.
(17:18:09/5+00:34:21) MR. MARRIOTT: I'd move to strike that, your Honor.
(17:18:10/5+00:34:22) MR. MCBRIDE: Sorry.
(17:18:11/5+00:34:23) THE COURT: I think we'd better.
(17:18:14/5+00:34:26) Q: You also made payments of approximately two hundred thousand dollars to Mr. Robbins, from your own personal funds, right?
(17:18:20/5+00:34:32) A: Yes.
(17:18:21/5+00:34:33) Q: And he's not a relative of yours, right?
(17:18:23/5+00:34:35) A: Nope.
(17:18:24/5+00:34:36) Q: Not a close friend?
(17:18:25/5+00:34:37) A: Used to be.
(17:18:26/5+00:34:38) Q: Not a friend presently, right?
(17:18:27/5+00:34:39) A: No.
(17:18:28/5+00:34:40) Q: Um, he didn't pay it back, you said. Right?
(17:18:30/5+00:34:42) A: Correct.
(17:18:31/5+00:34:43) Q: And you didn't take any action to get those moneys back, right?
(17:18:34/5+00:34:46) A: That's wrong.
(17:18:35/5+00:34:47) Q: What action did you take, Mr. McBride?
(17:18:37/5+00:34:49) A: I filed a lawsuit.
(17:18:38/5+00:34:50) Q: What's the -- what's the outcome of that lawsuit?
(17:18:41/5+00:34:53) A: I received a -- a judgment against, actually his wife -- his wife wrote out one of the checks, so --
(17:18:46/5+00:34:58) Q: In -- in what amount, sir?
(17:18:47/5+00:34:59) A: A hundred and nine thousand dollars.
(17:18:49/5+00:35:01) Q: And what about the other ninety-one thousand dollars?
(17:18:52/5+00:35:04) A: We're still working on that.
(17:18:55/5+00:35:07) Q: Mr. McBride's filed -- followed -- Mister, uh, Robbins has filed a lawsuit against you, hasn't he sir?
(17:18:59/5+00:35:11) A: I've heard so.
(17:19:01/5+00:35:13) Q: Well, you've seen so, have you not?
(17:19:02/5+00:35:14) A: No I haven't.
(17:19:03/5+00:35:15) Q: You understand however, that he has filed a complaint against you for fraud and deceit, right?
(17:19:08/5+00:35:20) A: Um, I -- I -- I don't know, I haven't seen -- I've -- I've heard that he's filed something, I don't think that, uh, part of it was against me.
(17:19:15/5+00:35:27) MR. SPECTOR: Objection, your Honor. Um, he has testified to that. I have seen it, and he misrepresents what it is as against Mr. McBride.
(17:19:23/5+00:35:35) MR. MARRIOTT: Your honor.
(17:19:24/5+00:35:36) MR. SPECTOR: I know it says those words in it, but there's other defendants.
(17:19:28/5+00:35:40) MR. MARRIOTT: One can only deal with the words one has. May I approach, Judge?
(17:19:30/5+00:35:42) THE COURT: You may, you may.
(17:19:34/5+00:35:46) MR. MARRIOTT: Would you like to join me?
(17:19:36/5+00:35:48) MR. SPECTOR: Oh, I thought you were going up to the bench.
(17:19:38/5+00:35:50) MR. MARRIOTT: No, no, the witness.
(17:19:39/5+00:35:51) VOICE: (inaudible)
(17:19:40/5+00:35:52) Q: Mr. McBride, I show you, uh, what -- what, a -- a -- a pleading entitled Pelican Equity LLC against Robert, and I'm sure I will slaughter the pronunciation so I hope they'll forgive me, but Robert Brazell, Stephen Norris, Talos Partners, Rama --
(17:19:56/5+00:36:08) A: Ramachandran.
(17:19:57/5+00:36:09) Q: Thank you. Darl McBride and Bryan Cave. You see that?
(17:20:00/5+00:36:12) A: Yes I do.
(17:20:01/5+00:36:13) Q: This is the lawsuit that -- to which you testified having some understanding, right?
(17:20:05/5+00:36:17) A: Yes.
(17:20:05/5+00:36:17) Q: And this lawsuit asserts a number of causes of action against you, does it not?
(17:20:10/5+00:36:22) A: Again, I haven't read it, but my understanding is the causes of action wents -- against the people that were tied to the organization, which I am not.
(17:20:20/5+00:36:32) Q: Take a look if you would at page eighteen, Mr. McBride. You see where it says first cau-- first claim for relief?
(17:20:25/5+00:36:37) A: Yes.
(17:20:26/5+00:36:38) Q: See where it says violation of the computer fraud and abuse act?
(17:20:29/5+00:36:41) A: Yes.
(17:20:30/5+00:36:42) Q: See under that where it says against the individual defendants? See that?
(17:20:39/5+00:36:51) A: Let me see. Yes, I do.
(17:20:53/5+00:37:05) Q: You see page nineteen, where it says second claim for relief, misappropriation of trade secrets, against the individual defendants, you see that?
(17:21:00/5+00:37:12) A: Yes.
(17:21:02/5+00:37:14) Q: Page thirty -- twenty-three. Unfair competition against all defendants. You see that?
(17:21:06/5+00:37:18) A: Yes.
(17:21:07/5+00:37:19) Q: Page twenty-five, tortious interference, against all defendants, you see that?
(17:21:11/5+00:37:23) A: Yes.
(17:21:16/5+00:37:28) Q: Page thirty-three, fraud and deceit, against all defendants, do you see that?
(17:21:20/5+00:37:32) A: Yes.
(17:24:49/5+00:41:01) Q: Is it fair to say, Mr. McBride, that some of SCO's employees are fed up with your attempt to protect the litigations about which you testified?
(17:24:59/5+00:41:11) A: I can't speak for SCO employees.
(17:25:06/5+00:41:18) Q: Well, that's what Mr. Bayer told Mr. Norris, isn't it, Mr. McBride?
(17:25:11/5+00:41:23) A: You want to point me to something?
(17:25:13/5+00:41:25) Q: Do you know whether that's what Mr. Bayer told Mr. Norris?
(17:25:16/5+00:41:28) A: I -- I'm not sure what he told him.
(17:25:20/5+00:41:32) Q: Take a look at MX-39, if you would, please.
(17:25:23/5+00:41:35) MR. SPECTOR: Your Honor, this is the kind of hearsay objections I've had all along, and I -- and I'm not saying it every time because I know the Court's going to let me ask you to strike all of this if it turns out that I'm right.
(17:25:34/5+00:41:46) THE COURT: That's correct.
(17:25:37/5+00:41:49) Q: You see MX-39, Mr. McBride? This is an email from -- uh, the bottom of MX-39, from Mr. Bayer to Eric Le Blan, copying Stephen Norris, Jim Kelly --
(17:25:54/5+00:42:06) A: Yes.
(17:25:55/5+00:42:07) Q: You see that?
(17:25:56/5+00:42:08) A: Yes.
(17:25:56/5+00:42:08) Q: Take a look on the second page in what looks like the third full paragraph, the -- down there. See where it says, quote, I can only tell you that this motion has upset all employees I've spoken to today. They all want the MB backslash GCP deal that happened and are massively fed up with Darl's attempt to protect the litigation. You see that?
(17:26:18/5+00:42:30) A: Let's see, that's the bottom of --
(17:26:20/5+00:42:32) Q: Yeah, sorry, it's the -- it's page two --
(17:26:22/5+00:42:34) A: Yeah.
(17:26:23/5+00:42:35) Q: And it's the -- the thir-- the -- the, uh, beginning of the first full third paragraph.
(17:26:29/5+00:42:41) A: Oh, okay, I see it now.
(17:26:30/5+00:42:42) Q: You see that, right?
(17:26:31/5+00:42:43) A: Yes.
(17:26:32/5+00:42:44) Q: Uh, and in fact some of SCO's -- some of the members of SCO's own management team believe that these litigations are out of touch with reality, right, Mr. McBride?
(17:26:40/5+00:42:52) A: I can't speak for them.
(17:26:42/5+00:42:54) Q: Well take a look at the first sentence, if you would, of the first full paragraph. You see where it says, quote, I still hope that Darl comes to grips with reality over the next few days, i.e., that he finally sees and admits the ancient battle over Linux is long over. See that?
(17:26:55/5+00:43:07) A: Yes.
(17:26:59/5+00:43:11) Q: You can put that aside, if you would please, Mr. McBride. Now you've received, have you not sir, a competing bid here from an organization with which Mr. Charlie Hale is affiliated?
(17:27:11/5+00:43:23) A: Yes.
(17:27:12/5+00:43:24) Q: And you received that on July twenty-three, right?
(17:27:16/5+00:43:28) A: Yes, that's right.
(17:27:18/5+00:43:30) Q: And the email indicated that an entity called LNS Acquisition was making an offer to compete with the Unxis offer, right?
(17:27:24/5+00:43:36) A: Yes.
(17:30:48/5+00:47:00) MR. MARRIOTT: I have no further questions, your Honor.
(17:30:50/5+00:47:02) THE COURT: Thank you. Mr. Lewis.
(17:30:53/5+00:47:05) MR. LEWIS: Thank you, your Honor. Co-counsel tells me I have two hours left.
(17:31:18/5+00:47:30) THE COURT: All right.
(17:31:23/5+00:47:35) MR. LEWIS: I'm going to kind of dart around here and there. So, for the most part, except for specific series of questions, don't get confused by the fact that I'm not talking about the same thing I was just talking about.
(17:31:36/5+00:47:48) MR. MCBRIDE: Okay, fair enough.
(17:31:38/5+00:47:50) Q: Okay, so let me start first with the press release, do you recall the press release, the ten thousand unit press release?
(17:31:44/5+00:47:56) A: Yes.
(17:57:44/5+01:13:56) THE COURT: Thank you, Mr. Lewis. Mr. Harrington, I think Mr. McMahon owes you something. I'm not sure what it is.
(17:57:56/5+01:14:08) MR. HARRINGTON: I'll be very brief, your Honor.
(17:57:57/5+01:14:09) THE COURT: Yes, sir.
(17:57:58/5+01:14:10) MR. HARRINGTON: Although I think I have, you know, two hours and twenty-five minutes left on my time.
(17:58:02/5+01:14:14) THE COURT: Well, actually the -- I only gave your office thirty minutes, or something like that, but take whatever time you need.
(17:58:09/5+01:14:21) MR. HARRINGTON: Well, Joe said I would have plenty of time.
(17:58:10/5+01:14:22) THE COURT: Okay.
(17:58:11/5+01:14:23) Q: Um, did you direct your counsel to give notice of this sale to -- and I'll refer to the entities as numbers one to four that were referred to on cross, and other than the Norris and Merchant Bridge entities, the entities referred to from A through G?
(18:05:40/5+01:21:52) MR. HARRINGTON: Your honor, I have no further questions.
(18:05:42/5+01:21:54) THE COURT: Thank you, Mr. Harrington. Mr. Spector
(18:05:47/5+01:21:59) Q: How does the article that talked about the ninety-five percent of the SCO revenue going to Novell, impact on the comments made in court that you heard Mr. Lewis talk about?
(18:06:00/5+01:22:12) A: Well, Mr. Lewis's comment, as I recall, I'll try to paraphrase it, said the April second hearing we represented that the Norris -- the SNCP deal was being restructured, and that's a true statement, the -- Again, when we started out with SNCP it wasn't a signed transaction, it was a memorandum of understanding, which is a long ways away from a signed deal.
(18:06:26/5+01:22:38) So we had a memorandum of understanding which was a generalized let's go try and do this, and as we got into this discussion with a group, um, very credible group out of the Middle East, they wanted to take a different approach towards the transaction, and that was causing us to restructure the plan to relative to what the original MOU called for.
(18:15:59/5+01:32:11) Q: Is he authorized by SCO to make statements about legal positions or financial positions?
(18:16:04/5+01:32:16) A: No.
(18:16:07/5+01:32:19) MR. SPECTOR: Your honor, um, I've got case law to support this, but the general point I want to make is an officer of a subsidiary company has no authority just because of that office, to speak on behalf of the parent company. Moreover, uh, the -- to be an admission again-- this is -- only comes in as admission, because everything, as your Honor well knows, is all hearsay, and there's double hearsay in a lot of that --
(18:16:33/5+01:32:45) THE COURT: Yes.
(18:16:34/5+01:32:46) MR. SPECTOR: -- and the only way it can come in is that it's not hearsay at all because it's an admission. That's obviously what I'm going to hear. But an admission to come in -- an admission of a party, it has to be someone authorized to make that statement. And the authority is -- is delimited by case law to people who are -- are authorized to speak on that topic for the company.
(18:16:55/5+01:33:07) So a salesman -- I'm not saying that Mr. Bayer was just a salesman, but if a salesman says something that is very detrimental to his employer, on an area that's not in his area of expertise or authority, that is not an admission of the parent -- of the corporation that he works for. And, we'll -- if any of this is controversial, I do have case law support.
(18:17:18/5+01:33:30) MR. SPECTOR: So, it's my opinion, your honor, or not opinion, my opinion doesn't count. It's my --
(18:17:23/5+01:33:35) THE COURT: Your argument.
(18:17:23/5+01:33:35) MR. SPECTOR: -- my view, your Honor, that the testimony that we've heard at length about Mr. Bayer said this to so-and-so and somebody told him about something -- all of that is hearsay and all of that is not an ad-- cannot be considered an adoptive admission or any other form of admission, uh, by -- by SCO -- SCO Group or SCO Incorporated, and I ask that the entire line of testimony be stricken, uh, and, of course if we had a jury this would be a problem having heard all this, but I trust your Honor knows how to do this.
(18:18:54/5+01:35:06) MR. MARRIOTT: With Mr. Jacobs' permission, I hand your Honor his Blackberry, which calls up SCO's web page.
(18:19:05/5+01:35:17) THE COURT: Yes.
(18:19:05/5+01:35:17) MR. MARRIOTT: And I would like the Court to review what it says about Mr. Bayer's current title and responsibilities, which is exactly what the witness agreed the website printout that he was shown said.
(18:19:21/5+01:35:33) MR. SPECTOR: We're not contesting, we're not saying Mr. Marriott misread that or misrepresented what it said.
(18:19:25/5+01:35:37) MR. MARRIOTT: The witness said--
(18:19:25/5+01:35:37) MR. SPECTOR: I just asked the wit--
(18:19:27/5+01:35:39) MR. MARRIOTT: I'm sorry, go ahead.
(18:19:28/5+01:35:40) MR. SPECTOR: I just asked the witness whether he agreed with it said on the website.
(18:19:30/5+01:35:42) MR. MARRIOTT: The witness said he didn't know --
(18:19:31/5+01:35:43) THE COURT: Oh, I'm sorry, we're -- we need that microphone.
(18:19:35/5+01:35:47) MR. MARRIOTT: Your honor, the witness said, or suggested, perhaps the page was out of date, and I think you can see, or your Honor can see back in chambers, that it -- that it is currently what the web site says.
(18:19:48/5+01:36:00) Your Honor, those documents, the three documents which are in dispute, are plainly, unquestionably relevant. The only seri-- the only -- the only objection even attempted here, as to those documents, with any seriousness is hearsay, and it is at the end of the day, your Honor, not a serious objection. It isn't a serious objection, it isn't a correct objection, for at least the following reasons.
(18:20:10/5+01:36:22) First of all, your Honor, the documents aren't hearsay if the statements about which the witness was questioned were admissions. The statements were plainly admissions. The statements were made on behalf of a vice-president of SCO. A person who holds himself out as a vice-president of SCO. A person who by the -- by the very text of the documents was acting on behalf of SCO in negotiating with the buyers in this proposed transaction.
(18:20:38/5+01:36:50) You didn't hear any evidence from Mr. McBride, and I'm happy to inquire as -- as to the -- as to the punishment of Mr. Bayer for communicating and dealing with the proposed buyers in this way. He hasn't been disciplined. There's no evidence that he's been disciplined, your Honor. The evidence is, as those documents make plain, that he was carrying out his duties, that he was acting on behalf of the company in helping to bring about that proposed transaction.
(18:21:02/5+01:37:14) Moreover, one of the documents, your Honor, is not from Mr. Bayer, it's from Mr. Hunsaker, who is another vice-president of the company who plainly is affiliated with the SCO Group, the debtor in this action.
(18:21:17/5+01:37:29) THE COURT: Well, for -- let me -- let me ask this question. For example in one of the emails, Mr. Bayer says that all of the employees think such-and-such and so-and-so. The employees. Now, that's clearly hearsay. How can he speak for the -- what the employees think. Um, that's one example.
(18:21:35/5+01:37:47) I was troubled by these emails because I don't know, um, -- I just don't know their -- I don't know their context. I don't know really their -- their evidentiary value, frankly, because this -- this was one man's view.
(18:21:54/5+01:38:06) MR. MARRIOTT: Your Honor, this man was -- was --
(18:21:55/5+01:38:07) THE COURT: And he's -- and he's a -- and he is a vice-president of their European operations. Not an op-- not an employee in the United States. Not a --
(18:22:05/5+01:38:17) MR. MARRIOTT: Your Honor, he --
(18:22:05/5+01:38:17) THE COURT: Not a -- Yes?
(18:22:06/5+01:38:18) MR. MARRIOTT: -- he -- he holds himself out, and the website holds him out, as a representative of the company, without distinction, to the German subsidiary or -- or SCO. He represents himself to the -- to the world, we would submit, as being an employee and a representative of SCO.
(18:22:22/5+01:38:34) And in any event, he was representing him-- he was acting as an agent of the company in connection with the proposed transaction which is at issue. And in acting as an agent, your Honor, of the company in that regard, it makes no difference whether he is technically an employee of the subsidiary or he is technically an employee of the SCO Group.
(18:22:43/5+01:38:55) With respect to -- at an absolute minimum your Honor, he was-- there was apparent authority on his part to be having the conversations he was having, with the buyer, about the state of the negotiations, about the value that was being placed on the -- on the products being sold, the products not being sold.
(18:23:00/5+01:39:12) Plainly, your Honor, to the extent he talks about what other -- other witnesses thought, there may be different weight which your Honor would wish to accord to those statements, and that is obviously your Honor's discretion as the finder of fact in -- in this particular, uh, proceeding.
(18:23:15/5+01:39:27) But we would submit, judge, there's no question that they were admissions, because he was acting on behalf of the company as its agent, and in the course of his duties made those representations. And Mr. Hunsaker, again, in any case, was plainly a representative of SCO.
(18:23:29/5+01:39:41) Furthermore, your Honor, one of the issues in this case is the -- is the good faith, or lack of good faith, of the debtors. And we would submit, your Honor, that those documents plainly go to that question, and therefore if they aren't in, your Honor, for purposes of the truth, and we believe they should be, they're in, we would submit, your honor, as to state of mind.
(18:23:47/5+01:39:59) Furthermore, there is an exception, as your Honor well knows, to the hearsay rule, that concern-- there's effectively a catch-all, that says where there are sufficient indicia of rile-- reliability, even if the statement is hearsay, even if it's not admission, even if it isn't otherwise permissible in evidence, where there's a sufficient indicia of the reliability of the statements, whether they were in fact made, uh, that the -- that the evidence comes in.
(18:24:10/5+01:40:22) And there can't be any question here that Mr. Bayer didn't make those statements. There's no suggestion by counsel for the debtors that he didn't actually make the statements. He did, your Honor.
(18:24:18/5+01:40:30) He is under the control, here, of debtors. He is an employee of debtor. Whichever entity they want to say is employ-- he is in their control. They could have without trouble had Mr. Bayer come and explain those emails in court, and they made the election not to do that, Judge. And they could have done that. And they didn't do that.
(18:24:36/5+01:40:48) And there's no reason whatever to think that these documents are ir-- are irrelevant or are unreliable except that they don't like what the documents have to say. And it will be for your Honor, based upon what the documents actually say, and the context in which you can put them as you read them in their full, to decide what weight they have.
(18:24:52/5+01:41:04) We would submit, your Honor for those reasons the documents are -- are and ought to be admissible into evidence. Thank you, Judge.
(18:24:58/5+01:41:10) THE COURT: Yes.
(18:26:40/5+01:42:52) MR. SPECTOR: So, uh, um, now, we ask, was he reprimanded.
(18:26:46/5+01:42:58) Q: Was Mr. Bayer reprimanded?
(18:26:47/5+01:42:59) A: Yes.
(18:26:48/5+01:43:00) A: Who reprimanded him?
(18:26:50/5+01:43:02) A: I did.
(18:26:51/5+01:43:03) Q: How severely?
(18:26:52/5+01:43:04) A: Uh, you'll have to ask Hans.
(18:26:54/5+01:43:06) Q: Did Mr. Hunsaker partake in that?
(18:26:57/5+01:43:09) A: No.
(18:26:59/5+01:43:11) Q: That was you then?
(18:27:00/5+01:43:12) A: Yes.
(18:27:01/5+01:43:13) MR. SPECTOR: Okay, your Honor, both of those issues that counsel raised, you know, holding himself out as -- he held himself as what he was, EMEA, Gmbh, uh, both of which are designations for a foreign entity and not the debtors. And he was reprimanded for stepping out of line for this. So I think we've made the record we need to make to exclude these exhibits and the line of questioning that followed.
(18:27:26/5+01:43:38) MR. MARRIOTT: Your Honor, I -- I --
(18:27:27/5+01:43:39) THE COURT: You rest on the arguments.
(18:27:27/5+01:43:39) MR. MARRIOTT: -- I stand on what I've said.
(18:27:29/5+01:43:41) THE COURT: All right, well I, uh, I am going to -- to sustain the objection and, uh, and strike that testimony. I think that to the extent these documents were, um, offered, for the tru-- for their truth, or as an admission, they simply don't meet the test. Um, and I also think that, uh, they're highly prejudicial, uh, and that their -- the prejudice far outweighs their relevance.
(18:27:58/5+01:44:10) MR. SPECTOR: Thank you, your Honor.
(18:32:08/5+01:48:20) Q: What was this testimony about his verbally agreeing to, I think you used the term backstop, five million dollar DIP loan. Tell us about that.
(18:32:16/5+01:48:28) A: Well, Mr. Robbins held himself out as somebody who was a very wealthy indvidual.
(18:32:56/5+01:49:08) At the end of the day, that representation was sort of like the Bernie Madoff, Jr. representations, as it turns out. He ended up being fraud, uh, fraudulent in a lot of his business dealings. He's running a Ponzi scheme. And he ultimately took a fraud judgment, and when he wouldn't report to court, they issued an arrest warrant for him, and he's been on the run ever since January of oh-nine, and so it --
(18:33:24/5+01:49:36) Q: Now, di-- di-- I'll -- I'll -- let me stop that. They're --
(18:33:26/5+01:49:38) A: I'm sorry, I get a little bit wound up when --
(18:33:26/5+01:49:38) Q: -- going to eventually say this is a run-on narrative, and I wouldn't blame them.
(18:33:29/5+01:49:41) A: Okay.
(18:33:30/5+01:49:42) Q: Uh, now --
(18:33:31/5+01:49:43) A: Well, you asked what I thought about him, so I was trying to give a --
(18:33:32/5+01:49:44) Q: Well, --
(18:33:33/5+01:49:45) A: -- a picture.
(18:33:34/5+01:49:46) Q: Actually, I -- I'm not sure that was my question.
(18:36:19/5+01:52:31) Q: This is where Robbins had deals with Norris, and --
(18:36:21/5+01:52:33) A: Yes.
(18:36:21/5+01:52:33) Q: -- Robbins owed money to Norris?
(18:36:22/5+01:52:34) A: Yes.
(18:36:23/5+01:52:35) Q: Okay.
(18:36:23/5+01:52:35) A: And so he had obligations to pay Norris, and he asked me, um, if I would again just loan him the money for a period a week or two, because he'd get it right back to me. So I -- I viewed it as a pretty innocuous thing at the time.
(18:36:38/5+01:52:50) Q: If you realized how big an issue that came to be in this case, would you have done that?
(18:36:44/5+01:52:56) A: Not in a million years. And -- and it's not -- before we get to this case, the McBride family home case has been a disaster since we went through this. And I have to tell you this whole thing of him representing that he had all this money, it was a short-term loan, he was going to pay me back -- not just on the hundred, but on the full three hundred, um, has been a major problem, uh, at home and at work.
(18:37:08/5+01:53:20) MR. MARRIOTT: Your honor, can I just inquire where we are on time, since I know we have additional witnesses?
(18:37:12/5+01:53:24) THE COURT: I think we've all run so far over time at this point.
(18:43:08/5+01:59:20) MR. SPECTOR: That's all I have, your Honor.
(18:44:16/5+02:00:28) THE COURT: Ten minutes. Thank you.
(18:44:21/5+02:00:33) *** RECESS ***
(18:57:38/6+00:00:00) CLERK: Please rise.
(18:58:27/6+00:00:49) MR. SPECTOR: The debtors call Stephen Norris to the stand.
(18:58:29/6+00:00:51) THE COURT: All right. Mr. Norris.
(18:58:37/6+00:00:59) MR. SPECTOR: Um, I don't believe she, uh, Ms. Bayles gave her appearance, but, uh, Ms. Bayles is here to, to --
(18:58:46/6+00:01:08) MS. BAYLES: Good evening, your Honor --
(18:58:47/6+00:01:09) THE COURT: Good evening, Ms. Bayles.
(18:58:47/6+00:01:09) MS. BAYLES: Leslie Bayles on behalf of Unxis, Inc.
(18:58:49/6+00:01:11) THE COURT: All right.
(18:58:50/6+00:01:12) MS. BAYLES: And Mr. Spector's going to let me sit on this side of the bar today.
(18:58:53/6+00:01:15) THE COURT: Absolutely. You certainly may. Mr. Norris, if you'll just remain standing while you're sworn.
(18:58:58/6+00:01:20) CLERK: If you could please raise your right hand and place your left hand on the Bible.
(18:59:03/6+00:01:25) MR. NORRIS: Where's the bible?
(18:59:06/6+00:01:28) VOICE: It's not the P.S.A.
(18:59:07/6+00:01:29) MR. NORRIS: No, I found the bible.
(18:59:08/6+00:01:30) MR. SPECTOR: It has papers all over the place.
(18:59:09/6+00:01:31) MR. NORRIS: I hope it's not this Cravath book, here.
(18:59:15/6+00:01:37) CLERK: State your full name and spell your last name for the record.
(18:59:17/6+00:01:39) MR. NORRIS: Stephen L. Norris. N-O-R-R-I-S.
(18:59:22/6+00:01:44) CLERK: Do you solemnly swear to tell the truth, the whole truth, and nothing but the truth, so help you God?
(18:59:26/6+00:01:48) MR. NORRIS: I do.
(18:59:26/6+00:01:48) CLERK: Please be seated.
(18:59:27/6+00:01:49) MR. NORRIS: Thank you.
(18:59:29/6+00:01:51) THE COURT: You may proceed.
(18:59:30/6+00:01:52) MR. SPECTOR: Good evening, Mr. Norris.
(18:59:31/6+00:01:53) MR. NORRIS: Good evening.
(18:59:32/6+00:01:54) MR. SPECTOR: Uh, I'm going to quickly go through your pedigree, but you don't have to go quickly when I -- just because I do.
(18:59:38/6+00:02:00) Q: Uh, Where were you educated, sir?
(18:59:40/6+00:02:02) A: I went to three different universities. I went to the University of Alabama where I got a Bachelor of Science. I also got a J.D. degree there. I got a L.L.M. from New York University, and I was a fail-- fellow at Yale Law School.
(19:23:11/6+00:25:33) MR. REYNOLDS: Good evening, Mr. Norris.
(19:23:13/6+00:25:35) MR. NORRIS: Good evening.
(19:23:20/6+00:25:42) Q: You mentioned that you recently received a binding commitment for one million dollars. Is that, uh, from an investor who has, uh, subscribed -- signed a subscription agreement, for example?
(19:23:31/6+00:25:53) A: It's actually from two investors.
(19:23:32/6+00:25:54) Q: Two investors totalling --
(19:23:33/6+00:25:55) A: One million.
(19:23:33/6+00:25:55) Q: -- one million?
(19:23:34/6+00:25:56) A: Um-hum.
(19:23:35/6+00:25:57) Q: I see. And have they signed documentation with um -- with um, Unxis?
(19:23:41/6+00:26:03) A: They have.
(19:23:42/6+00:26:04) Q: They have. And how long ago was that?
(19:23:44/6+00:26:06) A: Um, I think that probably took place on Friday of last week.
(19:23:52/6+00:26:14) Q: Other than those, uh, those two, uh, documents, which we haven't seen, uh, total a million dollars, are there any other binding commitments from any other sources that you have at this time?
(19:24:05/6+00:26:27) A: No.
(19:24:10/6+00:26:32) Q: Uh, under the purchase and sale agreement, I believe even as amended, Unxis is required to provide a two point one five million dollar letter of credit within five business days of approval of the sale order by this court, or they could do so at closing. Do you -- do you understand that?
(19:24:27/6+00:26:49) A: I understand that, yes.
(19:24:29/6+00:26:51) Q: And, that could be, if the judge were to approve the sale order today that could be five business days from today. You understand that?
(19:24:36/6+00:26:58) A: I -- understand that.
(19:24:38/6+00:27:00) Q: What is the, uh, capitalization of Unxis?
(19:24:42/6+00:27:04) A: Today?
(19:24:43/6+00:27:05) Q: Today.
(19:24:44/6+00:27:06) A: Probably about ten thousand dollars.
(19:24:46/6+00:27:08) Q: And, is Unx--
(19:24:47/6+00:27:09) MR. SPECTOR: I'm sorry. Question assumed -- the one before. The question before assumed a fact not in evidence, which is not true. It could not have been five days from today (inaudible) he asked him. I believe the contract says five days from a final order.
(19:25:01/6+00:27:23) VOICE: Entry of a sale order, yeah.
(19:25:03/6+00:27:25) MR. SPECTOR: A final order is --
(19:25:04/6+00:27:26) THE COURT: In other words, after the ten-day appeal period.
(19:25:06/6+00:27:28) MR. REYNOLDS: That's -- yeah, point well taken, okay, so --
(19:25:08/6+00:27:30) THE COURT: All right.
(19:25:09/6+00:27:31) Q: Five business days from the entry of the order, which may not be five days -- likely would not be five from today, could be some period longer, but not -- not too far off, if the Court were to enter the order shortly. Did you understand that?
(19:25:20/6+00:27:42) A: I do.
(19:25:20/6+00:27:42) Q: And you said the capitalization of Unxis is approximately ten thousand dollars.
(19:25:24/6+00:27:46) A: That's correct.
(19:25:26/6+00:27:48) Q: And, uh, you -- you understand that Merchant Bridge and Gulf Capital Partners are not signatories to the purchase and sale agreement?
(19:25:33/6+00:27:55) A: I understand that.
(19:25:35/6+00:27:57) Q: Do you have any documents in writing that obligate Merchant Bridge or Gulf Capital Partners to fund this transaction in any way?
(19:25:44/6+00:28:06) A: Um, I don't -- I don't believe so.
(19:26:01/6+00:28:23) Q: Do you understand that there are certain contracts that are to be assumed under the purchase and sale agreement, by Unxis?
(19:26:05/6+00:28:27) A: I do.
(19:26:07/6+00:28:29) Q: And have you personally familiarized yourself with the contents of those contracts?
(19:26:11/6+00:28:33) A: No.
(19:26:18/6+00:28:40) Q: Isn't it true, uh, Mister, uh, Norris, that Unxis itself, which you said was created only recently for this transaction, obviously has no business track record of any kind?
(19:26:26/6+00:28:48) A: That's true. It's a new company.
(19:37:55/6+00:40:17) THE COURT: Thank you. Thank you, Mr. Reynolds. Any re-direct?
(19:38:20/6+00:40:42) Q: Show you what's been marked as exhibit D-34. Can you identify that document sir?
(19:38:33/6+00:40:55) A: Yes, this is actually a copy of the document that was pointed out before, but has the, uh -- uh, I think probably the correct date in oh-eight.
(19:46:21/6+00:48:43) MR. SPECTOR: Debtors call Jeff Hunsaker.
(19:46:31/6+00:48:53) THE COURT: Mr. Hunsaker, if you'll remain standing while we have you sworn, sir.
(19:46:34/6+00:48:56) CLERK: Please raise your right hand, place your left hand on the Bible. Then state your full name and spell your last name for the record.
(19:46:44/6+00:49:06) MR. HUNSAKER: Jeff Fred Hunsaker. H-U-N-S-A-K-E-R.
(19:46:49/6+00:49:11) CLERK: Do you solemnly swear to tell the truth, the whole truth, and nothing but the truth, so help you God?
(19:46:53/6+00:49:15) MR. HUNSAKER: Yes.
(19:46:54/6+00:49:16) CLERK: Please be seated.
(19:46:57/6+00:49:19) THE COURT: Thank you.
(19:46:58/6+00:49:20) MR. SPECTOR: Good evening, Mr. Hunsaker.
(19:47:01/6+00:49:23) MR. HUNSAKER: Good evening.
(19:47:02/6+00:49:24) MR. SPECTOR: We're reciting a little mantra here, and if you don't understand, just say so.
(19:47:07/6+00:49:29) Q: Do you adopt your declaration?
(19:47:09/6+00:49:31) A: Yes.
(19:47:11/6+00:49:33) MR. SPECTOR: Okay. I turn the witness to the --
(19:47:13/6+00:49:35) THE COURT: Yes, thank you. Mr. Marriott, when you're ready.
(19:47:17/6+00:49:39) MR. MARRIOTT: Good evening, Mr. Hunsaker.
(19:47:18/6+00:49:40) MR. HUNSAKER: Good evening.
(19:47:19/6+00:49:41) MR. MARRIOTT: Your honor, I have no questions of this witness, only objections.
(20:17:41/6+01:20:03) MR. DONOHO: Good evening, your Honor.
(20:17:42/6+01:20:04) THE COURT: Good evening.
(20:17:42/6+01:20:04) MR. DONOHO: Chistopher Donoho of Lovells LLP on behalf of LNS Acquisition LLC. Nice to see you again.
(20:17:47/6+01:20:09) THE COURT: Good to see you again.
(20:17:49/6+01:20:11) MR. DONOHO: It's been an interesting day today.
(20:17:51/6+01:20:13) THE COURT: And you've been very patient.
(20:17:53/6+01:20:15) MR. DONOHO: Thank you. Ha ha. And you have as well. Uh, did want to point out, uh, that, uh, I know it was discussed today, that my client has made a proposal. It's been received by the debtors, and it's been viewed by other constituents in this case as well.
(20:18:07/6+01:20:29) And we stand by that proposal. We'd like to investigate that opportunity further. We would obviously be very interested in any kind of, um, further discussions with the debtor. We obviously would be interested in any kind of competitive bidding process that may be set up. We think that our bid is an attractive one. I don't think we would have gone to the trouble of putting the bid together if we didn't think that it provided a -- a better form of recovery for the creditors than, uh, than what's currently on the table. And so we would simply like that opportunity, if the opportunity arises. Thank you, your Honor.
(20:18:44/6+01:21:06) THE COURT: All right, Mr. Donoho, thank you.
(20:18:51/6+01:21:13) MR. MARRIOTT: Your honor, we -- uh, movants rest.
(20:18:53/6+01:21:15) THE COURT: Thank you.
(20:20:19/6+01:22:41) THE COURT: Yes. Thank you.
(20:20:24/6+01:22:46) *** RECESS ***
(20:28:30/7+00:00:00) CLERK: Please rise.
(20:29:08/7+00:00:38) MR. LEVIN: We-- your honor, perh-- you just --
(20:29:09/7+00:00:39) THE COURT: Would you have a suggestion?
(20:29:09/7+00:00:39) MR. LEVIN: -- gave me an idea, --
(20:29:10/7+00:00:40) THE COURT: Yes.
(20:29:11/7+00:00:41) MR. LEVIN: -- on what you said. We'll go first on the conversion motion --
(20:29:12/7+00:00:42) THE COURT: Yes.
(20:29:13/7+00:00:43) MR. LEVIN: He can respond to that and give his views on the sale motion --
(20:29:16/7+00:00:46) THE COURT: Correct.
(20:29:17/7+00:00:47) MR. LEVIN: We'll then be able to reply to the conversion as well as respond to the sale motion --
(20:29:21/7+00:00:51) THE COURT: Perfect.
(20:29:22/7+00:00:52) MR. LEVIN: -- and then he can perhaps have the final word, but just on the sale motion, not on the conversion motion.
(20:29:27/7+00:00:57) THE COURT: Exactly. Makes all the sense.
(20:30:18/7+00:01:48) MR. DOSHI: Uh, your honor?
(20:30:20/7+00:01:50) THE COURT: Yes.
(20:30:21/7+00:01:51) MR. DOSHI: This is Amish Doshi on the phone on be--
(20:30:22/7+00:01:52) THE COURT: Mr. Doshi, yes sir.
(20:30:24/7+00:01:54) MR. DOSHI: I just wanted to note, uh, at some point, I would like to say a couple of words with respect to only the sale motion as it relates to the assumption and assignment of the Oracle agreement.
(20:33:11/7+00:04:41) MR. LEVIN: Your Honor, I wonder if Mr. Petrofsky is still on the line.
(20:33:15/7+00:04:45) THE COURT: Mr. Petrofsky?
(20:33:18/7+00:04:48) MR. PETROFSKY: Uh, yes? This is Mr. Petrofsky. Hello?
(20:33:21/7+00:04:51) THE COURT: Yes.
(20:33:22/7+00:04:52) MR. LEVIN: And whether he wishes to be heard. I didn't -- I didn't mean to exclude him from, uh, from this process.
(20:33:28/7+00:04:58) THE COURT: Did you wish to be heard, or were you on just -- just for the sake of --
(20:33:32/7+00:05:02) MR. PETROFSKY: No, I'm fine, I'm just listening. It's okay. Thank you.
(20:33:35/7+00:05:05) THE COURT: All right. Well, Mr. Levin, are you making the closing?
(20:33:44/7+00:05:14) MR. LEVIN: Your honor, I am opening the closing.
(20:33:46/7+00:05:16) THE COURT: Opening the closing, yes.
(20:33:48/7+00:05:18) MR. LEVIN: I'll be focusing only on the conversion motion, your Honor, although they do interrelate.
(20:33:52/7+00:05:22) THE COURT: Yes.
(20:33:53/7+00:05:23) MR. LEVIN: And I'll try -- I'll try to keep this limited to the conversion motion.
(20:33:58/7+00:05:28) Your Honor, our grounds for conversion, were for cause, which is broad in general, but -- and then for a specific cause in addition, and that is 1112(b)(4)(A), continuing loss and, uh -- continuing loss to and diminution of the estate.
(20:34:20/7+00:05:50) THE COURT: Yes.
(20:34:21/7+00:05:51) MR. LEVIN: And absence of a reasonable likelihood of rehabilitation. Let me take those separately.
(20:34:27/7+00:05:57) The debtor, in its opposition to the conversion motion, agreed that they are -- that there are continuing losses. Mr. Nielsen got on the stand, their CFO and said, well, yeah, they're continuing losses, but they're much larger than we put in our opposition papers, um, they're really big. And in fact, in the now -- I would guess, twenty or twenty-one months -- that we've been here.
(20:34:53/7+00:06:23) THE COURT: Twenty-one.
(20:34:54/7+00:06:24) MR. LEVIN: I'm sorry, the -- the record only cuts off a few months ago, so for nineteen months, five point three million dollars of cash lost, to the creditors and shareholders.
(20:40:33/7+00:12:03) MR. LEVIN: Your Honor, this case, as has been noted, is about the excessive pursuit of litigation. And perhaps the excessive pursuit of the mobility applications, although that's a little less clear. But we have a chapter eleven debtor, who is supposed to be fiduciary for the estate and for the creditors. And what do we have?
(20:40:54/7+00:12:24) McBride's testimony in the -- in his deposition, that he will not consider selling the litigation as part of any sale.
(20:41:02/7+00:12:32) But -- but worse, we have incorrect financial statements, uh, to this court, which were not corrected, until called to their attention.
(20:41:11/7+00:12:41) We have incorrect testimony, not only on the board meeting, uh, which the record will show was incorrect in the June fifteenth testimony, but also the reasons for the termination of the, um, of the sale negotiations, both with York, and, with, um, with, uh, SNCP, the first, uh, iteration of that. Mr. McBride testified very clearly at the June fifteen hearing that both of those, um, deals fell apart because of the uncertainty related to the litigation. You heard a very different story today. I don't know which one to believe, but a fiduciary shouldn't be telling this court different stories.
(20:41:49/7+00:13:19) Um, we have a CEO of a business that has sixty-two employees, and he's not sure who his officers are, or what officer positions they hold.
(20:41:58/7+00:13:28) We have, questionable payments. There was debate about them. They attempted to justify them. But, at the most -- at the least, excuse me your Honor, they were questionable.
(20:42:09/7+00:13:39) Um, We have, um, a mischaracterization of board meetings.
(20:42:14/7+00:13:44) We have a publicly reporting company that has a false website identifying its officers, according to Mr. McBride's testimony.
(20:42:25/7+00:13:55) And we have Mr. McBride's testimony that they reached, uh, I'm not certain it was Mr. McBride, but we have other testimony that they reached an agreement to revise the fee agreement with Boies, Schiller, and Flexner in this case, without this court's approval, and that is subject to this court's approval under section 327.
(20:42:43/7+00:14:13) Your honor, this does not amount to a chapter eleven debtor that should remain in possession. These things all speak of breach of fiduciary duty, failure to follow the orders of this court, failure to comply with chapter eleven procedures.
(20:42:57/7+00:14:27) Um, we can debate whether that's gross mismanagement.
(20:43:01/7+00:14:31) There's no excuse for the failure to file any operating report for any period after March 2009.
(20:43:07/7+00:14:37) All of these are grounds for conversion of the case.
(20:43:10/7+00:14:40) Unusual circumstances. How much must this -- the estate continue to pay, to support McDonald's? McDonald's ought to be able to support itself, your Honor. And its other customers.
(20:43:25/7+00:14:55) Your Honor, as I mentioned in my opening, I think the Court might appropriately consider, in light -- if the Court determines to go the auction route on the sale, which we'll discuss later, appointing a trustee under 1104(a)(3), which is an alternative to granting a conversion motion, or let me say it's an alternative remedy upon granting a conversion motion, um, and I'll address that more in connection with the sale, your Honor.
(20:43:50/7+00:15:20) THE COURT: Okay, Mr. Levin. Thank you, sir. Mr. Lewis.
(20:44:01/7+00:15:31) MR. LEWIS: Thank you, your Honor. I don't have much to add here except I'd like to focus on the issue of rehabilitation, --
(20:44:06/7+00:15:36) THE COURT: Okay.
(20:44:07/7+00:15:37) MR. LEWIS: -- which, the Court knows, the standard is not just whether you can confirm some kind of plan, but whether you can confirm a rehabilitating plan that puts an operating company, the debtor, back out on the street.
(20:46:49/7+00:18:19) THE COURT: Yes. Thank you, Mr. Lewis. Mr. Harrington.
(20:46:55/7+00:18:25) MR. HARRINGTON: For the record, your Honor, William Harrington from the office of the United States Trustee.
(20:46:59/7+00:18:29) Your honor, I think this case is interesting because there -- this is a case where the eight-hundred pound gorillas didn't come in on the first day of the case and demand conversion. We've waited two years, now, your Honor, and I think, kind of what I'll call the eight-hundred pound gorillas in this case, have finally come to the Court and and said, you know, after five million dollars has been taken away from our recovery, you know, please do something about it.
(20:47:22/7+00:18:52) So this -- this is not the case where you have the overbearing creditors coming in on the second day of the case demanding action of the Court, before anyone has a chance to look at the case, before the debtors have a ca-- a chance to rehabilitate and catch their breath. They've had two years, your Honor.
(20:47:44/7+00:19:14) Your Honor, I'm not going to go over continuing loss. I think that was well covered, um, and I think it is essentially admitted in the debtors' response.
(20:47:52/7+00:19:22) On rehabilitation, I think that also was well covered, your Honor. I do want to stress the plan aspect of it. As I said in my opening, the debtors aren't talking about a plan here. The debtors are talking about some kind of structured dismissal. I don't know what that means. That's not part of the bankruptcy code, your Honor. It's not a plan, it's not a chapter seven distribution.
(20:48:18/7+00:19:48) I am concerned, your honor, if -- when we get to that point where I think we've demonstrated cause, what your Honor then has to do is look as to --
(20:48:27/7+00:19:57) THE COURT: Unusual circumstances.
(20:48:28/7+00:19:58) MR. HARRINGTON: -- whether or not it's in the best interest of the creditors. Unusual circumstances, based on the best interest of the creditors.
(20:48:34/7+00:20:04) THE COURT: Yes.
(20:48:35/7+00:20:05) MR. HARRINGTON: The creditors are here telling you they want conversion. They want an independent fiduciary. So I think you have to take that into account, your Honor, when you make your decision. Um, and I think it's important that you think about that they waited two years. They've given the debtor a chance, and the debtor hasn't produced. And so I think, at this stage, your Honor, you do have to take into consideration what the creditors are asking you to do, and these are the eight-hundred pound gorillas in the case, your Honor.
(20:49:02/7+00:20:32) THE COURT: Talk to me for one minute if you will, Mr. Harrington, based on your experience, about an operating chapter seven.
(20:49:09/7+00:20:39) MR. HARRINGTON: Well, I think there are a number of options here, your Honor, and I think Mr. Levin mentioned it. Uh, I mean, a chapter seven trustee can proceed under 721. You can rule, uh, that he can operate the debtors through a sale. And that's happened in this district before. I know George Miller has operated companies --
(20:49:25/7+00:20:55) THE COURT: Yes.
(20:49:26/7+00:20:56) MR. HARRINGTON: -- before under 721. But I think there are other alternatives. If you decide that the cause exists for conversion, you can under certain circumstances appoint a chapter eleven trustee, if you think that's appropriate in carrying out a sale process, or, um, the appointment of an examiner.
(20:49:45/7+00:21:15) THE COURT: Thank you, Mr. Harrington. All right. Mr. Spector.
(20:49:53/7+00:21:23) MR. SPECTOR: Yes, your Honor, thank you.
(20:49:54/7+00:21:24) THE COURT: Your -- your turn. Thank you very much, it's been a long day and a long couple of weeks for you, I know.
(20:49:59/7+00:21:29) MR. SPECTOR: Yes, sir. Uh, before I dive into my closing, I'd like to address some of the things that I've heard from counsel, and put that aside and then get into the --
(20:50:08/7+00:21:38) THE COURT: Okay.
(20:50:09/7+00:21:39) MR. SPECTOR: -- guts of mine. Mr. Levin said, uh, SCO had pricing ability. There's no evidence of that.
(20:50:16/7+00:21:46) As your Honor probably knows from testimony in this case, or just living with this case, that's not how this business works. There's contracts. He's suggesting that they can go out and tell Microsoft tomorrow we're raising the prices. Licenses have been bought. Not like there's new customers walking in the door and they're going to raise the price on them. There's no evidence that they have pricing ability.
(20:50:43/7+00:22:13) The debtor, the -- reorganized SCO -- I don't say the reorganized SCO because it would be the former debtor SCO -- will have new money to go on in the rehabilitation phase, post-bankruptcy. If the Unxis sale closes, they'll have a million dollars left over after paying the claims. That's new capitalization.
(20:51:07/7+00:22:37) Why no skinny-down plan til now? Because you've heard the efforts to sell the company as a going concern. Who wants the Unix business if there's no engineers there, or R and D, or, uh, support and service? That's why there's not a skinny-down plan. The major, uh, means that this company's been looking to is to try to sell the -- sell the Unix business.
(20:51:30/7+00:23:00) And by the way it's also not true that Mr. McBride testified that all they wanted to do was keep the, uh, the litigation. They did have -- some of the A, B, C, D, E, F, G -- which we never linked up the names, by the way, --
(20:51:41/7+00:23:11) THE COURT: Understood.
(20:51:43/7+00:23:13) MR. SPECTOR: Some of those people were offering deals that involved taking stakes in the claims, and we heard Mr. McBride testify about that. So, everything was on the table. In fact, you -- even the York deal involved that.
(20:52:01/7+00:23:31) All the website said was SCO. It didn't say SCO Group, SCO Operations. The website says what it says, and all -- all or at least the, uh, the subsidiary that Mr. Bayer was affiliated was also called SCO Group. SCO Group Gmbh, which is Germany. It's a marketing website. Why bother about niceties about, you know, one or the other. And -- I won't go into the ruling, but -- that deals with that.
(20:52:32/7+00:24:02) By the way, the record should show, and of course the record speaks louder than the lawyers, that the April and May MORs were filed, it's not just since March. Maybe counsel misspoke when he said March and meant to say May.
(20:52:47/7+00:24:17) The BSF deal is contingent. It's not a done deal. It's a -- it's an offer, basically, by Boies, Schiller and Flexner that hasn't been executed. There's no signed agreements or anything like that. It's just a statement saying, if we get past this and we go o-- go forward, they will do -- they'll restructure going forward, uh, their contingency fee, in return for, uh, giving up their pre-petition claim, and some other consideration, which --
(20:53:13/7+00:24:43) MR. LEVIN: Your Honor, I apologize for interrupting Mr. Spector, but I believe he's going far outside the evidence record that we have, uh, so far, uh --
(20:53:21/7+00:24:51) THE COURT: On the -- on the -- on the Boies, Schiller issue?
(20:53:23/7+00:24:53) MR. LEVIN: Yes.
(20:53:25/7+00:24:55) MR. SPECTOR: I -- I -- I think he said it was contingent. I think the test-- the testimony from Mr. Tibbitts in his declaration talked about that.
(20:53:31/7+00:25:01) THE COURT: All right.
(20:53:34/7+00:25:04) MR. SPECTOR: Um, 1104(a)(3). We said in our response that that -- there's four options on the table. It's not as hard and fast as some commentators say since BAPCPA came to the fore. This Court still has options, and that's one of them. Examiner is another one. Uh, and, and, uh, frankly, uh, well, uh, we'll get to those at, I suppose, at another stage.
(20:53:58/7+00:25:28) (a sneeze)
(20:53:59/7+00:25:29) THE COURT: Bless you.
(20:54:02/7+00:25:32) MR. SPECTOR: The U.S. Trustee and Mr. Lewis talk about what's the details of this dismissal, uh, structured dismissal. Actually, I didn't say anything about that. There is no motion before the Court yet. We have talked about it. It's not unfair for them to raise it, but there's also no discussion of any structure. Wasn't planned to be any structure.
(20:54:19/7+00:25:49) Once the sale closes -- this is me talking, there's no evidence, this is legal argument -- once the sale closes, and, and the credit-- and the money is in the hands of SCO -- the bank account of SCO, the idea would just simply be, I suppose -- we haven't gone through this, haven't talked to client about it -- just, file a motion to dismiss. We no longer have the Unix business. We no longer are, uh, um, uh, have the problem of, uh, but, you know, the problem of the -- of the -- the appeal will have probably gotten to the end of the appeal by then. Uh, and there probably no reason to stay in bankruptcy. The purposes of the bankruptcy have been accomplished.
(20:55:05/7+00:26:35) If there's some structure that is requested by the U.S. Trustee, we'll discuss the structure.
(20:55:09/7+00:26:39) The bulk of the cl-- creditors are not here.
(21:11:16/7+00:42:46) MR. SPECTOR: Where do you find a case like that? Just with that. Forgetting all the other things I've talked about, where do you find a case with that? These -- this case is loaded with serious unusual circumstances.
(21:13:10/7+00:44:40) MR. SPECTOR: Most likely scenario is that the businesses will shut down, making a going concern impossible. Now, your Honor asked a very good question. I always think it's a fair question about an operating seven. Or, as the trustee said, what about an eleven trustee.
(21:13:26/7+00:44:56) Well, I can't speak about the eleven trustee. Your honor's question, though, raised some hackles. Uh, you'll read in Mr. Hunsaker's declaration about what's likely to happen. People don't know, especially Europeans, and customers out there, they get very nervous when a company they do business with files chapter eleven. Ask what they feel if they're thinking about a chapter seven, okay. Oh, what's an operating seven? Nobody knows about that.
(21:13:58/7+00:45:28) These engineers have to think about their families. Will they stick around and run this company? Will management run the company? Say what you want about management, will Mr. Hunsaker stick around and do it? Will any of these other people do that with a trustee in charge? In a seven mode, for crying out loud? I think that's a big risk.
(21:14:21/7+00:45:51) And what happens to what it -- the product he wants to sell, the chapter seven trustee -- he or she -- wants to sell, in that scenario? Mr. Hunsaker testified, and I believe it's common knowledge, I don't know that it's -- it needs much evidence, that when this company ceases to operate in the normal course of business like it's been, you can kiss it good-bye in terms of recovery.
(21:14:45/7+00:46:15) We've got a recovery that's twice what is out there in terms of debt, and you can bet that's not going to happen in a seven mode, or probably even an eleven trustee mode.
(21:18:55/7+00:50:25) THE COURT: Mr. Spector, you've now gone on for roughly forty minutes. It's late. I think your time is up.
(21:19:02/7+00:50:32) MR. SPECTOR: It is up. There are deal terms about the LNS deal that are very, very poor, and they're much worse -- worse financially -- financially than the Unxis deal.
(21:19:11/7+00:50:41) THE COURT: All right.
(21:19:12/7+00:50:42) MR. SPECTOR: Your honor, for these reasons, we'll ask your Honor to approve the sale, and deny the motions to convert.
(21:19:17/7+00:50:47) THE COURT: Thank you, Mr. Spector. All right, Mr. Levin.
(21:19:28/7+00:50:58) MR. LEVIN: Turning to the sale motion, your Honor, let me pick up where I left off this morning, how many hours ago?
(21:19:39/7+00:51:09) I said we had a few problems with the sale motion. One was the poison pill.
(21:19:47/7+00:51:17) THE COURT: Yes.
(21:19:48/7+00:51:18) MR. LEVIN: Another was the solar eclipse. Another was the lack of a record. Well, I can say that the debtor has made at least somewhat of a record, and one of our problems has been solved in part. Of couse, it would have been a lot easier had that record been made when the motion was filed, so we didn't have to go through all this exercise and we could have focused on the remaining open issues. Let me address the remaining open issues.
(21:19:16/7+00:50:46) To approve a sale, this court has recognized that a debtor must meet four -- must show four things. First, a sound business purpose, second, a fair price, third, notice -- we're not disputing that, although Novell might -- and fourth, good faith. Let's take those in order.
(21:20:40/7+00:52:10) Sound business purpose. Mr. Spector argues that the sale will provide the ability to pay all claims in full.
(21:28:10/7+00:59:40) Let me turn to fair price.
(21:30:23/7+01:01:53) Um, the poison -- excuse me, good faith, your Honor. Skipping the notice and going to good faith.
(21:32:41/7+01:04:11) Finally, your Honor, the last point, uh, has to do with the, uh, private sale.
(21:32:46/7+01:04:16) THE COURT: Yes.
(21:32:48/7+01:04:18) MR. LEVIN: Um, private sale, as you know, your Honor, does occur in bankruptcy cases, but is very unusual. Uh, Mr. Spector attempted to point to GM and Chrysler, but in fact, even in those cases, the Court provided for an auction, in case there was an overbidder. Of course, there wasn't, and the sales went to the stalking horse bidder in both of those cases.
(21:33:10/7+01:04:40) Um, here, we have another bidder, who has made known his willingness to participate in an auction, based on a starting bid of the Unxis proposal. I think we can infer from that, your Honor, that the bidder would not be bidding less than the Unxis proposal. So, we have a live competition, and there is no reason in this case to approve this now as a private sale.
(21:33:40/7+01:05:10) Uh, now, if this court is going to order an auction, how should it be done? As we said earlier, we believed, uh, an appropriate way to do that would be the appointment of a trustee under 1104(a)(3).
(21:33:54/7+01:05:24) Um, unless your Honor feels -- uh, would like to hear opposing argument to the burden of proof, uh, issue, which I was -- well, let's just say I was surprised by it. Uh, I'll -- I'll leave that one aside and go straight to the appointment of a trustee.
(21:34:10/7+01:05:40) Why is a trustee impor-- appropriate in this case? We do not take the position that a shutdown of the business pending an auction makes sense. And we, IBM, have never argued that if it -- if the case is converted to Chapter seven, there should be an operating trustee in Chapter seven. We think the bankruptcy code is structured in a way that makes it easier to operate in chapter eleven and not in chapter seven.
(21:34:34/7+01:06:04) If there is a conversion, because this company is losing money and has no reasonable prospect of rehabilitation, then it should be converted to chapter seven and money saved. Stop the bleeding. If there is going to be an auction, we believe it's important to keep the business operating for that, and we would not seek immediate conversion but would seek chapter eleven, uh, trustee instead. Why?
(21:35:00/7+01:06:30) Um, the, um, the debtor has made very clear on the witness stand today, Mr. McBride's testimony, that they do not trust Mr. Hale. That's despite the fact that they were here on multiple occassions seeking to pay York Capital a hundred fifty thousand dollar fee. I don't know when relations turned sour, your Honor, but I tend to doubt when Mr. McBride said they turned sour the minute negotiations stopped back in November of oh-seven. Uh, I -- it -- it -- the two things do not seem consistent.
(21:35:36/7+01:07:06) Uh, but now they say they cannot trust Mr. Hale. Well, if they cannot trust Mr. Hale, that's exactly why we need an independent fiduciary to cut-- conduct the auction. We don't want one of the bidders at the sale to be told, your bid is not welcome here. That is not how to have a free and fair auction.
(21:35:55/7+01:07:25) We believe a sale process can be conducted quickly. Mr. Hale is familiar with this business, he's already proposed, uh, a, uh, uh, asset purchase agreement. We believe it will take some negotiation, but we think it could be concluded, uh, within about thirty days, give or take. Uh, we're not looking for an extended auction.
(21:35:14/7+01:06:44) Uh, it may be that once the buyers who were identified on that secret certificate of service, uh, know that there's really an auction, they might come back to the table. When they're told there's a private sale, they probably don't have much incentive to come back. We don't know.
(21:36:29/7+01:07:59) So, um, your Honor, we believe the sale should not be approved for all of the reasons. There's no sound business proo-- purpose. The price as set is not fair. Uh, we question the good faith, especially of the poison pill provision, and if there is a, uh, sale approved, that should be changed. Certainly, the -- the fair price issue could be addressed by an auction, and that is where we stand, your Honor. Thank you.
(21:36:53/7+01:08:23) THE COURT: Thank, thank you very much, Mr. Levin. Mr. Lewis.
(21:37:05/7+01:08:35) MR. LEWIS: Thank you, your honor. (inaudible) and again I won't be very long on this.
(21:37:11/7+01:08:41) Your Honor, one way to look at the sale price here is to look at the sale process throughout this case. And while the debtor wants you to believe that it was diligently pursuing potential sales, you'll see in Mr. McBride's deposition that, basically, the deal has been the deal forever. Sell the Un-- the Unix business, five to ten million dollars, it's been going on and on and on.
(21:46:06/7+01:17:36) THE COURT: Thank you, Mr. Lewis. Mr. Harrington.
(21:46:16/7+01:17:46) MR. HARRINGTON: Your Honor, very briefly, because I think a lot of ground's already been covered.
(21:46:19/7+01:17:49) Uh, I did want to just hit on that last point. Mr. Spector keeps saying "Pay the Creditors in full, pay the creditors in full", and I think he thinks if he says it enough, your Honor's going to have it ingrained in your head that all the creditors are being paid in full.
(21:46:36/7+01:18:06) Uh, what he never tells you is when and how the creditors are going to be paid. And so he says we're going to be all paid before we get out of bankruptcy and so we're just going to dismiss. There's no way to pay pre-petition creditors in bankruptcy without a plan, or without chapter seven trustee filing their trustee's distributi-- or trustee's final report. So, you can't just pay all your creditors, just because you have some money. That's not possible, your Honor, so I did want to raise that issue.
(21:47:06/7+01:18:36) Your Honor, I know you don't want to address the clear and convincing evidence standard. I don't think there's any case law in the country on it with respect to the 1112 issue. Uh, to pull that in from the 1104 I don't think is appropriate. Also, there's an argument that post-BAPCPA, it's not clear and convincing in the 1104 context as well, so, I don't think I need to address that any further.
(21:47:28/7+01:18:58) Um, there was a lot of commentary on how the debtors' management distrusts Hale, and I think Mr. Levin handled that very well.
(21:47:36/7+01:19:06) One other thing I would want to get to was, um, there was that, sort of, in -- it was implied that that's a problem for going forward with the customers again if that -- if they were the successful purchaser here.
(21:47:55/7+01:19:25) Again, it's protection of the customers, as opposed to protection of the creditors and the equity security holders. And those -- that's what your Honor has to be looking at here, the creditors and the equity security holders. In their best interests, not the best interests of the customers.
(21:48:10/7+01:19:40) And finally, your Honor, there's been a lot of talk about how if this case -- there was an appointment of a chapter eleven trustee or chapter seven trustee, that the -- that all the engineers would go running to the four corners of the Earth. This case has been going on for -- since 2003. If these people haven't left by now, they're not leaving, your Honor. So, that's all I'd want to say. Thank you, your Honor.
(21:48:33/7+01:20:03) THE COURT: Thank you, Mr. Harrington.
(21:48:36/7+01:20:06) MR. SPECTOR: Your honor, I -- I'm not going to make this long, I'm just going to deal with the points that were raised.
(21:48:41/7+01:20:11) THE COURT: All right.
(21:48:42/7+01:20:12) MR. SPECTOR: This demonstrative exhibit. A variety of points a want to raise. Number one, in the evidence, we have that the unsecured claims, after scrubbing, a million seventy-four thousand, not three million five thirty-one. When does anybody pay attention, in terms of what's really owed, by looking at the schedules?
(21:49:08/7+01:20:38) Uh, if -- if that were -- I mean, this is not --
(21:49:11/7+01:20:41) The fact that schedules exist, and they say things, is of very, very minimal value.
(21:58:20/7+01:29:50) And, and if we wanted to have other people come kick the tires and try to, you know, spend some time and money on this, we didn't want to be seen as walking away from those obligations, so we wanted the world to know we will honor them.
(21:58:32/7+01:30:02) And of course, the Court didn't hear that, (inaudible) I don't think we ever did prove it, but that's the purpose of that. Notice to the world. We're not running away from it.
(21:58:42/7+01:30:12) THE COURT: When I -- when I heard that -- reference to that motion, I was thinking to myself, my God, I hope I didn't grant that motion.
(21:58:50/7+01:30:20) MR. SPECTOR: No, no, we didn't proceed on that any-- they --
(21:58:52/7+01:30:22) -- they -- actually, they -- they did our work for us, they objected, we said okay we'll defer that to another time, but the word was effective, because we did have other people come kick tires and spend money.
(21:59:05/7+01:30:35) Well let's talk about the poison pill and the solar eclipse. That's another one I would love to have Mr. Caplan to assess, but I would -- my -- my knowledge of those APA amendments are shallow.
(21:59:16/7+01:30:46) But I'll tell you what I can tell you about the poison pill, the so-called poison-pill --
(21:59:20/7+01:30:50) THE COURT: And -- and let's make this your last point, all right, because it's -- it's ten o'clock.
(21:59:25/7+01:30:55) MR. SPECTOR: Yes sir, but I want to --
(21:59:26/7+01:30:56) THE COURT: We've been -- this will be your last point. These will be your last points, or -- decide what your last points are.
(21:59:32/7+01:31:02) MR. SPECTOR: The poison pill does not tie the hands of the Court. It is not a poison pill by any means. If the Court does not approve the sale, nothing happens with regard to the -- none of the rights in that agreement ever arise. If the Court approves the sale, authorizes the debtor to close, it makes no sense -- I, I mean, couldn't get it through the deal people -- it makes no sense to worry about your converting the case.
(22:00:02/7+01:31:32) Why would you approve the sale, that would close, and then appoint a trustee of what's remaining. Why would you be converting the case at that point. I saw it as a polar situation. The Court's going to approve the sale and deny the conversion, or -- nothing bad's going to happen.
(22:00:20/7+01:31:50) If -- and -- and it -- it was a -- it was a point that the other side wanted to have, because they felt comfort in it. They didn't want -- they want to have the Unix business without the claims. You heard Mr. Norris talk about that.
(22:00:33/7+01:32:03) They didn't want these claims to fall into the hands of whoever the trustee sells them to. They didn't want to be messing with them. They trusted it in the hands of SCO's management to continue, they weren't going to be doing crazy things on that, but -- but if the, uh, if the Court were to grant the motion, for a sale, none of the rest of things are likely to happen, and -- and we would be moving to dismiss the case anyway.
(22:01:00/7+01:32:30) The, um, the other thing is, the only time the October first date comes up is if the Court were to grant one of the three things, conversion, appointment of a Chapter Eleven trustee, or a -- examiner with unusual powers, extraordinary powers. And, as I said, that's not going to happen. If the Court were going to do that, you're not going to approve the sale. These -- these rights --
(22:01:26/7+01:32:56) So, it looks bad, but it really isn't, and the poin-- the purpose of that wasn't to bind this court's hands in any way, it was t-- and you'll see there's other things talking about future events, after the case is done and we're out of bankruptcy, if something should happen, and SCO should potentially lose the rights to claims and other things happen, that's really what that's all designed to do.
(22:01:48/7+01:33:18) Um, I -- I would be interested in the Court's following up with Mr. Harrington's discussion about an Eleven trustee, if we can work out -- or an auction process, I don't discount that. The PSA does in fact talk about, if the Court were inclinded to grant an auction, that they want to be considered -- in the PSA itself, as a stalking horse, there's even break-up fees and so forth. So it's not off the table on our end.
(22:02:15/7+01:33:45) THE COURT: All right. Thank you, Mister -- thank you, Mr. Spector.
(22:02:17/7+01:33:47) MR. LEWIS: Your Honor, might I just have, literally ten seconds.
(22:02:19/7+01:33:49) THE COURT: Sure.
(22:02:20/7+01:33:50) MR. LEWIS: And the ten seconds are: on the question of what evidence there is on the APA, there is the APA. It is in evidence. The document itself speaks for itself. Contract rules of interpretation, in the first instance they're always you look to the four corners of the document. It says what it says, it's just like Exide. Anybody else who testified today about what it means or doesn't mean, wasn't around when it was negotiated.
(22:02:45/7+01:34:15) And there is the second piece of evidence, which is Schedule G, which, like so many other things, we now heard was an oversight -- every time something inconvenient comes up, it's an oversight -- but it was there, and it's been there all along. Thank you, your Honor.
(22:02:59/7+01:34:29) THE COURT: Thank you.
(22:02:59/7+01:34:29) MR. SPECTOR: Aren't these -- are all of the exhibits and amendments and everything to the APA there, or is it just the first, original APA, because if we have just the exhibits, then -- I mean, if we don't have the full thing, then it's not --
(22:03:08/7+01:34:38) MR. LEWIS: I believe it's just the APA
(22:03:10/7+01:34:40) MR. SPECTOR: Ah, then your Honor we would ask to supplement the record with the rest of the exhibits, because that's not -- an amendment to the APA changes the APA.
(22:03:19/7+01:34:49) MR. LEVIN: I thought we were done, your Honor. The evidence is closed, the A-- what's in is in, and I'm just standing to stretch.
(22:03:25/7+01:34:55) MR. SPECTOR: You heard testimony about -- you -- you heard testimony about that the amendment, your Honor, and if the amendment is not in, then the doc-- then the exhibit is not complete, and the amendment affects the (inaudible) -- in that case, you don't have the ability --
(22:03:39/7+01:35:09) THE COURT: Any problem with submitting --
(22:03:41/7+01:35:11) MR. JACOBS: We have no problem, your Honor --
(22:03:42/7+01:35:12) THE COURT: All right.
(22:03:43/7+01:35:13) MR. JACOBS: -- as the party to the APA. Amendments -- amendment one and amendment two should be in there. You'll look at them yourself, you'll see they have no impact on our objection to the transaction here.
(22:03:52/7+01:35:22) THE COURT: Thank you, Mr. Jacobs. All right, you may submit the -- the amendments.
(22:03:56/7+01:35:26) MR. SPECTOR: Um, we'll do that. We don't have them with us today.
(22:03:59/7+01:35:29) THE COURT: Understood.
(22:04:00/7+01:35:30) MR. SPECTOR: Okay. Uh, I'm done.
(22:04:00/7+01:35:30) THE COURT: All right.
(22:04:01/7+01:35:31) MR. SPECTOR: I really am.
(22:04:02/7+01:35:32) THE COURT: I'm reserving decision. I will act on this as promptly as I possibly can. I think -- I know that -- I know that there's a statutory time limit here, and, uh --
(22:04:12/7+01:35:42) MR. LEVIN: -- which has long since run, your Honor. We didn't --
(22:04:15/7+01:35:45) THE COURT: I under-- yes.
(22:04:15/7+01:35:45) MR. LEVIN: We will be patient for your Honor's, uh, decision.
(22:04:17/7+01:35:47) THE COURT: But with -- certainly within a week. That I can tell you for certain.
(22:04:21/7+01:35:51) MR. SPECTOR: Uh, your Honor, if you wish to call us about any ideas that come to you with regard to the U.S. Trustee's suggestions. Uh, I -- I welcome -- you -- I -- you can reach me this week any time you wish, and if you want to have a conference call to discuss the parameters, we're willing to discuss that at any time as well.
(22:04:38/7+01:36:08) THE COURT: Thank you, Mr. Spector. All right, counsel, thank you for a long but entertaining presentation.
(22:04:44/7+01:36:14) VOICES: Thank you.
(22:04:45/7+01:36:15) THE COURT: And good evening to you all, and a safe trip ho--
(22:04:46/7+01:36:16) MR. LEWIS: And to your staff, your Honor. We appreciate your staff sticking around so long.
(22:04:49/7+01:36:19) THE COURT: Of course. Thank you, Jennifer.
(22:04:50/7+01:36:20) MR. LEVIN: And the marshalls.
(22:04:51/7+01:36:21) VOICE (U.S. MARSHALL?): You're allowed to buy them a drink, if you would.
(22:04:53/7+01:36:23) THE COURT: I know. A safe trip home, everyone. Good night.
(22:04:59/7+01:36:29) *** RECESS ***
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