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SCO's Proposed Super Dooper Senior Secured Super-Priority Credit Agreement
Groklaw ^ | 18 November 2007 | Pamela Jones

Posted on 11/19/2007 10:24:14 AM PST by ShadowAce

Ding. Ding. Ding. We have a winner in the contest for the all-time best title for any document ever filed in the SCO v. the World litigations. I know that some of you have gotten attached to the Sur-Sur-Sur Replies of yore. But this tops everything. SCO has filed the following:

Senior Secured Super-Priority Debtor-in-Possession Credit Agreement

Teasing. It's what they call these things. It's about the "Litigation Credit Facility" mentioned in the APA, the $10 million York is willing to loan SCO to fund the "Specified Litigation". And guess which that is: "the IBM litigation and the Novell Litigation and all appellate, supplemental and/or collection proceedings related thereto." This isn't a reorganization plan. It's York funding SCO's litigation lottery. They list what qualifies as a legitimate litigation expense, and on the list is appellate bonds. In short, I think maybe SCO can't afford to appeal unless they get some moolah. You have to post a bond, in case you lose.

Guess who is listed as the Purchaser? "York Capital Management, or its designee, assignee or nominee". Why, I declare. I believe we are playing keep-away.

Of course, it's obvious SCO is good to pay it all back. Not. If it loses, guess what happens? York goes to the head of the line, leaps over Novell and every other creditor with super priority status. See page 19 of the PDF, 17 of the document. Too bad, so sad, Novell. You don't get your money. Nyah nyah.

Oh and on the next page, York says that upon the "termination date" York gets paid back in full without having to apply to that pesky bankruptcy court. Here's the docket entry in full:

219 - Filed & Entered: 11/16/2007
Notice of Service
Docket Text: Notice of Service Notice of Filing of Senior Secured Super-Priority Debtor-in-Possession Credit Agreement Filed by The SCO Group, Inc.. (Attachments: # (1) Exhibit A # (2) Certificate of Service and Service List) (O'Neill, James)

So this is how SCO proposes to play the game. When SCO loses in Utah, guess who will take priority over Novell as the super dooper high chieftan of super-priority creditors? York! Um. Or its designee. That's if the court goes along with this, which I doubt. If they did, it'd be a court sanctioning of SCO using Novell's money to sue Novell, without any risk to SCO of ever having to pay the money back that the Utah court says SCO improperly converted.

In fact, a clause says that SCO agrees that no one will get ahead of York:

2.12 Waiver of any Priming Rights. Upon the Closing Date, and on behalf of themselves and their estates, and for so long as any Obligations shall be outstanding, each Borrower hereby irrevocably waives any right (whether pusuant to Sections 364(c) or 364(d) of the Bankruptcy Code or otherwise) and agrees not to apply to the Bankruptcy Court seeking any right to grant or to confer any Lien of equal or greater priority than the Liens securing the Obligations.

By the way, York appears to trust SCO about as much as you do. It's not a "here's $10 million -- let us know when it's gone" type of free fall loan. No. Every month, SCO has to tell them what bills it has incurred and York pays the provider of the legal service directly. I gather Novell is the last entity that will let SCO play middleman with other people's money.

And there is a muzzle on this litigious puppy. SCO can't initiate any litigation other than in connection with the Chapter 11 or the IBM or Novell litigations, if it "in the reasonable judgment of the Lender, might adversely affect the transactions contemplated hereby or, other than the Specified Litigation, might have a materially adverse affect on the assets, business or financial condition of the Borrowers or the Lender." So, York has figured out a way to put SCO on a leash. That's Section III, Conditions of Loans, 3.1(b)

And SCO can't sell off any assets or merge or set up subsidiaries or settle any litigation without first consulting York. York gets to look at their books. It has placed restrictions on what SCO can do with stock and what it can buy in the way of assets. SCO has to tell York what is going on in the litigation, and York gets to see pretty much whatever SCO has. And significantly, if SCO files a reorganization plan that York hasn't consented to, it's a default on the agreement. York says any reorganization plan must say that York gets paid back in full before anyone else. That's on page 41. And if there is a trustee appointed to take over for SCO management in the bankruptcy, that constitutes a default also. And get a load of this term. It's a default if there should be:

(ix) the entry of an order by the Bankruptcy Court granting relief from or modifying the automatic stay of Section 362 of the Bankruptcy Code (x) to allow any creditor (other than Lender or its successors or assings) to execute upon or enforce a Lien on any Collateral...which ... would have a Material Adverse Effect;

I guess you'd have to call that the anti-Novell clause. It's also a default event if SCO goes to Chapter 7.

What happens then? On a default, of course all loans are payable instantly, but here's what else happens:

(c) the Lender shall have the right to control the prosecution and settlement of the Specified Litigation, such right to be exercised commercially reasonably;...

The cherry on top is on page 42. SCO has to reimburse York on demand for all "reasonable" costs and expenses incurred or expended in connection with the administration of the Agreement or in connection with enforcing it. And if litigation were to ensue, SCO has to indemnify under the Agreement, so SCO pays the bills for York. With what? The proceeds of Me Inc? No. Really. How is SCO, having sold most of its assets, supposed to pay this loan back? I guess they could use the other money York is paying for the Unix assets, the other $10 million. But then York will have provided the estate with nothing in the way of money for the other creditors, just a way for York to be paid back in full.

SCO isn't borrowing enough to pay Novell what it probably owes Novell according to the Utah court, let alone the other other creditors. So what do they do, sue York? What good would that do, when SCO indemnified York, and it has no assets to shake a stick at, no business ongoing either that I can see, and no prospects? It's lose-lose if you are Novell, this agreement. The agreement essentially asks the bankruptcy court to ignore the fact that a Utah court already ruled that SCO was liable for conversion. With this agreement in place, Novell has no possibility of being made whole, no matter what the Utah court says next. And so SCO gets to grab money that belonged to Novell, sue them for something they were found not guilty of (slander of title), cost them a fortune in legal fees (which Novell would be asking the Court to have SCO reimburse), and now, poof. No remedy. Novell gets to be right, but all it can do is swallow hard?

And should the lovebirds ever get into litigation with each other over the agreement, they agree there will be no jury and no special, exemplary, consequential or punitive damages. Actuals only.

I'm thinking lovebirds might not be the exact word I'm looking for. Maybe York watched what happened to BayStar. This is an agreement that simply screams desperation.

On page 49 there is a Guaranty clause, 9.1, which seems to indicate that somebody is guaranteeing to pay back the loan if SCO doesn't. Man. SCO can't even borrow money any more without a guarantor. The wording indicates there is more than one guarantor, each jointly and severally liable. Who might these guarantors be? Me Inc is one, har har. But there is a signature line for one more guarantor. It doesn't say who it is.1 So unless a SCO executive or board member is personally guaranteeing the loan, which is certainly possible, there is someone out there besides York wanting this litigation to continue enough to be willing to be on the hook for $10 million. Actually more than York. York isn't a bit willing to be on the hook for anything, not so much as a paperclip. You can certainly see why they want the deal. They get the assets and they make money without fail. But where is the benefit to SCO? To the estate? All they seem to get is a way to keep suing people, with less for SCO even if they were to prevail than if they hadn't done this deal. Which they won't anyway. Prevail, that is.

Update: You probably think it'd be impossible to write a song about a senior secured super-priority debtor-in-possession credit agreement, don't you? Well, Groklaw is up to the challenge. An anonymous reader (I think in New Zealand) found the title inspirational, and he has burst out in song, called ItsyBitsySCO [Ogg]. Lyrics here.


1 The title page mentions "certain subsidiaries as guarantors" but Me Inc is the only one mentioned by name, and Cattleback is specifically not deemed a subsidiary. The opening paragraph limits subsidiaries to domestic ones. However the definition of "Subsidiary" is of interest as a clue:

Subsidiary. With respect to any person, any corporation, association, joint stock company, business trust, partnership, limited liability company or other similar organization of which 50% or more of the ordinary voting power for the election of a majority of the members of the board of directors or other governing body of such entity is held or controlled by a such Person or a Subsidiary of such Person; or any other such organization the management of which is directly or indirectly controlled by such Person or a Subsidiary of such Person through the exercise of voting power or otherwise, or any joint venture, whether incorporated or not, in which such Person has a 50% or greater ownership interest. Cattleback Intellectual Property Holdings, Inc. is not a Subsidiary.

I confess freely that even reading this, I am not at all clear what it is saying. Since the board at SCO is voted on by one share = one vote, I gather then that if you owned 50% or more of SCO's stock, you get to be a subsidiary and hence liable for the $10 million, should Me Inc not have enough to pay it all back. Snark. Or it might be saying you are a subsidiary if SCO owns 50% or more of you. Doesn't Ralph Yarro have more than 50%? I guess not any more. While this type of agreement is found in bankruptcies, usually you see a bank as guarantor, along with subsidiaries. Here's info on Worldcom's super dooper agreement, for example, and the guarantors were the subsidiaries and Citibank, J.P. Morgan Securities, and General Electric Capital Corporation. I thought of Worldcom because one of SCO's directors, Omar Leeman, used to work there as president of special markets and president of business operations at MCI , before Worldcom and MCI merged. Worldcom's agreement was court approved, as was Enron's, for all the good it did.


TOPICS: Business/Economy; Technical
KEYWORDS: bankruptcy; novell; sco

1 posted on 11/19/2007 10:24:16 AM PST by ShadowAce
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To: rdb3; chance33_98; Calvinist_Dark_Lord; PenguinWry; GodGunsandGuts; CyberCowboy777; Salo; Bobsat; ..

2 posted on 11/19/2007 10:24:29 AM PST by ShadowAce (Linux -- The Ultimate Windows Service Pack)
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To: ShadowAce

Is this starting to remind anybody else of a shell game with Novell’s money?


3 posted on 11/19/2007 11:15:51 AM PST by antiRepublicrat
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To: antiRepublicrat
That's why I posted this article. I've been watching this case go forward, and SCO finally did something I think is worth posting about on FR.

They are in the process of stealing Novell's money, using the courts to make it "legal."

4 posted on 11/19/2007 11:18:06 AM PST by ShadowAce (Linux -- The Ultimate Windows Service Pack)
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To: antiRepublicrat

> Is this starting to remind anybody else of a shell
> game with Novell’s money?

Not. That money is gone. SCOX even admits it.
They may be trying to hide the evidence.
They don’t even seem to be too concerned about
staying out of jail while doing it.

This about hiding the real pea, i.e who is really
pulling the strings of the SCOX puppet. IBM and NOVL
would not be spending the massive legal fees to
collect the pennies that will be left.
__________
They are after bigger game, probably MafiaSoft.


5 posted on 11/19/2007 12:38:43 PM PST by Boundless (Legacy Media is hazardous to your mental health)
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To: ShadowAce
Who or what is York Capital?

Oh this is interesting:

FundRace 2008.

6 posted on 11/19/2007 1:27:24 PM PST by Ernest_at_the_Beach (No Burkas for my Grandaughters!)
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To: ShadowAce

Did you see the latest? SCO just admitted they tried to sell UNIX to IBM, but failed. Then what we knew was confirmed: they were were hoping to put a knife to IBM’s throat by yanking the UNIX license in hopes that IBM would settle and buy out UNIX.

There must have been panic over there when IBM refused to settle.


7 posted on 11/20/2007 5:56:22 AM PST by antiRepublicrat
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To: antiRepublicrat

LOL! That’s funny. They hit IBM at the wrong time in the wrong way.


8 posted on 11/20/2007 5:57:54 AM PST by ShadowAce (Linux -- The Ultimate Windows Service Pack)
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