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Changes and Additional Documents to the Yarro Deal Filed
Thursday, March 04 2010 @ 01:40 PM EST

There are more filings in the bankruptcy, related to the proposed Yarro deal, and because that hearing is coming up soon, on Friday, I'm posting them quickly, before even reading them myself. Specifically, there are proposed changes to the deal, so take a look. Exhibit A is the redlined draft. Exhibit F is "proof" that Seung Ni Capital, LLC actually exists, or at least that it has written up Articles of Organization. It's a Utah LLC. Or at least the page we get to see has a stamp "Received - Mar 01 2010 - Utah Tax Commission [address]." However, the Collateral Agent Agreement says it's a Delaware LLC, and it calls it Seung Ni Capital Partners, L.L.C. Is that the sound of wings I hear?

I'm starting to get the impression that they don't want us to have time to actually read and think about this super-fast proposed deal.

Here it all is:

03/04/2010 - 1077 - Exhibit // Notice of Filing of Additional Documents Related to Financing Motion (related document(s) 1051 ) Filed by Edward N. Cahn, Chapter 11 Trustee for The SCO Group, Inc., et al.. (Attachments: # 1 Exhibit A # 2 Exhibit B # 3 Exhibit C # 4 Exhibit D # 5 Exhibit E # 6 Exhibit F) (Fatell, Bonnie) (Entered: 03/04/2010)

Exhibit B is the redlined Order, reflecting the changes to the deal.

Exhibit C is the Stock Pledge Agreement.

Exhibit D is the Security and Pledge Agreement.

Exhibit E is the Collateral Agent Agreement. You have the list of where the money is coming from on the last page:

Ralph Yarro ---$400,000
Jan Loeb ---$400,000
Rex Lewis--- $600,000
Hank Beinstein--- $350,000
Dan Campbell ---$100,000
Darcy Mott--- $10,000

Exhibit F is the top page of the Articles of Organization of Seung Ni Capital, LLC.

The individuals listed "may be a 'Lender' either individually or through an entity in which they own or control an interest. Additional 'Lenders' may be added, or the foregoing amounts may change." You'll remember Hank Beinstein from the mention of a Hank Beinstein deal at the bankruptcy hearing in June 15, 2009 and our finding someone with that name at Gagnon Securities. The Hank deal was one of four SCO allegedly considered, and in the end SCO walked in to the hearing about conversion to Chapter 7 with the Stephen Norris deal, threw it on the table for consideration without notice in what the judge himself called a "Perry Mason situation" or as close to one as a bankruptcy judge gets, and then Berger Singerman's Arthur Spector put Frank Caplan, described as their "deal partner" on the stand and he said the Hank Beinstein deal "involved a subscription for warrants in SCO and a funding of SCO of approximately -- to be determined but the range was I think between two and a half million dollars and up. And the consideration for that, in addition to warrants, would be a share of litigation proceeds if there are any." So I gather Hank no longer wishes to go quite that high, all by himself. You know board member Dan Campbell and Darcy Mott, mentioned in the Canopy-Noorda litigation.

Jan Loeb is a name I recall seeing back in 2005, as one of a long list of people Bert Young wrote an email to about a favorable development as SCO saw it in the SCO v. IBM case. Al Petrofsky was also on the list of those favored with a copy of the email, and he shared the news. One of the other names was "Jan Loeb" [...]@chespartners.com and we next saw a Jan Loeb sending a Objection [PDF] in the SCO bankruptcy in 2009, and by then he was President and Portfolio Manager, Leap Tide Capital Management, Inc. and the purpose of the Objection was to argue against Chapter 7. Loeb told the court that Leap Tide's various entities along with "a portfolio for AmTrust International Insurance," had been shareholders of SCO since February of 2005. I don't know if it's the same Jan Loeb, I can't help but notice. His objection said they'd investigated SCO's claims and found them to have merit, that they were "important to SCO and the shaping of the industry" and thought they could result in "significant returns for investors". He told the court that "under certain circumstances and terms" they'd "be interested in providing additional capital to SCO to pursue its claims against IBM and Novell and continue to develop its products and services." Ah, some dreams die hard and slow. My point is, these are longtimers, with money in the company's shares, and they want their "significant returns" or something, anyway. Or is this about "shaping the industry"? Why would they care this much, this long? That is the ultimate mystery, and if this loan deal goes through, I suspect we'll never know, because these guys will likely get all the papers and computers that would tell the complete story as collateral. Poof?

And to refresh our memories, here's Novell's Objection to this deal, and Al Petrofsky's, if they allow it in.

The changes are mainly fixing typos, a changed definition of GAAP, plugging in the right Exhibit letter, now that the missing documents are being provided, and things like that. But on page 28, there's something that is more than that. They add this phrase, marked in blue, to this sentence in Section 6.13, on the right of first refusal for additional indebtedness: "In connection with and as result of obtaining such additional Indebtedness and in connection with any other covenant or agreement of the Borrower with any third party or parties, Lender's right to receive the Loan Fee from the Litigation Proceeds shall not be diluted or otherwise reduced or diminished."

The other change that matters is this addition to the collateral on page 50:

9. Collateral expressly listed and identified in each of the Security Documents.

Notwithstanding the foregoing list, the "Collateral" shall expressly exclude the following: (a) all "Employee Carve-Out Amounts" referred to in that certain Security and Pledge Agreement that constitutes one of the Security Documents; (b) all causes of action under Chapter 5 of the Bankruptcy Code; and (c) any voting stock (or other voting equity interests) in excess of 65% of the outstanding voting stock (or other voting equity interests) of any foreign Subsidiary.

Ah, those creepy subsidiaries. I told you something seems to be up about them.

In other words, then, other than making it worse in my eyes, this Frankenstein deal is just right for filing in Cahn's eyes, even after reading the objections. Exhibit D is where you find the breakdown of what Ralph gets a first lien and security interest in as collateral, (subject to defined permitted encumbrances) for loaning whatever it is he ends up loaning:

  • Inventory
  • Accounts and Rights (leases, contracts, deeds of trust, collateral assignments (PJ: what?), etc.)
  • Equipment and Fixtures
  • General Intangibles, which is defined as bank accounts, causes of action, business records (PJ: uh oh), customer lists, tax refunds, intellectual property, inventions, patents, copyrights, trademarks, etc. Oh. And "manure spreading licenses." Perfect. They definitely have some of those. You can't run a business if you don't get those.
  • Investment Property. Like securities. All voting rights associated with the shares.
  • Bank Accounts. I thought those were "general intangibles". Anyway, he gets them and all investment accounts, by hook or by crook, as collateral.
  • Insurance. All right, title and interest in any policies.
  • Books and Records. Ah, of course. They even ask for the cabinets and drawers that hold them, and "computer records, lists, and software programs, wherever located".
  • Commercial Tort Claims. That would be IBM and Novell.
  • Litigation Proceeds.
  • Payment Intangibles. This seems to mean any settlement money or judgments where money flows to SCO.
  • Products and Proceeds. "All products and proceeds of any and all of the foregoing, including, but not limited to, proceeds which constitute property of the types described in the foregoing paragraphs of this Section 2 and, to the extent not otherwise included, all payments under insurance... or any indemnity, warranty or guaranty..."

In short for a loan up to but not guaranteed to be $2M, he wants it all, everything SCO owns, including all evidence of wrongdoing should any exists in those drawers and cabinets and computers. I notice that if SCO changes its offices, or any property location, it has to tell Ralph 30 days prior, in writing, and "furnishing Secured Party with such documents" if Ralph asks. Like he wouldn't. He can also inspect his collateral any old time he wants to, upon reasonable notice, and copy stuff and "discuss Debtor's affairs, finances, operations, and accounts with its respective officers, directors, employees, and independent certified public accountants". So he wants to kind of run the show still, keep his hand in, so to speak?

If there is a default, here's what happens: if there is loss or damage to any insured collateral, Ralph can get the insurance proceeds and apply it "to the payment of any of the Secured Obligations" or can use it to fix the damaged collateral. If there's no default, the insurance goes to SCO. And how do you like this paragraph?

b. General. Upon the occurence and during the continuance of an Event of Default and at any time thereafter, Secured Party may declare the Secured Obligations immediately due and payable...
So, he gets the entire company's assets and all the IP for a song, conceivably. Nice work if you can get it. In fact, it goes on to say he can enter the premises and just take stuff without notice, sell it off, use it, whatever. Why, though, would Cahn agree to a deal like this? If SCO loses at trial, there will almost certainly be a default, and then whiz bang, Ralph gets it all for very little, in a perfect playout of this deal in Ralph's favor. If you notice on page 8, if there is a Continuing Default, the "Secured Party" has the right "to operate, manage and control the Collateral and to carry on Debtor's business and to exercise all rights and powers of Debtor in respect of the Collateral as Secured Party sees fit..." And on the next page, without notice to SCO, he can "transfer to or register in its name or the name of its nominee any stock certificates or any other evidence of the Securities Collateral"... and then use the rights to vote, call shareholders' meetings, and to "remove or elect directors/managing partners/managers, as applicable" or sell them off privately, or to himself. And the "Secured Party" is "hereby appointed Debtor's attorney-in-fact, with full powers of substitution, at Secured Party's option and Debtor's expense, to do all acts and things which Secured Party may reasonably deem necessary..." OMG.

May I ask an "Emperor's New Clothes" question? How does SCO plan to pay off a loan if it loses later this month in SCO v. Novell? Wouldn't it be prudent to wait and see what happens, instead of giving away the farm if there's no brass ring? Which reminds me, if Ralph agrees, SCO can still sell off the Collateral, in which case all liens are released. So he gets control of who SCO can sell to with encumbrances too? Is this just another strategy to make sure Novell gets absolutely nothing? I do note that the Trustee has the foresight to contract that he has no personal liability.

Finally, here's what Martindale has to say about Yarro's law firm, Holland & Hart. Interestingly, they do graphics for lawyers to use at trial, and if you recall, Yarro began as a graphics artist. Martindale says they are the "largest law firm based in the Mountain West".


  


Changes and Additional Documents to the Yarro Deal Filed | 157 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
Pipe Fairy names
Authored by: Anonymous on Thursday, March 04 2010 @ 01:49 PM EST
The Exhibit E ( Page 9) of the last BK filing -- Docket 1077 reveals the names of the Yarro Loan Partners.

Ralph Yarro ---$400,000
Jan Loeb ---$400,000
Rex Lewis--- $600,000
Hank Beinstein--- $350,000
Dan Campbell ---$100,000
Darcy Mott--- $10,000

Jan Loeb = Pipe Fairy from 2006 (AmTrust), wrote letter to court in May 2008 in support of Norris bid. Has shares in a UTMA account for a minor.
Rex Lewis = Utah Man now in his very late 80's, Retired from Utah law firm, BYU lawschool 1944, is this Yarro's next mark
Hank Beinstein = Gagnon Securities, Pipe Fairy, appeared on the very last Conference Call asking softball questions
Dan Campbell = board member, EsNet, NuSkin, Duff Thompson's buddy
Darcy Mott = assistant to Yarro in Canopy, also minor participant in the 2006 Pipe Fairy deal (50,000)

[ Reply to This | # ]

Changes and Additional Documents to the Yarro Deal Filed
Authored by: bstone on Thursday, March 04 2010 @ 01:57 PM EST
Looks like Exhibit F the incorporation info for newSNCP has been scanned to make
parts of it unreadable.

[ Reply to This | # ]

Corrections here
Authored by: SpaceLifeForm on Thursday, March 04 2010 @ 02:03 PM EST
If any.

---

You are being MICROattacked, from various angles, in a SOFT manner.

[ Reply to This | # ]

Comes notes here
Authored by: SpaceLifeForm on Thursday, March 04 2010 @ 02:04 PM EST


---

You are being MICROattacked, from various angles, in a SOFT manner.

[ Reply to This | # ]

OT here
Authored by: SpaceLifeForm on Thursday, March 04 2010 @ 02:05 PM EST
Please make any links clickable.

---

You are being MICROattacked, from various angles, in a SOFT manner.

[ Reply to This | # ]

News Picks commentary here
Authored by: SpaceLifeForm on Thursday, March 04 2010 @ 02:06 PM EST
Please note in the title which article
you are referencing.


---

You are being MICROattacked, from various angles, in a SOFT manner.

[ Reply to This | # ]

Another Perry Mason moment
Authored by: Anonymous on Thursday, March 04 2010 @ 02:37 PM EST
This is just what we can see now. It doesn't include what they will spring on
the court tomorrow.

And isn't today Novell's deadline for its Supreme Court appeal?

[ Reply to This | # ]

Delaware, Utah, ... ?
Authored by: Silurian on Thursday, March 04 2010 @ 03:05 PM EST
From the Collateral Agent Agreement

THIS COLLATERAL AGENT AGREEMENT (the “Agreement”) is made between Seung Ni Capital Partners, L.L.C., a Delaware limited liability company (“Collateral Agent”), and the lenders listed [...]

So registration, or otherwise, of the New SNCP in Delaware remains pertinent?

[ Reply to This | # ]

Changes and Additional Documents to the Yarro Deal Filed
Authored by: PolR on Thursday, March 04 2010 @ 03:11 PM EST
Wake me up if I am having a nightmare.

This means Yarro will get to continue the litigation all his content. All
liabilities from counterclaims are dead with the bankrupt SCO. But Yarro still
enjoys the upside because he is a new entity that has bought the assets but not
the business. And the only thing that stands to stop this scenario is the mallet
of judge Gross.

IANAL. If I am wrong please tell me.

[ Reply to This | # ]

Changes and Additional Documents to the Yarro Deal Filed
Authored by: Anonymous on Thursday, March 04 2010 @ 03:20 PM EST
I question the accuracy of
"It's a Utah LLC. Or at least the page we get to see has a stamp
"Received - Mar 01 2010 - Utah Tax Commission [address]."

Exhibit C claims it's a Delaware LLC. It's not clear to me if the difference is
in some way signficant, other than that Delaware seems more business-friendly.
I'm assuming they didn't incorporate in both states and play some sort of shell
game based on that.

[ Reply to This | # ]

Changes and Additional Documents to the Yarro Deal Filed
Authored by: Anonymous on Thursday, March 04 2010 @ 03:40 PM EST
I posted this before and now I am convinced I am right.

What if this is all a cover for getting servers out of SCO's possession to hide
incriminating evidence in case they lose the trial? Have any of those servers
been used as mail servers? Even if SCO reassured everyone that those are not
mail servers and do not contain any relevant information about SCO's other
operations, what would prevent the handover of other servers that may have such
information (such as mail servers) along with the mobility servers? Then later
after they are in Darl's hands they can say the mail servers were accidentally
handed over to him in the transfer. I smell a cover up. 35K is a drop in the
bucket. This is not about buying the Mobility Business or Letting money into
SCO's bank accounts. This is about hiding evidence.

[ Reply to This | # ]

Isn't this the say deal we saw before Chapter 11/trustee
Authored by: Anonymous on Thursday, March 04 2010 @ 03:51 PM EST

Really, doesn't the SCO team ever come up with a new scam routine? I'll bet SCO's law firms wish they'd never got in bed with this crowd. The bed bugs just bite and suck, bite and suck!

    Long established company, who's incorporation papers are still wet from the printer. Vaguely familiar...

    Millions for the properties, but only via a line of credit and when we decided to dole it out. Naturally ...

    Lender with no assets, just promises of cash. Heard that one before.

    Last minute deal, signed on the stairs of the court house. That sounds familiar.

    Money to buy out the IP and lawsuit. This time in a slightly more clever way. A win in Utah, they get a huge cash settlement and the IP. Loose they get the IP, if any survives, but first in line when SCO goes into Chapter 7. Familiar again .... Oh, same deal, even the name's haven't been change! These guys are sooooo original!

    No liabilities to SCO or creditors for failure to uphold their side of the deal. Wow! I've heard that one too!

    And the cake! a $50,000 signing bonus for the lender. Wish I'd thought of that!

That the Trustee is so foolish to waste time on it must be some kind of ploy he must do. Some sort of diligence. But then, like Yarro and crowd, he get's paid first too. I might think better of the trustee, if the slow poke would finish all those back MOR, file them finished, not 'provisionally'. Then we'd know how desperate SCO is for cash and if this fleecing is a good idea.

It's what the bankruptcy judge does next that's important. He didn't seem inclined when it was a buyout of the 'IP' and lawsuit to allow the company to be raped before he shoved SCO into Chapter 11/Trustee (could have save himself a lot of work if he'd just gone Chapter 7). Perhaps he wont be so easy too fool this time. After all, his job is to protect the creditors, not the 'equity'. Who know's with so little cash, no MORs and the trustee's desire to empty the company into Yarro's pocket, the Judge might just flip SCO over wall into Chapter 7.

But, I'm not holding my breath. This whole process seem bereft of any logic or reason. It's like each judge must relearn on each case. No experience can go forward. If that's the case, way waste good money on 'experienced' lawyers to stock bankruptcy courts benches. 'Just past the bar' licensed lawyers would cost less and be just as effective, i.e. learning on the job too.

[ Reply to This | # ]

Time
Authored by: billyskank on Thursday, March 04 2010 @ 03:55 PM EST
"I'm starting to get the impression that they don't want us to have time to
actually read and think about this super-fast proposed deal."

Really? That would be _so_ unlike them.

---
It's not the software that's free; it's you.

[ Reply to This | # ]

  • Time - Authored by: red floyd on Friday, March 05 2010 @ 05:49 PM EST
Is there any way this could possibly benefit the creditors / the bankruptcy estate? Otherwise...
Authored by: OmniGeek on Thursday, March 04 2010 @ 04:03 PM EST
This looks to me like a cover for obstruction of justice (spiriting away the
evidence of fraudulent litigation), as it gives away too much for too little to
benefit the estate in any material way (within the law). As such, I would expect
the US Trustee and Novell to compete in shouting themselves hoarse at the
bankruptcy judge, and filing for all kinds of restraining orders if the BK judge
goes ahead and approves this nonsense.

---
My strength is as the strength of ten men, for I am wired to the eyeballs on
espresso.

[ Reply to This | # ]

Changes and Additional Documents to the Yarro Deal Filed
Authored by: Anonymous on Thursday, March 04 2010 @ 04:34 PM EST
Are they really allowed to change details before the hearing after the
objections are in and the window for objections is closed? No opportunity to
object to the changes. That stinks.

Tufty

[ Reply to This | # ]

The difference between this deal and chapter 7?
Authored by: kh on Thursday, March 04 2010 @ 04:42 PM EST
With this deal they can keep litigating right now. Otherwise why not go
straight to chapter 7.

[ Reply to This | # ]

Ive worked with Holland and Hart Before
Authored by: Anonymous on Thursday, March 04 2010 @ 05:19 PM EST
By and large the folks I worked with were pretty good. We
were working on an IP theft / industrial espionage case.
The lawyers provided fairly good backstop on the legal
issues involved with the incident management and evidentiary
analysis.

The one complaint I would have about my team with them is
that the company I was working with was uh... what I would
say is an aggressive visionary. She had a great product and
a great idea but it was not realized yet and some of her
intended actions (such as press releases) did not necessarily take that into
account.

She was prone to .... talking bigger than her hat, I guess?

The attorney we were working with was sometimes, I thought,
too professional or restrained to help rein in the direction
she wanted to go with the case.

Overall they were pretty responsive and in my opinion, a lot
better (read: competent on IP issues and digital evidence)
than some of the internal counsel I have worked with in my
consulting work.

---
Clocks
"Ita erat quando hic adveni."

[ Reply to This | # ]

  • Typo fix - Authored by: Anonymous on Thursday, March 04 2010 @ 05:21 PM EST
Would an Appeal Weigh on the BK Judge's Mind?
Authored by: Anonymous on Thursday, March 04 2010 @ 05:36 PM EST
If Novell were to be so melodramatic as to walk into court,
say thier piece, and then drop oh by the way judge (holds up
stack of paper) in the alternative if this deal is to be
allowed, we ask that you immediately stay execution of that
decision until the appeal process can complete.

Would Judge Gross care that one of the folks involved made
immediately and abundantly clear that their feelings on the
impropriety of approving this would result in an immediate
appeal?

---
Clocks
"Ita erat quando hic adveni."

[ Reply to This | # ]

Counter strategy
Authored by: Anonymous on Thursday, March 04 2010 @ 06:13 PM EST
>"I'm starting to get the impression that they don't want us to have
>time to actually read and think about this super-fast proposed deal."

Lawyers' talk. IMO PJ has had that impression for some time.

But the interesting question is: "Why can't Novell come to the
bankruptcy court and say that it needs some time to study the
details of a $2M deal?" What legal argument can the judge use for not
postponing the discussion?

[ Reply to This | # ]

Changes and Additional Documents to the Yarro Deal Filed
Authored by: Gringo on Thursday, March 04 2010 @ 06:45 PM EST

This whole loan shark proposal is an underhanded sale of the company to insiders. Share holders and all other parties of interest need much more information and time to absorb it. SCO needs to stop these last minute changes a day before the hearing. They pull that every time. Novell is in the middle of preparing for trial, and now they need to drop everything to focus on this, at SCO's whim? For that reason alone, the hearing on this matter must now be put off to give Novell and other parties of interest time to digest these changes. Beyond that, I remember previously when there was a proposal to sell the company, there were filings to SEC, and all the share holders had to vote on it. Why is that not the case with this current proposal? This really stinks.

[ Reply to This | # ]

Can SCOG go into default before, or during, the trial?
Authored by: Anonymous on Thursday, March 04 2010 @ 07:07 PM EST
If that happens, what happens to the property Novell claims?

[ Reply to This | # ]

Selling the litigation rights and IP
Authored by: elronxenu on Thursday, March 04 2010 @ 07:09 PM EST

If this deal sells the litigation rights and IP (whatever it may be), I expect that makes SNCP a successor in interest to SCO.

To me that means if SCO loses the lawsuit, any penalties are now the responsibility of SNCP. IBM can go after SNCP for counterclaims. Although SNCP may have only $1 capital other than the monies "loaned" to SCO, they still would have the SCO Assets.

[ Reply to This | # ]

Changes and Additional Documents to the Yarro Deal Filed
Authored by: wvhillbilly on Thursday, March 04 2010 @ 11:10 PM EST
If Judge Gross lets this go through I say either he has rocks for brains, or
somebody is pulling strings behind the scenes. I can't see any judge in his
right mind letting something this wacky go through, and in such a rush as this
one is trying for. I suspect this is an attempt to get rid of incriminating
evidence, more than anything else.

As for SCO (and especially if this deal does go through) I think I will start
calling them the Legion of Doom, because like the Legion of Doom in the
Superfriends TV cartoons, it seems somehow they always make a clean getaway to
some alternate universe at the end of each and every episode.

---
Trusted computing:
It's not about, "Can you trust your computer?"
It's all about, "Can your computer trust you?"

[ Reply to This | # ]

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