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Report from the SCO front
It has been a busy week in the SCO world. Remember last October, when
BayStar and the Royal Bank of Canada invested $50 million into SCO?
That was when SCO's stock hit its high point; it has been all downhill from
there. On April 15, BayStar sent SCO
a letter saying that it wants its money ($20 million) back.
BayStar has concluded that SCO is in breach of the investment agreement,
and thus must return the money - plus interest. BayStar has not said, in
any public way, how it believes that SCO has breached the agreement;
speculation centers, among other things, on SCO's creative representations
of its intellectual property rights and failure to disclose Novell's
letters contesting the ownership of the Unix copyrights.
RBC has not yet tried to
call back its share, but may well do so in the next few days.
Where this will go is hard to predict. Extracting money by force in this way is not an easy thing to do; BayStar must face the threat that SCO will choose to spend the money on more lawyers fighting the recall rather than hand it over. BayStar's lawyers do have some leverage, however; among other things, the amended agreement reads (Section XV(g)):
[SCO] acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the holders of Series A-1
Preferred Stock and that the remedy at law for any such breach may
be inadequate. The Corporation therefore agrees, in the event of
any such breach or threatened breach, that the holders of Series
A-1 Preferred Stock shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach,
without the necessity of showing economic loss and without any bond
or other security being required.
That language would suggest that BayStar can go to a judge and have a good chance at getting an injunction forcing the money to be escrowed until the issue is resolved. Regular stockholders will lose out (not that they had great prospects anyway) but BayStar and RBC will do better. This recall has serious implications for SCO. If both investors pull their money, SCO's remaining bank account will be tiny. The chances of finding other investors are also tiny. SCO's legal fees are not going to get any smaller anytime soon; the prospect of a legal battle with BayStar and RBC can only make that problem worse. Unless some sort of more overt aid comes from companies like Microsoft or Sun, SCO could find itself looking at bankruptcy in the near future. SCO's April 21 announcement that its chief financial officer, Robert Bench, has been replaced may just be coincidental. Mr. Bench will become the "acting vice president of corporate development" until he retires later this year. His new responsibilities will be to "focus on external growth opportunities and industry partnerships" - scrambling for money, in other words. The new CFO will be Bert Young, whose history with companies like Waste Management, Inc. would seem to suit him well to SCO's way of business. Red Hat, meanwhile, has filed a motion for reconsideration in its suit against SCO. The company claims:
Red Hat will suffer manifest injustice from a stay, since SCO
apparently intends to continue to harass and threaten suit against
Red Hat's customers in other jurisdictions, while Red Hat's
declaratory judgment suit here, which was intended to prevent this
precise harm to it and its customers, is forced to languish.
Getting the judge to rethink her ruling (which put the case on hold until the IBM case has run its course) looks like a difficult prospect, but Red Hat had to try. In the IBM case, the latest events have to do with IBM's subpoena for information from S2 Strategic Consulting. S2, remember, is the company that helped to bring Microsoft, BayStar, and SCO together, so it's not surprising that IBM is interested in what was going on there. S2 is objecting to the subpoena, stating that it is not part of this battle and that much of the requested information is confidential. There is some interesting information to be found in this document, however, including:
Without waiver of those objections, S2 responds that it has in its
possession, custody and control documents that entail
communications between it and Microsoft, that relate to parties in
this litigation...
S2 would appearing to be pushing for a protective order to keep these documents from being publicly disclosed. Chances are it will succeed. So we may never see just what was going on between these companies, but IBM can be expected to have some fun with that information. Finally, this whole mess has drawn the attention of another species of shark: lawyers who do shareholder lawsuits. Among those trolling the message boards for potential plaintiffs are Ademi & O'Reilly and, inevitably, Milberg Weiss Bershad Hynes & Lerach. If you were silly enough to buy stock in SCO, believe that SCO should be held legally responsible for the predictable loss of your money, feel like enriching this particular class of lawyer, and believe that there might actually be something left for a settlement with shareholders when the dust settles, these folks would like to talk with you. (Log in to post comments)
BayStar on the breech Posted Apr 22, 2004 5:08 UTC (Thu) by Ross (subscriber, #4065) [Link] There is a NY Times article on the subject which contains some quotes from BayStar. Unfortunately they require registration. Here's a link to the Groklaw post about it:
And more: They want SCO to drop out of the Unix business Posted Apr 22, 2004 5:14 UTC (Thu) by Ross (subscriber, #4065) [Link] More on CNET:http://news.com.com/2100-1014_3-5197398.html They apparently want SCO to drop their UnixWare and OpenServer product lines to concentrate on their "real" business: litigation. They also mention replacing top executives.
And more: They want SCO to drop out of the Unix business Posted Apr 22, 2004 8:28 UTC (Thu) by xorbe (guest, #3165) [Link] "But to make that case stick, SCO needs to change its management, focus on its legal case and communicate in a more "sensible, businesslike fashion," BayStar spokesman Bob McGrath said."Obviously BayStar doesn't quite understand yet that there *is nothing* to communicate in a "sensible, businesslike fashion"! Which is the whole reason for SCO's antics.
Report from the SCO front Posted Apr 22, 2004 15:06 UTC (Thu) by jae (guest, #2369) [Link] this whole mess has drawn the attention of another species of sharkI only wonder what took them so long. ;-)
another species of shark Posted Apr 22, 2004 19:40 UTC (Thu) by utoddl (subscriber, #1232) [Link] I don't know anything about the two law firms mentioned in the final paragraph, but the cheap shot at "lawyers who do shareholder lawsuits" undermines the fact that without the possibility of suits from shareholders, investors are easy pickin's for unscrupulous executives. Sure, you can claim that any SCO investors should have seen it coming, but that's not always the case. Anything that helps keep honest the people who are in positions to do harm -- financial or otherwise -- to others can't be all bad, even if they are often the butt of cheap shot jokes.
another species of shark Posted Apr 23, 2004 15:27 UTC (Fri) by giraffedata (subscriber, #1954) [Link] without the possibility of suits from shareholdersAnd more to the point, without lawyers willing to risk their time and money to put together a lawsuit, if we're talking about thousands of small shareholders who couldn't afford to do it on their own. There are undoubtedly lawyers who get rich by exploiting law that unfairly places the risk of a business failure on the executives of the business, but we can't paint all lawyers who do shareholder lawsuits with the same brush. We need them.
Report from the SCO front Posted Apr 23, 2004 15:35 UTC (Fri) by giraffedata (subscriber, #1954) [Link] [SCO] acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the holders of Series A-1 Preferred Stock and that the remedy at law for any such breach may be inadequate. The Corporation therefore agrees, in the event of any such breach or threatened breach, that the holders of Series A-1 Preferred Stock shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.That language would suggest that BayStar can go to a judge and have a good chance at getting an injunction forcing the money to be escrowed until the issue is resolved. Gee, I read that exactly the opposite. In contract law, when a party doesn't live up to his promise, the other party's remedy is normally limited to the cash value of the promise. In this clause, the parties attempt to waive that law and say that a judge can actually force SCO to do what it promised. But in this case, Baystar is clearly not invoking that clause, because Baystar is asking for money. The possibility of a judge ordering the money escrowed is an independent matter.
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