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
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
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
& 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.
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