Blow for SCO as BayStar demands its money back
Blow for SCO as BayStar demands its money back
The SCO Group has been hit with what could potentially be a fatal blow to its hopes of proceeding with its expensive and controversial legal campaign over alleged infringements of its Unix copyrights within Linux, after VC firm BayStar Capital wrote a letter to SCO demanding the return of its US$20 million (AUD$26.8 million) investment in the company on the grounds of alleged breaches of the investment agreement by SCO.
The US$20 million investment formed part of a US$50 million injection of cash pumped into SCO (with the Royal Bank of Canada providing the other $30 million), which SCO described as its war chest to be used in legal fights against Linux advocates such as IBM, Novell and Red Hat, as well as large-scale enterprise Linux users.
BayStar will likely find it difficult to get its money back, not only because SCO dispute the agreement violation claims, but also because SCO only earned $11 million in the last quarter.
It is too early at this stage to determine what effect BayStar's actions will have on the Royal Bank of Canada, if any, but should it decide to pursue SCO for the return of its investment, SCO's ability to continue its legal actions would be thrown into serious jeopardy.
A spokesman for the bank said it has not requested the return of its investment but added that the bank was monitoring the situation with a view to making a decision on its course of action shortly.
Ironically, SCO will likely be using some of the money invested by BayStar to contest the claim that it is in breach of the companies' agreement, so that it can retain BayStar's cash.
"BayStar's letter did not provide specific information regarding SCO's alleged breaches of the Exchange Agreement. SCO is attempting to obtain specific information from BayStar and is evaluating its obligations and options with respect to the redemption notice," said SCO in a statement.
The statement went on: "However, SCO does not believe it has breached any of the referenced provisions of the Exchange Agreement. As a result, SCO does not believe it is obligated to redeem BayStar's shares of Series A-1 Convertible Preferred Stock."
Closer to home, SCO's ANZ regional director, Kieran O'Shaugnessy said he was only in a position to reiterate basically what had already been said in SCO's statement. "At this point, our only comment is that we do not believe we have breached the exchange agreement and BayStar have not provided any details as to the alleged breach, so we are at this point trying to get clarification from them as to what they feel that breach is."
As for what impact having to return BayStar's investment would have on SCO's ability to proceed with its various legal pursuits, O'Shaugnessy commented: "To be honest, I'm unsure. I am waiting to see how it plays out and do not have any view at this point as to the implications as I am unsure what the implications are of this request. I am a long way from where all this is going on, and it's not part of my role to know."
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