BayStar Cashes Out of SCO Stock

Kurt Wall writes "According to Yahoo! Finance, BayStar, the company that funded SCO to the tune of $50,000,000, and then later changed the terms of the deal, has requested that SCO redeem the 20,000 shares of preferred stock issued in return for the funding. The reason? BayStar states that 'SCO has allegedly breached Sections 2(b)(v), 2(b)(viii) and 3(g) of the Exchange Agreement.' Naturally, SCO thinks it has done nothing of the sort."

Comments

PREFERRED Stock

[Serk]

Before anyone gets the wrong idea, plase note, these are PREFERRED shares, not the normal one's you see quoted prices on...

These shares value is set at $1000 each... so this is quite a big chunk out of SCO's warchest...

Happy day!

Watch it fall!

[SeanTobin]

Watch it fall in near-real time! Go go go! Ahhh... this makes my day :) At time of posting, last trade was 8.68. Also, check the trade volumes after the press release (at 1:45pm). People are paying attention.

Re:SCO ON SALE!

[GFW]

How much interest are you paying on the short position? SCOX is/was a "hard to borrow" stock. You should take the money and run at the point where diminishing further gains are outweighed by continuing interest.

Official loser

[tomhudson]

SCO once again makes the list of losers in trading today! At this rate, maybe it'll be number one at something by days' end.

Re:The future for SCO: Street.com article

[David Hume]

According to the Street.com article "BayStar Says SCO Breached Note":

"I look at this as bad news for SCO," said Dion Cornett, an analyst for Decatur Jones Equity Partners - Soleil. "I don't think BayStar is going to be very successful in getting their money back. It's very difficult for a private equity investor to force a redemption on a company that doesn't want to redeem. But it makes it very difficult for SCO to raise future financing ."

SCO will certainly need lots of money if it wants to fight the likes of massive IBM, he noted. "I think they'll need all the $65 million they have in the bank to fund this fight. This is going to be a multi-year, very protracted lawsuit, if it's not dismissed."

(emphasis added) Thus, even if SCO eventually prevails over Baystar this may still sink SCO. SCO won't be able to obtain enough funding to battle IBM, et al.

Re:Why they'd be doing this now?

[Otter]

A bit of clarification: these "breaches" sound like violations of a debt covenant. Typically, borrowers are required to maintain certain standards of total assets, current assets, debt coverage, things like that, and violating them voids the terms of the debt. Breaches aren't typically the sort of sleaziness, fraud or dishonesty most people here seem to be assuming took place.

Disclaimers:

1) I am not an investment banker.

2) I have no idea what the precise lending terms were; on the other hand, I'm confident that the people behind "talk on the boards" also have no idea.

The 45-day deadline is also coming up...

[DanTheLewis]

... where SCO has been ordered to:

1. To fully comply within 45 days of the entry of this order [NB: March 3 + 45 = April 17] with the court's previous order dated December 12, 2003. This is to include those items that SCO had difficulty in obtaining prior to the Court's previously ordered deadline of January 12, 2004.
2. As previously ordered, SCO is to provide and identify all specific lines of code that IBM is alleged to have contributed to Linux from either AIX or Dynix. This is to include all lines of code that SCO can identify at this time.
3. SCO is to provide and identify all specific lines of code from Unix System V from which IBM's contributions from AIX and Dynix are alleged to be derived.
4. SCO is to provide and identify with specificity all lines of code in Linux that it claims rights to.
5. SCO is to provide and identify with specificity the lines of code that SCO distributed to other parties. This is to include where applicable the conditions of release, to whom the code was released, the date and under what circumstances such code was released.

6. It's a tall order. I foresee a lot of coffee drinking and nail-biting this weekend, whether or not the smoking suitcase is full of evidence.

Re:Why they'd be doing this now?

[Anonymous Coward]

It looks to me like Baystar is claiming

1. SCO lied about their status
2. SCO didn't disclose everything about their status
3. There was disparity between press releases and the truth

Sounds like what we knew all along...

(The sections that baystar claim have been breached are:-

2(b)(v)
(v) Original Purchase Agreement. Excluding the representations and warranties set forth in Sections 3(a), (b), (d), (e), (i), (y) and (z) of the Original Purchase Agreement, the representations and warranties of the Company set forth in Section 3 of the Original Purchase Agreement (the "Original Representations and Warranties") are each true and correct as of the Closing Date, in each case as if made on the Closing Date.

2(b)(viii)
(viii) Disclosure. All information relating to or concerning the Company and/or any of its Subsidiaries set forth in this Agreement or provided to the Purchasers in connection with the transactions contemplated hereby is true and correct in all material respects, and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or exists with respect to the Company or its Subsidiaries or their respective businesses, properties, prospects, operations and financial conditions, which has not been publicly disclosed but, under applicable law, rule or regulation, would now be required to be disclosed by the Company in the Company's Annual Report on Form 10-K.

3(g)
(g) Press Release; Publicity. The Company shall issue a press release (the "Press Release") describing in reasonable detail the transactions contemplated hereby as soon as practicable on or after the date hereof, but in no event later than the commencement of the first trading day following the date hereof. The Press Release shall be subject to prior review and comment from BayStar Capital II, LP ("BayStar"). Within two days after the Closing Date, the Company shall file a Form 8-K with the SEC concerning this Agreement and the transactions contemplated hereby, which Form 8-K shall attach this Agreement as an exhibit to such Form 8-K (the "8-K Filing"). From and after the Press Release, the Company hereby acknowledges that no Purchaser shall be in possession of any material nonpublic information received from the Company, any of its subsidiaries or any of its respective officers, directors, employees or agents, that is not disclosed in the Press Release. The Company shall not, and shall cause each of its subsidiaries and its and each of their respective officers, directors, employees and agents not to, provide any Purchaser with any material nonpublic information regarding the Company or any of its subsidiaries from and after the Press Release without the express written consent of such Purchaser; provided, however, that a Purchaser that exercises its rights under Section 4(n) of the Original Purchase Agreement shall be deemed to have given such express written consent. No Purchaser shall have any liability to the Company, its subsidiaries or any of its or their respective officers, directors, employees, shareholders or agents for any such disclosure. Subject to the foregoing, neither the Company nor any Purchaser shall issue any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of any Purchaser, to make any press