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| The SCO Group Exchanges Series A Convertible Preferred Stock |
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Friday, February 06 2004 @ 01:15 PM EST
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Here's SCO's latest press release.
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The SCO Group Exchanges Series A Convertible Preferred Stock
Friday February 6, 9:15 am ET
LINDON, Utah, Feb. 6 /PRNewswire-FirstCall/ -- The SCO Group, Inc. ("SCO") (Nasdaq: SCOX- News), the owner of the UNIX operating system and a leading provider of UNIX-based solutions, today announced it has exchanged the preferred stock issued in connection with its $50 million private financing completed in October 2003 for a new series of preferred stock. Pursuant to an exchange agreement, SCO issued one new share of Series A-1 Convertible Preferred Stock with revised rights and preferences in exchange for each share of Series A Convertible Preferred Stock previously issued.
This exchange will eliminate the conversion feature that was initially recorded as a current liability on SCO's balance sheet. Further, SCO will no longer be required to record a charge in its quarterly statements of operations for the change in the fair value of the derivative related to the conversion feature. Any difference between the fair value of the new Series A-1 Convertible Preferred Stock and the carrying value of the Series A Convertible Preferred Stock and related conversion feature, will be recorded as a dividend in SCO's income statement for its second quarter, which will end on April 30, 2004.
"The $50 million equity financing SCO closed in October 2003 was an important step to secure the capital necessary to fund all aspects of our business strategies," said Bob Bench, chief financial officer of The SCO Group. "As a result of this exchange, SCO will eliminate the current accounting treatment associated with the Series A Convertible Preferred Stock and, therefore, remove the related current liability on our balance sheet as well as eliminate the need to mark the conversion feature to market each quarter and record a charge for the change in its fair value."
The Series A-1 Convertible Preferred Stock generally has the same rights and preferences as the Series A Convertible Preferred Stock, except that the Series A-1 Convertible Preferred is convertible into SCO's common stock at a variable price based upon the market price of SCO's common stock, subject to a floor price for conversion of $13.50 per share. There is no ceiling on the conversion price. The Series A-1 Convertible Preferred stockholders have certain limited voting rights and the right, but not the obligation, to nominate a candidate for election to SCO's Board of Directors at SCO's next annual meeting of stockholders. The holders of Series A-1 Convertible Preferred Stock have also agreed to some limits on their rights to require SCO to redeem their preferred stock, an increase to the amount of debt that SCO may incur without consent, as well as other contractual benefits, giving SCO expanded operational flexibility.
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| Authored by: Anonymous on Friday, February 06 2004 @ 01:21 PM EST |
Could this be so that if they get slapped down in court today, they still have
something positive to say?[ Reply to This | # ]
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| Authored by: rc on Friday, February 06 2004 @ 01:22 PM EST |
Yes, I should have a bookmark to that yahoo sco board, but silly me, I don't.
Anyone have a link handy?
rc---
IANAL - surprise ;-)
[ Reply to This | # ]
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| Authored by: atul on Friday, February 06 2004 @ 01:22 PM EST |
Right near the top of the press release, they talk about how they don't have to
record the PIPE deal as a liability anymore, and they no longer have to do the
weird accounting tricks with the derivative portion of the PIPE deal. They
probably realized they were getting bad publicity over it, or something. It's
not clear to me whether SCO was able to just do it on their own initiative, or
whether this is a mutually-agreed thing between them and BayStar.
The timing is certainly interesting.[ Reply to This | # ]
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- This is the key.. - Authored by: Anonymous on Friday, February 06 2004 @ 01:30 PM EST
- This is the key.. - Authored by: Anonymous on Friday, February 06 2004 @ 02:32 PM EST
- The other key - Authored by: Anonymous on Friday, February 06 2004 @ 02:03 PM EST
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| Authored by: maroberts on Friday, February 06 2004 @ 01:22 PM EST |
The Yahoo board seems to have a similar noise level to Slashdot. Hopefully
better quality commenting can go here (including, maybe, a lack of "First
Post" claims!)[ Reply to This | # ]
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- Yahoo - Authored by: Anonymous on Friday, February 06 2004 @ 01:38 PM EST
- Yahoo - Authored by: midav on Friday, February 06 2004 @ 03:51 PM EST
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| Authored by: maroberts on Friday, February 06 2004 @ 01:24 PM EST |
What timezone (relative to GMT) is Utah? This article is filling time while
waiting for the important stuff![ Reply to This | # ]
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- Utah time? - Authored by: Anonymous on Friday, February 06 2004 @ 01:26 PM EST
- Utah time? - Authored by: markhb on Friday, February 06 2004 @ 01:28 PM EST
- Utah time? - Authored by: Anonymous on Friday, February 06 2004 @ 01:29 PM EST
- Utah time? - Authored by: Anonymous on Friday, February 06 2004 @ 01:30 PM EST
- LiveFromCourt - Authored by: _Arthur on Friday, February 06 2004 @ 01:31 PM EST
- Utah time - Authored by: Anonymous on Friday, February 06 2004 @ 01:31 PM EST
- 17 files! - Authored by: _Arthur on Friday, February 06 2004 @ 01:32 PM EST
- 17 files! - Authored by: Anonymous on Friday, February 06 2004 @ 01:39 PM EST
- Utah time? - Authored by: PM on Friday, February 06 2004 @ 01:34 PM EST
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| Authored by: gleef on Friday, February 06 2004 @ 01:31 PM EST |
So basically, this means that SCO no longer has to put in the weird accounting
effects of these stock shares, unless and until the share price drops below
$13.50. Then they have the same problem all over again.
[ Reply to This | # ]
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| Authored by: Nick_UK on Friday, February 06 2004 @ 01:33 PM EST |
I was about to post about that statement and what a load of gobblygook it is,
and what it says English - then I realised, I like, hack around with the Linux
kernel and stuff...
So I didn't :D
Nick[ Reply to This | # ]
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| Authored by: uw_dwarf on Friday, February 06 2004 @ 01:37 PM EST |
Yahoo's posting referred to www.sco.com--yes, the one that was supposed to be
taken out by MyDoom. And yes, it's still decommissioned.
This reminds me of Terry Pratchett's Discworld Clowns' Guild ...[ Reply to This | # ]
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| Authored by: Anonymous on Friday, February 06 2004 @ 01:38 PM EST |
| but I just had to post this one. ;-)
Seems M$ is resorting to
packaging sex toys with their
products to boost sales!
http://www.wired.com/news/games/0,2101,62176,00.html?tw=wn_tophead_5
Anybody for Tux in a bikini? [ Reply to This | # ]
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| Authored by: pooky on Friday, February 06 2004 @ 01:52 PM EST |
"with revised rights and preferences"
Okay, what does that mean exactly? RBC and Baystar renegotiated their deal with
SCOG? Is there an SEC filing that details the new agreement? I'd sure like to
see it.
-pooky
---
Veni, vidi, velcro.
"I came, I saw, I stuck around."
[ Reply to This | # ]
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| Authored by: atul on Friday, February 06 2004 @ 01:57 PM EST |
Apparently SCO now only claims 17 files, down from the previous 65, which was
down from a few hundred, which was down from "millions of lines of
code".
I really, *REALLY* want to know which 17 files these are, and what SCO is
claiming they own about them. Anybody know if this was covered in the hearing?
Is the protective order still in place?[ Reply to This | # ]
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| Authored by: Anonymous on Friday, February 06 2004 @ 02:03 PM EST |
"Series A-1 Convertible Preferred is convertible into SCO's common stock at
a variable price based upon the market price of SCO's common stock, subject to a
floor price for conversion of $13.50 per share."
Baystar/rbc was to get about 2.9mil shares for $50mil, or about $16.93 per
share. Now the $50mil stays the same, but the conversion price can drop as
$13.50/share, which means that baystar/rbc could get 3.7mil shares of scox.[ Reply to This | # ]
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| Authored by: Anonymous on Friday, February 06 2004 @ 02:12 PM EST |
Well, IBM is in no hurry, it seems. I guess we shouldn't be, either, if IBM
wants to hear from SCO's board.
[ Reply to This | # ]
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| Authored by: Anonymous on Friday, February 06 2004 @ 03:12 PM EST |
Has SCO converted into one of those death spiral dealies? I forget the
techinical financial term. Anyway it goes something like this (Note that to
bluntly do what Im suggesting would be illegal on Baystar et al. part):
Short a bunch of shares at current price ~13.75. If price goes up you lose on
the short but gain on the conversion. Break even (technically slight loss due
to costs of shorting, unless return on cash gained from short is higher than
those costs). Thus, you want the price to go down. Once it falls below 13.5,
you dont lose anymore on the conversion, but you gain on the short. Since your
conversion is now for more shares, you can short more. Price plummets, when it
gets low enough, cash out short position, convert shares, own nearly 100% of
company, sell whatever assets are left and other shareholders get virtually
nada.
Its a no-lose situation unless the price goes up sharply, in which case as long
as the number of shares you short is less than the number of conversion shares,
you are probably okay.
Not for the preferred shareholders to start cheering against SCO. So, anyone who
is familiar with these deals, did SCO just enter one of them?[ Reply to This | # ]
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- Link - Authored by: Anonymous on Friday, February 06 2004 @ 03:18 PM EST
- No you're wrong - Authored by: Anonymous on Friday, February 06 2004 @ 03:35 PM EST
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| Authored by: Anonymous on Friday, February 06 2004 @ 03:24 PM EST |
Both parties had to decide that this change was beneficial for it to happen.
First look at SCO. They get to take the value of the conversion feature off
their balance sheet. I'm not sure this is a plus for them, since it effectively
gave them a (non-cash) earnings bonus if their stock price declined. The press
release says that SCO also gained some limits on when the investors can force
redemptions, the ability to issue more debt, and "other contractual
benefits". It will be interesting to see what those benefits are,
exactly.
Now the more interesting part: look at the PIPE investors. They get an
additional 25% in downside protection, since the convert price can fall as low
as $13.50, giving them additional common shares. But more importantly, they
just lost all of their upside: if SCO's share price goes up, the convert is
never worth more than $50 million in shares at the current price!!
Why would the PIPE investors do this? When they made the original investment,
it seemed like a pretty sweet deal for SCO and not a great one for the
investors, since their downside was limited only by the dividends on the class A
shares, and the upside seemed (to us) to be a long shot. In the new deal, the
PIPE investors seem to have come around to our way of thinking: they have
discounted their upside entirely, and traded that away for $12.5 million in
downside protection!
I think it is interesting that SCO's share price declined to the vicinity of
$13.50 in the days leading up to this announcement. Perhaps it is a
coincidence, or perhaps the PIPE investors had begun to hedge their investment
by shorting SCO down to that level.
[ Reply to This | # ]
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| Authored by: SilverWave on Friday, February 06 2004 @ 07:05 PM EST |
Interesting point about the PIPE deal
by: SteadyClimber (35/M/Mountain View, CA)
Long-Term Sentiment: Strong Sell 02/06/04 06:22 pm
Msg: 91235 of 91254
This is something that I think has been overlooked in the discussion of the
change in SCO's convertible preferred stock today:
The PIPE holders have accepted a deal where the convert price floats with SCO's
market price, with a floor of $13.50.
This means that if the price declines below the old conversion price of $16.93,
the PIPE holder is protected, down to a share price of $13.50: they can still
convert for $50 million in stock.
BUT: the convert price also floats up! There is no ceiling to the convert price.
This means that if SCO's price goes up, the convert holder does not benefit:
they never get more than $50 million worth of shares plus their preferred
dividends.
So... the PIPE holders have effectively traded all of their upside (apart from
the dividends) in return for a bit of downside protection. The only way they
would do this, is if they think the downside protection (worth 25% of their $50
million investment) is worth more than the risk-adjusted upside potential for
SCO stock.
This is significant. The PIPE holders before were making a bet that SCO would
succeed: they had downside risk if the stock price declined, offset by their
dividends, but would win big if SCO prevailed. They could hedge by shorting SCO,
which would reduce both their upside and downside, leaving them with free money
in the dividends. With the new deal, they have no upside potential. And hedging
is no longer so attractive. If they short SCO stock and the price declines,
they're protected; but if the price rises, they lose big time, because the
convert would not give them enough shares to cover their short position!
I think this means that they are NOT shorting SCO to hedge; if they had done so,
then there would be no reason for accepting this deal, because it introduces a
new risk where there wasn't any before. It also means that there has been a
downward revision of their assessment of whether SCO is likely to prevail.
---
"Unless stopped I believe they will walk away from the rotten, decaying corpse
that is SCOG a lot richer" :-(
Stopped it is then.[ Reply to This | # ]
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| Authored by: mjscud on Friday, February 06 2004 @ 09:05 PM EST |
Is there any sort of requirement for SCO group to reports its (obvious, even
more or less admitted by its executives) loss of good will as a financial loss?
I mean, when using it to justify a buyout, companies happily count millions
toward aquiring good will. Is there any way they are supposed to account for
losing good will?
How about IBM? Do they get to mention in some filing or another that they've
accumulated tens of millions in good will among the Linux community by fighting
SCO?
---
Even a fool, when he keeps silent, is considered wise. Proverbs 17:28[ Reply to This | # ]
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- A possible answer - Authored by: Anonymous on Saturday, February 07 2004 @ 01:44 PM EST
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