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Why, BayStar? Why?
Tuesday, April 20 2004 @ 08:02 AM EDT

Decatur Jones' Dion Cornett says he does "not believe BayStar would request redemption if its hopes of a legal victory had not turned decidedly negative." Cornett is patting himself on the back for his longstanding "Underperform" rating on SCO, as he has every right to do. He stood alone against Brian Skiba's extraordinary $45 nonsense, and now it's only normal for him to point out who was right.

His Open Source Wall Street newsletter for April 19, 2004 has an interesting nugget of information. He indicates that BayStar's decision might be because of a number of items, including improper review of a press release. Significantly, SCO is not releasing the letter to the media, according to ComputerWeekly. If BayStar's decision is based on improper review of a press release, I think ComputerWeekly's headline probably captures the truth: "SCO Invester Seeks Way Out of Deal."

eWeeks' Steven J. Vaughan-Nichols has more:

"Dion Cornett, managing director at Decatur Jones Equity Partners LLC, an independent equity-research firm focused on small to midsized growth companies, said, 'I can't get inside BayStar's brain, but I think they're pulling out because they no longer believe SCO is a good investment.'

"Stacey Quandt, principal analyst at Quandt Analytics, said she agrees. 'The implication is that BayStar thinks SCO will not succeed with its case.'

"Cornett continued, 'I can't believe they're doing this just because of a press release [one of BayStar's purported claims against SCO]. I don't know what spooked them, but based on the timing, it might have been because IBM had just filed for summary judgment.'

"Quandt added, 'When you look at SCO's situation, maybe BayStar has decided to cut their losses.'"

Here's some more from Cornett's Open Source Wall Street, who believes RBC may be next, as does OSDN's Melanie Hollands. He says Sun is still not committed to open source, he has some figures from IBM, and he predicts MS's DRM strategy will fail as a tactic against open source:

***************************************************

Open Source Wall Street, April 19, 2004, Dion Cornett:

One-two punch to SCOX validates thesis

The SCO Group (SCOX: Underperform) shares were down 21% last week, as IBM Corporation (IBM: not rated) indicated its intent to ask for summary judgment and SCOX’s lead pipe investor, BayStar Capital, asked for its money back. We highlighted both developments in notes last week. In summary, we do not believe BayStar would request redemption if its hopes of a legal victory had not turned decidedly negative (purported reasons included items as minor as improper review of a press release). In general, it is difficult for private equity investors to force redemption. However the threat is sometimes used to negotiate better terms, or possibly the claim of breach may sit better with a fund’s limited partners than does poor investment judgment. If BayStar intends to get its money back, then a lengthy court battle is likely. Worse case for SCOX would be if BayStar obtained an injunction to freeze funds in the interim. In this event, we would expect RBC (another investor) to follow suit, thereby denying SCOX of funds needed for Linux litigation. However, we believe an injunction will be difficult to obtain and thus would not be surprised if SCOX rebounds a bit from current levels below $8 before eventually moving lower. . . .

IBM credits Linux for growth in various areas

IBM reported results last week and specifically credited Linux as a success factor in a number of areas ranging from its Z-Series line of mainframe computers to its X-series servers, whose revenues were up 34% and 28% year-over-year respectively. We expect some of IBM’s March-qtr success to be reflected in April-qtr and May-qtr results for NOVL and RHAT. NOVL’s SuSE Linux is generally shipped on IBM’s high-end machines, RHAT on the low-end. Separately, IBM reported that revenue from blade computing doubled year-over-year, good news for CTXS, whom we believe will benefit from the improved density and price-performance blade servers offer.

SUNW still not committed to Open Source

Sun Microsystems (SUNW: not rated) reported results for 3Q04 as well last week. Based on management comments, we believe SUNW remains overly focused on SPARC and Solaris and may not move as quickly towards software and Open Source in particular, as the appointment of Jonathan Schwartz to President and COO may have suggested. We believe SUNW will continue in its efforts to bring Solaris up to par with Linux on x86, a challenging task given the broad support Linux receives. Nonetheless, SUNW continues to drive the robustness and viability of Open Source through its contributions to projects such as OpenOffice, Mozilla, GNOME, JXTA, Jini, and Apache (Tomcat).

MSFT settlement with InterTrust another potential hurdle for Linux

Microsoft Corporation (MSFT: not rated) settled Digital Rights Management (DRM) patent claims this past week with InterTrust for $440 million. Some observers have speculated that the agreement provides MSFT yet another tool in its battle against Open Source Software. However, we believe any attempt to use DRM to lock-in customers to protected solutions would backfire. More specifically, if Windows technology were modified so that only properly-licensed content would run, we believe additional users would be pushed to open software, not wanting to have their hardware and operating system police their actions.

Miscellaneous data points

In final tidbits, several news stories have criticized last week’s pro-Windows Yankee Group study for its uncovered connection to a prominent MSFT partner. Samsung is upping its commit to Linux in numerous new devices and is leaning towards the operating system as its preferred choice. Wind River (WIND: not rated) signed a strategic agreement with National Instruments (NATI: not rated) thus helping to drive Linux into the industrial automation market. Note that MSFT has gained considerable market share in industrial automation over that last several years (a segment we used to cover in detail), and that we the WIND announcement as yet further evidence of Linux encroaching into additional MSFT markets.

More doom predicted everywhere. Steven J. Vaughan-Nichols noted the irony of SCO being accused but not being told the exact offense, and he got this funny reaction from Linus: "Yeah, my heart really goes out to them." There is also this from ICD analyst Dan Kusnetzky, also on eWeek:

"Dan Kusnetzky, IDC vice president of system software, said he thinks SCO 'will find itself embroiled in another legal contest.'

"'As an industry analyst, SCO needs customers, particularly big ones, and [it has sent] 1,500 letters threatening legal action, which is not a way to engender friendship,' Kusnetzky said.

"'SCO also need hardware backers, and they've sued IBM, and HP has set up legal protection for its Linux customers against SCO legal actions. They've upset many customers and many of their partners, and that's not the equation for success.

"'In the long run, if you look at the stream of revenue shrink and the cost of litigation rise, it's hard to see how SCO can long continue.'"

The last straw is that SCO has its shareholders' meeting today. Some speculation for those of you who speak German here. I think. Babelfish has quite a time with this article. If any of you happen to be shareholders and are attending the meeting, do report events, will you please? Here is Sherlock's translation of the first part of the article:

"With voltage the shareholder meeting of the SCO Group is expected, which is set for today's Tuesday. While the conference order registers the usual points such as report on the situation and selection or acknowledgement of the management, there are signs that the shareholders will require in view of a desolate share quotation restructuring.

"The business model to over possibly obtain with 'IP licenses so mentioned' (Intellectual Property) from juridical insecurity produced by SCO in Linux taken over source code from Unix stocks incomes turned out as flop."


  


Why, BayStar? Why? | 281 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
Corrections Here Please
Authored by: PJ on Tuesday, April 20 2004 @ 08:38 AM EDT
Please note any needed corrections in this thread, so I can find them quickly.

Thank you.

[ Reply to This | # ]

Why, BayStar? Why?
Authored by: lifewish on Tuesday, April 20 2004 @ 08:45 AM EDT
What happens if SCOX collapses financially before the case is decided? Obviously
it would be good in the short term, but I'd imagine it wouldn't set a legal
precedent.

Could the poorness of SCO's court performance be used against future attackers
of FOSS? "The last people who tried this had no case, we checked all our
code, what are you complaining about dammit?" Or is this unreasonable -
will we have to go through the whole show again with the next idiot?

---

------------------
"Diplomacy: the art of saying 'Nice doggy' until you can find a stick" - Wynn
Catlin

[ Reply to This | # ]

Why, BayStar? Why?
Authored by: Anonymous on Tuesday, April 20 2004 @ 08:49 AM EDT
The title of this article scared me into thinking BayStar backed down or somehow
did something disappointing. However, after reading the whole article, I'm left
thinking this is something that "SCO" would be saying, not
"us". Whew!! Careful with those headlines, I don't need another
jolst like that!

[ Reply to This | # ]

Updates and new Urls here please!
Authored by: Anonymous on Tuesday, April 20 2004 @ 08:55 AM EDT
Dont let SCOX rebound!

[ Reply to This | # ]

Samsung and Linux
Authored by: grouch on Tuesday, April 20 2004 @ 08:56 AM EDT
Just barely on-topic by way of mention in the quoted story...

Samsung has a nice little (non-color) laser printer that works really well with
Linux. When I bought one, the Linux software on the CD didn't work. A quick trip
to Samsung's website provided working software that was a complete no-brainer to
install, configure and use. Click a few buttons and start printing. Model
ML1710, USB.

This is not an advertisement, but it sure is nice to see a major manufacturer
(1) prominently feature Linux in the manual, (2) create easy to use software for
their product, (3) make it a breeze to find Linux-related information on their
website.


---
Can you trust your computer?
http://www.gnu.org/philosophy/can-you-trust.html

[ Reply to This | # ]

Dear PJ
Authored by: dodger on Tuesday, April 20 2004 @ 08:57 AM EDT
I credit you and you alone PJ for bringing this absurd story nearer to its
proper and doomed end. Thank you Pamela. This world can be so cynical and
disturbing sometimes, that the breath of fresh air that Grocklaw is is more than
welcome.

[ Reply to This | # ]

  • Dear PJ - Authored by: Anonymous on Tuesday, April 20 2004 @ 05:33 PM EDT
SCO source of 'Baystar has given us no details'
Authored by: jelenko on Tuesday, April 20 2004 @ 08:57 AM EDT
Just to confirm, SCO is the only source for the claim that Baystar has provided
SCO with no details?

[ Reply to This | # ]

A. This may be a take under of the IP assets
Authored by: Anonymous on Tuesday, April 20 2004 @ 09:02 AM EDT

The Baystar deal always gave Baystar/RBC ownership of the assets, including the
IP assets, in the event of a default by SCO on a redemption request.
Essentially, this transfers control and ownership of the assets to the preferred
holders from the common holders.

Thus, for $50 million, Baystar/RBC may have bought SCO. They can then quickly
negotiate a settlement with Novell, Red Hat, and IBM, selling the IP (and the
claims with it) for lets say, $75 million. A 50% return on investment in 12
months is not bad.

Just my thoughts,

-anon

[ Reply to This | # ]

Sun's commitment: Doc Searls's Adapting to the Market's Message
Authored by: NZheretic on Tuesday, April 20 2004 @ 09:03 AM EDT
Industry Briefs: Adapting to the Market's Message.
With an interesting little postscript by yours truly.

[ Reply to This | # ]

Why, BayStar? Why?
Authored by: Electric Dragon on Tuesday, April 20 2004 @ 09:06 AM EDT
SCOX’s lead pipe investor, BayStar Capital
BayStar, with the lead pipe, in the library? Maybe they have a Clue(TM) after all...

[ Reply to This | # ]

Why, BayStar? Why?
Authored by: Anonymous on Tuesday, April 20 2004 @ 09:20 AM EDT
I can't judge it, but i think following message from scox yahoo board is interesting:

by: SteadyClimber (35/M/Mountain View, CA)
Long-Term
Sentiment: Strong Sell 	04/20/04 02:56 am
Msg: 124611 of 124658
 
I've been
reading section VII of the Certificate of Designation covering the series A-1
shares. I think there is a hint for why BayStar may not have shown their hand
regarding cause for the redemption notice.

According to clause vii, after such
a notice is received, there is a period of five trading days during which SCO
must provide information to other A-1 holders regarding the redemption notice.
If SCO is unable to satisfy all redemption requests received during this window,
then redemption is to be pro rated by the number of shares for which redemption
notices have been received by that date.

I think this means that if RBC
requests redemption this week, then RBC and BayStar are entitled to split
whatever they can squeeze out of SCO, 60/40 since RBC has 60% of the A-1 shares.
Since SCO has already spent some of the money, and will spend more fighting the
redemption, neither investor is likely to be "made whole" in this
scenario.

However, if RBC does not send a redemption notice during the window,
then BayStar has priority over any subsequent redemptions and can press their
claim for 120% of their investment. In that scenario, RBC is really
screwed.

Thus it is in BayStar's interests to not describe the breaches with
specificity until after the five day trading window has expired. That puts RBC
in a tight spot; they must make their move this week. We've guessed at what the
breaches are but BayStar may have uncovered something even more damaging, and
RBC may not have the same information.

If this is what's going on, then BayStar
will be silent this week. 

[ Reply to This | # ]

Why, BayStar? Why?
Authored by: T. ProphetLactus on Tuesday, April 20 2004 @ 09:21 AM EDT
"The SCO Group (SCOX: Underperform) shares were down 21% last week, as IBM Corporation (IBM: not rated) indicated its intent to ask for summary judgment and SCOX’s lead pipe investor, BayStar Capital, asked for its money back."

LOL!

A 'lead pipe' investor is MUCH more serious than a 'rubber hose' or 'ruler-across-the-knuckles' investor...

TPL

[ Reply to This | # ]

Why, BayStar? Why?
Authored by: mdchaney on Tuesday, April 20 2004 @ 09:35 AM EDT
Asking why Baystar does what it does is like asking why Shrek does what he does.
We all know that Shrek simply does whatever his animators program him to do.
Likewise, Baystar simply does whatever the puppetmaster wants.

The real question we should be asking is why Microsoft wants Baystar out of SCO.
Why is Microsoft pulling the rug out from under SCO? Given that Microsoft
(well, someone associated with Microsoft, whatever) set up the deal, and, I
would assume, funded it, it doesn't make sense for Baystar to worry about its
investors. Its investors likely knew what they were getting in to, and likely
knew they'd never see the cash again.

Back to the real question, many folks, including myself, have been pointing out
that the SCO case has helped open source far more than it's hurt it. It might
just be that SCO is simply no longer useful and they're now looking for another
strategy. In the meantime, they'll let SCO die.

Can't wait to see what RBC does. This case is starting to get interesting
again....

[ Reply to This | # ]

DRM lockin
Authored by: Anonymous on Tuesday, April 20 2004 @ 09:43 AM EDT
I wonder how much of an issue this really is.

The content that would be subject to DRM is games, movies and music. Most
people watch movies on their standalone players. I'm not sure what is going to
happen to music but I suspect that music will move to some kind of appliance
like an evolved iPod. The majority of games are played on consoles.

People went nuts, and lost a lot of money, because media 'convergence' didn't
happen. In the same way, I don't think most people's computers will become
wonderful multimedia appliances. I think computers will mostly just be
computers and DRM will serve, if anything, to keep people from using them as
anything else.

[ Reply to This | # ]

Darl's Fishing Trip: Almost Over
Authored by: ausoleil on Tuesday, April 20 2004 @ 09:51 AM EDT
That the whole SCO fiasco has been a fishing expedition from the get-go is
almost a cliche, given the facts that have come out along the way during the
whole litigation process. SCO accuses an up-and-coming OS of stealing their
ideas, yet they refuse to share what was stolen, and in fact, they need the
source code of the defedants to prove their point. Meanwhile they make every
bit of noise they possibly can, bending the truth in such a way that it was
irreperably broken.

In other words, SCO set out to sea in a rickety row-boat trying to do battle
with a battleship.

That they are losing the confidence of their investors is no surprise, they are
in it for the money. The facts do not support a windfall of money going to
SCO's bank accounts, and naturally, the investors are starting to want to cut
their losses and put their money to work in more positive endeavors.

The only winner so far is Microsoft, and it is a dubious victory at best.
Microsoft apparently wanted a windfall of FUD, which they got, and they wanted
to do so in a way that the spray of the skunk didn't make them stink. Thanks to
leaks and sloppiness, they didn't get that.

The lawsuits are still active, and SCO does still have enough financial
wherewithal to pursue their course. It is a fool's errand, and they will lose,
but they have no other choice. Should Novell prevail on their copyright claims,
the SCO boat is sunk.

The end may be near, but the noise will still be heard from SCO. Now that the
world has caught onto the lack of signal within that noise they have begun to
tune SCO out. I wouldn't be surprised if other investors, particularly the
smaller private ones get out while the getting's good.

[ Reply to This | # ]

An injunction to freeze funds
Authored by: moogy on Tuesday, April 20 2004 @ 09:54 AM EDT
Don Cornett:
"Worse case for SCOX would be if BayStar obtained an injunction
to freeze funds in the interim. In this event, we would expect
RBC (another investor) to follow suit, thereby denying SCOX
of funds needed for Linux litigation. However, we believe an
injunction will be difficult to obtain...?

A-1 Agreement:
"The Corporation 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"

I hate to keep harping on the same issue, but except for
Don Cornett I haven't seen anyone else even talk about this.
Why the opinion that an injunction would be so hard
to get when SCOG pre-approved such action even with just
the "threat" of breach. Wouldn't a judge consider this
when asked for an injunction?

Now, if BayStar gets $20M frozen. do you think that RBoC
is just going to sit there and watch it's share of the
money dwindle away being used to fight BayStar and a series
of what is looking more and more like hopeless court cases?
RBoC has the same rights to an injunction as BayStar under
the agreement.

---
Mike Tuxford - irc.fdfnet.net #Groklaw
First they ignore you, then they laugh at you,
then they fight you, then you win. --Gandhi

[ Reply to This | # ]

SCOX doing very well
Authored by: Anonymous on Tuesday, April 20 2004 @ 10:12 AM EDT
SCOX is again doing extremely well, losing about
7% a few minutes after the market opened. No doubt
it will rebound a bit though... But I'm optimistic!
A 7% loss is nice, but I trust SCOX for doing much
much much better on the long term! :-)

NNP

PS: Oh boy... This stock-checking is becoming a little
bit compulsive now :-)

[ Reply to This | # ]

Why, BayStar? Why?
Authored by: Anonymous on Tuesday, April 20 2004 @ 10:15 AM EDT
Dion Cornett, or a spectacularly clever impersonator, wrote an article on the Yahoo finance board with a bit more detail about his feelings about SCOX, along with a lengthy disclaimer about why it's hard for him to post in such a public forum.

He basically says that the penalty for non-compliance with redemption mentioned in the BayStar/RBC deal, in this case a 18% per annum interest rate, is among the weakest possible penalties. He presumes that with such a weak stick in its hand, BayStar is unlikely to see the cash.

Thad Beier

[ Reply to This | # ]

This Lunchtime
Authored by: Anonymous on Tuesday, April 20 2004 @ 10:17 AM EDT
Darl, can I go to lunch early today as I am really really tired and cant think
strait. I didnt get much sleep despite the tablets.

Incidently Ive picked up on the grok site that they are now fighting themselves
so we dont need to troll it much more.

ps I dont think the Brasillia plan was a leak after all, I would put it down to
coincidence.

Oh and Baystar rang twice, I said you were ill with flu.

-Blake



[ Reply to This | # ]

OT: Databases will be the next battle + some people with new jobs:
Authored by: Anonymous on Tuesday, April 20 2004 @ 10:27 AM EDT
NewsForge has an interesting - and balanced - article on a report on open source
database systems, written by someone we know who's gone from the Aberdeen Group
to...:
"...Bill Claybrook, vice president of Linux strategy for the Harvard
Research Group."

His co-author also seems to have switched jobs recently:
"Wayne Kernochan's report for former employer Aberdeen Group..."

Link here (sorry, haven't figured out how to do it properly yet):
http://software.newsforge.com/software/04/04/14/1347227.shtml?tid=72&tid=74&
amp;tid=82

I find the article quite good, actually, and I don't think that report sounds
like it is too far off the mark, either. Now that IBM probably has realized that
Java will remain closed in the clutches of Sun - and indirectly M$ - if they
would just open source DB2, so that we could get some action here... ;-)

[ Reply to This | # ]

Just read the end article...
Authored by: archonix on Tuesday, April 20 2004 @ 10:33 AM EDT
"Indeed, when Stowell and I spoke on Friday, SCO CEO Darl McBride was still
flying back to SCO's headquarters from a business trip after hearing of the
news."

Perhaps he was scouting out a good flophouse in Rio? :D

---
The only money being made here is by Sue, Grabbit and Rune.

[ Reply to This | # ]

Dion Cornett gets it. (eom)
Authored by: booda on Tuesday, April 20 2004 @ 10:38 AM EDT
..

[ Reply to This | # ]

Business 2.0 mag....
Authored by: T. ProphetLactus on Tuesday, April 20 2004 @ 11:09 AM EDT
...dead-tree version, has an article in the "What Doesn't Work" section titled "The Perils of Prosecuting the Penguin".

"Lawsuits against Linux users have made SCO tons of enemies. What they haven't made SCO is any money-nor are they likely to."

Nice picture of a puffed-up Tux at the defendant's table, too LOL.

TPL

[ Reply to This | # ]

googletranslation
Authored by: Anonymous on Tuesday, April 20 2004 @ 12:04 PM EDT
http://translate.google.com/translate?u=http%3A%2F%2Fwww.heise.de%2Fnewsticker%2
Fmeldung%2F46672&langpair=de%7Cen&hl=en&ie=UTF-8&oe=UTF-8&pr
ev=%2Flanguage_tools

SCO vs. Linux: Action of the shareholders expects

With tension the shareholder meeting of the SCO Group is expected, which is set
for today's Tuesday. While the conference order registers the usual points such
as report on the situation and choice or confirmation of the management, there
are signs that the shareholders will require in view of a desolate share
quotation restructuring.

The business model to over possibly obtain with "IP licenses so
mentioned" (Intellectual Property) from juridical insecurity produced by
SCO in Linux taken over source code from Unix existence incomes turned out as
Flop. With the company Open SOURCE Risk management (OSRM) would like besides a
second company at the market to be established and a business with disconcerted
Linux users to make. Since yesterday OSRM offers now likewise an antidote , is
limited thereby however expressly to the American market. Together with its
offer OSRM published an extraordinarily vague press release, to that-according
to becomes "certified " that the Linux Kernel 2,4 and 2,6 does not
contain copyright injuries. An information on it, which Unix derivatives were
used as comparison with certifying, is refused by OSRM so far for legal
reasons.

Also in the European surrounding field, where the SCO Group with its antidote is
still without competition, the business lies fallow. Gregory Blepp, which is
entrusted according to family tree with the "definition OF SCO's non US
licensing programs" and "Harmonisation of over Europe OF SCO's
Intellectual Property defense activities", drags a suit-case with proofs by
Europe. It is prevented however at least in Germany by an omission explanation
delivered by SCO to spread the statement that Linux contains mental property of
SCO. The new attempts to obtain over interviews a tendency reversal are pursued
critically. "SCO the statement should that ' the software Linux
illegitimately acquired mental property can make a contractual penalty valid to
make contained by SCO ', again, the Linux day. Tarent would obtain, is called a
new order yesterday in this case additionally "it in one to heise on-line
conveyed statement of the company Tarent .

Finally the "division" of processes has itself around the mental
property, which do not develop injury of goods secrets and the right authority
in such a way at Unix, as this of the SCO Group was accepted. So the risk
capitalist Baystar Capital in the apron of the shareholder meeting of a report
of SCO has to terminate according to announced, its Investment in form of the
conversion from preference stocks to. Baystar had invested OF Canada (RBC)
together with the Royal bank into the SCO Group, when it was not yet clear that
from the Geplaenkel with Novell around the vested titles at the Unix code a
further process front would open. Since the preference stocks are enfranchised
in the ratio 1:31,88, Baystar and RBC have only approx. 10% of the voices, but
can set them in view of the desolate course on voices of the shareholders, who
speculate on a victory during the process in IBM. One on the process with IBM
optimized SCO Group, which buries the controversy with Novell, seems whole to be
the ideal of the risk capitalists. For Darl McBride and its crew it would be
certainly the end of the career. In the sense of an optimal process machinery
they presented themselves in the past too frequently in the public with daring
statements. Meanwhile stands and falls this tactics with the answers, which SCO
must give on coming Friday on the inquiries of process opponent to IBM.

But there is still the division to software and support, with which the SCO
Group serves its melting dealer net. Already on the CeBIT was however none the
partner led by SCO locally ready to say something about the employment of SCO
software before the press. In the sense of a clear strategy the risk investors
might urge to deliver the outdated business with software and support. The
question remains whether the institutional majority shareholders are ready to
carry to such a risky strategy.

To the developments in the controversy between SCO, IBM and the open SOURCE
municipality see the article on c't current (with chronological link list to
contributions on heise on-line and from Technology Review and c't) :

* SCO vs. Linux: Infinite history

[ Reply to This | # ]

Heise News Article Translation (first part)
Authored by: doughnuts_lover on Tuesday, April 20 2004 @ 12:06 PM EDT
Here comes a translation of the first part of Heise News Article about SCO

SCO agaist Linux: shareholder action expected

Shareholder meeting of The SCO Group which takes place this Tuesday is met with suspense. While agenda is providing customary headings like update and election or confirmation of board of directors, there are signs that shareholders in the light of a desolated share price will demand reorganisation.

That business model to make money selling so called "IP-Licenses" (Intellectual Property) which is based on legal uncertainty triggered by SCO about potential illegal code transfer from UNIX to Linux has shown to be a flop. [typical horrible German sentence construct (ed)].

With Open Source Risk Management (OSRM) there is a second company which tries to enter the market place to make some business with an unsettled Linux user. Since yesterday OSRM is offering an antidote too while confining to the US market. Going together with its offer OSRM has released an extraordinary vage press release which says that it is "certified" that Linux kernel versions 2.4 and 2.6 don't conatain any copyright violations. OSRM refuses to give any information which UNIX derivatives were used for comparison during certification for legal reasons.

Also in the European environment where The SCO Group with its antidote doesn't have any concurrency so far, business is going slow. Gregory Blepp who is according to an organization chart entrusted with "Definition of SCO's non US licensing programs" and "Harmonisation over Europe of SCO's Intellectual Property defense activities" is hauling around in Europe a suitcase full of evidence. He [Blepp] is hampered at least in Germany by a court order against SCO to spread the claim that Linux would contain SCO intellectual property.

Those new attempts using interviews to cause a swing in public opinion are critically traced. "Should SCO repeat its statement that 'Linux software is containing illegal accquired intellectual property which is owned by SCO' then Linux-Tag can lay claim to a contracual penalty" says a statement of Tarent company which was sent yesterday to Heise Online.

Sorry, but I have to leave to a meeting folks. So somebody else has to do the 2nd part.

Enjoy!

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Why, BayStar? Why?
Authored by: blacklight on Tuesday, April 20 2004 @ 12:26 PM EDT
(1) It looks as if Brian Skiba did the equivalent of skipping down by leaving
Deutsche Bank and signing up with somebody else.

(2) I would expect Baystar to have had the good sense and prudence to
incrementally disburse the money to SCOG as milestones were being reached,
rather than disburse it in one shot as Baystar apparently did. But then, if
Baystar had any good sense, it would never have invested in SCOG in the first
place.

(3) It appears that Baystar will get its money back on the same day that the
groklaw community sends checks to SCOG for its so-called IP licenses. And when
did we say we were going to pay again?

(4) SCOG is either playing deaf, dumb or ignorant with Baystar's breach of
contract allegations - perhaps all three. They are playing those characteristics
brilliantly: on the other hand, SCOG is doing nothing more than playing itself.

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SL Trib says RBC considers pulling plug too
Authored by: Anonymous on Tuesday, April 20 2004 @ 12:31 PM EDT
Bob Mims sat on Baystar story as long as he could, holding back bad SCOX news
for days in SLC, but finally put the story today. You can see it in business
section of sltrib.com.

Mims also says RBC reconsidering the $30M investment; this is surprising (coming
from Mims) since he reports pro-SCOX news right away, but (as with this article)
holds up bad news for days (maybe to let insiders get cash out, Bob?)

It isn't clear: is Mims an investor, or does he have close personal friend at
SCOX? Why so lop-sided reporting?

[ Reply to This | # ]

OT: Impact Capital/ Venture Partners == Michael Dell
Authored by: doughnuts_lover on Tuesday, April 20 2004 @ 12:32 PM EDT
From the Yahoo SCOX 'chat' board:

Impact == Michael Dell
by: stats_for_all
04/20/04 11:41 am
Msg: 124780 of 124801


Impact Capital/ Venture Partners == Michael Dell
The 8/16/02 equity placement contract between Morgan Keegan and SCO identifies special commission status for a number of funds and the half-commission recepients. Three commission earners are identified: SCO, Broadmark, and Impact. SEE: contracts. onecle.com/sco/morgan.engage.2002.08.16.shtml
I have demonstrated in previous posts that Broadmark, a Seattle investment firm, has strong relationship to MSFT.

Impact Capital (aka Impact Venture Partners) is a Michael Dell investment partnership. The managing general partner is Adam Dell. The Investors listed are
MSD Capital (private Michael Dell investment arm),
Frank Quattrone !!! (CSFB indicted IPO VP),
Larry Bowman (Bowman Capital)
John Mumford (Crosspoint Venture),
Flag Venture (Peter Lawrence),
Shoreline Investment Management (no info)


The Impact Advisory Board includes:
Ann McLaughlin, on MSFT Board
Jeff Blackburn, VP Amazon
Carol Bartz and Carl Bass CEO and CTO of Autodesk
Ross Perot Jr.


For more info: www.impactvp.com/inside/who.html

The purpose of the 2002 equity effort was to payoff oldSCO (Tarantella) and acquire "clear" title to IP, and buyback stock held by the Canopy company MTI.

It appears to me that a strategy to secure unencumbered IP was presented to Broadmark and Impact in the summer of 2002. Both of these firms have direct links to MSFT, and an alliance of interests in implementing MSFT ideas.
Unencumbered IP would have made SCOX a more attractive M&A candidate, but also is essential to the enforcement of IP strategy eventually selected.

It is not clear what actual outcome was achieved by Broadmark and Impact. We do know that Broadmark started tracking SCOX news in August 2003 and continues until at least January 2004. Impact's role is not clear. A curiosity of the Morgan-Keegan contract is the failure to mention EMS (Egan Capital), and several other investment bodies for which Canopy had relationships.

Suspicion is raised by Bob Bench's enormous insider trade in August, 2003. Is it possible, that proceeds of this trade were used to commission Broadmark/Impact investments in a off-the-books manner.

[ Reply to This | # ]

ComputerWeekly: Industry surprised at Linux insurance offering
Authored by: js on Tuesday, April 20 2004 @ 12:49 PM EDT
Here is their sto ry about OSRM. Unfortunately there is no mentioning of the copyright research done, and they generalize a research voice to "industry". Ever heard "scary prospects" fromn OSRM? ComputerWeekly has it. Why didn't they simply copy OSRM's press releases?

—js

[ Reply to This | # ]

OT But Verry Good Read
Authored by: bsm2003 on Tuesday, April 20 2004 @ 01:38 PM EDT
Windows vs Linux - Which is easier to install? "The debate revolves around whether or not your average 'idiot' user can install Linux." Here it is

[ Reply to This | # ]

Why, BayStar? Why? Perhaps SEC
Authored by: Anonymous on Tuesday, April 20 2004 @ 02:01 PM EDT
Perhaps Baystar's Real motive is to get on the right side of this turkey before
the SEC completes its investigation. Pulling out now will deflect an SEC
investigation into the original investment motivation.

[ Reply to This | # ]

Very interesting post on Yahoo about Morgan Keegan agreement
Authored by: Anonymous on Tuesday, April 20 2004 @ 02:40 PM EDT

http://finance.messages.yahoo.com/bbs?.mm=FN&action=m&board=1600684464&a
mp;tid=cald&sid=1600684464&mid=124780

There are some interesting names behind the funds which received commissions:

Broadmark: strong MS ties

Impact Capital (aka Impact Venture Partners): Michael Dell

The Impact general partner is Adam Dell.

The Impact investors listed are:
MSD Capital (private Michael Dell investment arm),
Frank Quattrone !!! (CSFB indicted IPO VP),
Larry Bowman (Bowman Capital)
John Mumford (Crosspoint Venture),
Flag Venture (Peter Lawrence),
Shoreline Investment Management (no info, but the name has come up before)
(related to BayStar?)

The Impact Advisory Board includes:
Ann McLaughlin (also on MSFT Board)
Jeff Blackburn (VP Amazon)
Carol Bartz (CEO Autodesk)
Carl Bass (CTO Autodesk)
Ross Perot Jr. (!)

Later in the thread there is some interesting information about Robert Bench
from SCO, Shoreline, and Lawrence Goldfarb from BayStar.

[ Reply to This | # ]

OT: Treatment of stock buyback
Authored by: bstadil on Tuesday, April 20 2004 @ 02:43 PM EDT
Anyone know how SCO is supposed to treat the stock buyback.

It is not unreasonable to assume they bought say 500K shares here at the latest ramping effort. At current price they have a unrealized loss of $1.5M on those, over and above the cash drain. Can they keep them on the book at cost or do they need to take a reserve for the delta?

[ Reply to This | # ]

Uneconomic Action and Fiduciary Duty
Authored by: Anonymous on Tuesday, April 20 2004 @ 03:24 PM EDT
The BayStar investing entity is BayStar Capital II, L.P. (the "Fund"),
which I assume is a private investment fund managed by the "real"
BayStar entity, BayStar Capital Management, LLC (the "Manager"). To
the extent that the Fund has non-BayStar third-party investors (and it is, after
all, the business of private equity companies -- to create funds in which
third-parties invest), the Manager would have a fiduciary duty to them, both
with respect to their selection of assets in which to invest (the SCO
investment) and management of those assets (its current actions with respect to
SCO). Gross negligence or willful misconduct in connection with such selection
and management could leave the Manager liable to the Fund investors. Thus,
suggestions that the Manager is behaving in an uneconomic manner with respect to
the SCO investment because of potential opportunities/guarantees extrinsic to
the Fund expose the Manager to potential liability from its Fund investors. Of
course, if all Fund investors consent to the actions -- perhaps because of a
unity of interest between the Fund investors and the providers of the extrinsic
opportunities/guarantees, the Manager would be in the clear. Thus, the key to
determining whether BayStar the Manager is acting in a narrowly economically
rational fashion with respect to the SCO investment or in an uneconomic fashion
lead by extrinsic concerns is whether there are investors in Fund apart from
those aligned with potential providers of opportunities/guarantees. Does anyone
have any information on this?

[ Reply to This | # ]

Why, BayStar? Why?
Authored by: Anonymous on Tuesday, April 20 2004 @ 03:51 PM EDT
Is it possible that Baystar wishes to pull out now because Micro$oft thinks SCO
is going to lose and advised baystar to withdraw before SCO loses and a
precident is set?

Maybe M$ has realised that they have gotten the maximium amount of FUD out of
this that they are going to get, and that if it comes to a head and SCO loses.
then a precident is set, and M$ will have lost one of its possible future
weapons..

It seems likely to me, M$ advised them to get involved, maybe M$ is now
advisiing them to leave the party before it ends up working against them.

Guess we will have to wait 6 months to read the leaked emails and find out.

If we think about this, there is a possible idea in the making. If every OSS
user donates $1 dollar to a fund, the purpose of which is to fund a US state's
court case against Micro$oft for costing it billions in lost revenue due to
insecure software that catches any bit of nasty code that floats past... give
M$ a taste of their own medicine. :-)


rgds

Franki

[ Reply to This | # ]

  • Is it possible? - Authored by: Anonymous on Tuesday, April 20 2004 @ 04:36 PM EDT
Question about recent "end user" lawsuits
Authored by: Anonymous on Tuesday, April 20 2004 @ 04:19 PM EDT
Didn't SCO have to get permission from the PIPE investors to initiate any new
lawsuits? Was that in place before these were filed, and if so, is there any
sign they got permission? Maybe this is what caused the claim for redemption.

[ Reply to This | # ]

Why, BayStar? Why? MS anf Fear of Fraud, Parachutes, Lead or Gold?
Authored by: webster on Tuesday, April 20 2004 @ 04:59 PM EDT
BayStar has lost confidence in their investment. They now perceive a violation
and want it back. They wouldn't care about following the agreement if they
thought they would make money. They are not going to make money and someone
will have to explain the loss of millions for this investment. They admit they
were encouraged by MS people. What kind of encouragment? Who persuaded them?
What did they say? Did they show them the evidence? Did they make an
independent investigation of the evidence? What did the MS people say about the
code? Did we still believe in the evidence after the SCO Forum? After Hellwig?
When did we realize this was all false? What has IBM been asking about?
Maybe a quick SCO collapse will put an end to all this or at least help hide
most of it. Heads are going to roll, but how bad will that have to be? If we
keep MS out of it, they can take care of everybody. Is it too late? Who is
talking to IBM?

IBM can settle this suit for chump change right now, but that is not what they
want? Do they want exec carreers? Their second homes? Are they going to spur a
criminal, fraud route? Is there any way to refute the proposition that they
knew or should have known that SCO claims were fraudulent just by the way they
were operating with false confidentiality? Or certainly later after exposure,
and contrary expert opinions? Where are all the documents, slide shows,
estimates and other presentations? Who was there, What did they say? Who would
you rather have asking the questions, IBM or the SEC? or the FBI? How much did
BayStar and RBC rely on MS and their contacts?

We are flying blind here because IBM is so close to the vest. But each memo,
statement, investment, or connection to the various parties, ties them in. Has
the press found enough to tie in MS? Has IBM found enought to implicate MS?
I'd chance it with a jury right now. Of course it would settle for more than
$1.9 billion and the perpetual interoperability of Windows.

As one might have gathered from the Enron scandal (merely cooking books), once
the crime is revealed, the perpetrators all have to consider the fact that
prosecutors determine what and how many charges to bring. They can determine
the sentence; the judge can't. The judge is bound by "guidelines" or
what I like to call "Robot" sentencing. Only the prosecutor can
recommend a deviation from the sentencing guidelines with a letter of
cooperation for a given convicted individual. So the first to
"snitch" gets the best deal as we say in "no collar" crime.
If you are not first, they might not need your evidence or testimony so you get
no breaks except from the jury. Is BayStar breaking ranks and coming clean.
Have they leveled with IBM? Do they see the writing on the wall? Can RBC be
far behind?

Look at how that Enron guy made a deal and snitched so his wife would only get 6
months. The Judge said he didn't like the deal and wanted to give her more time
in jail away from her little children. So they had to give her husband back his
plea. The result may be more time for both, none or less, but years of
uncertainty. Plus his testimony is compromised.

There is simply no end of dreaming how spectacular the ending can be! Did Bill
hear or whisper anything about this stuff? To Who? Will they snitch?



---
webster

[ Reply to This | # ]

Slightly OT. SEC Friend of Court in Worldcom suit.
Authored by: RLP on Tuesday, April 20 2004 @ 05:09 PM EDT
I noticed a blurb about the SEC filling a Friend of the Court bit supporting
Worldcom bagholders in a class action suit. Seems they agree false info from
"Analysts" *does* influence folks to buy bad stocks. Could set a
precedent.

[ Reply to This | # ]

Slightly OT, but not too much
Authored by: Anonymous on Tuesday, April 20 2004 @ 05:40 PM EDT
http://sco.tuxrocks.com/Docs /IBM/IBM-136.pdf
S2's objection to IBM subpoena.

[ Reply to This | # ]

[OT] News from SCO's Shareholder Meeting?
Authored by: frk3 on Tuesday, April 20 2004 @ 05:54 PM EDT

Been awful quiet, I would have sworn that TSG had a couple of press releases ready to be spewed out spinning how bright and shiny the company is, its growth potential approproaching affinity, their lawsuits are about to come "cashing in", or other various and sundry normal "whistling past the graveyard" statements.

Hope to hear some news soon, hopefully truthful and not spun by Darl and the boys.

[ Reply to This | # ]

Why, BayStar? Why?
Authored by: Anonymous on Tuesday, April 20 2004 @ 05:54 PM EDT
With respect to that last bit, I think Sherlock pretty much
nailed the translation:

Blah blah blah SCO blah blah Linux source blah blah
blah.

It's incomprehensible, just like the rest of SCO's
actions.

[ Reply to This | # ]

I'm very surprised...
Authored by: Anonymous on Tuesday, April 20 2004 @ 06:03 PM EDT
...that the apparent April 19, 2004 filings by SCO titled "Plantiff SCO's reply memorandum in support of its motion for separate trials" has received neither mention nor analysis here.

It's on the Yahoo! SCOX message board, and at http://sco.tuxrocks.com/Docs /IBM/IBM-137.pdf

Also on tuxrocks is "Objections to Subpoena Duces Tecum directed to S2 Strategic Consulting, LLC, and Response" which some on the Yahoo! board are finding intriguing...

See: http://sco.tuxrocks.com/Docs /IBM/IBM-136.pdf

t_t_b

---

Mad cow? You'd be mad, too, if someone was trying to eat you.

[ Reply to This | # ]

PJ is new kernel maintainer ?
Authored by: SandyM on Tuesday, April 20 2004 @ 06:05 PM EDT
According to May Linux Journal article, PJ has been described as
“the maintainer of the Linux anti-lawsuit kernel”.

Wonderfull !!

[ Reply to This | # ]

  • Link - Authored by: SandyM on Tuesday, April 20 2004 @ 06:12 PM EDT
Why, BayStar? Why?
Authored by: Anonymous on Tuesday, April 20 2004 @ 07:11 PM EDT
is it me, or did this news cause SCO stock to drop in value by about 30% in the
last 3 trading days, and still plumeting.

At this rate, SCO stock value to be at about $4 by friday.

[ Reply to This | # ]

Why, BayStar? Why? -- Forgot to tell about possible legal actions?
Authored by: Anonymous on Tuesday, April 20 2004 @ 10:01 PM EDT
I was standing here doing dishes and thinking about this call by BayStar. I
wonder if this is due to the timing of the Novell legal complaint. The time line
would be about right, I think. Since Novell had already asked SCO to back off on
some claims, and apparently would not, this could be a part of the under laying
claim. In which case, the withdrawal would make sense, and could cause harm for
BayStar financially in several ways. Damage to investors interest in them, lower
profits, besides the investment dollars gone. One of the stock market watchers
maybe able to shed some light on this, if assumption is true.

[ Reply to This | # ]

Why, BayStar? Why?
Authored by: blacklight on Wednesday, April 21 2004 @ 12:02 AM EDT
Given that Baystar wants its money back, I was cogitating on ranking which
outcome would be worst to best for us. Here is my answer:

(1) Worst Case: Baystar gets its money back immediately, and get to use that
money for purposes that are obnoxious to the Open Source community. I am basing
my cynicism about Baystar on the presumption that Baystar did not let ethical
considerations get in the way when they decided to invest in SCOG.

(2) Middling Case: SCOG gets to hold on to the money and blow it on its own
case. Baystar is out $20 mil that it won't be able to use to harass anyone.

(3) Best Case: the dispute ends up in court, where the judge decides to put the
money into a lockbox under his or her personal supervision for the foreseeable
future. Both SCOG and Baystar lose because neither has access to the money.

Note that in all three cases, SCOG ends up at the losing end while the Open
Source community is the undisputed winner. Note that in all three cases, Darl
McBride's name turns to mud so far as his venture capital connections are
concerned and his ability to raise VC funds will be severely hampered if not
destroyed for the balance of his career - assuming that he has any career left.

[ Reply to This | # ]

Can BayStar get 50c/$ and run?
Authored by: clumbotz on Wednesday, April 21 2004 @ 12:26 AM EDT
BayStar can get a good part of their money back, but timing is critical.

The exchange agreement (Article IV) gives BayStar (and Royal Bank of Canada) the unconditional right to convert their preferred stock to common stock "at any time and from time to time", which they could then sell on the open market.

The conversion ratio is based on the average SCO stock price in the preceeding 10 days. Of course, the stock price will crash and they won't be able to liquidate the stock.

The saving grace is Article XIV.A, which puts a Cap of 2,863,135 common shares issuable for conversion, after which BayStar/RBofC can demand redemption of the rest IN CASH.

For example, say SCO stock is $10/share when they try to convert. The 2.8M share cap will be worth $28M. The remaining $22M worth of Preferred stock will become redeemable in cash. In this scenario BayStar and Royal Bank of Canada might net 50c on thd dollar.

Now imagine that they wait 'till the stock is $1/share. The 2.8M share cap will be worth only $2.8M dollars, and the remaining $47.2M will be redeemable in cash. Except SCOX won't have any cash at that point because, e.g., of paying damages to IBM and RedHat :-).

There's also a strange twisty provision in Article XIV.A which seems internally contradictory or illogical. It says this:

"In the event that [the 2.8M share Cap] is reached ... each holder of Series A-1 Preferred Stock shall thereafter have the option ... to require the Corporation to redeem FOR CASH at an amount per share equal to the greater of
(i) the Face Amount plus all accrued but unpaid Dividends, or
(ii) [a market-based formula likely to be smaller]
... a number of the holder's shares of Series A-1 Preferred Stock such that, after giving effect to such redemption, the then unissued portion of such holder's Cap Amount is at least equal 100% of the total number of shares of Common Stock issuable upon conversion of such holder's shares of Series A-1 Preferred Stock."

Ok, what exactly does THAT mean?

Since the Cap has been reached, *no* more shares can be issued for conversion, right? So the number of shares mentioned at the end is zero. I don't understand this.

[ Reply to This | # ]

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