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SCO Files Rescission Offer
Friday, July 29 2005 @ 08:39 AM EDT

SCO has filed a Form S-1 with the SEC, a rescission offer regarding the 312,806 shares of common stock which they offered, as they put it, "without complying with registration or qualification requirements under the securities laws of California, Georgia and possibly other states," and, as a result, they say "we may incur rescission liability for such options and may face additional potential claims under state securities laws." This is an attempt to clean up what they describe as inadvertant error. "Our failure to comply with the registration requirements of federal and state securities laws was inadvertent." I take them on their word on that, since I've seen no evidence otherwise. So this is just to record that the filing has taken place, to keep our record of this SCO saga complete.

The biggest thing I notice is that SCO says that if they do not prevail against IBM, or if IBM is successful in its counterclaims, their business would be materially harmed, "and we may not be able to continue in business." In 2004, they mentioned their business being materially harmed by a loss, but they didn't say that a loss might mean they'd go out of business entirely. Maybe reality is finally hitting them? Sageza Group analyst Jim Balderston asks if the company may possibly find itself the target of civil and perhaps even criminal charges, according to an article in iSeries Network:

"We suspect that the company is going to have a very hard time continuing, as revenue and income continue to fall year to year," Balderston writes. "SCO may also find it harder to make working partnerships with other vendors, especially any they may have threatened in the past. Karma can be a real pain, especially on the 'comes around' part of the cycle."
What interests me, though, the most are the legal sections of the filing. As usual, they describe their legal cases in their own inimitable fashion, and in the course of reading their description, I understood, I think, why their legal team seems to do all in its power to embarrass and annoy IBM in public. Others have opined that the litigation was entered into with all the grandstanding in public in hopes of persuading IBM to buy SCO, just to make the pain stop. But what motivates the lawyers? I've wondered about that more than once, because they have impressed me as being egregiously unpleasant, over the line of what I would normally expect to see. That isn't likely to endear them to the judges, so why, I've asked myself, would they do it?

I noticed in this filing who profits if IBM, or anyone, were to buy SCO:
The engagement agreement provides that the law firms will receive a contingency fee that may range from 20 to 33 percent of the proceeds from specified events related to the protection of our intellectual property rights. Events triggering a contingency fee may include settlements or judgments related to the SCO Litigation, certain licensing fees, subject to certain exceptions, and a sale of our company. Future payments payable to the law firms under this arrangement will be significant.
The lawyers stand to gain if IBM were to cave (not that they will, from everything that we've seen) and buy SCO, but they wouldn't be human if that didn't motivate them to hope and to go that extra mile. That doesn't excuse unpleasantness, in my book, but it explains it. I sincerely believe that our entire legal system depends on a certain decorum and fair-dealing.

Something else struck me in this filing. There is a long list of exhibits at the end, and three of them memorialize SCO granting Sun Microsystems stock warrants in 2003. I knew that happened, but it wasn't until this filing that I grasped the timing. SCO mentions Sun paying early on a February 25, 2003 license agreement in association with two of the stock warrants. That agreement, then, would be dated just prior to SCO filing its lawsuit against IBM in early March. SCO states that the common stock warrants were "accepted and agreed to by Sun Microsystems" on March 11, then on July 31 and finally on October 31, 2003. SCO filed the exhibits originally with their 10K in January 28, 2004, but I didn't notice the dates before.

The March document says:

Caldera International,†Inc., a Delaware corporation (the "Company"), hereby certifies that, for value received, Sun Microsystems,†Inc., a Delaware corporation ("Sun"). . . is entitled . . . to purchase from the Company at any time during the period commencing on March†11, 2003 . . . ending at 5:00†p.m., Pacific time, on March†11, 2008, 210,000 fully paid and nonassessable shares of the common stock, par value $0.001 per share. . . at a price of $1.83 per share . . .
The one in July reads:
The SCO Group,†Inc., a Delaware corporation (the "Company"), hereby certifies that in consideration for early payment of the amount payable to the Company in August†2003 under the terms of the Software License Agreement dated February†25, 2003 between the Company and Sun Microsystems,†Inc., a Delaware corporation ("Sun"), the receipt in full of which is hereby acknowledged, Sun . . . is entitled, on the terms set forth below, to purchase from the Company at any time during the period commencing on July†31, 2003 . . . ending at 5:00†p.m., Pacific time, on July†31, 2008, 12,500 fully paid and nonassessable shares of the common stock, par value $0.001 per share (the "Warrant Shares"), of the Company, at a price of $1.83 per share . . .
And the October one says:
The SCO Group,†Inc., a Delaware corporation (the "Company"), hereby certifies that in consideration for early payment of the amount payable to the Company in November†2003 under the terms of the Software License Agreement dated February†25, 2003 between the Company and Sun Microsystems,†Inc., a Delaware corporation ("Sun"), the receipt in full of which is hereby acknowledged, Sun . . . is entitled, on the terms set forth below, to purchase from the Company at any time during the period commencing on October†31, 2003 . . . ending at 5:00†p.m., Pacific time, on October†31, 2008, 12,500 fully paid and nonassessable shares of the common stock, par value $0.001 per share (the "Warrant Shares"), of the Company, at a price of $1.83 per share . . .
I see no indication that Sun has to date exercised the warrants. On the other hand, their deadline is not even close to running out. It was required that the matter be kept confidential. Here's the language, taken from the October warrant:
Confidentiality; No Public Disclosure.

The terms and conditions of this Warrant are confidential. Neither party shall make any public disclosure concerning the terms and conditions of this Warrant without the prior written consent of the other party, except as required by the rules and regulations of the Securities and Exchange Commission, the Nasdaq National Market or any other applicable stock exchanges.

All three were signed by Robert Bench for SCO and the agreed and accepted signature line for Sun was by Brian Sutphin, Vice President, Sun Microsystems. March 11, 2003 is, of course, just days after SCO filed its lawsuit against IBM. That might explain the request for confidentiality.

How SCO Describes Their Legal Claims in 2005:

Here's SCO's current story regarding the lawsuits as they tell it in the S-1 just filed, with some parts marked in bold for emphasis by me, the parts that I found most interesting:

SCOsource Business

We initiated our SCOsource business as part of our ongoing efforts to establish and protect our intellectual property rights, particularly relating to our ownership of the UNIX source code. In reviewing our intellectual property rights in 2003, we became aware that parts of or modifications made to our proprietary UNIX source code and derivative works have been included in the Linux operating system without our authorization or appropriate copyright attribution. Our SCOsource business now includes seeking to enter into license agreements with UNIX vendors and offering SCOsource IP licenses or agreements to Linux and other end users allowing them to continue to use our UNIX source code and derivative works.

In addition to our other SCOsource initiatives, in March 2003, we filed a complaint against International Business Machines Corporation, alleging, in part, that IBM had breached its license agreement with us by, among other things, inappropriately contributing UNIX source code and derivative works to the open source community and seeking to use its knowledge and methods related to UNIX source code and derivative works and modifications licensed to it to decrease the value of the UNIX operating system in favor of promoting the Linux operating system, of which it has been a major backer. Based on these alleged breaches, we delivered to IBM notice of termination of our license agreement with IBM that permitted IBMís use of our UNIX source code in developing its AIX operating system.

In addition to our action against IBM, we have filed other complaints against such companies as Novell, Inc., AutoZone Inc., and DaimlerChrysler Corporation. Red Hat, Inc. has also brought a lawsuit against us asserting that the Linux operating system does not infringe our UNIX intellectual property rights, among other things. . . .

We may not prevail in our SCO Litigation, which may adversely affect our business.

We continue to pursue our SCO Litigation and believe in the merits of our cases. In our action against IBM, we seek damages for claims generally relating to our allegation that IBM has inappropriately used and distributed our UNIX source code and derivative works in connection with its efforts to promote the Linux operating system. IBM has responded to our claims and brought counterclaims against us asserting generally that we do not have the right to assert claims based on our ownership of UNIX intellectual property against IBM or others in the Linux market. Discovery is continuing in the case, and several motions are currently pending before the court. If we do not prevail in our action against IBM, or if IBM is successful in its counterclaims against us, our business and results of operations would be materially harmed, and we may not be able to continue in business. The litigation with IBM and others will be costly, and our costs for legal fees have been and will continue to be substantial and may exceed our capital resources. Additionally, the market price of our common stock may be negatively affected as a result of developments in our legal action against IBM that may be, or may be perceived to be, adverse to us.

As a result of our SCO Litigation and our other SCOsource initiatives, several participants in the Linux industry and others affiliated with IBM or sympathetic to the Linux movement have taken actions attempting to negatively affect our business and our SCOsource efforts. Linux proponents have taken a broad range of actions against us, including, for example, attempting to influence participants in the markets in which we sell our products to reduce or eliminate the amount of our products and services they purchase from us. We expect that similar efforts likely will continue. There is a risk that participants in our marketplace will negatively view our actions against IBM, Novell, DaimlerChrysler and AutoZone and our other SCOsource initiatives, and we may lose support from such participants. Any of the foregoing could adversely affect our position in the marketplace, our results of operations and our stock price and our ability to stay in business.

As a further response to our SCOsource initiatives and claim that our UNIX source code and derivative works have inappropriately been included in Linux, Novell has publicly asserted its belief that it owns certain copyrights in our UNIX source code, and it has filed 15 copyright applications with the United States Copyright Office related to UNIX. Novell also claims that it has a license to UNIX from us and the right to authorize its customers to use UNIX technology in their internal business operations. Specifically, Novell has also claimed to have retained rights related to legacy UNIX SVRx licenses, including the license with IBM. Novell asserts it has the right to take action on behalf of SCO in connection with such licenses, including termination rights. Novell has purported to veto our termination of the IBM, Sequent and SGI licenses. We have asserted that we obtained the UNIX business, source code, claims and copyrights when we acquired the assets and operations of the server and professional services groups from The Santa Cruz Operation (now Tarantella, Inc.) in May 2001, which had previously acquired all such assets and rights from Novell in September 1995 pursuant to an asset purchase agreement, as amended. In January 2004, in response to Novellís actions, we brought suit against Novell for slander of title seeking relief for Novellís alleged bad faith effort to interfere with our copyrights and contract rights related to our UNIX source code and derivative works and our UnixWare products.

Notwithstanding our assertions of full ownership of UNIX-related intellectual property rights, as set forth above, including copyrights, and even if we are successful in our legal action against Novell and end users such as AutoZone and DaimlerChrysler, the efforts of Novell and the other Linux proponents described above may cause further damage to our business including our ability to monetize our UNIX assets. These efforts of Linux proponents also may increase the negative view some participants in our marketplace have regarding our SCO Litigation and regarding our SCOsource initiatives and may contribute to creating confusion in the marketplace about the validity of our claim that the unauthorized use of our UNIX source code and derivative works in Linux infringes on our copyrights. Increased negative perception and potential confusion about our claims in our marketplace could impede our continued pursuit of our SCOsource initiatives and negatively impact our business.

Our engagement agreement with the law firms representing us in the SCO Litigation will require us to spend a significant amount of cash during fiscal year 2005 and could harm our liquidity position.

As of April 30, 2005, we had a total of $14,192,000 in cash and cash equivalents and available-for-sale securities and an additional $3,967,000 as restricted cash to be used in our operations and pursue the SCO Litigation. As a result of the engagement agreement between us and the law firms representing us in the SCO Litigation, including, among others, Boies, Schiller & Flexner LLP, for the remainder of fiscal year 2005 we anticipate spending approximately $7,000,000 in the defense of our SCO Litigation. If our UNIX business does not generate cash to cover the internal costs of our UNIX business, our SCOsource initiatives and our SCO Litigation, or we spend additional cash on additional matters, our cash position would be negatively impacted, and our ability to pursue our business objectives and our SCO Litigation could be harmed.

Our future SCOsource licensing revenue is uncertain.

We initiated the SCOsource licensing effort in fiscal year 2003 to review the status of UNIX licensing and sublicensing agreements. This effort resulted in the execution of two significant vendor license agreements during fiscal year 2003 and generated $25,846,000 in revenue. During fiscal year 2004, our SCOsource licensing revenue declined significantly and was only $829,000. Due to a lack of historical experience and the uncertainties related to SCOsource licensing revenue, we are unable to estimate the amount and timing of future SCOsource licensing revenue, if any. If we do receive revenue from this source, it may be sporadic and fluctuate from quarter to quarter. Our SCOsource initiatives are unlikely to produce stable, predictable revenue for the foreseeable future. Additionally, the success of these initiatives may depend on the strength of our intellectual property rights and contractual claims regarding UNIX, including the strength of our claim that unauthorized UNIX source code and derivatives are prevalent in Linux. . . .

Our claims relating to our UNIX intellectual property may subject us to additional legal proceedings.

In August 2003, Red Hat brought a lawsuit against us asserting that the Linux operating system does not infringe on our UNIX intellectual property rights and seeking a declaratory judgment for non-infringement of copyrights and no misappropriation of trade secrets. In addition, Red Hat claims we have engaged in false advertising in violation of the Lanham Act, deceptive trade practices, unfair competition, tortious interference with prospective business opportunities, and trade libel and disparagement. Although this case is currently stayed pending the resolution of our suit against IBM, we intend to vigorously defend this action. However, if Red Hat is successful in its claim against us, our business and results of operations could be materially harmed.

In addition, regulators or others in the Linux market and some foreign regulators have initiated or in the future may initiate legal actions against us, all of which may negatively impact our operations and future operating performance.

First, I note that they say if they lose the IBM lawsuit, they might not be able to stay in business. They didn't say that last year. If they lose Red Hat, they say it may "negatively impact" their operations, which is what they said about the IBM litigation last year. That may reflect their awareness of the weight of IBM's patent counterclaims as well as conceivable damages for copyright infringement with respect to the GPL counterclaim, not to mention the Lanham Act claims, but it may also reflect an underestimation of the weight of Red Hat's claims.

The next thing I note is that the amount SCO has actually taken in so far for the Linux license is incredibly small. They blame that on Novell and the Linux community, whatever that is, but they need to look inward, methinks for the true difficulty. There's a credibility gap that seems to be entirely self-generated. First, they've yet to show any infringed copyrighted code, none that is believable to anyone anyway, including Judge Kimball, so far. If they wanted SCOsource to take off like a rocket, they should have put their evidence on the table like a man. At least the RIAA gives proof that they are valid copyright holders before they break into children's piggybanks to get reimbursed for their "losses".

Instead, SCO is deep in a pile of unreleased distributions of AIX and Dynix, still hunting for methods and concepts and derivative code clues, two years into the litigation. It raises eyebrows. Also, when DaimlerChrysler trounced them, no one believed their threats any more. Actually, it would probably be more accurate to say that they lost the credibility war when they went after DaimlerChrysler in the first place, particularly when we learned that the company hadn't used Unix for years and years. It made SCO look simply ridiculous. I believe that was a tactical error. Even without Novell or the Linux community, they had big problems.

How They Described Their Legal Claims in 2004:

I can't help but contrast the legal description in this filing with days gone by. Let's see what they said in that 10K from January of 2004:

On or about March 6, 2003, we filed a complaint against IBM alleging breach of contract, misappropriation of trade secrets, tortious interference, and unfair competition. The matter is currently pending in the United States District Court for the District of Utah. The complaint also alleges that IBM obtained information concerning our UNIX source code and derivative works from us and inappropriately used and distributed that information in connection with its efforts to promote the Linux operating system.

On or about June 16, 2003, we filed an amended complaint in the IBM case. The amended complaint essentially restates and realleges the allegations of the original complaint and expands on those claims in several ways. Most importantly, the amended complaint raises new allegations regarding IBM's actions and breaches through the products and services of Sequent which IBM acquired. We allege that IBM breached the Sequent agreement in several ways similar to those set forth above, and we are seeking damages flowing from those breaches. We are also seeking injunctive relief on several of our claims.

IBM has filed a response and counterclaim to the complaint, including a demand for jury trial. We have filed an answer to the IBM counterclaim denying the claims and asserting affirmative defenses.

In its counterclaim, as amended on September 25, 2003, IBM asserts that we do not have the right to terminate its UNIX license or assert claims based on our ownership of UNIX intellectual property against them or others in the Linux community. In addition, they assert that we have infringed on certain patents held by IBM. IBM's counterclaims include claims for breach of contract, violation of the Lanham Act, unfair competition, intentional interference with prospective economic relations, unfair and deceptive trade practices, breach of the GNU general public license, and patent infringement. Discovery is ongoing in the case. We intend to vigorously defend these counterclaims.

If we do not prevail in our action against IBM, or if IBM is successful in its counterclaim against us, our business and results of operations could be materially harmed. The litigation with IBM and potentially others could be costly, and our costs for legal fees may be substantial and in excess of amounts for which we have budgeted. Additionally, the market price of our common stock may be negatively affected as a result of developments in our legal action against IBM that may be, or may be perceived to be, adverse to us.

In addition, we have publicly, and in individual letters to 1,500 of the world's largest corporations, cautioned users of Linux that there are unresolved intellectual property issues surrounding Linux that may expose them to unanticipated liability. As a result of these concerns, we have suspended our sales of Linux products. We have also begun delivering written notice to a large number of licensees under our UNIX contracts requiring them to, among other things, provide written certification that they are in full compliance with their agreements, including certification that they are not using our proprietary UNIX code in Linux, have not allowed unauthorized use of licensed UNIX code by their employees or contractors and have not breached confidentiality provisions relating to licensed UNIX code. Additionally, we have begun notifying selected Linux end users in writing of violations we allege under the Digital Millennium Copyright Act related to our copyrights contained in Linux. . . .

As a further response to our SCOsource initiatives and claim that our UNIX source code and derivative works have inappropriately been included in Linux, Novell has publicly asserted its belief that it owns certain copyrights in our UNIX source code, and it has filed 15 copyright applications with the United States Copyright Office related to UNIX. Novell also claims that it has a license to UNIX from us and the right to authorize its customers to use UNIX technology in their internal business operations. Specifically, Novell has also claimed to have retained rights related to legacy UNIX SVRX licenses, including the license with IBM. Novell asserts it has the right to take action on behalf of SCO in connection with such licenses, including termination rights. Novell has purported to veto our termination of the IBM, Sequent and SGI licenses. We have repeatedly asserted that we obtained the UNIX business, source code, claims and copyrights when we acquired the assets and operations of the server and professional services groups from The Santa Cruz Operation in May 2001, which had previously acquired all such assets and rights from Novell in September 1995 pursuant to an asset purchase agreement, as amended.

On January 20, 2004, in response to Novell's actions, we brought suit against Novell for slander of title seeking relief for Novell's alleged bad faith effort to interfere with our copyrights related to our UNIX source code and derivative works and our UnixWare products. Novell has not yet responded to our complaint.

Among our allegations in the suit against Novell, we allege that Novell has improperly filed copyright registrations in the United States Copyright Office for UNIX technology covered by our copyrights and has made false and misleading public claims that it, and not our company, owns the UNIX and UnixWare copyrights. We also allege that Novell has made false statements with the intent to cause customers and potential customers to not do business with us and has attempted, in bad faith, to block our ability to enforce our copyrights. Additionally, we allege that Novell's false and misleading representations that it owns the UNIX and UnixWare copyrights have caused us irreparable harm to our copyrights, our business, and our reputation.

In the lawsuit, we request preliminary and permanent injunctive relief as well as damages. The injunction would require Novell to assign to us all copyrights that we believe Novell has wrongfully registered, prevent Novell from representing any ownership interest in those copyrights, and require Novell to retract or withdraw all representations it has made regarding its purported ownership of those copyrights. . . .

Reviewing and Evaluating Existing UNIX Licenses.

As mentioned above, in January 2003, we began reviewing the status of our existing UNIX license agreements with UNIX vendors. This review is continuing and we will continue to expand our efforts in fiscal year 2004. During fiscal year 2003, we entered into two significant license agreements. The first of these licenses was with Sun, a long-time UNIX licensee and a major participant in the UNIX industry. The second license was to Microsoft and covers Microsoft's UNIX compatible products, subject to certain specified limitations. The Sun and Microsoft license agreements accounted for $25,846,000 of our revenue in fiscal 2003, representing approximately 33 percent of our total revenue for such period. . . .

Warning Letters to Linux End Users.

In response to our belief that parts of our UNIX source code and derivative works have been inappropriately included in the Linux operating system, in May 2003, we sent letters to approximately 1,500 large corporations notifying them that using the Linux operating system may violate our asserted intellectual property rights. Subsequently, we began contacting Linux end users about their use of Linux, and in December 2003, we began sending additional letters to selected Fortune 1000 Linux end users specifically asserting that using the Linux operating system in a commercial setting violates our rights under the United States Copyright Act, including the Digital Millennium Copyright Act, because certain copyrighted application binary interfaces, or "ABI Code," have been copied from our copyrighted UNIX code base and derivative works and contributed to Linux without proper authorization and without copyright attribution. In the letter we also warned Linux end users that we intend to take appropriate actions to protect our rights and that they may not use our copyrighted code except as authorized by us.

Linux End User Intellectual Property ("IP") License Initiative.

In August 2003, we first offered to Linux end users our IP license in the United States and recently began offering the license in countries outside the United States. The license permits the use of our intellectual property, in binary form only, as contained in the Linux operating system. By purchasing the license, customers will properly compensate us for our UNIX intellectual property as currently found in Linux. . . .

Intellectual Property Protection Generally

Our SCOsource initiatives rely primarily on a combination of contract rights, copyright laws and a detailed legal strategy. We also require that our employees and consultants sign confidentiality and nondisclosure agreements. We also regulate access to, and distribution of, our documentation and other proprietary information. . . .

Current Status and Strategy

In fiscal 2004, we will continue to pursue our SCOsource initiatives. We will continue to review and evaluate our UNIX license agreements and pursue large vendor contracts similar to those completed in fiscal year 2003 with Sun and Microsoft. Additionally, we will further pursue our SCOsource IP license initiative with end users of Linux. To accomplish this objective, we plan to increase our SCOsource sales team in fiscal year 2004, and may also make the SCOsource IP license available through select SCO resellers.

Do you notice a great change in tone? And what's an IP license? Anyone know? I know you can license patents. You can license trademarks. You can license copyrights. But what is IP? Maybe that's SCO's problem with SCOsource. No one knew what they are supposedly licensing.

More Details on the Rescission Offer:

Here's more detail on the rescission offer and why they are making it:

We are offering to repurchase 137,219 shares of common stock purchased pursuant to our 2000 Employee Stock Purchase Plan, or ESPP, during the six-month periods ended November 30, 2004 and May 31, 2005 from our current and former employees who are residents of California, Connecticut, Illinois, New Jersey, Texas, Utah or Washington.

ē We are also offering to repurchase 175,587 shares of common stock purchased pursuant to the ESPP during the six-month periods ended May 31, 2003, November 30, 2003 and May 31, 2004 from our current and certain former employees who were, at the time of issuance, residents of California and Utah and are now residents of Arizona, California or Utah.

ē In addition, we are offering to rescind the offer of securities to employees residing in California who enrolled in the ESPP for the offering period that began June 1, 2005 because we have not completed the qualification of the offer and sale of such shares with the Securities Regulation Division of the California Department of Corporations.

ē The repurchase price for the shares of our common stock subject to the rescission offer ranges from $0.65 to $5.21 per share and is equal to the price paid by those persons who purchased these shares, excluding interest. . . .

Q: Why are we making the rescission offer?

A: We have offered and sold shares of our common stock under our 2000 Employee Stock Purchase Plan, or ESPP, without complying with registration or qualification requirements under federal securities laws and the securities laws of California, Utah and possibly other states. As a result, those current and former employees have a right to rescind their purchases of shares under the ESPP or recover damages if they no longer own the shares, subject to applicable statutes of limitations. The rescission offer is intended to address these federal and state securities laws compliance issues by allowing the holders of the shares covered by the rescission offer to rescind the underlying securities transactions and sell those securities back to us. . . .

We may continue to have potential liability even after this rescission offer is made.

The Securities Act of 1933 does not provide that a rescission offer will extinguish a holderís right to rescind the issuance of shares that were not registered or exempt from the registration requirements under the Securities Act of 1933. Consequently, should any recipients of our rescission offer reject the offer, expressly or impliedly, we may remain liable under the Securities Act of 1933 for the purchase price of the shares issued under the ESPP during the six-month periods ended November 30, 2004 and May 31, 2005 that are subject to the rescission offer. Additionally, regulatory authorities may require us to pay fines or they may impose sanctions on us, and we may face other claims by participants other than rescission claims.

Your federal right of rescission may not survive if you affirmatively reject or fail to accept the rescission offer.

If you affirmatively reject or fail to accept the rescission offer, it is unclear whether or not you will have a right of rescission under federal securities laws after the expiration of the rescission offer. The staff of the Securities and Exchange Commission is of the opinion that a personís right of rescission created under the Securities Act of 1933 may survive the rescission offer. However, federal courts in the past have ruled that a person who rejects or fails to accept a rescission offer is precluded from later seeking similar relief. . . .

We have issued options under our equity compensation plans without complying with registration or qualification requirements under the securities laws of California, Georgia and possibly other states, and, as a result, we may incur rescission liability for such options and may face additional potential claims under state securities laws.

In addition to the shares issued under the ESPP that are subject to this rescission offer, we have granted options under our 1999 Omnibus Stock Incentive Plan and 2002 Omnibus Stock Incentive Plan without complying with the registration or qualification requirements under the securities laws of California, Georgia and possibly other states. We may face rescission liability to plan participants holding unexercised stock options in these states. Additionally, regulatory authorities may require us to pay fines or they may impose other sanctions upon us, and we may face other claims by plan participants other than rescission claims. . . .

Background

Since May 2002, we have issued 1,231,242 shares of our common stock to our current and former employees under our 2000 Employee Stock Purchase Plan, or ESPP, that exceeded the number of shares we had previously registered for issuance with the SEC on Form S-8. Because the issuance of these shares was not exempt from the registration requirements of the Securities Act of 1933, their issuance did not comply with federal registration requirements. Our failure to register the issuance of these shares gives the employees who purchased them a right to rescind their purchases, or recover damages if they have sold their shares, for up to one year following their issuance.

Since February 2003, we have issued shares of our common stock under our ESPP to current and former employees residing in California, Utah and possibly other states without complying with the registration or qualification requirements of these states. This group of shares is part of the group of shares that was issued without complying with federal registration requirements as described in the preceding paragraph.

Our common stock was listed on The Nasdaq National Market until February 2003. Section 18 of the Securities Act of 1933, as amended, preempts such securities from the state registration or qualification requirements that would otherwise apply. When we transferred the listing for our common stock to The Nasdaq SmallCap Market in February 2003, we no longer qualified for this federal preemption. As a result, since February 2003, we have inadvertently issued shares under the ESPP without complying with registration or qualification requirements in any state in which an exemption from these requirements did not apply. In all states other than California and Utah, either an exemption from registration or qualification requirements applied or the applicable statue of limitations has passed. Our failure to register the shares issued under the ESPP in California and Utah gives the employees who purchased them a right to rescind their purchases or recover damages if they have sold their shares.

Our failure to comply with the registration requirements of federal and state securities laws was inadvertent. Since our noncompliance with such laws was discovered earlier this year, we have filed a Registration Statement on Form S-8, have qualified the offer and sale of shares under the ESPP in Utah, are in the process of applying to qualify the offer and sale of shares under the ESPP in California and are voluntarily making this rescission offer.

Some Risk Factors:

Here are just some of the risk factors they list this time:

The issuance of common shares to BayStar Capital II, L.P. may have an adverse impact on the market value of our stock and the existing holders of our common stock.

We have an effective registration statement on Form S-1 relating to the sale or distribution by BayStar as a selling stockholder of the 2,105,263 shares of common stock issued to BayStar in connection with our repurchase completed in July 2004 of all Series A-1 shares previously held by BayStar. We will not receive any proceeds from the sales of the shares covered by such registration statement. The shares that may be sold or distributed pursuant to such registration statement represent approximately 6 percent of our issued and outstanding common stock. The sale of the block of stock to be covered by such registration statement, or even the possibility of its sale, may adversely affect the trading market for our common stock and reduce the price available in that market.

Our stock price could decline further because of the activities of short sellers.

Our stock has attracted the interest of short sellers. The activities of short sellers could further reduce the price of our stock or inhibit increases in our stock price.

The right of our Board of Directors to authorize additional shares of preferred stock could adversely impact the rights of holders of our common stock.

Our Board of Directors currently has the right, with respect to the 5,000,000 shares of our preferred stock, to authorize the issuance of one or more additional series of our preferred stock with such voting, dividend and other rights as our directors determine. The Board of Directors can designate new series of preferred stock without the approval of the holders of our common stock. The rights of holders of our common stock may be adversely affected by the rights of any holders of additional shares of preferred stock that may be issued in the future, including without limitation, further dilution of the equity ownership percentage of our holders of common stock and their voting power if we issue preferred stock with voting rights. Additionally, the issuance of preferred stock could make it more difficult for a third party to acquire a majority of our outstanding voting stock.

Our stockholder rights plan could make it more difficult for a hostile bid for our company or a change of control transaction to succeed at current market prices for our stock.

We have adopted a stockholder rights plan. The power given to the Board of Directors by the stockholder rights plan may make it more difficult for a change of control of our company to occur or for it to be acquired when the acquisition is opposed by our Board of Directors.

The Exhibits of Interest:

There's a long list of exhibits, and these are the ones that I'd like to study :

2.1 - Agreement and Plan of Reorganization by and among Caldera Systems, Inc., Caldera International, Inc., now known as The SCO Group, Inc. (the ďRegistrantĒ), and The Santa Cruz Operation, Inc., and related amendments (incorporated by reference to Exhibit 2.1 to the Registrantís Registration Statement on Form S-4 (File No. 333-45936)).

3.2 - Certificate of Amendment to Amended and Restated Certificate of Incorporation regarding consolidation of outstanding shares (incorporated by reference to Exhibit 3.2 to the Registrantís Registration Statement on Form 8-A12G/A filed on July 7, 2003 (File No. 000-29911)).

3.3 - Certificate of Amendment to Amended and Restated Certificate of Incorporation regarding change of name to The SCO Group, Inc. (incorporated by reference to Exhibit 3.3 to the Registrantís Registration Statement on Form 8-A12G/A filed on July 7, 2003 (File No. 000-29911)).

3.4 - Amended and Restated Bylaws (incorporated by reference to Exhibit 3.4 to the Registrantís Registration Statement on Form 8-A12G/A filed on July 7, 2003 (File No. 000-29911)).

3.5 - Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit 4.1 to the Registrantís Current Report on Form 8-K filed on September 1, 2004 (File No. 000-29911)).

3.6 - Certificate of Correction correcting the Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit 4.2 to the Registrantís Current Report on Form 8-K filed on September 1, 2004 (File No. 000-29911)).

4.1 - Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrantís Registration Statement on Form 8-A12G/A (File No. 000-29911)).

4.2 - Rights Agreement dated as of August 10, 2004 by and between the Company and Computershare Trust Company, Inc. (incorporated by reference to Exhibit 4.3 to the Registrantís Current Report on Form 8-K filed on September 1, 2004 (File No. 000-29911)).

10.1 - 1998 Stock Option Plan (incorporated by reference to Exhibit 10.3 to the Registrantís Registration Statement on Form S-1 (File No. 333-94351)).

10.2 - Amendment No. 1 to 1998 Stock Option Plan (incorporated by reference to Exhibit 10.2 to the Registrantís Annual Report on Form 10-K for the fiscal year ended October 31, 2004 (File No. 000-29911)).

10.3 - Form Notice of Grant of Stock Options for 1998 Stock Option Plan (incorporated by reference to Exhibit 10.3 to the Registrantís Annual Report on Form 10-K for the fiscal year ended October 31, 2004 (File No. 000-29911)).

10.4 - 1999 Omnibus Stock Incentive Plan, as amended (incorporated by reference to Exhibits 10.4 through 10.8 of the Registrantís Registration Statement on Form S-4 (File No. 333-45936)).

10.5 - Amendment No. 5 to 1999 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.5 to the Registrantís Annual Report on Form 10-K for the fiscal year ended October 31, 2004 (File No. 000-29911)).

10.6 - Amendment No. 6 to 1999 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.6 to the Registrantís Annual Report on Form 10-K for the fiscal year ended October 31, 2004 (File No. 000-29911)).

10.7 - Form Notice of Grant of Stock Options for 1999 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.7 to the Registrantís Annual Report on Form 10-K for the fiscal year ended October 31, 2004 (File No. 000-29911)).

10.8 - 2000 Employee Stock Purchase Plan, as amended (incorporated by reference to Exhibit 10.9 to the Registrantís Registration Statement on Form S-4 (File No. 333-45936)).

10.9 - Amendment No. 2 to 2000 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.9 to the Registrantís Annual Report on Form 10-K for the fiscal year ended October 31, 2004 (File No. 000-29911)).

10.10 - Amendment No. 3 to 2000 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.10 to the Registrantís Annual Report on Form 10-K for the fiscal year ended October 31, 2004 (File No. 000-29911)).

10.11 - Amendment No. 4 to 2000 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.2 to the Registrantís Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2003 (File No. 000-29911)).

10.12 - 2002 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrantís Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2003 (File No. 000-29911)).

10.13 - Form Notice of Grant of Stock Options for 2002 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.13 to the Registrantís Annual Report on Form 10-K for the fiscal year ended October 31, 2004 (File No. 000-29911)).

10.14 - Office Sublease Agreement by and among the Registrant, Canopy Properties, Inc. and Gateway Technology Center, LLC, dated January 10, 2002 (incorporated by reference to Exhibit 10.6 to the Registrantís Annual Report on Form 10-K for the fiscal year ended October 31, 2003 (File No. 000-29911)).

10.26 Securities Purchase Agreement dated as of October 16, 2003 between the Registrant and the persons listed therein as Purchasers (incorporated by reference to Exhibit 10.1 to the Registrantís Current Report on Form 8-K filed on October 17, 2003 (File No. 000-29911)). 10.27 Registration Rights Agreement dated as of October 16, 2003 between the Registrant and the persons listed therein as Purchasers (incorporated by reference to Exhibit 10.2 to the Registrantís Current Report on Form 8-K filed on October 17, 2003 (File No. 000-29911)). 10.29 Asset Purchase Agreement dated June 6, 2003 between the Registrant and Vultus, Inc. (incorporated by reference to Exhibit 2.1 to Amendment No. 1 to the Registrantís Registration Statement on Form S-3 (File No. 333-106885)).


  


SCO Files Rescission Offer | 202 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
What The Lawyers Get if IBM Buys SCO
Authored by: OmniGeek on Friday, July 29 2005 @ 08:51 AM EDT
Hmmm, if IBM were to buy SCO, how many ways could SCO really split $1.00 with
its law firms? Let's face it, there's no way IBM will pay more for that burning
hulk. A symbolic $1.00 is the best SCO can possibly hope for (losing the suit
will be far, far worse!)

---
My strength is as the strength of ten men, for I am wired to the eyeballs on
espresso.

[ Reply to This | # ]

Again PJ, excellent work...
Authored by: Anonymous on Friday, July 29 2005 @ 08:54 AM EDT
I would start the ot and correction threads but I'm anonymous.

[ Reply to This | # ]

Corrections Here
Authored by: rm6990 on Friday, July 29 2005 @ 08:57 AM EDT
Corrections Here Please.

[ Reply to This | # ]

OT Here
Authored by: rm6990 on Friday, July 29 2005 @ 08:59 AM EDT
Please make links clickable (instructions in red below...make sure u post in
html mode)

[ Reply to This | # ]

SCO Files Rescission Offer
Authored by: Anonymous on Friday, July 29 2005 @ 09:11 AM EDT
I hope everybody and everyone throws the book at sco when they loose.

they need to be made an example of and the open source community has to get the
respect back that it lost (if any) from sco's (Daryl's) big mouth.

I do hope deep down that someone will get some jail time out of this. I would
love to see Daryl go to jail over this fiasco.

[ Reply to This | # ]

Is the Daimler lawsuit still alive?
Authored by: sfohey on Friday, July 29 2005 @ 09:15 AM EDT
Is the Daimler lawsuit still alive? They seem to mention it
as if they still have a chance of prevailing. Hasn't their
window for filing further action passed?

[ Reply to This | # ]

I don't understand...
Authored by: snorpus on Friday, July 29 2005 @ 09:54 AM EDT
What's the purpose of a warrant for 12,500 shares of stock, at $1.83/share? That's $25K, more or less, a pittance for Sun and pretty minor even for SCO. It's certainly not enough to fund more than a few days of Boies Schiller.

I mean, why bother?

---
73/88 de KQ3T ---
Montani Semper Liberi
Comments Licensed: http://creativecommons.org/licenses/by-nc/2.0/

[ Reply to This | # ]

Huh???
Authored by: jbeadle on Friday, July 29 2005 @ 10:11 AM EDT
"... and even if we are successful in our legal action against Novell and end users such as AutoZone and DaimlerChrysler ..."

And all this time, I've been thinking that the litigation with DC was pretty much over. Silly, silly me...

-jb

[ Reply to This | # ]

SCOsource licensing effort in fiscal year 2003 generated $25,846,000 in revenue (MS and SUN)!
Authored by: Anonymous on Friday, July 29 2005 @ 10:12 AM EDT
" Our future SCOsource licensing revenue is uncertain.

We initiated the SCOsource licensing effort in fiscal year 2003 to review the
status of UNIX licensing and sublicensing agreements. This effort resulted in
the execution of two significant vendor license agreements during fiscal year
2003 and generated $25,846,000 in revenue."

then later we read this;

"Sun and Microsoft license agreements accounted for $25,846,000 of our
revenue in fiscal 2003,"...

Hmmm, It does appear from this above, that the only income to SCOsource for this
period was from SUN and Microsoft... So who else paid money to the SCOsource
scheme (what and when) ?

What exactly did SUN and MS get for this money (what rights did they never have
a license for before, that they suddenly needed to pay money for all of a sudden
in 2003)??? IF SUN or MS were infringing before then the MS infringement would
have been worth Billions, no? Did Caldera/SCOx threaten to take them to court
unless they paid this money, was there an audit, how was the amount of money to
be paid determined ...to Caldera/SCOx... did MS and SUN draw a number out of a
Red Hat or something? Why EXACTLY this amount of money, and for what. Has
anyone gone after SUN and MS records for the receipt and details of what exactly
was purchased (that they didn't have ever before)???



[ Reply to This | # ]

UNIX source code?
Authored by: rsteinmetz70112 on Friday, July 29 2005 @ 10:13 AM EDT
SCOG are back claiming that their Unix source code is in Linux. Recently they
had backed off that and relied on the "indirect copying" or
"obfuscated code". I also note we are back to methods again.

It's had to keep up.

They also, I think, mischaracterize IBM's defense when they describe IBM defense
as "asserting generally that we do not have the right to assert claims
based on our ownership of UNIX intellectual property".

IBM certainly makes that claim but they also claim more importantly that
Ownership of Unix is irrelevant because what they do with their property is none
of SCOG's business.

SCOG in this same statement makes an unsupported assertion that SCOG owns
"UNIX intellectual property" whatever that is, which both Novell and
IBM have challenged in court.


---
Rsteinmetz - IANAL therefore my opinions are illegal.

"I could be wrong now, but I don't think so."
Randy Newman - The Title Theme from Monk

[ Reply to This | # ]

SCO Files Rescission Offer
Authored by: k1773r37f on Friday, July 29 2005 @ 10:20 AM EDT
In addition, we have publicly, and in individual letters to 1,500 of the world's largest corporations, cautioned users of Linux that there are unresolved intellectual property issues surrounding Linux that may expose them to unanticipated liability. As a result of these concerns, we have suspended our sales of Linux products. We have also begun delivering written notice to a large number of licensees under our UNIX contracts requiring them to, among other things, provide written certification that they are in full compliance with their agreements, including certification that they are not using our proprietary UNIX code in Linux, have not allowed unauthorized use of licensed UNIX code by their employees or contractors and have not breached confidentiality provisions relating to licensed UNIX code. Additionally, we have begun notifying selected Linux end users in writing of violations we allege under the Digital Millennium Copyright Act related to our copyrights contained in Linux. . . .

How the heck is one to verify that they are not using the "alleged" SCO proprietary code in Linux if SCO won't disclose such code?

My response would be, show the disputed code, prove you own it, then we'll talk. Until then, you're talkin' to the hand. Oh, the hand say's it's not interested either. Here's the foot to impact the orafice from which you are speaking.

[ Reply to This | # ]

The whole idea here is, ...
Authored by: rsi on Friday, July 29 2005 @ 10:27 AM EDT
ANY Company NOT BUYING SCO, and the combination of IBM, Novell, Red Hat, Daimler Chrysler, and Autozone, RUNNING SCO INTO THE GROUND, and TAKING their so-called "IP assets" as spoils of the victory!!!

No company is going to risk the RATH of the Linux and FOSS community if they were to "buy" SCO, before this mess is settled in, or completly thrown out of, court! No one here should be discussing any posibility of a buy-out and takeover of SCO! IMHO!

[ Reply to This | # ]

When the SCO Group loses...
Authored by: jabest on Friday, July 29 2005 @ 10:47 AM EDT
In order for the SCO Group to be a viable purchase, I would think all the
current legal problems have to be resolved. Just as Caldera years ago acquired
the DR Dos lawsuit from Novell. Would any one that purchases the SCO Group
stands to inherit the legal mess they have created?

To the best of my knowledge there isnít any proof that the ďLinux End User
Intellectual Property (ďIP) LicenseĒ is actually buying you any SCO Group
Intellectual Property. So I would think there will be counter suits from anyone
who has purchased said license. We all know there were 1500 letters sent out to
as an attempt to intimidate users into buying them. Iíd be looking for that
mailing list, if I were a lawyer, thatís worth some cash in a counter suit.

Itís my opinion that all they ever purchased from Novell was the rights to sell
Unix Licenses. This is not any different than if I were to purchase a license
to sell Major League Baseball merchandise. I could now sell products with the
team logoís, that doesnít mean I own the teams, just like the SCO Group doesnít
own Unix.

Itís my opinion that the best thing for SCO to do at this point in time, is to
GPL all their code and walk away. Who would want to inherit the mess they have
created. Sadly this wonít happen, Iím sure they have deals with other companies
and incorporate licensed or GPL material into their new code that they donít
have the right to re-release as GPL, BSD, or any other license

[ Reply to This | # ]

SCO Files Rescission Offer
Authored by: Anonymous on Friday, July 29 2005 @ 11:04 AM EDT
"In addition, regulators or others in the Linux market and some foreign
regulators have initiated or in the future may initiate legal actions against
us, all of which may negatively impact our operations and future operating
performance." Last paragraph of the SCOsource Business explination.

Does anyone know what this means? Is it just boilerplate or is it admitting
they are, or will be, under investigation? And if they are under investigation,
who? I remember hearing once, but fail to remember where, that the SEC where
beginning to look at SCO. And the Opensource group down under were pretty
persistant about following up claims. But I haven't heard anything new
recently.

[ Reply to This | # ]

"our SCO Litigation"
Authored by: tangomike on Friday, July 29 2005 @ 11:30 AM EDT
Notice that the "L" is capitalised, as if Litigation is a division of
the company, a corporate business line, or a product, like Unix.

They really do think of it as their business now. Telling, I think.

It also seems it's going about as well as the other parts of the company. Way to
go Darl and Ralph!

---
If Bill Gates had a nickel for every time Windows crashed...
Oh wait! He does!


[ Reply to This | # ]

Still following
Authored by: stingbot on Friday, July 29 2005 @ 11:44 AM EDT
I may not comment very often but I am still following. Thanks for all the hard
work PJ. I promise to buy your book.

It's too bad this will whimper down and not end decisively

[ Reply to This | # ]

The 20% to Boies is just now news to you?
Authored by: rocky on Friday, July 29 2005 @ 12:04 PM EDT
You commented today on the law firms' getting a percentage of the proceeds of a sale of SCO as if it's new news to you. Quote from today's article:

I understood, I think, why their legal team seems to do all in its power to embarrass and annoy IBM in public. Others have opined that the litigation was entered into with all the grandstanding in public in hopes of persuading IBM to buy SCO, just to make the pain stop. But what motivates the lawyers? I've wondered about that more than once, because they have impressed me as being egregiously unpleasant, over the line of what I would normally expect to see. That isn't likely to endear them to the judges, so why, I've asked myself, would they do it? I noticed in this filing who profits if IBM, or anyone, were to buy SCO:

"The engagement agreement provides that the law firms will receive a contingency fee that may range from 20 to 33 percent of the proceeds from specified events [...]and a sale of our company. Future payments payable to the law firms under this arrangement will be significant."

I thought you knew about this already because I first read about it here on Groklaw. That agreement has been in place for a long time, and you even reported on it here on Groklaw on Oct. 17 2003--almost two years ago. If You Want to Know What's Really Going On, Ask the Lawyers

First, here is what SCO had in their 8K that they had just filed, as you quoted in that article:

"As part of this modification, which is subject to a definitive agreement, the law firm would receive a contingent fee of 20 percent of the proceeds from certain events related to is protection of SCO's intellectual property rights, including certain licensing fees, settlements, judgments, equity financings or a sale of SCO during the pendancy of litigation or through settlement[...]"

Here is your comment immediately following:

Lawyers always make sure they get paid. So, not a ringing endorsement of SCO's future as a company. And notice that they aren't getting paid only if they win the lawsuit, so that shows me they are no longer so sure of a successful outcome or that SCO will still be there at the finish line."(my emphasis added)

So we've known for quite a while that BSF LLP also has a strong interest in poking IBM hard enough to provoke a buyout.

[ Reply to This | # ]

This could be useful.
Authored by: Anonymous on Friday, July 29 2005 @ 12:21 PM EDT
Well, it could be convenient. Link

[ Reply to This | # ]

What motivate$ lawyer$?
Authored by: wvhillbilly on Friday, July 29 2005 @ 12:59 PM EDT
$$$$$$$$$$$$ . $$$$$$$$$$$$$$$
$$$$$$$$$$$$ . $$$$$$$$$$$$$$$
$$$$$$$$$ . . . . . . $$$$$$$$$$$$$
$$$$$$$$ . .$$ . $$ . $$$$$$$$$$$$$
$$$$$$$ . .$$$ . $$$ . $$$$$$$$$$$$
$$$$$$$ . .$$$ . $$$$$$$$$$$$$$$$$
$$$$$$$$ . .$$ . $$$$$$$$$$$$$$$$$
$$$$$$$$$ . . . . $$$$$$$$$$$$$$$$
$$$$$$$$$$$ . . $$$$$$$$$$$$$$$
$$$$$$$$$$$$ . . . $$$$$$$$$$$$$$
$$$$$$$$$$$$ . $$ . $$$$$$$$$$$$
$$$$$$$ . .$$$ . $$$ . $$$$$$$$$$$
$$$$$$$ . .$$$ . $$$ . $$$$$$$$$$$
$$$$$$$$ . .$$ . $$ . $$$$$$$$$$$$
$$$$$$$$$ . . . . . . . $$$$$$$$$$$$$
$$$$$$$$$$$$ . $$$$$$$$$$$$$$$$
$$$$$$$$$$$$ . $$$$$$$$$$$$$$$$

---
What goes around comes around, and the longer it goes the bigger it grows.

[ Reply to This | # ]

"none that is believable by anyone"
Authored by: kawabago on Friday, July 29 2005 @ 01:00 PM EDT
Laura Didio saw the code and believed it! Of course she also claims to have
bought the Brooklin Bridge.

---
TTFN

[ Reply to This | # ]

Future payments
Authored by: inode_buddha on Friday, July 29 2005 @ 01:04 PM EDT
I hope said firms don't think they're going to get any benefit from FOSS after
litigating the snot out of it.

---
-inode_buddha
Copyright info in bio

"When we speak of free software,
we are referring to freedom, not price"
-- Richard M. Stallman

[ Reply to This | # ]

SCO Files Rescission Offer
Authored by: Anonymous on Friday, July 29 2005 @ 01:11 PM EDT
My understanding is that a judge/court can not order a judgement that would put
a company out of business.

It makes sense they would be saying this now, in an attempt to prevent a
judgement against them in the IBM case.

We all know most FOSS fans want them out of business, as they rightly deserve to
be given the pure malice they have approached our way of development/life -- but
my understanding of the law is that this cannot happen.

Then again, IANAL. *shrugs*

[ Reply to This | # ]

the part that I like the most
Authored by: Anonymous on Friday, July 29 2005 @ 01:15 PM EDT
... we acquired the assets and operations of the server and professional
services groups from The Santa Cruz Operation (now Tarantella, Inc.) in May
2001, which had previously acquired all such assets and rights from Novell ...

Then they got nothing if Tarantella says that they didnīt get the copyrights
from Novell in the first place. And Novell says already that they didnīt.

And now Tarantella is Sun. And they will have to take a side: against IBM or
against SCO. Which side do you think they will take?



[ Reply to This | # ]

An emergency exit?
Authored by: cybervegan on Friday, July 29 2005 @ 01:21 PM EDT
<tinfoil hat>
Is this just some elaborate way to achieve an exit plan for the top brass? Have
the top execs got any of these shares? If so, will they sue SCOG as is
apparently their legal right? Just before SCOG collapses under the sheer weight
of litigation, but after they can no longer (afford to) get a lawyer to fight
for them?

Can you just imagine Darl suing SCOG over shares he issued himself? (ok that's a
strech but...)

Makes you wonder.
</tinfoil hat>

regards,
-cybervegan

---
Software source code is a bit like underwear - you only want to show it off in
public if it's clean and tidy. Refusal could be due to embarrassment or shame...

[ Reply to This | # ]

SCO Files Rescission Offer
Authored by: Yossarian on Friday, July 29 2005 @ 01:40 PM EDT
PJ said:
"But what motivates the lawyers? I've wondered about that more than once,
because they have impressed me as being egregiously unpleasant, over the line of
what I would normally expect to see. That isn't likely to endear them to the
judges, so why, I've asked myself, would they do it?"

IMO we get back to an old law school saying of:
"When the law is not on your side, argue the facts; when the facts are not
on your side, argue the law; and when neither the facts or the law are on your
side, pound the table."

The lawyers tried to pound the table in the court room,
but the judge kept telling them to stick to the point
and not read documents under seal. So all that remained
for SCO's lawyer to do is to pound the table *outside*
the court room.

I think the lawyers make a pretty good job of that.

[ Reply to This | # ]

Brilliant sentence, that
Authored by: evbergen on Friday, July 29 2005 @ 01:57 PM EDT
"Instead, SCO is deep in a pile of unreleased distributions of AIX and
Dynix, still hunting for methods and concepts and derivative code clues, two
years into the litigation. It raises eyebrows."

That sums it up quite nicely indeed.

By the way, this document shows that if hard pressed enough (incarceration) even
SCO can produce truthful documents. I've never seen so much accuracy from these
guys.

:)

Cheers,


Emile.

[ Reply to This | # ]

SCO Files Rescission Offer
Authored by: energyman on Friday, July 29 2005 @ 02:10 PM EDT
Hm,

so employees, who bought some certain shares, are able to
get money from SCO?
What a nice touch.
Buy some shares now, when the prize goes down, we make a
'rescission offer' so you'll get you money back, if it goes up,
everybody is happy.

Sounds like some Managers want to wrench more money out
of sco before it implodes.

[ Reply to This | # ]

change of control transaction, eh?
Authored by: Anonymous on Friday, July 29 2005 @ 02:24 PM EDT
"Our stockholder rights plan could make it more difficult for a hostile bid
for our company or a change of control transaction to succeed at current market
prices for our stock."

That might be the light at the end of the tunnel actually -- attached to a
train. When SCO's institutional investors get tired of their burning cash in a
hopeless crusade and vote their proxies to boot the entire management out. IBM
isn't going to knuckle under, but I don't think they'll waste any more money
grinding SCO into the dirt if SCO drops its claims after the heads roll.

Of course, what's left at that point, really? Maybe they'll just liquidate the
company while it still has assets worth selling (someone must want to buy
OpenServer).

[ Reply to This | # ]

"Linux proponents"
Authored by: MajorDisaster on Friday, July 29 2005 @ 02:58 PM EDT
"These efforts of Linux proponents also may increase the negative view some participants in our marketplace have regarding our SCO Litigation and regarding our SCOsource initiatives and may contribute to creating confusion in the marketplace about the validity of our claim that the unauthorized use of our UNIX source code and derivative works in Linux infringes on our copyrights." pro∑po∑nent n. One who argues in support of something; an advocate Now who in the world do you think they be talking about? Hmmmmm...

---
Death twitches my ear, "Live", he says "I am Coming."
--Virgil--

[ Reply to This | # ]

What the lawyers get either way
Authored by: overshoot on Friday, July 29 2005 @ 03:08 PM EDT
Either way, BSF gets the reputation of a firm that can cost their opponents crippling amounts of money and bad PR over the course of years.

That's a powerful reputation to have. If I want to ruin a competitor, that's exactly the kind of firm I want going after them. It's like money in the bank for BSF.

[ Reply to This | # ]

But what motivate$ the lawyer$?
Authored by: webster on Friday, July 29 2005 @ 03:38 PM EDT

But what motivates the lawyers? I've wondered about that more than once, because they have impressed me as being egregiously unpleasant, over the line of what I would normally expect to see. That isn't likely to endear them to the judges, so why, I've asked myself, would they do it?

Thanks, PJ, for the cream puff. You've made the day. This is old ground but it bears repeating. This is what happens when lawyers are pissed ---and terrified. The more terrified they are, the more they act pissed -- at someone like their client, the judge, or most easily and genuinely the opposing attorney$.

Why are they pi$$ed? Because this is a civil case and their compensation for the most part depends on their winning. Despite it being a civil case, there is no civility. Lawyers get nasty even in conferences with the judge. They take potshots, bring up the other's lapses, and up the ante of aggravation and unreasonability. They assume the hostility of their clients. The more trivial the case, like a fender-bender, the more the hostility. Pay with money or pay with pain! They figure the more time and effort expended unnecessarily on the instant case is less time and effort to be spent more pro$perou$ly elsewhere. There are Bar campaigns that try to train and civilize these litigants.

SCO attorneys are also pissed at the smug IBM attorneys who sand bag them in court hearings and shame them in their filings. It is unfair and a distortion. They are just as good. It would be easy to prance around if the history and law was on your side. What happened to brotherly courtesy?

They are also terrified of sanctions. The F-word is in the air. (Frivolity). These Rules are meant for deterrence. Given the suspected outrageous, unsubstantiated, claims [even with a few thousand lines of "borrowed" code], the outrageous scrutiny of this case [GL], the celebrity marquee lawyer, and the abuse of the national court system, this case demands to become a landmark of deterrence. In addition there is a pungent hint of discovery abuse. All this is corroborated by a retainer arrangement that is suspiciously broad and poses the lawsuits as a small part of a larger game. This is further corroborated by the very strange and obtuse nature of the related suits, DC and AZ. Furthermore this matter would never go to trial without every other question relating to the motives inspired by M$ licensing fees, and pipe-deal recommendations. The Judge has already used an extreme word, "astonished," to describe what he perceives. The fear is that he will react accordingly in end.

They are terrified because the NDA (non-disclosure agreement) doesn't work in litigation. They have been bluffing four aces with only three cards in their hand. What can the lawyers say? They were fooled by their clients! What did they know? When did they know it? Why did you say those things about Linux? They can't use something they find today or in the new discovery to answer these questions.

So forgive the tone of the SCO attorneys. The other guys have broad shoulders and they are not altar persons. The SCOfolk are starving and desperate and shouting at the mirage.

---
webster

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Timeline also suggests another possible theory
Authored by: Anonymous on Friday, July 29 2005 @ 03:43 PM EDT
Now we know that the Sun and Microsoft deals were concurrent and slightly preceeding filing suit against IBM, I think we go back and read some old articles and read them in a different light.

http://www.ectnews.com/story/31932.html

The story as told by SCO is that Caldera decided to look at its 30,000 or so Unix licensees -- inherited through a $100 million deal with Novell (Nasdaq: NOVL) in 1995 -- as possible sources of renewal revenue and found, among other companies, IBM and Microsoft. Microsoft promptly renewed its license upon request; IBM refused, and the resulting negotiations quickly stalled.


Now if you read that paragraph literally, it sounds like SCO approached UNIX licensees, existing licensees, and said "YOU MUST RENEW YOUR LICENSE", i.e. pay us more money.

IBM "refused" (unsurprisingly since their contention is they have a perpetual irrevocable fully-paid-up license).

And then shortly after IBM "refused" (and we can date to "shortly" because of the info we have on Sun and Microsoft dates).... SCO sued IBM.

SCO's basic contention is that somehow IBM breached the license agreement. They are trying all kinds of theories to suggest why... but fundamentally they don't appear to have any evidence of any breach (aside from the new-fangled silly theory that IBM's own original code is controlled SCO). And we know that they don't have any evidence of any breach, and they seem to have known it, based on the Davidson email.

Now, putting all this together, what does this suggest?

Here is a possible theory:

1. Some time after (or even before) Darl arrives, SCO starts looking over the license agreements with UNIX licensees.

2. Somebody at SCO thinks, hmmm, maybe can use these to generate money.

3. Somebody at SCO also arranges a new fancy new room to store all these newly important documents (see article in Fortune with Darl wrapped in printout of software listing where this room is described).

4. Now the problem with "generating" money is that generally these people ain't using UNIX anymore (e.g. DC), or already paying (and SCO passing on 95% to Novell), or have fully paid up licensees (e.g. IBM).

We also know that SCO has less than perfect records of whom the licensees are and what status they are. Witness them sending a letter to DC's wrong address. Witness them suing DC for breach, without apparently knowing that DC hadn't used the product for years.

Hence they pick on visible UNIX users/licensees, i.e. UNIX vendors: Sun, Microsoft, IBM (and maybe added later SGI) for "RENEWALS"

5. Now IBM has a fully paid-up license, so they need some theory why IBM must pay again, hence... the trade secrets to Linux theory that appears in their original complaint.

Now we can suspect that they couldn't find a single trade secret that IBM contributed, because they dropped this cause of action in their 2nd amended complaint, and were never able to identify a single trade secret at issue, despite 2 motions to compel, and 2 orders telling them to do.

So the copyright theory... (perhaps this was added later building on oldSCO investigations, perhaps it emerged later when trying to gain leverage on IBM thru the press, who knows)... but they seem be unable to identify infringement, even in response to summary judgement motions, despite 2 motions to compel, etc. And they KNEW IT: see Davidson email.

So the derivative of derivative of derivative theory. Now remember Mark Heise spoke about this in FEBRUARY 2004 at the wells hearing. In other words, they probably knew even then, they weren't going to cut it with copyright or trade secrets.


Well it's a theory.

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Interesting wording about Novell's claims
Authored by: Anonymous on Friday, July 29 2005 @ 05:18 PM EDT
Perhaps I missed something, but this wording seems to be a bit of a
misrepresentation of Novell's claims:

"Novell also claims that it has a license to UNIX from us . . ."

I thought Novell's claim was that they retained ownership of UNIX, but SCO had
the right to sell licenses - exclusively so long as they pushed the market, etc.
. . . Did I miss something, or is this a serious twisting of the truth?

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This has to be one of the best articles I have seen...
Authored by: DaveJakeman on Friday, July 29 2005 @ 06:49 PM EDT
...on Groklaw for stimulating the most fascinating analysis from varied
contributors, from many different angles.

This is what makes Groklaw so good. It's not just what PJ does, it's the whole
group thing. There's some really good stuff going on in here.

Many thanks. You know who you are. Keep up the good work.

---
Should one hear an accusation, first look to see how it might be levelled at the
accuser.

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The new litigator
Authored by: kh on Friday, July 29 2005 @ 10:46 PM EDT
This is from the new litigator I suppose. Wow!

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SCO Files Rescission Offer
Authored by: Anonymous on Thursday, August 04 2005 @ 10:17 AM EDT
This is my favorite line:

There is a risk that participants in our marketplace will negatively view our actions against IBM, Novell, DaimlerChrysler and AutoZone and our other SCOsource initiatives, and we may lose support from such participants. Any of the foregoing could adversely affect our position in the marketplace, our results of operations and our stock price and our ability to stay in business.

So, they thought suing their own customers would invoke goodwill???

[ Reply to This | # ]

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