BayStar sent SCO a letter on Thursday "requesting that SCO immediately redeem BayStar's 20,000 shares of SCO's Series A-1 Convertible Preferred Stock," SCO said in a statement on Friday. SCO disputes the basis of BayStar's request, that SCO breached terms of a 5 February, 2004, exchange agreement by which SCO exchanged one type of preferred stock BayStar owned for another.
The move represents a serious threat to a $50m investment that SCO described as a "war chest" it would use against Linux. The Royal Bank of Canada, which chipped in $30m, could follow suit.
RBC is keeping its options open. "We haven't requested a redemption. We're reviewing the situation and will arrive at a decision shortly," said spokesman Paul Wilson.
The new dispute adds another front to SCO's battles with the open-source community and the companies it has sued, said RedMonk analyst Stephen O'Grady. "I don't think this is going to make SCO investors feel real good," he said.
Indeed, the news sent SCO's stock down $1.29, or 13 percent, to a closing price of $8.37.
BayStar said SCO breached four sections of an agreement that exchanged BayStar's shares from one type of preferred stock to another -- specifically, 2(b)(v), 2(b)(vii), 2(b)(viii) and 3(g). The sections govern: the truth of SCO's "representations and warranties" of the original investment agreement; the disclosure of adverse changes such as the seeking of bankruptcy protection; the disclosure of materially significant events that legally must be published; and requirements around press releases and a regulatory filing describing the exchange agreement.
However, "SCO does not believe it has breached any of the referenced provisions," SCO said, and therefore, "SCO does not believe it is obligated to redeem BayStar's shares."
Stowell said that BayStar didn't detail how it believes SCO violated the agreement.
BayStar invested $20m and the Royal Bank of Canada $30m in an October transaction that has been instrumental to SCO's legal fight against Linux.
BayStar spokesman Bob McGrath declined to comment further on BayStar's request.
SCO has sued AutoZone, DaimlerChrysler and IBM in connection with its allegations that Linux, a widely used operating system, violates its Unix copyrights. Novell, an earlier owner of Unix, argues it still owns the copyrights, a matter that's the subject of another SCO lawsuit.
In its most recent quarter, SCO spent $3.4m on the legal case.
The investment has been crucial to raise cash for SCO's operations. "A year ago we had (about) $6m, and now we have $60m -- $50m of that coming in through the investment. We have a war chest to defend our rights and to fight our claims in the courtroom," chief executive Darl McBride said in a March interview.
