BayStar threatens SCO with lawsuit

The two can't agree on whether a stock repurchase agreement has closed

The SCO Group Inc. and investment firm BayStar Capital LP are apparently unable to agree on whether a June stock repurchase agreement between the two companies has closed, and BayStar now intends to file a lawsuit against the Unix vendor, according to statements issued by the two companies Friday.

BayStar, based in Larkspur, Calif., was the lead investor in a $50 million transaction announced in October that included financing from the Royal Bank of Canada.

In April, BayStar informed SCO that it wanted out of the investment, claiming that the Lindon, Utah, software company had breached its purchase agreement. But just one month later, BayStar doubled its stake in SCO by purchasing 20,000 shares of the company's preferred stock from the Royal Bank of Canada, which was in the process of walking away from its SCO investment.

In early June, SCO and BayStar appeared to have settled their differences. The two companies settled on a repurchase agreement that gave BayStar $13 million in cash and approximately 2.1 million shares of SCO common stock -- valued at $10.1 million at the time -- in exchange for the investment company's 40,000 shares of SCO preferred stock.

On Friday, SCO announced that the repurchase transaction had closed. BayStar responded just hours later with a statement of its own maintaining that the repurchase had not closed. "BayStar intends to file an action requesting a declaratory judgement with respect to its rights under the Stock Repurchase Agreement," the statement said.

A BayStar spokesman declined to explain why the company is planning to file a lawsuit. But SCO spokesman Blake Stowell confirmed that BayStar had been seeking confidential information on the nature of his company's SCOsource Linux licensing business.

SCO declined to provide the information requested by BayStar, "in order to protect the confidential and proprietary nature of the information and the names of the companies engaged in SCOsource licensing discussions," SCO said in a statement.

BayStar has been issued a certificate for the 2.1 million shares of stock, and SCO is prepared to pay the $13 million in cash stipulated by the deal as soon as BayStar provides wire-transfer instructions, the statement said.

SCO, which claims that the Linux operating system violates its intellectual property rights, is now engaged in lawsuits with IBM, Novell Inc. and Red Hat Inc. in connection with those claims. The company has also sued DaimlerChrysler AG and AutoZone Inc. in connection with its intellectual property claims, although the bulk of the DaimlerChrysler lawsuit was thrown out of court last week (see story).

Separately today, SCO announced an update to its OpenServer version of Unix. Version 5.0.7 of the product will now include support for the open-source PostgreSQL database, as well as for Java 1.4.2, the company said.

Copyright © 2004 IDG Communications, Inc.

Shop Tech Products at Amazon