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April 18, 2004

SCO investor wants refund

SCO Group Inc could be forced to refund at least $20m invested in the company last year by BayStar Capital because of an alleged breach of agreement.

By CBR Staff Writer

BayStar has written to SCO asking the company immediately redeem its 20,000 series A-1 in convertible preferred stock, which BayStar received under an agreement in February.

The venture capitalist said SCO breached four sections in February’s agreement, but did not detail what it believes SCO had done in breach.

SCO is seeking further clarification from BayStar, believing it has not acted improperly. Redemption of the shares threatens to put a serious hole in SCO’s ability to wage an industry-wide fight over alleged violations of its Unix intellectual property in Linux.

SCO chief executive Darl McBride attributed the company’s legal war chest to funding that totaled $50m, provided in a joint investment by BayStar and Royal Bank of Canada (RBC). The bank ponied-up $30m and received 30,000 shares, although there is no word over whether RBC will also seek the return of its investment.

A spokesperson for SCO told ComputerWire the company would continue its fight, adding SCO is always looking for additional investors.

I don’t think there’s any question that we will continue with our current actions. We believe that we have the funding to move forward, if BayStar chooses not to be a part of that, the spokesperson said.

This is the latest twist in drama of BayStar’s SCO investment. It emerged earlier this year that unnamed senior executives from Microsoft Corp approached BayStar and recommended SCO as a suitable investment opportunity. BayStar has denied Microsoft helped fund the SCO investment.

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This article is based on material originally published by ComputerWire

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