Two of the major investors in SCO Group Inc have changed their agreements with the company in a manner that could restrict the actions it takes during its legal battle against IBM Corp and the Linux community.
The two investors, BayStar Capital II LP and Royal Bank of Canada, were involved in a $50m investment in Lindon, Utah-based SCO in October 2003, which gave the investors 2,953,000 shares of SCO common stock representing 17.5% of the company’s outstanding shares.
Now the two companies have finalized that investment with a letter agreement that gives the investors power of veto over some of its potential actions resulting from SCO’s breach of contract and trade secret misappropriation litigation with IBM, and potential copyright infringement litigation with Linux users.
The agreement gives BayStar and the Royal Bank of Canada veto power over any settlement of litigation as well as any acquisition of, or investment in, SCO. The veto relates to some of the potential actions the company could take that would trigger it to pay 20% of any money it received to its lawyers, headed up by Boies, Schiller and Flexner LLP.
Under the terms of an earlier agreement between SCO and its lawyers, they would receive 20% of anything earned from recovery in litigation or settlement, including any sale of stock or assets, 80% of which would go to Boies, Schiller and Flexner, 10% to Berger Singerman, and 10% to Angelo, Barry and Boldt.
Now, however, SCO’s investors have ensured that no payment will take place, and indeed some of the events detailed will not take place, without their approval. The agreement provides that SCO will not complete a transaction that will result in such a payment, other than signing new intellectual property licenses, without the approval of the holders of two-thirds of SCO’s Series A stock, including BayStar and/or RBC.
To put it simply, SCO cannot receive any new investment, settle any litigation, or agree to be acquired in whole or in part, without the approval of its investors.
This article is based on material originally produced by ComputerWire.