BayStar Seeks to Pull SCO Investment

UPDATED: The SCO Group says BayStar is alleging a breach in the companies' investment agreement and wants 20,000 of its SCO shares redeemed.

In the latest twist in The SCO Group Inc.s funding saga, BayStar Capital Management LLC is trying to pull out its SCO investment, claiming a breach in the terms of the agreement between the companies.

Lindon, Utah-based SCO said Friday that it has received a letter from BayStar requesting that it redeem BayStars 20,000 shares of SCOs series A-1 convertible preferred stock. BayStar is alleging that SCO breached sections of February agreement among SCO, BayStar and the Royal Bank of Canada.

SCO spokesman Blake Stowell said the letter points to four different sections of the agreement that were violated and that deal mainly deal with misrepresentations of SCOs past and present business finances and its future plans.

/zimages/4/28571.gifClick here to read more about the sections of the agreement that BayStar is alleging were violated.

SCO has no immediate plans to redeem the shares, which would amount to BayStars $20 million investment, Stowell said, because SCO does not believe it violated any sections of the agreement. SCO also has not received details about how it allegedly broke the agreement, he said.

"Its our belief that theyd have to prove we breached the agreement before wed redeem those shares," Stowell said. "Were still in an information gathering mode ourselves, and were trying to find out where we stand."

BayStar spokesman Bob McGrath, reached late Friday, said that BayStar had no comment on the letter or its allegations.

In October, SCO announced that BayStar was leading a $50 million cash infusion for SCO that would help it shore up its finances and fund its intellectual property initiatives.

SCO, which owns the license to Unix code, has sued, among others, IBM and two enterprises over their use of the Linux operating system in one of the most-watched IT legal battles. SCO alleges that Linux contains portions of its Unix code.

At that time, BayStar of Larkspur, Calif., was to own an aggregate of about 2.95 million shares of SCO common stock, or 17.5 percent of the companys outstanding shares.

In March, BayStar confirmed that Microsoft Corp. had led it to SCO following widespread speculation that Microsoft had played a role in the investment. Microsoft in the past year has been stepping up its battle against Linux, which is a threat to its Windows operating system.

Stephen J. Vaughan-Nichols contributed to this report.

Editors Note: This story was updated to include comments from SCO and BayStar spokespeople.

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