The following is a repost of something I wrote on 05 March 2004 just after the Anderer memo first came out. It concerns my contention that MS did not start this. I've always wanted to get feedback on it but did not have any comment section (or the storage space to keep them) on threenorth.com. My apologies on some of the formatting. I did make an attempt to reformat my html to work with the subset but it does not come across as well as it could.
Now that Eric Raymond has released the memo from Michael Anderer to SCO and SCO has confirmed its authenticity , I have begun reviewing my notes and Yahoo SCOX posts. This does not contain any new revalations, but I attempt to pull some threads together to provide a timeline on some of the participants that are related ESR's Halloween X document.
What follows is an examination of documents SCO has filed with the SEC along with my commentary. It basically follows three different entities that seem rather intertwined and who were, for the most part, in this from the very beginning. These entities are Morgan Keegan who were hired in August of 2002 to help Caldera find new funding, Boies who was definitely hired in late February 2003 to sue IBM but whose involvement started earlier than that, and Michael Anderer who was not officially brought on board until either July or August of 2003 but who wrote the now famous e-mail.--DARL ARRIVES, CALDERA CHANGES ITS NAME AND STARTS LOOKING FOR CASH--
In late June of 2002, Caldera announced that Darl McBride was taking over as CEO.On 27 August of 2002, ZDNet reports that Caldera is changing its name to The SCO Group. This is interesting timing, because it is just after Darl has been hired. It is even more interesting in light of recent SEC filings. You see, it was also in August that Caldera/SCO hired Morgan Keegan to help them find funding. We find this out in detail in material filed with SCO's most recent annual report.
Here is the original agreement letter between SCO and Morgan Keegan, dated 16 August 2002. So, this is just shortly after McBride has taken over Caldera and just before Caldera changes its name to The SCO Group. According to the letter, Morgan Keegan has been hired to:
a. Assist Caldera in the assessment of certain market information and business strategies relevant to the operations of the Company;
There is nothing really untoward in any of the above, at least at this point. However, in light of later developments, one thing that needs to be pointed out is the fee structure that Morgan Keegan was to be rewarded with for its work:
1. In consideration for the services rendered by Morgan Keegan hereunder, the Company shall pay Morgan Keegan:
So, Caldera, soon to be renamed The SCO Group, has asked Morgan Keegan for help in finding financial deals. I think one of the first deals is with John Wall of Vista.com, whom I wrote about back in August 2003. Subsequent news reports have indicated that it is likely that Wall has completely sold off his SCO holdings and had in fact already sold some when I penned that previous analysis. Up until the Halloween X document, I also had discounted my own thoughts that Wall may have been a Microsoft connection for SCO. Now, I'm back on the fence on that one.--MORGAN KEEGAN CHANGES THE DEAL--
We don't have much documentary evidence to go on between these August 2002 and early 2003. However, there are two February 2003 letters that indicate that Morgan Keegan and Boies were both involved in the MS and SUN license deals from SCO. There is also evidence, outlined below, that Morgan Keegan used the fee structure outlined in the original letter to treat both deals as something more than just simple IP licenses.
We do know from news reports that this is the time period that McBride claims they started looking at SCO's intellectual property rights and that there were early mentions of Caldera/SCO customers who may have transferred SCO's binary libaries from UNIXWARE to Linux installation to help compile and run existing software. We also know from ESR's Halloween VII document that in Sep. 2002 MS had concerns about their FUD campaign against Open Source and considered attacks using intellectual property to be their best bet. ESR states that he received his copy on 05 Nov 2002. In other words, about the time Morgan Keegan started looking for funding for SCO, a MicroSoft memo was flying around stating that MS needed to shift its FUD campaign to go after intellectual property. It is interesting too that ESR indicates that this memo was in the German office of MS in Sep. 2002 in light of the fact that Brian Skiba of Deustsche Bank seems to have offered a number of conveniently timed recommendations of SCO stock at a target price of $45/share.
However, let us move back from wild theories to filed SEC documents. In January 2003, according to SCO SEC documents, SCO re-works its indemnification of officers for criminal activity. Then, on 13 Feb 2003, Morgan Keegan writes to SCO again and makes some changes to the deal. This letter is interesting enough, that I reproduce it in its entirety:
Ok, let's pull a few choice phrases out of this letter. But first, it is written 13 Feb 2003. I believe that is just about a week before the official engagement letter with Boies, perhaps less. So, this is just before they file the lawsuit with IBM and as we saw from Boies letter, SCO had already had talks with MS and SUN at that point. Now a few quotes and comments:
The SCO engagement has taken a number of unexpected twists and turns that have required assistance that goes beyond conventional investment banking services.
Sounds like something that could have been written by an Enron investment banker, huh? Of course, I'm sure that SCO's deals have taken some unexpected twists and going beyond convention. However, the text of the letter makes it clear that this comment, in part, relates to the MS and SUN deals and the possibility of an IBM buyout--though, IBM is not mentioned by name.
The IBM mention is in bullet point 3:
SCO and Morgan Keegan reaffirm the merger and acquisition provisions of the Engagement Letter and agree to the applicability of provision 1(c) regarding the payment of a Transaction Fee equal to 2% in the event of a sale or acquisition of SCO to a large strategic company.
The really interesting stuff is in bullet point 2:
SCO and Morgan Keegan agree that, in the event Sun Microsystems and/or Microsoft enters into a substantial SCOsource licensing arrangement with SCO during the term of the engagement, that such an event would fall under provision 1(b) of our Engagement Letter. As such, the aggregate amounts paid under the license agreements would be subject to the Contingent Placement Fee, calculated as six (6) percent for a license with Sun and one (1) percent for a license with Microsoft.
OK, we know that Boies was hired just after this to go after IBM. We know from Boies' letter (see below) that Boies was involved in the SUN and MS deals. We know that Boies' speciality is defending insiders of security fraud charges. We now learn that an investment banking firm was working with SCO and probably with Boies as well in putting together the MS and SUN "licensing" deals. Does that sound like investment banking to you?
Morever, from that point 2 above, we see that the SUN deal was to be treated as a 6% event that fell under section 1b(i) of the original engagement letter with the investment banking firm and that the MS deal was to be treated as a 1% event under the section1b(ii). Let's just look at those two again:
i. Cash equal to six (6) percent of the principal amount of equity financing (common stock, preferred stock and convertible preferred stock); plus
So, SCO's investment banker describes their dealings as "unexpected twists and turns that have required assistance that goes beyond conventional investment banking services." They have probably been working with a lawyer who specializes in securities fraud to work on licensing deals with SUN and MS, and the investment banking firm gets a cut and considers the SUN deal the equivalent of "equity financing (common stock, preferred stock and convertible preferred stock)" and the MS deal the equivalent of "senior debt" financing. I would really LOVE to see the text of the MS and SUN licensing agreements now.
Note that the SUN deal did include the issuance of options to SUN. The text of those option deals are in the same 10-K filing that the letters come from, but I have not taken the time to go through them.--BOIES IS NOW ON BOARD--
The PIPE deal that the Anderer e-mail refers to was announced 16 October 2003. In 17 November 2003 there was an SEC filing revealing that Boies was paid 20% of that deal. On 8 December 2003 there was another SEC filing revealing that the PIPE investors were far from happy with the idea of Boies getting 20% of all financing deals that SCO closed. In fact, the PIPE investors made it clear that SCO would not be allowed to take any actions that would result in a 20% payout to Boies without consulting them first. It is this 8 Dec filing that actually contains the text of a 23 Feb 2003 letter outlining the terms of Boies engagement to sue IBM. Note that this letter actually was made public long before the letters discussed above were made public.
The Boies engagement letter is too long to post in its entirety. (Particular given that my long-windedness and discussion of minutia has likely lost the bulk of my audience by this point anyway. I'd like to keep those of you that are left. We're almost done.) However, I do think it is worth looking at a few choice portions of that letter. Boies' firm was engaged in:
The Scedule A has not turned up anywhere publically, that I am aware of. However, at a minimum, it is likely that it involves the MS and SUN licensing deals because further language in the letter reveals that Boies is already working on this. This comes in attachment B where the 20% payout for various events, including any IBM buyout, were discussed:
So, we know that on 13 February 2003, Morgan Keegan is grabbing 6% and 1% respectively of the SUN and MS deals. We also see that Boies has been working on negotiating those deals. I think it is likely to assume that Boies was brought in by the investment banker Morgan Keegan. It is also worth noting that although SCO has frequently described their arrangement with Boies as being a contingency arrangement, this is how the third paragraph of the letter reads:
Later we learn see this in regards to billing:
Note that the 17 Nov 2003 SEC filing seems to be an indication that the 1,000,000 bucket was refilled at that time. (Also interesting to note that just before that was a point where SCO had a press conference that did not have any representation by Boies firm. I believe that was the only significant time that occurred during all of this.) And later, in that Schedule B, we Boies will count its hourly billing against the contingency fees, but that it will not refund any unbiilled contingency fees:
--ANDERER COMES ONBOARD--
I am not here going to dissect the Anderer e-mail or even really discuss it much. That is being done in many other places with far more insight and detail than I could accomplisth. I do want to just point out a few things on the timeline, though. In the same 10-K filing that has most of the letters, we find the original agreement between Anderer and SCO. I'm not really going to dissect that except to point out dates. The agreement is dated 1 July 2003, but the signatures at the bottom are dated 4 August 2003. We know that the Anderer e-mail is dated 12 Oct 2003 and refers to the PIPE deal which is announced 16 Oct 2003. We also know based on lack of any evidence in SEC filings that the 16/20 million dollar deal on the horizon never occurs.Timeline Review
I think that November/December timeline is particularly interesting. Anderer, in his e-mail, talked about an upcoming deal for 16 to 20 million. Then, Boies doesn't appear at a key press conference. Next, Boies gets the 1,000,000 bucket refilled and gets 20% of the PIPE deal. The PIPE investors get upset and now have veto power over any new deals. If the PIPE investors want to, they can basically block all cash infusions of SCO. Now, the real question remaining is whether the PIPE deal investors are controlled by MS or whether MS just put them in contact with SCO. If controlled, then events in Nov/Dec would indicate that MS was not happy with SCO. Could it have been their hatred of Boies or was it something else? If not controlled by MS, it could just be that the PIPE investors were not happy with SCO over the Boies arrangement. In either case, there is a hint that Boies and SCO may have had some disagreements at that time.
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Related Links~~ something I wrote
~~ the memo from Michael Anderer to SCO
~~ SCO has confirmed its authenticity
~~ Caldera announced that Darl McBride was taking over as CEO.
~~ ZDNet reports that Caldera is changing its name to The SCO Group.
~~ SCO's most recent annual report
~~ the original agreement letter between SCO and Morgan Keegan
~~ whom I wrote about back in August 2003
~~ ESR's Halloween VII document
~~ Morgan Keegan writes to SCO again
~~ the same 10-K filing
~~ announced 16 October 2003
~~ SEC filing revealing that Boies was paid 20% of that deal
~~ another SEC filing revealing that the PIPE investors were far from happy
~~ 23 Feb 2003 letter outlining the terms of Boies engagement to sue IBM
~~ original agreement between Anderer and SCO.
~~ More on SCO v The World
~~ Also by heimdal31