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.

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;

b. Assist Caldera in developing an appropriate value range in connection with a Transaction;

c. Assist Caldera in reviewing, evaluating and structuring any proposed Transaction;

d. Assist Caldera in developing a general negotiating strategy and in actual negotiations with potential investors, lenders and/or merger and acquisition candidates and consult with and assist counsel and independent accountants in structuring and carrying through to settlement any agreement which may be reached;

e. Assist Caldera in preparing summary information (the "Information") with respect to the Company for distribution to potential investors, lenders and/or merger and acquisition candidates selected by Morgan Keegan and Caldera, describing the Company and its business, it being specifically agreed that (i) the Information shall be based entirely upon information supplied by the Company (or public information), and Caldera hereby warrants that, to the best of its knowledge, the Information supplied shall be complete and accurate in all material respects, and not misleading and (ii) Morgan Keegan shall not be responsible for the accuracy and completeness of the Information except as it pertains to public information derived from research performed by Morgan Keegan.

f. Morgan Keegan will advise and assist Caldera, on a best efforts basis, in obtaining the private equity and/or debt investment required to capitalize the Company in such amount and upon such terms as deemed to be appropriate by the Company and Morgan Keegan. Morgan Keegan agrees to provide Caldera with a list of all investors contacted by Morgan Keegan on a monthly basis. Morgan Keegan will provide advice and assistance in structuring and pricing the securities and in locating appropriate financing sources.

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:

<snip>

b.In the event that the Company sells equity and/or debt securities, the Company will pay Morgan Keegan placement fees (the "Contingent Placement Fees") payable in cash at closing as follows:

i. Cash equal to six (6) percent of the principal amount of equity financing (common stock, preferred stock and convertible preferred stock); plus

ii. Cash equal to three (3) percent of the principal amount of mezzanine financing (convertible debt, whether subordinated or not); plus

iii. Cash equal to one (1) percent of the principal amount of senior debt provided, however, that Morgan Keegan shall not be entitled to such a fee with respect to senior debt sourced from commercial banks and other institutional lenders.

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.

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:

February 13, 2003
Mr. Darl McBride
President & CEO
Caldera, dba The SCO Group
355 South 520 West
Lindon, Utah 84042

Dear Darl:

        This letter shall serve as the first amendment and clarification to our engagement letter dated August 16, 2002 (the "Engagement Letter").

        First, I would like to memorialize your and your management team's satisfaction with Morgan Keegan's services to date. The SCO engagement has taken a number of unexpected twists and turns that have required assistance that goes beyond conventional investment banking services. I understand that you are pleased with Morgan Keegan's assistance and contributions in addressing SCO's atypical needs. It has been, and remains, Morgan Keegan's objective to work diligently with management to build shareholder value at SCO. I also understand that it is our collective intent that Morgan Keegan will continue to work with SCO in the broad range of capacities that Morgan Keegan has served the Company to date.

        Accordingly, the Engagement Letter between SCO and Morgan Keegan is amended and clarified as follows:

1.SCO and Morgan Keegan mutually agree to extend the date of the Engagement Letter to August 16, 2003. Further, SCO requires that Kim Jenkins continue to serve as the primary banker in connection with the SCO engagement.

<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. <BR>
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.

        Except as otherwise provided above, the Engagement Letter remains unamended in full force and effect.

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

iii. Cash equal to one (1) percent of the principal amount of senior debt provided, however, that Morgan Keegan shall not be entitled to such a fee with respect to senior debt sourced from commercial banks and other institutional lenders.

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.

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:

connection with the further investigation and prosecution of SCO's UNIX-related intellectual property rights and trade secrets and the institution of settlement discussions and/or litigation against IBM, other source code licenses, and others as mutually agreed to in writing that may be exploiting or violating SCO's UNIX-related intellectual property rights and/or trade secrets (the "representation"). We are not being retained on any other matters, specifically including those identified in Schedule A. It is agreed that the scope of our representation will not expand to other matters without written agreement.

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:

This clause, however, does not apply to the current effort to enter into license agreements with Microsoft or Sun Microsystems, nor does it apply to the company's efforts to license its intellectual property rights or trade secrets in the ordinary course of business.

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:

All firms will bill at a reduced hourly rate. Specifically, all firms will bill for attorney time at two-thirds of their standard hourly rates.

Later we learn see this in regards to billing:

We have requested a One Million Dollar ($1,000,000.00) retainer, Five Hundred Thousand ($500,000.00) shall be paid upon execution of this Agreement and Five Hundred Thousand ($500,000.00) within thirty (30) days thereafter. It is our firm policy that this retainer is earned upon receipt, and is non-refundable as contemplated by Florida Bar Ethics Opinion 93-2. Fees and costs will be submitted to Client for approval. Approval shall be given within fifteen (15) days following the date of invoices. If approval is not forthcoming within said fifteen (15) day period, the invoice shall be deemed approved and monies shall be disbursed. Berger Singerman and Angelo, Barry & Boldt will submit invoices to our firm and the Client simultaneously. The same approval process shall apply to invoices of Berger Singerman and Angelo, Barry & Boldt as apply to our firm. At any time that the billings against the retainer cause the retainer to reach Two Hundred Fifty Thousand Dollars ($250,000.00) or below, Client will receive written notification and be required to replenish the retainer amount back to One Million Dollars ($1,000,000.00).

All amounts paid in hourly billing to the law firms, including any Utah firm that may be retained, and unused retainer fees will be deducted from the final contingency amount. In no event, however, will any fees that have been paid be refunded to the Client. In any scenario in which SCO receives stock as part of a settlement or for its stock or assets, the law firms shall receive the payment of the contingency fee in cash, unless the stock used to purchase SCO's stock or assets is unrestricted and from a Fortune 500 company, in which event the Client and the law firms shall receive the stock simultaneously.

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.

• Jul 2002 McBride is hired
• Aug 2002 Morgan Keegan is hired
• Aug 2002 Caldera changes name to The SCO Group
• Sep/Nov/? 2002 MS memo discussing using intellectual property as an attack against open source is floating around in Germany and later publically
• Oct - Dec 2002 SCO later admits to beginning to look at its own intellectual properties and first makes noise about UnixWare binary libraries.
• Jan 2003 SCO creates stronger language to indemnify its officers of criminal activity
• Dec? 2002 - Jan? 2003 At some point Boies is brought in, likely via Morgan Keegan, to negotiate license/stock deals with Sun and Microsoft
• Feb 2003 Morgan Keegan clarifies its arrangement with SCO and includes language indicating they are anticipating an IBM buyout, though without naming IBM specifically
• Feb 2003 Boies finalizes his agreement with SCO to sue IBM
• March 2003 IBM lawsuit
• Jul/Aug 2003 Anderer joins
• Oct 2003 Anderer e-mail penned
• Oct 2003 PIPE deal
• Nov 2003 Boies has no one from law firm at key press conference
• Nov 2003 Boies gets 20% of PIPE deal
• Dec 2003 PIPE investors get veto power over Boies payouts
• Nov/Dec/? 2003 16 to 20 million deal discussed by Anderer never happens

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.