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SCO seals deal for legal expense cap

Suffering stock steadied by deal that will hold costs of multiple Linux and Unix lawsuits at $31 million.

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Stephen Shankland
2 min read
The SCO Group has signed a previously announced agreement with two law firms that will cap legal expenses for its Linux and Unix litigation at $31 million, the company said in a legal filing Thursday.

The expense cap agreement--announced Aug. 31 but signed Oct. 31--puts to rest some uncertainty about the company's abilities to pay the hefty legal fees incurred through its legal attacks against IBM, Novell, AutoZone and DaimlerChrysler and its legal defense against Red Hat.

SCO's stock closed at $2.92 Monday, its lowest price since its legal attack began in March 2003, but jumped to $3.59 in trading Friday after the expense cap deal was disclosed. In a Monday report, Decatur Jones Equity Partners attributed the low stock price to the lack of an expense cap and to the continuing stock sell-off by investor BayStar Capital.

Under the agreement, SCO paid $12.6 million to the two law firms, Boies, Schiller & Flexner and Kevin McBride and Berger Singerman. And it will pay them $2 million per quarter for the next six quarters, beginning with the quarter that started Sept. 1 and ending with the quarter that starts Dec. 1, 2005, the company said in a filing with the Securities and Exchange Commission.

The law firms will pay legal costs occurring after the six-quarter period, SCO spokesman Blake Stowell said.

The law firms also will get a fraction of any money SCO receives as a result of its five legal cases. That payment will be made according to a sliding scale: 33 percent of any recovery up to $350 million, 25 percent of any recovery between $350 million and $700 million; and 20 percent of any recovery more than $700 million.

In addition, SCO already had paid $1.8 million to its law firms. And SCO agreed to put $5 million in escrow to pay for consultants, expert witnesses, and the law firms' out-of-pocket expenses.