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Linux Containers: Article

Fired SCO CEO Fires Back

SCO CEO Darl McBride may go down in history as the first CEO to be fired over the Internet

CEOs in Technology

SCO CEO Darl McBride may go down in history as the first CEO to be fired over the Internet.

SCO sent an 8-K filing to the SEC Monday morning saying that it fired him last Wednesday, which was news to him because as of Sunday nobody had told him he was fired even though he was expecting it. And it took a hacker to find the press release that SCO told the SEC it had issued saying McBride was toast.

Anyway, McBride thought about this situation for a while and then decided to bare his soul and give the press a copy of the letter he sent on Sunday to SCO's nominal Chapter 11 trustee Judge Ed Cahn.

According to McBride Cahn is a figment trustee, having sloughed off his responsibilities to the chic-chi mainline Philadelphia law firm Blank Rome that he's connected with in his retirement, which is apparently bent on draining SCO of the last dime it has in the bank.

If any of McBride's allegations prove true, Blank Rome may want to brace for a shareholder suit.

The real trustee, McBride says, is a Blank Rome lawyer called Bonnie Fatell who couldn't be bothered calling Cerberus - you know, Cerberus, as in Chrysler Financial and General Motors Financial (GMAC) - which was willing to put $25 million into SCO and get it out of hock because Cerberus has backed McBride before. It gave McBride $50 million back in 1997 to roll up a bunch if Internet companies like, oh, Razorfish (nee Avenue A | Razorfish), MarchFirst (nee US Web) and Scient and that was then sold to, oh, aQuantive, which was then sold to, oh, Microsoft for, oh, $6 billion, Redmond's biggest acquisition to date.

But neither Judge Cahn nor Blank Rome could be bothered calling Cerberus, McBride says, because they were too busy winding down a company whose fired CEO persists in thinking has a case against IBM that's worth at least hundreds of millions, if not billions of dollars, when the case is within inches of going to a jury.

Now to be fair, that SCO press release, which say that it eliminated its CEO position - never to be filled again - ostensibly because Judge Cahn's running the joint now and so McBride is just so much deadwood - also claims that it's going to "reach cash flow breakeven for core operations within the next month," "emerge from Chapter 11 bankruptcy," look to "raise additional funding and sell non-core assets to bolster working capital" and pursue its "litigation against, among other, IBM and Novell."

McBride maintains that means it's willing to sell out for a cheap settlement with IBM, hang SCO stockholders out to dry, avoid at all cost bankruptcy court and go home.

Anyway, read the almost unexpurgated McBride below.

The company, by the way, is currently being run by COO Jeff Hunsaker, CFO Ken Nielsen and general counsel Ryan Tibbitts. Well, maybe not. Hunsaker has reportedly given notice and will leave at the end of the month for another job. Ditto Nielsen who doesn't want to work for low wages. Odd the trustee didn't mention that.


"After serving as CEO, Shareholder and Director of SCO since 2002, I believe that I am uniquely qualified to help you execute a plan that pays creditors 100 cents on the dollar, ensures that SCO has its day in court to satisfy shareholders, and that provides a safe path forward for employees, customers and the SCO UNIX product business.


"When we met in Blank Rome's office in Philadelphia on August 28th, you tasked me to go into the financial markets to see if I could drum up interest in SCO's big win that it got in the 10th Circuit Court of Appeals in the Novell case that was issued on August 24th. I took on that assignment and in a matter of just 3 weeks, was able to get several significant funds to take a hard look at investing/lending money into SCO. The most promising of these investors was Cerberus Capital Partners, one of the largest hedge funds in the country. Cerberus sent us a term sheet that would include a $25 Million credit line, $3 million of which would be accessible within weeks, and invited us to enter into discussions to negotiate/counter the terms of the potential deal that they were proposing.

"After bringing this term sheet to you, Bonnie Fatell, Bruce Comer, and Mark Fisler, I was told that I should let Bonnie and/or Ocean Park Advisors take over the deal and negotiate the terms with Cerberus. I deferred to your request. However, no one ever contacted the principal at Cerberus that we were dealing with. Bruce and/or Mark told me on three different occasions that they would call Cerberus. I even set up two different times that Bruce said that he would call Cerberus to talk to them about the deal. I confirmed with the Cerberus executive I have been dealing with on Friday that he in fact has never been contacted by Blank Rome or Ocean Park Advisors to negotiate the terms of the deal.

"I have been told that no one has had time to follow up with Cerberus because they are too busy trying to cut expenses. I also have come to understand that Bruce and Mark are billing SCO $500 per hour and that Bonnie and other Blank Rome attorneys are billing SCO more than that. Yet with as many as 7 attorneys or financial people involved with SCO, I find it a serious breach of fiduciary duty of the Trustee's office that no one at Blank Rome or Ocean Park Advisors ever pursued the Cerberus opportunity. Yet, the billable hours continue to rack up for the Blank Rome attorneys and firm that represents you as Trustee while you are also a Blank Rome employee.

"If Cerberus, or anyone else for that matter, in fact was willing to put up serious funding within a matter of weeks that would allow SCO to pay off creditors and also take care of shareholders, employees and customers, the ultimate fees that Blank Rome would bill on the SCO case would be significantly lower than path that you have chosen.  While I get that a bankruptcy trustee has broad powers, the facts of the Cerberus deal appears to be an abuse of the powers in which you have been entrusted. This whole situation looks like a serious conflict of interest to me.

"IBM Claims

"You have told me, SCO execs and certain SCO shareholders that you believe SCO's claims have significant value. I agree. Is the damages value in the billions, like SCO's experts say? Is it in the tens of millions where IBM may be willing to currently settle? The best way to find out the ultimate value of these claims is to allow SCO to have its day in court in a jury trial as per the recent order that came down from the 10th Circuit Court. If an investor is willing to pay off SCO's GUC's [general unsecured creditors] and administrative claims and if the shareholders are willing to take some dilution to allow the litigation to go to a jury trial, I believe that is what should happen. Settling IBM and Novell's claims after what they did to SCO over the last 10 years for some tens of millions of dollars is irresponsible to the SCO stakeholders. Stakeholders who have been around for many years who deserve to have its day in court on its claims. While I agree that the company needs to be tightened down until we have a return from future litigation proceeds, the company could also successfully launch its next generation operating system after recovering damages. Alternatively, if [would-be SCO investor and co-founder of the prestigious Carlyle Group equity house Stephen] Norris or another investor steps up, the Openserver/UNIX business could be sold off along the way.

"SCOsource Licensing

"SCO's expert witnesses have given strong support of SCO's claims that the Linux operating environment has misused SCO intellectual property. There are over 20,000,000 Linux servers worldwide that SCO now has the opportunity to provide licensing support. SCO's license price for its IP is $699. The total market opportunity for this licensing program worldwide is $14 Billion dollars. A quick, cheap settlement with IBM would totally bury this significant financial opportunity for SCO. [Remainder of paragraph redacted for confidential information].


"Where do we go from here? While I obviously disagree on some key decisions that your office has taken in the SCO case, I believe that there is an opportunity for a win/win from where we currently stand. It has to do with the SCOsource licensing program. I believe that the value that I provide to SCO as CEO is significant. I believe that my $127/hr rate is, at a minimum, more valuable to SCO than the $500/hr that the bean counters at OPA [Ocean Park Associates] are billing SCO. But, if you disagree with me and feel that I should step down as CEO, then I would propose that you shift my role to be the senior licensing executive over the SCOsource program. I would agree to a comp plan that would be heavy on performance incentives and much lower on base salary. I also know without a doubt that I can help you raise capital into SCO given the recent positive 10th Circuit ruling. This could be a side project. The million or so dollars that you want Ralph Yarro [former chairman of SCO] and other shareholders to contribute in the form of a DIP [debtor-in-possession] loan may pay Blank Rome/OPA fees but it's not going to solve the broader issue of ensuring that creditors are paid in full and allowing the SCO cases to go to trial.

"In the final analysis, if you believe that you want to go at the SCO battle alone without my services at all, then I will take the necessary actions to protect the interests of all SCO estate stakeholders. Those interests don't include winding the company down and settling the legal cases for pennies on the dollar for what they are worth.



More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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softdrat 10/20/09 11:00:00 PM EDT


The best "Dear Mr. Ed" letter that we have seen in a long time.

Please, keep the entertainment coming!

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