What's In It for Darl?

Thursday, September 11 2003 @ 02:03 AM EDT

Contributed by: PJ

Here is a revealing little tidbit from SCO's April 24, 2003 DEF 14A filing with the SEC, their Proxy Statment. It seems to explain why we get press releases from Utah with such regularity, threatening everyone and their little dog too. After each threat, the stock seems to shoot up. Why does Darl do this? What's in it for him? Take a look at what he gets if he manages to have four profitable quarters:

"CEO Compensation.

"In setting the total compensation payable to the Company's Chief Executive Officer for the 2002 fiscal year, the compensation committee sought to make that compensation competitive, while at the same time assuring that a significant percentage of compensation was tied to the Company's performance. The compensation committee reviewed industry compensation surveys for chief executive officers of comparable software companies to determine an appropriate compensation level. During fiscal year 2002, the Company hired Darl McBride, a seasoned technology veteran, to succeed Ransom Love as the Company's Chief Executive Officer. During fiscal year 2002, the base salary for Darl McBride was $250,000, which was later reduced to $230,000 as a result of salary cuts in the Company. Mr. McBride was also eligible to receive a quarterly performance award for reaching financial targets. The primary goals established for Mr. McBride included the successful attainment of revenue, and net income targets as established in his offer letter. These targets have been set very aggressively and will allow for Mr. McBride to earn from 20% to 300% of his base salary as a quarterly performance award based on attainment. During fiscal year 2002, Mr. McBride did not receive any quarterly performance award payments.

"In recognition of the leadership and guidance Mr. McBride brings to the Company, he was granted 600,000 options to purchase shares under the Company's 1999 Omnibus Stock Incentive Plan. Of the options granted to Mr. McBride, 400,000 options vest 25% after one year with the remaining 75% vesting at 1/36 th per month thereafter, until fully vested. Of the remaining 200,000 stock options granted to Mr. McBride, 50,000 options will vest one year from the date of the Company's first profitable quarter (as long as that profitable quarter is before Q4 of fiscal year 2003) and the remaining 150,000 options will vest one year from the date the Company achieves four consecutive quarters of profitability (as long as the fourth quarter is before Q4 of fiscal year 2004)."


Now, this may prove to be very remunerative for Darl, particularly since the options he was granted on the 600,000 shares last year were at 76 cents a share, but is it a good business model? He has had two profitable quarters, thanks to the Sun and Microsoft licenses, and no doubt he'd like to have four. There does seem to be something wrong with an arrangement that puts the short-term personal interests of executives in a company so at odds with the long-term interests of the company itself and against the interests of the public at large.

SCO as a company is committing suicide before our eyes. No one in the open source/free software worlds will want to do any business with them from this day forward. That is a given. I wonder if they know how much business that will cost them? Here is an article on how to persuade your executives to switch to Linux. Here is an article on how to help SCO's poor customers make the switch to Linux, so they aren't left up the creek without a paddle, and notice one of the commenters says he just quietly recommends anything but SCO products, and that so far, just since this all began, they have "lost 58 OpenServer licenses over four customers because of me".

Here is economist Amy Wohl writing that "The Open Source Community Has a Business Model". And speaking of successful Linux business models, IBM has just signed a deal with Red Flag Linux too, just as HP recently did:

"'Given the size of China's economy and the related growth of information technology infrastructure, Red Flag could become the most widely deployed Linux distribution,' said Stacey Quandt, an independent Linux analyst."

Proprietary Microsoft is sulking but also trying to woo China, the article says, using a technique that validates the open source method:

"Microsoft, which has criticized China for not doing enough to curb software piracy, is trying to court Chinese customers, but Linux has the advantage that its core components are available for free. Microsoft also is trying to allay concerns by letting Chinese officials view Windows' underlying source code, a move that acknowledges one advantage of Linux and its open-source development process."

SCO's other buddy, Sun, keeps trying to figure out new ways to graft olde business methods on to Linux. That is, of course, the same mistake Caldera made with its per seat license "brainstorm" that made it impossible to make money from their Linux product. You can't graft the two styles together, but that doesn't stop the dinasaur brigade from perpetually trying, as long as they have any breath in them. Now stuck-in-the-mud Sun would like to offer indemnity from SCO lawsuits, but there is a catch:

"Sun is contemplating adding an unusual provision to some of its Java licenses under which the company would agree to protect licensees from Linux-related lawsuits filed by the SCO Group. . . .

"A Sun representative said the program, if executed, would likely apply only to Java 2 Micro Edition, Sun's version of Java for gadgets including cell phones and embedded devices such as electronic billboards.. . .

"Sun has publicly stated on several occasions that it will indemnify its Solaris customers against any liability. Customers that adopt Mad Hatter, an upcoming Sun desktop software suite, also will be indemnified, Schwartz said. . . .

"When it comes to Linux, however, Sun server customers are on their own. The company does not provide indemnity to Sun server customers who choose to run Linux, rather than Solaris, on its servers. Sun sells servers that run Red Hat's Linux.

"Sun, in fact, will try to erode Linux's growth in the marketplace by promoting a version of Solaris that runs on servers with chips from Intel or Advanced Micro Devices."
[emphasis added]

In case you were wondering where Sun stands, now you know. They are desirous of "eroding Linux's growth in the marketplace". Still believe Sun isn't behind this SCO stuff?

As usual in the proprietary software world, there is no honor. And you'd best read the fine print. It seems Sun hasn't exactly explained just how the indemnification will work:

"Sun could request that Java customers seeking indemnity switch from using Linux to Solaris. Sun could also, conceivably, devise a Linux-like OS, or it could pay additional royalties to SCO. . . . However, Sun's license only extends to Solaris, said SCO spokesman Blake Stowell, not to Java related products or any as-yet-created version of Linux from Sun."

Doesn't it just make you want to gag, once you grasp the hustle? You are "indemnified" by switching away from Linux altogether and on to Solaris. What a deal. Thanks, but no thanks.

Those proprietary software dudes are so smarmy. Maybe that used to work, before the internet. But it's going the way of the dodo now. Darl wrote about mainstream values, but the values reflected in proprietary business methods reveal the stream is polluted. Who wants to do business with people like that? Who even dares to?

And now nobody has to. What I love about GNU/Linux is, there is no fine print. There is no hustle. And there is honor. That alone is a business proposition worthy of your consideration.

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