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It's Raining Stock Options in Lindon
Thursday, January 26 2006 @ 01:20 AM EST

It's raining stock options on that happy band in Lindon. On January 23, SCO granted executives Darl McBride, Chris Sontag, Ryan Tibbits, Sandy Gupta, Tim Negris, Jeff Hunsaker, and Bert Young a combined total of 400,000 stock options at $3.78.

Gupta got as many as Darl, 80,000, but he has to wait a year for them to be exercisable, as do all the rest, except for McBride. His options appear to be immediately exercisable. Oh, they all fully vest immediately "upon the occurrence of certain specified events."

[ UPDATE: SCO has filed an amended form 4/A, which lists January 23, 2007, not 2006 as the date his shares are exercisable.]

Here's the list:

MCBRIDE DARL C
Number of derivative securities: 80000
Date exercisable: 2006-01-23 (Note Update above, that the date has been amended to 2007.)
Expiration date: 2016-01-23
Price per share: 3.78
Remarks: Grant to reporting person of non-qualified stock options to buy shares of Common Stock under the Company's 2004 Omnibus Stock Incentive Plan. The option vests over a four-year period commencing from the option date or fully vests upon the occurrence of certain specified events.

YOUNG BERT B
Number of derivative securities:70000
Price per share: 3.78
Date exercisable:2007-01-23
Expiration date:2016-01-23
Remarks: Grant to reporting person of non-qualified stock options to buy shares of Common Stock under the Company's 2004 Omnibus Stock Incentive Plan. The option vests over a four-year period commencing from the option date or fully vests upon the occurrence of certain specified events.

HUNSAKER JEFF F
Number of derivative securities: 40000
Price per share: 3.78
Date exercisable:2007-01-23
Expiration date:2016-01-23
Remarks: Grant to reporting person of non-qualified stock options to buy shares of Common Stock under the Company's 2004 Omnibus Stock Incentive Plan. The option vests over a four-year period commencing from the option date or fully vests upon the occurrence of certain specified events.

Gupta Sandy
Price per share: 3.78
Number of derivative securities: 80000
Date exercisable: 2007-01-23
Expiration date:2016-01-23
Remarks: Grant to reporting person of non-qualified stock options to buy shares of Common Stock under the Company's 2004 Omnibus Stock Incentive Plan. The option vests over a four-year period commencing from the option date or fully vests upon the occurrence of certain specified events.

TIBBITTS RYAN E
Number of derivative securities: 50000
Price per share: 3.78
Date exercisable:2007-01-23
Expiration date:2016-01-23
Remarks: Grant to reporting person of non-qualified stock options to buy shares of Common Stock under the Company's 2004 Omnibus Stock Incentive Plan. The option vests over a four-year period commencing from the option date or fully vests upon the occurrence of certain specified events.

SONTAG CHRISTOPHER
Number of derivative securities: 50000
Price per share: 3.78
Date exercisable:2007-01-23
Expiration date: 2016-01-23
Remarks: Grant to reporting person of non-qualified stock options to buy shars of Common Stock under the Company's 2004 Omnibus Stock Incentive Plan. The option vests over a four-year period commencing from the option date or fully vests upon the occurrence of certain specified events.

Negris Timothy Paul
Number of derivative securities: 30000
Price per share: 3.78
Date exercisable: 2007-01-23
Expiration date: 2016-01-23
Remarks: Grant to reporting person of non-qualified options to buy shares of Common Stock under the Company's 2004 Omnibus Stock Incentive Plan. The option vests over a four-year period commencing from the option date or fully vests upon the occurrence of certain specified events.

The SEC filings don't specify what the "certain specified events" are, but you'll recall that on July 13, 2005, as SCO told us in an 8K that month, the Compensation Committee of the board of directors of The SCO Group, Inc. adopted a revised Form Notice of Grant of Stock Options for The SCO Group, Inc. 2004 Omnibus Stock Incentive Plan. So I'm thinking this might be the events list:

6. Special Termination of Option.

(a) In the event of a Corporate Transaction, any options that the Optionee holds that are exercisable will remain exercisable until their expiration, and any options that the Optionee holds that are not exercisable will expire on the date of the Corporate Transaction, unless otherwise provided in an agreement between the Corporation and the Optionee, or the Committee, on a case-by-case basis, elects in writing to waive termination. Any vested, exercisable options that the Optionee holds will be cashed out, converted to an option of the acquiring entity, assumed by the acquiring entity or otherwise disposed of in the manner provided for in any shareholder-approved agreement or plan governing or providing for such Corporate Transaction or, in the absence of such governing provisions, as decided by the Committee consistent with the terms of the Plan.

(b) If this option is assumed in connection with a Corporate Transaction, then this option shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to Optionee in consummation of such Corporate Transaction had the option been exercised immediately prior to such Corporate Transaction, and appropriate adjustments shall also be made to the Exercise Price, provided the aggregate Exercise Price shall remain the same.

(c) This Agreement shall not in any way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure assets. ...

G. Corporate Transaction shall mean any of the following occurrences:

(i) any "person," as such term is used in Sections 13(d) and 14(d) of the 1934 Act (other than the Corporation, any trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of the Corporation representing 50% or more of the combined voting power of the Corporation's then outstanding securities;

(ii) during any period of not more than two consecutive years (not including any period prior to the adoption of the Plan), individuals who at the beginning of such period constitute the Board of Directors and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clause (i), (iii) or (iv) of this section whose election by the Board of Directors or nomination for election was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof;

(iii) the stockholders of the Corporation approve a merger or consolidation of the Corporation with any other corporation, other than (A) a merger or consolidation that would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Corporation (or similar transaction) in which no "person" (as herein above defined) acquires more than 50% of the combined voting power of the Corporation's then outstanding securities; or

(iv) the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all of the Corporation's assets.

The stock was at $3.76 on the 23rd, on what I thought looked like a down trend but today it closed at $3.95, up 2.07% -- so if Darl exercised his options tomorrow, he's already made some money. (Note Update above. The date has been amended to 2007.) Hey, you have to reward your management team or you lose them. SCO depends on Darl. That's what I keep reading in SCO's 10Q SEC filings:

We need to retain our management, technical, and support personnel. Competition for qualified professionals in the software industry is intense, and departures of existing personnel could be disruptive to our business and might result in the departure of other employees. The loss or departure of any officers or key employees could harm our ability to implement our business plan and could adversely affect our operations. Our future success depends to a significant extent on the continued service and coordination of our management team, particularly Darl C. McBride, our President and Chief Executive Officer.

I think we can all agree that this management team truly is one of a kind.


  


It's Raining Stock Options in Lindon | 135 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
Corrections Hear
Authored by: Anonymous on Thursday, January 26 2006 @ 01:30 AM EST
if they're needed.

---
--Bill P, not a lawyer. Question the answers, especially if I give some.

[ Reply to This | # ]

OT Links and Stuff
Authored by: Anonymous on Thursday, January 26 2006 @ 01:32 AM EST
Please use the hints in red below the comment-entry box, and remember to post in
HTML mode.

---
--Bill P, not a lawyer. Question the answers, especially if I give some.

[ Reply to This | # ]

Let's see...
Authored by: kawabago on Thursday, January 26 2006 @ 02:16 AM EST
They took a company with a positive cash flow and $50 million in the bank and
bet the whole thing on a fraudulent lawsuit which backfired. This is behaviour
you reward?


---
TTFN

[ Reply to This | # ]

What Hogwash!
Authored by: Anonymous on Thursday, January 26 2006 @ 03:30 AM EST
Would any real business claim that it's future success depended on the continued
employment of one individual? A mom and pop garage shop maybe, but what
stockholder in his right mind would buy into a company making such a claim?
It's ludicrous!!!

[ Reply to This | # ]

It's Raining Stock Options in Lindon
Authored by: Anonymous on Thursday, January 26 2006 @ 03:31 AM EST
A good manager is one keeping the company in a sstate where it can make do
without him.

[ Reply to This | # ]

  • Funny! - Authored by: Anonymous on Thursday, January 26 2006 @ 02:21 PM EST
What (if anything) could this imply..?
Authored by: Saturn on Thursday, January 26 2006 @ 04:09 AM EST
Given SCO have passed their key deadline for submitting evidence of material misused...
Sorry, I'm not particularly savvy when it comes to exec payouts. Does the issuance and value of these stock option indicate
  • 1) nothing, its just a routine gouging of unjustified cash by greedy managers
  • 2) lack of confidence, the senior staff need long term motivation to stay in post because morale is low and they expect to lose
  • 3) increased confidence, they seriously expect to "profit to teh moon!" when they cash in

---
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
My own opinion, and very humble one too.
Which is probably why I'm not a lawyer.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

[ Reply to This | # ]

$3.95 closing price misleading
Authored by: radicimo on Thursday, January 26 2006 @ 05:57 AM EST
If you look at Time&Sales for SCOX on 25 Jan 2006, you'll see that the share
price was mired between 3.83 and 3.88 from 11:41 EST until 15:59.07 EST. It was
only an order excuted at the last possible second allowable (technically after
the bell) that raised the price to 3.95. Closing print was for 1100 shares at
$3.95 at 16:00.02.866

Not to say that the share price wasn't artificially lowered to achieve the 3.78
strike on the options. Most likely the case.

Having observed the share price of SCOX daily for over 2 years, I can say with
some certainty that the shares have no real market. Within certain bounds,
share price is determined by a few controlling interests, and the public really
has no say in share pricing. Any public shares entering the closed system that
is SCOX on the Nasdaq either find the floor drop out if they are being sold, or
the bid rising in front of them if they are being purchased.

[ Reply to This | # ]

Pretty standard stuff
Authored by: Anonymous on Thursday, January 26 2006 @ 08:05 AM EST
Every company I've dealt with has a policy of periodically refreshing executive
options to keep them from going elsewhere for more lucrative opportunities.
(Yes, you can argue that Darl's performance doesn't merit it, but his directors
have already drunk gallons of his particular kool-aid, so I'd find it more
unusual if they <i>didn't</i> do something like this.)

Accelerating executive options so they can exercise immediately on merger or
acquisition is very standard. A company that I'm involved with is getting
acquired right now, and the executives all get their share of the killing. It's
pretty much expected in the executive ranks.

And every company frames their executive options programs as being necessary to
retain the talented, talented people that are going to lead the company to the
goal of making the investors boatloads of money. What else would you expect
them to say? If they said, "Well, we let him run the company into the
ground," they might be open to shareholder lawsuits for not properly
executing their responsibilities. They chose to start riding this horse a long
time ago, they have to make it look as good as possible.

Not that I'm normally one to defend SCO, but I really don't see anything unusual
here.

[ Reply to This | # ]

Additional title for Darl
Authored by: akempo on Thursday, January 26 2006 @ 08:09 AM EST
I think other than Microsoft, SCO is the first company to employ two CFOs in
quite sometime: one Chief Financial Officer, and one Chief FUD Officer.

akempo

---
Problems cannot be solved on the same level of thinking that created them.
Albert Einstein

[ Reply to This | # ]

Call me a Polyanna
Authored by: Anonymous on Thursday, January 26 2006 @ 08:31 AM EST
The company is going to be bankrupt. Maybe in less than a year. Any ill-gotten
gains that anybody gained will be taken back by the bankrupcy trustee. In that
light, these stock options seem like just more smoke and mirrors.

(No, I haven't been smoking anything, so you can't have any of what I've been
smoking. Maybe someone spiked my tea.)

[ Reply to This | # ]

One of kind? Uh, no
Authored by: Anonymous on Thursday, January 26 2006 @ 08:35 AM EST

You don't think this idea is original with SCO, do you? And a court, especially
a bankruptcy court, could invalidate all this.

[ Reply to This | # ]

Who would hire Darl?
Authored by: Anonymous on Thursday, January 26 2006 @ 08:36 AM EST
I'm sorry but I don't see McBride ever working again in Tech of any kind
anywhere except maybe Microsoft. Any company with a sufficient mass of
technically enlightened employees would be aware of who he is and would recoil
loudly in disgust at the suggestion of hiring him. He is enough of a pariah to
tarnish the image of any company, cause exodus of the best employees, and
attract negative scrutiny and publicity for any new employer.

[ Reply to This | # ]

I don't see the point myself
Authored by: jmc on Thursday, January 26 2006 @ 09:23 AM EST
If what we've heard about Darl's remuneration to date is half-accurate, these
options are peanuts. You're only talking 80,000 times the difference in value.
Darl must really think it's indeed going "to teh moon" if he's going
to make a month's pay out of this.

The others may not get anything if Judge Kimball starts to gut either of the
Novell and IBM cases this year - especially if SCO's funds are frozen.

What other investors there are are seeing their holdings diluted, so they may
get annoyed by what could be seen as feathering of nests.

I'd really like to know what purpose all this serves because I can't see it.
Maybe Darl knows something the others don't?

[ Reply to This | # ]

Neat - so when do we hear from Darl?
Authored by: The Mad Hatter r on Thursday, January 26 2006 @ 10:29 AM EST


OK, so they reward him. Fine. Now I want to hear a vintage Darl McBride public
statement. I could really use a good laugh today.


---
Wayne

http://urbanterrorist.blogspot.com/

[ Reply to This | # ]

It's Raining Stock Options in Lindon
Authored by: rsi on Thursday, January 26 2006 @ 10:46 AM EST
"I think we can all agree that this management team truly is one of a kind."

I certainly hope so! What a world this would be if we had more SCO's!

[ Reply to This | # ]

January Short Interest
Authored by: stats_for_all on Thursday, January 26 2006 @ 11:19 AM EST
January follows the pattern of a slow erosion in short interest, days to cover has increased due to fall off in volume-- the last week of January has seen a pick-up in volume, however.

Date         |     Short    |     Avg Vol    |     Days to cover    |     Delta
01/13/06    |     3,877,718     |     19,050     |     204    |     (53,913)
12/15/05    |     3,931,631     |     26,967     |     146    |     (23,299)
11/15/05    |     3,954,930     |     41,227     |       96    |     (39,009)
10/14/05    |     3,993,939     |     18,664     |     214    |     (19,403)
09/15/05    |     4,013,342     |     37,030     |     108    |     (49,385)
08/15/05    |     4,062,727     |     43,114     |     94       |         6,516
07/15/05    |     4,056,211     |     27,910     |     145    |     (21,578)
06/15/05    |     4,077,789     |     34,155     |     119    |     (16,687)
05/13/05    |     4,094,476     |     43,192     |       95    |     (5,365)
04/15/05    |     4,099,841     |     55,721     |       74    |     31,281
03/15/05    |     4,068,560     |     60,228     |       68    |     68,519
02/15/05    |     4,000,041     |   141,296     |       28    |    

[ Reply to This | # ]

Its in lieu of Salary
Authored by: argee on Thursday, January 26 2006 @ 11:26 AM EST
The company is short of money; it offers a stock
option to the execs. The execs excercise the option.
The company issues a salary check, and the exec
immediately sign it back to the company for stock.
Its just another way of paying salary with stock.

---
--
argee

[ Reply to This | # ]

FUD from some Microsoft news ???
Authored by: Anonymous on Thursday, January 26 2006 @ 11:52 AM EST
This story from some Microsoft news have to be analyzing

http://bink.nu/Article3238.bink

Mike

[ Reply to This | # ]

certain specified events...
Authored by: Anonymous on Thursday, January 26 2006 @ 12:06 PM EST
Does that mean Daryl is receiving his Golden Parachute?

Its probably to finance his quick exit to an Island somewhere so he does not
"go down" during an upcoming DoJ trial. That way everyone at SCOg left
behind can point the finger at Daryl and say that he did it all without their
knowlege.

[ Reply to This | # ]

It'll be interesting if he gets jail time.
Authored by: Anonymous on Thursday, January 26 2006 @ 01:12 PM EST
Being a convicted felon closes a lot of doors. I'd say there is a considerably
greater than zero probability of that happening.

I'm not accusing him of anything specific but it is my observation that cases of
like this often generate criminal charges.

What kind of case do I think this is? It will become a bankrupcy case. Most
bankrupcy cases do not result in criminal charges. On the other hand cases
where a number of the creditors feel severely ripped off, often do. I would say
that in this case, there will be people willing to pay their lawyers to make
sure Darl and Frank face charges. Yes, I realize that it's the guvermint that
actually lays the charges but they usually act on a complaint from someone. For
instance, if it hadn't been for the shareholders, I bet that Conrad Black
wouldn't be facing charges.

[ Reply to This | # ]

a combined total of 400,000 stock options at $3.78
Authored by: Anonymous on Thursday, January 26 2006 @ 02:22 PM EST
a combined total of 400,000 stock options at $3.78

That's $3.78 per share, right? Or is it $3.78 for all 400,000 shares?

Well, I have to ask. Both valuations make equal sense to me...

-Wang-Lo.

[ Reply to This | # ]

It's Raining Stock Options in Lindon
Authored by: Anonymous on Thursday, January 26 2006 @ 03:36 PM EST
Get your free SCOX stock options -- in specially marked boxes of Fruit
Loops!!!!!!!!

(While supplies last, void where prohibitted by law, not to be construed as
investment advice, taxes extra....)



[ Reply to This | # ]

Re: It's Raining Stock Options in Lindon
Authored by: Anonymous on Thursday, January 26 2006 @ 08:18 PM EST

"This is the captain speaking. It looks like there's some rough weather ahead so I've turned on the 'fasten your seatbelts' sign and I've asked the cabin staff to begin passing out the Golden Parachutes. Please enjoy the remainder of the flight."

[ Reply to This | # ]

Darl's form updated with SEC -- it was an error
Authored by: belzecue on Thursday, January 26 2006 @ 09:43 PM EST
Darl's Date Exercisable has been amended to bring it in line with all the
others: 2006-01-23

It was a typo.

[ Reply to This | # ]

Yeah they have to retain Darl
Authored by: Anonymous on Thursday, January 26 2006 @ 10:28 PM EST
He has a nasty habit of suing his former employers.

[ Reply to This | # ]

Accountants wanted - Effect of option grants on earnings
Authored by: Anonymous on Thursday, January 26 2006 @ 10:35 PM EST
I believe this options grant more significant that what's currently being discussed here. Here's why:

Recently, a new accounting rule has been introduced by the Financial Accounting Standards Board (FASB). The rule, FAS 123(R) mandates that companies start treating option grants like these as an expense on the income statements as of 2006. As a result, many companies have significantly reduced the number of options they have been granting. Microsoft is a good example. They have completely stopped issuing options, and started issuing restricted-stock (stock that cannot be sold immediately) instead.

How much of an expense? The FASB madates accounting for options based on their "fair-value" according to the Black-Scholes Formula

This fair value should be significant because:

  • the implied volatility of the underlying stock (SCOX) is very high, and
  • The expiration date is very far in the future (2016)
Multiply by 2.2% dilution (400,000 options just granted) and you get some pretty high impact on earnings. If there is anyone reading this that could:
  • Make the exact calculation based on Black-Scholes (this is a bit tricky since SCOX is not an optionable stock in the open market, AFAICT)
  • Estimate the impact on earnings

This would be greatly appreciated. Thanks.

[ Reply to This | # ]

It's Raining Stock Options in Lindon
Authored by: blacklight on Friday, January 27 2006 @ 10:27 PM EST
This is totally off-topic, but relevant in the sense that SCOG cut its nose to
spite its face when it divorced itself from Linux: I suspect from my own current
job seeking experience (OK, I admit it: I am looking) that at least some
enterprises deliberately downplay the extent of their involvement with Open
Source technologies:

(1) If you were a telecom or a VOIP provider, and you had successfully scaled
Asterisk to serve several thousand users, would you be writing a white paper
explaining how you did it so that your competitors would have an easier time?

(2) If you were a major brokerage and you got yourself some terrific advantages
using Linux, would you be telling the world in exhaustive detail? Because if you
did, the CIO of say Merrill Lynch will be pounding the table the next day at an
emergency management meeting and demanding to know why the IT staff fell asleep
at the switch and why said IT staff is not doing what you are doing.

I mean, helping one's competitors become more effective instead of introducing
them to the glamorous world of soup kitchens: who would want that on his or her
conscience?


---
Know your enemies well, because that's the only way you are going to defeat
them. And know your friends even better, just in case they become your enemies.

[ Reply to This | # ]

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