I found a Dear Fellow Shareholder letter [PDF], written by SCO CEO Darl McBride, dated July 31, 2002, about a month after he joined Caldera. He mentioned this letter in a ZDNET interview back in August of 2002, but this is the first time I've seen the letter.
I learned some interesting things from it. First, Darl bought shares in Caldera in 2000, around the time of the IPO in March.
Second, the letter already mentions the intention to aggressively protect the company's Unix IP assets, as he views them. He asserts that "Caldera owns the technology and other key intellectual property rights to UNIX..." That is a matter of opinion, as Novell begs to differ, claiming in its litigation with SCO that it retained all copyrights. It's interesting to think about the dates.
In Novell's Answer and Counterclaims, it states:
27. By and during early 2003, SCO repeatedly asked Novell to transfer the UNIX Copyrights to SCO. In doing so, SCO conceded that title to the UNIX Copyrights remains exclusively with Novell. Novell rejected all of SCO's requests....
38. In late 2002, SCO repeatedly contacted Novell in connection with SCO's soon-to-be- announced SCOsource campaign. SCO requested copies of certain documentation concerning rights to UNIX, including the agreement between Novell and Santa Cruz. SCO also expressed its interest in a campaign to assert UNIX infringement claims against users of Linux. SCO asked Novell to assist SCO in a Linux licensing program, under which SCO contemplated extracting a license fee from Linux end users to use the UNIX intellectual property purportedly contained in Linux. Novell refused to participate.
39. In aid of its scheme, SCO requested that Novell transfer its UNIX Copyrights to SCO and thereby acknowledged that it did not own the UNIX Copyrights. SCO contacted Novell on multiple occasions by and during early 2003. For example, SCO's CEO, Darl McBride, repeatedly contacted Novell and asked Novell to amend the Novell-Santa Cruz agreement to give SCO the UNIX Copyrights. Novell rejected all of these requests.
That raises the obvious question, at what point, if Novell's story is accurate, did SCO doubt it had the copyrights? SCO, of course, tells it somewhat differently:
38. Admits that in late 2002, as part of the review of its intellectual property, SCO contacted Novell to confirm SCO's understanding that the UNIX and Unixware copyrights had been transferred under the APA and to ask if Novell had documents concerning the APA; admits that Novell counsel and other employees repeatedly and successively asked SCO to call again at a later time after Novell had had the opportunity to research the matter; admits that in early 2003, Novell counsel agreed to sign a letter stating that the APA transferred all right, title, and interest in and to the copyrights associated with the AT&T SVRX software agreements; admits that SCO sent Novell counsel a draft of that letter but Novell responded that it was no longer interested in UNIX and would not sign; admits that Novell did not sign the letter and ceased communications with SCO; further admits that during the aforementioned conversations Novell never asserted its purported, or challenged SCO's, ownership of the UNIX and Unixware copyrights; but denies each and every other allegation of ¶38.
39. Admits that (at Novell's request, as described in ¶38 above) SCO contacted Novell on multiple occasions in early 2003; but denies each and every other allegation of ¶39.
So at some point between this July 2002 letter and "late 2002", SCO seems to have decided it needed to get some paperwork to make its position clear. Either that or the letter wasn't entirely forthcoming, I don't think. If I were a shareholder who either purchased or held on to my investment based on the assertions in this letter, which were repeated to the public through media statements, I guess the question I'd want answered would be, when did SCO realize they needed to contact Novell and get clarity on the copyright issue? If Novell prevails on the copyright ownership issue, the next question is likely to be what did Darl know and when did he know it?
Actually, it isn't only Novell. IBM has recently stated its intent to challenge SCO's ownership claims. In a recent Memorandum it told the court: "IBM reserves the right to challenge SCO's ownership claims over any and all UNIX assets, however, including the copyrights at issue in the Novell litigation." Note IBM says it is talking about challenging SCO's ownership claims over "any and all UNIX assets," not just the copyrights.
And third, look at all the branch offices this company had when Darl took over. No more.
Finally, the tone of the letter is incredibly positive about the company's prospects. Look at point 8 in the letter:
8. Caldera annual revenues will be around $60 million this fiscal year. With just one quarter to go, we are on track with our annual revenue plan. This solid revenue base gives us a good platform to layer in a new growth strategy.
Solid revenue base? On track? I thought he told us the company was going down the drain, that revenues went from $200 million in 1999 to $60 million in 2003 "due primarily to the onslaught of Linux in the marketplace."
Anyway, our SCO saga history project isn't complete without shareholder letters, so if any of you SCO shareholders have any more like this, please let me know.
July 31, 2002
Dear Fellow Shareholder,
On June 27, 2002, I joined Caldera International as President and CEO. During this first month, I have spent a good
amount of time talking to employees, customers and partners. I have been focusing on assets that we can leverage in
the marketplace to gain maximum impact. My initial findings are very encouraging and I wanted to share them with
you in this letter.
1. Caldera owns the technology and other key intellectual property rights to UNIX, one of the world’s
largest, most popular computing platforms. Brands that you may have heard of that derive from our UNIX
intellectual property include UNIX SVRx, UnixWare and SCO Open Server. We can and will be much more
aggressive in marketing and protecting these valuable assets.
2. Caldera has an incredible customer base. Seven of the top ten retailers in the US and six of the top ten in
the world run their businesses on our SCO UNIX. The next time you are in a Sears, Kroger, K-Mart, Target,
JC Penny, Safeway or Costco, thank them for using our point of sale operating system. Other large clients
include McDonalds, NASDAQ, BMW and Radio Shack.
3. Caldera has a worldwide sales and distribution channel. We have over 200 sales and support staff as well
as 16,000 resellers who sell our products. We now have 12 offices selling into 82 countries. Many technology
companies now want to work with us to get their products to our customers. This is a new, interesting growth
prospect that we will more fully leverage in the future.
4. Caldera has a market cap of around $10 million; Red Hat, our number one competitor in the Linux
market, has a market cap of nearly $800 million. Even with similar revenue and operating margins, Red
Hat has a market value that is 80 times higher than ours. It is my belief that Caldera is currently undervalued.
5. Caldera is one of four major participants in UnitedLinux. Linux is the fastest growing computing
platform, and we believe UnitedLinux will be the future standard of choice for business Linux. During the last
ten years, Linux as a business platform has matured and is now, because of UnitedLinux, becoming an
economically viable opportunity for Caldera and its partners. Combined, the participants in UnitedLinux--
Caldera, SuSE, TurboLinux and Conectiva--have a larger revenue base, customer base and geographical
coverage than all other Linux distributors in the world.
6. Caldera is debt free and is moving aggressively towards profitability. This is a big deal for us. We have
moved aggressively to lower our operating expenses. Since acquiring SCO UNIX technology last year, we
have reduced our operating expenses by almost $10 million per quarter.
7. Caldera completed and announced a stock repurchase of 4,304,000 shares on July 22, 2002. Companies
buy back their own stock when they think their future prospects are good. We are bullish on our opportunities
in the marketplace and in our future stock price. By buying back almost a third of our outstanding shares, we
also removed the market overhang on our stock which freed us to invite in a set of new, strategic investors that
will help drive up the value of the Company.
8. Caldera annual revenues will be around $60 million this fiscal year. With just one quarter to go, we are on
track with our annual revenue plan. This solid revenue base gives us a good platform to layer in a new growth
9. Caldera has its products installed on 2,000,000 servers that are running businesses today. Unlike many
technology companies that are currently struggling for new business, we have a huge base of customers that
run our software. Every time a large retail customer opens a new branch outlet, we get a new software sale.
This summarizes my findings so far. My conclusion? I am even more optimistic about our future than I was when I
joined the Company last month. I became a shareholder of Caldera, along with many of you, at the time of their IPO
in March 2000. My goal over the next few years is to make a profit on my initial investment in Caldera.
Thanks for your support and feel free to drop me an email if you have any questions or would like to give input on
adding value to the Company. I also invite you to visit our website at http://www.caldera.com.
Darl C. McBride
President and CEO
Caldera International, Inc.
Excerpts from Recent Caldera Press Releases:
June 27, 2002
Caldera International announced the appointment of Darl McBride as the company’s new president and CEO.
McBride, a technology industry veteran, brings 18 years of executive management and leadership experience to
Caldera. Most recently, McBride was the president of Franklin Covey’s online planning business. Prior to that,
McBride was the CEO of PointServe, a workforce optimization software company and the founder, chairman, and
CEO of SBI and Company, a professional services company. From 1988 to 1996, he worked at networking leader
Novell where he was responsible for growing Novell Japan to more than $100 million in revenue. He concluded his
tenure at Novell as vice president and general manager of Novell’s Embedded Systems Division (NEST).
June 27, 2002
Caldera International, Inc. announced that it has completed the purchase of the shares of its common stock held by
Tarantella, Inc. and MTI Technology Corporation. Caldera acquired 4,304,000 shares or 31 percent of its issued and
outstanding common stock for an aggregate purchase price of $4,029,000, or $0.94 per share. The repurchase of these
shares has reduced the number of issued and outstanding shares of the Company to 9,487,000, of which 5,318,000 are
held by The Canopy Group, Inc., and the remaining 4,169,000 are held by non-affiliates.
May 30, 2002
Linux Industry leaders Caldera International, Inc. (Nasdaq: CALD), Conectiva S.A., SuSE Linux AG, and Turbolinux,
Inc., today announced the organization of UnitedLinux, a new initiative that will streamline Linux development and
certification around a global, uniform distribution of Linux designed for business. UnitedLinux addresses enterprise
customers’ need for a standard, business-focused Linux distribution that is certified to work across hardware and
software platforms, accelerating the adoption of Linux in the enterprise.
CALDERA INTERNATIONAL, INC.
Caldera Taiwan/Hong Kong
New Delhi INDIA
Santa Cruz Office
Santa Cruz, CA
Caldera Systems SARL
New Jersey Office
Murray Hill, NJ
Caldera Deutschland GmbH
Caldera Europe Limited
Watford, UNITED KINGDOM
Amsterdam, The NETHERLANDS
Caldera Systems Italia
Cassina de Pecchi, ITALY
Caldera South Africa
Gauteng. SOUTH AFRICA
Caldera International Korea