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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K-A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _______________
------------------------------------
COMMISSION FILE NUMBER 0-21484
THE SANTA CRUZ OPERATION, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2549086
(State or other jurisdiction (I.R.S. Employer
of incorporation Identification No.)
or organization)
400 ENCINAL STREET, SANTA CRUZ, CALIFORNIA 95060
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (831) 425-7222
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
PREFERRED SHARE PURCHASE RIGHTS COMMON STOCK, NO PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [Yes] [X] [No]
Registrant became subject to such filing requirements on May 25, 1993 as a
result of its initial public offering.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to
contained to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on __________
as reported on the Nasdaq National Market was approximately $_________. Shares
of Common Stock held by each executive officer and director and by each person
who owns 5% or more of the outstanding Common Stock have been excluded in that
such persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
As of October 25, 2000, registrant had 36,166,763 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1999 Annual Report to Shareholders are incorporated by reference
into Parts I, II and IV.
Portions of the definitive Proxy Statement dated on or about January 22, 2000
delivered to shareholders in connection with the Annual Meeting of
Shareholders to be held February 22, 2000 are incorporated by reference into
Part III.
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THE SANTA CRUZ OPERATION, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
<TABLE>
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PART I PAGE NUMBER
<S> <C>
Item 1. Business 1
Item 2. Properties 15
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Executive Officers of the Registrant 16
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters 19
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 19
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreement with Accountants on Accounting
and Financial Disclosures 20
PART III
Item 10. Directors and Executive Officers of the Registrant 21
Item 11. Executive Compensation 21
Item 12. Security Ownership of Certain Beneficial Owners
and Management 21
Item 13. Certain Relationships and Related Transactions 21
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports
on Form 8-K 22
Signatures 24
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PART I
ITEM 1. BUSINESS
NOTE: This report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's expectations only as of the date hereof. The Company
undertakes no obligation to publicly release the results of any revision to
these forward-looking statements, which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
INTRODUCTION
Founded in 1979, SCO went public on the Nasdaq Stock Exchange (Nasdaq: SCOC) in
1993. SCO is a global developer and provider of server software for networked
business computing. The Company is the world's leading provider of UNIX(R)
server operating systems, and creator of the award-winning Tarantella(R)
software, which provides users with instant web-browser access to applications
running on a wide range of networked servers, including mainframes,
minicomputers, Windows(R) NT(TM), and UNIX System servers. SCO also provides a
full range of Professional Consulting and Engineering Services for audits,
deployment, and maintenance. SCO Professional Services are available for SCO
OpenServer, UnixWare, Tarantella, Linux and Open Source systems.
SCO has 20 years of experience developing UNIX system, open system, and open
source software. SCO owns the intellectual property for UNIX system technology
and Tarantella web-enabling software. Headquartered in Santa Cruz, California,
SCO has sales representatives in more than 80 countries. SCO products are sold
and distributed worldwide by more than 15,000 resellers, distributors, systems
integrators and computer manufacturers.
VISION AND MISSION: SERVER-BASED NETWORK COMPUTING
SCO's vision is that server-based network computing powers all enterprises.
SCO's mission is to create, market, and support the server software that system
builders choose for networked business computing.
IMPORTANCE OF SERVER-BASED NETWORK COMPUTING
A major drawback of today's PC-centric client/server model is the high cost of
system administration, maintenance, and software updates. When businesses move
to a server-based network computing model, they can administer and update client
software from the server, saving inordinate amounts of time and money. Companies
that adopt a server-based computing model can understand their customers better,
reach wider potential markets, bring products to market faster, and improve
their overall customer satisfaction levels.
COMPANY STRATEGY
SCO's business strategy is threefold: 1) to provide the leading UNIX server
software for high-volume Intel processor based servers; 2) to web-enable
existing and new applications with server-based software across multiple
platforms; and 3) to provide technical expertise to companies via its
Professional Services organization.
ADVANTAGES OF SCO SERVER SYSTEMS
Business-critical servers running SCO system software combine the best qualities
of stand-alone PCs (personal productivity, ease of use and price-performance
value) with the traditional strengths of UNIX System servers (business-critical
applications, data management, security, and network administration). SCO
servers feature the following performance characteristics to meet customer
requirements: 1) support for business-critical, transaction-based applications,
2) capabilities for providing a permanent, auditable history of operations, 3)
top performance and scalability at low cost, 4) support for multiple users
performing multiple tasks, 5) high-level security, 6) reliability and
manageability, 7) support for a wide
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range of client devices, including not only Microsoft Windows PC desktops and
laptops, but also UNIX workstations, thin clients, and the browser-based network
computers known as NCs, and 8) expert service and support.
BENEFITS TO CUSTOMERS
SCO products deliver four key advantages to customers:
- Server-based Computing - SCO server software makes it easier to deploy,
secure, manage, and grow applications and information systems.
- Client Independence - SCO server software supports many kinds of client
devices, so that businesses can choose the device that best suits a task.
- Evolutionary Systems - SCO server software protects current hardware and
software investments while enabling businesses to adopt the latest
technological advances.
- Global Services - SCO delivers the expert consulting, training, and
technical support services that businesses worldwide require.
IMPORTANCE OF INTEL PROCESSORS
SCO has focused primarily on Intel processor based servers because of Intel's
dominant position in the microprocessor-based computer market and the potential
of Intel processor based servers in the growing market for server-based network
computing. Intel processor based servers offer price-performance value that
derives from their high volume, relatively low cost, and global availability
from numerous competing system vendors. Industry analysts generally agree that,
as Intel processor based servers continue to provide increasingly greater
performance at an affordable price, they will increasingly displace the more
costly RISC processor based servers that currently dominate high-end server
environments.
SCO has supported each successive generation of Intel processors, beginning in
1983, delivering an extensive line of highly reliable and stable UNIX operating
system products over the past 17 years. During that period, SCO has also
developed optional layered and Internet software products for the Intel
platform, as well as new Tarantella web-enabling software that runs on many
different kinds of servers, including not only Intel processor based servers,
but also RISC processor based servers.
The Company's extensive engineering capabilities and product enhancement
programs support complex, networked business critical servers across the full
range of Intel microprocessors, including the most recent Pentium, Pentium II
and Pentium Pro(R) processors. Looking to the future, SCO and IBM are
cooperatively developing a new high-volume enterprise UNIX System for Intel's
next generation of 64-bit processors, the first of which is called Itanium(TM).
SCO software is compatible with Intel processor based servers offered by
virtually all of the major hardware vendors. Because SCO products support
multiple processors and can execute multiple applications simultaneously, they
are especially well suited for business critical servers that provide data
access and business-critical applications to users throughout the enterprise.
IMPORTANCE OF UNIX OPERATING SYSTEMS
SCO bases its server operating system software on the UNIX System, which has
been in use since the 1970s. The UNIX System is a native multi-user,
multi-tasking technology that allows application programs to be separated from
operating system tasks such as control of peripheral devices, communications,
memory management and file management. This provides a standardized, protected
environment in which the applications operate. This results in much higher
reliability, because multiple applications and users cannot interfere with each
other. It also simplifies application development because the operating system
handles many complex functions that might otherwise have to be delegated to the
application.
UNIX Systems are well known for their reliability, availability, scalability,
and security features. Reliability and availability refer to the extremely high
mean time between failures on UNIX Systems, and to the UNIX System's ability to
"failover" to a backup system without shutting down operations. Scalability
refers to the UNIX operating system's ability to scale easily up from
uni-processor to multi-processor systems, including clustered systems of
multiple processors each. Security refers to the UNIX
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System's ability to resist access by unauthorized persons over a network, or
over the Internet, for example. UNIX Systems from SCO meet US government-level
C2 and B2 security requirements.
SCO believes that UNIX System technology is only the beginning of the solution,
and that considerable value must be added to the basic technology to create a
family of products that solve complex customer requirements for business
critical servers. Business and government organizations are increasingly
demanding adherence to standards-based open systems to protect their computing
investment and avoid reliance on a single vendor's hardware or software. For
such customers, the proprietary implementations of UNIX Systems that have in the
past dominated the technical and scientific workstation market are unacceptable.
These proprietary versions of UNIX systems run on proprietary, RISC
processor-based, hardware architectures that are more expensive than Intel
processor based architectures. Because these versions of the UNIX System are
tied to particular hardware vendors, they can lock customers into a long-term
business relationship with a single vendor. Vendor lock-in can make it difficult
for customers to introduce new technology from other vendors into their
information systems without disrupting their current operations and having to
replace hardware and software at great cost. Applications that run on these
proprietary UNIX Systems usually come from the same vendor as well, or must be
developed specifically for these proprietary systems. Business and government
organizations require broad availability of third-party application software so
that they can use predefined solutions and, to the extent possible, avoid having
to develop custom applications. When custom applications are required, these
customers need a development environment and tools that make it easier to
produce and deploy these applications across multiple hardware architectures. In
addition, these customers require a high level of support, including consulting
services and training, as well as continual product enhancements to incorporate
new technology and industry standards.
This is why SCO has committed itself to building its systems on open system
technologies (standards-based technologies that support multiple hardware and
software systems in a networked environment) that run on Intel processor based
servers. SCO has a long tradition of integrating leading-edge technologies from
other vendors into its own UNIX operating systems, providing customers with
best-of-breed solutions. In addition, SCO acquired ownership of UNIX System
technology in fiscal year 1996 from Novell Corporation, which had earlier
acquired it from AT&T's UNIX System Laboratories, the original developer. SCO
therefore now controls the source UNIX system technology, enabling the Company
to continue developing new versions of the UNIX System for high-volume Intel
processor based systems that compete successfully against proprietary RISC based
systems on performance and price. Because these Intel processor based servers
are available from multiple hardware vendors around the world, customers
preserve their freedom to choose their system providers.
TARGET MARKETS
The Company targets three major market segments: (1) primary information systems
for small and medium-sized businesses, (2) replicated systems for use in
distributed information systems in medium-sized and large organizations,
including Fortune 1000 Corporations, and (3) business-critical enterprise
servers for large and medium-sized businesses. Key targeted industries include
retail and telecommunications.
The Company continues to drive the Small and Medium Business (SMB) market
forward with new products, such as SCO OpenServer Release 5.0.5, which
incorporates the latest Internet and multimedia technologies, and the new
UnixWare 7 Business Edition. Many of today's largest retail chains, with
numerous replicated sites, depend on SCO OpenServer to run their day-to-day
operations.
For enterprise environments, SCO delivers high-end editions of UnixWare 7 and
UnixWare 7 NonStop Clusters.
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Meanwhile, SCO is also accelerating its growth into the enterprise computing
market with Tarantella. Tarantella provides virtually any client device on the
network with secure, Web browser access to any server application on the
network.
INTEGRATING WINDOWS PCS AND DIVERSE CLIENTS WITH UNIX SERVERS
SCO intends to provide the best server for Network Computing, which means
providing the best server for a wide range of client devices, including not only
Microsoft Windows PC desktops and laptops, but also UNIX workstations,
Xterminals, character-based terminals, and network computers or NCs. The goal of
this strategy is to enable organizations to take full advantage of
cost-effective client devices that can run the new Java-based applications and
exchange information across the Internet and corporate intranets.
SCO continues to support its Windows Integration strategy. The four cornerstones
of this strategy are solutions for: connectivity between SCO servers and Windows
desktops; manageability of Windows desktops from SCO servers; the ability to
take advantage of users' Windows skills by making SCO UNIX System applications
appear and behave like those on Windows; and interoperability between Windows
and UNIX System applications. SCO provides a full line of Windows Integration
Products, called the SCO Vision 2K Suite.
In addition, SCO offers Tarantella, the Company's web-enabling software.
Tarantella enables customers to deliver both new and existing applications to
any Java technology-enabled client. These applications include Windows, UNIX
system, and mainframe applications. The clients can be palmtop devices, Web TV,
a mobile phone, a NC, a character terminal or a PC.
SUPPORTING A WIDE RANGE OF APPLICATIONS
Because purchase decisions are often driven by the availability of applications,
SCO has positioned its products as a strategic platform for developers of
business applications. Developers write software compatible with SCO's products
because of SCO's leadership in the UNIX market for Intel processor-based
computers and its support for a wide range of hardware vendors. Applications
written for the SCO environment run on over 2,700 types of computers and
peripherals, and can be readily ported to proprietary or other RISC-based UNIX
systems, thus expanding the market opportunity for the developer. SCO places
particular emphasis on ensuring that SCO business critical servers provide
optimal support for the leading client/server applications, the new Java
system-based applications, and the leading relational database management
systems. Major software vendors that offer application software for the SCO
environment include Banyan, Computer Associates, Informix, Lotus, Microsoft,
Oracle, Novell, Progress, and Sybase. In total, over 15,000 independent software
vendors (ISVs), representing over 15,000 business-critical applications support
SCO UNIX Systems.
DELIVERING COMPREHENSIVE SUPPORT SERVICES
SCO continues to expand its delivery of support services to meet the needs of
customers using complex, multivendor computer systems. The Professional Services
division of SCO offers a series of Linux-related services to help enterprise
customers evaluate and manage the cost, benefits and risk of Open Source
technologies. These new services are part of SCO's ongoing strategy to fully
support the increasingly popular network computing model, which favors
heterogeneous client devices and application environments from multiple vendors.
SCO also works closely with resellers and OEMs to offer channel-delivered
support programs to meet the needs of customers in its target markets. SCO
Services offerings include a range of telephone support options, a CD-based SCO
Support Library, on-line services, and high-level consulting and engineering
services. These flexible services give customers a choice of support plans and
pricing models. In addition, comprehensive education and training programs for
resellers and end users are available though the Company's Advanced Education
Centers. Information on these programs is available on the Services and Support
page of the SCO Web site (www.sco.com).
PROVIDING TRUE OPEN SYSTEMS PRODUCTS
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Because customers are increasingly reluctant to be restricted to a single
computer vendor, the Company has designed its software products to support
industry-accepted open systems standards. Open systems are those systems which
conform to established industry standards such as I20, XPG-4, Spec 1170, DCE and
OSF/Motif(R) from The Open Group, POSIX(R) from IEEE, Federal Information
Processing Standard (FIPS) from the National Institute of Standards (NIST), and
Internet standards. SCO continuously works with standards organizations such as
The Open Group to assure continued conformance to open systems standards.
Industry standards may be established by organizations composed of vendors, by
government agencies, by academic institutions, or by market acceptance. Industry
standards typically are based on specifications that allow competing
implementations. Because these standards are open, competitors can readily
access the technology to include in their products. Industry standards offer the
customer a cost-effective computing solution by providing a high degree of
compatibility and interoperability among hardware, software, network and
peripheral products. Based on published directories listing vendors and
applications, the Company believes there are currently over 15,000
business-critical software solutions compatible with SCO's products.
DISTRIBUTING PRODUCTS WORLDWIDE
In contrast to operating system software for stand-alone PCs and small networks,
system software for business critical servers requires sophisticated
distribution and support. Over the past 16 years, SCO has developed a highly
trained, multi-tiered, value-added distribution and support infrastructure. This
worldwide network includes over 15,000 resellers and distributors. These parties
implement and support specific solutions for corporate, government and smaller
business customers by integrating SCO's products with those of other vendors.
SCO and its distribution network work together to provide comprehensive support
services ranging from engineering and consulting services to technical support
and training and education.
EVANGELIZING TO DEVELOPERS AND EDUCATIONAL INSTITUTIONS
SCO maintains developer and reseller programs to assist independent software
developers (ISVs) and channel partners in both the development and marketing of
SCO business critical servers. SCO developer and reseller programs include joint
marketing campaigns, information exchange, and special access to product
updates, enhancements, and new releases. The Company has established a program
to focus on the use of SCO products at schools and universities, and makes free
copies of its UNIX server licenses available to non-commercial organizations.
EXECUTING GLOBAL STRATEGY
The Company's products are designed to support customers throughout the world,
with local language versions available for Europe, Asia, and Latin America. SCO
maintains sales, distribution and representative offices throughout the world
including those in the U.K., France, Germany, Italy, Denmark, India, Australia,
Singapore, Japan, Canada, Hong Kong, China, Mexico, and throughout the U.S. In
addition, the Company has established design and development centers in the U.K.
and the U.S. to meet company-wide and local product development requirements.
BRIEF HISTORY OF SCO PRODUCTS
- 1983 - SCO(R) XENIX(R) System V, a packaged version of the
UNIX(R)operating system.
- 1985 - SCO XENIX 286, its first operating system for the 32-bit Intel(R)
microprocessor environment.
- 1987 - SCO XENIX 386.
- 1989 - SCO UNIX System V/386, its first UNIX trademarked commercial
product for Intel processor based platforms.
- 1990 - SCO Open Desktop(R), a graphical version of SCO UNIX System
V/386.
- 1993 - SCO OpenServer(TM) software family, a complete line of advanced
server.
- 1993 - SCO Open Desktop family, a complete line of advanced workstation
(client) operating systems.
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- 1995 - SCO OpenServer family, which integrated SCO OpenServer and SCO
Open Desktop product lines.
- 1995 - SCO Vision family of client-integration products, which integrate
Windows(R) PCs with UNIX servers from all major UNIX system vendors.
- 1995 - SCO created an Optional Services Products division which provides
middleware to enhance the capabilities of SCO OpenServer Systems, as
well as UNIX Servers from other vendors.
- 1995 - SCO acquired the UnixWare(R)product line and UNIX system
technology from Novell, Inc.
- 1997 - Tarantella web-enabling software.
- 1998 - UnixWare 7 Operating System.
- 1998 - SCO joined with IBM to begin developing new high-volume
enterprise UNIX System for 64-bit processor servers, called "Project
Monterey." This product line is designed to run on Intel IA-32, Intel
IA-64 and IBM microprocessor systems that range from entry-level servers
to large enterprise environments.
- 1999 - UnixWare 7 Release 7.1 Operating System, featuring SCO's new
Webtop technology based on Tarantella software.
- 1999 - New series of Linux-related Professional Services offerings to
assist enterprise customers evaluate and manage the cost, benefits and
risk of Open Source technologies.
CURRENT PRODUCTS
The Company offers three categories of products: (1) UNIX server operating
system products, which include optional server products, (2) Tarantella
software, and (3) SCO Vision 2K Suite.
UNIX SERVER OPERATING SYSTEM PRODUCTS
UNIXWARE 7
UnixWare(R) 7 has been built from the ground up to support distributed network
computing on cost-efficient Intel(R) processor-based servers. Running on the new
generation of "enterprise-class" Intel processors, UnixWare 7 delivers a new
level of power, value and versatility to businesses of all sizes. Now customers
can dramatically simplify and increase their business operations and better
understand their customers' to gain a powerful competitive advantage in their
markets. UnixWare 7 is supported by leading enterprise application vendors, and
backed by more enterprise hardware manufacturers than any other UNIX server
environment. As an applications server, UnixWare 7 provides all of the facets of
business critical computing, including built-in security, reliability, and fault
tolerance on a standard, cost-effective, and high-performance Intel single- or
multi-processor hardware platform.
UnixWare 7 features the industry's first integrated Webtop, based on the
award-winning SCO(R) Tarantella(TM) technology. Now applications can be
instantly Web-enabled, taking businesses swiftly into the Internet age.
UnixWare 7 NonStop Clusters greatly extends the record-breaking availability and
scalability of the UnixWare 7 operating system by creating a computing
environment made up of nodes (individual servers) that communicate via a
high-speed interconnect. These "clusters" of nodes enable massive scaling of
applications and provide a reliable fail-over environment should one of the
nodes become disabled.
UNIXWARE 7 EDITIONS
UnixWare 7 Base Edition - Base-line services for building dedicated or
specialized server environments, such as telecommunications equipment and other
embedded systems. It also excels as a powerful graphical workstation.
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UnixWare 7 Business Edition - For small businesses or workgroups requiring file
and print services, reliable access to diverse applications, and the ability to
expand system capability as the organization grows.
UnixWare 7 Departmental Edition - For departmental servers in medium or large
organizations to run applications and reliably share business critical
information with any client including PCs, NCs, terminals and any Java-enabled
browser client.
UnixWare 7 Enterprise Edition - For medium-to-high-end enterprise servers to run
large-scale business applications and databases for decision support and on-line
transaction processing.
UnixWare 7 Data Center Edition - For the highest-end multi-purpose servers
demanding 24x7x365 availability, supporting hundreds or thousands of end-users
by supplying access to a wide range of applications from a variety of clients.
UNIXWARE 7 NONSTOP CLUSTERS RELEASE 7.1
UnixWare 7 NonStop Clusters provide totally dependable access to your
business-critical data and applications. UnixWare 7 NonStop Clusters software
links individual "nodes" - whole computers, each running its own copy of the
operating system - such that they act and appear as a single system. If one node
goes down, or if an application fails on a particular node, processes are
actively migrated and resumed. If a node needs to be taken off-line, for
maintenance or upgrading, the rest of the cluster continues to service its
users. Other nodes in the cluster take care of new connections or instances of
applications. In this way, downtime, planned or unplanned, is eliminated.
UNIXWARE 7 ReliantHA 1.1
UnixWare 7 ReliantHA extends the high performance, Reliability, Availability and
Scalability (RAS) characteristics of the UnixWare 7 server operating system
editions to provide continuous monitoring and fault detection of applications,
resources and entire nodes. In the event of a failure, automated recovery
scripts are initiated to enable rapid or transparent restoration of services,
depending on the application.
PROJECT MONTEREY - THE HIGH-VOLUME ENTERPRISE UNIX PLATFORM
SCO has joined with IBM, with support from Intel, to deliver the leading
high-volume, enterprise UNIX system for the 21st century. With more OEM backing
than any other commercial UNIX system being developed for Intel's forthcoming
Itanium(TM) 64-bit processor, Project Monterey continues to gain ISV support and
customer acceptance as the next UNIX system standard. As part of Project
Monterey, IBM supports UnixWare 7 as its standard commercial UNIX for Intel
IA-32 environments, further enhancing SCO's overall market visibility (see
www.projectmonterey.com).
SCO OPENSERVER
The SCO OpenServer system is today's leading UNIX server operating system for
Intel processor-based platforms. Businesses use SCO OpenServer systems to
simplify and speed business operations, better understand and respond to their
customers' needs, and achieve a competitive advantage. SCO OpenServer systems
are exceptional at running multi-user, transaction-based DBMS and business
applications, communications gateways, mail and messaging servers in both host
and client/server environments. SCO OpenServer Release 5 combines
minicomputer-level reliability and availability with the Intel platform's
exceptional price/performance, value and flexibility. Unlike other advanced
operating systems, SCO OpenServer Systems revolutionize business productivity
without obsoleting existing business critical systems, applications or data.
Designed expressly for business critical computing, SCO OpenServer systems
deliver what today's organizations are seeking-exceptional value and
price/performance, extensible networking with existing LANs and WANs, easy
integration with Windows desktops, built-in Internet access and services,
simplified administration and management, and outstanding scalability for long
term growth.
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BASE SCO OPENSERVER OPERATING SYSTEMS
SCO OpenServer Enterprise System - In addition to the critical business
applications, SCO OpenServer Enterprise System reliably provides a variety of
network services including file and print services for both UNIX(R) and Windows
systems, E-Mail services, web services, Internet connectivity, and calendar
services.
SCO OpenServer Host System - The SCO OpenServer Host System is an excellent
platform for delivering highly reliable, non-networked multi-user solutions.
SCO OpenServer Development System - The SCO OpenServer Development System is
comprised of a core set of development tools that can be easily augmented with
over 200 third-party products to create the most robust and efficient
development environment.
SCO OpenServer Desktop System - The Desktop System excels at running
client-side, transaction-based applications, accessing databases and networked
information, and providing file/resource sharing and communications across a
range of peer, server and host environments.
SCO OPTIONAL SERVICES PRODUCTS
SCO Optional Services Products provide enhancements to extend the SCO OpenServer
or UnixWare 7 product standard configurations with services that support
customers' unique environment and needs.
SCO OPTIONAL SERVICES PRODUCTS FOR UNIXWARE 7
NetWare Services 4.10 - With NetWare Services a UnixWare application server can
easily and transparently be accessed by NetWare clients, enabling seamless
integration into existing Novell environments.
SCO Advanced File and Print Services - SCO Advanced File and Print Server 4.0
enables enterprise-wide, scalable file and printer sharing with PCs running
Microsoft Windows 95, Windows 98, Windows NT, Windows 3.x, OS/2 and MS-DOS.
SCO Merge - SCO Merge runs Windows and DOS applications on SCO OpenServer and
UnixWare 7 systems. Windows 95,Windows 3.1, and DOS applications run
simultaneously with business critical UNIX applications. A common filesystem
allows Windows, DOS, and UNIX users to share data. Windows, DOS, and UNIX users
simultaneously share printers and other standard PC peripherals.
SCO VisionFS - SCO VisionFS for UnixWare 7 and SCO OpenServer provides
high-performance robust SMB file and printer sharing from UNIX(R) Systems to PC
clients running Windows, and provides basic access to server applications.
SCO ARCserveIT6.6 from Computer Associates - A comprehensive, network backup,
restore and data management system for enterprise networks. It is an ideal
system for managing the backup of large servers and heterogeneous networks.
UnixWare 7 Online Data Manager - This is a cost-effective, enterprise-class
storage management solution for high availability and online volume management.
It provides software RAID Levels 0, 1, 5, 10 (striping, mirroring, striping
distributed parity and striped mirroring) as well as disk spanning capabilities.
UnixWare 7 Disk Mirroring - UnixWare 7 Disk Mirroring provides increased data
availability by providing fault tolerance against failures and faster access via
software RAID Level 1 (simple disk mirroring).
SCO OPTIONAL SERVICES PRODUCTS FOR SCO OPENSERVER 5
SCO Advanced File and Print Server - Seamless Integration of UNIX Servers and
Windows. The SCO Advanced File and Print Server, when used with SCO OpenServer
Release 5, creates a UNIX system based
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network operating system that allows file and printer access to PCs running
Microsoft Windows 95, Windows NT, Windows 3.x, OS/2(R), and MS-DOS.
SCO ARCserve/Open from Cheyenne - Multi-platform Network Backup and Restore. -
ARCserve/Open is an easy-to-use, high-performance, comprehensive data management
tool for enterprise networks. ARCserve/Open provides the robust feature set that
administrators require and the simplicity necessary for end-users to do their
own backups.
SCO Doctor and SCO Doctor for Networks(TM) - The SCO Doctor and SCO Doctor for
Networks are advanced systems management tools that address the many UNIX system
configurations in use today. SCO Doctor incorporates advanced process
monitoring, accurate diagnosis and automatic problem correction. Notification of
alerts can be communicated to the administrator via pop-ups on the Doctor
console, the built-in pager support, or by e-mail notices. Alerts, in turn,
invoke intelligent action programs to automatically correct the problem or
notify the system administrator that intervention is required.
SCO Merge - SCO Merge runs Windows and DOS applications on SCO OpenServer and
UnixWare 7 systems. Windows 95,Windows 3.1, and DOS applications run
simultaneously with business critical UNIX applications. A common filesystem
allows Windows, DOS, and UNIX users to share data. Windows, DOS, and UNIX users
simultaneously share printers and other standard PC peripherals.
SCO VisionFS - SCO VisionFS for UnixWare 7 and SCO OpenServer provides
high-performance robust SMB file and printer sharing from UNIX(R) Systems to PC
clients running Windows, and provides basic access to server applications.
TARANTELLA
Tarantella is software that provides centralized deployment and management of
server-based applications. It is designed for IT professionals who need to
provide users with instant access to applications and services, and provides
centralized deployment and management of server-based applications. Unlike some
competing products, (for example, Citrix products) Tarantella enables
centralized management of application access.
Tarantella uses standard protocols and leverages Internet standards. It is a
non-invasive technology, and has a customizable Webtop. A low-risk, drop-in
solution, Tarantella continually monitors and optimizes performance and provides
a single access point for all of a user's applications.
Tarantella dramatically lowers the total cost of ownership by supporting
hardware and software already in use, by eliminating the cost of installing
software on clients, and by providing centralized system administration. With
Tarantella, organizations can move their current applications onto the network
without rewriting code or disrupting their current operations.
SCO VISION2K SUITE
The SCO Vision2K Suite includes powerful and extensible Windows to UNIX Systems
integration products, providing a "best of both worlds" solution - the
reliability and scalability of UNIX Systems and the plug-and-play ease of
Microsoft Windows. These products are available and optimized for all Windows
platforms, including 3.1, NT, Windows 95, and Windows 98. It's also available on
many UNIX platforms, including Sun Solaris, HP-UX, IBM AIX, UnixWare and SCO
OpenServer.
SCO Vision2K - Bringing together Windows, UNIX and the Internet - SCO Vision2K
is a new generation of best of breed Windows to UNIX integration products. Going
beyond simply accessing UNIX applications, SCO Vision2K adopts the principles of
centralized management, server deployment and Internet integration and cuts the
cost of ownership of your existing PC networks. Individual products offer
Windows access to X applications (SCO XVision Eclipse) and character-based
applications (SCO TermVision) server-based file and print sharing (SCO VisionFS)
and database connectivity (SCO SQL-
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Retriever). Together they form a tightly integrated suite that meets all your
Windows to UNIX connectivity needs.
SCO SuperVision - Remote Management of Windows Desktops - SCO(R) SuperVision(TM)
is supplied with SCO XVision Eclipse, SCO TermVision and SCO SQL-Retriever. It
provides centralized management functionality. From a central location, system
administrators can make configuration changes or control which applications
users have access to and then distribute updates from a UNIX server to a large
community of PCs in a single stroke. These changes can be made immediately, on
demand or the next time the PC is connected to the network. SCO SuperVision also
works over modem links allowing administrators to manage remote users just as
easily as those on the LAN.
SCO VisionFS - Server-Based File and Print Services - SCO VisionFS(TM) provides
Microsoft file and print services from any UNIX server (HP, Sun, IBM, Digital,
SCO, etc.) to Windows PCs. It makes a UNIX server appear like any other Windows
machine on the network. No software has to be installed on the PC to allow
access to files and printers on the UNIX server. Using the SCO VisionFS smart
server approach delivers dramatic cost savings in installation, administration
and maintenance of PCs, compared to NFS client solutions.
SCO TermVision - The Business Critical Terminal Emulator - SCO(R) TermVision(TM)
is a powerful 32-bit terminal emulation package which presents UNIX
character-based applications, files and services in Windows terms for Windows
users. SCO TermVision increases efficiencies, flattens the learning curve and
reduces administration overhead with a combination of highly configurable
emulators, secure and intelligent communications, and facilities for remote
administration.
SCO XVision - The Transparent PC X Server for Microsoft Windows - SCO(R)
XVision(R) Eclipse is a proven 32-bit PC X server that exploits the strengths of
Windows(R) and the UNIX(R) system to give fast, intuitive access to X
applications. It is Internet ready and delivers X applications across the
enterprise via the intranet. SCO(R) XVision(R) Eclipse 3D is used for displaying
3D imaging applications on a Windows PC.
SCO SQL-Retriever - ODBC Middleware for Simultaneous Access to Multiple
Databases - SCO(R) SQL-Retriever(TM) is an Open Database Connectivity (ODBC)
middleware product designed to provide simultaneous access to a range of UNIX
databases. SCO SQL-Retriever also supports the Java Database Base Connectivity
(JDBC) protocol, for full access to databases across Internet/intranet networks.
With SCO SQL-Retriever users can link Windows spreadsheets, development tools,
report writers or Windows databases with all popular UNIX databases. PC users
can take advantage of Windows productivity tools to present their text-based
databases with all popular UNIX databases. PC users can take advantage of
Windows productivity tools to present their text-based database information in a
more flexible way. Developers can use SCO SQL-Retriever to create distributed
applications working with multiple hosts and databases without needing to buy
proprietary database tools for each.
Premier Motif - The Business Critical Motif - Premier Motif, which provides
Windows management technology, is a complete service for Motif developers
including software and support. SCO ensures that users invest their time in
developing applications rather than debugging or developing Motif itself.
Premier Motif has developed from over four years' experience as the world's
leading third party Motif supplier. Premier Motif focuses on providing the
highest quality Motif libraries, refining and enhancing OSF/Motif and ensuring a
robust and portable development base. SCO has taken OSF/Motif and added numerous
enhancements, many not found in any other vendor's Motif implementation.
SALES AND DISTRIBUTION
SCO has developed a highly trained and diverse sales and distribution channel of
over 15,000 resellers and distributors. These channel partners are selected for
their expertise and experience. In some cases, the contractual arrangements
require minimum purchases and are generally terminable by either party. The
Company permits selected resellers to return a limited amount of product for
stock balancing, provided a
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new equivalent order is received. In the event the Company reduced product
prices, the Company's standard terms for these resellers provide credit for
inventory ordered in the previous 180 days, which can be applied against future
purchases. The Company, as a matter of policy, does not allow product returns
for a refund. In the third fiscal quarter of 1998, the Company made a decision
to eliminate channel inventories and record a reserve for the return of
remaining channel stock in connection with its preparations for electronic
licensing and distribution. This decision adversely affected the Company's
operating results for fiscal 1998. During the third fiscal quarter of 1997, the
Company reduced its channel inventory across all product lines resulting in
reduced revenues. There can be no assurance that stock balancing and exchanges
in the future will not adversely affect the Company's operating results. The SCO
sales and distribution channels focus on three major customer groups.
Small and Medium-Sized Businesses (SMB). SCO works with VARs and authorized
resellers, which develop and/or sell business solutions to small and
medium-sized businesses.
Corporate Customers. In the U.S., and for selected customers across Europe, SCO
has developed a major account team that builds and manages the relationships
with customers in targeted industries as well as with the Company's channel
partners who support these customers. In smaller markets this role is filled by
major distributors. SCO provides direct support to major corporate customers. In
addition, support is provided by OEMs who market SCO solutions on their
hardware, systems integrators who develop project-specific solutions integrating
SCO products with other vendors' products, and VARs who provide
industry-specific, ready-to-use solutions.
Government Customers. SCO also has a dedicated account team that manages the
relationships with government agencies in the U.S., while Government sales
outside the U.S. are managed by SCO regional management or by OEMs, major
distributors or major resellers.
CUSTOMER SUPPORT AND SERVICE
Because of the business-critical use of SCO's products, customer support and
services have become essential to achieve a high level of customer satisfaction.
The Company's services are designed to support its wide range of customers, from
small and medium-sized businesses to large enterprises, both at the end user and
reseller levels. The Company, through its worldwide customer support and service
staff and its authorized third-party education, support and channel partners,
offers a variety of support and services:
Technical Support - includes a variety of support offerings including online
support through the World Wide Web, a dial-up bulletin board and varying levels
of telephone support for channel partners and corporate accounts;
Educational Services - includes courseware and instruction guides provided to
approximately 140 Authorized Education Centers, which in turn provide training
and education materials to both end users and resellers in local languages;
Consulting Services - consists of direct assistance, including on-site technical
personnel for extended assignment, and integration, implementation and
deployment of applications on SCO platforms for branch automation and other
large business environments;
Developer Services - includes technical advisory and support services as well as
access to early product releases for application developers; and
Engineering Services - consists of engineering personnel who assist OEMs to port
and support SCO products on their hardware platforms.
The Company sells support services to end users on an annual contract or
as-needed basis. Options are available so that customers can tailor the support
solution to meet their specific needs. Electronic access is available through
the World Wide Web, remote or local bulletin boards and through discussion
groups on CompuServe and the Internet. Software updates, enhancements, and bug
fixes are also available
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electronically. SCO also supports end users via Authorized Support Centers and
Premier Service Centers. The Company also provides its support services to
distributors, VARs, OEMs and integrators.
PRODUCT DEVELOPMENT
Since its inception, the Company has focused considerable resources on the
development and integration of UNIX systems and open systems software
technologies and standards for Intel processor-based computers. SCO has
developed skills in operating systems, user interfaces, networking, porting and
applications software support. The Company's development strategy is based upon
utilizing and building upon technologies it owns, such as UNIX Systems
technologies as well as products already available in the marketplace. In
December of 1995, SCO purchased the UNIX Systems technologies from Novell Inc.
and is now a primary driving force behind this open systems platform.
During the third quarter of fiscal 1997, SCO integrated the efforts of its
various development teams to deliver the features and functionality businesses
expect from SCO systems faster and more efficiently.
SCO devotes considerable resources to ongoing product testing and quality
assurance to support product reliability. The Company believes that its
abilities to integrate product technologies, to incorporate a wide variety of
standards into its products, and to continue to offer enhancements to its
existing products are essential to maintaining its competitiveness in the
marketplace. SCO has introduced development tools, which allow developers to
write applications which take advantage of the increased power of the ongoing
Intel family of processors, including the Pentium, Pentium II, Pentium Pro(R)
and the forthcoming 64-bit Itanium processor. In addition, the Company now
offers localized versions of its core business critical servers, including SCO
UnixWare products in English, French, Italian, German, Spanish, and Japanese,
and SCO Open Server products in French, German, Chinese and Japanese.
SCO has taken strong steps to mitigate operating system date processing errors
that might occur with the onset of the Year 2000 (Y2K). SCO has:
- made ongoing updates of information and resources available at its Year
2000 website (www.sco.com/year2000);
- issued a Year 2000 Date Processing Limited Warranty for Designated
Software that defines how we expect our products to perform when
processing dates in the Year 2000;
- produced an SCO Year 2000 Whitepaper detailing how Year 2000 affects SCO
products and what products are covered by the Year 2000 Date Processing
Limited Warranty;
- performed Year 2000 testing of all currently offered SCO products;
- issued fixes for Year 2000 problems that have been detected in currently
SCO supported products;
- created a project team to maintain a consistent Year 2000 policy for our
customers and to coordinate cross functional activities;
- created a Year 2000 committee to test, verify or upgrade internal
systems and third party vendor software to insure continued operation of
our infrastructure;
- provided an email service where customers can subscribe to receive
notice of Year 2000 information updates;
- developed an on-line Year 2000 Discussion Forum newsgroup; and
- developed a Year 2000 support coverage schedule advertising our services
and the mechanism for accessing this schedule.
SCO product development is comprised of one integrated organization that
implements SCO's two product strategies--UNIX servers and Client Integration
products.
The UNIX server development teams are responsible for the core operating systems
and services including SCO OpenServer, SCO UnixWare, and the forthcoming 64-bit
UNIX system, code-named Monterey64. They are also responsible for additional OS
services such as SCO(R) Merge(TM), Virtual Disk Manager and On Line Data Manager
(RAID subsystems), Development Systems, and new technology development projects
that are UNIX kernel-related such as clustering and NUMA support. In addition,
they are responsible for many layered server functions that extend the
capabilities of the core operating systems. These services
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include file and print services, system management and backup services, and,
most important, Internet services.
The client integration development teams are responsible for SCO's "Windows
integration" and "any-client integration" products and services. SCO's strategy
is to integrate almost any client with almost any UNIX server. The teams build
the SCO Vision2K Suite of products, and develop Tarantella products, which
extend SCO's "any-client" proposition to server-centric environments.
The market for the Company's products is characterized by rapidly changing
technology, evolution of new industry standards, and frequent introductions of
new products and product enhancements. The Company's success will depend upon
its continued ability to enhance its existing products, to introduce new
products on a timely and cost-effective basis to meet evolving customer
requirements, to achieve market acceptance for new product offerings, and to
respond to emerging industry standards and other technological changes. There
can be no assurance that the Company will be successful in developing new
products or enhancing its existing products or that such new or enhanced
products will receive market acceptance. The Company's success also depends upon
its ability to license from third parties and to incorporate into its products
new technologies that become industry standards. There can be no assurance that
the Company will continue to obtain such licenses on favorable terms or that it
will successfully incorporate such third-party technologies into its own
products.
The Company anticipates new releases of products in the fiscal year ending
September 30, 2000. There can be no assurance that such new releases will not be
affected by technical problems or "bugs", as is common in the software industry.
Furthermore, there can be no assurance that these or other future product
introductions will not be delayed. Delays in the availability, or a lack of
market acceptance, of new or enhanced products could have an adverse effect on
the Company's business. There can be no assurance that product introductions in
the future will not disrupt product revenues and adversely affect operating
results.
COMPETITION
The market for operating systems is very competitive and rapidly changing. The
Company encounters significant competition from a limited number of direct
competitors including Microsoft, Novell, IBM and Sun Microsystems, which offer
hardware-independent multi-user operating systems for Intel platforms, and from
OEMs such as Hewlett-Packard, IBM, Olivetti and Sun Microsystems, which offer
their own versions of the UNIX System on a variety of RISC and Intel CPU-based
hardware. Competition from companies selling versions of the Linux Operating
System has also increased. Many hardware competitors also offer SCO's system
software products, either through direct OEM agreements or indirectly through
the various distribution channels used by the Company.
Competitive systems not based on Intel microprocessors are offered by
Hewlett-Packard, IBM, and Sun Microsystems, among others. These systems are sold
with operating system software which is based upon the UNIX System and offer
many of the benefits of the Company's products. The Company also expects to
receive increasing direct competition on the Intel platform from OEM versions of
the UNIX System and from such hardware-independent operating systems as
Microsoft Windows NT and SunSoft's Solaris for Intel. The Company expects
Microsoft Windows NT (server and workstation) to continue to offer significant
and increasing competition to UNIX System products, including SCO products. Many
of these competitors and potential competitors have significantly greater
financial resources, more technical personnel and more extensive marketing and
distribution capabilities than the Company. The major factors that affect the
competitive market for the Company's products include product reliability,
availability of user applications, compliance with industry standards, ease of
use, networking capability, breadth of hardware compatibility, quality of
support and customer services, product performance and price.
Over recent years, operating systems such as GNU, Linux, FreeBSD and others
developed using collaborative and "open source" techniques have gained
popularity with highly technical users, and some integrators. Some of SCO's
competitors may exploit this technology to build competitive products, or the
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market for SCO's products may be reduced by either technical users using these
products or the products becoming easier to use and more stable.
In addition, certain competitive products may have advantages compared to
certain SCO products. Microsoft Windows NT has greater name recognition than the
Company's products and is being designed to run on a greater range of
processors. The Company's exclusive focus on system software may be a
competitive disadvantage to those competitors which offer a wider range of
products. The Company may also be at a disadvantage relative to those
competitors who have greater financial resources, larger technical staffs, and
more extensive marketing and distribution capabilities. There can be no
assurance that either existing or new competitors will not develop products that
are superior to the Company's products for basic desktop and certain server
applications for the UNIX System. If competition were to cause the Company to
reduce its prices significantly, the Company's results of operations could be
adversely affected. The Company's future success will depend in large part on
the following conditions: the continued growth of the UNIX market for business
and governmental organizations, the Company's ability to continue to license
additional products and product enhancements to existing customers, and the
ability to identify and market its products to new markets and customers. There
can be no assurance that future competition will not have a material adverse
effect on the Company's results of operations.
The Company's strategy is to offer products that conform to industry standards.
Industry standards may be established by organizations composed of vendors, by
government agencies, by academic institutions, or by market acceptance. Industry
standards typically are based on specifications for which there can be competing
implementations. Because standards are open (not proprietary), competitors can
readily access the technology to include in their products, and SCO does not
believe that offering products conforming to industry standards will provide SCO
with a competitive advantage.
The Company's products are offered primarily for multi-user computer
environments on Intel servers. The market for Microsoft Windows on personal
computers for personal productivity is substantially larger than the market for
UNIX Systems on Intel computers. Because the Company competes in a smaller
market than the personal productivity market addressed by Windows, the Company's
potential for future growth will depend in part on the extent to which the UNIX
market continues to grow. The existence of a number of different versions of
UNIX operating systems may have adversely affected the growth of the UNIX market
compared to alternative operating systems. However, the emergence of such
technologies as the Internet, the World Wide Web, Java, network computers and
the TCP/IP networking protocol as de facto industry standards has helped
strengthen the position of UNIX system as an operating system that functions
consistently across a broad range of hardware platforms and computing
architectures such as Host, Client/Server and the server-centric model. In
addition, SCO is working with The Open Group, a major international standards
group, to support the implementation of standard application programming
interfaces (APIs) that will support applications compatibility across different
versions of UNIX systems. To date, SCO and other major UNIX vendors have adopted
varying schedules for compliance with these API specifications, and there can be
no assurance this effort will be successful.
SCO's Tarantella product faces competition from products using technologies to
deploy applications, such as terminal emulation, compression systems, virtual
private networks, and also faces competition from products taking a similar
approach to web-enabling applications. These include offerings from companies
such as WRQ, Hummingbird and Graphon. In addition, products that deploy Windows
applications only can be configured with additional functions such as terminal
emulators to provide functional behavior similar to that of Tarantella. These
products include CITRIX, NCD WinCenter, and Microsoft Windows Terminal Server.
SCO is targeting Tarantella products and services into the enterprise market
where SCO does not have a strong range of partners and where the SCO brand is
little known, making alternative suppliers a competitive threat. SCO's
Tarantella products run on Solaris, AIX, HP/UX and other UNIX operating systems,
and therefore are dependent on continued use of these products in the target
markets. Tarantella aims to support many different server types and client
types, but it is possible that client or server vendors could "close" access to
their products to prevent customers from using Tarantella.
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PROPRIETARY RIGHTS
The Company attempts to protect its software with a combination of copyright,
trademark, and trade secret laws, employee and third party nondisclosure
agreements, license agreements, and other methods of protection. Despite these
precautions, it may be possible for unauthorized third parties to copy certain
portions of the Company's products or reverse engineer or obtain and use
information the Company regards as proprietary. While the Company's competitive
position may be affected by its ability to protect its intellectual property
rights, the Company believes that trademark and copyright protections are less
significant to the Company's success than other factors, such as the knowledge,
ability, and experience of the Company's personnel, name recognition, and
ongoing product development and support.
The Company's software products are generally licensed to end users on a
"right-to-use" basis pursuant to a perpetual license. The Company licenses its
products to end users primarily under "shrink-wrap" license (i.e., licenses
included as part of the product packaging). Shrink-wrap licenses, which are not
negotiated with or signed by individual end-user licensees, are intended to take
effect upon opening of the product package. Certain provisions of such licenses,
including provisions protecting against unauthorized use, copying, transfer, and
disclosure of the licensed product, may be unenforceable under the laws of
certain jurisdictions. In addition, the laws of some foreign countries do not
protect the Company's intellectual property rights to the same extent as do the
laws of the U.S.
As the number of software products in the industry increases and the
functionality of these products further overlaps, the Company believes that
software products will increasingly become subject to infringement claims. There
can be no assurance that third parties will not assert infringement claims
against the Company and/or against the Company's suppliers of technology. In
general, the Company's suppliers have agreed to indemnify the Company in the
event any such claim involves supplier-provided software or technology, but any
such claim, whether or not involving a supplier, could require the Company to
enter into royalty arrangements or result in costly litigation.
The Company depends on the availability of technology from third parties. Most
of the software licensed by the Company is written to comply with industry
standards and because the licensor is seeking to broaden its market it is made
widely available on a non-exclusive basis by the licensor. As a result, this
software is also readily available to competitors of the Company which want to
incorporate such software into their products. The loss of any significant
third-party license or the inability to license additional technology as
required, could have a materially adverse effect on the Company's results of
operations until such time as the Company could replace such technology.
EMPLOYEES
As of September 30, 1999, the Company had 1,207 employees, including 359 in
product development, 454 in sales and marketing, 151 in customer support
services, and 243 in finance, manufacturing and distribution services and
administration.
The Company's success depends in part on its executive officers, none of which
are subject to long-term employment contracts. The loss of any current executive
officer could adversely affect the Company's business. The success of the
Company also depends in part on its ability to attract and retain qualified
technical, managerial, and marketing personnel. Competition for such personnel
is intense in the software industry and there can be no assurance that the
Company will be successful in attracting and retaining such personnel.
ITEM 2. PROPERTIES
The Company is headquartered in Santa Cruz, California, where it leases
administrative, sales and marketing, product development and distribution
facilities. The Company leases additional facilities for administration, sales
and marketing and product development in Murray Hill, New Jersey and Watford,
England. The leases for the Company's facilities expire at various dates through
2020. The Company has renewal options, at fair market value, under many of these
leases and believes that in any event additional or alternative space adequate
to serve the Company's foreseeable needs would be available on commercially
reasonable terms.
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The Company's field operations occupy leased facilities in 12 locations in the
United States. In addition, the Company's subsidiaries and sales and
representative offices in France, Germany, Italy, Spain, Sweden, Denmark,
Singapore, Australia, China, India, Canada, Brazil and Mexico lease space for
their operations. Worldwide, the Company leases property in 38 locations
consisting of an aggregate of approximately 370,000 square feet. The Company
believes that these facilities are adequate for its needs in the foreseeable
future.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings are pending to which the Company is a party or to
which any property of the Company is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
fiscal quarter of 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of September 30, 1999 were as follows:
<TABLE>
<CAPTION>
Name Age Position with the Company
---- --- --------------------------
<S> <C> <C>
Douglas L. Michels 45 President and Chief Executive Officer
Ray Anderson 41 Senior Vice President, New Ventures
John Luhtala(1) 56 Senior Vice President, Operations, and Chief
Financial Officer
David McCrabb 51 Executive Vice President, Worldwide Sales and
Field Operations
Jack Moyer 50 Senior Vice President, Human Resources
Mike Orr 48 Senior Vice President, Worldwide Marketing
Steve Sabbath 52 Senior Vice President, Law and Corporate Affairs,
and Secretary
Geoff Seabrook 51 Senior Vice President, Corporate Development
Jenny Twaddle(1) 35 Corporate Controller and Acting Chief Financial
Officer
James Wilt 53 Senior Vice President, Products
</TABLE>
--------
(1) Mr. Luhtala left the Company in December 1999. Ms. Twaddle, Corporate
Controller, was named Acting Chief Financial Officer at his departure.
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Mr. Michels was named President and Chief Executive Officer in April 1998. Mr.
Michels is the principal architect of the Company's technology strategy and
served as the head of product development between June 1997 and April 1998 and
as Chief Technical Officer between February 1993 and June 1997. Mr. Michels has
been a director of the Company since 1979 and served as the Company's Executive
Vice President between 1979, when he co-founded the Company, and April 1998. Mr.
Michels is one of the founders of Uniforum, a UNIX(R) user consortium, and
served as its President from 1989 to 1990.
Mr. Anderson was named Senior Vice President, New Ventures in July 1999. Between
April 1998 and July 1999, he served as Senior Vice President, Marketing. Between
June 1997 and April 1998, he served as Senior Vice President, Marketing,
Products Division. Between December 1994 and June 1997, Mr. Anderson served as
Senior Vice President and Managing Director, Client Integration Division. Mr.
Anderson was named Senior Vice President of SCO and Managing Director of IXI
Limited when SCO acquired IXI Limited in February 1993. Mr. Anderson was a
founder of IXI Limited and served as its Managing Director commencing in 1987.
Mr. Luhtala was named Senior Vice President and Chief Financial Officer in
January 1997. Prior to joining the Company, between May 1996 and December 1996,
Mr. Luhtala served as Chief Financial Officer and Vice President, Mergers,
Acquisitions and Joint Ventures at SyQuest Technology. From February 1987 to May
1996, Mr. Luhtala served in various financial management positions with Amdahl.
Mr. McCrabb was named Executive Vice President, Worldwide Sales and Field
Operations in April 1998. Between January 1995 and June 1997, he served as Vice
President, Marketing and Channel Sales, then as Senior Vice President, Market
Planning between July 1997 and April 1998. Prior to joining the Company, Mr.
McCrabb served as Vice President and General Manager for Applied Digital Data
Systems, a wholly owned subsidiary of NCR, since February 1994. From November
1989 to February 1992, he served as Vice President, Sales and Marketing for
Primary Access Corporation.
Mr. Moyer was named Senior Vice President, Human Resources in January 1998. He
has served as Vice President, Human Resources since August 1995. Prior to
joining the Company, Mr. Moyer served as Vice President, Human Resources for the
following companies: Ore Ida Foods from 1992 to August 1995; Maspar Computer
Corporation from November 1991 until November 1992; Businessland from January
1985 until November 1991. Mr. Moyer's senior human resources management
experience also includes positions at National Mirconetics, Inc. and National
Semiconductor Corp.
Mr. Orr was named Senior Vice President, Worldwide Marketing in July 1999. Prior
to joining the Company, between June 1998 and June 1999, Mr. Orr served as Vice
President, Sales and Marketing at Splash Technology. From August 1988 to June
1998, Mr. Orr served in various senior management positions at Amdahl. From
August 1974 to August 1988, Mr. Orr served in various management positions at
IBM.
Mr. Sabbath was named Senior Vice President, Law and Corporate Affairs, and
Secretary in January 1998. Between 1993 and 1997, he served as Vice President,
Law and Corporate Affairs, and Secretary and served as Vice President, Legal
Affairs between 1991 and 1993. Prior to joining the Company, between February
1988 and January 1991, Mr. Sabbath was the Deputy General Counsel for Sun
Microsystems, Inc., a manufacturer of UNIX system-based hardware and software.
Mr. Seabrook was named Senior Vice President, Corporate Development in April
1998. Since joining the Company in 1989, Mr. Seabrook has held a number of
strategic positions, including Senior Vice President and General Manager, EMEIA.
Prior to joining the Company, Mr. Seabrook served as Vice President
International Operations at Century Data Inc.
Ms. Twaddle was named Acting Chief Financial Officer in December 1999. Ms.
Twaddle has served as the Corporate Controller since April 1999. Between August
1997 and April 1999 she served as Assistant Corporate Controller and between
March 1997 and August 1997 she served as the Americas Controller.
17
<PAGE> 20
Prior to joining the Company, between June 1993 and March 1997, Ms Twaddle
served as Corporate Controller for Information Storage Devices.
Mr. Wilt was named Senior Vice President, Products in April 1998. Since joining
the Company in 1983, Mr. Wilt has held a number of strategic positions both in
the U.S. and in Europe including those of Vice President, Business Development
and Vice President, International. Mr. Wilt formerly held management positions
in sales, marketing, and planning at Xerox, Honeywell and Amdahl.
18
<PAGE> 21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The following required information is filed as a part of the report:
The Company has not paid cash dividends on its common stock. The Company's
common stock is traded over-the-counter and is quoted on the Nasdaq National
Market under the symbol "SCOC". The following table sets forth the range of high
and low closing sale prices for the Common Stock:
<TABLE>
<CAPTION>
Low Sale Price High Sale Price
-------------- ---------------
<S> <C> <C>
Fiscal 1998:
First Quarter 4.00 6.38
Second Quarter 3.38 5.31
Third Quarter 3.88 6.38
Fourth Quarter 2.75 4.94
Fiscal 1999:
First Quarter 3.25 5.59
Second Quarter 4.00 5.88
Third Quarter 5.38 7.06
Fourth Quarter 6.44 14.13
</TABLE>
On December 15, 1999, there were approximately 8,900 holders of the Company's
Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth on page 12 of the 1999 Annual Report to Shareholders
is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information set forth on pages 13 through 20 of the 1999 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
The information set forth on pages 19 through 20 of the 1999 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and supplementary financial information for
the Company and reports of independent accountants set forth on pages 21 through
39 of the 1999 Annual Report to Shareholders are incorporated herein by
reference.
- Consolidated Statements of Operations for each of the years in the
three-year period ended September 30, 1999
- Consolidated Balance Sheets as of September 30, 1999 and 1998
- Consolidated Statements of Shareholders' Equity (Deficit) for each of
the years in the three-year period ended September 30, 1999
- Consolidated Statements of Cash Flows for each of the years in the
three-year period ended September 30, 1999
- Notes to Consolidated Financial Statements
- Reports of Independent Accountants
- Quarterly Financial Information
19
<PAGE> 22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
On December 30, 1997, the Company changed its independent auditors from KPMG LLP
to PricewaterhouseCoopers LLP as previously reported on Form 8-K filed with the
Securities and Exchange Commission on January 7, 1998 (File No 0-21484). There
were no disagreements with any of the Company's independent accountants during
the fiscal years ended September 30, 1999 and 1998.
20
<PAGE> 23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors may be found under the caption "Election
of Directors" of the Company's definitive Proxy Statement for the Annual Meeting
of Shareholders to be held February 22, 2000 (the "Proxy Statement"). Such
information is incorporated herein by reference. Information with respect to
Executive Officers and Officers may be found on pages 16 through 18 hereof,
under the caption "Executive Officers and Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation and Other
Matters" of the Company's Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Record Date and Principal Share
Ownership" of the Company's Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the captions "Certain Transactions with
Management" and "Compensation Committee Interlocks and Insider Participation" of
the Company's Proxy Statement is incorporated herein by reference.
21
<PAGE> 24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) Documents filed as part of Form 10-K
1. Financial Statements
The financial statements of the Company as set forth under Item 8
of this report on Form 10-K are incorporated herein by reference.
2. Financial Statement Schedule
<TABLE>
<CAPTION>
Schedule Page
Number Description Number
-------- ----------- ------
<S> <C> <C>
II Valuation and Qualifying Accounts 26
</TABLE>
The independent auditors' reports with respect to the
above-listed financial statement schedule appears on page 25 of
this report on Form 10-K. Financial statement schedules other
than those listed above have been omitted since they are either
not required, not applicable, or the information is shown in the
financial statements or notes thereto.
3. Exhibit Listing
<TABLE>
<CAPTION>
Exhibit
Number Description
-------- -----------
<S> <C> <C>
2.0 Asset Purchase Agreement By and Between The Santa
Cruz Operation, Inc. and Novell, Inc. (4)
3.1 Restated Articles of Incorporation of Registrant.
(2)
3.2 Bylaws of Registrant, as amended. (5)
4.1 Specimen Common Stock Certificate of Registrant.
(1)
10.11 Software License Agreement with Locus Computing
Corporation effective January 11, 1989. (1)
10.12 Lease with Encinal Partnership No. 1 commencing May
1, 1991 (100 Pioneer Street). (1)
10.13 Lease with Encinal Partnership No. 1 commencing
January 1, 1989 (425 Encinal Street). (1)
10.14 Lease with Wave Crest Development, Inc. commencing
August 1, 1987 (440 Encinal Street). (1)
10.15 Lease with Wave Crest Development, Inc. commencing
June 1, 1988 (400 Encinal Street). (1)
10.16 Lease with Wave Crest Development, Inc. commencing
July 1, 1988 (399 Encinal Street). (1)
10.17 Form of Indemnification Agreement. (1)
10.18 Master Registration Rights Agreement as amended.
(1)
10.19 1993 Stock Purchase Plan and form of Stock Purchase
Agreement. (3)(8)
10.20 1994 Incentive Stock Option Plan and form of
Incentive Stock Option Agreement. (3)(8)
10.21 401(k) Plan, as amended. (1) (8)
10.23 Revised 1993 Employee Stock Purchase Plan. (5) (8)
</TABLE>
22
<PAGE> 25
<TABLE>
<S> <C>
10.24 1993 Director Stock Option Plan. (1) (8)
10.34 Shareholders' Rights Agreement. (6)
10.35 Change-in-control agreement between the Company and
certain key management. (8)
10.36 Employment Agreement with Alok Mohan. (7)
13 Annual Report to Shareholders.
21.1 Subsidiaries of Registrant.
23.1 Consent of Independent Accountants.
27.1 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to Registration Statement 33-60548 on Form
S-1.
(2) Incorporated by reference to the Form 10-K filed on December 24, 1993.
(3) Incorporated by reference to the Form 10-K filed on December 23, 1994.
(4) Incorporated by reference to the Form 8-K filed on December 20, 1995.
(5) Incorporated by reference to the Form 10-K filed on December 22, 1995.
(6) Incorporated by reference to the Form 8-A12G filed on September 18,
1997.
(7) Incorporated by reference to the Form 10-K filed on December 23, 1998.
(8) Designates management contracts or compensatory plans, contracts or
arrangements.
--------------------------------------------------------------------------------
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of fiscal
1999.
23
<PAGE> 26
THE SANTA CRUZ OPERATIONS, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE SANTA CRUZ OPERATION, INC.
By: /s/ Randy Bressee By: /s/ Steven M. Sabbath
---------------------------------- -----------------------
Randy Bressee Steven M. Sabbath
Senior Vice President, Senior Vice President,
Chief Financial Officer Law and Corporate Affairs
Date: November 6, 2000 & Secretary
Date: November 6, 2000
KNOW ALL PERSONS BY THEIR PRESENCE, that each person whose signature appears
below constitutes and appoints Steven M. Sabbath, his attorney-in-fact, with the
power of substitution, for him in any and all capacities, to sign any amendments
to this report on Form 10-K and to file the same, with exhibits thereto other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
/s/ Douglas L. Michels
-----------------------------------
Douglas L. Michels
President, Chief Executive Officer
and Director
Date: November 6, 2000
/s/ Alok Mohan /s/ Robert M. McClure
--------------------------------- ------------------------------
Alok Mohan Robert M. McClure
Chairman of the Board of Directors Director
Date: November 6, 2000 Date: November 6, 2000
/s/ Gilbert P. Williamson /s/ R. Duff Thompson
--------------------------------- ------------------------------
Gilbert P. Williamson R. Duff Thompson
Director Director
Date: November 6, 2000 Date: November 6, 2000
/s/ Ronald Lachman /s/ Ninian Eadie
--------------------------------- ------------------------------
Ronald Lachman Ninian Eadie
Director Director
Date: November 6, 2000 Date: November 6, 2000
24
<PAGE> 27
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors and Shareholders of The Santa Cruz Operation, Inc.:
Under date of October 22, 1999, except for Note 17, which is as of December 1,
1999, we reported on the consolidated balance sheets of The Santa Cruz
Operation, Inc. and subsidiaries as of September 30, 1999 and 1998, and the
related consolidated statements of operations, shareholders' equity (deficit),
and cash flows for the years then ended, as contained in the 1999 annual report
to shareholders. These consolidated financial statements and our report thereon
are incorporated by reference in the annual report on Form 10-K/A for the year
1999. In connection with our audits of the aforementioned consolidated financial
statements, we also have audited the related financial statement schedule as
listed in the accompanying index. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ PricewaterhouseCoopers LLP
San Jose, California
October 22, 1999
The Board of Directors and Shareholders of The Santa Cruz Operation, Inc.:
Under date of October 22, 1997, we reported on the consolidated statements of
operations, shareholders' equity (deficit), and cash flows of The Santa Cruz
Operation, Inc. and subsidiaries for the year ended September 30, 1997. These
consolidated financial statements and our report thereon are incorporated by
reference in the annual report on Form 10-K/A for the year 1999. In connection
with our audit of the aforementioned consolidated financial statements, we also
audited the related financial statement schedule for the year ended September
30, 1997, as listed under Item 14(a) 2. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audit.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein, for the
year ended September 30, 1997.
/s/ KPMG LLP
Mountain View, California
October 22, 1997
25
<PAGE> 28
THE SANTA CRUZ OPERATION, INC.
SCHEDULE II/RULE 5-04
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(In thousands)
<TABLE>
<CAPTION>
BALANCE CHARGED
AT TO BALANCE
BEGINNING REVENUES AT END
OF OR OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
--------- -------- ---------- -------
<S> <C> <C> <C> <C>
Year Ended September 30, 1999
Allowance for returns $10,637 $ 9,505 $13,034 $ 7,108
Allowance for doubtful accounts 1,545 209 640 1,114
------- -------- ------- -------
Total allowance $12,182 $ 9,714 $13,674 $ 8,222
======= ======== ======= =======
Year Ended September 30, 1998
Allowance for returns $ 9,136 $ 18,200 $16,699 $10,637
Allowance for doubtful accounts 1,743 (132) 66 1,545
------- -------- ------- -------
Total allowance $10,879 $ 18,068 $16,765 $12,182
======= ======== ======= =======
Year Ended September 30, 1997
Allowance for returns $ 9,245 $ 33,115 $33,224 $ 9,136
Allowance for doubtful accounts 1,885 349 491 1,743
------- -------- ------- -------
Total allowance $11,130 $ 33,464 $33,715 $10,879
======= ======== ======= =======
</TABLE>
26
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
-------- -----------
<S> <C> <C>
2.0 Asset Purchase Agreement By and Between The Santa
Cruz Operation, Inc. and Novell, Inc. (4)
3.1 Restated Articles of Incorporation of Registrant.
(2)
3.2 Bylaws of Registrant, as amended. (5)
4.1 Specimen Common Stock Certificate of Registrant.
(1)
10.11 Software License Agreement with Locus Computing
Corporation effective January 11, 1989. (1)
10.12 Lease with Encinal Partnership No. 1 commencing May
1, 1991 (100 Pioneer Street). (1)
10.13 Lease with Encinal Partnership No. 1 commencing
January 1, 1989 (425 Encinal Street). (1)
10.14 Lease with Wave Crest Development, Inc. commencing
August 1, 1987 (440 Encinal Street). (1)
10.15 Lease with Wave Crest Development, Inc. commencing
June 1, 1988 (400 Encinal Street). (1)
10.16 Lease with Wave Crest Development, Inc. commencing
July 1, 1988 (399 Encinal Street). (1)
10.17 Form of Indemnification Agreement. (1)
10.18 Master Registration Rights Agreement as amended.
(1)
10.19 1993 Stock Purchase Plan and form of Stock Purchase
Agreement. (3)(8)
10.20 1994 Incentive Stock Option Plan and form of
Incentive Stock Option Agreement. (3)(8)
10.21 401(k) Plan, as amended. (1) (8)
10.23 Revised 1993 Employee Stock Purchase Plan. (5) (8)
10.24 1993 Director Stock Option Plan. (1) (8)
10.34 Shareholders' Rights Agreement. (6)
10.35 Change-in-control agreement between the Company and
certain key management. (8)
10.36 Employment Agreement with Alok Mohan. (7)
13 Annual Report to Shareholders.
21.1 Subsidiaries of Registrant.
23.1 Consent of Independent Auditors.
27.1 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to Registration Statement 33-60548 on Form
S-1.
(2) Incorporated by reference to the Form 10-K filed on December 24, 1993.
(3) Incorporated by reference to the Form 10-K filed on December 23, 1994.
(4) Incorporated by reference to the Form 8-K filed on December 20, 1995.
(5) Incorporated by reference to the Form 10-K filed on December 22, 1995.
(6) Incorporated by reference to the Form 8-A12G filed on September 18,
1997.
(7) Incorporated by reference to the Form 10-K filed on December 23, 1998.
(8) Designates management contracts or compensatory plans, contracts or
arrangements.
