SCO GROUP INC - DEF 14A - 20060228 - AUDIT_COMMITTEE
Audit Committee Report
The Audit Committee, which consists of Messrs. Campbell,
Thompson, Mott and Millington, is responsible for, among other things:
•
reviewing the
Company’s annual financial statements and other relevant financial reports,
•
reviewing the
internal financial reports prepared by management,
•
recommending
engagement of the Company’s independent registered public accounting firm,
•
approving the
services performed by such accountants,
•
consulting
with such accountants and reviewing with them the results of their audit, and
•
reviewing and
evaluating the Company’s systems of internal controls and the audit and
financial reporting process.
The Audit Committee acts pursuant to a written charter
adopted by the Board (see Appendix A) and all members of our Audit Committee
are “independent” as defined under Rule 4350(d)(2) of the NASD
listing standards. In addition, the
Audit Committee has reviewed and discussed the Company’s audited consolidated
financial statements with its management and has discussed with the Company’s
independent registered public accounting firm the matters required to be
discussed by Statement on Auditing Standards No. 61 (Communication with
Audit Committees).
The Audit Committee has received the written
disclosures and the letter from the Company’s independent registered public
accounting firm required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committee).
The Audit Committee has also considered whether the
provision of non-audit services provided by Tanner to the Company is compatible
with maintaining its independence and has discussed with the auditors such
auditors’ independence.
10
Based on its review, the Audit Committee recommended
to the Board of Directors that the audited financial statements for the Company’s
year ended October 31, 2005 be included in the Company’s Annual Report on Form 10-K
for its year ended October 31, 2005, which was filed on January 27,
2006.
Submitted
by:
Daniel W.
Campbell (Chair)
R. Duff
Thompson
Darcy
G. Mott
J.
Kent Millington
Members
of the Audit Committee
Recommendation of the Board of
Directors
The
Board of Directors unanimously recommends that the stockholders of the Company
vote FOR the ratification of Tanner LC as the Company’s Independent Registered Public
Accounting Firm.
11
EXECUTIVE OFFICERS
The following table presents information regarding the
current executive officers of the Company:
Name
Age
Position
Darl C. McBride
46
Chief Executive
Officer, Director
Bert B. Young
51
Chief Financial
Officer
Tim Negris
51
Executive Vice
President, Sales and Marketing
Sandeep Gupta
34
Chief Technology
Officer
Ryan E. Tibbitts
49
General Counsel
and Corporate Secretary
Christopher
Sontag
42
Sr. Vice
President Business Development
Jeff F. Hunsaker
40
Sr. Vice
President, Worldwide Sales
Set forth below is the business background of each of
our executive officers. Information on
the business background of Darl C. McBride is set forth above under the
caption “Election of Directors.”
Bert B. Young has served as Chief Financial
Officer since April 2004. Mr. Young
is responsible for all finance, accounting, and administration of our worldwide
operations. From November 2002 to April 2004,
Mr. Young worked as Chief Financial Officer at LANDesk Software Inc. and
from September 2000 to November 2002 was the Chief Financial Officer
of Talk2 Technology Inc. From
March 2000 to September 2000, Mr. Young was the Chief Financial
Officer at MarchFIRST Inc. On
April 21, 2001, MarchFIRST filed for protection under the federal
bankruptcy laws. Mr. Young holds a B.S. degree in Accounting from Utah
State University.
Tim Negris has served as the
Executive Vice President of Sales and Marketing since February 2006 and
prior to that was the Senior Vice President of Marketing since August 2005. Mr. Negris is responsible for all
aspects of corporate, product and channel marketing activities for the
Company. From April 2002 to August 2005,
Mr. Negris was an independent consultant and from August 2001 to April 2002
Mr. Negris was the Vice President of Marketing for Tivre Networks, a
networking software company. Prior to
that, Mr. Negris has also been an independent consultant as well as held
several senior marketing positions. Mr. Negris
holds a B.S. degree from New York University.
Sandeep Gupta has served as
Chief Technology Officer for the Company since August 2005. In that capacity, Mr. Gupta is
responsible for continuing research, development, enhancement and future
product vision for all of the Company’s technology and products. Mr. Gupta joined the Company in 1996 as
part of the ISV engineering group and during his tenure with the Company has
also supervised and led the efforts of the escalations team, ecommerce and web
services as well as UnixWare development.
Prior to joining the Company, Mr. Gupta worked for Fujitsu
ICL. Mr. Gupta holds a B.S. degree
in Computer Engineering from the Delhi College of Engineering.
Ryan E. Tibbitts joined the Company in June 2003
as General Counsel and became the Corporate Secretary in September 2003. Mr. Tibbitts is responsible for all
legal aspects of the Company’s worldwide operations. Prior to joining the Company, Mr. Tibbitts
worked as General Counsel at Center 7, Inc. from October 2001 to
June 2003 and Lineo, Inc. from January 2001 to September 2001. Mr. Tibbitts worked in private practice
with a law firm in Utah from 1985 until 2001.
Mr. Tibbitts is a member of the Utah State Bar and American Bar
Association and received his J.D. and B.S. degrees from Brigham Young
University.
Christopher Sontag has served as Senior Vice
President, Business Development, since January 2005 and prior to that was
the Senior Vice President of our SCOsource Division since September 2002. From April 2000 to October 2002, Mr. Sontag
was the President of Sontag Consulting.
From January 1996 to April 2000, Mr. Sontag was the
co-founder, President and Chief Technology Officer of emWare, Inc. Before his service at emWare, Mr. Sontag
developed marketing and engineering strategies for Novell, Inc., where he
worked as the Director of Marketing and Product Development. Mr. Sontag earned a B.S. degree in
Information Management from Brigham Young University.
Jeff F. Hunsaker has served as the Senior Vice
President of Worldwide Sales since August 2005 and has served as the
Senior Vice President, UNIX Division, since January 2004. From February 2003 to December 2003,
12
Mr. Hunsaker served as Senior Vice President of Worldwide Sales
and Marketing for the Company and prior to that Mr. Hunsaker served as
Vice President and General Manager, Americas Division, from January 2000
to January 2003. Upon joining the
Company, Mr. Hunsaker was the Sales Director for North America from January 2000
to January 2001. From January 1998
to December 1999, Mr. Hunsaker was Director of Channel Sales for the
Baan Company. Prior to that, Mr. Hunsaker
spent eight years working in a senior sales and marketing capacity for the
WordPerfect suite of products for WordPerfect Corporation, Novell, Inc.
and Corel Corporation. Mr. Hunsaker
holds a B.S. degree in Business Finance from Utah State University.
HISTORICAL COMPENSATION
OF THE COMPANY
The following table presents compensation information
for our last three fiscal years for our Chief Executive Officer and our four
most highly compensated executive officers other than our Chief Executive
Officer.
Summary Compensation Table
Long-Term Compensation
Annual
Compensation (1)
Awards Payouts
Name and Principal
Position
Year
Salary
Bonus/
Commission
Restricted Stock
Awards
Securities
Underlying
Options
LTIP
Payouts
All Other
Compensation
Darl C. McBride
(2)
2005
$
265,000
$
213,823
$
0
100,000
$
0
$
0
Chief Executive
Officer
2004
257,498
35,000
0
0
0
0
2003
230,769
755,278
78,511
200,000
0
0
Bert B. Young
(3)
2005
$
170,000
$
79,379
$
0
150,000
0
0
Chief Financial
Officer
2004
84,346
30,000
0
150,000
0
0
Christopher
Sontag (4)
2005
$
160,000
$
74,464
$
0
25,000
0
0
Sr. Vice
President,
2004
160,000
20,000
0
0
0
0
Business
Development
2003
153,000
281,746
64,340
100,000
0
0
Jeff F. Hunsaker
(5)
2005
$
160,000
$
73,480
$
0
25,000
0
0
Sr. Vice
President,
2004
160,000
133,981
0
0
0
0
Worldwide Sales
2003
142,889
95,932
0
100,000
0
0
Ryan E. Tibbitts
(6)
2005
$
145,000
$
68,078
$
0
150,000
0
0
General Counsel
and
2004
130,384
50,000
0
110,000
0
0
Corporate
Secretary
2003
45,153
13,500
2,500
65,000
0
0
(1)
The
column for “Other Annual Compensation” has been omitted because there is no
compensation required to be reported in that column. The aggregate amount of perquisites and other
personal benefits provided to each executive officer listed above is less than
the lesser of $50,000 and ten percent of the named executive officer’s total
annual salary and bonus.
(2)
Of the
$213,823 bonus earned by Mr. McBride for the year ended October 31,
2005, $170,196 was paid during the year ended October 31, 2005 and the
remaining $43,627 was paid during the year ending October 31, 2006. The bonus of $35,000 earned by Mr. McBride
for the year ended October 31, 2004 was paid during the year ended October 31,
2005. Of the $755,278 bonus earned by Mr. McBride
for the year ended October 31, 2003, $480,134 was paid during the year
ended October 31, 2003 and the remaining $275,144 was paid during the year
ended October 31, 2004.
(3)
Mr. Young
was hired as the Company’s Chief Financial Officer in April 2004. Of the $79,379 bonus earned by Mr. Young
for the year ended October 31, 2005, $62,390 was paid during the year
ended October 31, 2005 and the remaining $16,989 was paid during the year
ending October 31, 2006. The bonus
of $30,000 earned by Mr. Young for the year ended October 31, 2004
was paid during the year ended October 31, 2005.
(4)
Of the
$74,464 bonus earned by Mr. Sontag for the year ended October 31,
2005, $58,720 was paid during the year ended October 31, 2005 and the
remaining $15,744 was paid during the year ending October 31, 2006. The bonus of $20,000 earned by Mr. Sontag
for the year ended October 31, 2004 was paid during the year ended October 31,
2005. Of the $281,746 bonus earned by Mr. Sontag
for the year ended October 31, 2003, $181,590 was paid during the year
ended October 31, 2003 and the remaining $100,156 was paid during the year
ended October 31, 2004.
(5)
Of the
$73,480 bonus earned by Mr. Hunsaker for the year ended October 31,
2005, $58,720 was paid during the year ended October 31, 2005 and the
remaining $14,760 was paid during the year ending October 31, 2006. Of the $133,981 in commissions earned by Mr. Hunsaker
for the year ended October 31, 2004, $82,177 was paid during the year
ended October 31, 2004 and the remaining $51,804 was paid during the year
ended October 31, 2005. Of the
$95,932 in commissions earned by Mr. Hunsaker for the year ended October 31,
2003, $76,820 was paid during the year ended October 31, 2003 and the
remaining $19,112 was paid during the year ended October 31, 2004.
(6)
Mr. Tibbitts
was hired as our General Counsel in June 2003 and became the Corporate
Secretary in September 2003. Of the
$68,078 bonus earned by Mr. Tibbitts for the year ended October 31,
2005, $53,215 was paid during the year ended October
13
31, 2005 and the remaining $14,863 was paid during the
year ending October 31, 2006. The
bonus of $50,000 earned by Mr. Tibbitts for the year ended October 31,
2004 was paid during the year ended October 31, 2005. Of the $13,500 bonus earned by Mr. Tibbitts
for the year ended October 31, 2003, $7,500 was paid during the year ended
October 31, 2003 and the remaining $6,000 was paid during the year ended October 31,
2004.
Option Grants in Last Fiscal Year
The following table presents the grants of stock
options, under our option plans during the year ended October 31, 2005, to
each of the executive officers named in the Summary Compensation Table.
All option grants under each of the plans are
nonqualified stock options. Options
expire ten years from the date of grant.
The exercise price of each option granted is equal to
the fair market value of our common stock as determined by the Board of
Directors on the date of grant. During
the year ended October 31, 2005, the Company granted a total of 1,118,000
options to members of the Board of Directors, executive officers and employees.
Potential realizable values are computed by:
•
Multiplying
the number of shares of common stock subject to a given option by the exercise
price per share;
•
Assuming that
the aggregate option exercise price derived from that calculation compounds at
the annual five percent or ten percent rates shown in the table for the entire
10-year term of the option; and
•
Subtracting
the aggregate option exercise price from that result.
The five percent and ten percent assumed annual rates
of stock price appreciation are required by the rules of the Securities
and Exchange Commission and do not represent our estimate or projection of
future common stock prices.
Individual
Grants
Potential Realizable Value at Assumed
Percent of
Total
Options
Granted to
Employees
in Fiscal
Year
Annual Rates of Stock Price
Appreciation for Option Term
Name
Number of
Securities
Underlying
Options
Granted(1)
Exercise
Price Per
Share
($/Share)
Expiration Date
0%
5%
10%
Darl C. McBride
100,000
8.9
%
$
4.85
12/07/2014
$
0
$
304,908
$
772,637
Bert B. Young
150,000
13.4
%
4.85
12/07/2014
$
0
$
457,362
$
1,158,955
Christopher Sontag
25,000
2.2
%
4.85
12/07/2014
$
0
$
76,227
$
193,159
Jeff F. Hunsaker
25,000
2.2
%
4.85
12/07/2014
$
0
$
76,227
$
193,159
Ryan E. Tibbitts
150,000
13.4
%
4.85
12/07/2014
$
0
$
457,362
$
1,158,955
(1)
Options
granted become exercisable with respect to 25 percent of the shares covered
thereby on the first anniversary of the date of grant and vest 1/36
th
per month thereafter, unless
otherwise provided for in the award agreement.
Option vesting will accelerate upon a change in control of the Company
and upon the declaration by the Board of the payment of a certain dividend to
the common stockholders of the Company.
Options are granted for a term of ten years, subject to earlier
termination in certain events, and are not transferable. The Compensation Committee retains
discretion, subject to certain restrictions, to modify the terms of outstanding
options.
On January 23, 2006, each of the above named
executive officers received an option grant to acquire common shares at an
exercise price of $3.78 per share. Mr. McBride
received a grant of 80,000 shares; Mr. Young received a grant of 70,000
shares; Mr. Sontag received a grant of 50,000 shares; Mr. Hunsaker
received a grant of 40,000 shares; and Mr. Tibbitts received a grant of
50,000 shares.
14
Aggregated Option
Exercises for the Year Ended October 31, 2005 and Year-end Option Values
Shares
Acquired on
Exercise
Number of Shares Underlying
Unexercised Options at
October 31, 2005
Value of Unexercised In-the-
Money Options at
October 31, 2005
Name
Value Realized
Exercisable
Unexercisable
Exercisable
Unexercisable
Darl C. McBride
0
$
0
512,499
387,501
$
1,363,165
$
766,835
Bert B. Young
0
$
0
56,250
243,750
$
0
$
0
Christopher Sontag
0
$
0
147,083
87,917
$
327,124
$
132,376
Jeff F. Hunsaker
0
$
0
132,942
25,808
$
254,637
$
2,125
Ryan E. Tibbitts
0
$
0
71,145
253,855
$
0
$
0
Employment Agreements
The Company has not entered into any employment
agreements with its executive officers or any other employees.
Change in Control Agreements
On December 10, 2004, the Company entered into
Change in Control Agreements with the following officers: Darl C. McBride; Bert B. Young;
Christopher Sontag; Jeff F. Hunsaker; and Ryan E. Tibbitts (each, an “Officer”). Each agreement is effective as of December 10,
2004. On January 23, 2006, the
Company entered into similar agreements with Tim Negris and Sandeep Gupta.
Pursuant to the terms of these agreements, each
Officer agrees that he or she will not voluntarily leave the employ of the
Company in the event any individual, corporation, partnership, company or other
entity takes certain steps to effect a change in control of our company, until
the attempt to effect a change in control has terminated, or until a change in
control occurs.
If the Officer is still employed by the Company when a
change in control occurs, any stock, stock option or restricted stock granted
to the Officer by the Company that would have become vested upon continued
employment by the Officer shall immediately vest in full and become exercisable
notwithstanding any provision to the contrary of such grant and shall remain
exercisable until it expires or terminates in accordance with its terms.
Each Officer shall be solely responsible for any taxes
that arise or become due pursuant to the acceleration of vesting that occurs
pursuant to the Change in Control Agreement.
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