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SCO Completes Transformation

Longtime UNIX software developer The Santa Cruz Operation Inc. has gained shareholder approval for the sale, announced in August 2000, of its Server Software and Professional Services divisions to UNIX and Linux developer Caldera Systems Inc. , and will go forward as Tarantella Inc., named for its remaining division and flagship application.

The company plans to change its Nasdaq trading symbol shortly to TTLA to reflect the new name. Final documents consummating the transaction are expected to be filed on Monday, May 7, 2001.

According to SEC documents, SCO will receive 16 million Caldera International shares, as well as $23 million at the close of the transaction and a non-interest bearing promissory note for $8 million from Caldera International to be paid quarterly in the second year after the close. The two companies also agreed to share revenue from SCO OpenServer products for a period of three years, if sales exceed pre-defined levels during that time.

After the sale, the resulting company, Caldera International, Inc., will own Caldera Systems, Inc. plus the assets being acquired from SCO. The 16 million shares that SCO will receive as a result of this transaction will be shares of Caldera International, Inc. Existing Caldera Systems shares will be exchanged for shares of Caldera International, Inc. on a one-to-one basis.

The Caldera International shares received by SCO in this transaction will become an asset of SCO. There is no current intention to distribute the stock directly to SCO shareholders. The decision to hold the Caldera International shares as an asset rather than make a distribution was largely based on taxation issues that could have adversely affected SCO and SCO shareholders.

Current SCO officers who will remain with SCO include Doug Michels, president and CEO; Randy Bresee, CFO and senior VP; Steve Sabbath, senior VP of Law and Corporate Affairs; and Geoff Seabrook, senior VP of Corporate Development.

Tarantella Enterprise 3 software is a non-intrusive application and data centralization solution that simplifies administration and securely speeds access to Windows, mainframe, AS/400, web-based, Linux, Java and UNIX applications. The Tarantella product line includes Tarantella Enterprise 3 software for large companies and organizations, Tarantella Enterprise 3, ASP Edition for Application Service Providers, and Tarantella Express software for workgroup and departmental environments.

Last week, SCO reported fiscal second quarter financial results for the period ending March 31, 2001. Revenues for the second fiscal quarter of 2001 were $27,351,000 compared with $26,455,000 for the first fiscal quarter of 2001 and revenues of $35,542,000 for the same quarter last year.

The net loss for the second quarter was $4,700,000 or $0.12 per fully diluted share, excluding non-recurring expenses of $1,133,000, compared to a loss of $13,922,000 or $0.39 per fully diluted share in the same period in 2000. The net loss with non-recurring charges was $5,833,000 or $0.15 per fully diluted share. This is compared with a net loss of $7,897,000 or $0.20 per fully diluted share reported for the first fiscal quarter of 2001 and $19,809,000 or $0.56 per fully diluted share in the second quarter last year.

Second fiscal quarter revenues for the Tarantella Division were $4,028,000, up sequentially from last quarter revenues of $3,178,000. The operating loss for the division was $5,408,000 compared with $6,524,000 in the prior quarter.

Second fiscal quarter revenues for the Server Software Division were $23,523,000 compared to $23,026,000 for first fiscal quarter 2001. The division's net loss for the quarter was $830,000 compared to a net loss of $210,000 in fiscal first quarter 2001.

The Professional Services Division second fiscal quarter revenues were $474,000 compared to first quarter revenues of $861,000. The division's net loss for the quarter was $1,269,000 compared to a net loss of $930,000 reported for the prior quarter.

In the upcoming quarter, the company expects to experience some impact related to the complex closure of the Caldera transaction, including reporting partial revenue for the two divisions being sold. As SCO moves forward as Tarantella Inc., the company expects 10-15-percent growth in fiscal Q3 for the Tarantella business, increasing to 20-percent or more in fiscal Q4.

In fiscal year 2002, the company expects to demonstrate strong growth resulting in an approximate doubling of quarterly Tarantella revenue on a year-over-year basis. Tarantella's cost structure is such that the company expects to attain operating profitability in six quarters, while consuming no more than half of its cash reserves.



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