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To read comments to this article, go here
How Much Has Boies Schiller Been Paid? - Members Only
Tuesday, November 20 2007 @ 11:38 PM EST

Guys, here's a rough draft of an article, trying to figure out just how much SCO has paid the lawyers so far, not counting the bankruptcy. Can you please look it over and do the math? Find mistakes, typos, etc.? I need to get some sleep. Tomorrow, I'll then review and post it in public space.

****************************

Boies Schiller's Stuart Singer, in his Declaration in support of the firm asking to be named SCO's special litigation counsel, lists payments for the year prior to the SCO bankruptcy filing as $887,523.55, with another $287,256.39 owed to reimburse expenses.

However, that is obviously not the full story of just how much money has been sunk into the SCO litigation. I thought it would be worthwhile to aggregate all such information here in one place, and I've also placed it on our permanent Contracts page under the Boies Schiller header.

We'll start with the 10Ks, all of which are available on our permanent SCO Financials page, and then the agreements.

There was a retainer in February of 2003 to handle the litigation, but that retainer letter references earlier arrangements. Stuart Singer in his Declaration explained the history like this:

5. BSF was retained in fall 2002 to provide advice on certain matters for The Debtors. Beginning in March 2003, BSF represented Debtors as lead litigation counsel in the SCO litigation. On October 31, 2004, the Debtors entered into a revised engagement agreement... with BSF, Kevin McBride, and Berger Singerman...The Engagement Agreement provided for the payment of certain amounts that were due, the payment of certain fixed amounts, payment of certain amounts for each quarter for the six quarters following entry of the Engagement Agreement and for payment of a contingency fee to the Law Firms upon any amount the Debtors or its stockholders may receive as a result of a settlement, judgment or a sale of the Debtors. The Law Firms were responsible for the payment of other firms, such as local counsel. The Debtors were responsible for payment of expenses.

So Boies Schiller was retained in the fall of 2002? That's news to me. I've never seen that retainer agreement, nor can I find it now. But in any case, the original arrangement was to cover IP litigation. But the later SuSe arbitration was extra, as was the domain name/trademark dispute, for which SCO had to pay Boies Schiller as well. But even within the four corners of the SCO litigation, it's a bit more complex. It goes like this:

Let's break it down now. Under the original agreement of February of 2003, it went like this, according to this 10Q for the period ending April 30, 2004:

Arrangement with Law Firms On or about February 26, 2003, the Company entered into an arrangement with Boies, Schiller & Flexner LLP and other firms to investigate and review the Company's UNIX intellectual property rights. This arrangement was later modified on November 17, 2003 and December 8, 2003. The engagement with the law firms now includes the defense work related to counter suits and other retaliatory actions against the Company and lawsuits against end users violating the Company's intellectual property and contractual rights. The law firms are also representing the Company in its lawsuits against IBM, Red Hat, Novell, AutoZone, and DaimlerChrysler.

In addition to receiving fees at reduced hourly rates, the Company's agreement with the law firms provides that the law firms will receive a contingency fee of 20 percent of the proceeds from specified events related to the protection of the Company's intellectual property rights. These events may include settlements, judgments, licensing fees, subject to certain exceptions, and a sale of the Company during the pendancy of litigation or through settlement, subject to agreed upon credits for amounts received as discounted hourly fees and unused retainer fees. Additionally, the Company's agreement with the law firms may also be construed to include contingency fee payments in connection with the Company's issuance of equity securities. Future payments payable to the law firms under this arrangement may be significant.

Then, in October of 2004, there was a new arrangement, which is explained in this 10K for the fiscal year ended October 31, 2006:

Our Engagement Agreement with the Law Firms representing us in the SCO Litigation requires us to pay for expert, consulting and other costs, which could harm our liquidity position if these costs are higher than anticipated.

On October 31, 2004, the Company entered into an engagement agreement (the “Engagement Agreement”) with Boies, Schiller & Flexner LLP, Kevin McBride and Berger Singerman (the “Law Firms”). This Engagement Agreement supercedes and replaces the original engagement agreement that was entered into in February 2003. The Engagement Agreement governs the relationship between the Company and the Law Firms in connection with their representation of the Company in the SCO Litigation.

On June 5, 2006, we entered into an amendment to the Engagement Agreement and agreed with the Law Firms to deposit an additional $5,000,000 into the escrow account to cover additional expert, consulting and other expenses. During October 2006, we deposited an additional $5,000,000 into the escrow account. In the event that we exhaust these funds, we must continue to pay for expert, consulting and other expenses through the conclusion of our litigation with IBM. As we continue with discovery and other trial preparations, we may be required to place additional amounts into the escrow account, which could further reduce our liquidity position. As of October 31, 2006, we had a total of $7,618,000 in cash and cash equivalents and available-for-sale marketable securities and an additional $5,046,000 of restricted cash to be used to pursue the SCO Litigation. Since October 31, 2004, we have spent a total of $9,954,000 for expert, consulting and other costs and fees as agreed to in the Engagement Agreement with our legal counsel in the SCO Litigation. ...

Cost of revenue from the SCOsource business was $19,743,000 for the year ended October 31, 2004, $12,847,000 for the year ended October 31, 2005 and $12,307,000 for the year ended October 31, 2006. Cost of revenue was primarily attributable to legal fees and other costs and expenses incurred in connection with the SCO Litigation. During the year ended October 31, 2006, we made the final payment to the law firms of Boies, Schiller & Flexner LLP, Berger Singerman, and Kevin McBride (the “Law Firms”) for legal fees, but are continuing to pay for the costs of experts, consultants and other costs of the SCO Litigation. In addition to the expenses incurred above, we must also pay one or more contingency fees upon any amount we or our stockholders may receive as a result of a settlement, judgment, or a sale of our company....

Contingency Arrangement with Law Firms

On October 31, 2004, the Company entered into an engagement agreement (the “Engagement Agreement”) with Boies, Schiller & Flexner LLP, Kevin McBride and Berger Singerman (the “Law Firms”). This Engagement Agreement supercedes and replaces the original engagement agreement that was entered into in February 2003. The Engagement Agreement governs the relationship between the Company and the Law Firms in connection with their representation of the Company in the Company’s current litigation between it and IBM, Novell, Red Hat, AutoZone and DaimlerChrysler (the “SCO Litigation”). The Company must pay one or more contingency fees upon any amount the Company or its stockholders may receive as a result of a settlement, judgment or a sale of the Company. The contingency fee amounts payable to the Law Firms will be, subject to certain credits and adjustments, as follows:

  • 33 percent of any aggregate recovery amounts received up to $350,000,000;
  • plus 25 percent of any aggregate recovery amounts above $350,000,000 but less than or equal to $700,000,000;
  • plus 20 percent of any aggregate recovery amounts in excess of $700,000,000.
  • The Engagement Agreement specifically provides that, except for the compensation obligations specifically described above, the Company will not be obligated to pay any legal fees, whether hourly, contingent or otherwise, to the Law Firms, or any other law firms that may be engaged by the Law Firms, in connection with the Company’s SCO Litigation through the end of the current litigation between it and IBM, including any appeals....

    Kevin McBride is a licensed attorney working on the SCO Litigation as part of the Engagement Agreement and is also the brother of the Company’s Chief Executive Officer, Darl McBride. During the years ended October 31, 2006 and 2005, Kevin McBride’s legal fees were paid by Boies, Schiller & Flexner. Prior to October 31, 2004, Kevin McBride’s costs for both legal fees and reimbursable expenses were paid by Boies, Schiller & Flexner in connection with the initial engagement agreement.

    As part of the Engagement Agreement entered into on October 31, 2004, the Company started paying directly to Kevin McBride reimbursable expenses associated with the SCO Litigation, which primarily included document management, outsourced technical and litigation assistance, and travel expenses. During the years ended October 31, 2006 and 2005, the Company incurred expenses of approximately $562,000 and $323,000, respectively, to reimburse the expenses to Kevin McBride.

    So, what do we learn so far? That Kevin McBride earned $562,000 in 2006 alone, or more exactly he had that much in expenses that SCO had to reimburse. I don't think that was mentioned to the court. And we also learn that Boies Schiller has been paid in full for hourly billables through the IBM appeal. Yet Singer told the court that in the year prior to the bankruptcy filing, SCO paid the firm $887,523.55. And there was a debt of some $200,000 more in expenses unreimbursed. So, that would be for what? It's not for the bankruptcy, because Singer told the court the firm hasn't received anything for that to date. So is that sum what Boies Schiller used to pay the other firms? I don't quite see how, since Singer told the court that of the "three firms" in the Engagement Letter, Boies Schiller is the only firm still providing services. That's why it asks for the full contingency fee, should there be one, except for 7.5 per cent "to which Kevin McBride currently holds interest".

    The SuSe arbitration is, of course, extra. And while Singer mentioned the contingency arrangement in his Declaration, he didn't stress to the court that Boies Schiller also gets 33% if the company is sold, which is a conceivability in this picture, in part or in whole. A settlement is currenly unlikely to ever occur, but a sale seems possible. How this would all play out then is not altogether clear to me.

    In the 10k for the fiscal year ended October 31, 2005, we find this arrangement:

    Arrangement with Law Firms

    On October 31, 2004, the Company entered into an engagement agreement (the “Engagement Agreement”) with Boies, Schiller & Flexner LLP, Kevin McBride and Berger Singerman (the “Law Firms”).... The Engagement Agreement provides for the payment of approximately $26,000,000 for attorney fees in connection with the SCO Litigation through the end of the current litigation between the Company and IBM and the escrow of at least $5,000,000 for the payment of any expert, consulting and other expenses. As of December 1, 2005, the Company had paid all of the $26,000,000. As of October 31, 2005, $2,875,000 remained in the escrow account and is classified as a component of restricted cash.

    ....

    The Engagement Agreement specifically provides that, except for the compensation obligations specifically described above, the Company will not be obligated to pay any legal fees, whether hourly, contingent or otherwise, to the Law Firms, or any other law firms that may be engaged by the Law Firms, in connection with the Company’s SCO Litigation through the end of the current litigation between it and IBM, including any appeals.

    So in the year following the October 24, 2004 revised terms, SCO paid out $212,500 in expenses to Boies Schiller, and we already learned that Kevin McBride got about 300,000 plus that year as well.

    The year before, in the 10k for the period ending October 31, 2004, we find more details:

    Our purpose in entering into this Engagement Agreement was to limit the cash expenditures needed to pursue the SCO Litigation. The Engagement Agreement provides for the payment of approximately $26,000,000 for certain previously accrued expenses totaling $13,906,000 at October 31, 2004 and all future attorney fees in connection with the SCO Litigation through the end of the current litigation between us and IBM and the escrow of at least $5,000,000 for the payment of any expert, consulting and other expenses. As of October 31, 2004, this $5,000,000 was classified as a component of restricted cash. We paid the $13,906,000 subsequent to October 31, 2004.

    Future legal fees covered under the Engagement Agreement will require us to pay to the Law Firms $2,000,000 per quarter for each successive quarter beginning September 1, 2004 and ending December 1, 2005 for a total amount of $12,000,000, of which $10,000,000 will be paid in fiscal year 2005. In the first quarter of fiscal year 2005, we made the quarterly payments for September 2004 as well as December 2004 for a total of $4,000,000. The payment of these fees has had and will continue to have a material impact on our cash position. ...

    Arrangement with Law Firms...

    Future legal fees covered under the Engagement Agreement will require the Company to pay to the Law Firms $2,000,000 per quarter for each successive quarter beginning September 1, 2004 and ending December 1, 2005 for a total amount of $12,000,000, of which $10,000,000 will be paid in the year ending October 31, 2005. In the three months ending January 31, 2005, the Company made the quarterly payments for September 2004 as well as December 2004 for a total of $4,000,000. The payment of these fees has had and will continue to have a material impact on the Company’s cash position.

    In addition, the Company must also pay one or more contingency fees upon any amount the Company or its stockholders may receive as a recovery from the litigation, the Company’s intellectual property licensing or a sale of the company. ...

    During the year ended October 31, 2003, the Company incurred $8,956,000 related to the prior arrangement as contingency fees in connection with the issuance of shares of the Company’s Series A Convertible Preferred Stock. This charge consisted of a non-cash charge of $7,956,000 related to the issuance of 400,000 shares of the Company’s common stock and a $1,000,000 cash payment. As part of the consideration to be paid to the Law Firms in connection with the Engagement Agreement, the Company agreed to pay to the Law Firms $7,956,000 in lieu of issuing the 400,000 shares of common stock. This payment was made subsequent to October 31, 2004 and is included as accrued compensation to law firms as of October 31, 2004.

    So they got paid $8,956,000 as a contingency fee. SCO agreed to pay the firm $7,956,000 instead of issuing the 400,000 shares of stock that had been the original arrangment along with a $1 million cash payment. In the 10K for the period ending October 2003, there is this information about the earlier, February 2003 retainer:

    Compensation to Law Firms

    On February 26, 2003, we entered into an arrangement with Boies, Schiller & Flexner LLP and other firms to investigate and review our UNIX intellectual property rights. This arrangement was later modified on November 17, 2003 and December 8, 2003. The engagement with the law firms now includes the defense work related to counter suits and other retaliatory actions against us and lawsuits against end users violating our intellectual property and contractual rights. The law firms are also representing us in our lawsuit against Novell.

    In addition to receiving fees at reduced hourly rates, our agreement with the law firms provides that the law firms will receive a contingency fee of 20 percent of the proceeds from specified events related to the protection of our intellectual property rights. These events may include settlements, judgments, certain licensing fees, subject to certain exceptions, and a sale of our company during the pendancy of litigation or through settlement, subject to agreed upon credits for amounts received as discounted hourly fees and unused retainer fees. Additionally, our agreement with the law firms may also be construed to include contingency fee payments in connection with our issuance of equity securities. Future payments payable to the law firms under this arrangement may be significant.

    During fiscal year 2003, we incurred a charge of $8,956,000, or 11 percent of revenue, related to this arrangement as contingency fees to these law firms in connection with the issuance of shares of our Series A Convertible Preferred Stock. This charge consisted of a non-cash charge of $7,956,000 related to the issuance of 400,000 shares of our common stock and a $1,000,000 cash payment that was accrued as of October 31, 2003 and paid subsequent to year-end. ...

    Arrangement with Law Firms ...

    In addition to receiving fees at reduced hourly rates, the Company's agreement with the law firms provides that the law firms will receive a contingency fee of 20 percent of the proceeds from specified events related to the protection of the Company's intellectual property rights. These events may include settlements, judgments, licensing fees, subject to certain exceptions, and a sale of the Company during the pendancy of litigation or through settlement, subject to agreed upon credits for amounts received as discounted hourly fees and unused retainer fees and the Company's agreement with the law firms may also be construed to include contingency fee payments in connection with the Company's issuance of equity securities. Future payments payable to the law firms under this arrangement may be significant.

    The odd thing is that despite hiring Boies Schiller in 2002, you find no mention of the firm in the 10K for the period ending October 31, 2002. There is only this sentence, alluding to the IP review: "We also enjoy a broad and deep set of intellectual property rights relating to the UNIX operating system. We have recently initiated efforts to garner value from our intellectual property assets and believe it will provide us with additional licensing and partnering revenue opportunities." I've searched and searched for the August 2002 agreement, but I can't find it. And they say that it was in February of 2003 that SCO retained the firm to investigate IP issues. So what was the August retainer for? The same, one assumes. But we have to assume for now, because of not having the agreement to see for ourselves and verify.

    Let's take a look at the agreements that SCO entered into with Boies Schiller, the ones we can read. On February 26, 2003, Stephen Zack of Boies Schiller sent Darl McBride a letter regarding legal representation, which read in relevant part like this:

    We are pleased to confirm your decision to engage the law firms to act as legal counsel for Caldera International, Inc., The SCO Group and SCO, Inc. (collectively referred to as the “Client” or “SCO”) in connection with the further investigation and prosecution of SCO’s UNIX-related intellectual property rights and trade secrets and the institution of settlement discussions and/or litigation against IBM, other source code licenses, and others as mutually agreed to in writing that may be exploiting or violating SCO’s UNIX-related intellectual property rights and/or trade secrets (the “representation”). We are not being retained on any other matters, specifically including those identified in Schedule A. It is agreed that the scope of our representation will not expand to other matters without written agreement.

    Be assured that we will do our utmost to serve you effectively. We cannot guarantee the success of any given matter, but we will strive to represent your interests professionally and efficiently. We have agreed to represent you along with the law firms of Angelo, Barry & Boldt, P.A., and Berger Singerman at reduced hourly rates that will be applied to a contingency fee upon a successful result, if reached, as described in more detail below.

    All firms will bill at a reduced hourly rate. Specifically, all firms will bill for attorney time at two-thirds of their standard hourly rates. We have previously sent our standard hourly rates for selected partners and each firm will provide those rates to you by separate cover. David Boies will make himself available to handle critical hearings and depositions and, if applicable, at trial. Paralegals at the above firms will charge at their normal hourly rate. The paralegals at our firm will bill at One Hundred Thirty ($130.00) per hour, at Berger Singerman and Angelo, Barry & Boldt the paralegals will bill at One Hundred Ten Dollars ($110.00) per hour.

    It is hereby recognized and acknowledged that Kevin McBride, the brother of SCO’s Chief Executive Officer, Darl McBride, is an attorney at Angelo, Barry & Boldt who will be working on this matter. By signing below, Darl McBride acknowledges that full disclosure of Kevin McBride’s involvement in the matter and the terms and conditions of the fee letter has been made to and approved by the Board of Directors of Client.

    We have requested a One Million Dollar ($1,000,000.00) retainer, Five Hundred Thousand ($500,000.00) shall be paid upon execution of this Agreement and Five Hundred Thousand ($500,000.00) within thirty (30) days thereafter. It is our firm policy that this retainer is earned upon receipt, and is non-refundable as contemplated by Florida Bar Ethics Opinion 93-2. Fees and costs will be submitted to Client for approval. Approval shall be given within fifteen (15) days following the date of invoices. If approval is not forthcoming within said fifteen (15) day period, the invoice shall be deemed approved and monies shall be disbursed. Berger Singerman and Angelo, Barry & Boldt will submit invoices to our firm and the Client simultaneously. The same approval process shall apply to invoices of Berger Singerman and Angelo, Barry & Boldt as apply to our firm. At any time that the billings against the retainer cause the retainer to reach Two Hundred Fifty Thousand Dollars ($250,000.00) or below, Client will receive written notification and be required to replenish the retainer amount back to One Million Dollars ($1,000,000.00).

    The Client agrees to pay a twenty percent (20%) contingency fee in cash proceeds immediately upon the occurrence of recovery in litigation or settlement, including any sale of stock or assets, and the contingency payments shall be made as set forth according to Schedule B.

    The Client will also be billed for disbursements and charges in connection with our representation, including charges for telephone calls, photocopying, messenger services, travel and lodging expenses, expert fees, costs of investigation, computer assisted research charges, postage, secretarial overtime, word processing and other incidental expenses. We may pass along to the Client for direct payment to the vendor certain charges such as those for printing, duplicating, court reporting and other substantial items. Client will retain the right to approve certain travel related expenses for upgraded flights and accommodations.

    We will make every reasonable effort to keep the costs, including expert witness costs, to a reasonable level. Be advised that outside experts and consultants will likely be extremely expensive and such experts and consultants can cost One Million Dollars ($1,000,000.00) or more. When it becomes necessary to use outside consultants and experts, outside consultants and experts will be retained by our firm, with consent of Client. However, payments of consultants’ and experts’ fees and costs will be solely your responsibility....

    After you have had an opportunity to review this engagement letter, please do not hesitate to call me with any questions or comments you may have. We do not assume any professional responsibilities to or on behalf of the Client until our receipt of an executed engagement letter and retainer. If this engagement letter meets with your approval, please sign in the space provided on behalf of the Client and return the original fully executed letter to me along with the Five Hundred Thousand Dollar ($500,000.00) retainer and the additional Five Hundred Thousand Dollar ($500,000.00) to be paid within thirty (30) days. Until this engagement letter is executed and the first retainer payment is made all work performed on behalf of SCO will be under the terms of the existing engagement letters.

    We look forward to representing The SCO Group in this matter.

    As you can see, it references earlier engagement letters. So this retainer letter was not the first engagement of Boies Schiller. The letter has a Schedule B, setting forth the specific contingency arrangement:

    SCHEDULE B

    The following Schedule identifies the specific manner in which the contingency fee shall be computed pursuant to the engagement letter. The Client agrees to pay a twenty percent (20%) contingency fee in cash proceeds immediately upon the occurrence of any of the following:

    1. Recovery in litigation or settlement of claims arising out of SCO’s assertion of its intellectual property rights and/or trade secrets or otherwise arising out of the representation, including, but not limited to, recovery from IBM, any source code licensee or other party alleged to infringe or interfere with SCO’s intellectual property or trade secret rights;

    2. The sale of the stock or assets of SCO during the pendency of litigation or the settlement of litigation and/or related to the dismissal of litigation and for a reasonable time thereafter. The twenty percent (20%) contingency fee in this regard will be equal to twenty percent (20%) in excess of SCO’s market capitalization as reported by NASDAQ on the date of this Agreement, which is $17.9 million. It is therefore agreed that the twenty percent (20%) contingency fee in this regard will be equal to twenty percent (20%) of the gross amount of sale proceeds in excess of $17.9 million. Client specifically agrees that in any transaction involving the sale of the stock or assets of SCO, the Client shall disclose the contingency fee to the purchaser and the liability shall be transferred to the purchaser; or

    3. Twenty percent (20%) of the value of a joint venture agreement, a substantively similar transaction, or any other transaction not explicitly mentioned above that results in monetary or non-monetary benefits received by SCO in connection with, or in lieu of, settlement of claims covered under the scope of representation set forth above or arising out of the representation. This clause, however, does not apply to the current effort to enter into license agreements with Microsoft or Sun Microsystems, nor does it apply to the company’s efforts to license its intellectual property rights or trade secrets in the ordinary course of business. To the extent that a dispute arises concerning whether value was received by Client and the value of the benefit received, this along with other disputes between the parties shall be subject to the Arbitration Provisions noted below.

    All amounts paid in hourly billing to the law firms, including any Utah firm that may be retained, and unused retainer fees will be deducted from the final contingency amount. In no event, however, will any fees that have been paid be refunded to the Client. In any scenario in which SCO receives stock as part of a settlement or for its stock or assets, the law firms shall receive the payment of the contingency fee in cash, unless the stock used to purchase SCO’s stock or assets is unrestricted and from a Fortune 500 company, in which event the Client and the law firms shall receive the stock simultaneously.

    If the law firms terminate the representation because the Client fails to comply with the terms of this engagement letter, including but not limited to failure to pay invoices when due, the law firms shall receive the contingency fees as set forth in this Schedule.

    Events Under Which No Contingency Fee is Payable.

    A contingency fee shall not be payable with respect to Licensing Fees and company value derived from any new products or services developed by SCO in the ordinary course of business whose value is not related to or derived from the litigation.

    After the amounts paid in hourly billings to the law firms and unused retainer fees are deducted from the contingency amount, the remaining amount will be shared as follows:

    Eighty percent (80%) - Boies, Schiller & Flexner LLP

    Ten percent (10%) - Berger Singerman

    Ten percent (10%) - Angelo, Barry & Boldt, P.A.

    To the extent Utah counsel is retained, client will only be obligated to pay such counsel an amount equal to two-thirds of its standard hourly rates. Any other financial arrangements with such law firm shall be in the sole discretion of Boies, Schiller & Flexner. Regardless of the fee sharing agreement, the Client retains the right to direct the allocations among the firms or work performed under this engagement letter.

    The fee sharing agreement is based, among other reasons, upon the amount and quality of work performed by the various firms and is subject to further change by and among the law firms based in part upon the amount and quality of work performed by the various firms. This fee sharing agreement is subject to your approval, but changes agreed to the above percentages that are otherwise agreeable to the law firms are not subject to your approval. Executing the engagement letter will evidence your further approval to the fee sharing agreement as it now exists and may later be amended.

    Here's the letter from Darl McBride back to Boies Schiller, dated November 17, 2003, accepting the terms of an October 24, 2003 letter, which I have not found, saying they'll pay the million and also issue shares:

    In accordance with your letter of October 24, 2003, we have agreed to pay Boies, Schiller & Flexner LLP, Angelo, Barry & Bolt, P.A. and Berger Singerman (collectively, the “Law Firms”), an aggregate of $1 million and to issue, pursuant to an effective registration statement under the Securities Act of 1933, as amended, (the “1933 Act”) 400,000 shares of SCO common stock to the Law Firms on or before March 1, 2004, and such shares will be fully registered under the 1933 Act and freely resaleable by the Law Firms, as compensation related to our recent private placement transaction.

    We have also agreed to pay the Law Firms $1.6 million in connection with certain licensing arrangements we have entered into. We also confirm that the Law Firms’ expanded scope of representation of the SCO Group, Inc. includes (i) representing us in connection with the Red Hat, Inc. litigation, (ii) defending us in connection with the IBM counterclaim, and (iii) pursuing our potential claims against third parties arising out of the USL/BSDI settlement. We agree that your work on defense matters will be billed at your standard hourly rates. Additionally, you no longer need to bill against any amounts remaining in the retainer as that amount has been earned as of October 31, 2003.

    Once the registration statement covering the referenced shares is declared effective, we will issue the certificates for the foregoing shares in accordance with instructions you provide us.

    We look forward to our continuing relationship.


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