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To read comments to this article, go here
About those incentive bonuses ...
Wednesday, February 20 2008 @ 12:31 PM EST

SCO paid itself some incentive bonuses in October that the US Trustee's Office is now questioning. 60 employees (3 of them officers) received bonuses aggregating $150,157.21 for the quarter. There will be a hearing on it, on March 7, and SCO is asking the court to make it at least in part a private court session, closed to the public, and to seal all the testimony.

The US Trustee, SCO tells the court, suggested SCO file a motion for a determination as to whether they were paid in the ordinary course of business, and if they didn't, he said he would. The reason it matters is amplified because SCO got permission from the court to pay incentive bonuses, and they intend to do so quarterly. So the hearing will be about that issue -- what is "in the normal course of business" for SCO?

What triggered the trustee's concern? What happened in a nutshell is this: the incentive bonus program was set up, SCO explains, to tie employees to the risks and blessings of the SCO business:

Prior to September 14, 2007 (the "Petition Date"), the Debtors established an Employee Incentive Bonus Program for the Debtors' fiscal year 2007 (the "2007 Incentive Program"), designed to reward employees for their contributions to the successful achievement of certain corporate goals and objectives and to share the success, and risks, of the Debtors' business based upon successful achievement of quarterly business goals.

If certain targets were met, they got a bonus, up to 70% of their salary in the case of the CEO. In October, certain targets were met, but others were not, but SCO decided to pay the bonuses anyway, since the board thought it was not the fault of the employees that the targets were missed. Hmm, said the trustee.

Here's the motion [PDF] requesting a determination that the bonuses were paid in the ordinary course of business and the request for confidentiality [PDF], and thanks to Groklaw's numist and an anonymous volunteer, we have them both now as text.

It's all York's fault, to hear SCO tell it, for insisting at the time, when the proposed deal to sell the Unix assets to York was still pending, that no employees get fired, employees that SCO otherwise would have terminated back then:

The Board made this determination, in its business judgment, because the management team did not have control of various factors, including the costs of the bankruptcy administration and, at the time, the Debtors were contemplating a sale of the Unix business, and the potential purchaser insisted on various strategies, such as to delay a reduction-in-force which the management wanted to implement. Therefore, after an adjustment to the net operating loss, based on the Board's business judgment, the Net Operating Objective was met and approved.

I wonder if any of those fired later, after the York deal died, got October incentive bonuses? That'd be funny. Wait. If the new reorganization plan is approved, one of the terms of the MOU is that the CEO resign, since evidently the money men believe SCO has a great future without him. I wonder if he was paid his incentive bonus in October?

Believe it or not, the US Trustee's Office got it into its head that this is not in the ordinary course of business. Kidding. Of course, he noticed that this doesn't seem so normal, although we've certainly seen Ralph Yarro's largesse to employees before, when he headed up Canopy. Unless SCO can prove they always give incentive bonuses whether targets are met or not, if outside factors make targets hard to reach, I think they have a problem. Either way, I think they do, because they can hardly describe it as a plan to share the risks of the business if there is no risk of failing to get your bonus, even if you drive the company into the ground.

How do you decide if something is in the ordinary course or not? What is the standard? SCO argues that in case law, one looks at it horizontally and vertically. Horizontal inspection involves looking to see what other like businesses do. SCO quotes a case ruling:

"The test for the horizontal dimension 'is whether, from an industry-wide perspective, the transaction is of the sort commonly undertaken by companies in that industry.'"

Well. I guess it could be the case that lots of bankrupt tech companies give executives incentive bonuses when they fail to meet the set targets. Could it be like graduating a kid from 4th to 5th grade, despite his being unable to read and write, so he won't feel bad? Hey, they don't call them incentive bonuses for nothing.

Vertical analysis is a bit more complex: one looks at the matter, SCO says, from the perspective of a hypothetical creditor and ask if the proposed action subjects him to an economic risk different than what he accepted when he offered SCO credit. In other words, I gather they argue that if you knew the debtor was a snake when you offered credit, you can hardly complain later when he proves to be a snake. Or something along those lines:

Pursuant to the vertical test, "a debtor's pre-petition business practices and conduct is the primary focus of the vertical analysis."

Can anyone say they didn't know what SCO was all about? You surely know by now, and SCO quotes another ruling about that:

"The Court must 'also consider the changing circumstances inherent in the hypothetical creditor's expectations.'"

Ah, yes. Those changing circumstances. Of course, I can't help but remember SCO indicating to the court in Utah that it had plenty of money, when Novell told the judge that in its judgment, bankruptcy for SCO was both "imminent and unavoidable". And yet, here SCO sits, in bankruptcy court. Now, if I had loaned them money or extended products or services to SCO under the illusion -- from SCO's protestations of solvency to the court -- that bankruptcy was *not* imminent and inevitable, I'm thinking I might have a case. But here's SCO's position:

The Debtors submit that the horizontal and vertical dimensions are met. The quarterly performance awards subject of the Incentive Program are common in the Debtors' industry, evidence of which wil be proffered at the hearing on this Motion. With respect to the so-called "vertical test", the evidence wil clearly show that the Debtors have had the Incentive Program, and others like it since at least 2002, a fact that is well-known through the filings required of public companies, so hypothetical creditors would be well aware of the "risk" inherent in the Incentive Program.

Yes, but did bonuses get approved since 2002 when targets were not met?

As for sealing the testimony and closing the courtroom, here are SCO's expressed concerns:

The Debtors have three separate privacy concerns: (i) disclosure of the names and amounts paid under the 2007 Incentive Program could distract attention from job-related tasks and diminish morale and would also allow competitors to harass the employees or possibly entice them away from the Debtors' employ; (ii) the Debtors' Board meetings are confidential and are a forum for open discussion; therefore, if such information was made publicly available it could chill Board discussions and could also have a detrimental effect on the company's morale; and (iii) the disclosure of the Performance Metric targets could provide proprietary information to competitors. Furthermore, the Debtors would like to protect their Confidential Information both to prevent potential misappropriation of trade secrets or other proprietary information and to protect their employees' privacy. If the Confidential Information were to become public, then the Debtors' business and employees could be irreparably harmed. Accordingly, the Debtors submit that the Confidential Information contains "commercial information" or "trade secrets" and should be subject to the protections of Section 107(b) of the Bankruptcy Code.

If there is one worry I think we can discount, it's that competitors might entice away SCO's employees.

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

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE

________________________

In re:

The SCO GROUP, INC. et al., 1

Debtors.

_______________________

Chapter 11

Case No. 07-11337 (KG)
(Jointly Administered)

Hearing Date: March 7, 2008 at 2:00 p.m. prevailng Eastern time
Objection Deadline: February 29, 2008 at 4:00 p.m. prevailng Eastern time

DEBTORS' MOTION FOR A DETERMINATION THAT INCENTIVE
BONUSES FOR QUARTER ENDING OCTOBER 31,2007 WERE PAID IN THE
ORDINARY COURSE OF DEBTORS' BUSINESS FOR CONTINUNG AUTHORITY
TO PAY ORDINARY COURSE OF BUSINESS INCENTIVE BONUSES

The SCO Group, Inc. and SCO Operations, Inc. (collectively, the "Debtors") seek a determination that incentive bonuses paid by the Debtors pursuant their 2007 Employee Incentive Bonus Program for the quarter ending October 31,2007 were made in the ordinary course of the Debtors' business and authority to continue to pay similar incentive bonuses for each quarter thereafter. In support of this motion (the "Motion"), the Debtors respectfully state as follows:

Preliminary Statement

1. Each year since 2003, the Debtors have maintained a quarterly incentive bonus program for their employees. On the Petition Date (ad defined below), the Debtors filed the Debtors' Motion for an Order (i) Authorizing the Debtors to (a) Pay Prepetition Wages

Salaries, Commissions, Employee Benefits and Other Compensation; (b) Remit Withholding Obligations; (c) Maintain Employee Benefits Programs and Pay Related Administrative Obligations; and (ii) Authorizing Applicable Banks and Other Financial Institutions to Receive, Process, Honor and Pay Certain Checks Presented for Payment and to Honor Certain Fund Transfer Requests (Docket No. 8) (the "Wage Motion"), which was approved by the Court (Docket No. 27) (the "Wage Order"). The Wage Order approved continuation of the Debtors' pre-existing incentive bonus program as an "ordinary course of business" program that could be honored by the Debtor on a post-petition basis. The Office of the United States Trustee commented on the form of the Wage Order but did not object to the entry of the Wage Order.

2. Thereafter, the Office of the United States Trustee ("UST") informally requested information regarding the payment of an incentive bonuses made by the Debtors. The Debtors provided the requested information. Subsequently, the UST informed the Debtors that the UST was concerned that the payments made under the incentive bonus program for the quarter ending October 31, 2007, were not made in the ordinary course of the Debtors' business. The Debtors disagreed with the UST on this point and offered to provide the UST any additional information needed to give the UST assurance that the incentive bonus was made consistent to the Wage Order and made in the ordinary course of the Debtors' business. The UST requested that the Debtors fie this Motion seeking a determination that the bonus payments were made in the ordinary course of the Debtors' business and informed the Debtors that, if they failed to do so, the UST would seek such determination.

2

3. As such, the Debtors file this Motion to again seek a determination that the incentive bonus program for the Debtors' employees is in the ordinary course of the Debtors' business.

Jurisdiction

4. This Court has jurisdiction over these cases under 28 U.S.C. §§ 157 and 1334. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2) (A) and (M).

5. The statutory bases for the relief requested herein are sections 105, 363(c) and 1108 of the Bankruptcy Code, 11 US.C. §§ 101-1532.

Relevant Background 2

A. Ordinary Course Incentive Bonus for Quarter Ending October 31. 2007

6. Prior to September 14, 2007 (the "Petition Date"), the Debtors established an Employee Incentive Bonus Program for the Debtors' fiscal year 2007 (the "2007 Incentive Program"), designed to reward employees for their contributions to the successful achievement of certain corporate goals and objectives and to share the success, and risks, of the Debtors' business based upon successful achievement of quarterly business goals. A copy of the 2007 Incentive Program is attached hereto as Exhibit A. Concurrently herewith, and out of an abundance of caution, the Debtors are filing a motion seeking to present evidence and testimony to be offered at the hearing on this Motion, under seal.

3

7. Pursuant to the 2007 Incentive Program, eligible employees were entitled to be paid bonuses to the extent that certain revenue and net operating income/loss as well as personal performance objectives were achieved (the "Performance Metrics"). An employee is eligible to receive a certain percentage of his or her salary as an incentive bonus ranging from 4% up to 70% (4% employee, 8% manager, 12% director, 20% VP, 40% SVP and 70% CEO) with the revenue objective accounting for 40% ("Revenue Objective"), the net income/loss objective accounting for 40% ("Net Operating Objective"), and the personal objective for 20% of the eligible incentive bonus ("Personal Objective") if the employee achieved or exceeded the performance metrics established under the Plan (collectively, the "Incentive Bonus"). Each component of the Incentive Bonus is insular and can be paid independently even if the other components are not met (for example, if an eligible employee meets his Personal Objective, but the Revenue Objective and the Net Operating Objective are not met, the eligible employee wil receive 20% of the Incentive Bonus).

8. At the end of the quarter ending October 31, 2007, the compensation committee of the Board of Directors (the "Board") reviewed the Incentive Bonus, including the three objectives individually, before awarding the Incentive Bonus. For the quarter ending October 31,2007, the Board, in their business judgment, made the following findings:

a. Revenue Objective: The revenue objective for the Debtors was exceeded, therefore, the Board approved this portion of the Incentive Bonus.

b. Net Operating Objective: The target for the Net Operating Objective was not met; however the Board determined that despite the actual results not meeting

4

the targeted operating loss that the eligible employees earned 100% of this portion of the bonus. The Board made this determination, in its business judgment, because the management team did not have control of various factors, including the costs of the bankruptcy administration and, at the time, the Debtors were contemplating a sale of the Unix business, and the potential purchaser insisted on various strategies, such as to delay a reduction-in-force which the management wanted to implement. Therefore, after an adjustment to the net operating loss, based on the Board's business judgment, the Net Operating Objective was met and approved.

c. Personal Objective: Each quarter every eligible employee creates personal objectives for themselves. The personal objectives are then approved by the employee's supervisor (or in the case of an executive, by the Board). For the quarter ending October 31, 2007, each eligible employee's personal objectives included, but were not limited to, the following: (i) support the bankruptcy filing and the additional work required to support the Court's requirements; (ii) provide due diligence support for the marketing and sale of the Unix business with potential buyers; and (iii) provide additional leadership and assumed responsibilities due to reduction in personnel. At the end of the quarter, the executive management team and departmental managers ranked their employees regarding each eligible employee's Personal Objective. The Board relied upon management's evaluations and, in addition, determined whether each executive reached their individual Personal Objective.

9. During the quarter ending October 31,2007, the Board determined that the each eligible employee achieved all three of the required Performance Metrics established pursuant to the Incentive Plan.

5

10. Sixty employees (three of whom are officers) received bonuses aggregating $150,157.21 for the quarter ending October 31, 2007 (collectively, the "Q4 Bonuses").

11. The potential Incentive Bonus is typically paid 45 days after the end each quarter.

B. Historical Ordinary Course Incentive Bonuses

12. The Debtors implemented incentive programs similar to the 2007 Incentive Program for fiscal years 2006 and 2005.

13. In 2004, employees (other than the Chief Executive Officer) were eligible to earn quarterly and annual performance awards based on: (i) operating results for the Company's UNIX division, (ii) management of the Company's intellectual property litigation and (iii) objectives related to simplifying the Company's capital structure. During the 2004 fiscal year, the Debtors' executives (other than the Chief Executive Officer) received quarterly and annual performance awards of aggregating approximately $234,000, based on the attainment of the corporate objectives specified for each executive.

14. In 2003, eligible employees (other than the Chief Executive Officer) could earn a quarterly performance award on the basis of: (i) achievement of positive operating margin for the Company's UNIX business and (ii) achievement of certain financial goals and agreed upon objectives as approved by the Board of Directors and executive management. During fiscal year 2003, quarterly performance awards were earned during the fourth quarter, based on the

6

attainment of contribution margin by the Debtors' UNIX business and achievement of the agreed upon financial goals.

15. Each executive officer (other than the Chief Executive Officer whose quarterly performance awards are described below in CEO compensation) may also earn a quarterly performance award on the basis of: (i) performance of agreed upon objectives between the executive officer and the Chief Executive Officer prior to the start of each quarter; and (ii) achievement by the Company of certain financial goals as approved by the Board of Directors and executive management. During fiscal year 2002 no quarterly performance awards were paid.

16. It has always been the Debtors' policy that prior to the payment of any quarterly bonus, the achievement of the financials goals must be attained in any given quarter. As set forth above, the Debtors achieved the financial goals set by the Debtors' Board of Directors for the quarter ending October 31, 2007.

17. Per an informal agreement between the Office of the United States Trustee and the Debtors, upon payment of any ordinary course incentive bonus, the Debtors would provide information regarding the payment to the United States Trustee's office. Although the Debtors believe the 2007 Incentive Bonus for the quarter ending October 31, 2007, was paid in the ordinary course of business, the Office of the United States Trustee had concerns and requested that the Debtors fie this Motion.

7

Relief Requested

18. The Debtors have been urged by the United States Trustee to seek a determination that the Q4 Bonuses were made pursuant to the Incentive Program in the ordinary course of business and authority to continue to pay similar incentive bonuses for each quarter thereafter.

Basis for Relief Requested

19. The Bankruptcy Code provides, in relevant part:

[T]he [debtor in possession] may enter into transactions... in the ordinary course of business, without notice or a hearing, and may use property of the estate in the ordinary course of business, without notice or hearing.

11 U.S.C. § 363(c)(1). Further, "the [debtor in possession] may operate the debtor's business" unless otherwise ordered by the Court. 11 U.S.C. § 1108.

20. On the other hand, transactions outside the ordinary course of business are subject of notice, hearing and court approval. See 11 U.S.C. § 363(b).

21. "Although the determination of whether a transaction is in the ordinary course of business can have broad implications, '[n]either the Bankruptcy Code nor its legislative history provides a framework for analyzing whether particular transactions are in the ordinary course of a debtor's business.'" In re Nellson Nutraceutical, Inc., 369 B.R. 787, 797 (Bankr. D. Del. 2007) (quoting In re Roth American, Inc., 975 F.2d 949, 952 (3d Cir. 1992)).

22. "In order to determine whether or not a transaction falls in the ordinary course of business most courts, including the Third Circuit, have adopted a two-step inquiry." Id. "This inquiry consists of looking at the transaction from horizontal and vertical dimensions."

8

Id. "The test for the horizontal dimension 'is whether, from an industry-wide perspective, the transaction is of the sort commonly undertaken by companies in that industry.'" Id. (quoting Roth American at 953). The vertical dimension "analyzes the transactions from the vantage point of a hypothetical creditor and the inquiry is whether the transaction subjects a creditor to economic risk of a nature different from those he accepted when he decided to extend credit." Id. (quoting Roth American at 953). Pursuant to the vertical test, "a debtor's pre-petition business practices and conduct is the primary focus of the vertical analysis." Id. "The Court must 'also consider the changing circumstances inherent in the hypothetical creditor's expectations.'" Id.

23. The Debtors submit that the horizontal and vertical dimensions are met. The quarterly performance awards subject of the Incentive Program are common in the Debtors' industry, evidence of which wil be proffered at the hearing on this Motion. With respect to the so-called "vertical test", the evidence wil clearly show that the Debtors have had the Incentive Program, and others like it since at least 2002, a fact that is well-known through the filings required of public companies, so hypothetical creditors would be well aware of the "risk" inherent in the Incentive Program.

24. Accordingly, the Debtors submit that the Q4 Bonuses were made in the ordinary course of business.

Notice

25. Notice of this Motion has been or will be given to the following parties or, in lieu thereof, to their counsel, if known: (i) the Office of the United States Trustee; (ii) the creditors holding the 20 largest unsecured claims against the Debtors' estates (on a consolidated

9

basis); and (iii) any party which has filed a request for notices with this Court prior to the date of this Motion. The Debtors submit that, in light of the nature of the relief requested, no other or further notice need be given.

WHEREFORE, the Debtors respectfully request that the Court enter an order determining that the Q4 Bonuses were paid in the ordinary course of business, and granting such other and further relief as is just and proper.

Dated: February 13, 2008

PACHULSKI STANG ZIEHL & JONES LLP
Laura Davis Jones (Bar No. 2436)
James E. O'Neil (Bar No. 4042)
Rachel Lowy Werkheiser (Bar No. 3753)
[address, phone, fax, email]

and

BERGER SINGERMAN, P.A.
Arthur J. Spector
Grace E. Robson
[address, phone, fax, email]

Co-Counsel for the Debtors in Possession

10

1 The Debtors and the last four digits of each of the Debtors' federal tax identification numbers are as follows: (a) The SCO Group, Inc., a Delaware corporation, Fed. Tax Id. #2823; and (b) SCO Operations, Inc., a Delaware corporation, Fed. Tax ID. #7393.

2 For a detailed description of the Debtors' background and operations, the Debtors respectfully refer the Court and parties in interest to the Declaration of Darl C. McBride, Chief Executive Officer, in Support of First Day Pleadings (Docket No.3).

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

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE

________________________

In re:

The SCO GROUP, INC. et al., *1

Debtors.

_______________________

Chapter 11

Case No. 07-11337 (KG)
(Jointly Administered)

Hearing Date: March 7, 2008 at 2:00 p.m. prevailng Eastern time
Objection Deadline: February 29, 2008 at 4:00 p.m. prevailng Eastern time

DEBTORS' MOTION TO PRESENT EVIDENCE AND TESTIMONY
RELATED TO THE DEBTORS' 2007 INCENTIVE PROGRAM UNDER SEAL

The above-captioned debtors in possession (collectively, the "Debtors") seek approval to present evidence and testimony related to the Debtors' 2007 Incentive Program*2 under seal pursuant to section 107(b) under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code"), Rule 9018 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"), and Rule 9018-1 (b) of the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the District of Delaware (the "Local Rules"). In support of this Motion (the "Motion"), the Debtors respectfully represent and state as follows:

Jurisdiction and Background

1. The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (0).

2. The statutory predicates for the relief requested herein are Section 107(b) of the Bankruptcy Code, Rule 9018 of the Bankruptcy Rules, and Local Rule 9018-1 (b). 3. On September 14, 2007 (the "Petition Date"), the Debtors commenced these cases (the "Chapter 11 Cases") by filing voluntary petitions for relief under chapter 11 of the Bankruptcy Code.

4. Parties-in-interest and the Court are referred to the Declaration of Darl C. McBride, Chief Executive Offcer of the Debtors, in Support of First Day Motions filed on the Petition Date and incorporated herein by reference for the factual background relating to the Debtors' business and their commencement of these Chapter 11 cases.

5. Concurrently with this Motion the Debtors filed the Incentive Bonus Motion, which attaches a copy of the 2007 Incentive Program as exhibit A. The Debtors anticipate that the Office of the United States Trustee will object to the Incentive Bonus Motion and that a contested evidentiary hearing will go forward on March 7, 2008. In connection with a hearing on the Incentive Bonus Motion, the Debtors anticipate the submission of evidence and proffer of testimony related to the following: (i) the Incentive Bonus received by individual employees, which the Debtors believe to be personal and confidential to each employee, (ii) data and factors considered by the Debtors' Board of Directors related to the 2007 Incentive Program, the Performance Metrics and adjustments thereto at varous board meetings, which the Debtors believe to be commercial and proprietary information, and (iii) information related to the

2

Performance Metric targets, which the Debtors believe to be commercial and proprietary information (collectively, the "Confidential Information").

Relief Requested and Basis Therefor

6. By this Motion, the Debtors seek the entry of an order, pursuant to Section 107 (b) of the Bankruptcy Code, Bankruptcy Rule 9018 and Local Bankruptcy Rule 90 18-(b), authorizing the Debtors to present the evidence and testimony related to the Confidential Information under seal.

7. Section 107 of the Bankruptcy Code provides bankruptcy courts with the power to issue orders that wil protect entities and individuals from potential harm:

(b) On request of a party in interest, the bankruptcy court shall, and on the bankruptcy court's own motion, the bankruptcy court may -
(1) protect an entity with respect to a trade secret or confidential research, development, or commercial information. . . .

* * *

(c) (1) The bankruptcy court, for cause, may protect an individual, with respect to the following types of information to the extent that the court finds that disclosure of such information would create undue risk of identity theft or other unlawful injury to the individual or the individual's property:

(A) Any means of identification (as defined in section 1028(d) of title 18) contained in a paper filed, or to be filed, in a case under this title,

(B) Other information contained in a paper described in subparagraph (A).

11 U.S.c. § 107(b), (c) 3. Section 1028(d) of Title 18 defines "identification document" as:

3

(A) document made or issued by or under the authority of the United States Government, a State, political subdivision of a State, a foreign government, political subdivision of a foreign government, an international governmental or an international quasi-governmental organization which, when completed with information concerning a particular individual, is of a type intended or commonly accepted for the purpose of identification of individuals...
Of course, any type of identification document necessarily contains a person's name.

8. Bankruptcy Rule 9018 identifies the procedure by which a party may move for relief under section 107:

On motion or on its own initiative, with or without notice, the court may make any order which justice requires (1) to protect the estate or any entity in respect of a trade secret or other confidential research, development, or commercial information. . ..

Fed. R. Bankr. P. 9018.

9. Commercial information has been defined to include any information that would cause "an unfair advantage to competitors by providing them information as to the commercial operations of the debtor." In re Orion Pictures Corp., 21 F.3d 24,27 (2d Cir. 1994) (citing In re Itel Corp., 17 B.R. 942, 944 (B.A.P. 9th Cir. 1982)). The Debtors submit that the Confidential Information constitutes confidential information that is not in the public realm. If such information were to be made public, the Confidential Information will be exposed to the detriment of the Debtors and their business. The Debtors have three separate privacy concerns: (i) disclosure of the names and amounts paid under the 2007 Incentive Program could distract attention from job-related tasks and diminish morale and would also allow competitors to harass the employees or possibly entice them away from the Debtors' employ; (ii) the Debtors' Board

4

meetings are confidential and are a forum for open discussion; therefore, if such information was made publicly available it could chill Board discussions and could also have a detrimental effect on the company's morale; and (iii) the disclosure of the Performance Metric targets could provide proprietary information to competitors. Furthermore, the Debtors would like to protect their Confidential Information both to prevent potential misappropriation of trade secrets or other proprietary information and to protect their employees' privacy. If the Confidential Information were to become public, then the Debtors' business and employees could be irreparably harmed. Accordingly, the Debtors submit that the Confidential Information contains "commercial information" or "trade secrets" and should be subject to the protections of Section 107(b) of the Bankruptcy Code.

10. The Debtors propose to seal the Courtroom on an as-needed basis at the hearing on the Incentive Bonus Motion consistent with the provisions of 11 U.S.C. § 107.

Notice

11. Notice of this Motion has been given to the following parties or, in lieu thereof, to their counsel, if known: (i) the Office of the United States Trustee; (ii) the creditors holding the 20 largest unsecured claims against the Debtors' estates (on a consolidated basis); and (iii) any party which has filed a request for notices with this Court prior to the date of this Motion. The Debtors submit that, in light of the nature of the relief requested, no other or further notice need be given.

No Prior Request

12. No prior request for the relief sought in this Motion has been made to this or any other court.

5

WHEREFORE, the Debtors respectfully request that the Court enter an order, substantially in the form as the proposed order fiéd herewith, (i) authorizing the Debtors to present evidence and testimony related to the Incentive Bonus Motion under seal, and (ii) granting further relief as is just and proper.

Dated: February 13, 2008

PACHULSKI STANG ZIEHL & JONES LLP
Laura Davis Jones (Bar No. 2436)
James E. O'Neill (Bar No. 4042)
Rachel Lowy Werkheiser (Bar No.3753)
[address, phone, fax, email]

and

BERGER SINGERMAN, P.A.
Arhur J. Spector
Grace E. Robson
[address, phone, fax, email]

Co-Counsel for the Debtors in Possession


*1 The last four digits of the taxpayer identification number for The SCO Group, Inc. is 2823. The last four digits of the taxpayer identification number for SCO Operations, Inc. is 7393. The address for both Debtors is 355 South 520 West, Lindon, Utah 84042.

*2 Capitalized terms not defined herein shall have the meaning ascribed to them in the Debtors' Motion for a Determination that Incentive Bonusesfor Quarter Ending October 31,2007 were Paid in the Ordinary Course of Debtors' Business for Continuing Authority to Pay Ordinary Course of Business Incentive Bonuses (the "Incentive Bonus Motion").

3 In fact, the Congressional intent of section 107(b) was to require the bankuptcy court on request of a party in interest to seal trade secrets, confidential research, development or commercial information. See Senate Report No. 989 § 107.01, 107-2. (Section 107(b) "requires the court, on the request of a party in interest, to protect trade secrets, confidential research, development, or commercial information").

6


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