8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.  20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  January 23, 2006

The SCO Group, Inc.(Exact name of registrant as specified in its charter)

Delaware	0-29911	87-0662823
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

355 South 520 West

Lindon, Utah 84042

(Address of principal executive offices, including Zip Code)

Registrant’s telephone number, including area code:  (801) 765-4999

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01Entry into a Material Definitive Agreement.

Executive Compensation

On January 23, 2006, the board of directors (the “Board”) of The SCO Group, Inc. (the “Company”) approved the following actions relating to executive officers of the Company.

Increase in Annual Base Salary and Potential Bonus.  The Board increased the annual base salary of Ryan E. Tibbitts, General Counsel and Corporate Secretary of the Company, from $145,000 to $160,000.  The Board also increased the annual base salary of Sandeep Gupta, Chief Technology Officer of the Company, from $140,000 to $150,000.  The Board also increased the target bonus to which Mr. Gupta may be entitled from 20 percent of his annual base salary to 40 percent of his annual base salary.  The salary increases of Mr. Tibbitts and Mr. Gupta and the increase in potential bonus for Mr. Gupta are all effective as of November 1, 2005.

Stock Option Grants.  The Board approved stock options to purchase shares of the Company’s common stock pursuant to the 2004 Omnibus Equity Incentive Plan to the executive officers named below.  Each of the stock options, as provided in the Executive Officer Stock Option Agreements, dated as of January 23, 2006, between each executive officer and the Company, has an exercise price equal to the fair market value on the date of the grant, and will expire ten years from the date of grant.  The first 25 percent of the option shares vest upon the first anniversary of the date of grant and the remaining option shares vest over the following three years on a monthly basis so long as the executive officers remain in service with the Company.  However, 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.

Executive Officer	Number of Shares Issuable Upon Exercise of Granted Stock Options
Darl C. McBride	80,000
Sandeep Gupta	80,000
Bert B. Young	70,000
Ryan E. Tibbitts	50,000
Chris Sontag	50,000
Jeff Hunsaker	40,000
Tim Negris	30,000

The SCO Group America Compensation Plan for Fiscal Year 2006.  The Board approved The SCO Group America Sales Compensation Plan for fiscal year 2006 (the “Sales Plan”), effective as of November 1, 2005.  Pursuant to the Sales Plan, participants will have the opportunity to earn quarterly commissions.

Each participant in the Sales Plan will be assigned a quarterly quota based upon a single revenue number.  In addition, each participant will have the opportunity to earn quarterly accelerators for additional revenue achieved in excess of their quarterly quota.  Quarterly accelerators range from a minimum of 3% to a maximum of 10%.

In addition to the attainment of quarterly accelerators, participants are eligible to receive a bookings bonus of $2,000 - $5,000 for meeting specified conditions in the Sales Plan relating to UNIX products, and a 10% bookings bonus for Me INC subscription sales.  In addition to the bookings bonuses, participants are eligible to receive a $5,000 bonus for new UNIX accounts meeting certain criteria.  Quarterly quota targets are established by the Senior Vice President of the UNIX Division and the CFO.

This description of the Sales Plan is subject to, and qualified in its entirety by, The SCO Group America Sales Compensation Plan for fiscal year 2006 attached to this Current Report on Form 8-K as Exhibit 99.1.

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The SCO Group Employee Incentive Bonus Program for Fiscal Year 2006.  The Board adopted The SCO Group Employee Incentive Bonus Program for fiscal year 2006 (the “Bonus Program”), effective as of November 1, 2005 for all non-sales employees.  Pursuant to the Bonus Program, eligible employees, including certain of the executive officers identified in the table below, may earn quarterly cash bonuses.

The target bonus for each eligible employee will be comprised of three components:  (1) 40% related to revenue, (2) 40% related to operating performance, and (3) 20% related to personal objectives.  A bonus under the Bonus Program may be paid for any quarter of fiscal year 2006 if at least one or more of the above components are attained.  Personal objectives for Mr. McBride, the Company’s President and Chief Executive Officer, are established by the Compensation Committee, and personal objectives for the other executive officers are established by Mr. McBride.

This description of the Bonus Program is subject to, and qualified in its entirety by, The SCO Group Employee Incentive Bonus Program for fiscal year 2006 attached to this Current Report on Form 8-K as Exhibit 99.2.

Potential Bonuses:  The potential bonus amounts that may be earned by all executive officers for the 2006 fiscal year under the Bonus Program and the Sales Plan, if the Company attains revenue and operating performance targets at 150 percent and the executive officers satisfy all other personal objectives, are as follows:

Name	Potential Annual Bonus for Fiscal Year 2006 at 150% attainment
Darl C. McBride
President and Chief Executive Officer	$	278,250
Bert B. Young
Chief Financial Officer	$	102,000
Chris Sontag
Senior Vice President, Business Development	$	96,000
Jeff Hunsaker
Senior Vice President, UNIX Division	$	96,000
Tim Negris
Senior Vice President, Marketing	$	84,000
Sandeep Gupta
Chief Technology Officer	$	90,000
Ryan E. Tibbitts
General Counsel and Corporate Secretary	$	96,000
TOTAL	$	842,250

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Change in Control Agreements

The Company also entered into, with Mr. Negris and Mr. Gupta, the Company’s standard form of change in control agreement (the “Agreement”), effective as of January 23, 2006.  Pursuant to the terms of each Agreement, Mr. Negris and Mr. Gupta agree that they 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 (as defined in the Agreement) of the Company, until the attempt to effect a Change in Control has terminated, or until a Change in Control occurs.

If Mr. Negris or Mr. Gupta is still employed by the Company when a Change in Control occurs, any stock, stock option or restricted stock granted to Mr. Negris or Mr. Gupta, as applicable, by the Company that would have become vested upon continued employment by Mr. Negris or Mr. Gupta 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.

Mr. Negris and Mr. Gupta shall each be solely responsible for any taxes that arise or become due pursuant to the acceleration of vesting that occurs pursuant to the Agreement.

The foregoing summary of the Change in Control Agreements is subject to, and qualified in its entirety by, the form of Change in Control Agreement, which was previously filed with the Securities and Exchange Commission on December 16, 2004, as Exhibit 99.1 to the Company’s Current Report on Form 8-K.

Form Notice of Grant of Stock Options for the 2002 Omnibus Stock Incentive Plan

On January 23, 2006, the Compensation Committee of the Board adopted a revised Form Notice of Grant of Stock Options (the “Form Grant Agreement”) for The SCO Group, Inc. 2002 Omnibus Stock Incentive Plan (the “Incentive Plan”). The Form Grant Agreement is used to grant to employees, non-employee members of the Board or the board of directors of any parent or subsidiary of the Company and consultants a specified number of options that may be exercised at the exercise price specified therein, in accordance with the terms of the Incentive Plan. The Form Grant Agreement also provides for the issuance of either incentive stock options or non-qualified stock options and a specified vesting schedule and expiration date for the stock options. The Form Grant Agreement has substantially the same terms as the Form Notice of Grant of Stock Options previously used, except for changes that were deemed necessary to make the Form Grant Agreement more consistent with the Incentive Plan, including the provision governing how certain corporate transactions will impact the holders of outstanding stock options.

The terms and conditions of the revised Form Grant Agreement filed as Exhibit 99.3 to this Form 8-K are hereby incorporated by reference herein and replace the prior Form of Notice of Grant of Stock Options for the Incentive Plan filed as Exhibit 10.13 to the Company’s Form 10-K, filed on April 1, 2005.

Item 9.01.Financial Statements and Exhibits.

(c)	Exhibits
99.1	America Sales Compensation Plan for fiscal year 2006
99.2	Incentive Bonus Program for fiscal year 2006

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99.3 Form Notice of Grant of Stock Options for The SCO Group, Inc. 2002 Omnibus Stock Incentive Plan

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated:  January  27, 2006

THE SCO GROUP, INC.
By:	/s/ Bert B. Young
Name:	Bert B. Young
Title:	Chief Financial Officer

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EXHIBIT INDEX

99.1	America Sales Compensation Plan for fiscal year 2006
99.2	Incentive Bonus Program for fiscal year 2006
99.3	Form Notice of Grant of Stock Options for The SCO Group, Inc. 2002 Omnibus Stock Incentive Plan

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EX-99.1

Exhibit 99.1

The SCO Group

FY 2006 America Sales Compensation Plan

SCO UNIX - Me INC. – Other Products

Plan Definitions

Effective November 1, 2005

For commission compensation, there is one quota containing Product, SES/SWIM, Engineering Services, Support, Professional Services, IP Compliance Licensing, Me INC., and other products such as My SQL, Microlite and Cymphonix. The quota and credit relief for revenue against this quota are based on the following:

Component	Commission Timing Criteria
Products and Licenses including packaged product, keys, royalties, web licenses and upgrades.		Revenue Recognition
SES & Swim		Revenue Recognition
Engineering Services		Revenue Recognition
Support including premier, expert, call packs, tested & certified, ASC, team, and other support offerings, education services		Revenue Recognition
Professional Services including custom, consulting, and Incidental expenses, such as travel costs that are incurred during the PS contract period and that are billed back to the customer, are excluded (e.g.: commissions are not paid on these costs).		Revenue Recognition
Me INC and Other Products		Revenue Recognition

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FY 06 COMPENSATION OVERVIEW

The sales compensation plan will be a quarterly incentive based plan as was the case in 2005.  The philosophy of the quarterly incentive plan will be to provide each participant with the opportunity to earn quarterly commissions and quarterly performance accelerators.  Each sales person will be assigned a quarterly incentive plan based upon a single revenue number.  In other words, each product/service dollar will be measured against a single quota. The definitions of commissionable products/services are:

1.SCOUNIX (includes operating systems, maintenance and layered products)

2.Me INC. (includes all packaged digital services and custom services)

3.Other Products (SCO Office Server, My SQL, Microlite, Cymphonix, and all other products)

4.SCO Support Services (all support offerings available from SCO)

5.SCO Professional Services

6.SCO IP Compliance Licenses

Each plan participant will have the opportunity to earn quarterly accelerators. Once the sales person achieves the quarterly quota, the sales person will earn accelerators for additional revenue sold that quarter over the quarterly goal.  All product sales will be paid in a linear fashion (1:1) quarter to quarter up to 100%.

Example: quota for Q1 is $500,000 and actual revenue = $350,000.  In this example, the rep will receive 70% of the total target incentive for that period.

For purposes of this plan, the following definitions apply:

Accelerators.  Accelerators are defined as amounts paid by SCO for revenue that exceeds established quotas.  For every revenue dollar that exceeds 100% of quota and is less than 125% of quota, SCO will pay 3% of that revenue dollar to the sales rep.  For every dollar that exceeds 125% of quota, SCO will pay 5% of that revenue dollar to the sales rep.

In addition to the above individual accelerators for reps, SCO will provide two special quarterly accelerators for fiscal year 2006.  The first quarterly accelerator will apply when a sales rep attains at least 100% of quota and exceeds the revenue attainment of that area for the same quarter of the prior year.  This accelerator will pay 7% of revenue that is generated in excess of quota.  The second quarterly accelerator will apply when a sales rep attains at least 100% of quota and the consolidated Company revenue exceeds the revenue generated in the comparable period of the prior fiscal year (i.e. Q1 2006 revenue > Q1 2005 revenue) all payouts will be at 7% of revenue that is generated in excess of

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quota.  In the event that both of these factors are attained (quarterly 2006 rep revenue > quarterly 2005 rep revenue and the quarterly 2006 Company revenue > the quarterly 2005 Company revenue) the accelerator payout will be 10% of revenue.

•Accelerators are not available on quotas that have been adjusted subsequent to the original quarterly quota allocation set by the Sales Director/VP at the beginning of the fiscal year or appointment to the sales team.  All adjustments to quota must be approved the UNIX GM and the VP of Finance.  Exceptions to this are:

1.Companywide quota adjustments

2.Countrywide quota adjustments

3.Territory reallocations

Bookings.  Bookings are defined as amounts committed to SCO via a valid purchase order, regardless of when the product is shipped or the service performed.  An order is considered a booking when it has been processed and approved by sales, credit, finance, legal, customer delivery, and entered into QAD.  Revenue may or may not be recognized when an item is booked.  For example, services contracts are pro-rated over the period in which the services relate.

Bookings Bonus (UNIX products): SCO will pay a bookings bonus to the sales rep in addition to the normal commission for all transactions that meet the following criteria:  (All booking orders must meet the standard purchase order requirements of SCO).

•A $2,000 bookings bonus for a support services or professional services contract to an “existing” SCO customer in excess of $50,000 where payment terms may not exceed net 60 days to SCO.

•A $2,000 bookings bonus for a support services or professional services contract to a “new” SCO customer in excess of $25,000 where payment terms may not exceed net 60 days to SCO.

•A $5,000 bookings bonus for a product booking in excess of $200,000 where payment terms may not exceed net 60 days to SCO.  This bonus will only be paid for “commit deals” not initially recognized as revenue in the quarter of the booking.  In the event that partial revenue is recognized, that amount will not be eligible for the bookings bonus.

•Bookings bonuses will be paid after the end of the quarter along with commission payments.

Regional Sales Managers will be eligible to receive a bookings bonus based on the above criteria at 50% of the sales rep eligible bonus.

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Bookings Bonus (Me INC): SCO will pay a bookings bonus to the sales rep in addition to the normal commission for all transactions that meet the following criteria:  (All booking orders must meet the standard purchase order requirements of SCO).

•A 10% bookings bonus for a Me INC. subscription sale to existing or new SCO customers when individual or cumulative bookings total the following:

•Q1 - $20,000 in bookings,

•Q2 - $50,000 in bookings,

•Q3 - $100,000 in bookings,

•Q4 - $230,000 in bookings.

•Multiple orders may be combined to determine the quarterly bookings.

•The thresholds discussed above are for individual quarters and are not carried forward to future quarters.

Channel Accounts.   These include Distributors, VSP’s, Premier Resellers, Authorized Resellers and Registered Resellers.

Collection of Customer Accounts. Quota attainments are subject to collection of account.  Sales which remain uncollected 90 days after invoice due date will be debited against the salesperson’s attainment for the quarter in which the sale was deemed to be un-collectible

Invoicing.  Invoicing is the amount billed to a customer during the effective period of this compensation plan, regardless of when the product or service is delivered.

New and Former SCO Account Bonus – UNIX Customers.  SCO will pay a bonus of $5,000 to the sales rep in addition to the normal commission for all transactions that meet the criteria listed below.  Prior to documenting the sales activity within a new or former account, the qualifying account must not have purchased from SCO in the previous two years.  It is acceptable that all new accounts will have a trial purchase process with SCO prior to a volume purchase of the SCO products.

•A new or former bonus will not be paid until the account has been invoiced a minimum of $50,000.

•Multiple orders may be combined for determining the $50,000 limit.

•Once the account is signed up, the revenue threshold will be based on the following twelve months, regardless of when the fiscal year ends.

•When the account reaches the threshold within twelve months, the sales rep will earn the bonus amount that existed in the plan at the time of the initial order.

•A rep that is assigned an existing account from another rep will be credited with the account’s revenue attainment at the date of the transfer.

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•New or former account bonuses will be paid after the end of the quarter with commission payments (e.g. not monthly).

•New or former Premier Reseller, VSP’s and Enterprise Reseller accounts are eligible for new or former account bonuses. New or former Authorized and Registered Reseller accounts are not eligible for new account bonuses.

Regional Sales Managers will be eligible to receive a new or former account bonus based on the above criteria at 50% of the sales rep eligible bonus.

Me INC Spiffs and Incentives: The Sales Compensation Committee may provide for additional Me INC sales spiffs and incentives during the 2006 fiscal year to reward specific sales reps and/or Regional Sales Manager for sales of Me INC.  All Me INC sales spiffs and bonuses will be paid in the month that they are documented and approved.

Payment.  Commissions earned under this plan are paid quarterly and are calculated upon attainment of revenue against stated quota.   Optional monthly advances (recoverable draws) may be paid.  Draws paid within a quarter are deducted from actual commissions earned for that quarter.  If the option to receive a draw is chosen, payment will be as follows:

•During month one of the quarter, 6.25% of the annual incentive opportunity is advanced.

•During month three of the same quarter, 6.25% of the annual incentive opportunity is advanced.

•Actual commissions are computed after the end of month three when revenue has been calculated and audited.  Attainment is computed based upon the individual’s sales results against their stated quota.  Commission earned, less advances paid during months one and three is paid with the regular pay cycle closest to 45 days following the end of the quarter (this could result in payment after 45 days depending on the timing of the pay cycles).  Any advances made in excess of the quarter’s actual earnings will be recovered in the following quarter.

•In the event that the sales rep has taken a draw that exceeds the target incentive, the draw will be recoverable from the sales rep in the following quarter.

President’s Club.  SCO will reward the top selling individuals with a “President’s Club” event or award.  In order to qualify for fiscal year 2006, all participants must achieve a minimum of 100% of the annual revenue target.  Independent Contractors will also qualify when assigned a set quota which is achieved or exceeded.  SE’s who attain 100% of the revenue target will also be eligible to qualify for President’s Club.  SCO will also

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provide an opportunity for the two sales representatives who achieve the highest level of revenue for Me INC sold in FY 06.  To attend President’s Club with this invitation, a minimum of $400,000 of bookings must be attained.

Product or Services Returns.  Product or services, which are returned for invoice credit, will be debited against the Account Manager’s performance against quota in the quarter in which the return occurs.

Revenue.  Revenue is defined as net amounts billed by SCO for products and services and recognized by SCO on financial reports to its shareholders, plus or minus any corporate financial adjustments, if any.  Revenue is recognized typically for a product when shipped to an end user and for services when performed.  Recognition of revenue is subject to approval by the SCO Corporate Controller / VP of Finance.  Revenue generated by products sold at less than the authorized selling price and products sold on unauthorized terms and conditions may be excluded from revenue for compensation purposes.

Revenue Adjustments.  Revenue adjustments between sales regions will be included in the period in which the adjustment occurs.

Sales Compensation Committee.  The Sales Compensation Committee is responsible for final interpretation, adjustments, and modifications to the plan.  The Sales Compensation Committee consists of the CEO, CFO and UNIX GM.

Sales In.  Sales in is based on the sales of product / support / SES, amortized revenue, and professional services by SCO to its distribution partners and end user customers, net of corporate financial adjustments, if any.

Sales Out.  Sales out is the sales out reported to SCO by its distribution partners of product, SES/Swim, professional services, engineering services, and support, net of corporate financial adjustments, if any. Sales out is equal to sales in plus or minus the change in inventories between the beginning and end of a period.  The total revenue used to calculate commission payments cannot exceed the revenue recognized for the period.  Therefore, if the sales out claimed cumulatively by all sales reps exceed the actual revenue recognized, adjustments will be made based on quota assignments in order to bring the sales out in line with revenue.

Side Letters, Customer Purchase Order Modification.  Any formal or informal communication (i.e. side letter or verbal commitment) to a customer indicating a modification of an existing contract, agreement, or purchase order, without approval from a the UNIX GM, and the VP of Finance is prohibited.  This includes modifications to payment terms and conditions return privileges pricing and co-op. Under no

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circumstances should a SCO employee modify the document. Any SCO employee(s) participating in such actions is subject to immediate termination.

Territory.  Each plan participant is assigned a territory.

Transfer, Employment Termination or Leave of Absence.  Upon status change such as transfer, employment termination or leave of absence, a plan participant shall be entitled to all amounts earned as of the effective date of the employee action. Final incentive compensation payments under this plan will be made 90 days from the end of the month of the effective status change.  Any product that was shipped while the employee was employed by SCO in a sales position and returned to SCO within 90 days from the end of the month of the effective status change date will be debited from revenue for purposes of quota attainment.  Final incentive compensation payments will also be subject to the rules regarding collection of customer invoices, and to adjustments for amounts paid or received on customer accounts, as outlined in the plan.

If an employee transfers to a non-quota carrying position or terminates employment with SCO prior to October 31, the total quarterly target quota must be exceeded before the over quota earnings rate will be paid.

Final interpretation of the plan is the responsibility of the Sales Compensation Committee.  SCO shall have full recourse from the employee for any and all amounts due resulting from a negative incentive balance at time of termination.

US Named Account List. Named Accounts are based on Geography with the exception of:

(a)All Federal Government accounts

(b)OEM Accounts

(c)Other Direct Accounts as assigned by VP of Sales

Non Recoverable Guarantee: The Sales Compensation Committee may approve a payment of a non-recoverable draw, typically for a period of three months in certain ramp-up or new employee situations. If a sales rep receives a non recoverable guarantee then brings in revenue which exceeds his guarantee amount, then he/she will receive the larger earnings.  Future earnings will be based on the originally stated quota and incentive.  If a sales rep does not exceed his/her guaranteed earnings, then the future earnings will be based on the remaining quarter’s quota and earnings. For example, if in Q1 a sales rep did not exceed the guaranteed earnings, then his/her earnings for Q2-Q4 will be based on the Q2-Q4 quota, revenue and incentive. A new territory assignment will be issued listing the new quota and earnings. If there is a change in the effective commission rate (percent of revenue paid after 100% of quota achieved) the new rate will be the lesser of either the previous effective commission rate or the new effective

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commission rate. The guaranteed amount and time period needs to be specified and approved within 2 weeks of the employees start date and sent via email to the Compensation Manager. All guarantees need to be approved by the Sales Compensation Committee.

I have read, understand and accept the above Plan Definitions.

NAME DATE

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EX-99.2

Exhibit 99.2

The SCO Group

EMPLOYEE INCENTIVE BONUS PROGRAM

2006 Fiscal Year

1.0          PURPOSE

The Employee Incentive Bonus Program (Bonus Plan) is 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 business with employees based upon successful achievement of quarterly business goals.

2.0          ADMINISTRATION

The Bonus Plan is approved annually by the Compensation Committee of the Company’s Board of Directors and will be administered under the auspices of the Company’s Management Incentive Committee (MIC), to consist of the CEO, the CFO and the Director of HR.  The MIC will be responsible for setting the performance objectives and administering the Bonus Plan, provided the Compensation Committee shall set the performance objectives of the CEO and the CEO shall approve the performance objectives of the members of the MIC other than the CEO.  The MIC will delegate specific administrative tasks to the Director of Human Resources as Plan Administrator, who will have day-to-day responsibility for the administration of the Plan.

3.0          ELIGIBILITY

The Bonus plan will cover all regular employees, except that employees who are covered by sales commission or any other incentive-eligible program will not be eligible to participate in the Bonus Plan.

Temporary employees, interns, independent contractors, and authorized agents are not eligible to participate in the Bonus Plan.

Bonus Plan participants must be employed at the time the bonus plan is paid each quarter in order to be eligible to receive a payout for the quarter, subject to the terms of Section 5.9 below.

4.0          BONUS POOL

The Bonus Pool will be comprised of three components:  1) 40% related to revenue; 2) 40% related to operating performance; and 3) 20% related to personal objectives.

The Revenue and Operating Performance components of the Bonus Pool will not be funded unless the Revenue and Operating Performance targets are attained at 100%.  The Personal Objectives Component will pay out each quarter based on the percentage of individual achievement.

If the Revenue and Operating Performance components of the Bonus Pool and subsequent payment of these components of the bonus causes the UNIX business to have negative cash flow for a particular quarter, the Revenue and Operating Performance Bonus Poll will be pro-rated to ensure that the UNIX business does not generate negative cash flow.

The revenue and operating performance targets for each quarter of fiscal year 2006 shall be established by the Compensation Committee.  The personal objectives shall be established as set forth in Section 2.0 above.

The amount payable to any employee of the Company will depend on a percentage of such employee’s annual base salary.  The applicable percentages of annual base salary for all employees shall be established on an annual basis by the Compensation Committee.

Up to Director Level:  To the extent that revenue and operating performance targets are attained at greater than 100% and up to 200%, accelerators may apply to increase the bonus pool from 101% of the applicable percentages of annual base salary to 200% of such percentages depending upon the extent by which the Company exceeds revenue and operating performance targets.

VP Level and Above:  To the extent that revenue and operating performance targets are attained at greater than 100%, accelerators may apply to increase the bonus from 101% of the applicable percentages of annual base salary with no cap on the upside potential, depending upon the extent by which the Company exceeds revenue and operating performance targets.

5.0          GENERAL PROVISIONS

The Bonus Plan is designed to meet these key objectives:

•Reward achievement of specific Company Revenue and Operating Loss objectives

•Align employee, Company, and shareholder interests

•Improve Morale

5.1          Other Bonus Plans:  The Bonus Plan supersedes all prior bonus plans and shall not be modified unless authorized in writing by the CEO and the Chair of the Compensation Committee.

5.2          Plan Objectives:  Specific quarterly Financial and Performance Objectives will be established for each fiscal quarter and will include revenue, net operating performance, and individual performance objectives.

5.3          Payment of Bonus:  Bonus payouts will be paid no later than 45 days following the end of each fiscal quarter for those on a bi-weekly payroll.  Bonus payouts will be paid no later than the end of the second month following the end of the fiscal quarter for those on a monthly payroll.

5.4          Benefits:  Bonus Plan awards are considered compensation for purposes of benefit determination and eligibility under the Company’s 401(k) plan.  Bonus Plan awards are not compensation for purposes of benefit determination or eligibility under the Company’s life, accidental death and dismemberment, short or long-term disability insurance, or any other similar benefit plan in accordance with all plan rules and limitations.  Subject to local employment law, Bonus Plan awards are not considered compensation for purposes of severance calculation.

5.5          Deductions:  All Bonus Plan awards are subject to statutory deductions and are taxable at the time of payment.  There shall be no Bonus Plan Awards under the Plan deferred to any future years.

5.6          Exchange Rates:  The exchange rates for Bonus Plan awards will be those rates issued by the Company’s Finance Department at the end of each accounting period.

5.7          Transfer/Status Change:  Participants must have been hired and eligible to participate at the beginning of the fiscal quarter.  Employees transferring from another incentive/commission plan during the fiscal quarter shall be compensated based on the plan they were eligible for at the beginning of the quarter at a pro-rated basis.  Employees whose promotion bumps them to a higher percentage during the quarter will be re-leveled at the beginning of the following quarter.

5.8          Leave of Absence:  Bonus Plan Awards are pro-rated for employees who are on leave of absence more than three consecutive weeks during any single quarter.  Employees must be actively at work at the beginning of the quarter to be eligible for that period.  Employees who have been on an approved family or medical leave of absence under FMLA criteria will be eligible for a pro-rated award, assuming all other criteria have been met.

5.9          Termination of Employment:  In the event an employee’s active employment terminates during the fiscal quarter by reason of retirement, total and permanent disability, or death, the participant will receive a pro-rated bonus, assuming all other criteria have been met.

Participants who are involuntarily terminated through no fault of their own will be considered for a pro-rated payment based on MIC approval.

In the event an employee’s active employment terminates for any other reason, including resignation and discharge for cause prior to the bonus payout date, all rights to an award will be forfeited.

5.10        Amendment and Termination of the Plan:  The MIC and/or the Chair of the Compensation Committee may terminate, suspend, or amend the Bonus Plan, in whole or in part, from time to time.

5.11        Payment from General Assets:  The payment of a Bonus Plan award shall be from the general assets of the Company.  Employees shall have no greater rights to payment than other general creditors of the Company.

5.12        Participation:  Participation in the Bonus Plan does not guarantee employment, nor does participation at any time guarantee ongoing participation.

5.13        Interpretation:  The Plan Administrator shall have full power and authority to interpret and administer the Bonus Plan.  Disputes arising under the Bonus Plan regarding the administration, interpretation or calculation of awards or any other matter may be submitted in writing to the MIC, who shall render a final and binding decision.

6.0          CONFIDENTIALITY

Participation in the Bonus Plan and all related discussion and documentation is considered fully confidential between the Company and the employee.  All employees are expected to honor this confidentiality and not disclose or discuss Bonus Plan matters with any persons other than his/her manager or Human Resources.  Failure to maintain confidentiality regarding the Bonus Plan may jeopardize participation and/or award eligibility.

7.0          ETHICS

Any participant who manipulates or attempts to manipulate the Bonus Plan for personal gain at the expense of customers, other employees, or Company objectives will be subject to appropriate disciplinary action, up to and including termination of employment.

8.0          PLAN IS NOT A CONTRACT

The adoption and maintenance of the Bonus Plan shall not be deemed to be a contract of employment between the Company and an employee.  Nothing herein contained shall be deemed to give any employee the right to be retained in the employ of the Company or to interfere with the right of the Company to discharge any employee at any time, nor shall it interfere with the employee’s right to terminate employment at any time.

EX-99.3

Exhibit 99.3

	Notice of Grant of Stock Options
355 S 520 W Suite 100, Lindon, Utah 84042

Option Number:

Plan: 2002

ID:

Notice is hereby given of the following option grant (the “Option”) to purchase shares of the Common Stock of The SCO Group (the “Corporation”):

Optionee:	Grant Date:
Exercise Price:	Number of Option Shares:
Type of Option:	Total Option Price:

VESTING

Vesting Commencement Date:

Expiration Date:

Date Exercisable:

Vesting Schedule:

Shares Vest Type Full Vest Expiration

Optionee understands and agrees that the Option is granted subject to and in accordance with the terms of THE SCO GROUP 2002 OMNIBUS STOCK INCENTIVE PLAN*, (the “Plan).  Optionee further agrees to be bound by the terms of the Plan and the terms of the Option as set forth in the Stock Option Agreement*.  Optionee understands that any Option Shares purchased under the Option will be subject to the terms set forth in the Stock Purchase Agreement, whether said options are purchased electronically or in person*.

*Documents available on The SCO Group Intranet.

No Employment or Service Contract.  Nothing in this Notice or in the Plan shall confer upon Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining Optionee) or of Optionee, which rights are hereby expressly reserved by each, to terminate Optionee’s Service at any time for any reason, with or without cause.

Definitions.  All capitalized terms in this Notice shall have the meaning assigned to them in this Notice or in the Stock Option Agreement.

THE SCO GROUP

STOCK OPTION AGREEMENT

RECITALS

The Board has adopted the Plan for the purpose of retaining the services of selected Employees, non-employee members of the Board or the board of directors of any Parent or Subsidiary and consultants who provide services to the Corporation (or any Parent or Subsidiary).

A.Optionee is to render valuable services to the Corporation (or a Parent or Subsidiary), and this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the Corporation’s grant of an option to Optionee.

B.All capitalized terms in this Agreement shall have the meaning assigned to them in the attached Appendix or the Plan.

NOW, THEREFORE, it is hereby agreed as follows:

1.Grant of Option.  The Corporation hereby grants to Optionee, as of the Grant Date, an option to purchase up to the number of Option Shares specified in the Grant Notice.  The Option Shares shall be purchasable from time to time during the option term specified in Paragraph 2 below at the Exercise Price.

2.Option Term.  This option shall have a term of ten (10) years measured from the Grant Date and shall accordingly expire at the close of business on the Expiration Date, unless sooner terminated in accordance with Paragraph 5 or 6 below.

3.Limited Transferability.  This option shall be neither transferable nor assignable by Optionee other than by will or by the laws of descent and distribution following Optionee’s death and may be exercised, during Optionee’s lifetime, only by Optionee.  Notwithstanding the foregoing, this option may be assigned in accordance with the terms of a Domestic Relations Order.  If so assigned, the assigned option shall be exercisable only by the person or persons who acquire a proprietary interest in the option pursuant to such Domestic Relations Order.  The terms applicable to the assigned option (or portion thereof) shall be the same as those in effect for this option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate.

4.Dates of Exercise.  This option shall become exercisable for the Option Shares in one or more installments as specified in the Grant Notice.  As the option becomes exercisable for such installments, those installments shall accumulate and the option shall remain exercisable for the accumulated installments until the Expiration Date or sooner termination of the option term under Paragraph 5 or 6.

5.Cessation of Service.  The option term specified in Paragraph 2 shall terminate (and this option shall cease to be outstanding) prior to the Expiration Date should any of the following provisions become applicable:

(a)Should Optionee cease to remain in Service for any reason (other than Cause, Disability or death) while this option is outstanding, then Optionee shall have the right to exercise this option for a period of three (3) months following the date of such cessation of Service.

(b)Should Optionee cease to remain in Service for Cause, then the optionee shall have the right to exercise this option for a period of thirty (30) days of such cessation of Service.

(c)Should Optionee die while this option is outstanding, then the personal representative of Optionee’s estate or the person or persons to whom the option is transferred pursuant to Optionee’s will or in accordance with the laws of descent and distribution shall have the right to exercise this option for a period of twelve (12) months following the date of Optionee’s death.

(d)Should Optionee cease Service by reason of Disability while this option is outstanding, then Optionee shall have the right to exercise this option for a period of twelve (12) months following the date of such cessation of Service.

(e)During the limited period of post-Service exercisability, this option may not be exercised in the aggregate for more than the number of vested Option Shares for which the option is exercisable at the time of Optionee’s cessation of Service.  This option shall terminate and cease to be outstanding for any vested shares for which this option has not been exercised upon the earlier of the following:  (i) expiration of the applicable post-Service exercise period, (ii) upon the termination of the option as a result of a Corporate Transaction, or (iii) upon the expiration of the option term.  To the extent Optionee is not vested in the Option Shares at the time of Optionee’s cessation of Service, this option shall immediately terminate and cease to be outstanding with respect to those shares.  Notwithstanding anything to the contrary contained in this Agreement, in no event shall this option be exercisable at any time after the Expiration Date.

6.Special Termination of Option.

(a)In the event of a Corporate Transaction, this option shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation or parent thereof in connection with such Corporate Transaction.

(b)If this option is assumed in connection with a Corporate Transaction, then this option shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to Optionee in consummation of such Corporate Transaction had the option been exercised immediately prior to such Corporate Transaction, and appropriate adjustments shall also be made to the Exercise Price, provided the aggregate Exercise Price shall remain the same.

(c)This Agreement shall not in any way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure assets.

7.Adjustment in Option Shares.  Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration, appropriate adjustments shall be made to (i) the total number and/or class of securities subject to this option and (ii) the Exercise Price in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder.

8.Shareholder Rights.  The holder of this option shall not have any shareholder rights with respect to the Option Shares until such person shall have exercised the option, paid the Exercise Price and become a holder of record of the purchased shares.

9.Manner of Exercising Option.

(a)In order to exercise this option with respect to all or any part of the Option Shares for which this option is at the time exercisable, Optionee (or any other person or persons exercising the option) must take the following actions:

(i)Execute and deliver to the Corporation a Purchase Agreement for the Option Shares for which the option is exercised.

(ii)Pay the aggregate Exercise Price for the purchased shares in cash or check made payable to the Corporation.

(iii)Furnish to the Corporation appropriate documentation that the person or persons exercising the option (if other than Optionee) have the right to exercise this option.

(iv)Execute and deliver to the Corporation such written representations as may be requested by the Corporation in order for it to comply with the applicable requirements of Federal and state securities laws.

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(v)Make appropriate arrangements with the Corporation (or Parent or Subsidiary employing or retaining Optionee) for the satisfaction of all Federal, state and local income and employment tax withholding requirements applicable to the option exercise.

(b)As soon as practical after the Exercise Date, the Corporation shall issue to or on behalf of Optionee (or any other person or persons exercising this option) a certificate for the purchased Option Shares, with the appropriate legends affixed thereto.

(c)In no event may this option be exercised for any fractional shares.

(d)In the alternative, Optionee may exercise this option with respect to all or any part of the Options Shares for which this option is at the time exercisable electronically by utilizing E*TRADE’s Optionslink.  All funds to be paid for the exercise or funds to be received after the sale of such shares will be transacted between the Optionee and E*TRADE.

10.REPURCHASE RIGHTS.  ALL OPTION SHARES ACQUIRED UPON THE EXERCISE OF THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF THE CORPORATION AND ITS ASSIGNS TO REPURCHASE THOSE SHARES IN ACCORDANCE WITH THE TERMS SPECIFIED IN THE PURCHASE AGREEMENT.

11.Compliance with Laws and Regulations.

(a)The exercise of this option and the issuance of the Option Shares upon such exercise shall be subject to compliance by the Corporation and Optionee with all applicable requirements of law relating thereto and with all applicable regulations of any stock exchange (or the Nasdaq National Market if applicable) on which the Common Stock may be listed for trading at the time of such exercise and issuance.

(b)The inability of the Corporation to obtain approval from any regulatory body having authority deemed by the Corporation to be necessary to the lawful issuance and sale of any Common Stock pursuant to this option shall relieve the Corporation of any liability with respect to the non-issuance or sale of the Common Stock as to which such approval shall not have been obtained.  The Corporation, however, shall use its best efforts to obtain all such approvals.

12.Successors and Assigns.  Except to the extent otherwise provided in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and Optionee, Optionee’s assigns and the legal representatives, heirs and legatees of Optionee’s estate.

13.Notices.  Any notice required to be given or delivered to the Corporation under the terms of this Agreement shall be in writing and addressed to the Corporation at its Principal corporate offices.  Any notice required to be given or delivered to Optionee shall be in writing and addressed to Optionee at the address indicated below Optionee’s signature line on the Grant Notice.  All notices shall be deemed effective upon personal delivery or upon deposit in the U. S. mail, postage prepaid and properly addressed to the party to be notified.

14.Construction.  This Agreement and the option evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the terms of the Plan.  All decisions of the Plan Administrator with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in this option.

15.Governing Law.  The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of Utah without resort to that State’s conflict-of-laws rules.

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APPENDIX

The following definitions shall be in effect under the Agreement:

A.Agreement shall mean this Stock Option Agreement.

B.Board shall mean the Corporation’s Board of Directors.

C.Cause shall mean any of the following:  (i) Optionee’s material breach of any employee, confidentiality, or other employment related agreement with the Corporation, (ii) Optionee’s violation of the Corporation’s policies or procedures set forth in the Corporation’s Policies and Procedure Manual, as amended from time to time, or (iii) Optionee’s conviction of or entrance of a plea of nolo contendere to a felony or to any other crime punishable by incarceration.

D.Code shall mean the Internal Revenue Code of 1986, as amended.

E.Committee shall mean a committee of two (2) or more Board members appointed by the Board to exercise one or more administrative functions under the Plan.

F.Common Stock shall mean the Corporation’s common stock.

G.Corporate Transaction shall have the same meaning as the term “Change in Control” as set forth in the Plan.

H.Corporation shall mean The SCO Group, a Delaware corporation.

I.Disability shall mean the inability of Optionee to engage in the performance of his duties as an Employee for a period exceeding three (3) months by reason of any medically determinable physical or mental impairment and shall be determined by the Plan Administrator on the basis of such medical evidence as the Plan Administrator deems warranted under the circumstances

J.Domestic Relations Order shall mean any judgment, decree or order (including approval of a property settlement agreement) which provides or otherwise conveys, pursuant to applicable State domestic relations laws (including community property laws), marital property rights to any spouse or former spouse of Optionee.

K.Employee shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.

L.Exercise Date shall mean the date on which the option shall have been exercised in accordance with Paragraph 9 of the Agreement.

M.Exercise Price shall mean the exercise price per share as specified in the Grant Notice.

N.Expiration Date shall mean the date on which the option expires as specified in the Grant Notice.

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O.Fair Market Value per share of Common Stock on any relevant date shall be determined in accordance with the following provisions:

(i)If the Common Stock is at the time traded on the NASDAQ National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as the price is reported by the National Association of Securities Dealers on the NASDAQ National Market or any successor system.  If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

(ii)If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange.  If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

(iii)If the Common Stock is at the time neither listed on any Stock Exchange nor traded on the NASDAQ National Market, then the Fair Market Value shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate.

P.Grant Date shall mean the date of grant of the option as specified in the Grant Notice.

Q.Grant Notice shall mean the Notice of Grant of Stock Option accompanying the Agreement, pursuant to which Optionee has been informed of the basic terms of the option evidenced hereby.

R.1934 Act shall mean the Securities Exchange Act of 1934, as amended.

S.Non-Qualified Stock Option shall mean an option not intended to satisfy the requirements of IRS Code Section 422.

T.Option Shares shall mean the number of shares of Common Stock subject to the option.

U.Optionee shall mean the person to whom the option is granted as specified in the Grant Notice.

V.Parent shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

W.Plan shall mean the Corporation’s 2002 Omnibus Stock Incentive Plan.

X.Plan Administrator shall mean either the Board or a committee of Board members, to the extent the committee is at the time responsible for the administration of the Plan.

Y.Service shall mean the provision of services to the Corporation (or any Parent or Subsidiary) by a person in the capacity of an Employee, a non-employee member of the board of directors or a consultant.

Z.Stock Exchange shall mean NASDAQ.

AA.Subsidiary shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

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