August 14, 2003
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Body & Soul
SCO execs had a preset sale plan

By Jonathan Berr
Bloomberg News

    SCO Group Inc. said three of its executives began selling shares on a preset schedule after the company filed a software lawsuit against International Business Machines Corp. that seeks as much as $50 billion.
    Senior Vice Presidents Reg Broughton and Jeff Hunsaker notified the Securities and Exchange Commission of their share sale plans in May and June. Vice President Mike Olsen, who wasn't required to notify the SEC, began a sale plan in May, company spokesman Blake Stowell said Wednesday.
    Executives at Lindon, Utah-based SCO Group have sold more than 126,000 shares for about $1.2 million since the IBM suit was filed. Before that, SCO insiders hadn't sold shares in more than a year. The officials are facing higher tax bills because of the increased value of their options and restricted shares, said Chief Executive Darl McBride. The shares have gained more than fourfold since the company filed suit against IBM in March.
    "The guys don't want to be selling," McBride said. McBride said he has no plans to sell his shares. Senior Vice President Chris Sontag, who heads the company's software-licensing unit, also hasn't sold shares, McBride said.
    The executives are selling shares on a preset schedule to avoid suggestions of improper trading, McBride said. The SEC's Rule 10b5-1 allows insiders to sell shares of their company on a preset schedule, even if he or she has information that could affect the stock price. Insiders at companies including Staples Inc. and Inc. have used 10b5-1 plans.
    Chief Financial Officer Robert Bench began the selling by SCO insiders, four days after SCO filed the suit against IBM. Bench is selling to help pay a $150,000 tax bill, McBride said. Under the Sarbanes-Oxley law, companies are no longer able to loan executives money to pay taxes or other expenses.
    Bench submitted a sale plan in January, months before any legal action against IBM was contemplated, McBride said. His agreement called for the sales to begin on March 8. He planned to sell 5,000 shares a month for the next 12 months, according to the plan.
    Individuals aren't required to disclose to the SEC when they begin 10b5-1 share-sale plans, said John Heine, a spokesman for the agency. The agency is evaluating a proposal to require disclosure in 8-K filings, he said.
    SCO owns copyrights to the Unix computer operating system. The company has accused IBM of illegally transferring Unix code into Linux, a program supported by IBM as a cheaper alternative to Microsoft Corp.'s Windows program. IBM has denied SCO's claims and filed a countersuit.
    Some investors have bet that SCO may generate royalty sales from its dispute with IBM. Microsoft, the world's largest software company, bought a license from SCO in May. SCO says another Fortune 500 company purchased a license this week. It didn't identify the buyer. Some companies are avoiding or slowing their use of Linux out of concern they may have to pay a royalty to SCO, analysts have said.


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