Document:

Exhibit 10.1

 

EXECUTION COPY

 

SECURITIES PURCHASE AGREEMENT

 

 

This SECURITIES PURCHASE
AGREEMENT (the “Agreement”), dated as of October 16, 2003, is made by and
among The SCO Group, Inc., a corporation organized under the laws of the State
of Delaware (the “Company”), and each of the purchasers
(individually, a “Purchaser” and collectively the “Purchasers”)
set forth on the execution pages hereof (each, an “Execution Page” and
collectively the “Execution Pages”).

 

BACKGROUND

 

A.            The Company and each
Purchaser are executing and delivering this Agreement in reliance upon the
exemption from securities registration afforded by the provisions of Regulation
D (“Regulation
D”), as promulgated by the United States Securities and Exchange
Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities
Act”).

 

B.            Upon the terms and
conditions stated in this Agreement, the Company desires to issue and sell to
the Purchasers, and the Purchasers desire to purchase, an aggregate of 50,000
shares of the Company’s Series A Convertible Preferred Stock, par value $0.001
per share (the “Preferred Stock”), which Preferred Stock shall have the
rights, preferences and privileges set forth in the form of Certificate of
Designation, Preferences and Rights attached hereto as Exhibit A (the “Certificate
of Designation”) and each share of Preferred Stock shall initially
be convertible into 59.07 shares of the Company’s common stock, par value
$0.001 per share (the “Common Stock”).  The shares of Common Stock issuable upon conversion of or
otherwise pursuant to the Preferred Stock are referred to herein as the “Conversion
Shares.”  The Preferred Stock
and the Conversion Shares are collectively referenced herein as the “Securities”
and each of them may individually be referred to herein as a “Security.”

 

C.            Contemporaneously with
the execution and delivery of this Agreement, the parties hereto are executing
and delivering a Registration Rights Agreement, in the form attached hereto as Exhibit
B (the “Registration Rights Agreement”), pursuant to which the Company
has agreed to provide certain registration rights under the Securities Act and
the rules and regulations promulgated thereunder, and applicable state
securities laws.  This Agreement, the
Certificate of Designation and the Registration Rights Agreement are
collectively referred to herein as the “Transaction Documents.”

 

NOW, THEREFORE, in
consideration of the premises and mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and the Purchasers, intending to be legally
bound, hereby agree as follows:

 

 

1.             PURCHASE AND SALE
OF SECURITIES.

 

(a)           Purchase and Sale of
Securities.  Subject to the terms
and conditions hereof, at the Closing (as defined in Section 1(b) below), the
Company shall issue and sell to each Purchaser, and each Purchaser, severally
and not jointly, shall purchase from the Company, such number of shares of
Preferred Stock as is set forth on such Purchaser’s Execution Page, for a
purchase price (as to each Purchaser, the “Purchase Price”) per share of Preferred
Stock equal to One Thousand Dollars ($1,000.00 ).

 

(b)           The Closing.  Subject to the satisfaction (or waiver) of
the conditions set forth in Sections 6 and 7 below, the closing of the
transactions contemplated hereby (the “Closing”) shall take place at the offices
of Drinker Biddle & Reath LLP at One Logan Square, 18th &  Cherry
Streets, Philadelphia, Pennsylvania 19103 at 10:00 a.m., Philadelphia, Pennsylvania
time, on the date hereof, or such other time or place as the Company and the
Purchasers may mutually agree (the “Closing Date”).

 

2.             PURCHASER’S
REPRESENTATIONS AND WARRANTIES.

 

Each Purchaser severally,
but not jointly, represents and warrants to the Company as follows:

 

(a)           Purchase for Own
Account, Etc.  Such Purchaser is
purchasing the Securities for such Purchaser’s own account for investment
purposes only and not with a present view towards the public sale or
distribution thereof, except pursuant to sales that are exempt from the
registration requirements of the Securities Act and/or sales registered under
the Securities Act.  Such Purchaser
understands that the Securities are restricted and that such Purchaser must
bear the economic risk of this investment indefinitely, unless the Securities
are registered pursuant to the Securities Act and any applicable state
securities or blue sky laws or an exemption from such registration is
available, and that the Company has no present intention of registering the
resale of any such Securities other than as contemplated by the Registration
Rights Agreement.  Notwithstanding
anything in this Section 2(a) to the contrary, by making the representations
herein, such Purchaser does not agree to hold the Securities for any minimum or
other specific term and reserves the right to dispose of the Securities at any
time in accordance with or pursuant to a registration statement or an exemption
from the registration requirements under the Securities Act.

 

(b)           Accredited Investor
Status.  Such Purchaser is an
“accredited investor” as that term is defined in Rule 501(a) of Regulation D.

 

(c)           Sophistication.  Such Purchaser is knowledgeable,
sophisticated and experienced in making, and is qualified to make, decisions with
respect to investments and shares representing an investment decision like that
involved in the purchase of the Preferred Stock, and has had the opportunity to
request, receive, review and consider all information it deems relevant in
making an informed decision to purchase the Securities.

 

(d)           Reliance on
Exemptions.  Such Purchaser
understands that the Securities are being offered and sold to such Purchaser in
reliance upon specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company 

 

2

 

is relying upon the truth
and accuracy of, and such Purchaser’s compliance with, the representations,
warranties, agreements, acknowledgments and understandings of such Purchaser
set forth herein in order to determine the availability of such exemptions and
the eligibility of such Purchaser to acquire the Securities.

 

(e)           Information.  Such Purchaser and its counsel, if any, have
been furnished all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
that have been specifically requested by such Purchaser or its counsel.  Neither such inquiries nor any other
investigation conducted by such Purchaser or its counsel or any of its
representatives shall modify, amend or affect such Purchaser’s right to rely on
the Company’s representations and warranties contained in Section 3 below.  Such Purchaser understands that such Purchaser’s
investment in the Securities involves a high degree of risk and such Purchaser
understands the risks and uncertainties associated with the Company and the
Securities.  Such Purchaser understands
that the market price of the Company’s Common Stock is volatile and that no
representation is being made as to the future value of the Company’s Common
Stock.

 

(f)            Hedge Transactions.  Such Purchaser has not, directly or
indirectly, from and including the date such Purchaser first became aware of
the potential offering of the Securities through and including the Closing
Date, engaged in any short sale in connection with the Company’s Common Stock,
and thereafter, will only hedge the economic risk of such Purchaser’s
investment in the Securities in compliance with the Securities Act and such
state securities or blue sky laws as may be applicable.

 

(g)           Governmental Review.  Such Purchaser understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.

 

(h)           Authorization;
Enforcement.  This Agreement and the
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of such Purchaser and are valid and binding agreements
of such Purchaser enforceable against such Purchaser in accordance with their
respective terms.

 

(i)            Residency.  Such Purchaser is a resident of the
jurisdiction set forth under such Purchaser’s name on the Execution Page hereto
executed by such Purchaser.

 

Each Purchaser’s
representations and warranties made in this Article 2(a), (b), (c), (d), (e),
(g) and (i) are made solely for the purpose of permitting the Company to make a
determination that the offer and sale of the Securities pursuant to this
Agreement comply with applicable U.S. federal and state securities laws and not
for any other purpose.  Accordingly, the
Company may not rely on such representations and warranties for any other
purpose.  No Purchaser has made or
hereby makes any other representations or warranties, express or implied, to
the Company in connection with the transactions contemplated hereby.

 

3

 

3.             REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.

 

Except as set forth on a Disclosure Schedule executed
and delivered by the Company to each Purchaser (the “Disclosure Schedule”), as of
the Closing Date, the Company represents and warrants to each Purchaser as
follows:

 

(a)           Organization and
Qualification.  The Company and each
of its direct and indirect subsidiaries (collectively, the “Subsidiaries”)
is a corporation duly organized and existing in good standing under the laws of
the jurisdiction in which it is incorporated or organized, and has the
requisite corporate power to own its properties and to carry on its business as
now being conducted.  The Company and
each of its Subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted by it makes such qualification necessary and where the
failure so to qualify or be in good standing would have a Material Adverse
Effect.  For purposes of this Agreement,
“Material
Adverse Effect” means any effect which, individually or in the aggregate
with all other effects, reasonably would be expected to be materially adverse
to (i) the Securities, (ii) the ability of the Company to perform its
obligations under this Agreement or the other Transaction Documents or (iii)
the business, operations, properties, prospects, financial condition or results
of operations of the Company and its Subsidiaries, taken as a whole, other than
those effects occurring as a result of general domestic or international
economic or financial conditions or general industry developments that affect
the Company and other participants in its industry in the same general fashion.

 

(b)           Authorization;
Enforcement.  (i) The Company has
the requisite corporate power and authority to enter into and perform its
obligations under this Agreement and the other Transaction Documents, to issue
and sell the Preferred Stock in accordance with the terms hereof, and to issue
the Conversion Shares upon conversion of the Preferred Stock in accordance with
the terms thereof; (ii) the execution, delivery and performance of this
Agreement and the other Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Preferred Stock and the issuance
and reservation for issuance of the Conversion Shares) have been duly
authorized by the Company’s Board of Directors and no further consent or
authorization of the Company, its Board of Directors, or any committee of the
Board of Directors is required, and (iii) this Agreement constitutes, and, upon
execution and delivery by the Company of the other Transaction Documents, such
Transaction Documents will constitute, valid and binding obligations of the
Company enforceable against the Company in accordance with their terms.  Neither the execution, delivery or
performance by the Company of its obligations under this Agreement or the other
Transaction Documents, nor the consummation by it of the transactions contemplated
hereby or thereby (including, without limitation, the issuance of the Preferred
Stock or the issuance or reservation for issuance of the Conversion Shares)
requires any consent or authorization of the Company’s stockholders.

 

(c)           Capitalization.  The capitalization of the Company as of the
date hereof, including the authorized capital stock, the number of shares
issued and outstanding, the number of shares issuable and reserved for issuance
pursuant to the Company’s stock option plans, the number of shares issuable and
reserved for issuance pursuant to securities (other than the Preferred Stock) 

 

4

 

exercisable or exchangeable for, or convertible into, any shares of
capital stock and the number of shares to be reserved for issuance upon conversion
of the Preferred Stock is set forth in Section 3(c) of the Disclosure
Schedule.  All of such outstanding
shares of capital stock have been, or upon issuance in accordance with the
terms of any such exercisable, exchangeable or convertible securities will be,
validly issued, fully paid and non-assessable. 
No shares of capital stock of the Company (including the Conversion
Shares) are subject to preemptive rights or any other similar rights of the
stockholders of the Company or any liens or encumbrances.  Except for the Securities and as set forth
in Section 3(c) of the Disclosure Schedule, (i) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into or
exercisable or exchangeable for, any shares of capital stock of the Company or
any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries, nor are any such issuances, contracts, commitments,
understandings or arrangements contemplated, (ii) there are no contracts,
commitments, understandings or arrangements under which the Company or any of
its Subsidiaries is obligated to register the sale of any of its or their
securities under the Securities Act (except the Registration Rights Agreement);
(iii) there are no outstanding securities or instruments of the Company or any
of its Subsidiaries which contain any redemption or similar provisions, and
there are no contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to redeem or
otherwise acquire any security of the Company or any of its Subsidiaries; and
(iv) the Company does not have any shareholder rights plan, “poison pill” or
other anti-takeover plans or similar arrangements.  Section 3(c) of the Disclosure Schedule sets forth all of
the securities or instruments issued by the Company or any of its Subsidiaries
that contain anti-dilution or similar provisions, and, except as and to the
extent set forth thereon, the sale and issuance of the Securities will not
trigger any anti-dilution adjustments to any such securities or
instruments.  The Company has furnished
to each Purchaser true and correct copies of the Company’s Certificate of
Incorporation as in effect on the date hereof (“Certificate of Incorporation”),
the Company’s Bylaws as in effect on the date hereof (the “Bylaws”), and all other
instruments and agreements governing securities convertible into or exercisable
or exchangeable for capital stock of the Company, all of which instruments and
agreements are set forth in Section 3(c) of the Disclosure
Schedule.  The Company or one of its
Subsidiaries has the unrestricted right to vote, and (subject to limitations
imposed by applicable law) to receive dividends and distributions on, all
capital securities of its Subsidiaries as owned by the Company or any such
Subsidiary.

 

(d)           Issuance of
Securities.  Upon the filing of the
Certificate of Designation with the Delaware Secretary of State (which filing
shall on the Closing Date), the Preferred Stock will be duly authorized and,
upon issuance in accordance with the terms of this Agreement, (i) will be
validly issued, fully paid and non-assessable and free from all taxes, liens,
claims and encumbrances, (ii) will not be subject to preemptive rights, rights
of first refusal or other similar rights of stockholders of the Company or any
other person and (iii) will not impose personal liability on the holder
thereof.  The Conversion Shares are duly
authorized and reserved for issuance, and, upon conversion of the Preferred
Stock in accordance with the terms thereof, (x) will be validly issued, fully
paid and non-assessable, and free from all taxes, liens, claims and
encumbrances, (y) will not be subject to preemptive rights, rights of first
refusal or other similar 

 

5

 

rights of stockholders of the Company or any other person and (z) will
not impose personal liability upon the holder thereof.

 

(e)           No Conflicts;
Consents.  The execution, delivery
and performance of this Agreement and the other Transaction Documents by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance of the
Preferred Stock and the issuance and reservation for issuance of the Conversion
Shares) will not (i) result in a violation of the Certificate of Incorporation
or Bylaws, (ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including United States federal and
state securities laws, rules and regulations and rules and regulations of any
self-regulatory organizations to which either the Company or its securities are
subject) applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or
affected (except, with respect to clauses (ii) and (iii), for such conflicts,
defaults, terminations, amendments, accelerations, cancellations and violations
that would not, individually or in the aggregate, have a Material Adverse
Effect).  Except (w) as may be required
under the Securities Act in connection with the performance of the Company’s
obligations under the Registration Rights Agreement, (x) for the filing of a
Form D with the SEC, (y) as may be required for compliance with applicable
state securities or “blue sky” laws, or (z) as otherwise set forth in Section
3(e) of the Disclosure Schedule, the Company is not required to obtain any
consent, approval, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or
self-regulatory agency or other third party (including, without limitation,
pursuant to any Material Contract (as defined in Section 3(g) below)) in order
for it to execute, deliver or perform any of its obligations under this
Agreement or any of the other Transaction Documents.

 

(f)            Compliance.  The Company is not in violation of its
Certificate of Incorporation, Bylaws or other organizational documents and no
Subsidiary is in violation of any of its organizational documents.  Neither the Company nor any of its
Subsidiaries is in default (and no event has occurred that with notice or lapse
of time or both would put the Company or any of its Subsidiaries in default)
under, nor has there occurred any event giving others (with notice or lapse of
time or both) any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries is a party (including, without limitation, the Material
Contracts, as defined below), except for actual or possible violations,
defaults or rights that would not, individually or in the aggregate, have a
Material Adverse Effect.  The businesses
of the Company and its Subsidiaries are not being conducted, and shall not be
conducted so long as any Purchaser owns any of the Securities, in violation of
any law, ordinance or regulation of any governmental entity, except for
possible violations the sanctions for which either individually or in the
aggregate have not had and would not have a Material Adverse Effect.  Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any Subsidiary has, in the course of his actions
for, or on behalf of, the Company or any Subsidiary, used any corporate funds
for any unlawful contribution, gift, entertainment or other unlawful expenses
relating to political activity, made any direct or indirect unlawful payment to
any 

 

6

 

foreign or domestic government official or employee from corporate
funds, violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977 or the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, or
made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.  The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, provincial or foreign regulatory authorities that are material to the
conduct of its business, and neither the Company nor any of its Subsidiaries
has received any notice of proceeding relating to the revocation or
modification of any such certificate, authorization or permit.

 

(g)           SEC Documents,
Financial Statements.  Since March
21, 2000 (the date of the Corporation’s initial public offering), the Company
has timely filed (within applicable extension periods) all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”) (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements and schedules
thereto and documents incorporated by reference therein, the “SEC
Documents”).  True and
complete copies of the SEC Documents are available at www.sec.gov.  As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Exchange Act or the Securities Act, as the case may be, and the rules and regulations
of the SEC promulgated thereunder applicable to the SEC Documents, and none of
the SEC Documents, at the time they were filed with the SEC, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.  None of the statements made
in any such SEC Documents is, or has been, required to be amended or updated
under applicable law (except for such statements as have been amended or
updated in subsequent filings made prior to the date hereof).  As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC applicable with respect thereto.  Such financial statements have been prepared
in accordance with U.S. generally accepted accounting principles (“GAAP”)
during the periods involved (except as may be otherwise indicated in such
financial statements or the notes thereto or, in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the
consolidated financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal, immaterial year-end audit adjustments).  Except as set forth in the financial
statements of the Company included in the Select SEC Documents (as defined
below), the Company has no liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to the date
of such financial statements and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
GAAP to be reflected in such financial statements, which liabilities and
obligations referred to in clauses (i) and (ii), individually or in the
aggregate, are not material to the financial condition or operating results of
the Company.  To the extent required by
the rules and regulations of the SEC applicable thereto, the Select SEC
Documents contain a complete and 

 

7

 

accurate list of all material undischarged written or oral contracts,
agreements, leases, instruments obligations, commitments or arrangements to
which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary is bound or to which any of the properties or assets of the Company
or any Subsidiary is subject (each, a “Material Contract”).  Other than the Material Contracts listed in
the Select SEC Documents, or as otherwise provided to the Purchasers, the
Company has no Material Contracts. 
Except as set forth in the Select SEC Documents, none of the Company,
its Subsidiaries or, to the best knowledge of the Company, any of the other
parties thereto is in breach or violation of any Material Contract, which
breach or violation would have a Material Adverse Effect.  For purposes of this Agreement, “Select SEC
Documents” means the Company’s (A) Proxy Statement for its 2003
Annual Meeting, (B) Annual Report on Form 10-K for the fiscal year ended
October 31, 2002 (the “2002 Annual Report”), (C) Quarterly Reports
on Form 10-Q for the fiscal quarters ended January 31, 2003, April 30, 2003 and
July 31, 2003, and (D) Current Reports on Form 8-K filed since October 31,
2002.

 

(h)           Internal Accounting
Controls.  The Company and each of
its Subsidiaries maintains a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in
accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.  The Company has established disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and
designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its Subsidiaries, is made known
to the certifying officers by others within those entities, particularly during
the period in which the Company’s Annual Report on Form 10-K or Quarterly
Report on Form 10-Q, as the case may be, is being prepared.  The Company’s certifying officers have
evaluated the effectiveness of the Company’s controls and procedures as of a
date within 90 days prior to the filing date of the 2002 Annual Report and the
Company’s most recently filed Quarterly Report on Form 10-Q (each such date, an
“Evaluation
Date”).  The Company
presented in the 2002 Annual Report and its most recently filed Quarterly
Report on Form 10-Q the conclusions of the certifying officers about the
effectiveness of the disclosure controls and procedures based on their
evaluations as of the respective Evaluation Date.  Since the Evaluation Date for the 2002 Annual Report, there have
been no significant changes in the Company’s internal controls (as such term is
defined in Item 307(b) of Regulation S-K under the Exchange Act) or, to the
Company’s knowledge, in other factors that could significantly affect the
Company’s internal controls.

 

(i)            Absence of Certain
Changes.  Except as set forth in the
Select SEC Documents, since October 31, 2002, there has been no material
adverse change and no material adverse development in the business, properties,
operations, prospects, financial condition or results of operations of the
Company and its Subsidiaries, taken as a whole.  The Company has not taken any steps, and does not currently
expect to take any steps, to seek protection pursuant to any bankruptcy or
receivership law, nor does the Company or any of its Subsidiaries have any 

 

8

 

knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings with respect to the Company or any of its
Subsidiaries.

 

(j)            Transactions With
Affiliates.  Except as set forth in
the Select SEC Documents, none of the officers, directors, or employees of the
Company or any of its Subsidiaries is presently a party to any transaction with
the Company or any of its Subsidiaries (other than for ordinary course services
solely in their capacity as officers, directors or employees), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or
from, or otherwise requiring payments to or from any such officer, director or
employee or any corporation, partnership, trust or other entity in which any
such officer, director, or employee has an ownership interest of five percent
or more or is an officer, director, trustee or partner.

 

(k)           Absence of
Litigation.  Except as disclosed in
the Select SEC Documents, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body (including, without limitation, the SEC)
pending that would be required to be disclosed to Item 103 of Regulation S-K
or, to the knowledge of the Company or any of its Subsidiaries, threatened
against or affecting the Company, any of its Subsidiaries, or any of their
respective directors or officers in their capacities as such.

 

(l)            Intellectual
Property.  Each of the Company and
its Subsidiaries owns or is duly licensed (and, in such event, has the
unfettered right to grant sublicenses) to use all patents, patent applications,
trademarks, trademark applications, trade names, service marks, copyrights,
copyright applications, licenses, permits, inventions, discoveries, processes,
scientific, technical, engineering and marketing data, object and source codes,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures) and other
similar rights and proprietary knowledge (collectively, “Intangibles”) necessary for
the conduct of its business as now being conducted and as presently
contemplated to be conducted in the future. 
Section 3(l) of the Disclosure Schedule sets forth a list of all
material patents, patent applications, trademarks, trademark applications,
copyrights, licenses, sublicenses, and copyright applications owned and/or used
by the Company in its business.  Neither
the Company nor any Subsidiary of the Company infringes or is in conflict with
any right of any other person with respect to any third party Intangibles.  Neither the Company nor any of its
Subsidiaries has received written notice of any pending conflict with or
infringement upon such third party Intangibles.  Purchaser is aware of and acknowledges the pending and threatened
litigation regarding Company’s intellectual property rights disclosed in the
Select SEC Documents.  Neither the
Company nor any of its Subsidiaries has entered into any consent agreement,
indemnification agreement, forbearance to sue or settlement agreement with
respect to the validity of the Company’s or its Subsidiaries’ ownership of or
right to use its Intangibles.  The Intangibles
of the Company and its Subsidiaries are valid and enforceable and no
registration relating thereto has lapsed, expired or been abandoned or canceled
or is the subject of cancellation or other adversarial proceedings, and all
applications therefor are pending and in good standing, except where such
abandonment or cancellation would not result in a Material Adverse Effect.  The Company and its Subsidiaries have
complied, in all material respects, with their respective contractual
obligations relating to the protection of the their respective 

 

9

 

Intangibles used pursuant to licenses. 
Except as set forth in Section 3(l) of the Disclosure Schedule or in the
Select SEC Documents, to the Company’s knowledge, no person is infringing on or
violating the Intangibles owned or used by the Company or its Subsidiaries.

 

(m)          Title.  The Company and its Subsidiaries have good
and marketable title in fee simple to all real property and good and
merchantable title to all personal property owned by them that is material to
the business of the Company and its Subsidiaries, in each case free and clear
of all liens, encumbrances and defects except such as do not materially affect
the value of such property and do not materially interfere with the use made
and proposed to be made of such property by the Company and its
Subsidiaries.  Any real property and
facilities held under lease by the Company and its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not materially interfere with the use made and proposed to be
made of such property and buildings by the Company and its Subsidiaries.

 

(n)           Tax Status.
Except as set forth in Section 3(n) of the Disclosure Schedule or in the Select
SEC Documents, the Company and each of its Subsidiaries has made or filed all
foreign, U.S. federal, state, provincial and local income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject (unless and only to the extent that the Company and each of its
Subsidiaries has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. Except as set
forth in Schedule 3(n) of the Disclosure Schedule, there are no unpaid taxes in
any material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim.  Except as set forth in Section 3(n) of the
Disclosure Schedule or in the Select SEC Documents, the Company has not
executed a waiver with respect to any statute of limitations relating to the
assessment or collection of any foreign, federal, state, provincial or local
tax. None of the Company’s tax returns is presently being audited by any taxing
authority.

 

(o)           Key Employees.  Each of the Company’s directors and officers
and any Key Employee (as defined below) is currently serving the Company in the
capacity disclosed in the Select SEC Documents.  No Key Employee is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each Key Employee does not subject the Company or any of its Subsidiaries to
any material liability with respect to any of the foregoing matters.  No Key Employee has, to the knowledge of the
Company and its Subsidiaries, any intention to terminate or limit his
employment with, or services to, the Company or any of its Subsidiaries, nor is
any such Key Employee subject to any constraints which would cause such
employee to be unable to devote his full time and attention to such employment
or services.  For purposes of this
Agreement, “Key Employee” means the persons listed in Section 3(o)
of the Disclosure Schedule and any individual who assumes or performs any of
the duties of a Key Employee.

 

10

 

(p)           Employee Relations.  Neither the Company nor any of its
Subsidiaries is involved in any material union labor dispute nor, to the
knowledge of the Company or any of its Subsidiaries, is any such dispute
threatened.  The Company and its
Subsidiaries believe that their relations with their employees are good.  No executive officer (as defined in Rule
501(f) of the Securities Act) has notified the Company that such officer
intends to leave the Company or otherwise terminate such officer’s employment
with the Company.  The Company and its
Subsidiaries are in compliance with all federal, state, local and foreign laws
and regulations respecting employment and employment practices, terms and
conditions of employment and wages and hours, except where failure to be in
compliance would not, either individually or in the aggregate, result in a
Material Adverse Effect.

 

(q)           Insurance.  The Company and each of its Subsidiaries has
in force insurance with respect to its business and properties as is
customarily carried by persons engaged in the same or similar business as the
Company, and as is reasonably believed by management to be adequate.  No default or event has occurred that could
give rise to a default under any such policy of insurance.

 

(r)            Environmental
Matters.  There is no environmental
litigation or other environmental proceeding pending or, to the knowledge of
the Company or any of its Subsidiaries, threatened by any governmental
regulatory authority or others with respect to the current or any former
business of the Company or any of its Subsidiaries or any partnership or joint
venture currently or at any time affiliated with the Company or any of its
Subsidiaries.  No state of facts exists
as to environmental matters or Hazardous Substances (as defined below) that
involves the reasonable likelihood of a material capital expenditure by the
Company or any of its Subsidiaries that may otherwise have a Material Adverse
Effect.  No Hazardous Substances have
been treated, stored or disposed of, or otherwise deposited, in or on the
properties owned or leased by the Company or any of its Subsidiaries or by any
partnership or joint venture currently or at any time affiliated with the
Company or any of its Subsidiaries in violation of any applicable environmental
laws.  The environmental compliance
programs of the Company and each of its Subsidiaries comply in all respects
with all environmental laws, whether foreign, federal, state, provincial or
local, currently in effect.  For
purposes of this Agreement, “Hazardous Substances” means any substance,
waste, contaminant, pollutant or material that has been determined by any
governmental authority to be capable of posing a risk of injury to health,
safety, property or the environment.

 

(s)           Solvency.  Based on the financial condition of the
Company as of the Closing Date, (i) the Company’s fair saleable value of its
assets exceeds the amount that will be required to be paid on or in respect of
the Company’s existing debts and other liabilities (including known contingent
liabilities required to be recorded under GAAP) as they mature; (ii) the
Company’s assets do not constitute unreasonably small capital to carry on its
business for the current fiscal year as now conducted and as proposed to be
conducted including its capital needs taking into account the particular
capital requirements of the business conducted by the Company, and projected
capital requirements and capital availability thereof; and (iii) the current
cash flow of the Company, together with the proceeds the Company would receive,
were it to liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on or in
respect of its debt when such amounts are required to be paid.  The Company 

 

11

 

does not intend to incur debts beyond its ability to pay such debts as
they mature (taking into account the timing and amounts of cash to be payable
on or in respect of its debt).  The
Company is able to pay dividends and meet all redemption obligations.

 

(t)            Listing.  The Common Stock is currently listed for
trading on the Nasdaq SmallCap Market (the “SmallCap Market”).  The Company is not in violation of the
listing requirements of the SmallCap Market, does not reasonably anticipate
that the Common Stock will be delisted by the SmallCap Market for the
foreseeable future, and since August 1, 2002 has not received any notice
regarding the possible delisting of the Common Stock from the SmallCap
Market.  The Company will promptly apply
for the listing of the Conversion Shares on the SmallCap Market and on each
other national securities exchange, automated quotation system or
over-the-counter market upon which shares of Common Stock are currently listed
(subject to official notice of issuance).

 

(u)           Form S-3 Eligibility.  The Company is eligible to register the
resale of its Common Stock on a registration statement on Form S-3 under the
Securities Act.  The Company is not
aware of any current facts or circumstances that would prohibit or delay the
preparation and filing of a registration statement on Form S-3 (in accordance
with the schedule provided in the Registration Rights Agreement) with respect
to the Registrable Securities (as defined in the Registration Rights
Agreement).  The Company has no basis to
believe that its past or present independent public auditors will withhold
their consent to the inclusion, or incorporation by reference, of their audit
opinion concerning the Company’s financial statements which are included in the
Registration Statement required to be filed pursuant to the Registration Rights
Agreement.

 

(v)           Anti-Takeover
Provisions.  The Company and its
Board of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under its Certificate of Incorporation or the laws of
the state of its incorporation or other jurisdiction which is or could become
applicable to any Purchaser as a result of the transactions contemplated by
this Agreement, including, without limitation, the Company’s issuance of the
Securities and any and all Purchaser’s ownership of the Securities.

 

(w)          Acknowledgment
Regarding Each Purchaser’s Purchase of the Securities.  The Company acknowledges and agrees that
each Purchaser is acting solely in the capacity of arm’s-length purchaser with
respect to this Agreement and the other Transaction Documents and the
transactions contemplated hereby and thereby, and that (i) no Purchaser is an
officer or director of the Company, and based on the representations made by
each Purchaser in Section 3 of this Agreement and based on the fact that no
Purchaser has filed a Schedule 13D or 13G with respect to its ownership of
securities of the Company, (ii) to the knowledge of the Company, no Purchaser
is an “affiliate” of the Company (as defined in Rule 144 under the Securities
Act (including any successor rule, “Rule 144”)) and (iii) to the knowledge of
the Company, no Purchaser is a “beneficial owner” of more than 5% of the Common
Stock (as defined for purposes of Rule 13d-3 of the Exchange Act).  The Company further acknowledges that no
Purchaser is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement or the other Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by a Purchaser or any of its representatives or agents in connection with
this Agreement or the other Transaction Documents and the transactions 

 

12

 

contemplated hereby and thereby is merely incidental to such
Purchaser’s purchase of the Securities. 
The Company further represents to each Purchaser that the Company’s
decision to enter into this Agreement and the other Transaction Documents has
been based solely on the independent evaluation by the Company and its
representatives.

 

(x)            No General
Solicitation or Integrated Offering. 
Neither the Company nor any distributor participating on the Company’s
behalf in the transactions contemplated hereby (if any) nor any person acting
for the Company, or any such distributor, has conducted any “general
solicitation” (as such term is defined in Regulation D) with respect to any of
the Securities being offered hereby. 
Neither the Company nor any of its affiliates, nor any person acting on
its or their behalf, has directly or indirectly made any offers or sales of any
security or solicited any offers to buy any security under circumstances that
would require registration of the Securities being offered hereby under the
Securities Act or cause this offering of Securities to be integrated with any
prior offering of securities of the Company for purposes of the Securities Act,
which result of such integration would require registration under the
Securities Act, or any applicable stockholder approval provisions.

 

(y)           No Brokers.  Except as set forth in Section 3(y) of the
Disclosure Schedule, the Company has taken no action that would give rise to
any claim by any person for brokerage commissions, finder’s fees or similar
payments by any Purchaser relating to this Agreement or the transactions
contemplated hereby.

 

(z)            Disclosure.  All information relating to or concerning
the Company and/or any of its Subsidiaries set forth in this Agreement or
provided to the Purchasers pursuant to Section 2(d) hereof or otherwise in
connection with the transactions contemplated hereby is true and correct in all
material respects and the Company has not omitted to state any material fact necessary
in order to make the statements made herein or therein, in light of the
circumstances under which they were made, not misleading.  No event or circumstance has occurred or
exists with respect to the Company or its Subsidiaries or their respective
businesses, properties, prospects, operations or financial conditions, which
has not been publicly disclosed but, under applicable law, rule or regulation,
would be required to be disclosed by the Company in a registration statement
filed on the date hereof by the Company under the Securities Act with respect
to a primary issuance of the Company’s securities.

 

4.             COVENANTS.

 

(a)           Best Efforts.  The parties shall use their respective best
efforts timely to satisfy each of the conditions described in Sections 6 and 7
of this Agreement.

 

(b)           Form D;  Blue Sky Laws.  The Company shall file with the SEC a Form D with respect to the
Securities as required under Regulation D and provide a copy thereof to each
Purchaser promptly after such filing. 
The Company shall, on or before the Closing Date, take such action as
the Company shall reasonably determine is necessary to qualify the Securities
for sale to each Purchaser pursuant to this Agreement under applicable
securities or “blue sky” laws 

 

13

 

of the states of the United States or obtain exemption therefrom, and
shall provide evidence of any such action so taken to each Purchaser on or
prior to the Closing Date.  The Company
shall issue a press release (the “Press Release”) describing in reasonable
detail the transactions contemplated hereby and such other matters as had
previously been discussed by the Purchasers and the Company, as soon as
practicable on or after the date hereof, but in no event later than the commencement
of the first trading day following the date hereof.  The Press Release shall be subject to prior review and comment
from BayStar Capital II, LP (“BayStar”). Within two days after the
Closing Date, the Company shall file a Form 8-K with the SEC concerning this
Agreement and the transactions contemplated hereby, which Form 8-K shall attach
this Agreement and its Exhibits as exhibits to such Form 8-K (the “8-K Filing”).  From and after the Press Release, the
Company hereby acknowledges that no Purchaser shall be in possession of any
material nonpublic information received from the Company, any of its
Subsidiaries or any of its respective officers, directors, employees or agents,
that is not disclosed in the Press Release. 
The Company shall not, and shall cause each of its Subsidiaries and its
and each of their respective officers, directors, employees and agents not to,
provide any Purchaser with any material nonpublic information regarding the
Company or any of its Subsidiaries from and after the Press Release without the
express written consent of such Purchaser; provided, however, that a Purchaser
that exercises its rights under Section 4(n) hereof shall be deemed to have
given such express written consent.  No
Purchaser shall have any liability to the Company, its Subsidiaries or any of
its or their respective officers, directors, employees, shareholders or agents
for any such disclosure.  Subject to the
foregoing, neither the Company nor any Purchaser shall issue any press releases
or any other public statements with respect to the transactions contemplated
hereby; provided,
however,
that the Company shall be entitled, without the prior approval of any
Purchaser, to make any press release or other public disclosure with respect to
such transactions as is required by applicable law and regulations (provided
that any such press release or other public disclosure shall be subject to
prior review and comment by BayStar).

 

(c)           Reporting Status.  So long as any Purchasers (or any of their
respective affiliates) beneficially own any of the Securities, the Company
shall timely file all reports required to be filed with the SEC pursuant to the
Exchange Act, and the Company shall not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act or the
rules and regulations thereunder would permit such termination.  In addition, the Company shall take all
actions necessary to meet the “registrant eligibility” requirements set forth
in the general instructions to Form S-3 or any successor form thereto, to
continue to be eligible to register the resale of its Common Stock on a
registration statement on Form S-3 under the Securities Act.

 

(d)           Use of Proceeds.  The Company shall use the proceeds from the
sale and issuance of the Preferred Stock for general corporate purposes and
working capital.  Such proceeds shall
not be used to (i) pay dividends, other than dividends contemplated by the
Certificate of Designation; (ii) pay for any increase in executive compensation
or make any loan or other advance to any officer, employee, shareholder,
director or other affiliate of the Company, without the express approval of the
Board of Directors acting in accordance with past practice; (iii) purchase debt
or equity securities of any entity (including redeeming the Company’s own
securities), except for (A) evidences of indebtedness issued or fully
guaranteed by the United States of America and having a maturity of not more
than one year from the date of acquisition, (B) certificates of deposit, notes,
acceptances and repurchase agreements having a maturity of 

 

14

 

not more than one year from the date of acquisition issued by a bank
organized in the United States having capital, surplus and undivided profits of
at least $500,000,000, (C) the highest-rated commercial paper having a maturity
of not more than one year from the date of acquisition, (D) “Money Market” fund
shares, or money market accounts fully insured by the Federal Deposit Insurance
Corporation and sponsored by banks and other financial institutions, (E) in
connection with strategic acquisitions approved by the Company’s Board of
Directors upon exercise of its reasonable business judgment; or (F) purchases
or sales of securities pursuant to the Company’s management investment policy
in the form provided to the Purchasers, as approved by the Company’s Board of
Directors; or (iv) make any investment not directly related to the current
business of the Company.

 

(e)           Participation Right.  Subject to the terms and conditions
specified in this Section 4(e), for thirty-six months following the Closing
Date, the Purchasers shall have a right to participate with respect to the
issuance or possible issuance of (i) future equity or equity-linked securities,
or (ii) debt which is convertible into equity or in which there is an equity
component (“Additional Securities”) on the same terms and conditions as
offered by the Company to the other purchasers of such Additional
Securities.  Each time the Company
proposes to offer any Additional Securities, the Company shall make an offering
of such Additional Securities to each Purchaser in accordance with the
following provisions:

 

(i)            the Company shall
deliver a notice (the “Notice”) to the Purchasers stating
(i) its bona fide intention to offer such Additional Securities,
(ii) the number of such Additional Securities to be offered,
(iii) the price and terms, if any, upon which it proposes to offer such
Additional Securities, and (iv) the anticipated closing date of the sale
of such Additional Securities.

 

(ii)           by written notification
received by the Company, within ten (10) days after giving of the Notice, any
Purchaser may elect to purchase or obtain, at the price and on the terms
specified in the Notice, up to that portion of such Additional Securities which
equals the proportion that the number of shares of Common Stock that such
Purchaser would have the right to acquire (assuming the full conversion,
without any limitations or restrictions, of such Purchaser’s shares of
Preferred Stock into Conversion Shares) bears to the total number of shares of
Common Stock then outstanding (assuming full conversion and exercise of all
convertible or exercisable securities then outstanding); provided, however, that if
the terms set forth in the Notice contemplate consideration for such Additional
Securities to be paid in a form other than cash, any Purchaser may elect to
purchase or obtain such Additional Securities at a price equal to the fair
market value of the consideration set forth in the Notice, as reasonably
determined by the Board of Directors. 
The Company shall promptly, in writing, inform each Purchaser that
elects to purchase all of the Additional Shares available to it (“Fully-Exercising
Purchaser”) of any other Purchaser’s failure to do likewise.  During the five-day period commencing after
such information is given, each Fully-Exercising Purchaser shall be entitled to
obtain that portion of the Additional Securities for which the Purchasers were
entitled to subscribe but that were not subscribed for by the Purchasers that
is equal to the proportion that the number of shares of Common Stock that such
Fully-Exercising Purchaser would have the right to acquire (assuming the full
conversion of such Purchaser’s shares of Preferred Stock into Conversion
Shares) bears to the total number of shares of Common Stock that all
Fully-Exercising Purchasers who wish to 

 

15

 

purchase some of the unsubscribed shares would have
the right to acquire (assuming the full conversion, without any limitations or
restrictions, of such Purchasers’ shares of Preferred Stock into Conversion
Shares);

 

(iii)          if all Additional
Securities that the Purchasers are entitled to obtain pursuant to
subsection 4(e)(ii) are not elected to be obtained as provided in
subsection 4(e)(ii) hereof, the Company may, during the 90-day period
following the expiration of the period provided in subsection 4(e)(ii)
hereof, offer the remaining unsubscribed portion of such Additional Securities
to any person or persons at a price not less than, and upon terms no more
favorable to the offeree than, those specified in the Notice.  If the Company does not consummate the sale
of such Additional Securities within such period, the right provided hereunder
shall be deemed to be revived and such Additional Securities shall not be
offered or sold unless first reoffered to the Purchasers in accordance
herewith;

 

(iv)          the participation right
in this Section 4(e) shall not be applicable to (i) the issuance or sale of
shares of Common Stock (or options therefor) to employees, officers, directors,
or consultants of the Company for the primary purpose of soliciting or
retaining their employment or service pursuant to a stock option plan (or
similar equity incentive plan) approved by the Board of Directors, (ii) upon
conversion of any convertible securities outstanding as of Closing and as
disclosed in Section 3(c) of the Disclosure Schedule, (iii) the issuance of
securities in connection with a bona fide public offering at an offering price
per share (prior to underwriter’s commissions and discounts) of not less than
the Conversion Price (as such term is defined in the Certificate of
Designation) (as adjusted to reflect any stock dividends, distributions,
combinations, reclassifications and other similar transactions effected by the
Corporation in respect to its Common Stock) that is underwritten by a
nationally recognized underwriting firm, (iv) the issuance or sale of the Preferred
Stock, (v) the issuance of securities in connection with mergers, acquisitions,
strategic business partnerships or joint ventures, the primary purpose of
which, in the reasonable judgment of the Board of Directors, is not to raise
additional capital, or (vi) any issuance of securities as to which the holders
of a majority of the then outstanding shares of Preferred Stock shall have
executed a written waiver of the rights contained in this Section 4(e).

 

(v)           the participation right
set forth in this Section 4(e) may not be assigned or transferred, except
that such right is assignable by each Purchaser to any wholly-owned subsidiary
or parent of, or to any corporation or entity that is, within the meaning of
the Securities Act, controlling, controlled by or under common control with,
any such Purchaser or to any transferee of the Series A Preferred Stock.

 

(f)            Financial
Information.  The Company shall
ensure that each of the following reports are available at either www.sec.gov
or www.sco.com:  (i) within ten days
after the filing thereof with the SEC, a copy of its Annual Report on Form
10-K, its Quarterly Reports on Form 10-Q, its proxy statements and any Current
Reports on Form 8-K; and (ii) within one day after release, copies of all press
releases issued by the Company or any of its Subsidiaries.

 

(g)           Reservation of
Shares.  The Company currently has
authorized and reserved for the purpose of issuance 3,850,000 shares of Common
Stock to provide for the full conversion of 

 

16

 

the Preferred Stock and issuance of the Conversion Shares in connection
therewith, and as otherwise required by the Preferred Stock and the
Registration Rights Agreement (collectively, the “Issuance Obligations”).  In the event such number of shares becomes
insufficient to satisfy the Issuance Obligations, the Company shall take all
necessary action to authorize and reserve such additional shares of Common
Stock necessary to satisfy the Issuance Obligations.

 

(h)           Listing.  So long as any Purchasers (or any of their
respective affiliates) beneficially own any of the Securities, the Company
shall maintain the listing of all Conversion Shares from time to time issuable
upon conversion of the Preferred Stock on each national securities exchange,
automated quotation system or electronic bulletin board on which shares of
Common Stock are currently listed.  The
Company shall use its best efforts to continue the listing and trading of its
Common Stock on the SmallCap Market or on the Nasdaq National Market (the “National
Market”), the New York Stock Exchange (the “NYSE”) or the American Stock
Exchange (the “AMEX”) and shall comply in all respects with the reporting,
filing and other obligations under the bylaws or rules of the National
Association of Securities Dealers, Inc. (the “NASD”), such exchanges, or
such electronic system, as applicable. 
The Company shall promptly provide to each Purchaser copies of any
notices it receives regarding the continued eligibility of the Common Stock for
trading on any securities exchange or automated quotation system on which
securities of the same class or series issued by the Company are then listed or
quoted, if any.

 

(i)            Corporate Existence.  So long as any Purchasers (or any of their
respective affiliates) beneficially own any of the Securities, the Company
shall maintain its corporate existence, and in the event of a merger,
consolidation or sale of all or substantially all of the Company’s assets, the
Company shall ensure that the surviving or successor entity in such transaction
and, if an entity different from the successor or acquiring entity, the entity
whose securities into which the Common Stock shall become convertible or
exchangeable in such transaction (i) assumes the Company’s obligations under this
Agreement and the other Transaction Documents and the agreements and
instruments entered into in connection herewith and therewith regardless of
whether or not the Company would have had a sufficient number of shares of
Common Stock authorized and available for issuance in order to effect the
conversion of all the Preferred Stock outstanding as of the date of such
transaction and (ii) except in the event of a merger, consolidation of the
Company into any other corporation, or the sale or conveyance of all or
substantially all of the assets of the Company where the consideration consists
solely of cash, the surviving or successor entity, and, if an entity different
from the successor or acquiring entity, the entity whose securities into which
the Common Stock shall become convertible or exchangeable in such transaction,
is a publicly traded corporation whose common stock is listed for trading on
the SmallCap Market, the National Market, the NYSE or the AMEX.

 

(j)            No Integrated
Offerings.  The Company shall not
make any offers or sales of any security (other than the Securities) under
circumstances that would require registration of the Securities being offered
or sold hereunder under the Securities Act or cause this offering of the
Securities to be integrated with any other offering of securities by the
Company for purposes of any stockholder approval provision applicable to the
Company or its securities.

 

17

 

(k)           Legal Compliance.  The Company shall conduct its business and
the business of its Subsidiaries in compliance with all laws, ordinances or
regulations of governmental entities applicable to such businesses, except
where the failure to do so would not have a Material Adverse Effect.

 

(l)            Redemptions, Dividends
and Repayments of Indebtedness.  So
long as any Purchasers (or any of their respective affiliates) beneficially own
any of the Preferred Stock, the Company shall not, except as set forth in
Section 4(l) of the Disclosure Schedule, without first obtaining the written
approval of the holders of a majority of the shares of Preferred Stock then
outstanding (which approval may be given or withheld by such holders in their
sole and absolute discretion), repurchase, redeem or declare or pay any cash
dividend or distribution on any shares of capital stock of the Company except
as provided in the Certificate of Designation or repay or prepay any
indebtedness of the Company other than as expressly required pursuant to the
terms of such indebtedness as in effect on the date hereof.

 

(m)          Information.  So long as any Purchasers (or any of their
respective affiliates) beneficially own any of the Securities, the Company
shall furnish to each such Purchaser the information the Company must deliver
to any holder or to any prospective transferee of Securities in order to permit
the sale or other transfer of such Securities pursuant to Rule 144A of the SEC
or any similar rule then in effect.

 

The Company shall keep at its principal executive
office a true copy of this Agreement (as at the time in effect), and cause the
same to be available for inspection at such office during normal business hours
by any holder of Securities or any prospective transferee of Securities
designated by a holder thereof.

 

(n)           Inspection of Properties
and Books.  So long as any
Purchasers (or any of their respective affiliates) beneficially own any of the
Securities, each such Purchaser and its representatives and agents
(collectively, the “Inspectors”) shall have the right, at such
Purchaser’s expense, to visit and inspect any of the properties of the Company
and of its Subsidiaries, to examine the books of account and records of the
Company and of its Subsidiaries, to make or be provided with copies and
extracts therefrom, to discuss the affairs, finances and accounts of the
Company and of its Subsidiaries with, and to be advised as to the same by, its
and their officers, employees and independent public accountants (and by this
provision the Company authorizes such accountants to discuss such affairs,
finances and accounts, whether or not a representative of the Company is
present) all at such reasonable times and intervals and to such reasonable
extent as the Purchasers may desire; provided, however, that each Inspector
shall hold in confidence and shall not make any disclosure (except to such
Purchaser) of any such information which the Company determines in good faith
to be confidential, and of which determination the Inspectors are so notified,
unless (i) the disclosure of such information is necessary to avoid or correct
a misstatement or omission in any registration statement filed pursuant to the
Registration Rights Agreement or that covers any Securities held by any
Purchasers, (ii) the release of such information is ordered pursuant to a subpoena
or other order from a court or government body of competent jurisdiction, or
(iii) such information has been made generally available to the public other
than by disclosure in violation of this or any other agreement.  Each Purchaser agrees that it shall, upon
learning that disclosure

 

18

 

of such information is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to the
Company and allow the Company, at its expense, to undertake appropriate action
to prevent disclosure of, or to obtain a protective order for, the information
deemed confidential.

 

(o)           Shareholders Rights
Plan.  No claim shall be made or
enforced by the Company or any other person that any Purchaser is an “Acquiring
Person” under any shareholders rights plan or similar plan or arrangement in
effect or hereafter adopted by the Company, or that any Purchaser could be
deemed to trigger the provisions of any such plan or arrangement, by virtue of
receiving Securities under this Agreement or any other Transaction Documents or
under any other agreement between the Company and the Purchasers.

 

(p)           Pledge of Securities.
The Company acknowledges and agrees that the Securities may be pledged by any
Purchaser in connection with a bona fide margin agreement or other loan or
financing arrangement that is secured by the Securities.  The pledge of Securities shall not be deemed
to be a transfer, sale or assignment of the Securities hereunder, and no
Purchaser effecting a pledge of Securities shall be required to provide the
Company with any notice thereof or otherwise make any delivery to the Company
pursuant to this Agreement or any other Transaction Document.  The Company shall execute and deliver such
documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by a Purchaser.

 

(q)           Variable Securities.  So long as any Purchasers (or any of their
respective affiliates) beneficially own any of the Preferred Stock, the Company
shall not, without first obtaining the written approval of the holders of a
majority of the shares of Preferred Stock then outstanding (which approval may
be given or withheld by such holders in their sole and absolute discretion),
issue or sell any rights, warrants or options to subscribe for or purchase
Common Stock, or any other securities directly or indirectly convertible into
or exchangeable or exercisable for Common Stock, at an effective conversion,
exchange or exercise price that varies or may vary with the market price of the
Common Stock, including by way of one or more reset(s) to any fixed price.

 

(r)            Expenses.  At the Closing, the Company shall pay to
BayStar reimbursement for the out-of-pocket expenses reasonably incurred by
BayStar, its affiliates and its or their advisors in connection with the
negotiation, preparation, execution and delivery of this Agreement and the
other Transaction Documents and the consummation of the transactions contemplated
hereby and thereby, including, without limitation, BayStar and its affiliates’
and advisors’ reasonable due diligence and attorneys’ fees and expenses (the “Expenses”);
provided,
however,
that BayStar shall be permitted, in its discretion, to deduct all of its
Expenses from the Purchase Price payable by such Purchaser hereunder; and provided,
further,
that the aggregate amount of the Expenses payable to BayStar shall not exceed
$65,000.00 (the “Expense Cap”) unless prior written approval is obtained from
the Company.  In addition, from time to
time thereafter, upon BayStar’s written request, the Company shall pay to
BayStar such additional Expenses (not to exceed the Expense Cap when aggregated
with Expenses previously paid by the Company), if any, not covered by such
payment at Closing, in each case to the extent reasonably incurred by BayStar,
its affiliates or its or their advisors in connection with the negotiation,
preparation, 

 

19

 

execution and delivery of this Agreement and the other Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby.

 

5.             SECURITIES
TRANSFER MATTERS.

 

(a)           Conversion and
Exercise.  Upon conversion of the
Preferred Stock by any person, (i) if the DTC Transfer Conditions (as defined
below) are satisfied, the Company shall cause its transfer agent to
electronically transmit all Conversion Shares by crediting the account of such
person or its nominee with the Depository Trust Company (“DTC”) through its Deposit
Withdrawal Agent Commission system; or (ii) if the DTC Transfer Conditions are
not satisfied, the Company shall issue and deliver, or instruct its transfer
agent to issue and deliver, certificates (subject to the legend and other applicable
provisions hereof and the Certificate of Designation), registered in the name
of such person its nominee, physical certificates representing the Conversion
Shares, as applicable.  Even if the DTC
Transfer Conditions are satisfied, any person effecting a conversion of
Preferred Stock may instruct the Company to deliver to such person or its
nominee physical certificates representing the Conversion Shares in lieu of
delivering such shares by way of DTC Transfer. 
For purposes of this Agreement, “DTC Transfer Conditions” means that (A) the
Company’s transfer agent is participating in the DTC Fast Automated Securities
Transfer program and (B) the certificates for the Conversion Shares required to
be delivered do not bear a legend and the person effecting such conversion or
exercise is not then required to return such certificate for the placement of a
legend thereon.

 

(b)           Transfer or Resale.  Each Purchaser understands that (i) except
as provided in the Registration Rights Agreement, the sale or resale of the
Securities have not been and are not being registered under the Securities Act
or any state securities laws, and the Securities may not be transferred unless
(A) the transfer is made pursuant to and as set forth in an effective
registration statement under the Securities Act covering the Securities; or (B)
such Purchaser shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration; or (C) sold under and in compliance with Rule 144; or (D) sold or
transferred to an affiliate of such Purchaser that agrees to sell or otherwise
transfer the Securities only in accordance with the provisions of this Section
5(b); and (ii) neither the Company nor any other person is under any obligation
to register such Securities under the Securities Act or any state securities
laws (other than pursuant to the terms of the Registration Rights
Agreement).  Notwithstanding the
foregoing or anything else contained herein to the contrary, the Securities may
be pledged as collateral in connection with a bona fide margin account or other
lending arrangement, provided such pledge is consistent with applicable laws,
rules and regulations.

 

(c)           Legends.  Each Purchaser understands that the
Preferred Stock and, until such time as the Conversion Shares have been
registered under the Securities Act (including registration pursuant to Rule
416 thereunder) as contemplated by the Registration Rights Agreement or
otherwise may be sold by such Purchaser under Rule 144, the certificates for
the Conversion Shares may bear a restrictive legend in substantially the
following form:

 

20

 

The securities
represented by this certificate have not been registered under the Securities
Act of 1933, as amended, or the securities laws of any state of the United
States or in any other jurisdiction. 
The securities represented hereby may not be offered, sold or
transferred in the absence of an effective registration statement for the
securities under applicable securities laws unless offered, sold or transferred
pursuant to an available exemption from the registration requirements of those
laws.

 

The Company shall, immediately prior to a registration
statement covering the Securities (including, without limitation, the
Registration Statement contemplated by the Registration Rights Agreement) being
declared effective, deliver to its transfer agent an opinion letter of counsel,
opining that at any time such registration statement is effective, the transfer
agent shall issue, in connection with the issuance of the Conversion Shares,
certificates representing such Conversion Shares without the restrictive legend
above, provided such Conversion Shares are to be sold pursuant to the
prospectus contained in such registration statement.  Upon receipt of such opinion, the Company shall cause the
transfer agent to confirm, for the benefit of the holders, that no further
opinion of counsel is required at the time of transfer in order to issue such
shares without such restrictive legend.

 

The legend set forth above shall be removed and the
Company shall issue a certificate without such legend to the holder of any
Security upon which it is stamped, if, unless otherwise required by state
securities laws, (i) the sale of such Security is registered under the
Securities Act (including registration pursuant to Rule 416 thereunder); (ii)
such holder provides the Company with an opinion of counsel, in form, substance
and scope customary for opinions of counsel in comparable transactions, to the
effect that a public sale or transfer of such Security may be made without
registration under the Securities Act; or (iii) such holder provides the
Company with reasonable assurances that such Security can be sold under Rule
144.  In the event the above legend is
removed from any Security and thereafter the effectiveness of a registration
statement covering such Security is suspended or the Company determines that a
supplement or amendment thereto is required by applicable securities laws, then
upon reasonable advance written notice to such Purchaser the Company may
require that the above legend be placed on any such Security that cannot then
be sold pursuant to an effective registration statement or under Rule 144 and
such Purchaser shall cooperate in the replacement of such legend.  Such legend shall thereafter be removed when
such Security may again be sold pursuant to an effective registration statement
or under Rule 144.

 

(d)           Transfer Agent
Instruction.  Upon compliance by any
Purchaser with the provisions of this Section 5 with respect to the transfer of
any Securities, the Company shall permit the transfer of such Securities and,
in the case of the transfer of Conversion Shares, promptly instruct its
transfer agent to issue one or more certificates (or effect a DTC Transfer) in
such name and in such denominations as specified by such Purchaser.  The Company shall not give any instructions
to its transfer agent with respect to the Securities, other than any
permissible or required instructions provided in this Section 5, and the
Securities shall otherwise 

 

21

 

be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement.

 

6.             CONDITIONS TO THE
COMPANY’S OBLIGATION TO SELL.

 

The obligation of the Company hereunder to issue and
sell the Preferred Stock to each Purchaser hereunder is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions as to such Purchaser, provided that such conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole
discretion:

 

(a)           Execution of
Transaction Documents.  Each
Purchaser shall have executed such Purchaser’s Execution Page to this Agreement
and each other Transaction Document to which such Purchaser is a party and
delivered the same to the Company.

 

(b)           Payment of Purchase
Price.  Each Purchaser shall have
delivered the full amount of such Purchaser’s Purchase Price to the Company by
wire transfer in accordance with the Company’s written wiring instructions.

 

(c)           Representations and
Warranties True; Covenants Performed. 
The representations and warranties of each Purchaser shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true and correct
as of such date), and such Purchaser shall have performed, satisfied and
complied with the covenants, agreements and conditions required by this Agreement
to be performed, satisfied or complied with by such Purchaser at or prior to
the Closing Date.

 

(d)           No Legal Prohibition.  No statute, rule, regulation, executive
order, decree, ruling, injunction, action or proceeding shall have been
enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction or any self-regulatory organization having
authority over the matters contemplated hereby which restricts or prohibits the
consummation of any of the transactions contemplated by this Agreement.

 

7.             CONDITIONS TO EACH
PURCHASER’S OBLIGATION TO PURCHASE.

 

The obligation of each Purchaser hereunder to purchase
the Preferred Stock for which it is subscribing from the Company hereunder is
subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that such conditions are for each Purchaser’s
individual and sole benefit and may be waived by any Purchaser as to such
Purchaser at any time in such Purchaser’s sole discretion:

 

(a)           Execution of
Transaction Documents.  The Company
shall have executed such Purchaser’s Execution Page to this Agreement and each
Transaction Document to which the Company is a party and delivered executed
originals of the same to such Purchaser.

 

(b)           Filing of
Certificate of Designation.  The
Certificate of Designation shall have been filed and accepted for filing with
the Secretary of State of the State of Delaware and a copy 

 

22

 

thereof certified by the Secretary of State of the State of Delaware
shall have been delivered to such Purchaser.

 

(c)           Delivery of
Securities.  The Company shall have
delivered to such Purchaser duly executed certificates representing the
Preferred Stock for the number of shares of Preferred Stock being purchased by
such Purchaser (each in such denominations as such Purchaser shall request),
registered in such Purchaser’s name.

 

(d)           Listing.  The Common Stock shall be authorized for
quotation and listed on the SmallCap Market and trading in the Common Stock (or
on the SmallCap Market generally) shall not have been suspended by the SEC or
the SmallCap Market.

 

(e)           Representations and
Warranties True; Covenants Performed. 
The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true and correct
as of such date) and the Company shall have performed, satisfied and complied
with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the Closing
Date.  Such Purchaser shall have received
a certificate, executed by the Chief Executive Officer of the Company after
reasonable investigation, dated as of the Closing Date to the foregoing effect
and as to such other matters as may reasonably be requested by such Purchaser.

 

(f)            No Legal Prohibition.  No statute, rule, regulation, executive
order, decree, ruling, injunction, action or proceeding shall have been
enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction or any self-regulatory organization having
authority over the matters contemplated hereby which restricts or prohibits the
consummation of, any of the transactions contemplated by this Agreement.

 

(g)           Legal Opinion.  Such Purchaser shall have received an
opinion of the Company’s counsel, dated as of the Closing Date, in the form
attached hereto as Exhibit C.

 

(h)           No Material Adverse
Change.  There shall have been no
material adverse changes and no material adverse developments in the business,
properties, operations, prospects, financial condition or results of operations
of the Company and its Subsidiaries, taken as a whole, since the date hereof,
and no information that is materially adverse to the Company and of which such
Purchaser is not currently aware shall come to the attention of such Purchaser.

 

(i)            Corporate Approvals.  Such Purchaser shall have received a copy of
resolutions, duly adopted by the Board of Directors of the Company, which shall
be in full force and effect at the time of the Closing, authorizing the
execution, delivery and performance by the Company of this Agreement and the
other Transaction Documents and the consummation by the Company of the
transactions contemplated hereby and thereby, certified as such by the
Secretary or Assistant Secretary of the Company, and such other documents they
reasonably request in connection with the Closing.

 

23

 

(j)            Other Matters.  Each Purchaser shall have the right to
receive notice of and review the definitive agreement reached with the
Company’s outside litigation counsel in respect of its engagement letter of
February 26, 2003 and to confirm that such definitive agreement reflects the
terms of the revised engagement described to the Purchasers prior to the
Closing Date.

 

8.             GOVERNING LAW;
MISCELLANEOUS.

 

(a)           Governing Law;
Jurisdiction.  This Agreement shall
be governed by and construed in accordance with the laws of the State of
Delaware applicable to contracts made and to be performed in the State of
Delaware.  The Company and each
Purchaser irrevocably consent to the jurisdiction of the United States federal
courts and the state courts located in the County of New Castle, State of
Delaware, in any suit or proceeding based on or arising under this Agreement
and irrevocably agree that all claims in respect of such suit or proceeding may
be determined in such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding in such
forum.  The Company further agrees that
service of process upon the Company mailed by first class mail shall be deemed
in every respect effective service of process upon the Company in any such suit
or proceeding.  Nothing herein shall
affect the right of any Purchaser to serve process in any other manner
permitted by law.  The Company agrees
that a final non-appealable judgment in any such suit or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on such judgment
or in any other lawful manner.

 

(b)           Counterparts.  This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party.  This
Agreement, once executed by a party, may be delivered to the other parties
hereto by facsimile transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement.  In the event any signature is delivered by facsimile
transmission, the party using such means of delivery shall cause the manually
executed execution page(s) hereof to be physically delivered to the other party
within five days of the execution hereof, provided that the failure to so
deliver any manually executed execution page shall not affect the validity or
enforceability of this Agreement.

 

(c)           Construction.  Whenever the context requires, the gender of
any word used in this Agreement includes the masculine, feminine or neuter, and
the number of any word includes the singular or plural.  Unless the context otherwise requires, all
references to articles and sections refer to articles and sections of this
Agreement, and all references to schedules are to schedules attached hereto,
each of which is made a part hereof for all purposes.  The descriptive head­ings of the several articles and sections of
this Agreement are inserted for purposes of reference only, and shall not
affect the meaning or construction of any of the provisions hereof.

 

(d)           Severability.  If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.

 

24

 

(e)           Entire Agreement;
Amendments.  This Agreement and the
other Transaction Documents (including any schedules and exhibits hereto and
thereto) contain the entire understanding of the Purchasers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor the Purchasers make any representation,
warranty, covenant or undertaking with respect to such matters.  No provision of this Agreement may be waived
other than by an instrument in writing signed by the party to be charged with
enforcement, and no provision of this Agreement may be amended other than by an
instrument in writing signed by the Company and each Purchaser.  No consideration shall be paid to a
Purchaser by the Company in connection with an amendment hereto unless each
Purchaser similarly affected by such amendment receives a pro rata amount of
consideration from the Company, and, unless a Purchaser agrees otherwise, each
amendment hereto shall similarly affect the Purchaser.

 

(f)            Notices.  Any notices required or permitted to be
given under the terms of this Agreement shall be in writing and sent by
certified or registered mail (return receipt requested) or delivered
personally, by nationally recognized overnight carrier or by confirmed
facsimile transmission, and shall be effective five days after being placed in
the mail, if mailed, or upon receipt or refusal of receipt, if delivered
personally or by nationally recognized overnight carrier or confirmed facsimile
transmission, in each case addressed to a party as provided herein.  The initial addresses for such
communications shall be as follows, and each party shall provide notice to the
other parties of any change in such party’s address:

 

(i)            If to the Company:

 

The SCO Group, Inc.

355 South 520 West, Suite 100

Lindon, Utah 84042

Telephone: (801)765-4999

Facsimile:   (801) 765-1313

Attention:  Robert K. Bench

 

with a copy
simultaneously transmitted by like means (which transmittal shall not
constitute notice hereunder) to:

 

Dorsey & Whitney LLP

170 South Main Street, Suite 900

Salt Lake City, Utah 84101

Telephone: (801) 933-7366

Facsimile:   (801) 933-7373

Attention:  Nolan S. Taylor, Esq.

 

(ii)           If to any Purchaser, to
the address set forth under such Purchaser’s name on the Execution Page hereto
executed by such Purchaser.

 

(g)           Successors and
Assigns.  This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
assigns.  Except as provided herein, the
Company 

 

25

 

shall not assign this Agreement or any rights or obligations
hereunder.  Any Purchaser may assign or
transfer the Securities pursuant to the terms of this Agreement and of such
Securities, or assign such Purchaser’s rights hereunder to any other person or
entity who purchases the Securities from such Purchaser.  In addition, notwithstanding anything to the
contrary set forth herein or in the other Transaction Documents, the Securities
may be pledged and all rights of any Purchaser under this Agreement or any
other Transaction Document may be assigned, without further consent of the
Company, to a bona fide pledgee in connection with such Purchaser’s margin or
brokerage account.

 

(h)           Third Party
Beneficiaries.  This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person; provided, however, that Section 4(r)
may be enforced by any Purchaser’s affiliates and its or their advisors to the
extent the same is entitled to reimbursement of Expenses pursuant thereto.

 

(i)            Survival.  So long as the Preferred Stock is
outstanding, the representations and warranties of the Company and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 hereof shall
survive notwithstanding any due diligence investigation conducted by or on
behalf of any Purchaser.  Moreover, none
of the representations and warranties made by the Company herein shall act as a
waiver of any rights or remedies any Purchaser may have under applicable U.S.
federal or state securities laws.

 

(j)            Publicity.  The Company and each Purchaser shall have
the right to approve before issuance any press releases, SEC or, to the extent
applicable, NASD filings, or any other public statements with respect to the
transactions contemplated hereby; provided, however, that the Company
shall be entitled, without the prior approval of the Purchasers, to make any
press release or SEC or, to the extent applicable, NASD filings with respect to
such transactions as is required by applicable law and regulations (although
the Purchasers shall be consulted by the Company in connection with any such
press release and filing prior to its release and shall be provided with a copy
thereof and must provide specific consent to the use of their name in
connection therewith).

 

(k)           Further Assurances.  Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

 

(l)            Indemnification.  In consideration of each Purchaser’s
execution and delivery of this Agreement and the other Transaction Documents
and purchase of the Securities hereunder, and in addition to all of the
Company’s other obligations under this Agreement and the other Transaction
Documents, from and after the Closing, the Company shall defend, protect, indemnify
and hold harmless each Purchaser and each other holder of the Securities and
all of their stockholders, partners, members, officers, directors, employees
and direct or indirect investors and any of the foregoing persons’ agents or
other representatives (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement, 

 

26

 

collectively, the “Indemnitees”) from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys’ fees and
disbursements (the “Indemnified Liabilities”), incurred by any
Indemnitee as a result of, or arising out of, or relating to (i) any
misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, any other Transaction Document or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
breach of any covenant, agreement or obligation of the Company contained in
this Agreement, any other Transaction Document or any other certificate,
instrument or document contemplated hereby or thereby or (iii) any cause of
action, suit or claim brought or made against such Indemnitee by a third party
(including for these purposes a derivative action brought on behalf of the
Company) and arising out of or resulting from (A) the execution, delivery,
performance or enforcement of this Agreement, any other Transaction Document or
any other certificate, instrument or document contemplated hereby or thereby,
(B) any transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance and sale of the Securities, or
(C) the status of such Purchaser or holder of the Securities as an investor in
the Company. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.  Except
as otherwise set forth herein, the mechanics and procedures with respect to the
rights and obligations under this Section 9(l) shall be the same as those set
forth in Section 7(c) of the Registration Rights Agreement.

 

(m)          Payment Set Aside.
To the extent that the Company makes a payment or payments to any Purchaser
hereunder or pursuant to any of the other Transaction Documents or any
Purchaser enforces or exercises its rights hereunder or thereunder, and such
payment or payments or the proceeds of such enforcement or exercise or any part
thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside, recovered from, disgorged by or are required to be
refunded, repaid or otherwise restored to the Company, a trustee, receiver or
any other person under any law (including, without limitation, any bankruptcy
law, state or federal law, common law or equitable cause of action), then to
the extent of any such restoration the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and
effect as if such payment had not been made or such enforcement or setoff had
not occurred.

 

(n)           Joint Participation
in Drafting.  Each party to this
Agreement has participated in the negotiation and drafting of this Agreement
and the other Transaction Documents.  As
such, the language used herein and therein shall be deemed to be the language
chosen by the parties hereto to express their mutual intent, and no rule of
strict construction will be applied against any party to this Agreement.

 

(o)           Remedies.  No provision of this Agreement or any other
Transaction Document providing for any remedy to a Purchaser shall limit any
other remedy which would otherwise be available to such Purchaser at law, in
equity or otherwise.  Nothing in this
Agreement or any other Transaction Document shall limit any rights any
Purchaser may have under any applicable 

 

27

 

federal or state securities laws with respect to the investment
contemplated hereby.  The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Purchasers by vitiating the intent and purpose of the
transactions contemplated hereby. 
Accordingly, the Company acknowledges that the remedy at law for a breach
of its obligations hereunder (including, but not limited to, its obligations
pursuant to Section 5 hereof) will be inadequate and agrees, in the event of a
breach or threatened breach by the Company of the provisions of this Agreement
(including, but not limited to, its obligations pursuant to Section 5 hereof),
that each Purchaser shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach and requiring immediate
issuance and transfer of the Securities, without the necessity of showing
economic loss and without any bond or other security being required.

 

(p)           Knowledge.  As used in this Agreement, the term
“knowledge” of any person or entity shall mean and include (i) actual knowledge
of the Company’s directors and executive officers and (ii) that knowledge which
a reasonably prudent business person acting in his/her capacity as either a
director or executive officer, as applicable, could have obtained in the
management of his or her business affairs after making due inquiry and
exercising due diligence which a prudent business person should have made or
exercised, as applicable, with respect thereto.

 

(q)           Exculpation Among
Purchasers; No “Group”.  The Company
acknowledges that the obligations of each Purchaser under this Agreement and
each of the other Transaction Documents are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be responsible in
any way for the performance of the obligations of any other Purchaser under the
Transaction Documents.  Each Purchaser
acknowledges that it has independently evaluated the merits of the transactions
contemplated by this Agreement and the other Transaction Documents, that it has
independently determined to enter into the transactions contemplated hereby and
thereby, that it is not relying on any advice from or evaluation by any other
Purchaser, and that it is not acting in concert with any other Purchaser in
making its purchase of securities hereunder or in monitoring its investment in
the Company.  The Purchasers and, to its
knowledge, the Company agree that the no action taken by any Purchaser pursuant
hereto or to the other Transaction Documents, shall be deemed to constitute the
Purchasers as a partnership, an association, a joint venture or any other kind
of entity, or create a presumption that the Purchasers are in any way acting in
concert or would deem such Purchasers to be members of a “group” for purposes
of Section 13(d) of the Exchange Act, and the Purchasers have not agreed to act
together for the purpose of acquiring, holding, voting or disposing of equity
securities of the Company.  The Company
has elected to provide all Purchasers with the same terms and Transaction
Documents for the convenience of the Company and not because it was required or
requested to do so by the Purchasers. 
The Company acknowledges that such procedure with respect to the
Transaction Documents in no way creates a presumption that the Purchasers are
in any way acting in concert or as a “group” for the purposes of Section 13(d)
of the Exchange Act with respect to the Transaction Documents or the
transactions contemplated hereby or thereby. 
Each Purchaser acknowledges that it has been represented by its own separate
legal counsel in their review and negotiation of the Transaction
Documents.  Each Purchaser further
acknowledges that BayStar Capital II, LP has retained Drinker Biddle &
Reath LLP to act as its counsel in connection with the transactions 

 

28

 

contemplated by this Agreement and the other Transaction Documents and
that Drinker Biddle & Reath LLP has not acted as counsel for any of the
other Purchasers in connection therewith and none of the other Purchasers have
the status of a client of Drinker Biddle & Reath LLP for conflict of
interest or other purposes as a result thereof.

 

[REMAINDER OF PAGE
LEFT BLANK INTENTIONALLY]

 

29

 

IN WITNESS WHEREOF, the undersigned Purchaser and the
Company have caused this Agreement to be duly executed as of the date first
above written.

 

	
  THE SCO GROUP, INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Darl C. McBride

  	
   

  	
   

  
	
  Name:  Darl C. McBride

  	
   

  
	
  Title:  CEO / President

  	
   

  
	
   

  	
   

  
	
  PURCHASER:

  	
   

  
	
   

  	
   

  
	
  BayStar Capital II,
  L.P.

  	
   

  	
   

  
	
  (Print
  or Type Name of Purchaser)

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Steve Derby

  	
   

  	
   

  
	
  Name: Steve Derby

  	
   

  
	
  Title: Managing Member

  	
   

  
	
   

  	
   

  
	
  RESIDENCE:

  	
  California

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ADDRESS:

  	
  c/o BayStar Capital
  Management, LLC

  	
   

  	
   

  
	
   

  	
  80 E. Sir Francis Drake
  Blvd., Suite 2B

  	
   

  	
   

  
	
   

  	
  Larkspur, California
  94939

  	
   

  	
   

  
	
   

  	
  Telephone:

  	
  (415) 834-4619

  	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  (415) 834-4601

  	
   

  	
   

  
	
   

  	
  Attention:

  	
  Steve Derby

  	
   

  	
   

  
	
   

  
	
  AGGREGATE SUBSCRIPTION
  AMOUNT:

  	
   

  
	
   

  	
   

  
	
  Number of Units:

  	
  20,000

  	
   

  	
   

  
	
  Purchase Price ($1,000
  per Unit):

  	
   

  	
   

  	
   

  
								

 

 

[SIGNATURE
PAGE TO SECURITIES PURCHASE AGREEMENT]

 

30

 

IN WITNESS WHEREOF, the undersigned Purchaser and the
Company have caused this Agreement to be duly executed as of the date first
above written.

 

	
  PURCHASER:

  	
   

  
	
   

  	
   

  
	
  Royal Bank of Canada

  	
   

  	
   

  
	
  (Print
  or Type Name of Purchaser)

  	
   

  
	
   

  	
   

  
	
  By:  Its agent, RBC Dominion Securities
  Corporation

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Johan Walstedt 

  	
   

  	
   

  
	
  Name: Johan Walstedt

  	
   

  
	
  Title: Managing
  Director

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Steven Milke

  	
   

  	
   

  
	
  Name: Steven Milke

  	
   

  
	
  Title: Managing
  Director

  	
   

  
	
   

  	
   

  
	
  RESIDENCE:

  	
  Canada

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ADDRESS:

  	
  One Liberty Plaza

  	
   

  	
   

  
	
   

  	
  165 Broadway

  	
   

  	
   

  
	
   

  	
  New York, New York
  10006

  	
   

  	
   

  
	
   

  	
  Telephone:

  	
  (212) 858-7361

  	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  (212) 858-7439

  	
   

  	
   

  
	
   

  	
  Attention:

  	
  Steve Lin

  	
   

  	
   

  
	
   

  
	
  AGGREGATE SUBSCRIPTION
  AMOUNT:

  	
   

  
	
   

  	
   

  
	
  Number of Units:

  	
  30,000

  	
   

  	
   

  
	
  Purchase Price ($1,000
  per Unit):

  	
   

  	
   

  	
   

  
								

 

 

[SIGNATURE
PAGE TO SECURITIES PURCHASE AGREEMENT]

 

31Exhibit 10.2

 

EXECUTION COPY

 

REGISTRATION RIGHTS AGREEMENT

 

This REGISTRATION RIGHTS AGREEMENT (this “Agreement”),
dated as of October 16th, 2003, is made by and among The SCO Group, Inc., a
corporation organized under the laws of the State of Delaware (the “Company”),
and the undersigned (together with their affiliates, the “Initial Investors”).

 

BACKGROUND

 

A.                                   In connection with that certain Securities
Purchase Agreement of even date herewith by and among the Company and the
Initial Investors (the “Securities Purchase Agreement”), the
Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Initial Investors shares of the Company’s
Series A Preferred Stock, par value $0.001 per share (the “Preferred Stock”), that are
convertible into shares of the Company’s common stock, par value $0.001 per
share (the “Common Stock”), upon the terms and subject to the limitations
and conditions set forth in the Certificate of Designation, Rights and
Preferences with respect to such Preferred Stock (the “Certificate of Designation”).  The shares of Common Stock issuable upon
conversion of or otherwise pursuant to the Preferred Stock are referred to
herein as the “Conversion Shares.”

 

B.                                     To induce the Initial Investors to execute and
deliver the Securities Purchase Agreement, and to consummate the transactions
contemplated thereby, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the “Securities
Act”), and applicable state securities laws.

 

NOW, THEREFORE, in consideration of the premises and
the mutual covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Company and the Initial Investors, intending to be legally bound, hereby
agree as follows:

 

1.                                       DEFINITIONS.

 

(a)                                  As
used in this Agreement, the following terms shall have the following meanings:

 

(i)                               “Investor”
means the Initial Investors and any Qualifying Transferees (as defined in
Section 10) who agree to become bound by the provisions of this Agreement in
accordance with Section 10 hereof.

 

(ii)                            “register,”
“registered,”
and “registration”
refer to a registration effected by preparing and filing a Registration
Statement or Statements in compliance with the Securities Act and pursuant to
Rule 415 under the Securities Act or any successor rule providing for offering
securities on a continuous basis (“Rule 415”), and the declaration or ordering
of

 

 

effectiveness of
such Registration Statement by the United States Securities and Exchange
Commission (the “SEC”).

 

(iii)                         “Registrable Securities” means
(a) the Conversion Shares and (b) any shares of capital stock issued or
issuable, from time to time, as a distribution on, or in exchange for, or
otherwise with respect to the Preferred Stock or the Conversion Shares
(including, without limitation, any Conversion Shares issuable upon the
conversion of Preferred Stock issued as a dividend on the Preferred Stock)
whether as default payments, on account of anti-dilution or other adjustments
or otherwise.

 

(iv)                        “Registration
Statement” means a registration statement of the Company under the
Securities Act.

 

(b)                                 Capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings set forth in the Securities Purchase Agreement.

 

2.                                       REGISTRATION.

 

(a)                                  Mandatory
Registration.  The Company shall use
its best efforts to prepare and file with the SEC as soon as practicable, but
in no event later than the thirtieth (30th) day following the date
hereof  (the “Filing Date”), a Registration
Statement on Form S-3 (or, if Form S-3 is not then available, on such form of
Registration Statement as is then available to effect a registration of
3,850,000 shares of Common Stock, subject to the consent of the Initial
Investors) covering the resale of 3,850,000 shares of Common Stock.  The Registration Statement filed hereunder,
to the extent allowable under the Securities Act and the Rules promulgated
thereunder (including Rule 416), shall state that such Registration Statement
also covers such indeterminate number of additional shares of Common Stock as
may become issuable upon conversion of the Preferred Stock to adjust for stock
splits, stock dividends or similar transactions.  The Registration Statement (and each amendment or supplement
thereto, and each request for acceleration of effectiveness thereof) shall be
provided to (and subject to the reasonable approval of) the Initial Investors
and their counsel prior to its filing or other submission.

 

(b)                                 Payments
by the Company.  The Company shall
use its best efforts to cause the Registration Statement required to be filed
pursuant to Section 2(a) hereof to become effective as soon as practicable, but
in no event later than the Registration Deadline.  The “Registration Deadline” means (i) the
ninetieth (90th) day following the date hereof if the Registration
Statement receives a “no review” from the SEC; (ii) the one hundred twentieth
(120th) day following the date hereof if the Registration Statement
is reviewed by the SEC; or, (iii) the one hundred fiftieth (150th)
day following the date hereof if, in connection with reviewing the Registration
Statement, the SEC also reviews the Company’s filings with the SEC pursuant to
the Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the “Exchange Act”).  At the time of effectiveness, the Company
shall ensure that such Registration Statement covers all of the Registrable
Securities issuable upon full conversion of the Preferred Stock (without giving
effect to any limitations on conversion contained in the Certificate of
Designation), including, if necessary, by filing an amendment prior to the
effective date of the Registration Statement to increase the

 

2

 

number of
Registrable Securities covered thereby. 
If (i) (A) the Registration Statement required to be filed pursuant to
Section 2(a) hereof is not filed with the SEC prior to the Filing Date or
declared effective by the SEC on or before the Registration Deadline or (B) any
Registration Statement required to be filed pursuant to Section 3(b) hereof is
not declared effective by the SEC on or before the 75th day
following the applicable Registration Trigger Date (as defined in Section 3(b)
below), or (ii) if, after any such Registration Statement has been
declared effective by the SEC, sales of any of the Registrable Securities
required to be covered by such Registration Statement (including any
Registrable Securities required to be registered pursuant to Section 3(b)
hereof) cannot be made pursuant to such Registration Statement (by reason of a
stop order or the Company’s failure to update the Registration Statement or for
any other reason outside the control of the Investors) or (iii) the Common
Stock is not listed or included for quotation on the Nasdaq SmallCap Market
(the “SmallCap
Market”), the Nasdaq National Market (the “National Market”), the New
York Stock Exchange (the “NYSE”) or the American Stock Exchange (the
“AMEX”)
at any time after the Registration Deadline hereunder, then the Company will
make payments to each Investor in such amounts and at such times as shall be
determined pursuant to this Section 2(b) as partial relief for the damages to
the Investors by reason of any such delay in or reduction of their ability to
sell the Registrable Securities (which remedy shall not be exclusive of any
other remedies available at law or in equity). 
The Company shall pay to each Investor an amount equal to the product of
(i) the number of shares of Preferred Stock then outstanding held by such
Investor (including, for this purpose, any shares of Preferred Stock that have
been converted into Conversion Shares then held by such Investor as if such
shares of Preferred Stock had not been so converted) multiplied by the per
share purchase price of the Preferred Stock (as set forth in the Securities
Purchase Agreement), multiplied by (ii) one and one-quarter percent (1.25%),
for each 30 day period (or portion thereof) (A) after the Filing Date and prior
to the date the Registration Statement is filed with the SEC pursuant to
Section 2(a), (B) after the Registration Deadline and prior to the date the
Registration Statement filed pursuant to Section 2(a) is declared effective by
the SEC, (C) after the 75th day following a Registration Trigger
Date and prior to the date (x) the Registration Statement filed pursuant to
Section 3(b) hereof is declared effective by the SEC or (y) the Company
completes the redemption of any shares of Preferred Stock held by such Investor
pursuant to Section 3(b) upon receipt of a Mandatory Redemption Notice as defined
in Section 3(b), and (D) during which sales of any Registrable Securities
cannot be made pursuant to any such Registration Statement after the
Registration Statement has been declared effective or the Common Stock is not
listed or included for quotation on the SmallCap Market, the National Market,
NYSE or AMEX; provided, however, that, for purpose of calculating
the payment amount owed to any given Investor, there shall be excluded from
each such period any Disclosure Delay Periods (as defined in Section 5) or
delays which are solely attributable to changes required by such Investor in
the Registration Statement with respect to information relating to such
Investor, including, without limitation, changes to the plan of distribution
(other than any corrections of Company mistakes with respect to information
previously provided by such Investor). 
All such amounts required to be paid hereunder shall be paid in cash
within five days after the end of each period that gives rise to such
obligation, provided that, if any such period extends for more than 30 days,
interim payments shall be made for each such 30 day period.

 

(c)                                  [Reserved.]

 

3

 

(d)                                 Eligibility
for Form S-3.  The Company
represents and warrants that it meets the requirements for the use of Form S-3
for registration of the sale by the Initial Investors and any other Investor of
the Registrable Securities and the Company shall file all reports and
statements required to be filed by the Company with the SEC in a timely manner
so as to thereafter maintain such eligibility for the use of Form S-3.

 

3.                                       OBLIGATIONS
OF THE COMPANY.

 

In connection with the registration of the Registrable
Securities, the Company shall have the following obligations:

 

(a)                                  The
Company shall respond promptly to any and all comments made by the staff of the
SEC to any Registration Statement required to be filed hereunder, and shall
submit to the SEC, before the close of business on the business day immediately
following the business day on which the Company learns (either by telephone or
in writing) that no review of such Registration Statement will be made by the
SEC or that the staff of the SEC has no further comments on such Registration
Statement, as the case may be, a request for acceleration of the effectiveness
of such Registration Statement to a time and date as soon as practicable.  The Company shall keep such Registration
Statement effective pursuant to Rule 415 at all times until such date as is the
earlier of (i) the date on which all of the Registrable Securities have been
sold and (ii) the date on which all of the Registrable Securities may be
immediately sold to the public without registration or restriction pursuant to
Rule 144(k) under the Securities Act or any successor provision (the “Registration
Period”), which Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein and all documents
incorporated by reference therein) (A) shall comply in all material respects
with the requirements of the Securities Act and the rules and regulations of
the SEC promulgated thereunder and (B) shall not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein, or necessary to make the statements therein not misleading.  The financial statements of the Company
included in any such Registration Statement or incorporated by reference
therein (x) shall comply as to form in all material respects with the
applicable accounting requirements and the published rules and regulations of
the SEC applicable with respect thereto, (y) shall be prepared in accordance
with U.S. generally accepted accounting principles, consistently applied during
the periods involved (except as may be otherwise indicated in such financial
statements or the notes thereto or, in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed on
summary statements) and (z) fairly present in all material respects the
consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to immaterial year-end adjustments).

 

(b)                                 The
Company shall (i) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to any Registration Statement
required to be filed hereunder and the prospectus used in connection with any
such Registration Statement as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and (ii)
during the Registration Period, comply in all material respects with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the

 

4

 

Company covered by
any such Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement.  In the event the number of
shares available under a Registration Statement filed pursuant to this Agreement
is, for any three (3) consecutive trading days (the last of such three (3)
trading days being the “Registration Trigger Date”), insufficient
to cover all of the Registrable Securities then issued or issuable upon
conversion of the Preferred Stock (without giving effect to any limitations on
conversion contained in the Certificate of Designation), the Company shall
provide each Investor written notice of such Registration Trigger Date within
three business days thereafter and shall amend the Registration Statement, or
file a new Registration Statement (on the short form available therefor, if
applicable), or both, so as to cover all of the Registrable Securities issued
or issuable upon conversion of the Preferred Stock (without giving effect to
any limitations on conversion contained in the Certificate of Designation) as
of the Registration Trigger Date, in each case, as soon as practicable, but in
any event within 15 days after the Registration Trigger Date.  The Company shall use its best efforts to cause
such amendment(s) and/or new Registration Statement(s) to become effective as
soon as practicable following the filing thereof.  In the event the Company fails to obtain the effectiveness of any
such Registration Statement within 75 days after a Registration Trigger Date,
each Investor shall thereafter have the option, exercisable in whole or in part
at any time and from time to time by delivery of a written notice to the
Company (a “Mandatory Redemption Notice”), to require the Company to
redeem for cash such number of the Investor’s shares of the Preferred Stock at
a price per share of Preferred Stock equal to $1,200 such that, following such
redemption, the total number of Registrable Securities included on the
Registration Statement for resale by such Investor is at least equal to all of
the Registrable Securities issued or issuable upon conversion of such
Investor’s Preferred Stock (without giving effect to any limitations on
conversion contained in the Certificate of Designation).  If the Company fails to redeem any of such
Preferred Stock within five business days after its receipt of a Mandatory
Redemption Notice, then such Investor shall be entitled to the remedies
provided in Article VII.C of the Certificate of Designation.

 

(c)                                  The
Company shall furnish to each Initial Investor and the Initial Investors’
Counsel (defined in Section 3(g)), promptly after the same is prepared and
publicly distributed, filed with the SEC or received by the Company, as
applicable, one copy of the Registration Statement and any amendment thereto,
each preliminary prospectus and prospectus and each amendment or supplement
thereto, and, in the case of the Registration Statement required to be filed
pursuant to Section 2(a), each letter written by or on behalf of the Company to
the SEC or the staff of the SEC (including, without limitation, any request to
accelerate the effectiveness of the Registration Statement or amendment
thereto), and each item of correspondence from the SEC or the staff of the SEC,
in each case relating to the Registration Statement (other than any portion
thereof that contains information for which the Company has sought confidential
treatment).  The Company shall furnish
to each Investor whose Registrable Securities are included in the Registration
Statement and the Initial Investors’ Counsel (i) on the next business day after
the date of effectiveness of the Registration Statement or any amendment
thereto, a notice stating that the Registration Statement or amendment has been
declared effective, and (ii) such number of copies of a prospectus, including a
preliminary prospectus, all amendments and supplements thereto and all such
other documents as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor.

 

5

 

(d)                                 The
Company shall use its best efforts to (i) register and qualify the Registrable
Securities covered by any Registration Statement under such other securities or
“blue sky” laws of such jurisdictions in the United States as each Investor who
holds Registrable Securities being offered reasonably requests, (ii) prepare
and file in those jurisdictions such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration Period,
(iii) take such other actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all other actions reasonably necessary or advisable to
qualify the Registrable Securities for sale in such jurisdictions; provided,
however,
that the Company shall not be required in connection therewith or as a
condition thereto to (A) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section 3(d), (B)
subject itself to general taxation in any such jurisdiction, (C) file a general
consent to service of process in any such jurisdiction, (D) provide any undertakings
that cause the Company undue expense or burden, or (E) make any change in its
Certificate of Incorporation or Bylaws, which in each case the Board of
Directors of the Company determines to be contrary to the best interests of the
Company and its stockholders.

 

(e)                                  As
promptly as practicable after becoming aware of such event, the Company shall
(i) notify each Investor by telephone and facsimile of the happening of any
event, as a result of which the prospectus included in any Registration Statement
that includes Registrable Securities, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
(ii) promptly prepare a supplement or amendment to such Registration Statement
to correct such untrue statement or omission, and deliver such number of copies
of such supplement or amendment to each Investor as such Investor may
reasonably request.

 

(f)                                    The
Company shall use its best efforts (i) to prevent the issuance of any stop
order or other suspension of effectiveness of any Registration Statement that
includes Registrable Securities, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest practicable moment (including in each
case by amending or supplementing such Registration Statement), and (ii) to
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance
of such order and the resolution thereof (and if such Registration Statement is
supplemented or amended, deliver such number of copies of such supplement or
amendment to each Investor as such Investor may reasonably request).

 

(g)                                 The
Company shall permit a single firm of counsel designated by the Initial
Investors to review any Registration Statement required to be filed hereunder
and all amendments and supplements thereto a reasonable period of time prior to
its filing with the SEC, and not file any document in a form to which such
counsel reasonably objects (the “Initial Investors’ Counsel”).

 

(h)                                 The
Company shall make generally available to its security holders as soon as
practicable, but in no event later than 90 days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions
of Rule 158 under the Securities Act) covering a twelve-month period beginning
not later than the first day of the Company’s fiscal

 

6

 

quarter next
following the effective date of the Registration Statement.  The Company will be deemed to have complied
with its obligations under this Section 3(h) upon the Company’s filing, on an
appropriate form, the appropriate report of the Company as required by the
Exchange Act.

 

(i)                                     The
Company shall hold in confidence and not make any disclosure of information
concerning an Investor provided to the Company unless (i) disclosure of such
information is necessary in the reasonable judgment of the Company and its
counsel to comply with federal or state securities laws, (ii) the disclosure of
such information is necessary in the reasonable judgment of the Company and its
counsel to avoid or correct a misstatement or omission in any Registration
Statement that includes such Investor’s Registrable Securities, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement, or (v) such Investor
consents to the form and content of any such disclosure, which consent shall
not be unreasonably withheld or delayed. 
The Company shall, upon learning that disclosure of any information
concerning an Investor is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to such
Investor prior to making such disclosure, and cooperate with the Investor, at
the Investor’s expense, in taking appropriate action to prevent disclosure of,
or to obtain a protective order for, such information.

 

(j)                                     The
Company shall use its best efforts to promptly cause all of the Registrable
Securities covered by any Registration Statement to be listed or designated for
quotation on the SmallCap Market, the National Market, the NYSE, the AMEX or
any other national securities exchange or automated quotation system and on
each additional national securities exchange or automated quotation system on
which securities of the same class or series issued by the Company are then
listed or quoted, if any, if the listing or quotation of such Registrable
Securities is then permitted under the rules of such exchange or automated
quotation system, and in any event, without limiting the generality of the
foregoing, to arrange for or maintain at least two market makers to register
with the National Association of Securities Dealers, Inc. (the “NASD”)
as such with respect to the Registrable Securities.

 

(k)                                  The
Company shall provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement required to be filed pursuant to Section 2(a) hereof.

 

(l)                                     The
Company shall cooperate with any Investor who holds Registrable Securities
being offered and the managing underwriter or underwriters, if any, to
facilitate the timely preparation and delivery of certificates (not bearing any
restrictive legends) representing Registrable Securities to be offered pursuant
to any Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, and registered in such names, as
such Investor or the managing underwriter or underwriters, if any, may
reasonably request.  Without limiting
the generality of the foregoing, within three business days after any
Registration Statement that includes Registrable Securities is declared
effective by the SEC, the Company shall cause legal counsel selected by the
Company to deliver to the transfer agent for the Registrable Securities (with
copies to any Investor whose Registrable Securities are included

 

7

 

in such Registration
Statement), an opinion of such counsel in the form attached hereto as Exhibit A.

 

(m)                               At
the request of any Investor, the Company shall prepare and file with the SEC
such amendments (including post-effective amendments) and supplements to any
Registration Statement required to be filed hereunder and the prospectus used
in connection with such Registration Statement as may be necessary in order to
change the plan of distribution set forth in such Registration Statement.

 

(n)                                 The
Company shall comply with all applicable laws related to a Registration
Statement and offering and sale of securities and all applicable rules and
regulations of governmental authorities in connection therewith (including,
without limitation, the Securities Act and the Exchange Act and the rules and
regulations thereunder promulgated by the SEC).

 

(o)                                 From
and after the date of this Agreement, the Company shall not, and shall not
agree to, allow the holders of any securities of the Company to include any of
their securities that are not Registrable Securities in the Registration
Statement required to be filed pursuant to Section 2(a) or 3(b) hereof without
the consent of the holders of a majority in interest of the Registrable
Securities.

 

(p)                                 The
Company shall make available for inspection by (i) each Investor, (ii) any
underwriter participating in any disposition pursuant to any Registration
Statement, (iii) one firm of attorneys and one firm of accountants or other
agents retained by the Investors, and (iv) one firm of attorneys retained by
all such underwriters (collectively, the “Inspectors”) all pertinent financial and
other records, and pertinent corporate documents and properties of the Company
(collectively, the “Records”), as shall be reasonably deemed
necessary by each Inspector to enable such Inspector to exercise its due
diligence responsibility, and cause the Company’s officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; provided, however, that each Inspector
shall hold in confidence and shall not make any disclosure (except to an
Investor) of any Record or other information which the Company determines in
good faith to be confidential, and of which determination the Inspectors are so
notified, unless (A) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement, (B) the
release of such Records is ordered pursuant to a subpoena or other order from a
court or government body of competent jurisdiction (provided, that prior to
releasing such Records pursuant to such order, such Inspector must provide at
least five days’ prior written notice of such order to the Company), or (C) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement.  Nothing herein shall be deemed to limit any
Investor’s ability to sell Registrable Securities in a manner that is otherwise
consistent with applicable laws and regulations.

 

(q)                                 In
the case of an underwritten public offering, at the request of any Investor,
the Company shall furnish, on the date of effectiveness of the Registration
Statement (i) an opinion, dated as of such date, from counsel representing the
Company addressed to any such Investor and in form, scope and substance as is
customarily given in an underwritten public offering and (ii) a letter, dated
such date, from the Company’s independent certified public accountants in

 

8

 

form and substance
as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and any such Investor.

 

4.                                       OBLIGATIONS
OF THE INVESTORS.

 

In connection with the registration of the Registrable
Securities, each Investor shall have the following obligations:

 

(a)                                  It
shall be a condition precedent to the obligations of the Company to effect the
registration pursuant to this Agreement with respect to the Registrable
Securities of a particular Investor that such Investor shall furnish to the
Company such information regarding itself, the Registrable Securities held by
it and the intended method of disposition of the Registrable Securities held by
it as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request.  At least five trading days prior to the first anticipated filing
date of the Registration Statement, the Company shall notify each Investor of
the information the Company requires from each such Investor.

 

(b)                                 Each
Investor, by such Investor’s acceptance of the Registrable Securities, agrees
to cooperate with the Company as reasonably requested by the Company in
connection with the preparation and filing of any Registration Statement
required to be filed hereunder, unless such Investor has notified the Company
in writing of such Investor’s election to exclude all of such Investor’s
Registrable Securities from such Registration Statement.

 

(c)                                  Upon
receipt of any notice from the Company of the happening of any event of the
kind described in Section 3(e), 3(f) or 5(a) with respect to any Registration
Statement including Registrable Securities, each Investor shall immediately
discontinue disposition of Registrable Securities pursuant to such Registration
Statement until such Investor’s receipt of the copies of the supplemented or
amended prospectus contemplated by Sections 3(e), 3(f) and 5(a), as applicable,
and, if so directed by the Company, such Investor shall deliver to the Company
(at the expense of the Company) or destroy (and deliver to the Company a
certificate of destruction) all copies in such Investor’s possession of the
prospectus covering such Registrable Securities current at the time of receipt
of such notice.  Notwithstanding the
foregoing or anything to the contrary in this Agreement, but subject to compliance
with applicable laws, the Company shall cause the transfer agent for the
Registrable Securities to deliver unlegended shares of Common Stock to a
transferee of an Investor in accordance with the terms of the Preferred Stock
in connection with any sale of Registrable Securities with respect to which any
such Investor has entered into a contract for sale prior to receipt of such
notice and for which any such Investor has not yet settled.

 

(d)                                 No
Investor may participate in any underwritten distribution hereunder unless such
Investor (i) agrees to sell such Investor’s Registrable Securities on the basis
provided in any underwriting arrangements in usual and customary form entered
into by the Company, (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting

 

9

 

arrangements,
(iii) agrees to pay its pro rata share of all underwriting discounts and
commissions and any expenses in excess of those payable by the Company pursuant
to Section 6 below, and (iv) complies with all applicable laws in connection
therewith.  Notwithstanding anything in
this Section 4(d) to the contrary, this Section 4(d) is not intended to limit
any Investor’s rights under Sections 2(a) or 3(b) hereof.

 

5.                                       DELAY
PERIODS; SUSPENSION OF SALES.

 

(a)                                  Delay
Period.  If, at any time prior to
the expiration of the Registration Period, the Company’s Board of Directors
determines, in its reasonable good faith judgment, that the disposition of
Registrable Securities would require the premature disclosure of material
non-public information which may reasonably be expected to have an adverse
effect on the Company, then the Company shall not be required to maintain the effectiveness
of or amend or supplement the Registration Statement for a period (a “Disclosure
Delay Period”) expiring upon the earlier to occur of (i) the date on
which such material information is disclosed to the public or ceases to be
material or (ii) subject to Section 5(b) hereof, up to 20 trading days after
the date on which the Company provides a notice to the Investors under Section
3(e) hereof stating that the failure to disclose such non-public information
causes the prospectus included in the Registration Statement, as then in
effect, to include an untrue statement of a material fact or to omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading (each, a “Disclosure Delay Period Notice”).  For the avoidance of doubt, in no event
shall a Disclosure Delay Period exceed 20 trading days.

 

(b)                                 The
Company shall give prompt written notice, in the manner prescribed by Section
12 hereof, to the Investors of each Disclosure Delay Period, which notice
shall, if practicable, estimate the duration of such Disclosure Delay
Period.  Each Investor shall, upon
receipt of a Disclosure Delay Period Notice prior to such Investor’s
disposition of all of its Registrable Securities, forthwith discontinue the disposition
of such Registrable Securities pursuant to the Registration Statement, and will
not deliver any prospectus forming a part thereof in connection with any sale
of such Registrable Securities until the expiration of such Disclosure Delay
Period.  In addition, the provisions of
Section 2(b) hereof shall not apply to the Disclosure Delay Periods.  Notwithstanding anything in this Section 5
to the contrary, the Company shall not deliver more than two Disclosure Delay
Period Notices in any one year period. 
There shall not be more than an aggregate of 30 calendar days in any 90
calendar day period or 60 calendar days in any twelve month period during which
the Company is in a Disclosure Delay Period.

 

6.                                       EXPENSES
OF REGISTRATION.

 

All expenses incurred by the Company or the Investors
in connection with registrations, filings or qualifications pursuant to
Sections 2 and 3 above (including, without limitation, all registration,
listing and qualification fees, printers and accounting fees, the fees and disbursements
of counsel for the Company and the fees and disbursements of one counsel
selected by the Investors (the fees and disbursements of such counsel not to
exceed $10,000)) shall be borne by the Company, except that any underwriting
discounts and commissions shall be borne pro rata by the Investors.  In addition, the Company shall pay each
Investor’s costs and

 

10

 

expenses (including reasonable legal fees) incurred in connection with
the enforcement of the rights of such Investor hereunder.

 

7.                                       INDEMNIFICATION.

 

In the event any Registrable Securities are included
in a Registration Statement under this Agreement:

 

(a)                                  To
the extent permitted by law, the Company shall indemnify, hold harmless and
defend (i) each Investor who holds such Registrable Securities, and
(ii) the directors, officers, partners, members, employees and agents of
each such Investor and each person, if any, who controls each such Investor
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act (each, an “Investor Indemnified Person”), against any
joint or several losses, claims, damages, liabilities or expenses
(collectively, together with actions, proceedings or inquiries by any
regulatory or self-regulatory organization, whether commenced or threatened, in
respect thereof, “Claims”) to which any of them may become
subject insofar as such Claims arise out of or are based upon: (A) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading, (B) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective
date of such Registration Statement, or contained in the final prospectus (as
amended or supplemented, if the Company files any amendment thereof or
supplement thereto with the SEC) or the omission or alleged omission to state
therein any material fact necessary to make the statements made therein, in
light of the circumstances under which the statements therein were made, not
misleading, or (C) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act or any other law (including, without
limitation, any state securities law), rule or regulation relating to the offer
or sale of the Registrable Securities (the matters in the foregoing clauses (A)
through (C), collectively, “Violations”).  Subject to the restrictions set forth in Section 7(c) with
respect to the number of legal counsel, the Company shall reimburse each
Investor and each other Investor Indemnified Person, promptly as such expenses
are incurred and are due and payable, for any reasonable legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. 
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 7(a): (x) shall not apply to a Claim
arising out of or based upon a Violation that occurs in reliance upon and in
conformity with information furnished in writing to the Company by such
Investor Indemnified Person expressly for use in the Registration Statement or
any such amendment thereof or supplement thereto; (y) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld; and (z) with respect to any preliminary prospectus,
shall not inure to the benefit of any Investor Indemnified Person if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus, as then amended or
supplemented, if such corrected prospectus was timely made available by the
Company pursuant to Section 3(c) hereof, and the Investor Indemnified Person
was promptly advised in writing not to use the incorrect prospectus prior to
the use giving rise to a Violation and such Investor Indemnified Person,
notwithstanding such advice, used it. 
Such indemnity shall remain in full force and effect regardless of any

 

11

 

investigation made
by or on behalf of the Investor Indemnified Person and shall survive the
transfer of the Registrable Securities by the Investors pursuant to Section 10
hereof.

 

(b)                                 In
connection with any Registration Statement in which Registrable Securities held
by an Investor are included, (i) each such Investor shall, severally and not
jointly, indemnify, hold harmless and defend, to the same extent and in the
same manner set forth in Section 7(a), the Company, each of its directors, each
of its officers who signs the Registration Statement, its employees and each
person, if any, who controls the Company within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act, and any other stockholder
selling securities pursuant to the Registration Statement or any of its
directors or officers or any person who controls such stockholder within the
meaning of the Securities Act or the Exchange Act (each, a “Company
Indemnified Person”), against any Claims to which any of them may
become subject insofar as such Claims arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection with
such Registration Statement; and (ii) subject to the restrictions set forth in
Section 7(c), such Investor shall reimburse the Company Indemnified Persons,
promptly as such expenses are incurred and are due and payable, for any legal
fees or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim; provided, however, that the
indemnification obligations contained in this Section 7(b) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of such Investor, which consent shall not be
unreasonably withheld; and provided, further, that the Investor
shall be liable under this Agreement (including this Section 7(b) and Section
8) for only that amount as does not exceed the net proceeds actually received
by such Investor as a result of the sale of Registrable Securities pursuant to
such Registration Statement.  Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Company Indemnified Person and shall survive the
transfer of the Registrable Securities by the Investor pursuant to Section 10
hereof.

 

(c)                                  Promptly
after receipt by any party entitled to indemnification under this Section 7 of
notice of the commencement of any action (including any governmental action),
such indemnified party shall, if a Claim in respect thereof is to made against
any indemnifying party under this Section 7, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the indemnified party; provided, however,
that such indemnifying party shall not be entitled to assume such defense and
an indemnified party shall have the right to retain its own counsel with the
fees and expenses to be paid by the indemnifying party, if, in the reasonable
opinion of counsel retained by the indemnifying party, the representation by
such counsel of the indemnified party and the indemnifying party would be
inappropriate due to actual or potential conflicts of interest between such
indemnified party and any other party represented by such counsel in such
proceeding or the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and any
such indemnified party reasonably determines that there may be legal defenses
available to such indemnified party that are in conflict with those available
to such indemnifying party.  The
indemnifying party shall pay

 

12

 

for only one
separate legal counsel for the indemnified parties, and such legal counsel
shall be selected by Investors holding a majority in interest of the
Registrable Securities included in the Registration Statement to which the
Claim relates (if the parties entitled to indemnification hereunder are
Investor Indemnified Persons) or by the Company (if the parties entitled to
indemnification hereunder are Company Indemnified Persons).  The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
indemnified party under this Section 7, except to the extent that the indemnifying
party is actually prejudiced in its ability to defend such action.  The indemnification required by this Section
7 shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.

 

8.                                       CONTRIBUTION.

 

To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party shall make the
maximum contribution with respect to any amounts for which it would otherwise
be liable under Section 7 to the fullest extent permitted by law as is
appropriate to reflect the relative fault of the indemnifying party, on the one
hand, and the indemnified party, on the other hand, with respect to the
Violation giving rise to the applicable Claim; provided, however,
that (a) no contribution shall be made under circumstances where the maker
would not have been liable for indemnification under the fault standards set
forth in Section 7, (b) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any seller of Registrable Securities who was not guilty of
such fraudulent misrepresentation, and (c) contribution (together with any
indemnification or other obligations under this Agreement) by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.

 

9.                                       REPORTS
UNDER THE EXCHANGE ACT.

 

With a view to making available to the Investors the
benefits of Rule 144 promulgated under the Securities Act or any other similar
rule or regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration (“Rule 144”),
the Company agrees to:

 

(a)                                  file
with the SEC in a timely manner and make and keep available all reports and
other documents required of the Company under the Securities Act and the
Exchange Act so long as the Company remains subject to such requirements and
the filing and availability of such reports and other documents is required for
the applicable provisions of Rule 144; and

 

(b)                                 furnish
to each Investor so long as such Investor holds Preferred Stock or Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company,
and (iii) such other information as may be reasonably requested to permit such
Investor to sell such securities under Rule 144 without registration.

 

13

 

10.                                 ASSIGNMENT
OF REGISTRATION RIGHTS.

 

The rights of the Investors hereunder, including the
right to have the Company register Registrable Securities pursuant to this
Agreement, shall be automatically assignable by each Investor to any transferee
of all or any portion of the Preferred Stock or the Registrable Securities if:
(a) such transferee or assignee is a Qualifying Transferee (as defined below),
(b) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company after
such assignment, (c) the Company is furnished with written notice of (i) the
name and address of such transferee or assignee, and (ii) the securities with
respect to which such registration rights are being transferred or assigned,
(d) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the Securities Act
and applicable state securities laws, (e) the transferee or assignee agrees in
writing for the benefit of the Company to be bound by all of the provisions
contained herein, and (f) such transfer shall have been made in accordance with
applicable law and the applicable requirements of the Securities Purchase
Agreement and the Certificate of Designation, as applicable.  In addition, and notwithstanding anything to
the contrary contained in this Agreement, the Securities Purchase Agreement or
the Certificate of Designation, the Securities (as defined in the Securities
Purchase Agreement) may be pledged, and all rights of the Investor under this
Agreement or any other agreement or document related to the transactions
contemplated hereby may be assigned, without further consent of the Company, to
a bona fide pledgee in connection with an Investor’s margin or brokerage
account.  For purposes of this Section
10, the term “Qualifying Transferee” means, with respect to any Investor, (i)
any corporation, partnership or other affiliated entity controlling, controlled
by, or under common control with, such Investor, or any partner or former
partner, if such Investor is a partnership, or any member or former member, if
such Investor is a limited liability company, or (ii) any other direct assignee
or transferee from such Investor of (x) at least 5% of the then outstanding
Registrable Securities or (y) all of the Registrable Securities then held by
such Investor if less than 5% of the then outstanding Registrable Securities.

 

11.                                 AMENDMENT
OF REGISTRATION RIGHTS.

 

Provisions of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with written consent of the
Company, each of the Initial Investors (to the extent such Initial Investor or
its affiliates still owns Preferred Stock or Registrable Securities) and the
Investor(s) who hold a majority in interest of the Registrable Securities or,
in the case of a waiver, with the written consent of the party charged with the
enforcement of any such provision; provided, however, that (a) no
amendment hereto which restricts the ability of an Investor to elect not to
participate in an underwritten offering shall be effective against any Investor
which does not consent in writing to such amendment; (b) no consideration shall
be paid to an Investor by the Company in connection with an amendment hereto
unless each Investor similarly affected by such amendment receives a pro rata
amount of consideration from the Company; and (c) unless an Investor otherwise
agrees, each amendment hereto must similarly affect each Investor.  Any amendment or waiver effected in
accordance with this Section 11 shall be binding upon each Investor and the
Company.

 

14

 

12.                                 MISCELLANEOUS.

 

(a)                                  A
person or entity is deemed to be a holder of Registrable Securities whenever
such person or entity owns of record such Registrable Securities.  If the Company receives conflicting
instructions, notices or elections from two or more persons or entities with
respect to the same Registrable Securities, the Company shall act upon the
basis of instructions, notice or election received from the registered owner of
such Registrable Securities.

 

(b)                                 Any
notices required or permitted to be given under the terms of this Agreement
shall be in writing and sent by certified or registered mail (return receipt
requested) or delivered personally, by nationally recognized overnight carrier
or by confirmed facsimile transmission, and shall be effective five days after
being placed in the mail, if mailed, or upon receipt or refusal of receipt, if
delivered personally or by nationally recognized overnight carrier or confirmed
facsimile transmission, in each case addressed to a party as provided herein.  The initial addresses for such
communications shall be as follows, and each party shall provide notice to the
other parties of any change in such party’s address:

 

(i)                                     If
to the Company:

 

The SCO Group, Inc.

355 South 520 West, Suite
100

Lindon, Utah 84042

Telephone:  (801) 765-4999

Facsimile:  (801) 765-4481

Attention:  Robert K. Bench, Chief Financial Officer

 

with a copy
simultaneously transmitted by like means (which transmittal shall not
constitute notice hereunder) to:

 

Dorsey & Whitney LLP

170 South Main Street,
Suite 900

Salt Lake City, Utah
84101

Telephone:  (801) 933-7360

Facsimile:  (801) 933-7373

Attention:  Nolan S. Taylor, Esq.

 

(ii)                                  If
to any Investor, to such address as such Investor shall have provided in
writing to the Company.

 

(c)                                  Failure
of any party to exercise any right or remedy under this Agreement or otherwise,
or delay by a party in exercising such right or remedy, shall not operate as a
waiver thereof.

 

(d)                                 This
Agreement shall be governed by and construed in accordance with the laws of the
State of Delaware applicable to contracts made and to be performed in the State
of Delaware.  The Company irrevocably
consents to the jurisdiction of the United States federal

 

15

 

courts and the
state courts located in the County of New Castle, State of Delaware in any suit
or proceeding based on or arising under this Agreement and irrevocably agrees
that all claims in respect of such suit or proceeding may be determined in such
courts. The Company irrevocably waives the defense of an inconvenient forum to
the maintenance of such suit or proceeding. 
The Company further agrees that service of process upon the Company,
mailed by first class mail shall be deemed in every respect effective service
of process upon the Company in any such suit or proceeding in such forum.  Nothing herein shall affect any Investor’s
right to serve process in any other manner permitted by law.  The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.

 

(e)                                  This
Agreement and the other Transaction Documents (including any schedules and
exhibits hereto and thereto) constitute the entire agreement among the parties
hereto with respect to the subject matter hereof and thereof.  There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
and therein.  This Agreement and the
other Transaction Documents supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.

 

(f)                                    Subject
to the requirements of Section 10 hereof, this Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties hereto.

 

(g)                                 The
headings in this Agreement are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof.

 

(h)                                 This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original but all of which shall constitute one and the same
agreement.  This Agreement, once
executed by a party, may be delivered to the other party hereto by facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.

 

(i)                                     Each
party shall do and perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated hereby.

 

(j)                                     Unless
other expressly provided herein, all consents, approvals and other
determinations to be made by the Investors pursuant to this Agreement shall be
made by the Investors holding a majority in interest of the Registrable
Securities (determined as if all Preferred Stock then outstanding had been
converted into or exercised for Registrable Securities) held by all Investors.

 

(k)                                  Each
party to this Agreement has participated in the negotiation and drafting of
this Agreement.  As such, the language
used herein shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction will be applied
against any party to this Agreement.

 

16

 

(l)                                     For
purposes of this Agreement, the term “business day” means any day other than a
Saturday or Sunday or a day on which banking institutions in the State of New
York are authorized or obligated by law, regulation or executive order to
close, and the term “trading day” means any day on which the SmallCap Market
or, if the Common Stock is not then traded on the SmallCap Market, the
principal national securities exchange, automated quotation system or other
trading market where the Common Stock is then listed, quoted or traded, is open
for trading.

 

[REMAINDER OF PAGE
LEFT BLANK INTENTIONALLY]

 

17

 

IN WITNESS WHEREOF, the undersigned Initial Investor
and the Company have caused this Agreement to be duly executed as of the date
first above written.

 

	
  THE SCO GROUP, INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Darl C. McBride

  	
   

  	
   

  
	
  Name: Darl C. McBride

  	
   

  
	
  Title:

  	
   

  
	
   

  	
   

  
	
  INITIAL INVESTOR:

  	
   

  
	
   

  	
   

  
	
  BayStar Capital II,
  L.P.

  	
   

  	
   

  
	
  (Print or Type
  Name of Purchaser)

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Steve Derby

  	
   

  	
   

  
	
  Name:  Steve Derby

  	
   

  
	
  Title: Managing Member

  	
   

  
					

 

 

[SIGNATURE
PAGE TO REGISTRATION RIGHTS AGREEMENT]

 

18

 

IN WITNESS WHEREOF, the undersigned Initial Investor
and the Company have caused this Agreement to be duly executed as of the date
first above written.

 

 

	
  INITIAL INVESTOR:

  	
   

  
	
   

  	
   

  
	
  Royal Bank of Canada

  	
   

  	
   

  
	
  (Print or Type
  Name of Purchaser)

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By: Its agent, RBC
  Dominion Securities Corporation

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Johan Wahlstedt

  	
   

  	
   

  
	
  Name: Johan Wahlstedt

  	
   

  
	
  Title: Managing
  Director

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Steven Milke

  	
   

  	
   

  
	
  Name: Steven Milke

  	
   

  
	
  Title: Managing
  Director

  	
   

  
					

 

[SIGNATURE
PAGE TO REGISTRATION RIGHTS AGREEMENT]

 

19

 

EXHIBIT A

 

[Date]

 

[Transfer Agent]

 

 

RE:                            THE
SCO GROUP, INC.

 

Ladies and Gentlemen:

 

We are counsel to The SCO
Group, Inc., a corporation organized under the laws of the State of Delaware
(the “Company”),
and we understand that [Name of Investor] (the “Holder”) has purchased from
the Company shares of Series A Preferred Stock that are convertible into shares
of the Company’s common stock, par value $0.001 per share (the “Common Stock”).  Pursuant to a Registration Rights Agreement,
dated as of October       , 2003, by and among
the Company and the signatories thereto (the “Registration Rights Agreement”),
the Company agreed with the Holder, among other things, to register the
Registrable Securities (as that term is defined in the Registration Rights
Agreement) under the Securities Act of 1933, as amended (the “Securities
Act”), upon the terms provided in the Registration Rights
Agreement.  In connection with the
Company’s obligations under the Registration Rights Agreement, on
[                  
      ,          ],
the Company filed a Registration Statement on Form
S-          (File No. 333-
                         )
(the “Registration
Statement”) with the Securities and Exchange Commission (the “SEC”)
relating to the Registrable Securities, which names the Holder as a selling
stockholder thereunder.  The
Registration Statement was declared effective by the SEC on
                        ,
          .

 

In connection with the
foregoing, we advise you that a member of the SEC’s staff has advised us by
telephone that the SEC has entered into an order declaring the Registration
Statement effective under the Securities Act at [time of effectiveness] on
[date of effectiveness], and we have no knowledge, after telephonic inquiry of
a member of the SEC’s staff, that any stop order suspending its effectiveness
has been issued or that any proceedings for that purpose are pending before, or
threatened by, the SEC.

 

Based on the foregoing,
we are of the opinion that the Registrable Securities are available for resale
under the Securities Act pursuant to the Registration Statement.

 

Very truly yours,

 

 

[NAME OF COUNSEL]

 

cc:                                 [Name
of Investor]

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