-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PGSAoNE2gDAfW5o3zBJRqwmVrdzia9ZoFoef54HZT9iNp73dxPDlZT3qCLd4yL40 v7TUoh7+cFv10WO2HWeSeg== 0000758004-03-000006.txt : 20030723 0000758004-03-000006.hdr.sgml : 20030723 20030616123825 ACCESSION NUMBER: 0000758004-03-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030403 FILED AS OF DATE: 20030616 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOVELL INC CENTRAL INDEX KEY: 0000758004 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 870393339 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13351 FILM NUMBER: 03745001 BUSINESS ADDRESS: STREET 1: 1800 SOUTH NOVELL PLACE CITY: PROVO STATE: UT ZIP: 84606 BUSINESS PHONE: 8018617000 MAIL ADDRESS: STREET 1: 1800 SOUTH NOVELL PLACE CITY: PROVO STATE: UT ZIP: 84606 10-Q 1 q210q.txt NOVELL, INC. SECOND QUARTER FORM 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark one) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended April 30, 2003 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to ----------- Commission File Number: 0-13351 NOVELL, INC. (Exact name of registrant as specified in its charter) Delaware 87-0393339 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1800 South Novell Place Provo, Utah 84606 (Address of principal executive offices and zip code) (801) 861-7000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO __ Indicate by check mark wither the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) YES X NO __ As of May 30, 2003, there were 371,352,787 shares of the registrant's common stock outstanding. Part I. Financial Information Item 1. Financial Statements NOVELL, INC. CONSOLIDATED CONDENSED BALANCE SHEETS April 30, 2003 October 31, 2002 -------------- ---------------- In thousands, except share and per share data (Unaudited) Assets Current assets: Cash and short-term investments $ 626,397 $ 635,858 Receivables (less allowances of $32,677 - April 30, 2003 and $39,676 - October 31, 2002) 183,672 214,827 Prepaid expenses 32,293 24,077 Deferred income taxes 19,420 21,204 Other current assets 25,166 23,572 ---------------- --------------- Total current assets 886,948 919,538 ---------------- --------------- Property, plant and equipment, net 353,183 369,189 Goodwill 180,579 179,534 Intangible assets 30,092 36,351 Long-term investments 55,603 73,452 Deferred income taxes 83,791 74,323 Other assets 12,385 12,678 ---------------- --------------- Total assets $ 1,602,581 $ 1,665,065 ================ =============== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 61,007 $ 57,241 Accrued compensation 78,498 87,778 Other accrued liabilities 124,337 134,850 Income taxes payable 28,764 36,294 Deferred revenue 267,546 275,344 ---------------- --------------- Total current liabilities 560,152 591,507 ---------------- --------------- Minority interests 7,841 8,016 Stockholders' equity: Common stock, par value $.10 per share: Authorized - 600,000,000 shares; Issued -371,295,559 shares-April 30, 2003, 367,537,926 shares-October 31, 2002 37,130 36,753 Preferred stock, par value $.10 per share; Authorized - 500,000 shares, Issued - 0 shares -- -- Additional paid-in capital 303,760 297,139 Retained earnings 698,164 738,663 Accumulated other comprehensive income 651 57 Other (5,117) (7,070) ----------------- ---------------- Total stockholders' equity 1,034,588 1,065,542 ---------------- --------------- Total liabilities and stockholders' equity $ 1,602,581 $ 1,665,065 ================ ===============
See notes to consolidated unaudited condensed financial statements. NOVELL, INC. CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF OPERATIONS Three Months Ended April 30, 2003 April 30, 2002 In thousands, except per share data Net revenue New software licenses $ 64,465 $ 70,448 Maintenance and services 211,502 203,405 --------------- --------------- Net revenue 275,967 273,853 --------------- --------------- Cost of revenue New software license costs 5,962 6,981 Maintenance and service costs 102,809 105,847 --------------- --------------- Cost of revenue 108,771 112,828 --------------- --------------- Gross profit 167,196 161,025 --------------- --------------- Operating expenses: Sales and marketing 101,737 82,145 Product development 48,354 42,385 General and administrative 30,939 31,055 Restructuring 8,675 19,100 --------------- --------------- Total operating expenses 189,705 174,685 --------------- --------------- Loss from operations (22,509) (13,660) --------------- ---------------- Other income (expense), net: Investment income (expense) (10,459) (17,199) Other, net (2,016) (1,183) ---------------- ---------------- Other income (expense), net (12,475) (18,382) ---------------- ---------------- Loss before taxes and cumulative effect of accounting change (34,984) (32,042) Income tax benefit (6,372) (2,293) ---------------- ---------------- Loss before cumulative effect of accounting change (28,612) (29,749) Cumulative effect of accounting change -- (143,702) --------------- ---------------- Net loss $ (28,612) $ (173,451) ================ ================ Basic and diluted net loss per share: Before cumulative effect of accounting change $ (0.08) $ (0.08) Cumulative effect of accounting change -- (0.40) --------------- --------------- Basic and diluted net loss per share $ (0.08) $ (0.48) =============== =============== Basic and diluted weighted average shares outstanding 368,746 362,754
See notes to consolidated unaudited condensed financial statements. NOVELL, INC. CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF OPERATIONS Six Months Ended April 30, 2003 April 30, 2002 In thousands, except per share data Net revenue New software licenses $ 125,503 $ 142,086 Maintenance and services 410,435 409,626 --------------- --------------- Net revenue 535,938 551,712 --------------- --------------- Cost of revenue New software license costs 11,185 13,613 Maintenance and service costs 195,150 216,784 --------------- --------------- Cost of revenue 206,335 230,397 --------------- --------------- Gross profit 329,603 321,315 --------------- --------------- Operating expenses: Sales and marketing 200,042 167,621 Product development 91,276 85,398 General and administrative 58,284 61,380 Restructuring 8,675 19,100 --------------- --------------- Total operating expenses 358,277 333,499 --------------- --------------- Loss from operations (28,674) (12,184) --------------- ---------------- Other income (expense), net: Investment income (expense) (17,599) (14,591) Other, net (1,065) 6,663 ---------------- --------------- Other income (expense), net (18,664) (7,928) ---------------- ---------------- Loss before taxes and cumulative effect of accounting change (47,338) (20,112) Income tax expense (benefit) (6,838) 1,286 ---------------- --------------- Loss before cumulative effect of accounting change (40,500) (21,398) Cumulative effect of accounting change -- (143,702) --------------- ---------------- Net loss $ (40,500) $ (165,100) ================ ================ Basic and diluted net loss per share: Before cumulative effect of accounting change $ (0.11) $ (0.06) Cumulative effect of accounting change -- (0.40) --------------- --------------- Basic and diluted net loss per share $ (0.11) $ (0.46) =============== =============== Basic and diluted weighted average shares outstanding 368,411 362,591
See notes to consolidated unaudited condensed financial statements. NOVELL, INC. CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS Six Months Ended In thousands April 30, 2003 April 30, 2002 -------------- -------------- Cash flows from operating activities: Net loss $ (40,500) $ (165,100) Adjustments to reconcile net loss to net cash used for operating activities: Gain on sale of property, plant and equipment (365) (8,762) Depreciation and amortization 34,984 33,495 Loss on impaired goodwill -- 143,702 Loss on impaired investments 24,523 29,839 Non-cash restructuring charges 8,675 16,426 Decrease in receivables 31,155 53,665 (Increase) decrease in prepaid expenses (8,216) 948 Increase in deferred income taxes (7,685) (64) (Increase) decrease in other current assets (1,594) 4,686 Increase (decrease) in accounts payable 3,766 (21,594) Decrease in other current liabilities, net (40,432) (73,803) Decrease in deferred revenue (7,798) (30,993) -------------- -------------- Net cash used for operating activities (3,487) (17,555) -------------- -------------- Cash flows from financing activities: Issuance of common stock, net 6,998 7,176 ------------- ------------- Net cash provided by financing activities 6,998 7,176 ------------- ------------- Cash flows from investing activities: Expenditures for property, plant and equipment (21,777) (13,161) Proceeds from the sale of property, plant and equipment 785 16,050 Purchases of short-term investments (278,384) (706,780) Maturities of short-term investments 63,685 471,449 Sales of short-term investments 141,897 223,211 Cash paid for Volera minority interest shares (1,050) -- Expenditures for long-term investments (7,806) (16,583) Other 9,676 8,128 ------------- ------------- Net cash used for investing activities (92,974) (17,686) -------------- -------------- Total decrease in cash and cash equivalents (89,463) (28,065) Cash and cash equivalents - beginning of period 463,987 337,927 ------------- ------------- Cash and cash equivalents - end of period 374,524 309,862 Short-term investments - end of period 251,873 373,433 ------------- ------------- Cash and short-term investments - end of period $ 626,397 $ 683,295 ============= =============
See notes to consolidated unaudited condensed financial statements. NOVELL, INC. NOTES TO CONSOLIDATED UNAUDITED CONDENSED FINANCIAL STATEMENTS A. Quarterly Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. As discussed under the subheading "Critical Accounting Policies" in Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," actual results could differ materially from those estimates. The accompanying consolidated unaudited condensed financial statements have been prepared in accordance with the instructions to Form 10-Q but do not include all of the information and footnotes required by generally accepted accounting principles and should, therefore, be read in conjunction with our fiscal 2002 Annual Report on Form 10-K. These financial statements do include all normal recurring adjustments that we believe are necessary for a fair presentation of the statements. The interim operating results are not necessarily indicative of the results for a full year. Certain reclassifications, none of which affected net loss, have been made to the prior year's amounts in order to conform to the current year's presentation. B. Foreign Currency Translation Due to increased activity in non-U.S. dollar currencies, beginning November 1, 2002, we have determined the functional currency of all of our international subsidiaries, except for our Irish subsidiaries, to be the local currency. These subsidiaries generate and expend cash primarily in their respective local currency. Assets and liabilities of these subsidiaries are translated at current exchange rates prevailing during the year. Such translation adjustments are recorded in accumulated other comprehensive income. Previously, the functional currency of our international subsidiaries, except Novell Japan, Novell India, and the international subsidiaries of Cambridge Technology Partners ("Cambridge") and SilverStream, was the U.S. dollar. C. Cash and Short-term Investments We consider all highly liquid debt instruments purchased with a term to maturity of three months or less to be cash equivalents. Short-term investments are widely diversified, consisting primarily of investment grade securities that either mature within the next 12 months or have other characteristics of short-term investments. These include: oVariable rate preferred stock instruments that are publicly traded and earn dividends periodically at a rate set in an auction. These instruments have auction dates within 180 days of the prior auction date. oFixed income securities, which have contractual maturities ranging from zero to seven years. These securities are available to be used for current operations and thus are classified as short-term investments, even though some maturities may extend beyond one year. No other short-term investments have contractual maturities. All marketable debt and equity securities that are included in cash and short-term investments are considered available-for-sale and are carried at fair market value. The unrealized gains and losses related to these securities are included in accumulated other comprehensive income, net of tax, after any applicable tax valuation allowances (see Note M). Fair market values are based on quoted market prices when available; if quoted market prices are not available, the fair market values are based on quoted market prices of similar instruments of companies that are comparable in size, product offerings, and market sector. When securities are sold, their cost is determined based on the specific identification method. The following is a summary of cash and short-term investments, all of which are considered available-for-sale. Gross Gross Fair Market Cost at Unrealized Unrealized Value at In thousands April 30, 2003 Gains Losses April 30, 2003 -------------- ----- ------ -------------- Cash and cash equivalents: Cash $ 131,579 $ -- $ -- $ 131,579 Government and agency securities 31,511 -- -- 31,511 Corporate obligations 80,069 -- -- 80,069 Money market funds 131,365 -- -- 131,365 ----------- ---------- ---------- ----------- Total cash and cash equivalents 374,524 -- -- 374,524 ----------- ---------- ---------- ----------- Short-term investments: Variable rate instruments 54,000 -- -- 54,000 Government and agency securities 46,460 373 (20) 46,813 Corporate obligations 143,865 2,698 (28) 146,535 Equity securities 4,663 235 (373) 4,525 ----------- ---------- ---------- ------------ Total short-term investments 248,988 3,306 (421) 251,873 ----------- ---------- ----------- ------------ Total cash and short-term $ 623,512 $ 3,306 $ (421) $ 626,397 =========== ========== =========== ============ investments Gross Gross Fair Market Cost at Unrealized Unrealized Value at In thousands October 31, 2002 Gains Losses October 31, 2002 ---------------- ----- ------ ---------------- Cash and cash equivalents: Cash $ 179,098 $ -- $ -- $ 179,098 Government and agency securities 60,121 -- -- 60,121 Corporate obligations 23,219 -- -- 23,219 Money market funds 201,549 -- -- 201,549 ------------- ----------- ---------- ------------ Total cash and cash equivalents 463,987 -- -- 463,987 ------------- ----------- ----------- ------------ Short-term investments: Variable rate instruments 14,499 1 -- 14,500 Government and agency securities 38,025 379 -- 38,404 Corporate obligations 110,746 2,533 (113) 113,166 Equity securities 5,982 368 (549) 5,801 ------------- ----------- ---------- ------------ Total short-term investments 169,252 3,281 (662) 171,871 ------------- ----------- ---------- ------------ Total cash and short-term investments $ 633,239 $ 3,281 $ (662) $ 635,858 ============= =========== ========== --============
During the second quarter of fiscal 2003, we realized gains of $0.7 million and realized losses of $0.2 million from the sale of short-term investments. During the second quarter of fiscal 2002, we realized gains of $2.3 million and realized losses of $0.1 million from the sale of short-term investments. During the first six months of fiscal 2003, we realized gains of $1.1 million and realized losses of $0.3 million from the sale of short-term investments. During the first six months of fiscal 2002, we realized gains of $5.5 million and realized losses of $0.3 million from the sale of short-term investments. We routinely review all of our investments for impairment. We did not record any impairment losses on short-term investments during the first six months of fiscal 2003 or fiscal 2002. D. Long-term Investments The primary components of long-term investments as of April 30, 2003 were investments made through the Novell Venture account or the Cambridge Technology Capital Fund I L.P. ("CTC I"), and direct investments we made for strategic purposes in equity securities of privately-held companies. Long-term investments are accounted for initially at cost and written down to fair market value when indicators of impairment are deemed to be other than temporary. We routinely review our investments in private securities and venture funds for impairment. To assess impairment, we analyze forecasted financial performance of the investees, the liquidation preference value of the stock we hold, and our estimate of the potential for investment recovery based on all these factors. During the second quarter and first six months of fiscal 2003, we recognized impairment losses on long-term investments totaling $13.7 million and $24.5 million, respectively. During the second quarter and first six months of fiscal 2002, we recognized impairment losses of $24.4 million and $29.8 million, respectively. As of April 30, 2003 and 2002, there were no unrealized gains or losses on our long-term equity investments. E. Goodwill and Intangible Assets Goodwill includes approximately $129.0 million from the July 2002 acquisition of SilverStream Software, Inc. ("SilverStream"), approximately $42.5 million from the July 2001 acquisition of Cambridge, and approximately $9.1 million related to several small technology-related acquisitions. Beginning November 1, 2002, we reorganized our operations and began reporting our financial results in four segments; three are based on geographic area and the fourth is Celerant management consulting. The geographic segments are Americas, EMEA, and Asia Pacific. o Americas - includes the United States, Canada, and Latin America o EMEA - includes Eastern and Western Europe, Middle East, and Africa o Asia Pacific -includes China, Japan, Southeast Asia, Australia, New Zealand, and India Prior to November 1, 2002, we operated and reported financial results based on three business segments: product, consulting, and Volera, Inc. The following is a summary of goodwill, which has been reallocated to the new segments: In thousands Americas EMEA Asia Celerant Total -------- ---- ----- -------- ----- Pacific Balance as of November 1, 2002 $ 69,842 $ 60,447 $ 6,745 $ 42,500 $ 179,534 Adjustments 523 470 52 -- 1,045 --------- --------- --------- --------- ---------- Balance as of April 30, 2003 $ 70,365 $ 60,917 $ 6,797 $ 42,500 $ 180,579 ========= ========= -======== ========= ==========
Adjustments relate to additional SilverStream merger-related liabilities that we incurred for obligations of SilverStream prior to the acquisition. The following is a summary of intangible assets: In thousands April 30, 2003 October 31, 2002 -------------- ---------------- Developed technology $ 26,510 $ 32,769 Trade names 3,582 3,582 ------------ ------------ Total intangible assets $ 30,092 $ 36,351 ============ ============
Developed technology relates primarily to the exteNd product line that we acquired as a part of our July 2002 acquisition of SilverStream Software, Inc. and is being amortized over three years. Amortization for the second quarter and first six months of fiscal 2003 was $3.0 million and $6.3 million, respectively. Amortization for the second quarters and first six months of fiscal 2002 was $0.8 million and $2.2 million, respectively. Trade names relate to the SilverStream individual product names, which we continue to use. Trade names have an indefinite life and therefore are not amortized but are reviewed for impairment at least annually. F. Income Taxes Our estimated effective tax rate before investment impairment losses for the second quarter and first six months of fiscal 2003 was 30%. However, with impairment losses the actual tax benefit rate for the second quarter of fiscal 2003 was 18% and the actual tax benefit rate for the first six months of fiscal 2003 was 14%. The effective tax rate for fiscal 2002 was 12%. The effective tax rate for the first six months of fiscal 2003 differed from the fiscal 2002 effective tax rate primarily because of differences in the amount of non-deductible items in each period. No tax benefit for the investment impairment losses was taken in the first and second quarter of fiscal 2003 because corporations can only use capital losses to offset capital gains. We could not be assured at the end of the second quarter that we could generate sufficient capital gains during the five-year carry-over period to recognize the tax benefit of the capital losses. Accordingly, a valuation allowance has been established against the capital loss amounts we may not be able to recognize. We paid income taxes of $6.7 million in the first six months of fiscal 2003 and $9.0 million during the same period of fiscal 2002. G. Line of Credit We currently have a $15 million unsecured revolving bank line of credit, which expires on March 3, 2004. The line can be used for either letter of credit or working capital purposes and is subject to the terms of a loan agreement containing financial covenants and restrictions, none of which are expected to significantly affect our operations. At April 30, 2003, there was $7.0 million outstanding under the line, which we repaid on May 1, 2003, and standby letters of credit of $8.0 million outstanding under this agreement. Our subsidiary in China has a $0.8 million short-term revolving loan, which expires on February 29, 2004. The loan is being used for our China operations. At April 30, 2003, there was $0.8 million outstanding under this revolving loan. H. Restructuring During the second quarter of fiscal 2003, we determined that the amount we had originally accrued for facility-related costs in previous restructurings was too low and accrued an additional $8.7 million. The original liability was based on estimated sublease rates and timing of signing subleases, which have been affected by the decline in the real estate market. This additional amount, which pertains to three separate restructuring events, is included in the following tables. Second quarter of fiscal 2002 During the second quarter of fiscal 2002, we recorded a pre-tax restructuring charge of approximately $20 million resulting from our continued migration towards becoming a solutions provider and as a result of changing business needs. Specific actions taken included reducing our workforce worldwide by approximately 50 employees (less than 1%), consolidating facilities, closing offices in unprofitable locations, and disposing of excess property and equipment. During the second quarter of fiscal 2003, we determined that the amount we had originally accrued for facility-related costs was too low and accrued an additional $7.7 million. The original liability was based on estimated sublease rates and timing of signing subleases, which have been affected by the decline in the real estate market. The following table summarizes the activity during fiscal 2003 related to the second quarter of fiscal 2002 restructuring. Balance at Balance at Original October 31, Cash April 30, Charge 2002 Payments Adjustments 2003 ------ ---------- ---------- ----------- ---------- In thousands Severance and benefits $ 14,748 $ 4,258 $ (2,551) $ -- $ 1,707 Excess facilities and property and equipment 5,146 4,221 (963) 7,735 10,993 Other restructuring-related costs 492 300 -- -- 300 -------- -------- -------- -------- -------- $ 20,386 $ 8,779 $ (3,514) $ 7,735 $ 13,000 ======== ======== ========= ======== ========
As of April 30, 2003, the remaining balance of the second quarter of fiscal 2002 restructuring charge included accrued liabilities related to severance and benefits, which will be paid out over the remaining severance obligation period not to exceed three years, and redundant facilities and other fixed contracts, which will be paid over the respective remaining contract terms. Fourth quarter of fiscal 2001 During the fourth quarter of fiscal 2001, we recorded $51 million of pre-tax restructuring charges resulting from the restructuring of our operations in light of changes in general market conditions, changing customer demands, and the evolution of our business strategy. This business strategy focuses on Net business solutions designed to secure and power the networked world across leading operating systems. The execution of this strategy included refining our consulting initiatives, refocusing research and development efforts, defining sales and marketing efforts to be more customer and solutions oriented, and adjusting our overall cost structure given current revenue levels and our direction. Specific actions included reducing our workforce worldwide by approximately 1,100 employees (approximately 16%), consolidating excess facilities and disposing of excess property and equipment, terminating a management consulting contract that no longer fit with our strategic focus, and abandoning and writing off technologies that no longer fit within our new strategy. We also realigned our remaining resources to better manage our business. During the second quarter of fiscal 2003, we determined that the amount we had originally accrued for facility-related costs was too low and accrued an additional $0.3 million. The original liability was based on estimated sublease rates and timing of signing subleases, which have been affected by the decline in the real estate market. The following table summarizes the costs and activities during fiscal 2003 related to the fourth quarter of 2001 restructuring. Balance at Balance at Original October 31, Cash April 30, Charge 2002 Payments Adjustments 2003 ------ ----------- ---------- ------------ -------- In thousands Severance and benefits $ 32,793 $ 1,117 $ (801) $ -- $ 316 Excess facilities and property and equipment 10,896 4,651 (1,656) 262 3,257 Other restructuring-related costs 6,973 624 (241) -- 383 -------- -------- ---------- -------- ------- $ 50,662 $ 6,392 $ (2,698) $ 262 $ 3,956 ======== ======== ========== ======== ========
As of April 30, 2003, the remaining balance of the fourth quarter fiscal 2001 restructuring charge included accrued liabilities largely related to severance and benefits, which will be paid out during fiscal 2003, and excess facilities costs, which will be paid over the respective remaining lease terms. Third quarter of fiscal 2001 During the third quarter of fiscal 2001, we recorded a pre-tax restructuring charge of approximately $30 million as a result of our July 2001 acquisition of Cambridge Technology Partners and changes in our business to move towards a Net business solutions strategy. Specific actions included reducing our workforce worldwide by approximately 280 employees across all functional areas (approximately 5% before the addition of Cambridge), consolidating facilities and disposing of excess property and equipment, abandoning and writing off technologies that no longer fit within our new strategy, and discontinuing unprofitable product lines. During the second quarter of fiscal 2003, we determined that the amount we had originally accrued for facility-related costs was too low and accrued an additional $0.7 million. The original liability was based on estimated sublease rates and timing of signing subleases, which have been affected by the decline in the real estate market. The following table summarizes the activity during fiscal 2003 related to the third quarter of fiscal 2001 restructuring costs. Balance at Balance at Original October 31, Cash April 30, Charge 2002 Payments Adjustments 2003 ------ ----------- ---------- ------------ ----------- In thousands Severance and benefits $ 15,978 $ -- $ -- $ -- $ -- Excess facilities and property and equipment 10,740 3,889 (1,068) 678 3,499 Other restructuring-related costs 3,675 137 (137) -- -- -------- -------- --------- -------- --------- $ 30,393 $ 4,026 $ (1,205) $ 678 $ 3,499 ======== ======== ========= ======== =========
As of April 30, 2003, the remaining balance of the third quarter of fiscal 2001 restructuring charge included accrued liabilities related to excess facilities costs, which will be paid over the respective remaining lease terms. I. Guarantees During the first quarter of fiscal 2002, we sold our subsidiary in the Czech Republic. As a part of this transaction, we provided a guarantee to the landlord of the building we lease in the Czech Republic whereby we agreed to pay any and all monies due under the lease, including legal fees if the new lessee defaults on the lease. During fiscal 2003, we paid approximately $0.1 million against this guarantee and have accrued an additional $0.4 million, which represents our liability exposure if the new lessee continues in default, excluding legal fees. As an element of our standard contract terms, we include an indemnification clause in our agreements with our customers that indemnifies the licensee against certain liability and damages arising from intellectual property infringement claims arising from their use or distribution of our software. These terms are common in the high technology industry. We do not record a liability for potential litigation claims related to indemnification agreements with our customers. We do not believe the likelihood of a material obligation is probable. We also have some outstanding intercompany guarantees, which guarantee payment of certain obligations of our subsidiaries. J. Commitments and Contingencies In 1997, the Board of Directors established the Novell Venture account within our investment portfolio for the purpose of promoting our business and strategic objectives by making investments in privately-held companies, mainly small capitalization stocks in the high technology industry sector, and in funds managed by venture capitalists. As of April 30, 2003, we had a balance of $45.8 million related to investments in various venture capital funds and had commitments to contribute an additional $64.2 million to these funds over the next three to four years, upon the request of the fund managers. As a result of our acquisition of Cambridge, we also own both limited and general partnership interests in CTC I of approximately 24%. As of April 30, 2003, we had an investment balance of $0.2 million in CTC I and had commitments to contribute up to an additional $0.3 over the next three to four years. We do not intend to make any new long-term investments through the Novell Venture account or into venture capital funds. In May 2002, France Telecom SA and U.S. Philips Corporation, alleged co-owners of a U.S. patent, filed suit in the U.S. District Court, District of Delaware, against Novell. The plaintiffs allege that Novell's NetWare client software infringes the patent. In the suit, the plaintiffs seek unspecified monetary damages and an injunction prohibiting infringement of the patent. We intend to vigorously defend ourselves in this suit. Although there can be no assurance as to the ultimate disposition of the suit, we do not believe that the resolution of this litigation will have a material adverse effect on our financial position, results of operations or cash flows. SilverStream and several of its former officers and directors, as well as the underwriters who handled SilverStream's two public offerings, were named as defendants in several class action complaints that were filed on behalf of certain former stockholders of SilverStream who purchased shares of SilverStream common stock between August 16, 1999 and December 6, 2000. These complaints are closely related to several hundred other complaints that the same plaintiffs have brought against other issuers and underwriters. These complaints all allege violations of the Securities Exchange Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. In particular, they allege, among other things, that there was undisclosed compensation received by the underwriters of the public offerings of all of these issuers, including SilverStream's. The plaintiffs are seeking monetary damages, statutory compensation and other relief that may be deemed appropriate by the court. A Consolidated Amended Complaint with respect to all of these complaints was filed in the U.S. District Court, Southern District of New York, on April 19, 2002. All issuers, including SilverStream, filed a Motion to Dismiss on July 15, 2002. We believe that SilverStream and its former officers and directors have meritorious defenses to the claims made in the complaints and intend to contest the claims against SilverStream and its former directors and officers vigorously. While there can be no assurance as to the ultimate disposition of the litigation, we do not believe that its resolution will have a material adverse effect on our financial position, results of operations or cash flows. In February 1998, a suit was filed in the U.S. District Court, District of Utah, against us and certain of our officers and directors, alleging violation of federal securities laws by concealing the true nature of our financial condition and seeking unspecified damages. The lawsuit was brought as a purported class action on behalf of purchasers of our common stock from November 1, 1996 through April 22, 1997. After a first dismissal of the suit on November 3, 2000 and a subsequent amendment to the complaint filed on February 20, 2001, the U.S. District Court dismissed the amended complaint with prejudice for failure to state a claim. The Order of Dismissal was entered on April 16, 2002 and the plaintiffs have filed a Notice of Appeal to the Tenth Circuit Court of Appeals. We intend to vigorously defend the upholding of the U.S. District Court's ruling. While there can be no assurance as to the ultimate disposition of the lawsuit, we do not believe that the resolution of this litigation will have a material adverse effect on our financial position, results of operations or cash flows. We are a party to a number of additional legal claims arising in the ordinary course of our business. We believe that the ultimate resolution of these claims will not have a material adverse effect on our financial position, results of operations or cash flows. K. Segment Information Beginning November 1, 2002, we reorganized our operations and began reporting our financial results in four segments; three are based on geographic areas and the fourth is Celerant management consulting. The geographic segments are Americas, EMEA, and Asia Pacific. Performance is evaluated by our Chief Executive Officer and Worldwide Management Committee, our chief decision makers, and is based on reviewing revenue and segment operating income (loss) information for each of the geographic segments and for the Celerant management consulting segment. The geographic segments include: o Americas - includes the United States, Canada, and Latin America o EMEA - includes Eastern and Western Europe, Middle East, and Africa o Asia Pacific -includes China, Japan, Southeast Asia, Australia, New Zealand, and India All geographic segments sell our software, licenses and services offerings (except Celerant management consulting services). These offerings are sold in the U.S. via direct, OEM, reseller, and distributor channels, and internationally are sold directly and through distributors who sell to dealers and end users Operating results by segment Three months April 30, 2003 Three months April 30, 2002 --------------------------- --------------------------- Operating Operating Net Revenue Income (Loss) Net Revenue Income (Loss) ----------- ------------- ----------- ------------- In thousands Americas $ 129,503 $ 47,831 $ 147,431 $ 65,560 EMEA 88,673 30,270 74,324 28,697 Asia Pacific 20,908 2,397 19,919 3,518 Common unallocated operating costs -- (94,464) -- (93,805) ---------- ---------- ---------- ---------- Total geographical segments 239,084 (13,966) 241,674 3,970 Celerant management consulting 36,883 2,249 32,179 2,435 Unallocated integration costs and restructuring adjustments -- (10,792) -- (20,065) ---------- ----------- ---------- ----------- Total $ 275,967 $ (22,509) $ 273,853 $ (13,660) ========== =========== ========== =========== Six months ended April 30, 2003 Six months ended April 30, 2002 ------------------------------- ------------------------------- Operating Operating Net Revenue Income (Loss) Net Revenue Income (Loss) ----------- ------------- ----------- ------------- In thousands Americas $ 261,344 $ 101,702 $ 297,453 $ 131,691 EMEA 170,400 59,345 154,109 60,422 Asia Pacific 38,765 3,315 38,968 5,641 Common unallocated operating costs -- (184,169) -- (190,626) ---------- ---------- ---------- ---------- Total geographical segments 470,509 (19,807) 490,530 7,128 Celerant management consulting 65,429 2,180 61,182 2,444 Unallocated integration costs and restructuring adjustments -- (11,047) -- (21,756) ---------- ----------- ---------- ----------- Total $ 535,938 $ (28,674) $ 551,712 $ (12,184) ========== =========== ========== ===========
Common unallocated operating costs include corporate services common to all segments such as corporate sales and marketing, product development, corporate general and administrative costs, and corporate infrastructure costs. Celerant does not utilize these corporate services. In addition to reviewing geographic and Celerant management consulting segment results, our chief decision makers review net revenue by solution category. These solution categories are: o Identity management and secure web services - solutions that help customers with their identity management and security issues. Products include Secure-Login/Single Sign-On, DirXML, iChain, exteNd, and BorderManager. Products in this category are branded as Nsure and exteNd. o Cross platform services - solutions that offer an effective and open approach to networking and collaboration services, including file, print, messaging, scheduling, workspace, etc. while using a cross-platform approach. Products include NetWare, GroupWise, ZEN, and Novell iFolder. Products in this category are branded as Nterprise. o Worldwide services - comprehensive worldwide IT consulting and support services that apply Net business solutions to our customers' business situations, providing the business knowledge and technical expertise to help our customers implement our identity management, secure web services, and cross platform services. Services in this category are branded as Ngage. o Celerant management consulting- operational strategy and implementation consulting services offered to a wide range of customers across various sectors, worldwide. Revenue by solution category Three months ended April 30, Six months ended April 30, ----------------------------- -------------------------- 2003 2002 2003 2002 ---- ---- ---- ---- In thousands Identity management and secure web services $ 22,669 $ 16,630 $ 45,814 $ 33,478 Cross platform services 142,014 147,052 277,866 297,057 ---------- ---------- ---------- ---------- Total software licenses and maintenance 164,683 163,682 323,680 330,535 Worldwide services 74,401 77,992 146,829 159,994 ---------- ---------- ---------- ---------- Total IT software and solutions 239,084 241,674 470,509 490,529 Celerant management consulting 36,883 32,179 65,429 61,183 ----------- ----------- ---------- ---------- Total net revenue $ 275,967 $ 273,853 $ 535,938 $ 551,712 ========== ========== ========== ==========
Separate financial information is not evaluated by business segment in regards to asset allocation. Prior to November 1, 2002, we operated and reported financial results based on three business segments: product, consulting, and Volera, Inc. For the second quarters of fiscal 2003 and fiscal 2002, sales in the U.S. were $125.8 million and $143.1 million, respectively, and sales to international customers were approximately $150.1 million and $130.8 million, respectively. In the second quarters of fiscal 2003 and fiscal 2002, 75% and 71%, respectively, of our international sales were in EMEA. On a year-to-date basis, sales in the U.S. were $249.6 million in fiscal 2003 and $290.5 million in fiscal 2002, and sales to international customers were $286.3 million in fiscal 2003 and $261.2 million in fiscal 2002. For the first six months of fiscal 2003 and fiscal 2002, international sales in EMEA accounted for 75% and 73%, respectively, of our total international sales. No single international country accounted for more than 10% of our total revenue. L. Net Income (Loss) Per Share Earnings per share for the second quarters and first six months of fiscal 2003 and 2002 were calculated as follows: Three months ended April 30, Six months ended April 30, ----------------------------- -------------------------- 2003 2002 2003 2002 ---- ---- ---- ---- In thousands, except per share data Basic & diluted net loss per share: Net loss $ (28,612) $(173,451) $ (40,500) $(165,100) =========== ========== ========== ========== Weighted average shares outstanding 368,746 362,754 368,411 362,591 Basic net loss per share $ (0.08) $ (0.48) $ (0.11) $ (0.46) =========== ========== ========== ===========
M. Comprehensive Income (Loss) The components of comprehensive income (loss), net of tax, for the second quarters and year-to-date periods of fiscal 2003 and 2002, were as follows: Three months ended April 30, Six months ended April 30, ----------------------------- -------------------------- 2003 2002 2003 2002 ---- ---- ---- ---- In thousands Net loss $ (28,612) $ (173,451) $ (40,500) $ (165,100) Change in net unrealized gain/(loss) on investments (36) (3,769) 265 (4,015) Change in cumulative translation adjustment 700 (1,681) 329 (314) ----------- -------------- ----------- ------------ Comprehensive income (loss) $ (27,948) $ (178,901) $ (39,906) $ (169,429) ============ ============== ============ ============
The components of accumulated other comprehensive income (loss), net of related tax, at April 30, 2003 and October 31, 2002 are as follows: April 30, 2003 October 31, 2002 In thousands Net unrealized gain on investment $ 2,469 $ 2,204 Cumulative translation adjustment (1,818) (2,147) ------------ ------------ Accumulated other comprehensive income $ 651 $ 57 =========== ===========
N. Stock Option and Other Equity Plans At April 30, 2003, we had authorized stock option and other equity plans under which options to purchase shares of our common stock could be granted to employees, consultants and outside directors. We apply the intrinsic value method in accounting for our stock option and equity plans. Accordingly, no compensation expense (except compensation expense related to restricted stock purchase grants, below-market option grants, and grants to non-employees) has been recognized for our stock option and other equity plans. If compensation expense for our stock option and other equity plans had been determined based on the fair value method of accounting for stock grants, using the Black-Scholes option pricing model, our net loss and net loss per share would have been the pro forma amounts indicated in the following table. Three months ended April 30, Six months ended April 30, ----------------------------- -------------------------- 2003 2002 2003 2002 ---- ---- ---- ---- In thousands, except per share data Net loss: As reported $ (28,612) $ (173,451) $ (40,500) $(165,100) Pro forma * $ (35,658) $ (190,343) $ (55,774) $(196,474) Net loss per share: As reported basic and diluted $ (0.08) $ (0.48) $ (0.11) $ (0.46) Pro forma basic and diluted* $ (0.10) $ (0.52) $ (0.15) $ (0.54)
* Pro forma amounts have been adjusted to reflect the impact of including compensation expense related to our stock option and other equity plans. For the purpose of the above table, the fair value of each option grant was estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in the second quarters of fiscal 2003 and fiscal 2002: a risk-free interest rate of approximately 2.8% and 4.6%, respectively; a dividend yield of 0.0% for both quarters; a weighted-average expected life of five years for both quarters; and a volatility factor of the expected market price of our common stock of 0.88 and 0.87, respectively. The weighted average fair value of options granted in the second quarters of fiscal 2003 and fiscal 2002 were $1.65 and $1.94, respectively. For the first six months of fiscal 2003 and fiscal 2002 assumptions included: a risk-free interest rate of approximately 2.9% and 4.4%, respectively; a dividend yield of 0.0% for both periods; a weighted-average expected life of five years for both periods; and a volatility factor of the expected market price of our common stock of 0.88 and 0.87, respectively. The weighted average fair value of options granted in the first six months of fiscal 2003 and fiscal 2002 were $2.06 and $2.51, respectively. For purposes of the above table, the Company does not recognize compensation expense related to employee purchase rights under the Purchase Plan. Pro forma compensation expense is estimated for the fair value of the employees' purchase right using the Black-Scholes option pricing model with the following assumptions for the shares issued in the second quarters of fiscal 2003 and fiscal 2002: risk-free interest rate of approximately 2.3% and 1.5%, respectively; a dividend yield of 0.0% for both periods; a weighted-average expected life of 6 months for both periods; and a volatility factor of the expected market price of our common stock of 0.88 and 0.87, respectively. The weighted average fair value of the purchase rights issued in the second quarters of fiscal 2003 and fiscal 2002 was $0.93 and $1.52. There were no purchase rights issued in the first quarters of fiscal 2003 and fiscal 2002. Pursuant to an Exchange Offer dated May 14, 2003, which our stockholders approved at our Annual Meeting held on May 1, 2003 through the approval of amendments to our employee stock option plans, we offered a stock option exchange program (the program) to our non-executive employees giving them the right to exchange outstanding stock options with an exercise price of $5.03 per share or more for new options to be issued six months and one day after the close of the tender offer. The options tendered under the program will be replaced with options to purchase a fewer number of shares than the original options would have provided, based upon an exchange ratio, which is based on the exercise price of the tendered option. The program was structured to comply with current accounting guidelines so that we will not be subject to variable accounting and thus will not recognize compensation expense in connection with the grant of the replacement options. If the current accounting standards or guidelines are changed prior to the completion of the tender offer, we will have to comply with the changed accounting treatment. O. Derivative Instruments A large portion of our revenue, expense, and capital purchasing activities are transacted in U.S. dollars. However, we do enter into transactions in other currencies, primarily the Euro, Japanese yen, and certain other European, Latin American and Asian currencies. To protect against reductions in value caused by changes in foreign exchange rates, we have established balance sheet and intercompany hedging programs. We hedge currency risks of some assets and liabilities denominated in foreign currencies through the use of one-month foreign currency forward contracts. We enter into these one-month hedging contracts two business days before the end of each month and settle them at the end of the following month. Due to the short period of time between entering into the forward contracts and the quarter-end, the fair value of the derivatives as of April 30, 2003 is insignificant. Gains and losses recognized during the quarter on these foreign currency contracts are recorded as other income or expense and would generally be offset by corresponding losses or gains on the related hedged items, resulting in negligible net exposure to our financial statements. We do not currently hedge currency risks related to revenue or expenses denominated in foreign currencies. P. Subsequent Events On April 22, 2003, we entered into an agreement to sell our office campus and the adjacent vacant land located in San Jose, California for a total of approximately $124 million. After transaction costs, we anticipate netting approximately $120 million in cash. At April 30, 2003, the net book value of the campus and land was approximately $97 million. The closing date for the sale of the vacant land was May 27, 2003 and the expected closing date for the sale of the office campus is June 30, 2003. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") and other parts of this Form 10-Q contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. In some cases, such forward-looking statements may be identified by the use of words such as "may," "will," "expects," "plans," "anticipates," "estimates," "potential," or "continue" or the negative thereof or other comparable words. Such forward-looking statements include statements regarding, among other things, our revenue expectations, future business strategies, market conditions and opportunities, and liquidity. All forward-looking statements are based on management's current expectations and information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our actual results may differ materially from management's expectations and the results discussed in such forward-looking statements as a result of a number of factors, which include, but are not limited to, those set forth below in the section titled "Risk Factors Affecting Future Results of Operations." Introduction Novell, Inc. has been a pioneer in the field of computer networking since our development and release of NetWare in the mid 1980s. As a result of our 20 years of experience as a leader in the field of computer networking, we have some of the best networking engineers in the world. These engineers work with our consulting force to create world-class IT solutions. We are extraordinarily proud of our people, the skills that they have and the dedication that they bring to our company. Leveraging this expertise, we expect to continue our evolution of our cross platform strategy and become a leading company in providing cross platform solutions, secure Web services, and identity management. Our solutions leverage our network expertise and the Web to help to create a world without information boundaries. Today we provide Net business solutions across a myriad of platforms designed to secure and empower the networked world, helping organizations solve complex business challenges, simplify their systems and processes, and capture new opportunities. Net business solutions include software applications and consulting services that were developed using open Internet standards and our own eDirectoryTM network infrastructure products, support highly distributed network solutions and capitalize on the growth of the Internet. With both software and services offerings, we can determine how Net business solutions can be used by an organization and the requirements necessary to ensure proper security and access. This can then be turned into a Net solutions approach that helps our customer deliver the right information, to the right individual, at the right time, and on the right device. In addition, our Net business solutions include essential network management, messaging, and collaboration capabilities integrated through our directory services. Networks are inherently a varied mix of business process, infrastructure, computer systems, applications, and other devices. Our software provides the framework and applications for managing, maintaining, and accessing the information and services of these networks. During fiscal 2003, we announced our strategy to support the Linux kernel in addition to the NetWare kernel. This would give our customers a choice by providing Novell products and services that run on both Netware and Linux platforms. Our training, service and support, and consulting groups also support our Net business solutions by providing worldwide consulting, training, developer, and distribution channel programs that support our product offerings. Critical Accounting Policies An accounting policy is deemed to be critical if it requires us to make an accounting estimate based on assumptions about matters that are highly uncertain at the time the accounting estimate is made, and if different estimates that reasonably could have been used, or if changes in the accounting estimate that are reasonably likely to occur periodically, could materially change the financial statements. We consider certain accounting policies related to revenue recognition, impairment of long-lived assets, and valuation of deferred tax assets to be critical accounting policies due to the estimation processes involved in each. Revenue recognition. Revenue from our Celerant management consulting segment and about half of the revenue from our IT consulting group within our worldwide services business is derived from fixed-price, fixed-time contracts, which require the accurate estimation of the cost, scope, and duration of each engagement. Revenue and the related costs for these projects are recognized using the percentage-of-completion method, using time-to-completion to measure the percent complete, with revisions to estimates reflected in the period in which changes become known. If we do not accurately estimate the resources required or the scope of work to be performed, or do not manage our projects properly within the planned periods of time or satisfy our obligations under the contracts, future consulting margins may be significantly and negatively affected or losses on existing contracts may need to be recognized. Any such resulting reductions in margins or contract losses could be material to our results of operations. We record a provision against revenue for estimated sales returns and allowances on product and service related sales in the same period as the related revenues are recorded. We also record a provision to operating expense for bad debts resulting from customers' inability to pay for the products or services they have received due to such factors as bankruptcy. These estimates are based on historical sales returns and bad debt data, analysis of credit memo data, and other known factors. If the historical data we use to calculate these estimates does not properly reflect future returns or bad debts, revenue or net income could be overstated or understated. Long-lived Assets. Our long-lived assets include property, plant and equipment, long-term investments, goodwill and other intangible assets. At April 30, 2003, our long-lived assets included $353.2 million of net property, plant and equipment, $55.6 million of long-term investments, $180.6 million of goodwill, $30.1 million of identifiable intangible assets, and $103.2 million of current and non-current net deferred tax assets. Property, Plant and Equipment. We periodically review our property, plant and equipment for impairment in accordance with Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets." In determining whether an asset is impaired, we must make assumptions regarding recoverability of costs, estimated future cash flows from the asset, intended use of the asset, and other related factors. If these estimates or their underlying assumptions change, we may be required to record impairment charges for these assets. For example, in the fourth quarter of fiscal 2002, we determined that our facilities in San Jose, California and a small building in Provo, Utah had become impaired due to changes in the intended use of the facilities, as well as changes in the local commercial real estate market. This resulted in a pre-tax, non-cash impairment charge of $80 million. Depending upon relevant factors, such as a decision to sell a facility, or a continuation of the decline in real estate market conditions, we could be required to record additional impairment charges. Long-term Investments. The fair value of long-term investments is dependant on the actual financial performance of the companies and venture funds in which we have invested, the investee's market value, and the volatility inherent in the external markets for these investments. In assessing potential impairment for these privately-held equity investments, we consider these factors as well as the forecasted financial performance of our investees, liquidation preference value of the stock we hold, and estimated potential for investment recovery based on all these factors. If any of these factors indicate that the investment has become other-than-temporarily impaired, we will have to record additional impairment charges not previously recognized. During the first six months of fiscal 2003, we recognized $24.5 million of impairment losses related to our long-term investments. If general market conditions do not improve, or if any of the companies or venture funds included in long-term investments do not meet performance goals, our investments could become further impaired on an other-than-temporarily basis as their values decline, causing us to record further investment impairment charges. Goodwill and Intangible Assets. In assessing the recoverability of our goodwill and other intangible assets, we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. This process is subjective and requires judgment at many points throughout the analysis. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for these assets not previously recorded. We will be performing our annual impairment review under Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets," in the fourth quarter of fiscal 2003, based on August 1, 2002 balances, to determine whether there has been any impairment of our goodwill as of that date. Various assumptions will be made as a part of this analysis that could affect the resulting outcome. For example, to estimate the fair value of our reporting units, management will make estimates and judgments about future cash flows based on our fiscal 2003 forecast and current long-range plans used to manage the business. These long-range estimates could change in the future depending on changes in the Company as well as external factors. Future changes in estimates could possibly result in a non-cash goodwill impairment that could have a material adverse impact on our financial condition and results of operations. In connection with our acquisition of SilverStream, we acquired developed technology related to Silverstream's exteNd products that could be combined with our products and services. The value of this intangible asset was determined using expected future cash flows for the exteNd products as well as the combined products, and an estimated discount factor to account for risks associated with the product business and future versions of the exteNd products. We also periodically review our identifiable intangible assets for impairment in accordance with SFAS No. 144. In determining whether an intangible asset is impaired, we must make assumptions regarding estimated future cash flows from the asset, intended use of the asset and other related factors. If the estimates or the related assumptions used to determine the value of the intangible assets change, we may be required to record impairment charges for these assets. For example, if we were to abandon our products which integrate the exteNd Web-based technology that we acquired from SilverStream, or if the sales forecasts for these secure Web services products were to change, we could be required to record an impairment charge in future periods. Deferred Tax Assets. The carrying value of our net deferred tax assets assumes that we will be able to generate sufficient future taxable income in certain tax jurisdictions based on estimates and assumptions. If these estimates and related assumptions change in the future, we may be required to record additional valuation allowances against our deferred tax assets resulting in additional income tax expense in our consolidated statement of operations. Management evaluates the realizability of the deferred tax assets quarterly and assesses the need for additional valuation allowances quarterly. During the six months ended April 30, 2003, we identified an additional $12.0 million of valuation allowances related to the increase in our net deferred tax assets, primarily relating to investment impairments, that we may not be able to recognize in future periods. Results of operations Revenue Three months ended April 30, Six months ended April 30, 2003 2002 Change 2003 2002 Change ---- ---- ------ ---- ---- ------ (Dollars in thousands) New software licenses $ 64,465 $ 70,448 (9)% $ 125,503 $ 142,086 (12)% Maintenance and services 211,502 203,405 4% 410,435 409,626 --% ---------- ----------- ---------- ----------- Total net revenue $ 275,967 $ 273,853 1% $ 535,938 $ 551,712 (3)% ========== =========== ========== ===========
New software licenses revenue decreased in the second quarter and first six months of fiscal 2003 compared to the same periods of fiscal 2002 primarily due to decreased demand for our solutions in the United States as a result of the weak economic environment and a continuing decline in the demand for our Netware products. Maintenance and services revenue, which includes software maintenance, technical support, education, and consulting services grew in the second quarter of fiscal 2003 compared to the same period in fiscal 2002. This increase was largely due to growth in product maintenance revenue, increased Celerant management consulting revenue, and favorable Euro exchange rates, partially offset by decreased demand for IT consulting services. Maintenance and services revenue remained flat during the first six months of fiscal 2003 compared to the same period in fiscal 2002, largely due to declining IT consulting revenue, and weak sales in the United States as a result of the poor economy, which offset growth in product maintenance revenue and favorable foreign exchange rates. Beginning November 1, 2002, we reorganized our operations and began reporting our financial results in four new segments; three are based on geographic area and the fourth is Celerant management consulting. The geographic segments include: o Americas - includes the United States, Canada, and Latin America o EMEA - includes Eastern and Western Europe, Middle East, and Africa o Asia Pacific -includes China, Japan, Southeast Asia, Australia, New Zealand, and India Company performance is evaluated by our Chief Executive Officer and Worldwide Management Committee, our chief decision makers, based on reviewing revenue and segment operating income (loss) for the geographic segments listed above and the Celerant management consulting segment. Separate financial information is not evaluated by business segment in regards to asset allocation. Three months ended April 30, Six months ended April 30, 2003 2002 Change 2003 2002 Change ---- ---- ------ ---- ---- ------ (Dollars in thousands) Americas $ 129,503 $ 147,431 (12)% $ 261,344 $ 297,453 (12)% EMEA 88,673 74,324 19% 170,400 154,109 11% Asia Pacific 20,908 19,919 5% 38,765 38,968 (1)% Celerant 36,883 32,179 15% 65,429 61,182 7% ---------- ----------- ---------- ----------- Total net revenue $ 275,967 $ 273,853 1% $ 535,938 $ 551,712 (3)% ========== =========== ========== ===========
Revenue in the Americas decreased during the second quarter and first six months of fiscal 2003 compared to the same periods of fiscal 2002 due to decreased software and consulting revenue reflecting poor United States market conditions, declining Netware revenue and lower IT consulting demand and billing rates. In addition, revenue in the Americas was negatively affected during the first six months of fiscal 2003 by a temporary distraction to our selling efforts in the United States while we transferred certain of our customer accounts from our sales force to our channel partners. Revenue increased in EMEA during the second quarter and first six months of fiscal 2003 due to favorable foreign exchange rates and recovering European market conditions, which resulted in greater demand for our products and services. The increase in revenue in Asia Pacific during the second quarter of fiscal 2003 was primarily due to strong sales in Australia. For the first six months of fiscal 2003, Asia Pacific sales decreased slightly as the weak Japanese economy offset increased sales in Australia. Celerant worldwide revenue increased in the second quarter and first six months of fiscal 2003 due primarily to improved revenue growth in Europe resulting in greater demand for Celerant's consulting services, revenue recognized on a number of large completed contracts, and favorable foreign exchange rates. Revenue outside the U.S. represented 54% of total revenue in the second quarter of fiscal 2003 compared to 48% in the first quarter of fiscal 2002. Revenue outside the U.S. for the first six months of fiscal 2003 was 53% compared to 47% in the first six months of fiscal 2002. In addition to reviewing geographic and Celerant management consulting segment results, our chief decision makers review net revenue by solution category: These solutions categories are: o Identity management and secure web services - solutions that help customers with their identity management and security issues. Products include Secure-Login/Single Sign-On, DirXML, iChain, exteNd, and BorderManager. This category is branded as Nsure and exteNd. o Cross platform services - solutions that offer an effective and open approach to networking and collaboration services, including file, print, messaging, scheduling, workspace, etc. while using a cross-platform approach. Products include NetWare, GroupWise, ZEN, and Novell iFolder. This category is branded as Nterprise. o Worldwide services - comprehensive worldwide consulting and support services that apply Net business solutions to our customers' business situations, providing the business knowledge and technical expertise to help our customers implement our identity management, secure web services, and cross platform services. This category is branded as Ngage. o Celerant management consulting - provides operational strategy and implementation consulting services, which result in quantifiable value, to a wide range of customers across various sectors, worldwide. Three months ended April, 30 Six months ended April 30, 2003 2002 Change 2003 2002 Change ---- ---- ------ ---- ---- ------ (Dollars in thousands) Identity management and secure web services $ 22,669 $ 16,630 36% $ 45,814 $ 33,478 37% Cross platform services 142,014 147,052 (3)% 277,866 297,057 (7)% Worldwide services 74,401 77,992 (5)% 146,829 159,994 (8)% Celerant management consulting 36,883 32,179 15% 65,429 61,183 7% ---------- ----------- ---------- ----------- Total net revenue $ 275,967 $ 273,853 (1)% $ 535,938 $ 551,712 (3)% ========== =========== ========== ===========
Identity management and secure web services revenue increased in the second quarter and first six months of fiscal 2003 compared to the same periods of fiscal 2002 due to the addition of the SilverStream secure web services products as well as increased demand for our Secure Login/Single SignOn and DirXML products as the secure identity market continues to grow. Cross platform services declined in the second quarter and first six months of fiscal 2003 compared to the same periods in fiscal 2002 primarily due to the decline in demand for our NetWare products, offset slightly by increased demand for our Groupwise and ZEN products. Worldwide services revenue declined in the second quarter and first six months of fiscal 2003 compared to the same periods in fiscal 2002 primarily due to the weakened demand for our IT consulting services in the U.S. and lower billing rates as a result of the weak economic environment. At April 30, 2003, we had $267.5 million of deferred revenue, representing revenue that is expected to be recognized in future periods. The majority of this deferred revenue relates to maintenance contracts, which are recognized ratably over the maintenance period. We have either received payment or recorded a receivable for the deferred revenue, and have determined collectability to be reasonably certain. Direct costs incurred to fulfill these maintenance obligations are relatively small and are recognized as work is performed. Forward-looking revenue trends Due to the uncertainty in the U.S. and global economies, heightened political conflicts throughout the world, and continued volatility in the information technology marketplace, we do not believe the information technology or consulting markets will recover, in the U.S. or globally, within the next several quarters. We anticipate some continued declines in our NetWare revenue. However, we have announced that the next version of NetWare will include network services running on both the NetWare kernel and the Linux kernel. This announcement may help to slow the declines because our customers now have a clear vision of our migration path. We believe this will help us gain new customers and increase revenue in future periods. We also believe that the identity management and secure web services markets will continue to grow as it matures, which may improve revenue from our offerings in these areas. As previously disclosed, we have decided not to provide specific revenue forecast information for the remainder of fiscal 2003 or future periods. Gross profit Three months ended April, 30 Six months ended April 30, 2003 2002 Change 2003 2002 Change ---- ---- ------ ---- ---- ------ (Dollars thousands) Gross profit $ 167,196 $ 161,025 4% $ 329,603 $ 321,315 3% Percentage of revenue 61% 59% 62% 58%
Gross profit in total and as a percentage of sales increased in the second quarter and first six months of fiscal 2003 compared to the same periods of fiscal 2002 primarily due to improved consulting margins resulting from headcount reductions in fiscal 2002 and improved performance in our Celerant management consulting subsidiary. We are continuing to address ways to improve our gross margin percentage in future periods, such as improving utilization, increasing IT consulting billing rates, and reducing expenses. However, due to the uncertainty in the U.S. and global economies, heightened political conflicts throughout the world, and continued volatility in the information technology marketplace, we do not believe we will see significant improvements in our gross margin percentages in the next several quarters. As previously disclosed, we have decided not to provide specific forecasted earnings information for the remainder of fiscal 2003 or future periods. Operating expenses Three months ended April, 30 Six months ended April 30, 2003 2002 Change 2003 2002 Change ---- ---- ------ ---- ---- ------ (Dollars in thousands) Sales and marketing $ 101,737 $ 82,145 24% $ 200,042 $ 167,621 19% Percentage of revenue 37% 30% 37% 30% Product development $ 48,354 $ 42,385 14% $ 91,276 $ 85,398 7% Percentage of revenue 18% 16% 17% 16% General and administrative $ 30,939 $ 31,055 --% $ 58,284 $ 61,380 (5)% Percentage of revenue 11% 11% 11% 11% Restructuring $ 8,675 $ 19,100 (55)% $ 8,675 $ 19,100 (55)% Percentage of revenue 3% 7% 2% 4% Total operating expenses $ 189,705 $ 174,685 9% $ 358,277 $ 333,499 7% Percentage of revenue 69% 64% 67% 60%
Operating expenses, in total and as a percentage of revenue, increased in the second quarter and first six months of fiscal 2003 compared to the same periods in fiscal 2002 primarily due to additional operating expenses related to the SilverStream acquisition in the third quarter of fiscal 2002, increased sales and marketing headcount, and increased marketing costs for our new advertising campaign that was rolled out during the first quarter. These expenses were offset somewhat by lower salary expenses as a result of lower bonus accruals and lower headcount due to the restructuring and other headcount reductions in fiscal 2002. Sales and marketing expense, in total and as a percentage of revenue, increased in the second quarter and first six months of fiscal 2003 compared to the same periods in fiscal 2002 primarily as a result of increased marketing costs associated with our new advertising campaign and increased sales headcount. We have spent approximately $10 million per quarter during fiscal 2003 on our new advertising campaign and anticipate spending approximately the same amount during the remainder of fiscal 2003 in an effort to attract new customers and increase revenue. Sales and marketing headcount increased by 164 employees in the second quarter of fiscal 2003 compared to the second quarter of fiscal 2002, which increase includes the addition of 119 SilverStream employees. Sales and marketing expenses can fluctuate as a percentage of revenue in any given period due to product promotions, advertising, and other discretionary expenses. Product development expenses, in total and as a percentage of revenue, increased in the second quarter and first six months of fiscal 2003 compared to the same periods of fiscal 2002 due primarily to the addition of SilverStream in the third quarter of fiscal 2002. Product development headcount increased by 240 employees compared to the second quarter of fiscal 2002, which increase includes the addition of 174 SilverStream employees and additional employees to support our Linux initiatives. The increase in cost for the additional headcount was offset slightly by savings related to lower bonus accruals in fiscal 2003 and a favorable settlement received in the first quarter of fiscal 2003 related to development obligations dating back to agreements signed in the 1990s. We anticipate that our product development expenses will remain relatively flat or decrease slightly in remaining quarters of fiscal 2003 compared to the second quarter fiscal 2003 amounts as we continue our cost cutting efforts. General and administrative expenses in the second quarter of fiscal 2003 remained flat compared to the second quarter of fiscal 2002 primarily due to additional facility-related merger expenses we recorded due to the declining real estate market, which offset lower operating costs related to decreased headcount and integration costs. During the first six months of fiscal 2003, general and administrative costs decreased primarily due to a full year's impact of the fiscal 2002 restructuring, lower integration costs related to the Cambridge and SilverStream acquisitions, and lower bad debt charges. General and administrative headcount decreased by eight employees at the end of the second quarter of fiscal 2003 compared to the same period of fiscal 2002. As a percentage of revenue, general and administrative costs remained relatively flat in the second quarter and first six months of fiscal 2003 compared to the same periods in fiscal 2002 partially as a result of lower revenue in fiscal 2003. We anticipate that our general and administrative expenses will remain relatively flat or decrease slightly during the remainder of fiscal 2003 as we continue our cost cutting efforts. Restructuring During the second quarter of fiscal 2003, we determined that the amount we had originally accrued for facility-related costs in previous restructurings was too low and accrued an additional $8.7 million. The original liability was based on estimated sublease rates and timing of signing subleases, which have been affected by the decline in the real estate market. This additional amount, which pertains to three separate restructuring events, is included in the following tables. Second quarter of fiscal 2002 During the second quarter of fiscal 2002, we recorded a pre-tax restructuring charge of approximately $20 million resulting from our continued migration towards becoming a solutions provider and as a result of changing business needs. Specific actions taken included reducing our workforce worldwide by approximately 50 employees (less than 1%), consolidating facilities, closing offices in unprofitable locations, and disposing of excess property and equipment. During the second quarter of fiscal 2003, we determined that the amount we had originally accrued for facility-related costs was too low and accrued an additional $7.7 million. The original liability was based on estimated sublease rates and timing of signing subleases, which have been affected by the decline in the real estate market. The following table summarizes the activity during fiscal 2003 related to the second quarter of fiscal 2002 restructuring. Balance at Balance at Original October 31, Cash April 30, Charge 2002 Payments Adjustments 2003 ------ --------- ---------- ----------- ---------- In thousands Severance and benefits $ 14,748 $ 4,258 $ (2,551) $ -- $ 1,707 Excess facilities and property and equipment 5,146 4,221 (963) 7,735 10,993 Other restructuring-related costs 492 300 -- -- 300 -------- -------- -------- -------- -------- $ 20,386 $ 8,779 $ (3,514) $ 7,735 $ 13,000 ======== ======== ========= ======== ========
As of April 30, 2003, the remaining balance of the second quarter of fiscal 2002 restructuring charge included accrued liabilities related to severance and benefits, which will be paid out over the remaining severance obligation period not to exceed three years, and redundant facilities and other fixed contracts, which will be paid over the respective remaining contract terms. Fourth quarter of fiscal 2001 During the fourth quarter of fiscal 2001, we recorded $51 million of pre-tax restructuring charges resulting from the restructuring of our operations in light of changes in general market conditions, changing customer demands, and the evolution of our business strategy. This business strategy focuses on Net business solutions designed to secure and power the networked world across leading operating systems. The execution of this strategy included refining our consulting initiatives, refocusing research and development efforts, defining sales and marketing efforts to be more customer and solutions oriented, and adjusting our overall cost structure given current revenue levels and our direction. Specific actions included reducing our workforce worldwide by approximately 1,100 employees (approximately 16%), consolidating excess facilities and disposing of excess property and equipment, terminating a management consulting contract that no longer fit with our strategic focus, and abandoning and writing off technologies that no longer fit within our new strategy. We also realigned our remaining resources to better manage our business. During the second quarter of fiscal 2003, we determined that the amount we had originally accrued for facility-related costs was too low and accrued an additional $0.3 million. The original liability was based on estimated sublease rates and timing of signing subleases, which have been affected by the decline in the real estate market. The following table summarizes the costs and activities during fiscal 2003 related to the fourth quarter of 2001 restructuring. Balance at Balance at Original October 31, Cash April 30, Charge 2002 Payments Adjustments 2003 ------ ----------- ---------- ------------ -------- In thousands Severance and benefits $ 32,793 $ 1,117 $ (801) $ -- $ 316 Excess facilities and property and equipment 10,896 4,651 (1,656) 262 3,257 Other restructuring-related costs 6,973 624 (241) -- 383 -------- -------- ---------- -------- ------- $ 50,662 $ 6,392 $ (2,698) $ 262 $ 3,956 ======== ======== ========== ======== ========
As of April 30, 2003, the remaining balance of the fourth quarter fiscal 2001 restructuring charge included accrued liabilities largely related to severance and benefits, which will be paid out during fiscal 2003, and excess facilities costs, which will be paid over the respective remaining lease terms. Third quarter of fiscal 2001 During the third quarter of fiscal 2001, we recorded a pre-tax restructuring charge of approximately $30 million as a result of our July 2001 acquisition of Cambridge Technology Partners and changes in our business to move towards a Net business solutions strategy. Specific actions included reducing our workforce worldwide by approximately 280 employees across all functional areas (approximately 5% before the addition of Cambridge), consolidating facilities and disposing of excess property and equipment, abandoning and writing off technologies that no longer fit within our new strategy, and discontinuing unprofitable product lines. During the second quarter of fiscal 2003, we determined that the amount we had originally accrued for facility-related costs was too low and accrued an additional $0.7 million. The original liability was based on estimated sublease rates and timing of signing subleases, which have been affected by the decline in the real estate market. The following table summarizes the activity during fiscal 2003 related to the third quarter of fiscal 2001 restructuring costs. Balance at Balance at Original October 31, Cash April 30, Charge 2002 Payments Adjustments 2003 ------ ----------- ---------- ------------ --------- In thousands Severance and benefits $ 15,978 $ -- $ -- $ -- $ -- Excess facilities and property and equipment 10,740 3,889 (1,068) 678 3,499 Other restructuring-related costs 3,675 137 (137) -- -- -------- -------- --------- -------- --------- $ 30,393 $ 4,026 $ (1,205) $ 678 $ 3,499 ======== ======== ========= ======== =========
As of April 30, 2003, the remaining balance of the third quarter of fiscal 2001 restructuring charge included accrued liabilities related to excess facilities costs, which will be paid over the respective remaining lease terms. As a result of the fiscal 2002 and the two fiscal 2001 restructurings, we reduced our expenses by approximately $50 million on a quarterly basis, before any increased strategic expenditures and the impact of the SilverStream acquisition. We could incur additional restructuring charges in the future as we continue to develop our Net solutions strategy and react to market conditions by reducing costs. Employees April 30, April 30, 2003 2002 Change (Dollars in thousands) Employees at end of quarter (full time equivalents) 6,221 6,041 3% Revenue per average employee for three months ended $ 177 $ 178
Headcount in the second quarter of fiscal 2003 increased compared to the same period in fiscal 2002 due primarily to the acquisition of SilverStream in July 2002. These headcount additions were partially offset by restructuring related headcount reductions, which occurred during fiscal 2002. We continue to monitor headcount to ensure our resources are aligned with expected business levels and our business strategy. Other income (expense), net Three months ended April 30, Six months ended April 30, 2003 2002 Change 2003 2002 Change ---- ---- ------ ---- ---- ------ (Dollars in thousands) Other income (expense), net $ (12,475) $ (18,382) 32% $ (18,664) $ (7,928) (135)% Percentage of revenue (5)% (7)% (4)% (1)%
The primary component of other income (expense), net, was net investment income (loss), which was a loss of $10.5 million in the second quarter of fiscal 2003 compared to a loss of $17.2 million in the second quarter of fiscal 2002. In the second quarter of fiscal 2003, the net investment loss included impairment losses on long-term investments totaling $13.7 million, realized net gains on the sale of short-term equity securities of $0.5 million, and $2.7 million in interest income. During the second quarter of fiscal 2002, investment income of $7.2 million was offset by investment impairment losses of $24.4 million. During the first six months of fiscal 2003, the net investment loss included impairment losses on long-term investments totaling $24.5 million, realized net gains on the sale of short-term equity securities of $0.8 million, and $7.0 million in interest income. During the first six months of fiscal 2002, investment income of $15.3 million was offset by investment impairment losses of $29.8 million. Excluding investment income (loss), other expense, net, decreased $0.8 million in the second quarter of fiscal 2003 compared to the second quarter of fiscal 2002. During the first six months of fiscal 2003, other expense, net, decreased $7.7 million compared to the same period in fiscal 2002 due primarily to a $9 million gain on the sale of a building in the first quarter of fiscal 2002. Income tax expense (benefit) Three months ended April 30, Six months ended April 30, 2003 2002 Change 2003 2002 Change ---- ---- ------ ---- ---- ------ (Dollars in thousands) Income tax expense (benefit) $ (6,372) $ (2,293) 178% $ (6,838) $ 1,286 (632)% Percentage of revenue (2)% (1)% (1)% --% Effective tax (benefit) rate (18)% (7)% (14)% 6%
Our actual effective tax benefit rate for the second quarter of fiscal 2003 was 18% compared to the effective tax benefit rate of 7% for the same period in 2002. Our actual effective tax benefit rate for the first six months of fiscal 2003 was 14% compared to the effective tax rate of 6% for the same period in 2002. The rate differs because of differences in the amount of non-deductible investment impairments taken in each period. Net loss and net loss per share Three months ended April 30, Six months ended April 30, (Dollars in thousands, 2003 2002 Change 2003 2002 Change ---- ---- ------ ---- ---- ------ except per share) Net loss $ (28,612) $ (173,451) 84% $ (40,500) $ (165,100) 76% Percentage of revenue (10)% (63)% (8)% (30)% Net loss per share: Basic and diluted $ (0.08) $ (0.48) 84% $ (0.11) $ (0.46) 76%
We incurred a net loss per share of $0.08 in the second quarter of fiscal 2003 compared to net loss per share of $0.48 in the same period of fiscal 2002. The second quarter and year-to-date fiscal 2002 net loss and net loss per share includes a $143.7 million cumulative effect of an accounting change, which resulted from our adoption of SFAS No. 142. Through our initial SFAS No. 142 analysis, we determined that a portion of our goodwill related to the acquisition of Cambridge Technology Partners in July 2001 had become impaired. Before the cumulative effect of the accounting change, net loss per share was $0.08 for the second quarter and $0.06 for the first six months of fiscal 2002. The net loss per share during the second quarter of fiscal 2003 was primarily due to a $13.7 million (pre-tax) charge for long-term investment impairments, higher sales and marketing expenses to roll out our new advertising campaign, and facility-related restructuring and merger expenses, as discussed previously. In addition, the net loss per share for the first six months of fiscal 2003 included $10.8 million of additional investment impairment expenses incurred in the first quarter of fiscal 2003. At this time, we have decided not to provide specific forecasted earnings information for the remainder of fiscal 2003. Liquidity and capital resources April 30, October 31, 2003 2002 Change (Dollars in thousands) Cash and short-term investments $ 626,397 $ 635,858 1% Percentage of total assets 39% 38% Cash and short-term investments totaled $626.4 million at April 30, 2003 compared to $635.9 million at October 31, 2002. The decrease in cash can be attributed to cash used for operations of $3.5 million, expenditures for fixed assets of $21.8 million, cash paid to acquire Volera minority interest shares from Accenture of $1.1 million, and net cash paid for long-term investments of $7.8 million. These decreases were offset somewhat by cash proceeds from stock issuances under employee stock option or equity plans of $7.0 million, cash proceeds from the sale of a portion of our vacant land in San Jose, California of $0.8 million, cash from our line of credit of $6.9 million, and the impact of foreign exchange fluctuations. Our short-term investment portfolio is diversified among security types, industry groups, and individual issuers. To achieve potentially higher returns, a portion of our investment portfolio is invested in equity securities and mutual funds, which incur market risk. We mark our short-term investments to market each month. Our short-term investment portfolio includes gross unrealized gains of $3.3 million and gross unrealized losses of $0.4 million as of April 30, 2003. We monitor our investments and record losses when a decline in the investment's market value is determined to be other than temporary. We have also invested excess cash in long-term investments through the Novell Venture account, CTC I, and direct investments in equity securities of privately-held companies. Investments made through the Novell Venture account and CTC I generally are in privately-held companies, including small capitalization stocks in the high technology industry sector, and expansion-stage privately-held companies. Within the Novell Venture account there are also investments in venture capital funds that are managed largely by external venture capitalists. CTC I is managed internally. The value of the investments made through the Novell Venture account and CTC I is dependent on the performance, successful acquisition, and/or initial public offering of the investees. As of April 30, 2003, we had commitments to contribute an additional $64.2 million to the externally managed venture capital funds over the next three to four years, as requested by the fund managers, and commitments to the CTC I fund to contribute up to an additional $300,000 over the next three to four years. We intend to fund these investments with cash from operations and cash income from short-term investments, and sales of short-term investments on hand. As of April 30, 2003, we had cash and other short-term investments of $433.8 million in accounts outside the U.S. Repatriation of any portion of this amount would be subject to U.S. federal income taxes. We have provided for the tax liability on these amounts for financial statement purposes except for $15.0 million of earnings, which is permanently invested outside the U.S. Repatriation, however, could result in a loss of certain tax attributes of up to $38.5 million and result in additional U.S. federal income tax payments of such amounts in future years. During the first quarter of fiscal 2002, we sold our subsidiary in the Czech Republic. As a part of this transaction, we provided a guarantee to the landlord of our building there whereby we agreed to pay any and all monies due under the lease, including legal fees if the new lessee defaults on the lease. During the first six months of fiscal 2003, we paid approximately $0.1 million against this guarantee and have accrued a liability for an additional $0.4 million that we could be required to pay, excluding legal fees, if the new lessee continues in default. As an element of our standard contract terms, we include an indemnification clause in our agreements with our customers that indemnifies the licensee against certain liability and damages arising from intellectual property infringement claims arising from their use or distribution of our software. These terms are common in the high technology industry. We do not record a liability for potential litigation claims related to indemnification agreements with our customers. We do not believe the likelihood of a material obligation is probable. On April 22, 2003, we entered into an agreement to sell our office campus and the adjacent vacant land located in San Jose, California for a total of approximately $124 million. After transaction costs, we anticipate netting approximately $120 million in cash. At April 30, 2003, the net book value of the campus and land was approximately $97 million. The closing date for the sale of the vacant land was May 27, 2003 and the expected closing date for the sale of the office campus is June 30, 2003. Our principal source of liquidity continues to be from operations, on-hand cash, and income from short-term investments. At April 30, 2003, our principal unused sources of liquidity consisted of cash on hand in the amount of $374.5 million, short-term investments in the amount of $251.9 million, and available borrowing capacity of under our lines of credit. Our liquidity needs are principally for financing of accounts receivable, fixed assets, strategic investments, product development, and flexibility in a dynamic and competitive operating environment. During the first six months of fiscal 2003, we used $3.5 million of cash to fund operations. We plan to reduce our cost structure over the remainder of fiscal 2003 to help us return to positive net cash flows from operating and investing activities for fiscal 2003. We anticipate being able to fund our current operations, any future acquisitions, any further integration, restructuring or any merger-related costs, and planned capital expenditures for the foreseeable future with existing cash on hand and short-term investments together with cash from the planned sale of our facilities in San Jose, California, cash generated from operations, and investment income. We believe that additional borrowings under our credit facilities or offerings of equity or debt securities are possible if the need arises, although such offerings may not be available to us on acceptable terms. Investments will continue in product development and in new and existing areas of technology. Cash may also be used to acquire technology through purchases and strategic acquisitions. Capital expenditures in fiscal 2003 are anticipated to be approximately $50 million, but could be reduced if our growth is less than presently anticipated. During the fourth quarter of fiscal 2001, the Board of Directors extended our stock repurchase program through June 30, 2003 and authorized the use of up to $500 million for the repurchase of additional outstanding shares of our common stock. As of April 30, 2003, $89 million of the authorized amount had been spent to repurchase 14 million shares under this plan at an average price of $6.23 per share. No shares were repurchased during the first half of fiscal 2003. Factors Affecting Future Results of Operations Our future results of operations involve a number of risks and uncertainties that could cause actual results to differ materially from expected and historic results. A number of these risks and uncertainties are discussed in the following paragraphs. The Current Economic Climate and Outlook in the Technology Consulting and Information Technology Services Sector Is Weak, Causing Our Business to Suffer The weakened global economic climate, particularly in the technology sector, has had an adverse effect on our stock price and ability to sell products and services. Future economic projections for this sector do not anticipate a quick recovery. A continuation of the weakened global economy could have further negative effects on our stock price and ability to sell products and services in the future. Our Financial and Operating Results May Vary, Negatively Affecting our Ability to Detect Trends We often experience a higher volume of revenue at the end of each quarter and during our fourth quarter. Because of this, fixed costs that are out of line with revenue levels may not be detected until late in any given quarter and results of operations could be adversely affected. Operating results have been, and may also continue to be, affected by other factors including, but not limited to: o timing of orders from customers and shipments to customers; o product mix, including a shift from higher margin to lower margin products or services; o delays or problems with our fulfillment agents; o impact of foreign currency exchange rates on the price of our products in international locations; o responding to revenue declines experienced by our distribution partners; o deriving anticipated benefits from our restructurings and our corporate strategies; and o delivering solutions as expected by our customers and systems integration partners. We May Not Be Able to Successfully Compete in a Challenging Market for Computer Software and Consulting Services The market for networking applications and solutions as well as IT consulting is highly competitive and subject to rapid technological change. We expect competition to continue to increase both from existing competitors and new market entrants. We believe that competitive factors common to all of our solution categories include: the breadth of our offerings; the pricing of our products and services; and the timing and market acceptance of new solutions developed by us and our competitors. Software licenses and maintenance In addition to the factors listed above, key competitive factors related to our software licenses and maintenance include brand and product awareness; the performance, reliability and security of our products; the ability to preserve our legacy customer base; the completeness of our suite of product and solutions offerings; our ability to establish and maintain key strategic relationships with distributors, resellers and other partners; and the pricing strategies of our competitors. Our key competitors related to software licenses and maintenance revenue include Microsoft, IBM, BEA Systems, Sun Microsystems, Altiris, Netegrity, Computer Associates and Critical Path. Worldwide IT Services The key competitive factors faced by us related to IT consulting are attracting and retaining the highest quality consultants and the depth and breadth of our skills and expertise. The market for IT consulting services is highly competitive due to the existence of several large IT consulting firms specializing in the information systems area such as IBM, Accenture, EDS and Microsoft. Many of these companies have greater financial, technical and marketing resources and greater name recognition in the IT consulting area, which could inhibit our ability to grow our IT consulting business. Additionally, the worldwide marketplace for IT consulting services is highly fragmented. We often encounter different groups of competitors in different regions of the world. Many of these local competitors may have niche consultancies carved out in a local market against whom it may be difficult to win business. Celerant Management Consulting Because of the extremely specialized nature of the implementation consulting services provided by Celerant, the main competitive factor faced by Celerant is not so much presented by rival consulting firms, but rather lies with prospective clients themselves. The primary decision often faced by Celerant's prospective clients is a weighing of the costs of a Celerant engagement against the measurable results and financial benefits to be realized during and after the engagement. Therefore, a key factor lies in convincing clients of Celerant's ability to deliver those results and benefits. An additional consideration potential clients factor into their decisions is a judgment as to whether they can successfully perform the work that they require themselves, or whether they need the assistance of a third party such as Celerant. General We do not have the product breadth and market power of Microsoft. Microsoft's ability to ship networking products with features and functionality that compete with ours, together with its greater ability to offer incentives to customers to purchase certain products in order to obtain favorable sales terms or necessary compatibility or information with respect to other products, may significantly inhibit our ability to grow our business. Microsoft has significant financial resources, which could allow it to aggressively price its products and services for long periods of time to the potential detriment of competitors. We believe, and the courts have agreed, that Microsoft exploits its desktop operating monopoly in anticompetitive ways designed to maintain that monopoly and, in our view, to extend its market power to quash competitive alternatives to Microsoft products. For example, in the past, Microsoft has employed tactics that limit or block effective and efficient interoperability with our products. We will ensure, to the best of our ability, that our products will interoperate with those of Microsoft as they enhance new operating systems and applications. We May Not be Able To Attract and Retain Qualified Employees Because of the Intense Competition for Qualified Employees in the Computer and Consulting Industries Our ability to maintain our competitive technological position will depend, in large part, on our ability to attract and retain highly qualified development, consulting, and managerial employees. Even in light of the current economic downturn, competition for employees of the highest caliber is intense in the software and consulting industries. The loss of a significant group of key employees would adversely affect our performance. The failure to successfully attract, hire, retain and promote qualified employees as we need them could have a material adverse effect on our business. If We Are Not Successful in Developing a Strong Business with our Nsure and exteNd Products and Services, Our Long-Term Growth Will Be Negatively Impacted The success of our net directory services products that comprise our Nsure and exteNd secure web services and identity management solutions sets is important to our strategy. The acquisition of SilverStream helped further our development of secure Web services products and enhanced our identity management product offerings. Our ability to achieve success with our Nsure and exteNd products and services is dependent on a number of factors including, but not limited to, the following: growth of the Web-based applications industry; acceptance of the Nsure and exteNd solution sets by clients; further development of key Nsure and exteNd product solutions and upgrades; and acceptance of those products by large industry partners and major accounts. If we are unable to grow the Nsure and exteNd products and services to become a major component of our business, our long-term growth will be negatively impacted. If We Are Unable to Unify Our Diverse Cultures, the Benefits of Our Solutions Strategy May Not Be Fully Realized We have a talented, energetic, and exciting group of employees. As a result of our recent acquisitions, a number of these employees come from diverse geographic and corporate cultural backgrounds. We are in the process of a cultural initiative to bring our whole company together towards a new common culture that revolves around our solutions offerings. If we are not successful in forging a new, vibrant culture with unified goals and a common vision that is solutions-based, employee energies may be diverted or diluted and we may not achieve the full benefits of our solutions strategy. Our Existing Product Revenue May Deteriorate More Rapidly Than Any Increase in Sales of Our New Products We have several existing products, which we have been selling and upgrading for many years. Sales of these existing products, particularly NetWare, are declining at a faster rate than we are able to increase sales of new products or technologies. If we are unsuccessful in increasing sales of new products or technologies, particularly in our exteNd solution set and Net Directory Services product line, our long-term growth will be negatively impacted. If We Do Not Generate New Customers, Our Ability to Grow Our Business Will Be Negatively Impacted A significant percentage of our revenue is generated from existing customers. In order to achieve our growth objectives, we must accelerate the rate at which we generate new business. We have initiated several new sales and marketing initiatives in order to accomplish this goal. If those initiatives are not successful, our ability to cultivate new customers may be adversely affected. We Have Experienced Delays in the Introduction and Acceptance of New Products Due to Various Factors As is common in the computer software industry, we have in the past experienced delays in the introduction of new products due to a number of factors, including the complexity of software products, the need for extensive testing of software to ensure compatibility of new releases with a wide variety of application software and hardware devices, and the need to "debug" products prior to extensive distribution. Significant delays in developing, completing, or shipping new or enhanced products would adversely affect our business. Moreover, we may experience delays in market acceptance of new releases of our products as we engage in marketing and education of the user base regarding the advantages of and system requirements for new products and as customers evaluate the advantages and disadvantages of upgrading. We have encountered these issues on each major new release of our products, and expect that we will encounter such issues in the future. Our ability to achieve desired levels of revenue growth depends at least in part on the successful completion, introduction and sale of new versions of our products. There can be no assurance that we will be able to respond effectively to technological changes or new product announcements by others, or that our research and development efforts will be successful. Should we experience material delays or revenue shortfalls with respect to new product releases, our revenue and net income could be adversely affected. If Third Parties Claim that We Infringed Upon Their Intellectual Property, Our Ability to Use Some Technologies and Products Could Be Limited and We May Incur Significant Costs to Resolve These Claims Litigation regarding intellectual property rights is common in the Internet and software industries. We have in the past received letters or been the subject of claims suggesting that we are infringing upon the intellectual rights of others. For example, in May 2002 a suit was filed by France Telecom SA and U.S. Philips Corporation against us alleging that Novell's NetWare client software infringes a patent allegedly co-owned by them and seeking unspecified damages and an injunction. In addition, we have faced and expect to continue to face from time to time disputes over rights and obligations concerning intellectual property. We expect third-party infringement claims involving Internet technologies and software products and services to increase because it has become more common for such agencies to be able to find attorneys who are willing to represent them or their clients on a contingency basis. While we have no reason to think we would not have strong defenses to such claims, the cost and time of defending ourselves can be significant. In addition, we have agreed, and may agree in the future, to indemnify customers against claims that our products infringe upon the intellectual property rights of others. We could incur substantial costs in defending ourselves and our customers against infringement claims. If an infringement claim is successful, we and our customers may be required to obtain one or more licenses from third parties, and we may be obligated to pay or reimburse our customers for monetary damages. In such instances, we or our customers may not be able to obtain necessary licenses from third parties at a reasonable cost or at all, and may face delays in product shipment while developing or arranging for alternative technologies. We May Not Be Able to Protect Our Confidential Information, Which May Adversely Affect Our Business We generally enter into contractual relationships with our employees that protect our confidential information. In the event that our trade secrets or other proprietary information are misappropriated, our business could be seriously harmed. In addition, we may not be able to timely detect unauthorized use of our intellectual property and take appropriate steps to enforce our rights. In the event we are unable to enforce these contractual obligations and our intellectual property rights, our business could be adversely affected. We Face Increased Risks in Conducting a Global Business, Which May Damage Business Results We are a multi-national corporation with offices and subsidiaries around the world and, as such, we face risks in doing business abroad that we do not face domestically. Certain aspects inherent in transacting business internationally could negatively impact our operating results, including: o costs and difficulties in staffing and managing international operations; o unexpected changes in regulatory requirements; o tariffs and other trade barriers; o difficulties in enforcing contractual and intellectual property rights; o longer payment cycles; o local political and economic conditions; o potentially adverse tax consequences, including restrictions on repatriating earnings and the threat of "double taxation"; and o fluctuations in currency exchange rates, which can affect demand and increase Novell's costs. Some of Our Short-term, Long-term, and Venture Capital Fund Investments Have Become Impaired and Additional Investments Could Become Impaired Our investment portfolio includes short-term investments in publicly traded equity securities, long-term equity investments in privately-held companies, small capitalization stocks in the high-technology industry sector, and funds managed by venture capitalists. Many of these investments might become other-than-temporarily impaired. During the first six months of fiscal 2003, we recorded an impairment charge of $24.5 million related to some of the investments in our portfolio in cases where their market value had experienced an other-than-temporary decline. As of April 30, 2003, we had net unrealized gains, after taxes, on investments totaling approximately $2.5 million; however, there can be no assurances that these gains will be realized and that losses will not occur. If the companies and funds in which we have invested suffer poor financial performance, or if the privately-held companies in which we have invested are not successfully acquired or do not experience initial public offerings, the value of our investments will decrease. Our Existing Relationships With Other Information Technology Services Organizations May Be Impaired and We Could Lose Business We maintain relationships with IT services organizations that recommend, design and implement solutions for their customers' eBusiness that include Novell Net services products. At the same time, our service offerings compete with those of these same organizations. Although many companies in high technology industries co-exist in a similar state of competition, any of these organizations could decide at any time to not continue to do business with us or to recommend our products. A change in the willingness of these IT service organizations to do business with us could adversely affect our business. Our Business May Be Negatively Affected if We Do Not Continue to Adapt to Rapid Technological Change, Evolving Business Practices and Changing Consumer Requirements The software industry and IT consulting market is characterized by rapidly changing technology, evolving business practices and changing client needs. Accordingly, our future success will depend in part on our ability to continue to adapt and meet these challenges. Among the most important challenges we face is the need to continue to: o effectively identify and use leading technologies; o enhance strategic and technical expertise; o influence and respond to emerging industry standards and other technology changes and to orient management teams to capitalize on these changes; o recruit and retain qualified project personnel; o enhance current services; o develop new services that meet changing customer needs; and o effectively advertise and market Net business solutions. Our Consulting Services Contracts Contain Pricing Risks and, If Our Estimates Prove Inaccurate, We Could Incur Additional Costs or Not Realize Anticipated Revenue Revenue from our Celerant consulting business and about half of the revenue from our IT consulting group within our worldwide services is derived from fixed-price, fixed-time contracts. Because of the complex nature of the services provided, it is sometimes difficult to accurately estimate the cost, scope, and duration of particular client engagements. If we do not accurately estimate the resources required for a project, do not accurately assess the scope of work associated with a project, do not manage the project properly, or do not satisfy our obligations in a manner consistent with the contract, then our costs to complete the project could increase substantially. We have occasionally had to commit unanticipated additional resources to complete projects, and we may have to take similar action in the future. We may not be compensated for these additional costs or the commitment of these additional resources. Additionally, our Celerant management consulting business derives a meaningful portion of our revenues from projects priced on a contingency basis. If results are not met, or if a dispute arises, potentially large revenues may not be realized. Our IT Consulting and Celerant Consulting Clients Can Cancel or Reduce the Scope of Their Engagements With Us on Short Notice If our clients cancel or reduce the scope of an engagement with the IT consulting group within our worldwide services business or the Celerant management consulting business, we may be unable to reassign our professionals to new engagements without delay. Personnel and related costs constitute a substantial portion of our operating expenses. Because these expenses are relatively fixed in the short term, and because we establish the levels of these expenses well in advance of any particular quarter, cancellations or reductions in the scope of client engagements could result in the under-utilization of our consultants, causing significant reductions in operating results for a particular quarter. Actions Taken By The SCO Group Could Impact the Acceptance of the Linux Operating System, Negatively Affecting Novell's Linux Initiatives Novell recently announced some important Linux initiatives. These include an upcoming NetWare version based on the Linux kernel, as well as collaboration and resource management solutions for Linux. The SCO Group ("SCO") has recently written a "Letter to Linux Customers" that states that Linux infringes on SCO's Unix intellectual property and other rights, and that SCO intends to aggressively protect and enforce those rights. SCO's actions have the potential to disrupt business relations that might otherwise form at a critical time around Linux technologies, and could potentially deprive Novell of important economic opportunities. It is possible that SCO's actions, if carried forward, could lead to the loss of sales and jobs, delayed projects, canceled financing, and a balkanized Linux community, any of which could hurt Novell's Linux initiatives. Our Stock Price Will Fluctuate Our future earnings and stock price could be subject to significant volatility, particularly on a quarterly basis. Due to analysts' expectations of continued growth, any shortfall in anticipated earnings can be expected to have an immediate and significant adverse effect on the trading price of our common stock in any given period. Revenue fluctuations may also contribute to the volatility of the trading price of our common stock in any given period. In addition, the market prices for securities of software companies have been, and continues to be, very volatile. The market price of our common stock, in particular, has been subject to wide fluctuations in the past. As a result of the foregoing factors and other factors that may arise in the future, the market price of our common stock may be subject to significant fluctuations within a short period of time. These fluctuations may be due to factors specific to us, to changes in analysts' earnings estimates, or to factors affecting the computer industry or the securities markets in general. Item 7A. Qualitative and Quantitative Disclosures About Market Risk We are exposed to financial market risks, including changes in interest rates, foreign currency exchange rates, and the market prices of equity securities. To mitigate some of these risks, we utilize currency forward contracts and currency options. We do not use derivative financial instruments for speculative or trading purposes, and no significant derivative financial instruments were outstanding at April 30, 2003. Interest Rate Risk The primary objective of our short-term investment activities is to preserve principal while maximizing yields without significantly increasing risk. The strategy we use to achieve this objective is to invest in widely diversified short-term investments, consisting primarily of investment grade securities, substantially all of which either mature within the next twelve months or have characteristics of short-term investments. A hypothetical 50 basis point increase in interest rates would result in an approximately $1.3 million decrease (less than 0.5% of total investments) in the fair value of our available-for-sale securities. Market Risk We also hold available-for-sale equity securities in our short-term investment portfolio. As of April 30, 2003, gross unrealized losses, before tax effect, on the short-term public equity securities totaled $0.1 million. A reduction in prices of 10% of these short-term equity securities would result in approximately a $0.5 million decrease (less than 0.1% of total investments) in the fair value of our short-term investments. In addition, we invest in equity securities of privately-held companies, which are included in our long-term portfolio of investments, primarily for the promotion of business and strategic objectives. These investments are generally in small capitalization stocks in the high technology industry sector or venture capital funds. Because of the nature of these investments, we are exposed to risks that the value of these equity securities will change. We typically do not attempt to reduce or eliminate our market exposure on these securities. A 10% adverse change in equity prices of equity securities of privately-held companies would result in an approximately $6 million decrease in the fair value of our available-for-sale long-term securities. Foreign Currency Risk We use derivatives to hedge those net assets and liabilities that, when translated or remeasured according to accounting principles generally accepted in the U.S., impact our condensed consolidated statement of operations. Currency forward contracts are utilized in these hedging programs. All forward contracts that we enter into are components of hedging programs and are entered into for the sole purpose of hedging an existing or anticipated currency exposure, not for speculation or trading purposes. Gains and losses on these currency forward contracts would generally be offset by corresponding losses and gains on the foreign currency assets and liabilities that they hedge, resulting in negligible net gain or loss overall on the hedged exposures. When hedging balance sheet exposures, all gains and losses on forward contracts are recognized in other income and expense in the same period as when the gains and losses on translation or remeasurement of the foreign currency denominated assets and liabilities occur. All gains and losses related to foreign exchange contracts are included in cash flows from operating activities in the condensed consolidated statement of cash flows. Our hedging programs reduce, but do not always entirely eliminate, the impact of foreign currency exchange rate movements. If we did not hedge against foreign currency exchange rate movement, an increase or decrease of 10% in exchange rates would result in an increase or decrease in income before taxes of approximately $3 million. This number represents the exposure related to balance sheet remeasurement and intercompany translation only and assumes that all currencies move in the same direction at the same time relative to the U.S. dollar. All of the potential changes noted above are based on sensitivity analyses performed on our financial position at April 30, 2003. Actual results may differ materially. Item 4. Controls and Procedures An evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of June 9, 2003 was carried out by the Company under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by the company in periodic reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. A controls systems, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Subsequent to the date of the most recent evaluation of the Company's internal controls, there were no significant changes in the Company's internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses. Part II. Other Information Except as listed below, all information required by items in Part II is omitted because the items are inapplicable or the answer is negative. Item 1. Legal Proceedings. The information required by this item is incorporated herein by reference to Note J of our financial statements contained in Part I, Item 1 of this Form 10-Q. Item 4. Submission of Matters to a Vote of Security Holders The Stockholders of Novell voted on the following proposals at the Annual Meeting of Stockholders held on May 1, 2003: 1. To elect seven directors. 2. To approve amendments to certain of our stock option plans to permit implementation of a stock option exchange program. 3. To approve our Stock-Based Deferred Compensation Plan. 4. To approve amendments to our Employee Stock Purchase Plan. 5. To ratify the appointment of Ernst & Young LLP, as independent auditors for the fiscal year ending October 31, 2003. The following tables set forth the outcome of the matters voted upon at the meeting: Proposal #1 Election of Directors The nominees for director were elected based upon the following votes: Nominee Votes For Votes Withheld ------- --------- -------------- Albert Aiello 304,922,691 20,192,625 Fred Corrado 304,764,016 20,351,300 Jack L. Messman 314,403,331 10,711,985 Richard L. Nolan 304,833,336 20,281,980 Thomas G. Plaskett 306,515,891 18,599,425 John W. Poduska Sr. 307,662,498 17,452,818 James D. Robinson, III 314,638,870 10,476,446 Proposal #2 To approve amendments to certain of our stock option plans to permit implementation of our stock option exchange program. This proposal was approved based on the following votes: Votes For Votes Against Votes Abstained Broker Non-votes --------- ------------- --------------- ---------------- 152,116,030 65,715,988 7,077,408 100,205,890
Proposal #3 To approve our Stock-Based Deferred Compensation Plan. This proposal was approved based on the following votes: Votes For Votes Against Votes Abstained Broker Non-votes --------- ------------- --------------- ---------------- 310,499,831 13,566,599 1,048,886 --
Proposal #4 To approve amendments to our Employee Stock Purchase Plan. This proposal was approved based on the following votes: Votes For Votes Against Votes Abstained Broker Non-votes --------- ------------- --------------- ---------------- 303,823,399 20,187,762 1,104,155 --
Proposal #5 To ratify the appointment of Ernst & Young LLP, as independent auditors for the fiscal year ending October 31, 2003. The stockholders ratified the appointment of Ernst & Young, LLP based on the following votes: Votes For Votes Against Votes Abstained Broker Non-votes --------- ------------- --------------- ---------------- 305,066,408 19,347,837 701,071 --
Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit Number Description 10.1 Severance Agreement dated as of March 25, 2003 between the Registrant and Chris Stone. 10.2 Severance Agreement dated as of March 25, 2003 between the Registrant and Gerard Van Kemmel. 99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K. Form 8-K dated February 3, 2003, reporting under Item 5. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Novell, Inc. (Registrant) Date: June 16, 2003 /s/ Joseph S. Tibbetts, Jr. ---------------------------- Joseph S. Tibbetts, Jr. Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) CERTIFICATIONS I, Jack L. Messman, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Novell, Inc; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: June 16, 2003 /s/ Jack L. Messman Jack L. Messman President and Chief Executive Officer I, Joseph S. Tibbetts, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Novell, Inc; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: June 16, 2003 /s/ Joseph S. Tibbetts, Jr. Joseph S. Tibbetts, Jr. Senior Vice President and Chief Financial Officer EX-10 3 exh10-1.txt CHRIS STONE SEVERANCE AGREEMENT Exhibit 10.1 SEVERANCE AGREEMENT THIS SEVERANCE AGREEMENT (this "Agreement"), dated as of March 25, 2003, is made and entered by and between Novell, Inc., a Delaware corporation (the "Company"), and Christopher M. Stone (the "Executive"). WITNESSETH: WHEREAS, the Executive is a senior executive of the Company and has made and is expected to continue to make major contributions to the short- and long-term profitability, growth and financial strength of the Company; WHEREAS, the Company currently maintains the Novell, Inc. Senior Management Severance Plan (the "Severance Plan") which provides severance benefits to participants on account of a termination of employment with the Company related to, and unrelated to, a change in control; WHEREAS, the Executive is a participant in the Severance Plan and is eligible to receive severance benefits under the Severance Plan; WHEREAS, the Board (as defined below) has taken action to terminate the Severance Plan as of November 1, 2003; WHEREAS, the Board has determined that appropriate alternative arrangements should be taken to encourage the continued attention and dedication of Executive to his assigned duties without distraction; WHEREAS, as a result of the termination of the Severance Plan and in consideration of the Executive's continued employment with the Company and the Executive's agreement to waive any rights he may have to receive severance compensation and benefits under the Severance Plan, the Company desires to provide Executive with certain compensation and benefits set forth in this Agreement in order to ameliorate the financial and career impact on Executive in the event the Executive's employment with the Company is terminated for a reason related to, or unrelated to, a Change in Control (as defined below) of the Company; and WHEREAS, the Executive agrees to waive any rights he may have under the Severance Plan. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, the Company and the Executive agree as follows: 1. Certain Defined Terms. In addition to terms defined elsewhere herein, the following terms have the following meanings when used in this Agreement with initial capital letters: (a) "Base Pay" means the greater of (i) Executive's annual base salary rate, exclusive of bonuses, commissions and other Incentive Pay, as in effect immediately preceding Executive's Termination Date, or (ii) Executive's highest annual base salary rate, exclusive of bonuses, commissions and other Incentive Pay, as in effect in any of the three (3) full calendar years preceding Executive's Termination Date. (b) "Board" means the Board of Directors of the Company. (c) "Cause": (i) For purposes of Involuntary Termination Prior to a Change in Control, means a determination by the Company's Chief Executive Officer or Senior Vice President-People, in either case with legal advice and consultation of the Company's Senior Vice President - General Counsel, acting in his authority as the Company's general counsel, that Executive has committed any of the following acts: (A) continued violations of the Executive's obligations which are demonstrably willful or deliberate on the Executive's part after there has been delivered to the Executive a written demand for performance from the Company which describes the basis for the Company's belief that the Executive has willfully or deliberately violated his obligations to the Company; (B) engaging in willful misconduct which is injurious to the Company or any Subsidiary; (C) committing a felony, an act of fraud against or the misappropriation of property belonging to the Company or any Subsidiary; (D) breaching, in any material respect, terms of any confidentiality or proprietary information agreement between the Executive and the Company; or (E) committing a material violation of the Company's Code of Business Ethics or Employee Conduct and Standards Policy, as either or both are in effect from time to time by the Company. (ii) For purposes of Involuntary Termination Associated With a Change in Control, means a determination by the Board that Executive has committed any of the following acts: (A) the Executive has been convicted of a criminal violation involving fraud, embezzlement or theft in connection with his duties or in the course of his employment with the Company or any Subsidiary; or (B) the Executive has committed intentional wrongful disclosure of secret processes or confidential information of the Company or any Subsidiary; and any such act has been demonstrably and materially harmful to the Company. For purposes of this subparagraph (B), no act on the part of the Executive will be deemed "intentional" if it was due primarily to an error in judgment or negligence, but will be deemed "intentional" if done by the Executive not in good faith and without reasonable belief that the Executive's action was in the best interest of the Company. Notwithstanding the foregoing, the Executive will not be deemed to have been terminated for "Cause" under this subsection (ii) unless and until there has been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the members of the Board then in office at a meeting of the Board, finding that, in the good faith opinion of the Board, the Executive has committed an act constituting "Cause," as herein defined, and specifying the particulars thereof in detail. Prior to any such determination, Executive shall be provided with reasonable notice of such pending determination and Executive, together with his counsel (if the Executive chooses to have counsel present at such meeting), shall be provided with the opportunity to be heard before the Board makes any such determination. Nothing herein will limit the right of the Executive or his beneficiaries to contest the validity or propriety of any such determination. (d) "Change in Control" means the occurrence of any of the following events: (i) the acquisition by any individual, entity or group (within the meaning of section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of the combined voting power of the then outstanding Voting Stock of the Company; provided, however, that for purposes of this Section 1(d)(i), the following acquisitions will not constitute a Change in Control: (A) any issuance of Voting Stock of the Company directly from the Company that is approved by the Incumbent Board (as defined in Section 1(d)(ii), below), (B) any acquisition by the Company of Voting Stock of the Company, (C) any acquisition of Voting Stock of the Company by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, or (D) any acquisition of Voting Stock of the Company by any Person pursuant to a Business Combination that complies with clauses (A), (B) and (C) of Section 1(d)(iii), below; and provided, further, that a Change in Control will not occur if any Person becomes the beneficial owner of 25% or more of the combined voting power of the Voting Stock of the Company solely as a result of an issuance of Voting Stock described in clause (A) of this Section 1(d)(i) or an acquisition of Voting Stock described in clause (B) of this Section 1(d)(i) unless and until such Person thereafter acquires beneficial ownership of Voting Stock of the Company that causes the aggregate percent of the combined voting power of the Voting Stock of the Company then owned beneficially by such Person to exceed the percent of the combined voting power of Voting Stock of the Company owned beneficially by such Person immediately after such issuance or acquisition described in clause (A) or (B) of this Section 1(d)(i); (ii) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board," as modified by this Section 1(d)(ii)), cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a Director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least two-thirds of the Directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) will be deemed to have then been a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the Exchange Act) with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; (iii) consummation of a reorganization, merger or consolidation, a sale or other disposition of all or substantially all of the assets of the Company, or other transaction (each, a "Business Combination"), unless, in each case, immediately following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners of Voting Stock of the Company immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding shares of Voting Stock of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries), (B) no Person (other than the Company; such entity resulting from such Business Combination; any employee benefit plan (or related trust) sponsored or maintained by the Company, any Subsidiary or such entity resulting from such Business Combination; or any Person who immediately prior to such Business Combination beneficially owned directly or indirectly 25% or more of the combined voting power of the voting stock of the Company and whose ownership of such Voting Stock did not result in a Change in Control under Section 1(d)(i)) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then outstanding shares of Voting Stock of the entity resulting from such Business Combination, and (C) at least a majority of the members of the Board of Directors of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or (iv) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company, except pursuant to a Business Combination that complies with clauses (A), (B) and (C) of Section 1(d)(iii). (e) "COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1986, as amended. (f) "Code" means the Internal Revenue Code of 1986, as amended. (g) "Constructive Termination Associated With a Change in Control" means the termination of the Executive's employment with the Company by Executive as a result of the occurrence of one of the following events as a result of a Change in Control: (i) without the Executive's express written consent, the failure to elect or reelect or otherwise to maintain the Executive in the office or the position, or an equivalent office or position, of or with the Company and/or a Subsidiary (or any successor thereto by operation of law of or otherwise), as the case may be, which the Executive held immediately prior to a Change in Control, or the removal of the Executive as a Director of the Company and/or a Subsidiary (or any successor thereto) if the Executive has been a Director of the Company and/or a Subsidiary immediately prior to the Change in Control; (ii) without the Executive's express written consent, the failure of the Company to remedy any of the following within ten (10) business days after receipt by the Company of written notice thereof from the Executive: (A) an adverse change in the nature or scope of the authorities, powers, functions, responsibilities or duties attached to the position with the Company and any Subsidiary which the Executive held immediately prior to the Change in Control, (B) a reduction in the aggregate of the Executive's Base Pay and Incentive Pay, or (C) the termination or denial of the Executive's rights to Employee Benefits or a reduction in the scope or value thereof; (iii) without the Executive's express written consent, a determination by the Executive (which determination will be conclusive and binding upon the parties hereto provided it has been made in good faith and in all events will be presumed to have been made in good faith unless otherwise shown by the Company by clear and convincing evidence) that a change in circumstances has occurred following a Change in Control, including, without limitation, a change in the scope of the business or other activities for which the Executive was responsible immediately prior to the Change in Control, which has rendered the Executive unable to carry out, has hindered the Executive's performance of, or has caused the Executive to suffer a reduction in, any of the authorities, powers, functions, responsibilities or duties attached to the position held by the Executive immediately prior to the Change in Control, which situation is not remedied within ten (10) business days after written notice to the Company from the Executive of such determination; (iv) without the Executive's express written consent, the liquidation, dissolution, merger, consolidation or reorganization of the Company or transfer of all or substantially all of its business and/or assets, unless the successor or successors (by liquidation, merger, consolidation, reorganization, transfer or otherwise) to which all or substantially all of its business and/or assets have been transferred (by operation of law or otherwise) assumes all duties and obligations of the Company under this Agreement pursuant to Section 15(a); (v) without the Executive's express written consent, a requirement by the Company that the Executive have his principal location of work changed to any location that is in excess of thirty-five (35) miles from the location thereof immediately prior to the Change in Control, or that the Executive travel away from his office in the course of discharging his responsibilities or duties hereunder at least 20% more (in terms of aggregate days in any calendar year or in any calendar quarter when annualized for purposes of comparison to any prior year) than was required of the Executive in any of the three (3) full years immediately prior to the Change in Control; or (vi) without limiting the generality or effect of the foregoing, without the Executive's express written consent, any material breach of this Agreement by the Company or any successor thereto which is not remedied by the Company within ten (10) business days after receipt by the Company of written notice from the Executive of such breach. In no event shall the termination of Executive's employment with the Company on account of the Executive's death or Disability or because the Executive engaged in conduct constituting Cause be deemed to be a Constructive Termination Associated With a Change in Control. (h) "Constructive Termination Prior to a Change in Control" means the termination of Executive's employment with the Company by the Executive as a result of: (i) without the Executive's express written consent, a comprehensive and substantial reduction in all or most of the Executive's primary duties, authority and responsibilities compared to the Executive's duties, authority and responsibilities immediately prior to such reduction; (ii) without the Executive's express written consent, a significant reduction in the Executive's Base Pay compared to the Executive's Base Pay in effect immediately prior to such reduction; provided, however, that a reduction in the Executive's Base Pay of less than twenty percent (20%) or a reduction in the Executive's Base Pay that is part of an overall reduction in compensation also applied to other senior executives of the Company as a result of decreased business performance by the Company or one of its business units, shall not constitute a Constructive Termination Prior to a Change in Control; or (iii) without the Executive's express written consent, the failure of the Company to obtain the assumption of this Agreement by any successors. In no event shall the termination of Executive's employment with the Company on account of the Executive's death or Disability or because the Executive engaged in conduct constituting Cause be deemed to be a Constructive Termination Prior to a Change in Control. (i) "Disability" means the Executive becomes permanently disabled within the meaning of, and begins actually to receive disability benefits pursuant to, the long-term disability plan in effect for, or applicable to, the Executive. (j) "Employee Benefits" means the perquisites, benefits and service credit for benefits as provided under any and all employee retirement income and welfare benefit policies, plans, programs or arrangements in which the Executive is entitled to participate, including, without limitation, any stock option, performance share, performance unit, stock purchase, stock appreciation, savings, pension, supplemental executive retirement, or other retirement income or welfare benefit, deferred compensation, incentive compensation, group or other life, health, medical/hospital or other insurance (whether funded by actual insurance or self-insured by the Company or a Subsidiary), disability, salary continuation, expense reimbursement and other employee benefit policies, plans, programs or arrangements that may now exist or any equivalent successor policies, plans, programs or arrangements that may be adopted hereafter by the Company or a Subsidiary, providing perquisites, benefits and service credit for benefits at least as great in the aggregate as are payable thereunder. (k) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (l) "Incentive Pay" means the greater of: (i) Executive's maximum Target Bonus for which Executive was eligible during the period that includes the Termination Date, or (ii) the highest aggregate bonus or incentive payment paid to Executive during any of the three (3) full calendar years prior to his Termination Date. For purposes of this definition, "Target Bonus" means the annual bonus, incentive, commission or other sales incentive compensation, or comparable incentive payment opportunity which, in the sole discretion of the Company, is deemed to constitute a Target Bonus, in addition to Base Pay, for which Executive was eligible to receive, but did not receive prior to his Termination Date, in regard to services rendered in the year covered by Executive's Termination Date and is to be made pursuant to any bonus, incentive, profit-sharing, performance, discretionary pay or similar agreement, policy, plan, program or arrangement (whether or not funded) of the Company or a Subsidiary, or any successor thereto. For purposes of this definition, "Incentive Pay" does not include any stock option, stock appreciation, stock purchase, restricted stock or similar plan, program, arrangement or grant, one time bonus or payment (including, but not limited to, any sign-on bonus), any amounts contributed by the Company for the benefit of Executive to any qualified or nonqualified deferred compensation plan, whether or not provided under an arrangement described in the prior sentence, or any amounts designated by the parties as amounts other than Incentive Pay. (m) "Involuntary Termination Associated With a Change in Control" means the termination of Executive's employment related to a Change in Control: (i) by the Company for any reason other than Cause, the Executive's death or the Executive's Disability, or (ii) on account of a Constructive Termination Associated with a Change in Control. (n) "Involuntary Termination Prior to a Change in Control" means the termination of Executive's employment unrelated to a Change in Control: (i) by the Company for any reason other than Cause, the Executive's death or the Executive's Disability, or (ii) on account of a Constructive Termination Prior to a Change in Control. (o) "Restricted Business" means, (i) if the Executive is entitled to severance benefits under this Agreement on account of an Involuntary Termination Prior to a Change in Control, (A) the design, development, manufacture, marketing or support of local or wide area network products, computer operating systems, applications products, software products or services that enable organizations to more effectively conduct business using the Web, or any other software products of the type designed, developed, manufactured, sold or supported by the Company or as proposed to be designed, developed, manufactured, sold or supported by the Company pursuant to a development project that is actually being pursued during the term of this Agreement; (B) any business that performs technology and consulting services that help businesses develop and accelerate their transition to Internet-based e-business solutions and processes, or management services that assist businesses in improving their operating processes; or (C) any business that competes directly or indirectly with the hardware, software or consulting businesses of the Company. (ii) if the Executive is entitled to severance benefits under this Agreement on account of an Involuntary Termination Associated With a Change in Control, any business function with a direct competitor of the Company that is substantially similar to the business function performed by the Executive with the Company immediately prior to his Termination Date. (p) "Restricted Territory" means the counties, towns, cities or states of any country in which the Company operates or does business. (q) "Severance Period" means the twelve (12) month period after the Executive's Termination Date. (r) "Subsidiary" means any Company controlled affiliate. (s) "Termination Date" means the last day of Executive's employment with the Company. (t) "Termination of Employment" means, except as provided in the following sentence, the termination of Executive's active employment relationship with the Company on account of an Involuntary Termination Prior to a Change in Control or an Involuntary Termination Associated With a Change in Control. For purposes of the non-solicitation provision of Section 11 of the Agreement, the term "Termination of Employment" shall mean the termination of Executive's employment relationship with the Company for any reason, including, but not limited to, the Executive's Involuntary Termination Prior to a Change in Control, Involuntary Termination Associated With a Change in Control, voluntary termination, termination on account of Disability, or termination by the Company for Cause. (u) "Voting Stock" means securities entitled to vote generally in the election of directors. 2. Termination Prior to a Change in Control. (a) Involuntary Termination Prior to a Change in Control. In the event Executive's employment is terminated on account of an Involuntary Termination Prior to a Change in Control, Executive shall be entitled to the benefits provided in subsection (b) of this Section 2. (b) Compensation and Benefits Upon Involuntary Termination Prior to a Change in Control. Subject to the provisions of Section 5 hereof, in the event a termination described in subsection (a) of this Section 2 occurs, the Company shall pay and provide to the Executive after his Termination Date: (i) 150% of his Base Pay, payable in equal installments over the Severance Period, consistent with the Company's past payroll practices, commencing with the first payroll period that occurs after the period during which Executive's right to revoke his acceptance to the terms of the Release has expired. Notwithstanding the foregoing, the Company may determine, in its sole discretion and at any time, to provide that the amounts payable under this subsection (i) shall be paid to Executive in a lump sum, as opposed to installments over the Severance Period. (ii) Executive shall receive his pro rated Incentive Pay for the year in which his Termination of Employment occurs. The pro rated Incentive Pay shall be based on the Executive's Incentive Pay for the year in which Executive's Termination Date occurs, multiplied by a fraction, the numerator of which is the number of days during which Executive was employed by the Company in the year of his termination and the denominator of which is 365. Such pro rated Incentive Pay shall be paid to Executive in equal installments over the Severance Period, consistent with the Company's past payroll practices, commencing with the first payroll period that occurs after the period during which Executive's right to revoke his acceptance to the terms of the Release has expired. Notwithstanding the foregoing, the Company may determine, in its sole discretion and at any time, to provide that the amounts payable under this subsection (ii) shall be paid to Executive in a lump sum, as opposed to installments over the Severance Period. (iii) For a period of twelve (12) months following his Termination Date, Executive shall continue to receive the medical and dental coverage in effect on his Termination Date (or generally comparable coverage) for himself and, where applicable, his spouse and dependents, as the same may be changed from time to time for employees generally, as if Executive had continued in employment during such period; or, as an alternative, the Company may elect to pay Executive cash in lieu of such coverage in an amount equal to Executive's after-tax cost of continuing comparable coverage, where such coverage may not be continued by the Company (or where such continuation would adversely affect the tax status of the plan pursuant to which the coverage is provided). If the Executive does not receive the cash payment described in the preceding sentence, the Company shall take all commercially reasonable efforts to provide that the COBRA health care continuation coverage period under section 4980B of the Code, shall commence immediately after the foregoing twelve (12) month benefit period, with such continuation coverage continuing until the earlier of (i) the end of the applicable COBRA health care continuation coverage period or (ii) the date on which Executive is covered by the medical and dental coverage of his successor employer, if any. (iv) With respect to any Company stock options held by the Executive as of the date of such Involuntary Termination Prior to a Change in Control, the Company shall accelerate the vesting of that portion of the Executive's stock options, if any, which would have vested and become exercisable within the one (1) year period after the Executive's Termination Date, such options, plus any other options that previously became exercisable and have not expired or been exercised, to remain exercisable, notwithstanding anything in any other agreement governing such options, for the longer of (A) a period of six (6) months after the Executive's Termination Date, or (B) the period set forth in the award agreement covering the option; provided, however, that in no event will the option be exercisable beyond its original term. (v) With respect to any shares of Company common stock held by the Executive that are, at the time of such Involuntary Termination Prior to a Change in Control, subject to the Company's repurchase right upon termination of the Executive's employment ("Restricted Stock"), the Company shall waive such repurchase right as to the number of shares of Restricted Stock that would have vested within the one (1) year period after the Executive's Termination Date. (vi) To cover the cost of outplacement assistance services for Executive that are actually provided by an outplacement agency selected by Executive, for which the Company provides prior approval, with such approval not to be unreasonably withheld, in an amount not to exceed twenty percent (20%) of the Executive's Base Pay. (vii) Executive shall receive any amounts earned, accrued or owing but not yet paid to Executive as of his Termination Date, payable in a lump sum, and any benefits accrued or earned in accordance with the terms of any applicable benefit plans and programs of the Company. 3. Termination Associated With a Change in Control. (a) Involuntary Termination Associated With a Change in Control. In the event Executive's employment is terminated after, or in connection with, a Change in Control, on account of (i) an Involuntary Termination Associated With a Change in Control within the two year period after the Change in Control, or (ii) an Involuntary Termination Associated With a Change in Control that occurs (A) not more than six (6) months prior to the date on which a Change in Control occurs or (B) following the commencement of any discussion with a third person that ultimately results in a Change in Control, Executive shall be entitled to the benefits provided in subsection (b) of this Section 3. If Executive is entitled to benefits described in this Section 3 by reason of clause (a)(ii) above, Executive shall receive the compensation and benefits described in Section 2(b) above after his Termination of Employment, in accordance with the provisions of Section 2(b), regardless of whether the Change in Control actually occurs, and Executive shall receive the additional compensation and benefits described in Section 3(b) below only if the Change in Control is consummated and shall receive such additional amounts after the consummation of the Change in Control, in accordance with the provisions of Section 3(b) below. For purposes of subsection 3(a)(ii)(B) above, to be eligible to receive amounts described in Section 3(b) below, the Change in Control must be consummated within the twelve (12) month period following Executive's Termination Date, except in circumstances pursuant to which the consummation of the Change in Control is delayed, through no failure of the Company or the third person, by a governmental or regulatory authority or agency with jurisdiction over the matter, or as a result of other similar circumstances. In such a circumstance, the remaining of the twelve (12) month period shall be tolled and shall recommence upon termination of the delaying event. (b) Compensation and Benefits Upon Involuntary Termination Associated With a Change in Control. Subject to the provisions of Section 5 hereof, in the event a termination described in subsection (a) of this Section 3 occurs, the Company shall pay and provide to the Executive after his Termination Date: (i) Lump sum payment equal to (A) 2.5 times Base Pay, plus (B) 2.5 times Incentive Pay. Payment shall be made within thirty (30) days after Executive's Termination Date (or the end of the revocation period for the Release, if later). (ii) Executive shall receive his pro rated Incentive Pay for the year in which his Termination of Employment occurs. The pro rated Incentive Pay shall be based on the Executive's Incentive Pay for the year in which Executive's Termination Date occurs, multiplied by a fraction, the numerator of which is the number of days during which Executive was employed by the Company in the year of his termination and the denominator of which is 365. Such pro rated Incentive Pay shall be paid to Executive in a lump sum within thirty (30) days after the effective date of the termination (or the end of the revocation period for the Release, if later). (iii) For a period of thirty (30) months following his Termination Date, Executive shall continue to receive the medical and dental coverage in effect on his Termination Date (or generally comparable coverage) for himself and, where applicable, his spouse and dependents, as the same may be changed from time to time for employees generally, as if Executive had continued in employment during such period; or, as an alternative, the Company may elect to pay Executive cash in lieu of such coverage in an amount equal to Executive's after-tax cost of continuing comparable coverage, where such coverage may not be continued by the Company (or where such continuation would adversely affect the tax status of the plan pursuant to which the coverage is provided). If the Executive does not receive the cash payment described in the preceding sentence, the Company shall take all commercially reasonable efforts to provide that the COBRA health care continuation coverage period under section 4980B of the Code, shall commence immediately after the foregoing thirty (30) month benefit period, with such continuation coverage continuing until the earlier of (i) the end of the applicable COBRA health care continuation coverage period or (ii) the date on which Executive is covered by the medical and dental coverage of his successor employer, if any. (iv) Lump sum payment equal to the total amount that Executive would have received under the Company's 401(k) plan as a Company match if Executive was eligible to participate in the Company's 401(k) plan for the thirty (30) month period after his Termination Date and he contributed the maximum amount to the plan for the match. Payment shall be made within thirty (30) days after Executive's Termination Date (or the end of the revocation period for the Release, if later). (v) Lump sum payment equal to the total premiums that the Company would have paid under Executive's split-dollar life insurance policy, if any, that is in effect immediately prior to his Termination Date, if Executive was employed by the Company for the thirty (30) month period following Executive's Termination Date; provided, however, that if the remaining length of the term of the split-dollar arrangement pursuant to which the Company must make premium payments is less than the foregoing thirty (30) month period, Executive shall only receive a lump sum payment equal to the remaining Company premiums for the term of the arrangement. Payment shall be made within thirty (30) days after Executive's Termination Date (or the end of the revocation period for the Release, if later). Notwithstanding the foregoing, no payment shall be made to Executive pursuant to this subsection (v) if on the Executive's Termination Date, either Executive does not have a split-dollar life insurance policy with the Company or the Company has no obligations to make premium contributions to Executive's split-dollar life insurance policy. (vi) Lump sum payment equal to twenty percent (20%) of the Executive's Base Pay in order to cover the cost of outplacement assistance services for Executive. Payment shall be made within thirty (30) days after Executive's Termination Date (or the end of the revocation period for the Release, if later). (vii) Executive shall receive any amounts earned, accrued or owing but not yet paid to Executive as of his Termination Date, payable in a lump sum, and any benefits accrued or earned in accordance with the terms of any applicable benefit plans and programs of the Company. (c) Notwithstanding any provision to the contrary in any applicable plan, program or agreement, upon the occurrence of a Change in Control, all stock options, Restricted Stock and other equity rights held by the Executive will become fully vested and/or exercisable, as the case may be, on the date on which the Change in Control occurs, and all stock options held by the Executive shall remain exercisable, notwithstanding anything in any other agreement governing such options, for the longer of (i) a period of thirty (30) months after the Executive's Termination Date, or (ii) the period set forth in the award agreement covering the option; provided, however, that in no event will the option be exercisable beyond its original term. 4. Termination of Employment on Account of Disability, Cause or Death. Notwithstanding anything in this Agreement to the contrary, if Executive's employment terminates on account of Disability, Executive shall be entitled to receive disability benefits under any disability program maintained by the Company that covers Executive, and Executive shall not be considered to have terminated employment under this Agreement and shall not receive benefits pursuant to Sections 2 and 3 hereof. If Executive's employment terminates on account of Cause or because of his death, Executive shall not be considered to have terminated employment under this Agreement and shall not receive benefits pursuant to Sections 2 and 3 hereof. 5. Release. Notwithstanding the foregoing, no such payments shall be made or benefits provided unless Executive executes, and does not revoke, the Company's standard written release, substantially in the form as attached hereto as Annex A, (the "Release"), of any and all claims against the Company and all related parties with respect to all matters arising out of Executive's employment by the Company (other than entitlements under the terms of this Agreement or under any other plans or programs of the Company in which Executive participated and under which Executive has accrued or become entitled to a benefit) or a termination thereof. 6. Enforcement. Without limiting the rights of the Executive at law or in equity, if the Company fails to make any payment or provide any benefit required to be made or provided hereunder on a timely basis, the Company will pay interest on the amount or value thereof at an annualized rate of interest equal to the so-called composite "prime rate" as quoted from time to time during the relevant period in the Eastern Edition of The Wall Street Journal. Such interest will be payable as it accrues on demand. Any change in such prime rate will be effective on and as of the date of such change. 7. Certain Additional Payments by the Company. (a) The provisions of this Section 7 shall apply notwithstanding anything in this Agreement to the contrary. Subject to subsection (b) below, in the event that it shall be determined that any payment or distribution by the Company to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would constitute an "excess parachute payment" within the meaning of section 280G of the Code, the Company shall pay Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by Executive after deduction of any excise tax imposed under section 4999 of the Code, and any federal, state and local income tax, employment tax, excise tax and other tax imposed upon the Gross-Up Payment, shall be equal to the Payment. (b) Notwithstanding subsection (a), and notwithstanding any other provisions of this Agreement to the contrary, if the net after-tax benefit to Executive of receiving the Gross-Up Payment does not exceed the Safe Harbor Amount (as defined below) by more than 10% (as compared to the net-after tax benefit to Executive resulting from elimination of the Gross-Up Payment and reduction of the Payments to the Safe Harbor Amount), then (i) the Company shall not pay Executive the Gross-Up Payment and (ii) the provisions of subsection (c) below shall apply. The term "Safe Harbor Amount" means the maximum dollar amount of parachute payments that may be paid under section 280G of the Code without imposition of an excise tax under section 4999 of the Code. (c) The provisions of this subsection (c) shall apply only if the Company is not required to pay Executive a Gross-Up Payment as a result of subsection (b) above. If the Company is not required to pay Executive a Gross-Up Payment as a result of the provisions of subsection (b), the Company will apply a limitation on the Payment amount as set forth in subsection (i) below (a "Parachute Cap") if the application of the Parachute Cap is beneficial to Executive, according to the following provisions: (i) If subsection (ii) does not apply, the aggregate present value of the Payments under Section 3 of this Agreement ("Agreement Payments") shall be reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be subject to the limitation of deduction under section 280G of the Code. For purposes of this Section 7, "present value" shall be determined in accordance with section 280G(d)(4) of the Code. (ii) It is the intention of the parties that the Parachute Cap apply only if application of the Parachute Cap is beneficial to Executive. Therefore, if the net amount that would be retained by Executive under this Agreement without the Parachute Cap, after payment of any excise tax under section 4999 of the Code, exceeds the net amount that would be retained by Executive with the Parachute Cap, then the Company shall not apply the Parachute Cap to Executive's payments. In that event, neither the Parachute Cap nor the Gross-Up Payment will apply to Executive. (d) All determinations to be made under this Section 7 shall be made by the nationally recognized independent public accounting firm used by the Company immediately prior to the Change in Control ("Accounting Firm"), which Accounting Firm shall provide its determinations and any supporting calculations to the Company and Executive within ten days of Executive's termination date. If any Gross-Up Payment is required to be made, the Company shall make the Gross-Up Payment within ten days after receiving the Accounting Firm's calculations. Any such determination by the Accounting Firm shall be binding upon the Company and Executive. (e) All of the fees and expenses of the Accounting Firm in performing the determinations referred to in this Section 7 shall be borne solely by the Company. 8. No Mitigation Obligation. The Company hereby acknowledges that it will be difficult and may be impossible for the Executive to find reasonably comparable employment following the Termination Date. Accordingly, the payment of the severance compensation by the Company to the Executive in accordance with the terms of this Agreement is hereby acknowledged by the Company to be reasonable, and the Executive will not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor will any profits, income, earnings or other benefits from any source whatsoever create any mitigation, offset, reduction or any other obligation on the part of the Executive hereunder or otherwise. 9. Legal Fees and Expenses. In the event of a Change in Control, it is the intent of the Company that the Executive not be required to incur legal fees and the related expenses associated with the interpretation, enforcement or defense of the Executive's rights under this Agreement by litigation or otherwise because the cost and expense thereof would detract from the benefits intended to be extended to the Executive hereunder. Accordingly, if a Change in Control occurs and it should appear to the Executive that the Company has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, the Executive the benefits provided or intended to be provided to the Executive under Section 3(b) of the Agreement, the Company irrevocably authorizes the Executive from time to time to retain counsel of the Executive's choice, at the expense of the Company as hereafter provided, to advise and represent the Executive in connection with any such interpretation, enforcement or defense, including without limitation the initiation or defense of any litigation or other legal action, whether by or against the Company or any Director, officer, stockholder or other person affiliated with the Company, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to the Executive's entering into an attorney-client relationship with such counsel, and in that connection the Company and the Executive agree that a confidential relationship will exist between the Executive and such counsel. Without respect to whether the Executive prevails, in whole or in part, in connection with any of the foregoing, the Company will pay and be solely financially responsible for any and all attorneys' and related fees and expenses incurred by the Executive in connection with any of the foregoing; provided that, in regard to such matters, the Executive has not acted frivolously, in bad faith or with no colorable claim of success. Such expenses will be paid by the Company as they are incurred by Executive. 10. Confidentiality. The Executive hereby covenants and agrees that he will not disclose to any person not employed by the Company, or use in connection with engaging in competition with the Company, any confidential or proprietary information (as defined below) of the Company. For purposes of this Agreement, the term "confidential or proprietary information" will include all information of any nature and in any form that is owned by the Company and that is not publicly available (other than by the Executive's breach of this Section 10) or generally known to persons engaged in businesses similar or related to those of the Company. Confidential or proprietary information will include, without limitation, the Company's financial matters, customers, employees, industry contracts, strategic business plans, product development (or other proprietary product data), marketing plans, consulting solutions and processes, and all other secrets and all other information of a confidential or proprietary nature which is protected by the Uniform Trade Secrets Act. For purposes of the preceding two sentences, the term "Company" will also include any Subsidiary (collectively, the "Restricted Group"). The foregoing obligations imposed by this Section 10 will not apply (i) in the course of the business of and for the benefit of the Company, (ii) if such confidential or proprietary information has become, through no fault of the Executive, generally known to the public, or (iii) if the Executive is required by law to make disclosure (after giving the Company notice and an opportunity to contest such requirement). 11. Covenants Not to Compete and Not to Solicit. In the event of Executive's Termination of Employment, the Company's obligations to provide severance pay as provided in Sections 2 and 3 shall be expressly conditioned upon the Executive's covenants not to compete and not to solicit as provided herein. In the event the Executive breaches his obligations to the Company as provided herein, the Company's obligations to make severance payments to Executive pursuant to Sections 2 and 3 shall cease, without prejudice to any other remedies that may be available to the Company. (a) Covenant Not to Compete. (i) If Executive is receiving compensation and benefits under Section 2(b) above, then for a period of nine (9) months following Executive's Termination Date, the Executive shall not directly or indirectly, engage in (whether as employee, consultant, proprietor, partner, director or otherwise), or have any ownership interest in, or participate in a financing, operation, management or control of, any person, firm, corporation or business that is a Restricted Business in a Restricted Territory without the prior written consent of the Board. For this purpose, ownership of no more than 5% of the outstanding Voting Stock of a publicly traded corporation shall not constitute a violation of this provision. (ii) If Executive is receiving compensation and benefits under Section 3(b) above (or subsequently becomes entitled to severance under Section 3(b) above because of a termination described in Section 3(a)(ii)), then for a period of one (1) year following Executive's Termination Date, the Executive shall not directly or indirectly, engage in (whether as employee, consultant, proprietor, partner, director or otherwise), or have any ownership interest in, or participate in a financing, operation, management or control of, any person, firm, corporation or business that is a Restricted Business in a Restricted Territory without the prior written consent of the Board. For this purpose, ownership of no more than 5% of the outstanding Voting Stock of a publicly traded corporation shall not constitute a violation of this provision. (b) Covenant Not to Solicit. The Executive shall not, for a period of two (2) years after the Executive's Termination Date for any reason: (i) solicit, encourage or take any other action which is intended to induce any other employee of the Company to terminate his employment with the Company; or (ii) interfere in any manner with the contractual or employment relationship between the Company and any such employee of the Company. The foregoing shall not prohibit Executive or any entity with which Executive may be affiliated from hiring a former employee of the Company, provided that such hiring results exclusively from such former employee's affirmative response to a general recruitment effort. (c) Interpretation. The covenants contained herein are intended to be construed as a series of separate covenants, one for each county, town, city and state or other political subdivision of a Restricted Territory. Except for geographic coverage, each such separate covenant shall be deemed identical in terms to the covenant contained in the preceding subsections. If, in any judicial proceeding, the court shall refuse to enforce any of the separate covenants (or any part thereof) deemed included in such subsections, then such unenforceable covenant (or such part) shall be deemed to be eliminated from this Agreement for the purpose of those proceedings to the extent necessary to permit the remaining separate covenants (or portions thereof) to be enforced. (d) Reasonableness. In the event that the provisions of this Section 11 shall ever be deemed to exceed the time, scope or geographic limitations permitted by applicable laws, then such provisions shall be reformed to the maximum time, scope or geographic limitations, as the case may be, permitted by applicable laws. 12. Employment Rights. Nothing expressed or implied in this Agreement will create any right or duty on the part of the Company or the Executive to have the Executive remain in the employment of the Company or any Subsidiary prior to or following any Change in Control. 13. Withholding of Taxes. The Company may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as the Company is required to withhold pursuant to any applicable law, regulation or ruling. 14. Term of Agreement. This Agreement shall continue in full force and effect for the duration of Executive's employment with the Company; provided, however, that after the termination of Executive's employment during the term of this Agreement, this Agreement shall remain in effect until all of the obligations of the parties hereunder are satisfied or have expired. 15. Successors and Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance reasonably satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement will be binding upon and inure to the benefit of the Company and any successor to the Company, including without limitation any persons acquiring directly or indirectly all or substantially all of the business or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor will thereafter be deemed the "Company" for the purposes of this Agreement), but will not otherwise be assignable, transferable or delegable by the Company. (b) This Agreement will inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees and legatees. This Agreement will supersede the provisions of any employment or other agreement between the Executive and the Company that relate to any matter that is also the subject of this Agreement, and such provisions in such other agreements will be null and void. (c) This Agreement is personal in nature and neither of the parties hereto will, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 15(a) and 15(b). Without limiting the generality or effect of the foregoing, the Executive's right to receive payments hereunder will not be assignable, transferable or delegable, whether by pledge, creation of a security interest, or otherwise, other than by a transfer by the Executive's will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this Section 15(c), the Company will have no liability to pay any amount so attempted to be assigned, transferred or delegated. 16. Notices. For all purposes of this Agreement, all communications, including without limitation notices, consents, requests or approvals, required or permitted to be given hereunder will be in writing and will be deemed to have been duly given when hand delivered or dispatched by electronic facsimile transmission (with receipt thereof orally confirmed by the recipient), or five (5) business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three (3) business days after having been sent by a nationally recognized courier service for overnight/next-day delivery, such as FedEx, UPS, or the United States Postal Service, addressed to the Company (to the attention of the Secretary of the Company) at its principal executive office and to the Executive at his principal residence, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of changes of address will be effective only upon receipt. 17. Governing Law. The validity, interpretation, construction and performance of this Agreement will be governed by and construed in accordance with the substantive laws of the Commonwealth of Massachusetts, without giving effect to the principles of conflict of laws of such Commonwealth. 18. Validity. If any provision of this Agreement or the application of any provision hereof to any person or circumstances is held invalid, unenforceable or otherwise illegal, the remainder of this Agreement and the application of such provision to any other person or circumstances will not be affected, and the provision so held to be invalid, unenforceable or otherwise illegal will be reformed to the extent (and only to the extent) necessary to make it enforceable, valid or legal. 19. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party will be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, expressed or implied with respect to the subject matter hereof have been made by either party that are not set forth expressly in this Agreement. References to Sections are to references to Sections of this Agreement. Any reference in this Agreement to a provision of a statute, rule or regulation will also include any successor provision thereto. Whenever used herein, the masculine includes the feminine. 20. Survival. Notwithstanding any provision of this Agreement to the contrary, the parties' respective rights and obligations under Sections 2, 3, 7, 9, 10, and 11 will survive any termination or expiration of this Agreement or the termination of the Executive's employment for any reason whatsoever. 21. Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original but all of which together will constitute one and the same agreement. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first above written. NOVELL, INC. By: - ------------------------ Name: Jack L. Messman Title: Chairman and Chief Executive Officer EXECUTIVE - ------------------------ Christopher M. Stone Annex A SEPARATION OF EMPLOYMENT AGREEMENT AND GENERAL RELEASE THIS SEPARATION OF EMPLOYMENT AGREEMENT AND GENERAL RELEASE (the "Agreement") is made as of this ___ day of __________, ____, by and between Novell, Inc. (the "Company") and _______________ ("Executive"). WHEREAS, Executive formerly was employed by the Company as ________; WHEREAS, Executive and Company entered into the Severance Agreement, dated ____ ____, 200_, (the "Severance Agreement") which provides for certain benefits in the event that Executive's employment is terminated on account of a reason set forth in the Severance Agreement; WHEREAS, Executive and the Company mutually desire to terminate Executive's employment on an amicable basis, such termination to be effective _________ ____, ____ ("Date of Resignation"); and WHEREAS, in connection with the termination of Executive's employment, the parties have agreed to a separation package and the resolution of any and all disputes between them. NOW, THEREFORE, IT IS HEREBY AGREED by and between Executive and the Company as follows: 1. (a) Executive, for and in consideration of the commitments of the Company as set forth in paragraph 6 of this Agreement, and intending to be legally bound, does hereby REMISE, RELEASE AND FOREVER DISCHARGE the Company, its affiliates, subsidiaries and parents, and its officers, directors, employees, and agents, and its and their respective successors and assigns, heirs, executors, and administrators (collectively, "Releasees") from all causes of action, suits, debts, claims and demands whatsoever in law or in equity, which Executive ever had, now has, or hereafter may have, whether known or unknown, or which Executive's heirs, executors, or administrators may have, by reason of any matter, cause or thing whatsoever, from the beginning of Executive's employment to the date of this Agreement, and particularly, but without limitation of the foregoing general terms, any claims arising from or relating in any way to Executive's employment relationship with the Company, the terms and conditions of that employment relationship, and the termination of that employment relationship, including, but not limited to, any claims arising under the Age Discrimination in Employment Act, the Older Workers Benefit Protection Act, Title VII of The Civil Rights Act of 1964, the Americans with Disabilities Act, the Family and Medical Leave Act of 1993, the Employee Retirement Income Security Act of 1974, [State Fair Employment Practice Law], and any other claims under any federal, state or local common law, statutory, or regulatory provision, now or hereafter recognized, and any claims for attorneys' fees and costs. This Agreement is effective without regard to the legal nature of the claims raised and without regard to whether any such claims are based upon tort, equity, implied or express contract or discrimination of any sort. (b) To the fullest extent permitted by law, and subject to the provisions of paragraph 11 below, Executive represents and affirms that (i) [other than _______,] Executive has not filed or caused to be filed on Executive's behalf any claim for relief against the Company or any Releasee and, to the best of Executive's knowledge and belief, no outstanding claims for relief have been filed or asserted against the Company or any Releasee on Executive's behalf; (ii) [other than _______,] Executive has not reported any improper, unethical or illegal conduct or activities to any supervisor, manager, department head, human resources representative, agent or other representative of the Company, to any member of the Company's legal or compliance departments, or to the ethics hotline, and has no knowledge of any such improper, unethical or illegal conduct or activities; and (iii) Executive will not file, commence, prosecute or participate in any judicial or arbitral action or proceeding against the Company or any Releasee based upon or arising out of any act, omission, transaction, occurrence, contract, claim or event existing or occurring on or before the date of this Agreement. 2. [The Company, for and in consideration of the commitments of the Executive as set forth in this Agreement, and intending to be legally bound, does hereby REMISE, RELEASE AND FOREVER DISCHARGE the Executive from all claims, demands or causes of action arising out of facts or occurrences prior to the date of this Agreement, but only to the extent the Company knows or reasonably should know of such facts or occurrence and only to the extent such claim, demand or cause of action relates to a violation of applicable law or the performance of Executive's duties with the Company; provided, however, that this release of claims shall not in any case be effective with respect to any claim by the Company alleging a breach of the Executive's obligations under this Agreement.] [Note: Paragraph 2 only applies if Executive is receiving severance benefits on account of an Involuntary Termination Associated With a Change in Control.] 3. In consideration of the Company's agreements as set forth in paragraph 6 herein, Executive agrees to be comply with the limitations described in Sections 10 and 11 of the Severance Agreement. 4. Executive further agrees and recognizes that Executive has permanently and irrevocably severed Executive's employment relationship with the Company, that Executive shall not seek employment with the Company or any affiliated entity at any time in the future, and that the Company has no obligation to employ him in the future. 5. Executive further agrees that Executive will not disparage or subvert the Company, or make any statement reflecting negatively on the Company, its affiliated corporations or entities, or any of their officers, directors, employees, agents or representatives, including, but not limited to, any matters relating to the operation or management of the Company, Executive's employment and the termination of Executive's employment, irrespective of the truthfulness or falsity of such statement. 6. In consideration for Executive's agreement as set forth herein, the Company agrees: [Note: The following severance benefits would apply if the Executive has an Involuntary Termination Prior to a Change in Control.] (i) [to pay Executive 150% of Executive's Base Pay (as defined in the Severance Agreement) [for the Severance Period (as defined in the Severance Agreement), payable in equal installments, consistent with the Company's past payroll practices, commencing with the first payroll period that occurs after the period during which Executive's right to revoke Executive's acceptance to the terms of this Agreement have expired.] or [, payable in a lump sum, within thirty (30) days after Executive's Date of Resignation (or the end of the revocation period set forth in this Agreement, if later).] (ii) to pay Executive Executive's pro rated Incentive Pay (as defined in the Severance Agreement) for the year in which Executive's Date of Resignation occurs. Such pro rated Incentive Pay shall be paid to Executive [for the Severance Period payable in equal installments, consistent with the Company's past payroll practices, commencing with the first payroll period that occurs after the period during which Executive's right to revoke Executive's acceptance to the terms of the Release has expired.] or [paid in a lump sum, within thirty (30) days after Executive's Date of Resignation (or the end of the revocation period set forth in this Agreement, if later).] (iii) [for a period of twelve (12) months following Executive's Date of Resignation, Executive shall continue to receive the medical and dental coverage in effect on Executive's Date of Resignation (or generally comparable coverage) for Executive and, where applicable, Executive's spouse and dependents, as the same may be changed from time to time for employees generally, as if Executive had continued in employment during such period.] or [pay Executive cash in a lump sum payment equal to Executive's after-tax cost of continuing comparable medical and dental coverage for the twelve (12) month period following Executive's Date of Resignation]. [The Company shall take all commercially reasonable efforts to provide that the COBRA health care continuation coverage period under section 4980B of the Code, shall commence immediately after the foregoing twelve (12) month benefit period, with such continuation coverage continuing until the earlier of (i) the end of the applicable COBRA health care continuation coverage period or (ii) the date on which Executive is covered by the medical and dental coverage of Executive's successor employer, if any.] (iv) with respect to any Company stock options held by the Executive as of Executive's Date of Resignation, the portion of Executive's stock options, if any, which would have vested and become exercisable within the one (1) year period after the Executive's Date of Resignation shall become vested and exercisable as of Executive's Date of Resignation, such options, plus any other options that previously became exercisable and have not expired or been exercised, to remain exercisable, notwithstanding anything in any other agreement governing such options, for the longer of (A) a period of six (6) months after the Executive's Date of Resignation, or (B) the period set forth in the award agreement covering the option, subject in either case only to the original term of the option. Any stock options held by Executive that are not exercisable as of the Executive's Date of Resignation shall terminate as of the Executive's Date of Resignation. (v) with respect to any shares of Company common stock that are held by the Executive that are, at the time of Executive's Date of Resignation, subject to the Company's repurchase right upon termination of the Executive's employment ("Restricted Stock"), to waive such repurchase right as to the number of shares of Restricted Stock that would have become no longer subject to the Company's repurchase right within the one (1) year period after the Executive's Date of Resignation. (vi) pay the cost of outplacement assistance services for Executive that are actually provided by an outplacement agency selected by Executive, which the Company provides prior approval, with such approval not to be unreasonably withheld, in an amount not to exceed twenty percent (20%) of the Executive's Base Pay. (vii) Executive shall receive any amounts earned, accrued or owing but not yet paid to Executive as of Executive's Date of Resignation, payable in a lump sum, and any benefits accrued or earned in accordance with the terms of any applicable benefit plans and programs of the Company. Except as set forth in this Agreement, it is expressly agreed and understood that Releasees do not have, and will not have, any obligations to provide Executive at any time in the future with any payments, benefits or considerations other than those recited in this paragraph, or those required by law, other than under the terms of any benefit plans which provide benefits or payments to former employees according to their terms.] [Note: The following severance benefits would apply if the Executive has an Involuntary Termination Associated With a Change in Control.] (i) [to pay to Executive a lump sum payment equal to (A) 2.5 times Base Pay (as defined in the Severance Agreement), plus (B) 2.5 times Incentive Pay (as defined in the Severance Agreement). Payment shall be made within thirty (30) days after the effective date of Executive's Date of Resignation (or the end of the revocation period set forth in this Agreement, if later). (ii) to pay Executive Executive's pro rated Incentive Pay (as defined in the Severance Agreement) for the year in which Executive's Date of Resignation occurs. Such pro rated Incentive Pay shall be paid to Executive in a lump sum within thirty (30) days after the effective date of the termination (or the end of the revocation period set forth in this Agreement, if later). (iii) [for a period of thirty (30) months following Executive's Date of Resignation, Executive shall continue to receive the medical and dental coverage in effect on Executive's Date of Resignation (or generally comparable coverage) for Executive and, where applicable, Executive's spouse and dependents, as the same may be changed from time to time for employees generally, as if Executive had continued in employment during such period] or [pay Executive cash in a lump sum payment equal to Executive's after-tax cost of continuing comparable medical and dental coverage for the thirty (30) month period following Executive's Date of Resignation.] [The Company shall take all commercially reasonable efforts to provide that the COBRA health care continuation coverage period under section 4980B of the Code, shall commence immediately after the foregoing thirty (30) month benefit period, with such continuation coverage continuing until the earlier of (i) the end of the applicable COBRA health care continuation coverage period or (ii) the date on which Executive is covered by the medical and dental coverage of Executive's successor employer, if any.] (iv) to pay to Executive a lump sum payment equal to the total amount that Executive would have received under the Company's 401(k) plan as a Company match if Executive was eligible to participate in the Company's 401(k) plan for the thirty (30) month period after Executive's Date of Resignation and Executive contributed the maximum amount to the plan for the match. Payment shall be made within thirty (30) days after the Executive's Date of Resignation (or the end of the revocation period set forth in this Agreement, if later). (v) [to pay to Executive a lump sum payment equal to the total premiums that the Company would have paid under Executive's split-dollar life insurance policy, if any, that is in effect immediately prior to Executive's Date of Resignation, if Executive was employed by the Company for the thirty (30) month period following Executive's Date of Resignation. Payment shall be made within thirty (30) days after the effective date of Executive's Date of Resignation (or the end of the revocation period set forth in this Agreement, if later)]. [Note: The foregoing only applies if Executive has a split-dollar arrangement with the Company and the Company is required to make premium contributions on Executive's Date of Resignation. The total months covered by the premiums will be reduced if the term of the policy is shorter than that provided for Executive.] (vi) to pay to Executive a lump sum payment equal to twenty percent (20%) of the Executive's Base Pay in order to cover the cost of outplacement assistance services for Executive. Payment shall be made within thirty (30) days after the effective date of Executive's Date of Resignation (or the end of the revocation period set forth in this Agreement, if later). (vii) Executive shall receive any amounts earned, accrued or owing but not yet paid to Executive as of Executive's Date of Resignation, payable in a lump sum, and any benefits accrued or earned in accordance with the terms of any applicable benefit plans and programs of the Company. Except as set forth in this Agreement, it is expressly agreed and understood that Releasees do not have, and will not have, any obligations to provide Executive at any time in the future with any payments, benefits or considerations other than those recited in this paragraph, or those required by law, other than under the terms of any benefit plans which provide benefits or payments to former employees according to their terms.] 7. Executive understands and agrees that the payments, benefits and agreements provided in this Agreement are being provided to him in consideration for Executive's acceptance and execution of, and in reliance upon Executive's representations in, this Agreement. Executive acknowledges that if Executive had not executed this Agreement containing a release of all claims against the Company, Executive would only have been entitled to the payments provided in the Company's standard severance pay plan for employees. 8. Executive acknowledges and agrees that the Company previously has satisfied any and all obligations owed to him under any employment agreement or offer letter Executive has with the Company and, further, that this Agreement supersedes any employment agreement or offer letter Executive has with the Company, and any and all prior agreements or understandings, whether written or oral, between the parties shall remain in full force and effect to the extent not inconsistent with this Agreement, and further, that, except as set forth expressly herein, no promises or representations have been made to him in connection with the termination of Executive's employment agreement, if any, or offer letter, if any, with the Company, or the terms of this Agreement. 9. Executive agrees not to disclose the terms of this Agreement to anyone, except Executive's spouse, attorney and, as necessary, tax/financial advisor. Likewise, the Company agrees that the terms of this Agreement will not be disclosed except as may be necessary to obtain approval or authorization to fulfill its obligations hereunder or as required by law. It is expressly understood that any violation of the confidentiality obligation imposed hereunder constitutes a material breach of this Agreement. 10. Executive represents that Executive does not presently have in Executive's possession any records and business documents, whether on computer or hard copy, and other materials (including but not limited to computer disks and tapes, computer programs and software, office keys, correspondence, files, customer lists, technical information, customer information, pricing information, business strategies and plans, sales records and all copies thereof) (collectively, the "Corporate Records") provided by the Company and/or its predecessors, subsidiaries or affiliates or obtained as a result of Executive's prior employment with the Company and/or its predecessors, subsidiaries or affiliates, or created by Executive while employed by or rendering services to the Company and/or its predecessors, subsidiaries or affiliates. Executive acknowledges that all such Corporate Records are the property of the Company. In addition, Executive shall promptly return in good condition any and all Company owned equipment or property, including, but not limited to, automobiles, personal data assistants, facsimile machines, copy machines, pagers, credit cards, cellular telephone equipment, business cards, laptops and computers. As of the Date of Resignation, the Company will make arrangements to remove, terminate or transfer any and all business communication lines including network access, cellular phone, fax line and other business numbers. 11. Nothing in this Agreement shall prohibit or restrict Executive from: (i) making any disclosure of information required by law; (ii) providing information to, or testifying or otherwise assisting in any investigation or proceeding brought by, any federal regulatory or law enforcement agency or legislative body, any self-regulatory organization, or the Company's [designated legal, compliance or human resources officers]; or (iii) filing, testifying, participating in or otherwise assisting in a proceeding relating to an alleged violation of any federal, state or municipal law relating to fraud, or any rule or regulation of the Securities and Exchange Commission or any self-regulatory organization. 12. The parties agree and acknowledge that the agreement by the Company described herein, and the settlement and termination of any asserted or unasserted claims against the Releasees, are not and shall not be construed to be an admission of any violation of any federal, state or local statute or regulation, or of any duty owed by any of the Releasees to Executive. 13. Executive agrees and recognizes that should Executive breach any of the obligations or covenants set forth in this Agreement, the Company will have no further obligation to provide Executive with the consideration set forth herein, and will have the right to seek repayment of all consideration paid up to the time of any such breach. Further, Executive acknowledges in the event of a breach of this Agreement, Releasees may seek any and all appropriate relief for any such breach, including equitable relief and/or money damages, attorney's fees and costs. 14. Executive further agrees that the Company shall be entitled to preliminary and permanent injunctive relief, without the necessity of proving actual damages, as well as to an equitable accounting of all earnings, profits and other benefits arising from any violations of this Agreement, which rights shall be cumulative and in addition to any other rights or remedies to which the Company may be entitled. 15. This Agreement and the obligations of the parties hereunder shall be construed, interpreted and enforced in accordance with the laws of the Commonwealth of Massachusetts. 16. Executive certifies and acknowledges as follows: (a) That Executive has read the terms of this Agreement, and that Executive understands its terms and effects, including the fact that Executive has agreed to RELEASE AND FOREVER DISCHARGE the Company and each and everyone of its affiliated entities from any legal action arising out of Executive's employment relationship with the Company and the termination of that employment relationship; (b) That Executive has signed this Agreement voluntarily and knowingly in exchange for the consideration described herein, which Executive acknowledges is adequate and satisfactory to him and which Executive acknowledges is in addition to any other benefits to which Executive is otherwise entitled; (c) That Executive has been and is hereby advised in writing to consult with an attorney prior to signing this Agreement; (d) That Executive does not waive rights or claims that may arise after the date this Agreement is executed; (e) That the Company has provided him with a period of [twenty-one (21)] or [forty-five (45)] days within which to consider this Agreement, and that Executive has signed on the date indicated below after concluding that this Separation of Employment Agreement and General Release is satisfactory to him; and (f) Executive acknowledges that this Agreement may be revoked by him within seven (7) days after execution, and it shall not become effective until the expiration of such seven (7) day revocation period. In the event of a timely revocation by Executive, this Agreement will be deemed null and void and the Company will have no obligations hereunder. [SIGNATURE PAGE FOLLOWS] Intending to be legally bound hereby, Executive and the Company executed the foregoing Separation of Employment Agreement and General Release this ______ day of _______, ____. _____________________________ Witness:________________________ [Executive] NOVELL, INC. By:___________________________ Witness:________________________ Name: Title: EX-10 4 exh10-2.txt GERARD VAN KEMMEL SEVERANCE AGREEMENT Exhibit 10.2 SEVERANCE AGREEMENT THIS SEVERANCE AGREEMENT (this "Agreement"), dated as of March 25, 2003, is made and entered by and between Novell, Inc., a Delaware corporation (the "Company"), and Gerard Van Kemmel (the "Executive"). WITNESSETH: WHEREAS, the Executive is a senior executive of the Company and has made and is expected to continue to make major contributions to the short- and long-term profitability, growth and financial strength of the Company; WHEREAS, the Company currently maintains the Novell, Inc. Senior Management Severance Plan (the "Severance Plan") which provides severance benefits to participants on account of a termination of employment with the Company related to, and unrelated to, a change in control; WHEREAS, the Executive is a participant in the Severance Plan and is eligible to receive severance benefits under the Severance Plan; WHEREAS, the Board (as defined below) has taken action to terminate the Severance Plan as of November 1, 2003; WHEREAS, the Board has determined that appropriate alternative arrangements should be taken to encourage the continued attention and dedication of Executive to his assigned duties without distraction; WHEREAS, as a result of the termination of the Severance Plan and in consideration of the Executive's continued employment with the Company and the Executive's agreement to waive any rights he may have to receive severance compensation and benefits under the Severance Plan, the Company desires to provide Executive with certain compensation and benefits set forth in this Agreement in order to ameliorate the financial and career impact on Executive in the event the Executive's employment with the Company is terminated for a reason related to, or unrelated to, a Change in Control (as defined below) of the Company; and WHEREAS, the Executive agrees to waive any rights he may have under the Severance Plan NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, the Company and the Executive agree as follows: 1. Certain Defined Terms. In addition to terms defined elsewhere herein, the following terms have the following meanings when used in this Agreement with initial capital letters: (a) "Base Pay" means the greater of (i) Executive's annual base salary rate, exclusive of bonuses, commissions and other Incentive Pay, as in effect immediately preceding Executive's Termination Date, or (ii) Executive's highest annual base salary rate, exclusive of bonuses, commissions and other Incentive Pay, as in effect in any of the three (3) full calendar years preceding Executive's Termination Date. (b) "Board" means the Board of Directors of the Company. (c) "Cause": (i) For purposes of Involuntary Termination Prior to a Change in Control, means a determination by the Company's Chief Executive Officer or Senior Vice President-People, in either case with legal advice and consultation of the Company's Senior Vice President - General Counsel, acting in his authority as the Company's general counsel, that Executive has committed any of the following acts: (A) continued violations of the Executive's obligations which are demonstrably willful or deliberate on the Executive's part after there has been delivered to the Executive a written demand for performance from the Company which describes the basis for the Company's belief that the Executive has willfully or deliberately violated his obligations to the Company; (B) engaging in willful misconduct which is injurious to the Company or any Subsidiary; (C) committing a felony, an act of fraud against or the misappropriation of property belonging to the Company or any Subsidiary; (D) breaching, in any material respect, terms of any confidentiality or proprietary information agreement between the Executive and the Company; or (E) committing a material violation of the Company's Code of Business Ethics or Employee Conduct and Standards Policy, as either or both are in effect from time to time by the Company. (ii) For purposes of Involuntary Termination Associated With a Change in Control, means a determination by the Board that Executive has committed any of the following acts: (A) the Executive has been convicted of a criminal violation involving fraud, embezzlement or theft in connection with his duties or in the course of his employment with the Company or any Subsidiary; or (B) the Executive has committed intentional wrongful disclosure of secret processes or confidential information of the Company or any Subsidiary; and any such act has been demonstrably and materially harmful to the Company. For purposes of this subparagraph (B), no act on the part of the Executive will be deemed "intentional" if it was due primarily to an error in judgment or negligence, but will be deemed "intentional" if done by the Executive not in good faith and without reasonable belief that the Executive's action was in the best interest of the Company. Notwithstanding the foregoing, the Executive will not be deemed to have been terminated for "Cause" under this subsection (ii) unless and until there has been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the members of the Board then in office at a meeting of the Board, finding that, in the good faith opinion of the Board, the Executive has committed an act constituting "Cause," as herein defined, and specifying the particulars thereof in detail. Prior to any such determination, Executive shall be provided with reasonable notice of such pending determination and Executive, together with his counsel (if the Executive chooses to have counsel present at such meeting), shall be provided with the opportunity to be heard before the Board makes any such determination. Nothing herein will limit the right of the Executive or his beneficiaries to contest the validity or propriety of any such determination. (d) "Change in Control" means the occurrence of any of the following events: (i) the acquisition by any individual, entity or group (within the meaning of section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of the combined voting power of the then outstanding Voting Stock of the Company; provided, however, that for purposes of this Section 1(d)(i), the following acquisitions will not constitute a Change in Control: (A) any issuance of Voting Stock of the Company directly from the Company that is approved by the Incumbent Board (as defined in Section 1(d)(ii), below), (B) any acquisition by the Company of Voting Stock of the Company, (C) any acquisition of Voting Stock of the Company by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, or (D) any acquisition of Voting Stock of the Company by any Person pursuant to a Business Combination that complies with clauses (A), (B) and (C) of Section 1(d)(iii), below; and provided, further, that a Change in Control will not occur if any Person becomes the beneficial owner of 25% or more of the combined voting power of the Voting Stock of the Company solely as a result of an issuance of Voting Stock described in clause (A) of this Section 1(d)(i) or an acquisition of Voting Stock described in clause (B) of this Section 1(d)(i) unless and until such Person thereafter acquires beneficial ownership of Voting Stock of the Company that causes the aggregate percent of the combined voting power of the Voting Stock of the Company then owned beneficially by such Person to exceed the percent of the combined voting power of Voting Stock of the Company owned beneficially by such Person immediately after such issuance or acquisition described in clause (A) or (B) of this Section 1(d)(i); (ii) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board," as modified by this Section 1(d)(ii)), cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a Director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least two-thirds of the Directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) will be deemed to have then been a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the Exchange Act) with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; (iii) consummation of a reorganization, merger or consolidation, a sale or other disposition of all or substantially all of the assets of the Company, or other transaction (each, a "Business Combination"), unless, in each case, immediately following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners of Voting Stock of the Company immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding shares of Voting Stock of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries), (B) no Person (other than the Company; such entity resulting from such Business Combination; any employee benefit plan (or related trust) sponsored or maintained by the Company, any Subsidiary or such entity resulting from such Business Combination; or any Person who immediately prior to such Business Combination beneficially owned directly or indirectly 25% or more of the combined voting power of the voting stock of the Company and whose ownership of such Voting Stock did not result in a Change in Control under Section 1(d)(i)) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then outstanding shares of Voting Stock of the entity resulting from such Business Combination, and (C) at least a majority of the members of the Board of Directors of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or (iv) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company, except pursuant to a Business Combination that complies with clauses (A), (B) and (C) of Section 1(d)(iii). (e) "COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1986, as amended. (f) "Code" means the Internal Revenue Code of 1986, as amended. (g) "Constructive Termination Associated With a Change in Control" means the termination of the Executive's employment with the Company by Executive as a result of the occurrence of one of the following events as a result of a Change in Control: (i) without the Executive's express written consent, the failure to elect or reelect or otherwise to maintain the Executive in the office or the position, or an equivalent office or position, of or with the Company and/or a Subsidiary (or any successor thereto by operation of law of or otherwise), as the case may be, which the Executive held immediately prior to a Change in Control, or the removal of the Executive as a Director of the Company and/or a Subsidiary (or any successor thereto) if the Executive has been a Director of the Company and/or a Subsidiary immediately prior to the Change in Control; (ii) without the Executive's express written consent, the failure of the Company to remedy any of the following within ten (10) business days after receipt by the Company of written notice thereof from the Executive: (A) an adverse change in the nature or scope of the authorities, powers, functions, responsibilities or duties attached to the position with the Company and any Subsidiary which the Executive held immediately prior to the Change in Control, (B) a reduction in the aggregate of the Executive's Base Pay and Incentive Pay, or (C) the termination or denial of the Executive's rights to Employee Benefits or a reduction in the scope or value thereof; (iii) without the Executive's express written consent, a determination by the Executive (which determination will be conclusive and binding upon the parties hereto provided it has been made in good faith and in all events will be presumed to have been made in good faith unless otherwise shown by the Company by clear and convincing evidence) that a change in circumstances has occurred following a Change in Control, including, without limitation, a change in the scope of the business or other activities for which the Executive was responsible immediately prior to the Change in Control, which has rendered the Executive unable to carry out, has hindered the Executive's performance of, or has caused the Executive to suffer a reduction in, any of the authorities, powers, functions, responsibilities or duties attached to the position held by the Executive immediately prior to the Change in Control, which situation is not remedied within ten (10) business days after written notice to the Company from the Executive of such determination; (iv) without the Executive's express written consent, the liquidation, dissolution, merger, consolidation or reorganization of the Company or transfer of all or substantially all of its business and/or assets, unless the successor or successors (by liquidation, merger, consolidation, reorganization, transfer or otherwise) to which all or substantially all of its business and/or assets have been transferred (by operation of law or otherwise) assumes all duties and obligations of the Company under this Agreement pursuant to Section 15(a); (v) without the Executive's express written consent, a requirement by the Company that the Executive have his principal location of work changed to any location that is in excess of thirty-five (35) miles from the location thereof immediately prior to the Change in Control, or that the Executive travel away from his office in the course of discharging his responsibilities or duties hereunder at least 20% more (in terms of aggregate days in any calendar year or in any calendar quarter when annualized for purposes of comparison to any prior year) than was required of the Executive in any of the three (3) full years immediately prior to the Change in Control; or (vi) without limiting the generality or effect of the foregoing, without the Executive's express written consent, any material breach of this Agreement by the Company or any successor thereto which is not remedied by the Company within ten (10) business days after receipt by the Company of written notice from the Executive of such breach. In no event shall the termination of Executive's employment with the Company on account of the Executive's death or Disability or because the Executive engaged in conduct constituting Cause be deemed to be a Constructive Termination Associated With a Change in Control. (h) "Constructive Termination Prior to a Change in Control" means the termination of Executive's employment with the Company by the Executive as a result of: (i) without the Executive's express written consent, a comprehensive and substantial reduction in all or most of the Executive's primary duties, authority and responsibilities compared to the Executive's duties, authority and responsibilities immediately prior to such reduction; (ii) without the Executive's express written consent, a significant reduction in the Executive's Base Pay compared to the Executive's Base Pay in effect immediately prior to such reduction; provided, however, that a reduction in the Executive's Base Pay of less than twenty percent (20%) or a reduction in the Executive's Base Pay that is part of an overall reduction in compensation also applied to other senior executives of the Company as a result of decreased business performance by the Company or one of its business units, shall not constitute a Constructive Termination Prior to a Change in Control; or (iii) without the Executive's express written consent, the failure of the Company to obtain the assumption of this Agreement by any successors. In no event shall the termination of Executive's employment with the Company on account of the Executive's death or Disability or because the Executive engaged in conduct constituting Cause be deemed to be a Constructive Termination Prior to a Change in Control. (i) "Disability" means the Executive becomes permanently disabled within the meaning of, and begins actually to receive disability benefits pursuant to, the long-term disability plan in effect for, or applicable to, the Executive. (j) "Employee Benefits" means the perquisites, benefits and service credit for benefits as provided under any and all employee retirement income and welfare benefit policies, plans, programs or arrangements in which the Executive is entitled to participate, including, without limitation, any stock option, performance share, performance unit, stock purchase, stock appreciation, savings, pension, supplemental executive retirement, or other retirement income or welfare benefit, deferred compensation, incentive compensation, group or other life, health, medical/hospital or other insurance (whether funded by actual insurance or self-insured by the Company or a Subsidiary), disability, salary continuation, expense reimbursement and other employee benefit policies, plans, programs or arrangements that may now exist or any equivalent successor policies, plans, programs or arrangements that may be adopted hereafter by the Company or a Subsidiary, providing perquisites, benefits and service credit for benefits at least as great in the aggregate as are payable thereunder. (k) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (l) "Incentive Pay" means the greater of: (i) Executive's maximum Target Bonus for which Executive was eligible during the period that includes the Termination Date, or (ii) the highest aggregate bonus or incentive payment paid to Executive during any of the three (3) full calendar years prior to his Termination Date. For purposes of this definition, "Target Bonus" means the annual bonus, incentive, commission or other sales incentive compensation, or comparable incentive payment opportunity which, in the sole discretion of the Company, is deemed to constitute a Target Bonus, in addition to Base Pay, for which Executive was eligible to receive, but did not receive prior to his Termination Date, in regard to services rendered in the year covered by Executive's Termination Date and is to be made pursuant to any bonus, incentive, profit-sharing, performance, discretionary pay or similar agreement, policy, plan, program or arrangement (whether or not funded) of the Company or a Subsidiary, or any successor thereto. For purposes of this definition, "Incentive Pay" does not include any stock option, stock appreciation, stock purchase, restricted stock or similar plan, program, arrangement or grant, one time bonus or payment (including, but not limited to, any sign-on bonus), any amounts contributed by the Company for the benefit of Executive to any qualified or nonqualified deferred compensation plan, whether or not provided under an arrangement described in the prior sentence, or any amounts designated by the parties as amounts other than Incentive Pay. (m) "Involuntary Termination Associated With a Change in Control" means the termination of Executive's employment related to a Change in Control: (i) by the Company for any reason other than Cause, the Executive's death or the Executive's Disability, or (ii) on account of a Constructive Termination Associated with a Change in Control. (n) "Involuntary Termination Prior to a Change in Control" means the termination of Executive's employment unrelated to a Change in Control: (i) by the Company for any reason other than Cause, the Executive's death or the Executive's Disability, or (ii) on account of a Constructive Termination Prior to a Change in Control. (o) "Restricted Business" means, (i) if the Executive is entitled to severance benefits under this Agreement on account of an Involuntary Termination Prior to a Change in Control, (A) the design, development, manufacture, marketing or support of local or wide area network products, computer operating systems, applications products, software products or services that enable organizations to more effectively conduct business using the Web, or any other software products of the type designed, developed, manufactured, sold or supported by the Company or as proposed to be designed, developed, manufactured, sold or supported by the Company pursuant to a development project that is actually being pursued during the term of this Agreement; (B) any business that performs technology and consulting services that help businesses develop and accelerate their transition to Internet-based e-business solutions and processes, or management services that assist businesses in improving their operating processes; or (C) any business that competes directly or indirectly with the hardware, software or consulting businesses of the Company. (ii) if the Executive is entitled to severance benefits under this Agreement on account of an Involuntary Termination Associated With a Change in Control, any business function with a direct competitor of the Company that is substantially similar to the business function performed by the Executive with the Company immediately prior to his Termination Date. (p) "Restricted Territory" means the counties, towns, cities or states of any country in which the Company operates or does business. (q) "Severance Period" means the twelve (12) month period after the Executive's Termination Date. (r) "Subsidiary" means any Company controlled affiliate. (s) "Termination Date" means the last day of Executive's employment with the Company. (t) "Termination of Employment" means, except as provided in the following sentence, the termination of Executive's active employment relationship with the Company on account of an Involuntary Termination Prior to a Change in Control or an Involuntary Termination Associated With a Change in Control. For purposes of the non-solicitation provision of Section 11 of the Agreement, the term "Termination of Employment" shall mean the termination of Executive's employment relationship with the Company for any reason, including, but not limited to, the Executive's Involuntary Termination Prior to a Change in Control, Involuntary Termination Associated With a Change in Control, voluntary termination, termination on account of Disability, or termination by the Company for Cause. (u) "Voting Stock" means securities entitled to vote generally in the election of directors. 2. Termination Prior to a Change in Control. (a) Involuntary Termination Prior to a Change in Control. In the event Executive's employment is terminated on account of an Involuntary Termination Prior to a Change in Control, Executive shall be entitled to the benefits provided in subsection (b) of this Section 2. (b) Compensation and Benefits Upon Involuntary Termination Prior to a Change in Control. Subject to the provisions of Section 5 hereof, in the event a termination described in subsection (a) of this Section 2 occurs, the Company shall pay and provide to the Executive after his Termination Date: (i) 150% of his Base Pay, payable in equal installments over the Severance Period, consistent with the Company's past payroll practices, commencing with the first payroll period that occurs after the period during which Executive's right to revoke his acceptance to the terms of the Release has expired. Notwithstanding the foregoing, the Company may determine, in its sole discretion and at any time, to provide that the amounts payable under this subsection (i) shall be paid to Executive in a lump sum, as opposed to installments over the Severance Period. (ii) Executive shall receive his pro rated Incentive Pay for the year in which his Termination of Employment occurs. The pro rated Incentive Pay shall be based on the Executive's Incentive Pay for the year in which Executive's Termination Date occurs, multiplied by a fraction, the numerator of which is the number of days during which Executive was employed by the Company in the year of his termination and the denominator of which is 365. Such pro rated Incentive Pay shall be paid to Executive in equal installments over the Severance Period, consistent with the Company's past payroll practices, commencing with the first payroll period that occurs after the period during which Executive's right to revoke his acceptance to the terms of the Release has expired. Notwithstanding the foregoing, the Company may determine, in its sole discretion and at any time, to provide that the amounts payable under this subsection (ii) shall be paid to Executive in a lump sum, as opposed to installments over the Severance Period. (iii) For a period of twelve (12) months following his Termination Date, Executive shall continue to receive the medical and dental coverage in effect on his Termination Date (or generally comparable coverage) for himself and, where applicable, his spouse and dependents, as the same may be changed from time to time for employees generally, as if Executive had continued in employment during such period; or, as an alternative, the Company may elect to pay Executive cash in lieu of such coverage in an amount equal to Executive's after-tax cost of continuing comparable coverage, where such coverage may not be continued by the Company (or where such continuation would adversely affect the tax status of the plan pursuant to which the coverage is provided). If the Executive does not receive the cash payment described in the preceding sentence, the Company shall take all commercially reasonable efforts to provide that the COBRA health care continuation coverage period under section 4980B of the Code, shall commence immediately after the foregoing twelve (12) month benefit period, with such continuation coverage continuing until the earlier of (i) the end of the applicable COBRA health care continuation coverage period or (ii) the date on which Executive is covered by the medical and dental coverage of his successor employer, if any. (iv) With respect to any Company stock options held by the Executive as of the date of such Involuntary Termination Prior to a Change in Control, the Company shall accelerate the vesting of that portion of the Executive's stock options, if any, which would have vested and become exercisable within the one (1) year period after the Executive's Termination Date, such options, plus any other options that previously became exercisable and have not expired or been exercised, to remain exercisable, notwithstanding anything in any other agreement governing such options, for the longer of (A) a period of six (6) months after the Executive's Termination Date, or (B) the period set forth in the award agreement covering the option; provided, however, that in no event will the option be exercisable beyond its original term. (v) With respect to any shares of Company common stock held by the Executive that are, at the time of such Involuntary Termination Prior to a Change in Control, subject to the Company's repurchase right upon termination of the Executive's employment ("Restricted Stock"), the Company shall waive such repurchase right as to the number of shares of Restricted Stock that would have vested within the one (1) year period after the Executive's Termination Date. (vi) To cover the cost of outplacement assistance services for Executive that are actually provided by an outplacement agency selected by Executive, for which the Company provides prior approval, with such approval not to be unreasonably withheld, in an amount not to exceed twenty percent (20%) of the Executive's Base Pay. (vii) Executive shall receive any amounts earned, accrued or owing but not yet paid to Executive as of his Termination Date, payable in a lump sum, and any benefits accrued or earned in accordance with the terms of any applicable benefit plans and programs of the Company. 3. Termination Associated With a Change in Control. (a) Involuntary Termination Associated With a Change in Control. In the event Executive's employment is terminated after, or in connection with, a Change in Control, on account of (i) an Involuntary Termination Associated With a Change in Control within the two year period after the Change in Control, or (ii) an Involuntary Termination Associated With a Change in Control that occurs (A) not more than six (6) months prior to the date on which a Change in Control occurs or (B) following the commencement of any discussion with a third person that ultimately results in a Change in Control, Executive shall be entitled to the benefits provided in subsection (b) of this Section 3. If Executive is entitled to benefits described in this Section 3 by reason of clause (a)(ii) above, Executive shall receive the compensation and benefits described in Section 2(b) above after his Termination of Employment, in accordance with the provisions of Section 2(b), regardless of whether the Change in Control actually occurs, and Executive shall receive the additional compensation and benefits described in Section 3(b) below only if the Change in Control is consummated and shall receive such additional amounts after the consummation of the Change in Control, in accordance with the provisions of Section 3(b) below. For purposes of subsection 3(a)(ii)(B) above, to be eligible to receive amounts described in Section 3(b) below, the Change in Control must be consummated within the twelve (12) month period following Executive's Termination Date, except in circumstances pursuant to which the consummation of the Change in Control is delayed, through no failure of the Company or the third person, by a governmental or regulatory authority or agency with jurisdiction over the matter, or as a result of other similar circumstances. In such a circumstance, the remaining of the twelve (12) month period shall be tolled and shall recommence upon termination of the delaying event. (b) Compensation and Benefits Upon Involuntary Termination Associated With a Change in Control. Subject to the provisions of Section 5 hereof, in the event a termination described in subsection (a) of this Section 3 occurs, the Company shall pay and provide to the Executive after his Termination Date: (i) Lump sum payment equal to (A) 2 times Base Pay, plus (B) 2 times Incentive Pay. Payment shall be made within thirty (30) days after Executive's Termination Date (or the end of the revocation period for the Release, if later). (ii) Executive shall receive his pro rated Incentive Pay for the year in which his Termination of Employment occurs. The pro rated Incentive Pay shall be based on the Executive's Incentive Pay for the year in which Executive's Termination Date occurs, multiplied by a fraction, the numerator of which is the number of days during which Executive was employed by the Company in the year of his termination and the denominator of which is 365. Such pro rated Incentive Pay shall be paid to Executive in a lump sum within thirty (30) days after the effective date of the termination (or the end of the revocation period for the Release, if later). (iii) For a period of twenty-four (24) months following his Termination Date, Executive shall continue to receive the medical and dental coverage in effect on his Termination Date (or generally comparable coverage) for himself and, where applicable, his spouse and dependents, as the same may be changed from time to time for employees generally, as if Executive had continued in employment during such period; or, as an alternative, the Company may elect to pay Executive cash in lieu of such coverage in an amount equal to Executive's after-tax cost of continuing comparable coverage, where such coverage may not be continued by the Company (or where such continuation would adversely affect the tax status of the plan pursuant to which the coverage is provided). If the Executive does not receive the cash payment described in the preceding sentence, the Company shall take all commercially reasonable efforts to provide that the COBRA health care continuation coverage period under section 4980B of the Code, shall commence immediately after the foregoing twenty-four (24) month benefit period, with such continuation coverage continuing until the earlier of (i) the end of the applicable COBRA health care continuation coverage period or (ii) the date on which Executive is covered by the medical and dental coverage of his successor employer, if any. (iv) Lump sum payment equal to the total amount that Executive would have received under the Company's 401(k) plan as a Company match if Executive was eligible to participate in the Company's 401(k) plan for the twenty-four (24) month period after his Termination Date and he contributed the maximum amount to the plan for the match. Payment shall be made within thirty (30) days after Executive's Termination Date (or the end of the revocation period for the Release, if later). (v) Lump sum payment equal to the total premiums that the Company would have paid under Executive's split-dollar life insurance policy, if any, that is in effect immediately prior to his Termination Date, if Executive was employed by the Company for the twenty-four (24) month period following Executive's Termination Date; provided, however, that if the remaining length of the term of the split-dollar arrangement pursuant to which the Company must make premium payments is less than the foregoing twenty-four (24) month period, Executive shall only receive a lump sum payment equal to the remaining Company premiums for the term of the arrangement. Payment shall be made within thirty (30) days after Executive's Termination Date (or the end of the revocation period for the Release, if later). Notwithstanding the foregoing, no payment shall be made to Executive pursuant to this subsection (v) if on the Executive's Termination Date, either Executive does not have a split-dollar life insurance policy with the Company or the Company has no obligations to make premium contributions to Executive's split-dollar life insurance policy. (vi) Lump sum payment equal to twenty percent (20%) of the Executive's Base Pay in order to cover the cost of outplacement assistance services for Executive. Payment shall be made within thirty (30) days after Executive's Termination Date (or the end of the revocation period for the Release, if later). (vii) Executive shall receive any amounts earned, accrued or owing but not yet paid to Executive as of his Termination Date, payable in a lump sum, and any benefits accrued or earned in accordance with the terms of any applicable benefit plans and programs of the Company. (c) Notwithstanding any provision to the contrary in any applicable plan, program or agreement, upon the occurrence of a Change in Control, all stock options, Restricted Stock and other equity rights held by the Executive will become fully vested and/or exercisable, as the case may be, on the date on which the Change in Control occurs, and all stock options held by the Executive shall remain exercisable, notwithstanding anything in any other agreement governing such options, for the longer of (i) a period of twenty-four (24) months after the Executive's Termination Date, or (ii) the period set forth in the award agreement covering the option; provided, however, that in no event will the option be exercisable beyond its original term. 4. Termination of Employment on Account of Disability, Cause or Death. Notwithstanding anything in this Agreement to the contrary, if Executive's employment terminates on account of Disability, Executive shall be entitled to receive disability benefits under any disability program maintained by the Company that covers Executive, and Executive shall not be considered to have terminated employment under this Agreement and shall not receive benefits pursuant to Sections 2 and 3 hereof. If Executive's employment terminates on account of Cause or because of his death, Executive shall not be considered to have terminated employment under this Agreement and shall not receive benefits pursuant to Sections 2 and 3 hereof. 5. Release. Notwithstanding the foregoing, no such payments shall be made or benefits provided unless Executive executes, and does not revoke, the Company's standard written release, substantially in the form as attached hereto as Annex A, (the "Release"), of any and all claims against the Company and all related parties with respect to all matters arising out of Executive's employment by the Company (other than entitlements under the terms of this Agreement or under any other plans or programs of the Company in which Executive participated and under which Executive has accrued or become entitled to a benefit) or a termination thereof. 6. Enforcement. Without limiting the rights of the Executive at law or in equity, if the Company fails to make any payment or provide any benefit required to be made or provided hereunder on a timely basis, the Company will pay interest on the amount or value thereof at an annualized rate of interest equal to the so-called composite "prime rate" as quoted from time to time during the relevant period in the Eastern Edition of The Wall Street Journal. Such interest will be payable as it accrues on demand. Any change in such prime rate will be effective on and as of the date of such change. 7. Certain Additional Payments by the Company. (a) The provisions of this Section 7 shall apply notwithstanding anything in this Agreement to the contrary. Subject to subsection (b) below, in the event that it shall be determined that any payment or distribution by the Company to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would constitute an "excess parachute payment" within the meaning of section 280G of the Code, the Company shall pay Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by Executive after deduction of any excise tax imposed under section 4999 of the Code, and any federal, state and local income tax, employment tax, excise tax and other tax imposed upon the Gross-Up Payment, shall be equal to the Payment. (b) Notwithstanding subsection (a), and notwithstanding any other provisions of this Agreement to the contrary, if the net after-tax benefit to Executive of receiving the Gross-Up Payment does not exceed the Safe Harbor Amount (as defined below) by more than 10% (as compared to the net-after tax benefit to Executive resulting from elimination of the Gross-Up Payment and reduction of the Payments to the Safe Harbor Amount), then (i) the Company shall not pay Executive the Gross-Up Payment and (ii) the provisions of subsection (c) below shall apply. The term "Safe Harbor Amount" means the maximum dollar amount of parachute payments that may be paid under section 280G of the Code without imposition of an excise tax under section 4999 of the Code. (c) The provisions of this subsection (c) shall apply only if the Company is not required to pay Executive a Gross-Up Payment as a result of subsection (b) above. If the Company is not required to pay Executive a Gross-Up Payment as a result of the provisions of subsection (b), the Company will apply a limitation on the Payment amount as set forth in subsection (i) below (a "Parachute Cap") if the application of the Parachute Cap is beneficial to Executive, according to the following provisions: (i) If subsection (ii) does not apply, the aggregate present value of the Payments under Section 3 of this Agreement ("Agreement Payments") shall be reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be subject to the limitation of deduction under section 280G of the Code. For purposes of this Section 7, "present value" shall be determined in accordance with section 280G(d)(4) of the Code. (ii) It is the intention of the parties that the Parachute Cap apply only if application of the Parachute Cap is beneficial to Executive. Therefore, if the net amount that would be retained by Executive under this Agreement without the Parachute Cap, after payment of any excise tax under section 4999 of the Code, exceeds the net amount that would be retained by Executive with the Parachute Cap, then the Company shall not apply the Parachute Cap to Executive's payments. In that event, neither the Parachute Cap nor the Gross-Up Payment will apply to Executive. (d) All determinations to be made under this Section 7 shall be made by the nationally recognized independent public accounting firm used by the Company immediately prior to the Change in Control ("Accounting Firm"), which Accounting Firm shall provide its determinations and any supporting calculations to the Company and Executive within ten days of Executive's termination date. If any Gross-Up Payment is required to be made, the Company shall make the Gross-Up Payment within ten days after receiving the Accounting Firm's calculations. Any such determination by the Accounting Firm shall be binding upon the Company and Executive. (e) All of the fees and expenses of the Accounting Firm in performing the determinations referred to in this Section 7 shall be borne solely by the Company. 8. No Mitigation Obligation. The Company hereby acknowledges that it will be difficult and may be impossible for the Executive to find reasonably comparable employment following the Termination Date. Accordingly, the payment of the severance compensation by the Company to the Executive in accordance with the terms of this Agreement is hereby acknowledged by the Company to be reasonable, and the Executive will not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor will any profits, income, earnings or other benefits from any source whatsoever create any mitigation, offset, reduction or any other obligation on the part of the Executive hereunder or otherwise. 9. Legal Fees and Expenses. In the event of a Change in Control, it is the intent of the Company that the Executive not be required to incur legal fees and the related expenses associated with the interpretation, enforcement or defense of the Executive's rights under this Agreement by litigation or otherwise because the cost and expense thereof would detract from the benefits intended to be extended to the Executive hereunder. Accordingly, if a Change in Control occurs and it should appear to the Executive that the Company has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, the Executive the benefits provided or intended to be provided to the Executive under Section 3(b) of the Agreement, the Company irrevocably authorizes the Executive from time to time to retain counsel of the Executive's choice, at the expense of the Company as hereafter provided, to advise and represent the Executive in connection with any such interpretation, enforcement or defense, including without limitation the initiation or defense of any litigation or other legal action, whether by or against the Company or any Director, officer, stockholder or other person affiliated with the Company, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to the Executive's entering into an attorney-client relationship with such counsel, and in that connection the Company and the Executive agree that a confidential relationship will exist between the Executive and such counsel. Without respect to whether the Executive prevails, in whole or in part, in connection with any of the foregoing, the Company will pay and be solely financially responsible for any and all attorneys' and related fees and expenses incurred by the Executive in connection with any of the foregoing; provided that, in regard to such matters, the Executive has not acted frivolously, in bad faith or with no colorable claim of success. Such expenses will be paid by the Company as they are incurred by Executive. 10. Confidentiality. The Executive hereby covenants and agrees that he will not disclose to any person not employed by the Company, or use in connection with engaging in competition with the Company, any confidential or proprietary information (as defined below) of the Company. For purposes of this Agreement, the term "confidential or proprietary information" will include all information of any nature and in any form that is owned by the Company and that is not publicly available (other than by the Executive's breach of this Section 10) or generally known to persons engaged in businesses similar or related to those of the Company. Confidential or proprietary information will include, without limitation, the Company's financial matters, customers, employees, industry contracts, strategic business plans, product development (or other proprietary product data), marketing plans, consulting solutions and processes, and all other secrets and all other information of a confidential or proprietary nature which is protected by the Uniform Trade Secrets Act. For purposes of the preceding two sentences, the term "Company" will also include any Subsidiary (collectively, the "Restricted Group"). The foregoing obligations imposed by this Section 10 will not apply (i) in the course of the business of and for the benefit of the Company, (ii) if such confidential or proprietary information has become, through no fault of the Executive, generally known to the public, or (iii) if the Executive is required by law to make disclosure (after giving the Company notice and an opportunity to contest such requirement). 11. Covenants Not to Compete and Not to Solicit. In the event of Executive's Termination of Employment, the Company's obligations to provide severance pay as provided in Sections 2 and 3 shall be expressly conditioned upon the Executive's covenants not to compete and not to solicit as provided herein. In the event the Executive breaches his obligations to the Company as provided herein, the Company's obligations to make severance payments to Executive pursuant to Sections 2 and 3 shall cease, without prejudice to any other remedies that may be available to the Company. (a) Covenant Not to Compete. (i) If Executive is receiving compensation and benefits under Section 2(b) above, then for a period of nine (9) months following Executive's Termination Date, the Executive shall not directly or indirectly, engage in (whether as employee, consultant, proprietor, partner, director or otherwise), or have any ownership interest in, or participate in a financing, operation, management or control of, any person, firm, corporation or business that is a Restricted Business in a Restricted Territory without the prior written consent of the Board. For this purpose, ownership of no more than 5% of the outstanding Voting Stock of a publicly traded corporation shall not constitute a violation of this provision. (ii) If Executive is receiving compensation and benefits under Section 3(b) above (or subsequently becomes entitled to severance under Section 3(b) above because of a termination described in Section 3(a)(ii)), then for a period of one (1) year following Executive's Termination Date, the Executive shall not directly or indirectly, engage in (whether as employee, consultant, proprietor, partner, director or otherwise), or have any ownership interest in, or participate in a financing, operation, management or control of, any person, firm, corporation or business that is a Restricted Business in a Restricted Territory without the prior written consent of the Board. For this purpose, ownership of no more than 5% of the outstanding Voting Stock of a publicly traded corporation shall not constitute a violation of this provision. (b) Covenant Not to Solicit. The Executive shall not, for a period of two (2) years after the Executive's Termination Date for any reason: (i) solicit, encourage or take any other action which is intended to induce any other employee of the Company to terminate his employment with the Company; or (ii) interfere in any manner with the contractual or employment relationship between the Company and any such employee of the Company. The foregoing shall not prohibit Executive or any entity with which Executive may be affiliated from hiring a former employee of the Company, provided that such hiring results exclusively from such former employee's affirmative response to a general recruitment effort. (c) Interpretation. The covenants contained herein are intended to be construed as a series of separate covenants, one for each county, town, city and state or other political subdivision of a Restricted Territory. Except for geographic coverage, each such separate covenant shall be deemed identical in terms to the covenant contained in the preceding subsections. If, in any judicial proceeding, the court shall refuse to enforce any of the separate covenants (or any part thereof) deemed included in such subsections, then such unenforceable covenant (or such part) shall be deemed to be eliminated from this Agreement for the purpose of those proceedings to the extent necessary to permit the remaining separate covenants (or portions thereof) to be enforced. (d) Reasonableness. In the event that the provisions of this Section 11 shall ever be deemed to exceed the time, scope or geographic limitations permitted by applicable laws, then such provisions shall be reformed to the maximum time, scope or geographic limitations, as the case may be, permitted by applicable laws. 12. Employment Rights. Nothing expressed or implied in this Agreement will create any right or duty on the part of the Company or the Executive to have the Executive remain in the employment of the Company or any Subsidiary prior to or following any Change in Control. 13. Withholding of Taxes. The Company may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as the Company is required to withhold pursuant to any applicable law, regulation or ruling. 14. Term of Agreement. This Agreement shall continue in full force and effect for the duration of Executive's employment with the Company; provided, however, that after the termination of Executive's employment during the term of this Agreement, this Agreement shall remain in effect until all of the obligations of the parties hereunder are satisfied or have expired. 15. Successors and Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance reasonably satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement will be binding upon and inure to the benefit of the Company and any successor to the Company, including without limitation any persons acquiring directly or indirectly all or substantially all of the business or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor will thereafter be deemed the "Company" for the purposes of this Agreement), but will not otherwise be assignable, transferable or delegable by the Company. (b) This Agreement will inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees and legatees. This Agreement will supersede the provisions of any employment or other agreement between the Executive and the Company that relate to any matter that is also the subject of this Agreement, and such provisions in such other agreements will be null and void. (c) This Agreement is personal in nature and neither of the parties hereto will, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 15(a) and 15(b). Without limiting the generality or effect of the foregoing, the Executive's right to receive payments hereunder will not be assignable, transferable or delegable, whether by pledge, creation of a security interest, or otherwise, other than by a transfer by the Executive's will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this Section 15(c), the Company will have no liability to pay any amount so attempted to be assigned, transferred or delegated. 16. Notices. For all purposes of this Agreement, all communications, including without limitation notices, consents, requests or approvals, required or permitted to be given hereunder will be in writing and will be deemed to have been duly given when hand delivered or dispatched by electronic facsimile transmission (with receipt thereof orally confirmed by the recipient), or five (5) business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three (3) business days after having been sent by a nationally recognized courier service for overnight/next-day delivery, such as FedEx, UPS, or the United States Postal Service, addressed to the Company (to the attention of the Secretary of the Company) at its principal executive office and to the Executive at his principal residence, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of changes of address will be effective only upon receipt. 17. Governing Law. The validity, interpretation, construction and performance of this Agreement will be governed by and construed in accordance with the substantive laws of the Commonwealth of Massachusetts, without giving effect to the principles of conflict of laws of such Commonwealth. 18. Validity. If any provision of this Agreement or the application of any provision hereof to any person or circumstances is held invalid, unenforceable or otherwise illegal, the remainder of this Agreement and the application of such provision to any other person or circumstances will not be affected, and the provision so held to be invalid, unenforceable or otherwise illegal will be reformed to the extent (and only to the extent) necessary to make it enforceable, valid or legal. 19. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party will be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, expressed or implied with respect to the subject matter hereof have been made by either party that are not set forth expressly in this Agreement. References to Sections are to references to Sections of this Agreement. Any reference in this Agreement to a provision of a statute, rule or regulation will also include any successor provision thereto. Whenever used herein, the masculine includes the feminine. 20. Survival. Notwithstanding any provision of this Agreement to the contrary, the parties' respective rights and obligations under Sections 2, 3, 7, 9, 10, and 11 will survive any termination or expiration of this Agreement or the termination of the Executive's employment for any reason whatsoever. 21. Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original but all of which together will constitute one and the same agreement. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first above written. NOVELL, INC. By: - ------------------------ Name: Jack L. Messman Title: Chairman and Chief Executive Officer EXECUTIVE - ------------------------ Gerard Van Kemmel Annex A SEPARATION OF EMPLOYMENT AGREEMENT AND GENERAL RELEASE THIS SEPARATION OF EMPLOYMENT AGREEMENT AND GENERAL RELEASE (the "Agreement") is made as of this ___ day of __________, ____, by and between Novell, Inc. (the "Company") and _______________ ("Executive"). WHEREAS, Executive formerly was employed by the Company as ________; WHEREAS, Executive and Company entered into the Severance Agreement, dated ____ ____, 200_, (the "Severance Agreement") which provides for certain benefits in the event that Executive's employment is terminated on account of a reason set forth in the Severance Agreement; WHEREAS, Executive and the Company mutually desire to terminate Executive's employment on an amicable basis, such termination to be effective _________ ____, ____ ("Date of Resignation"); and WHEREAS, in connection with the termination of Executive's employment, the parties have agreed to a separation package and the resolution of any and all disputes between them. NOW, THEREFORE, IT IS HEREBY AGREED by and between Executive and the Company as follows: 1. (a) Executive, for and in consideration of the commitments of the Company as set forth in paragraph 6 of this Agreement, and intending to be legally bound, does hereby REMISE, RELEASE AND FOREVER DISCHARGE the Company, its affiliates, subsidiaries and parents, and its officers, directors, employees, and agents, and its and their respective successors and assigns, heirs, executors, and administrators (collectively, "Releasees") from all causes of action, suits, debts, claims and demands whatsoever in law or in equity, which Executive ever had, now has, or hereafter may have, whether known or unknown, or which Executive's heirs, executors, or administrators may have, by reason of any matter, cause or thing whatsoever, from the beginning of Executive's employment to the date of this Agreement, and particularly, but without limitation of the foregoing general terms, any claims arising from or relating in any way to Executive's employment relationship with the Company, the terms and conditions of that employment relationship, and the termination of that employment relationship, including, but not limited to, any claims arising under the Age Discrimination in Employment Act, the Older Workers Benefit Protection Act, Title VII of The Civil Rights Act of 1964, the Americans with Disabilities Act, the Family and Medical Leave Act of 1993, the Employee Retirement Income Security Act of 1974, [State Fair Employment Practice Law], and any other claims under any federal, state or local common law, statutory, or regulatory provision, now or hereafter recognized, and any claims for attorneys' fees and costs. This Agreement is effective without regard to the legal nature of the claims raised and without regard to whether any such claims are based upon tort, equity, implied or express contract or discrimination of any sort. (b) To the fullest extent permitted by law, and subject to the provisions of paragraph 11 below, Executive represents and affirms that (i) [other than _______,] Executive has not filed or caused to be filed on Executive's behalf any claim for relief against the Company or any Releasee and, to the best of Executive's knowledge and belief, no outstanding claims for relief have been filed or asserted against the Company or any Releasee on Executive's behalf; (ii) [other than _______,] Executive has not reported any improper, unethical or illegal conduct or activities to any supervisor, manager, department head, human resources representative, agent or other representative of the Company, to any member of the Company's legal or compliance departments, or to the ethics hotline, and has no knowledge of any such improper, unethical or illegal conduct or activities; and (iii) Executive will not file, commence, prosecute or participate in any judicial or arbitral action or proceeding against the Company or any Releasee based upon or arising out of any act, omission, transaction, occurrence, contract, claim or event existing or occurring on or before the date of this Agreement. 2. [The Company, for and in consideration of the commitments of the Executive as set forth in this Agreement, and intending to be legally bound, does hereby REMISE, RELEASE AND FOREVER DISCHARGE the Executive from all claims, demands or causes of action arising out of facts or occurrences prior to the date of this Agreement, but only to the extent the Company knows or reasonably should know of such facts or occurrence and only to the extent such claim, demand or cause of action relates to a violation of applicable law or the performance of Executive's duties with the Company; provided, however, that this release of claims shall not in any case be effective with respect to any claim by the Company alleging a breach of the Executive's obligations under this Agreement.] [Note: Paragraph 2 only applies if Executive is receiving severance benefits on account of an Involuntary Termination Associated With a Change in Control.] 3. In consideration of the Company's agreements as set forth in paragraph 6 herein, Executive agrees to be comply with the limitations described in Sections 10 and 11 of the Severance Agreement. 4. Executive further agrees and recognizes that Executive has permanently and irrevocably severed Executive's employment relationship with the Company, that Executive shall not seek employment with the Company or any affiliated entity at any time in the future, and that the Company has no obligation to employ him in the future. 5. Executive further agrees that Executive will not disparage or subvert the Company, or make any statement reflecting negatively on the Company, its affiliated corporations or entities, or any of their officers, directors, employees, agents or representatives, including, but not limited to, any matters relating to the operation or management of the Company, Executive's employment and the termination of Executive's employment, irrespective of the truthfulness or falsity of such statement. 6. In consideration for Executive's agreement as set forth herein, the Company agrees: [Note: The following severance benefits would apply if the Executive has an Involuntary Termination Prior to a Change in Control.] (i) [to pay Executive 150% of Executive's Base Pay (as defined in the Severance Agreement) [for the Severance Period (as defined in the Severance Agreement), payable in equal installments, consistent with the Company's past payroll practices, commencing with the first payroll period that occurs after the period during which Executive's right to revoke Executive's acceptance to the terms of this Agreement have expired.] or [, payable in a lump sum, within thirty (30) days after Executive's Date of Resignation (or the end of the revocation period set forth in this Agreement, if later).] (ii) to pay Executive Executive's pro rated Incentive Pay (as defined in the Severance Agreement) for the year in which Executive's Date of Resignation occurs. Such pro rated Incentive Pay shall be paid to Executive [for the Severance Period payable in equal installments, consistent with the Company's past payroll practices, commencing with the first payroll period that occurs after the period during which Executive's right to revoke Executive's acceptance to the terms of the Release has expired.] or [paid in a lump sum, within thirty (30) days after Executive's Date of Resignation (or the end of the revocation period set forth in this Agreement, if later).] (iii) [for a period of twelve (12) months following Executive's Date of Resignation, Executive shall continue to receive the medical and dental coverage in effect on Executive's Date of Resignation (or generally comparable coverage) for Executive and, where applicable, Executive's spouse and dependents, as the same may be changed from time to time for employees generally, as if Executive had continued in employment during such period.] or [pay Executive cash in a lump sum payment equal to Executive's after-tax cost of continuing comparable medical and dental coverage for the twelve (12) month period following Executive's Date of Resignation]. [The Company shall take all commercially reasonable efforts to provide that the COBRA health care continuation coverage period under section 4980B of the Code, shall commence immediately after the foregoing twelve (12) month benefit period, with such continuation coverage continuing until the earlier of (i) the end of the applicable COBRA health care continuation coverage period or (ii) the date on which Executive is covered by the medical and dental coverage of Executive's successor employer, if any.] (iv) with respect to any Company stock options held by the Executive as of Executive's Date of Resignation, the portion of Executive's stock options, if any, which would have vested and become exercisable within the one (1) year period after the Executive's Date of Resignation shall become vested and exercisable as of Executive's Date of Resignation, such options, plus any other options that previously became exercisable and have not expired or been exercised, to remain exercisable, notwithstanding anything in any other agreement governing such options, for the longer of (A) a period of six (6) months after the Executive's Date of Resignation, or (B) the period set forth in the award agreement covering the option, subject in either case only to the original term of the option. Any stock options held by Executive that are not exercisable as of the Executive's Date of Resignation shall terminate as of the Executive's Date of Resignation. (v) with respect to any shares of Company common stock that are held by the Executive that are, at the time of Executive's Date of Resignation, subject to the Company's repurchase right upon termination of the Executive's employment ("Restricted Stock"), to waive such repurchase right as to the number of shares of Restricted Stock that would have become no longer subject to the Company's repurchase right within the one (1) year period after the Executive's Date of Resignation. (vi) pay the cost of outplacement assistance services for Executive that are actually provided by an outplacement agency selected by Executive, which the Company provides prior approval, with such approval not to be unreasonably withheld, in an amount not to exceed twenty percent (20%) of the Executive's Base Pay. (vii) Executive shall receive any amounts earned, accrued or owing but not yet paid to Executive as of Executive's Date of Resignation, payable in a lump sum, and any benefits accrued or earned in accordance with the terms of any applicable benefit plans and programs of the Company. Except as set forth in this Agreement, it is expressly agreed and understood that Releasees do not have, and will not have, any obligations to provide Executive at any time in the future with any payments, benefits or considerations other than those recited in this paragraph, or those required by law, other than under the terms of any benefit plans which provide benefits or payments to former employees according to their terms.] [Note: The following severance benefits would apply if the Executive has an Involuntary Termination Associated With a Change in Control.] (i) [to pay to Executive a lump sum payment equal to (A) 2 times Base Pay (as defined in the Severance Agreement), plus (B) 2 times Incentive Pay (as defined in the Severance Agreement). Payment shall be made within thirty (30) days after the effective date of Executive's Date of Resignation (or the end of the revocation period set forth in this Agreement, if later). (ii) to pay Executive Executive's pro rated Incentive Pay (as defined in the Severance Agreement) for the year in which Executive's Date of Resignation occurs. Such pro rated Incentive Pay shall be paid to Executive in a lump sum within thirty (30) days after the effective date of the termination (or the end of the revocation period set forth in this Agreement, if later). (iii) [for a period of twenty-four (24) months following Executive's Date of Resignation, Executive shall continue to receive the medical and dental coverage in effect on Executive's Date of Resignation (or generally comparable coverage) for Executive and, where applicable, Executive's spouse and dependents, as the same may be changed from time to time for employees generally, as if Executive had continued in employment during such period] or [pay Executive cash in a lump sum payment equal to Executive's after-tax cost of continuing comparable medical and dental coverage for the twenty-four (24) month period following Executive's Date of Resignation.] [The Company shall take all commercially reasonable efforts to provide that the COBRA health care continuation coverage period under section 4980B of the Code, shall commence immediately after the foregoing twenty-four (24) month benefit period, with such continuation coverage continuing until the earlier of (i) the end of the applicable COBRA health care continuation coverage period or (ii) the date on which Executive is covered by the medical and dental coverage of Executive's successor employer, if any.] (iv) to pay to Executive a lump sum payment equal to the total amount that Executive would have received under the Company's 401(k) plan as a Company match if Executive was eligible to participate in the Company's 401(k) plan for the twenty-four (24) month period after Executive's Date of Resignation and Executive contributed the maximum amount to the plan for the match. Payment shall be made within thirty (30) days after the Executive's Date of Resignation (or the end of the revocation period set forth in this Agreement, if later). (v) [to pay to Executive a lump sum payment equal to the total premiums that the Company would have paid under Executive's split-dollar life insurance policy, if any, that is in effect immediately prior to Executive's Date of Resignation, if Executive was employed by the Company for the twenty-four (24) month period following Executive's Date of Resignation. Payment shall be made within thirty (30) days after the effective date of Executive's Date of Resignation (or the end of the revocation period set forth in this Agreement, if later)]. [Note: The foregoing only applies if Executive has a split-dollar arrangement with the Company and the Company is required to make premium contributions on Executive's Date of Resignation. The total months covered by the premiums will be reduced if the term of the policy is shorter than that provided for Executive.] (vi) to pay to Executive a lump sum payment equal to twenty percent (20%) of the Executive's Base Pay in order to cover the cost of outplacement assistance services for Executive. Payment shall be made within thirty (30) days after the effective date of Executive's Date of Resignation (or the end of the revocation period set forth in this Agreement, if later). (vii) Executive shall receive any amounts earned, accrued or owing but not yet paid to Executive as of Executive's Date of Resignation, payable in a lump sum, and any benefits accrued or earned in accordance with the terms of any applicable benefit plans and programs of the Company. Except as set forth in this Agreement, it is expressly agreed and understood that Releasees do not have, and will not have, any obligations to provide Executive at any time in the future with any payments, benefits or considerations other than those recited in this paragraph, or those required by law, other than under the terms of any benefit plans which provide benefits or payments to former employees according to their terms.] 7. Executive understands and agrees that the payments, benefits and agreements provided in this Agreement are being provided to him in consideration for Executive's acceptance and execution of, and in reliance upon Executive's representations in, this Agreement. Executive acknowledges that if Executive had not executed this Agreement containing a release of all claims against the Company, Executive would only have been entitled to the payments provided in the Company's standard severance pay plan for employees. 8. Executive acknowledges and agrees that the Company previously has satisfied any and all obligations owed to him under any employment agreement or offer letter Executive has with the Company and, further, that this Agreement supersedes any employment agreement or offer letter Executive has with the Company, and any and all prior agreements or understandings, whether written or oral, between the parties shall remain in full force and effect to the extent not inconsistent with this Agreement, and further, that, except as set forth expressly herein, no promises or representations have been made to him in connection with the termination of Executive's employment agreement, if any, or offer letter, if any, with the Company, or the terms of this Agreement. 9. Executive agrees not to disclose the terms of this Agreement to anyone, except Executive's spouse, attorney and, as necessary, tax/financial advisor. Likewise, the Company agrees that the terms of this Agreement will not be disclosed except as may be necessary to obtain approval or authorization to fulfill its obligations hereunder or as required by law. It is expressly understood that any violation of the confidentiality obligation imposed hereunder constitutes a material breach of this Agreement. 10. Executive represents that Executive does not presently have in Executive's possession any records and business documents, whether on computer or hard copy, and other materials (including but not limited to computer disks and tapes, computer programs and software, office keys, correspondence, files, customer lists, technical information, customer information, pricing information, business strategies and plans, sales records and all copies thereof) (collectively, the "Corporate Records") provided by the Company and/or its predecessors, subsidiaries or affiliates or obtained as a result of Executive's prior employment with the Company and/or its predecessors, subsidiaries or affiliates, or created by Executive while employed by or rendering services to the Company and/or its predecessors, subsidiaries or affiliates. Executive acknowledges that all such Corporate Records are the property of the Company. In addition, Executive shall promptly return in good condition any and all Company owned equipment or property, including, but not limited to, automobiles, personal data assistants, facsimile machines, copy machines, pagers, credit cards, cellular telephone equipment, business cards, laptops and computers. As of the Date of Resignation, the Company will make arrangements to remove, terminate or transfer any and all business communication lines including network access, cellular phone, fax line and other business numbers. 11. Nothing in this Agreement shall prohibit or restrict Executive from: (i) making any disclosure of information required by law; (ii) providing information to, or testifying or otherwise assisting in any investigation or proceeding brought by, any federal regulatory or law enforcement agency or legislative body, any self-regulatory organization, or the Company's [designated legal, compliance or human resources officers]; or (iii) filing, testifying, participating in or otherwise assisting in a proceeding relating to an alleged violation of any federal, state or municipal law relating to fraud, or any rule or regulation of the Securities and Exchange Commission or any self-regulatory organization. 12. The parties agree and acknowledge that the agreement by the Company described herein, and the settlement and termination of any asserted or unasserted claims against the Releasees, are not and shall not be construed to be an admission of any violation of any federal, state or local statute or regulation, or of any duty owed by any of the Releasees to Executive. 13. Executive agrees and recognizes that should Executive breach any of the obligations or covenants set forth in this Agreement, the Company will have no further obligation to provide Executive with the consideration set forth herein, and will have the right to seek repayment of all consideration paid up to the time of any such breach. Further, Executive acknowledges in the event of a breach of this Agreement, Releasees may seek any and all appropriate relief for any such breach, including equitable relief and/or money damages, attorney's fees and costs. 14. Executive further agrees that the Company shall be entitled to preliminary and permanent injunctive relief, without the necessity of proving actual damages, as well as to an equitable accounting of all earnings, profits and other benefits arising from any violations of this Agreement, which rights shall be cumulative and in addition to any other rights or remedies to which the Company may be entitled. 15. This Agreement and the obligations of the parties hereunder shall be construed, interpreted and enforced in accordance with the laws of the Commonwealth of Massachusetts. 16. Executive certifies and acknowledges as follows: (a) That Executive has read the terms of this Agreement, and that Executive understands its terms and effects, including the fact that Executive has agreed to RELEASE AND FOREVER DISCHARGE the Company and each and everyone of its affiliated entities from any legal action arising out of Executive's employment relationship with the Company and the termination of that employment relationship; (b) That Executive has signed this Agreement voluntarily and knowingly in exchange for the consideration described herein, which Executive acknowledges is adequate and satisfactory to him and which Executive acknowledges is in addition to any other benefits to which Executive is otherwise entitled; (c) That Executive has been and is hereby advised in writing to consult with an attorney prior to signing this Agreement; (d) That Executive does not waive rights or claims that may arise after the date this Agreement is executed; (e) That the Company has provided him with a period of [twenty-one (21)] or [forty-five (45)] days within which to consider this Agreement, and that Executive has signed on the date indicated below after concluding that this Separation of Employment Agreement and General Release is satisfactory to him; and (f) Executive acknowledges that this Agreement may be revoked by him within seven (7) days after execution, and it shall not become effective until the expiration of such seven (7) day revocation period. In the event of a timely revocation by Executive, this Agreement will be deemed null and void and the Company will have no obligations hereunder. [SIGNATURE PAGE FOLLOWS] Intending to be legally bound hereby, Executive and the Company executed the foregoing Separation of Employment Agreement and General Release this ______ day of _______, ____. _____________________________ Witness:________________________ [Executive] NOVELL, INC. By:___________________________ Witness:________________________ Name: Title: EX-99 5 exh99.txt SECTION 906 CERTIFICATIONS EXHIBIT 99.1 SECTION 906 CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER I, Jack L. Messman, Chief Executive Officer of Novell, Inc., a Delaware corporation (the "Company"), hereby certify that: (1) The Company's periodic report on Form 10-Q for the period ended April 30, 2003 (the "Form 10-Q") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. * * * CHIEF EXECUTIVE OFFICER /s/ Jack L. Messman - -------------------------------- Jack L. Messman Date: June 16, 2003 EXHIBIT 99.2 SECTION 906 CERTIFICATION BY THE CHIEF FINANCIAL OFFICER I, Joseph S. Tibbetts, Jr., Chief Financial Officer of Novell, Inc., a Delaware corporation (the "Company"), hereby certify that: (1) The Company's periodic report on Form 10-Q for the period ended April 30, 2003 (the "Form 10-Q") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. * * * CHIEF FINANCIAL OFFICER /s/ Joseph S. Tibbetts, Jr. - -------------------------------- Joseph S. Tibbetts, Jr. Date: June 16, 2003 -----END PRIVACY-ENHANCED MESSAGE-----