10-Q

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NOVELL, INC. TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

(Mark One)
ý	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended July 31, 2004
or
o	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 incorporation or organization)	(I.R.S. Employer Identification No.)

404 Wyman Street
Waltham, MA 02451
(Address of principal executive offices and zip code)

(781) 464-8000
(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 ý    No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act) Yes ý    No o

As of August 31, 2004 there were 375,879,653 shares of the registrant's common stock outstanding.

NOVELL, INC.
TABLE OF CONTENTS

		Page
Part I—Financial Information:		3
Item 1: Financial Statements		3
	Consolidated Balance Sheets at July 31, 2004 (unaudited) and October 31, 2003	3
	Consolidated Statements of Operations for the three and nine months ended July 31, 2004 and 2003 (unaudited)	4
	Consolidated Statements of Cash Flows for the three and nine months ended July 31, 2004 and 2003 (unaudited)	6
	Notes to Consolidated Financial Statements (unaudited)	8
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations		23
Item 3: Quantitative and Qualitative Disclosures About Market Risk		34
Item 4: Controls and Procedures		35
Part II—Other Information:		36
Item 1: Legal Proceedings		36
Item 2: Change in Securities, Use of Proceeds and Issuer Purchases of Equity Securities		36
Item 3: (not applicable)		36
Item 4: Submission of Matters to a Vote of Security Holders		36
Item 5: (not applicable)		36
Item 6: Exhibits		36

2

Part I. Financial Information

Item 1. Financial Statements

NOVELL, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share and per share data)

			July 31, 2004			October 31, 2003
			(unaudited)
Assets
Current assets:
	Cash and cash equivalents		$	573,638		$	366,932
	Short-term investments			575,749			384,920
	Receivables (net of allowances of $27,550 at July 31, 2004 and $26,852 at October 31, 2003)			245,373			232,492
	Prepaid expenses			30,458			23,005
	Other current assets			25,389			23,204
		Total current assets		1,450,607			1,030,553
Property, plant and equipment, net				246,242			255,526
Long-term investments				56,122			50,948
Goodwill				405,448			213,300
Intangible assets				51,313			10,800
Other assets				20,911			6,526
		Total assets	$	2,230,643		$	1,567,653
Liabilities, Redeemable Securities and Stockholders' Equity
Current liabilities:
	Accounts payable		$	52,781		$	50,258
	Accrued compensation			115,430			101,164
	Other accrued liabilities			103,670			117,073
	Income taxes payable			40,504			35,493
	Deferred revenue			337,461			322,470
		Total current liabilities		649,846			626,458
Deferred income taxes				16,959			—
Senior convertible debentures				600,000			—
		Total liabilities		1,266,805			626,458
Minority interests				6,798			6,725
Redeemable securities:
	Series B preferred stock, $.10 par value, Authorized—1,000 shares; Outstanding—500 shares at July 31, 2004; none at October 31, 2003 (at redemption value)			25,000			—
Stockholders' equity:
	Series A preferred stock, $.10 par value, Authorized—499,000 shares; no shares issued			—			—
	Common stock, par value $.10 per share, Authorized—600,000,000 shares; Outstanding—375,785,113 shares at July 31, 2004; 376,460,107 shares at October 31, 2003			39,097			37,646
	Additional paid-in capital			421,143			319,016
	Treasury stock, at cost—15,188,300 shares at July 31, 2004; none at October 31, 2003			(125,000	)		—
	Retained earnings			594,712			576,759
	Accumulated other comprehensive income			9,241			7,068
	Other			(7,153	)		(6,019	)
		Total stockholders' equity		932,040			934,470
		Total liabilities, redeemable securities and stockholders' equity	$	2,230,643		$	1,567,653

The accompanying notes are an integral part of these consolidated financial statements.

3

NOVELL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)

			Three Months Ended
			July 31, 2004			July 31, 2003
			(unaudited)
Net revenue:
	Software licenses		$	58,693		$	69,255
	Maintenance and services			245,904			213,554
		Total net revenue		304,597			282,809
Cost of revenue:
	Software licenses			5,613			5,886
	Maintenance and services			98,343			101,591
	Intangible asset impairment			—			23,569
		Total cost of revenue		103,956			131,046
Gross profit				200,641			151,763
Operating expenses:
	Sales and marketing			90,998			92,470
	Product development			49,052			48,178
	General and administrative			28,729			28,379
	Restructuring			9,250			26,350
	Gain on sale of property, plant and equipment			—			(24,934	)
		Total operating expenses		178,029			170,443
Income (loss) from operations				22,612			(18,680	)
Other income (expense), net:
	Investment income (expense)			7,576			(5,016	)
	Other expense, net			(1,394	)		(66	)
		Total other income (expense), net		6,182			(5,082	)
Income (loss) before taxes				28,794			(23,762	)
Income tax expense (benefit)				5,389			(11,362	)
Net income (loss)				23,405			(12,400	)
Dividends on Series B preferred stock				(189	)		—
Net income (loss) attributable to common stockholders			$	23,216		$	(12,400	)
Net income (loss) per share attributable to common stockholders—basic and diluted			$	0.06		$	(0.03	)
Weighted average common and common equivalent shares outstanding:
	Basic			383,400			371,484
	Diluted			397,776			371,484

The accompanying notes are an integral part of these consolidated financial statements.

4

NOVELL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)

			Nine Months Ended
			July 31, 2004			July 31, 2003
			(unaudited)
Net revenue:
	Software licenses		$	173,768		$	194,758
	Maintenance and services			691,492			623,989
		Total net revenue		865,260			818,747
Cost of revenue:
	Software licenses			16,621			17,070
	Maintenance and services			288,653			296,742
	Intangible asset impairment			—			23,569
		Total cost of revenue		305,274			337,381
Gross profit				559,986			481,366
Operating expenses:
	Sales and marketing			266,413			292,512
	Product development			151,282			139,454
	General and administrative			79,201			86,663
	Restructuring			13,987			35,025
	Gain on sale of property, plant and equipment			(1,977	)		(24,934	)
		Total operating expenses		508,906			528,720
Income (loss) from operations				51,080			(47,354	)
Other income (expense), net:
	Investment income (expense)			13,552			(22,615	)
	Other expense, net			(4,518	)		(1,131	)
		Total other income (expense), net		9,034			(23,746	)
Income (loss) before taxes				60,114			(71,100	)
Income tax expense (benefit)				16,191			(18,200	)
Net income (loss)				43,923			(52,900	)
Deemed dividend related to beneficial conversion feature of preferred stock				(25,680	)		—
Dividends on Series B preferred stock				(291	)		—
Net income (loss) attributable to common stockholders			$	17,952		$	(52,900	)
Net income (loss) per share attributable to common stockholders—basic and diluted			$	0.05		$	(0.14	)
Weighted average common and common equivalent shares outstanding:
	Basic			382,678			369,435
	Diluted			396,943			369,435

The accompanying notes are an integral part of these consolidated financial statements.

5

NOVELL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)

			Three Months Ended
			July 31, 2004			July 31, 2003
			(unaudited)
Cash flows from operating activities:
Net income (loss)			$	23,405		$	(12,400	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Gain on sale of property, plant and equipment			—			(24,934	)
	Depreciation and amortization			11,864			14,190
	Intangible asset impairment, net of tax			—			13,935
	Long-term investment impairments			552			8,040
	Changes in current assets and liabilities, excluding the effect of acquisitions:
		Receivables		(26,996	)		(33,558	)
		Prepaid expenses		(1,636	)		4,697
		Deferred income taxes		—			(2,822	)
		Other current assets		3,007			2,346
		Accounts payable		(5,203	)		(12,744	)
		Accrued liabilities		18,518			20,507
		Deferred revenue		41,346			28,240
		Net cash provided by operating activities		64,857			5,497
Cash flows from financing activities:
Issuance of senior convertible debentures				600,000			—
Payment of issuance costs on senior convertible debentures				(14,850	)		—
Issuance of common stock, net				1,363			807
Repurchase of common stock—held in treasury				(125,000	)		—
Payment of cash dividends on preferred stock				(189	)		—
		Net cash provided by financing activities		461,324			807
Cash flows from investing activities:
Purchases of property, plant and equipment				(7,511	)		(8,828	)
Proceeds from the sale of property, plant and equipment				163			124,215
Purchases of short-term investments				(264,083	)		(177,335	)
Maturities of short-term investments				23,406			8,871
Sales of short-term investments				47,110			124,026
Cash paid for acquisition of Salmon, net of cash acquired				(5,322	)		—
Other				222			(1,100	)
		Net cash (used in) provided by investing activities		(206,015	)		69,849
Total increase in cash and cash equivalents				320,166			76,153
Cash and cash equivalents—beginning of period				253,472			374,524
Cash and cash equivalents—end of period			$	573,638		$	450,677

The accompanying notes are an integral part of these consolidated financial statements.

6

NOVELL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)

			Nine Months Ended
			July 31, 2004			July 31, 2003
			(unaudited)
Cash flows from operating activities:
Net income (loss)			$	43,923		$	(52,900	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Gain on sale of property, plant and equipment			(1,977	)		(25,299	)
	Depreciation and amortization			38,956			49,174
	Intangible asset impairment, net of tax			—			13,935
	Long-term investment impairments			2,448			32,563
	Changes in current assets and liabilities, excluding the effect of acquisitions:
		Receivables		(1,195	)		(2,403	)
		Prepaid expenses		(6,735	)		(3,519	)
		Deferred income taxes		(17,310	)		(10,507	)
		Other current assets		269			752
		Accounts payable		(4,413	)		(8,978	)
		Accrued liabilities		7,092			(11,250	)
		Deferred revenue		6,536			20,442
		Net cash provided by operating activities		67,594			2,010
Cash flows from financing activities:
Issuance of senior convertible debentures				600,000			—
Payment of issuance costs on senior convertible debentures				(14,850	)		—
Issuance of convertible preferred stock				50,000			—
Issuance of common stock, net				47,983			7,854
Repurchase of common stock—held in treasury				(125,000	)		—
Payment of cash dividends on preferred stock				(291	)		—
		Net cash provided by financing activities		557,842			7,854
Cash flows from investing activities:
Purchases of property, plant and equipment				(19,524	)		(30,605	)
Proceeds from the sale of property, plant and equipment				2,140			125,000
Purchases of short-term investments				(663,679	)		(455,719	)
Maturities of short-term investments				127,069			72,556
Sales of short-term investments				343,096			265,923
Cash paid for Volera minority interest shares				—			(1,050	)
Cash paid for acquisition of SUSE, net of cash acquired				(200,298	)		—
Cash paid for acquisition of Salmon, net of cash acquired				(5,322	)		—
Other				(2,212	)		721
		Net cash used in investing activities		(418,730	)		(23,174	)
Total increase (decrease) in cash and cash equivalents				206,706			(13,310	)
Cash and cash equivalents—beginning of period				366,932			463,987
Cash and cash equivalents—end of period			$	573,638		$	450,677

The accompanying notes are an integral part of these consolidated financial statements.

7

NOVELL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2004

A.    Quarterly Financial Statements

        The interim consolidated financial statements as of and for the three and nine months ended July 31, 2004 and 2003 have been prepared by Novell, Inc. ("Novell") pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial reporting. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q but do not include all of the information and notes required by accounting principles generally accepted in the United States and should, therefore, be read in conjunction with our fiscal 2003 Annual Report on Form 10-K. These financial statements are unaudited and 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 income (loss), have been made to the prior year's amounts in order to conform to the current year's presentation. In addition, we have reclassified certain amounts as previously reported in our Form 10-Q for the third quarter of fiscal 2003. We reclassified an intangible impairment loss of $23.6 million from other income (expense) to cost of revenue in the statement of operations. We also reclassified a gain on sale of our San Jose, California facility in the amount of $24.9 million from other income (expense) to operating expenses in the statement of operations. The net impact of these two reclassifications is a $1.3 million increase in income from operations and no effect on the net loss as reported on Form 10-Q in the third quarter of fiscal 2003.

B.    Senior Convertible Debentures

        On July 2, 2004, we issued and sold $600 million aggregate principal amount of our senior convertible debentures ("debentures") due 2024. The debentures pay interest at 0.50% per annum, payable semi-annually on January 15 and July 15 of each year, commencing January 15, 2005. Each $1,000 principal amount of debentures is convertible, at the option of the holders, into 86.7905 shares of our common stock prior to July 15, 2024 if (1) the price of our common stock trades above 130% of the conversion price for a specified duration, (2) the trading price of the debentures is below a certain threshold, subject to specified exceptions, (3) the debentures have been called for redemption, or (4) specified corporate transactions have occurred. The conversion rate is subject to certain adjustments. The conversion rate initially represents a conversion price of $11.52 per share. Holders of the debentures may require us to repurchase all or a portion of their debentures on July 15, 2009, July 15, 2014 and July 15, 2019, or upon the occurrence of certain events including a change in control. The debentures can be redeemed by us for cash beginning on or after July 20, 2009.

        The debentures were sold to an "accredited investor" within the meaning of Rule 501 under the Securities Act of 1933, as amended, in reliance upon the private placement exemption afforded by Section 4(2) of the Securities Act. The initial investor offered and resold the debentures to "qualified institutional buyers" under Rule 144A of the Securities Act.

        In connection with the issuance of the debentures, we incurred $14.9 million of issuance costs, which primarily consisted of investment banker fees and legal and other professional fees. These costs are being amortized as interest expense using the effective interest method over the term from issuance

8

through the first date that the holders can require repurchase of the debentures (July 15, 2009). Amortization expense related to the issuance costs was $0.2 million and interest expense on the debentures was $0.2 million for the quarter ended July 31, 2004.

C.    Preferred Stock

        On March 23, 2004, we entered into a definitive agreement with International Business Machines Corporation ("IBM") in connection with IBM's previously announced $50 million investment in Novell. Publicized in conjunction with our offer to acquire SUSE LINUX AG ("SUSE") in November 2003, the investment, the primary terms of which were negotiated in November 2003, entailed the purchase by IBM of 1,000 shares of our Series B redeemable preferred stock ("Preferred Stock") that are convertible into 8 million shares of our common stock at a price of $6.25 per common share. The Preferred Stock is entitled to a dividend of 2% per annum, payable quarterly in cash. Cash dividends paid during the quarter ended July 31, 2004 were $0.2 million.

        Because the fair value of our common stock of $9.46 per share on March 23, 2004 was greater than the conversion price of $6.25 per share of Preferred Stock, we recorded a one-time, non-cash deemed dividend of $25.7 million pursuant to Emerging Issues Task Force ("EITF") Issue No. 98-5, "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios."

        The Preferred Stock is convertible at any time at the option of the holder and has a liquidation value equal to $50,000 per share. Each share of Preferred Stock issued and outstanding is entitled to the number of votes equal to the number of shares of common stock into which it is convertible. The Preferred Stock is senior to the common stock with respect to dividends and liquidation preferences. The Preferred Stock is redeemable at our option, and by the holder only under certain change in control circumstances. Because the redemption is not certain to occur, the Preferred Stock is not required to be classified as a liability but rather is classified in the mezzanine section of the balance sheet and is stated at redemption value.

        On June 17, 2004, 500 shares of Preferred Stock were converted into 4 million shares of Novell common stock.

D.    Acquisitions

Salmon Ltd.

        On July 19, 2004, we purchased all of the outstanding stock of Salmon Ltd. ("Salmon"), a privately-held information technology services and consulting firm headquartered in Watford, England, for approximately $8.2 million in cash, plus estimated merger and transaction costs of $1.0 million. In addition, we assumed a deferred income tax liability of $1.2 million resulting from the future tax consequences of the non-deductibility of identified net intangible assets recorded in connection with this acquisition. Assumed liabilities include approximately $0.2 million of estimated merger-related costs.

        The acquisition of Salmon enables us to expand our range of IT consulting services in the United Kingdom. The transaction was accounted for as a purchase. Salmon's results of operations have been included in the consolidated financial statements beginning on the acquisition date.

9

        The purchase price was preliminarily allocated as follows:

		Estimated Acquisition Cost		Asset Life
		(amounts in thousands)
Fair value of net tangible assets acquired		$	3,007	N/A
Identifiable intangible assets:
	Customer relationships		3,417	3 years
	Non-compete agreement		422	3 years
Goodwill			3,552	Indefinite
	Total acquisition cost	$	10,398

        The purchase price has been allocated to the tangible and identifiable intangible assets and the excess of the total purchase price over the amounts assigned has been recorded as goodwill. We used an independent valuation firm to estimate the fair values of the intangible assets. Customer relationships and the non-compete agreement are amortized over their estimated useful lives. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets," goodwill is not amortized, but is periodically evaluated for impairment.

        The purchase price allocation will be adjusted as integration plans, including restructuring, are finalized, as allowed by SFAS 141, "Business Combinations".

        The purchase agreement provides for contingent payments of up to an additional $10.6 million based upon the future revenues and profitability of both Salmon and Novell in the United Kingdom over a period of two years. Any future earnout payments will be capitalized as goodwill when and if paid.

        Revenues of $1.3 million and expenses of $1.0 million were recorded by Salmon for the period from July 19, 2004 to July 31, 2004.

        If the Salmon acquisition had occurred on November 1, 2002, the unaudited pro forma results of operations for the three and nine months ended July 31, 2004 and 2003 would have been:

	Three Months Ended					Nine Months Ended
	July 31, 2004		July 31, 2003			July 31, 2004		July 31, 2003
	(amounts in thousands)
Net revenue	$	309,284	$	288,153		$	881,132	$	833,219
Net income (loss) attributable to common stockholders		20,703		(12,316	)		15,583		(52,676	)
Net income (loss) per share attributable to common stockholders—basic and diluted		0.05		(0.03	)		0.04		(0.14	)

SUSE LINUX AG

        On January 12, 2004, we purchased substantially all of the outstanding stock of SUSE LINUX AG ("SUSE"), a privately-held company and a leading provider of Linux-based products, for approximately $210 million in cash, plus estimated merger and transaction costs of $7 million. In addition, we assumed a deferred income tax liability of $17 million resulting from the future tax consequences of the non-deductibility of identified net intangible assets recorded in connection with this acquisition.

        The acquisition of SUSE enables us to offer a full range of enterprise solutions on the Linux platform, from the server to the desktop. This transaction was accounted for as a purchase. SUSE's results of operations have been incorporated into ours beginning on the acquisition date.

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        The purchase price was preliminarily allocated as follows:

		Estimated Acquisition Cost		Asset Life
		(amounts in thousands)
Fair value of net tangible assets acquired		$	1,599	N/A
Identifiable intangible assets:
	Customer relationships		13,385	3 years
	Internal use software		5,864	3 years
	Trademarks/trade names		24,221	Indefinite
Goodwill			188,669	Indefinite
	Total acquisition costs	$	233,738

        The purchase price has been allocated to the tangible and identifiable intangible assets and the excess of the total purchase price over the amounts assigned has been recorded as goodwill. We used an independent valuation firm to estimate the fair values of the intangible assets. Customer relationships and internal use software are amortized over their estimated useful lives. In accordance with SFAS 142, trademarks, trade names and goodwill are not amortized, but are periodically evaluated for impairment.

        The purchase price allocation will be adjusted as integration plans, including restructuring, are finalized, as allowed by SFAS 141.

        If the SUSE acquisition had occurred on November 1, 2002, the unaudited pro forma results of operations for the three and nine months ended July 31, 2004 and 2003 would have been:

	Three Months Ended					Nine Months Ended
	July 31, 2004		July 31, 2003			July 31, 2004		July 31, 2003
	(amounts in thousands)
Net revenue	$	304,597	$	290,096		$	873,153	$	844,248
Net income (loss) attributable to common stockholders		23,216		(15,570	)		16,117		(64,516	)
Net income (loss) per share attributable to common stockholders—basic and diluted		0.06		(0.04	)		0.04		(0.18	)

E.    Cash, Cash Equivalents and Short-Term Investments

        We consider all investments purchased with a term to maturity of three months or less to be cash equivalents. Short-term investments are diversified, primarily consisting of investment grade securities that either mature within the next 12 months or have other characteristics of short-term investments.

        All marketable debt and equity securities that are included in cash, cash equivalents and short-term investments are considered available-for-sale and are carried at fair market value. Fair market values are based on quoted market prices where 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 unrealized gains and losses related to these securities are included in accumulated other comprehensive income (loss), net of tax, after any applicable tax valuation allowances. Gross unrealized gains and losses at July 31, 2004 were $0.7 million and $1.6 million, respectively. Gross unrealized gains and losses at October 31, 2003 were $2.1 million and $0.3 million, respectively.

11

        During the third quarter of fiscal 2004, we realized gains of $0.3 million and realized losses of $0.2 million from the sale of short-term investments. During the third quarter of fiscal 2003, we realized gains of $0.6 million and realized losses of $0.1 million from the sale of short-term investments. During the first nine months of fiscal 2004, we realized gains of $3.1 million and realized losses of $0.5 million from the sale of short-term investments. During the first nine months of fiscal 2003, we realized gains of $1.7 million and realized losses of $0.4 million from the sale of short-term investments. We did not record any impairment losses on short-term investments during the first nine months of fiscal 2004 or fiscal 2003.

F.     Long-Term Investments

        At July 31, 2004, long-term investments primarily consisted of investments made in venture capital partnerships and other direct investments in equity securities of privately-held companies. Long-term investments are accounted for initially at cost and written down to fair value when indicators of impairment are deemed to be other than temporary.

        We routinely review our long-term investments 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 third quarter and first nine months of fiscal 2004, we recognized impairment losses on long-term investments totaling $0.5 million and $2.4 million, respectively. During the third quarter and first nine months of fiscal 2003, we recognized impairment losses on long-term investments totaling $8.0 million and $32.6 million, respectively.

G.    Goodwill and Intangible Assets

Goodwill

        The following is a summary of goodwill outstanding as of the dates shown resulting from the indicated acquisitions:

	July 31, 2004		October 31, 2003
	(amounts in thousands)
SUSE	$	188,669	$	—
SilverStream		126,689		126,689
Cambridge Technology Partners		42,500		42,500
Ximian		35,002		35,002
Salmon		3,552		—
Other technology companies		9,036		9,109
Total goodwill	$	405,448	$	213,300

        Goodwill is allocated to our reporting segments as follows:

	Americas		EMEA			Asia Pacific		Celerant Management Consulting		Total
	(amounts in thousands)
Balance as of October 31, 2003	$	86,817	$	74,100		$	9,883	$	42,500	$	213,300
Acquisition of SUSE		101,637		69,323			17,709		—		188,669
Acquisition of Salmon		—		3,552			—		—		3,552
Other technology companies		—		(73	)		—		—		(73	)
Balance as of July 31, 2004	$	188,454	$	146,902		$	27,592	$	42,500	$	405,448

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Intangibles

        The following is a summary of identifiable intangible assets that we recorded in connection with various business combinations, net of accumulated amortization:

	July 31, 2004		October 31, 2003
	(amounts in thousands)
Developed technology	$	5,758	$	8,410
Customer relationships		14,287		—
Internal use software		4,725		—
Non-compete agreements		422		—
Trademarks/trade names		26,121		2,390
Total identifiable intangible assets	$	51,313	$	10,800

        Developed technology, customer relationships, internal use software and non-compete agreements are amortized over three years. Trademarks and trade names have indefinite lives and are not amortized but are periodically evaluated for impairment. Amortization of intangible assets for the third quarter and first nine months of fiscal 2004 was $2.6 million and $6.8 million, respectively. Amortization of intangible assets for the third quarter and first nine months of fiscal 2003 was $2.1 million and $8.5 million, respectively.

H.    Income Taxes

        Income tax expense for the third quarter and first nine months of fiscal 2004 was $5.4 million and $16.2 million, respectively and relates to income tax expenses incurred on foreign earnings. The effective tax rates on income for the third quarter of fiscal 2004 was 18.7% and for the first nine months of fiscal 2004 was 26.9%.

        The effective tax rate for fiscal 2003 was 194.3%. The effective tax rate for fiscal 2004 differed from the effective tax rate for 2003 because of the establishment of a full valuation allowance against deferred tax assets during the fourth quarter of fiscal 2003, resulting in an additional tax expense of $131 million in that quarter.

        We paid cash for income taxes in the amount of $5.3 million in the first nine months of fiscal 2004 and $7.6 million during the same period of fiscal 2003.

I.     Line of Credit

        We have a $25 million bank line of credit available for letter of credit purposes. At July 31, 2004, there were standby letters of credit of $17.8 million outstanding under this line, all of which are secured by cash. The bank line expires on April 1, 2005. The bank line is subject to the terms of a credit agreement containing financial covenants and restrictions, none of which are expected to affect our operations. We are in compliance with all financial covenants relating to this line of credit as of July 31, 2004. In addition, at July 31, 2004, we had outstanding letters of credit of an insignificant amount at other banks.

J.     Restructuring Expenses

        During the second and third quarters of fiscal 2004, we recorded net pre-tax restructuring expenses of $4.7 million and $9.3 million respectively. These restructuring expenses were in response to the evolution of our business strategy of developing a competitive position in the Linux market. This strategy includes plans to support the Linux kernel in addition to the NetWare kernel, by offering our products and services that run on Linux, NetWare and other platforms. The acquisitions of Ximian and SUSE are direct results of the evolution in our business strategy. These changes were made to address

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market penetration for Linux and NetWare and to address NetWare revenue declines. Specific actions taken included reducing our workforce by 54 employees during the second quarter and 65 employees during the third quarter of fiscal 2004, mainly in consulting, sales and product development in EMEA and the Americas. In addition, we consolidated facilities resulting in the closure of two sales facilities and the disposal of excess equipment and tenant improvements in the United States. By reporting segment, the Americas accounted for 43.1%, EMEA accounted for 55.0% and Asia Pacific accounted for 1.9% of the total restructuring charges for the first nine months of fiscal 2004.

        Our restructuring activities in previous periods are disclosed in detail in our Annual Report on Form 10-K for the fiscal year 2003.

        The following table summarizes the restructuring reserve balance and activity during the first nine months of fiscal 2004:

	3rd Quarter Fiscal 2004 Restructuring			2nd Quarter Fiscal 2004 Restructuring			Fiscal 2003 Restructuring			Fiscal 2002 and 2001 Restructurings			Total
	(amounts in thousands)
Restructuring reserve balance at October 31, 2003:
Employee termination costs	$	—		$	—		$	6,879		$	1,110		$	7,989
Contract termination costs		—			—			8,434			9,527			17,961
Other restructuring-related costs		—			—			1,842			485			2,327
Total restructuring reserve balance		—			—			17,155			11,122			28,277
Restructuring expenses for fiscal 2004:
Employee termination costs		5,351			3,533			—			—			8,884
Contract termination costs		4,371			1,781			—			—			6,152
Other restructuring-related costs		—			—			(472	)		(577	)		(1,049	)
Total restructuring expenses		9,722			5,314			(472	)		(577	)		13,987
Payments/adjustments during fiscal 2004:
Employee termination costs		(2,764	)		(3,028	)		(6,879	)		(1,110	)		(13,781	)
Contract termination costs		—			(1,781	)		(5,207	)		(3,202	)		(10,190	)
Other restructuring-related costs		—			—			128			827			955
Total payments/adjustments		(2,764	)		(4,810	)		(11,958	)		(3,458	)		(23,016	)
Restructuring reserve balance at July 31, 2004:
Employee termination costs		2,587			505			—			—			3,092
Contract termination costs		4,371			—			3,227			6,325			13,923
Other restructuring-related costs		—			—			1,498			735			2,233
Total restructuring reserve balance	$	6,958		$	505		$	4,725		$	7,060		$	19,248

        As of July 31, 2004, the remaining unpaid balances include accrued liabilities related to severance benefits which will be paid out over the remaining severance obligation period, lease costs for redundant facilities which will be paid over the respective remaining contract terms, and various severed employee related costs which will be primarily paid over the next twelve months.

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K.    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 leased 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 the fiscal year 2003, we paid approximately $0.1 million against this guarantee and at July 31, 2004, we had accrued an additional $0.2 million, which represents our liability exposure if the new lessee continues in default, excluding legal fees. In addition, we have provided a guarantee in the amount of $2 million related to a foreign tax audit. No amounts have been paid against this guarantee. It is expected that the term of the guarantee will continue until the conclusion of the audit. We have also provided other guarantees of insignificant amounts for various purposes.

        As an element of our standard contract terms, we include an indemnification clause in our agreements with our customers that indemnify the licensee against certain liability and damages arising from intellectual property infringement claims resulting from their use or distribution of our software. Additionally, during the first quarter of fiscal 2004, we implemented our Novell Linux Indemnification Program. Under this program, indemnification is offered for copyright infringement claims made by third parties against registered Novell customers who obtain certain Novell Linux products and who meet other requirements relating to technical support. We do not record a liability for potential litigation claims related to indemnification agreements with our customers, unless and until we conclude the likelihood of a material obligation is probable and estimable.

L.    Commitments and Contingencies

        As of July 31, 2004, we had a carrying value of $53.2 million related to long-term investments in various venture capital funds and had commitments to contribute an additional $37.7 million to these funds at times and amounts as requested by the fund managers.

M.   Legal Proceedings

        On May 28, 2004, we received $18.5 million from The Canopy Group, Inc. ("Canopy") in satisfaction of a judgment against Canopy. The judgment arose out of a collection action filed by us against Canopy, wherein we sought to recover a royalty payment due under a licensing agreement and arising out of a settlement payment from a third party to Canopy. In connection with this payment, we recognized revenue of $13.5 million and interest income of $5 million during the quarter ended July 31, 2004.

        In January 2004, the SCO Group, Inc. ("SCO") filed suit against us in the Third Judicial District Court of Salt Lake County, State of Utah. We removed the claim to the U.S. District Court, District of Utah. SCO's original complaint alleged that our public statements and filings regarding the ownership of the copyrights in UNIX and UnixWare have harmed SCO's business reputation and affected its efforts to protect its ownership interest in UNIX and UnixWare. The District Court dismissed the original complaint, but allowed SCO an opportunity to file an amended complaint, which SCO did in July 2004. As with the original complaint, SCO is again seeking to require us to assign all copyrights that we have registered in UNIX and UnixWare to SCO, to prevent us from representing that we have any ownership interest in the UNIX and UnixWare copyrights and to require us to withdraw all representations we have made regarding our ownership of the UNIX and UnixWare copyrights and to pay actual, special and punitive damages in an amount to be proven at trial. We have again sought to dismiss SCO's amended complaint and ultimately believe that we have meritorious defenses to these claims even if our Motion to Dismiss is denied. Accordingly, 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.

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        SilverStream Software, Inc. ("SilverStream"), which was acquired by us in July 2002, 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 Act, as amended "The Securities Act," and the Securities Exchange Act of 1934, as amended "The Exchange Act." 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 companies was filed in the U.S. District Court, Southern District of New York, on April 19, 2002. While we believe that SilverStream and its former officers and directors have meritorious defenses to the claims, a Memorandum of Understanding has been reached between many of the defendants and the plaintiffs, which contemplate a settlement of the claims. The settlement, however, has not been finalized. 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. Much of the District Court's Order of Dismissal was recently affirmed by the Tenth Circuit Court of Appeals while certain claims were remanded for the District Court's further review. We believe we have meritorious defenses to these remaining claims. 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 evaluate the adequacy of our legal reserves on a quarterly basis. During the quarter ended April 30, 2004, we recorded a reduction of $5 million in legal reserves relating to favorable developments in current litigation matters. We are currently party to various legal proceedings and claims including former employees, either asserted or unasserted, which arise in the ordinary course of business. While the outcome of these matters cannot be predicted with certainty, we do not believe that the outcome of any of these claims or any of the above mentioned legal matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

N.    Stockholders' Equity

        On June 17, 2004, 500 shares of Series B preferred stock, with a carrying value of $25 million, were converted by the holder into 4 million shares of common stock.

        On July 2, 2004, we used a portion of the proceeds from the issuance of senior convertible debentures to repurchase $125 million of common stock (15,188,300 shares at $8.23 per share). These shares are held in treasury and are classified as treasury stock on our consolidated balance sheet.

O.    Segment Information

        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

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consulting which provides operational strategy and implementation consulting services to a variety of customers mainly in Europe and the United States. 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 segments. These geographic segments include:

•

Americas—includes the United States, Canada, and Latin America



•

EMEA—includes Eastern and Western Europe, Middle East, and Africa



•

Asia Pacific—includes China, Japan, Southeast Asia, Australia, New Zealand, and India

All geographic segments sell our products, services and solution offerings. These offerings are sold direct or via OEM, reseller, and distributor channels. Operating results of each segment are as follows:

	Three Months Ended
	July 31, 2004					July 31, 2003
	Net Revenue		Operating Income (Loss)			Net Revenue		Operating Income (Loss)
	(amounts in thousands)
Americas	$	145,617	$	69,030		$	135,635	$	61,671
EMEA		92,209		30,153			87,400		31,512
Asia pacific		23,015		7,865			23,235		5,667
Common unallocated operating costs		—		(78,627	)		—		(92,939	)
Total geographic segments		260,841		28,421			246,270		5,911
Celerant management consulting		43,756		3,644			36,539		894
Unallocated integration, impairment and restructuring charges		—		(9,454	)		—		(25,485	)
Total per statements of operations	$	304,597	$	22,612		$	282,809	$	(18,680	)

	Nine Months Ended
	July 31, 2004					July 31, 2003
	Net Revenue		Operating Income (Loss)			Net Revenue		Operating Income (Loss)
	(amounts in thousands)
Americas	$	397,347	$	194,193		$	396,979	$	163,372
EMEA		279,072		90,944			257,800		90,857
Asia pacific		65,959		18,576			62,000		8,982
Common unallocated operating costs		—		(252,799	)		—		(277,107	)
Total geographical segments		742,378		50,914			716,779		(13,896	)
Celerant management consulting		122,882		12,549			101,968		3,074
Unallocated integration, impairment and restructuring charges		—		(12,383	)		—		(36,532	)
Total per statements of operations	$	865,260	$	51,080		$	818,747	$	(47,354	)

        Common unallocated operating costs include corporate services common to all geographic segments such as corporate sales and marketing, product development, corporate general and administrative costs, and corporate infrastructure costs. Celerant management consulting does not utilize these corporate services.

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        In addition, the chief decision makers review revenue by solution category, all of which are included in the revenues of geographic segments. These solution categories are:

•

Identity management and web services—solutions that help customers with their identity management and security issues. Products include Secure-Login, Novell Nsure Identity Manager (formerly DirXML), iChain, exteNd, and BorderManager. Products in this category are branded as Nsure and exteNd.



•

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, SUSE LINUX Enterprise Server, SUSE LINUX Personal and Professional, Ximian Red Carpet, GroupWise, ZENworks, and Novell iFolder. Products in this category are branded as Nterprise.



•

Worldwide services—comprehensive worldwide IT consulting, education, and support services that apply business solutions to our customers' business situations, providing the business knowledge and technical expertise to help our customers implement our identity management, web services, and cross platform services. Services in this category are branded as Ngage.



•

Celerant management consulting—operational strategy and implementation consulting services offered to a wide range of customers across various sectors.

        Revenues by solution category and Celerant management consulting are as follows:

		Three Months Ended				Nine Months Ended
		July 31, 2004		July 31, 2003		July 31, 2004		July 31, 2003
		(amounts in thousands)
Identity management and web services		$	26,720	$	26,099	$	73,243	$	71,354
Cross platform services			159,177		144,595		446,976		423,020
Total software licenses and maintenance			185,897		170,694		520,219		494,374
Worldwide services			74,944		75,576		222,159		222,405
	Total IT software and solutions		260,841		246,270		742,378		716,779
Celerant management consulting			43,756		36,539		122,882		101,968
	Total net revenue	$	304,597	$	282,809	$	865,260	$	818,747

        For the third quarters of fiscal 2004 and fiscal 2003, revenues in the United States were $144.5 million, which includes the $13.5 million revenue from Canopy, and $129.3 million, respectively, and revenues to customers outside the U.S. were $160.1 million and $153.5 million, respectively. In the third quarters of fiscal 2004 and fiscal 2003, 77% and 74%, respectively, of our international revenues were in EMEA.

        For the first nine months of fiscal 2004 and fiscal 2003, revenues in the U.S were $384.5 million and $378.8 million, respectively, and revenues to customers outside the U.S. were $480.8 million and $439.9 million, respectively. For the first nine months of fiscal 2004 and fiscal 2003, 79% and 75%, respectively, of our international revenues were in EMEA.

        No single customer and no single country outside the United States accounted for more than 10% of our total revenue for each period presented.

P.     Net Income (Loss) Per Share Attributable to Common Stockholders

        Basic and diluted net income (loss) per share attributable to common stockholders is presented in conformity with SFAS No. 128, "Earnings per Share." Basic net income (loss) per share attributable to

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common stockholders is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period and excludes the dilutive effects of common stock equivalents. Common stock equivalents include stock options and, in certain circumstances, convertible securities such as our senior convertible debentures and convertible Series B preferred stock. Diluted earnings per share includes the dilutive effect of common stock equivalents.

        The following table reconciles the numerators and denominators of the earnings per share calculation for the three and nine months ended July 31, 2004 and 2003:

			Three Months Ended						Nine Months Ended
			July 31, 2004			July 31, 2003			July 31, 2004			July 31, 2003
			(amounts in thousands, except per share data)
Basic net income (loss) per share computation:
	Net income (loss)		$	23,405		$	(12,400	)	$	43,923		$	(52,900	)
	Deemed dividend related to beneficial conversion feature of preferred stock			—			—			(25,680	)		—
	Dividends on Series B preferred stock			(189	)		—			(291	)		—
	Net income (loss) attributable to common stockholders		$	23,216		$	(12,400	)	$	17,952		$	(52,900	)
	Weighted-average common shares outstanding			383,400			371,484			382,678			369,435
	Basic net income (loss) per share attributable to common stockholders		$	0.06		$	(0.03	)	$	0.05		$	(0.14	)
Diluted net income (loss) per share computation:
	Net income (loss) attributable to common stockholders		$	23,216		$	(12,400	)	$	17,952		$	(52,900	)
	Dividends on Series B preferred stock			189			—			291			—
	Adjusted net income (loss) attributable to common stockholders		$	23,405		$	(12,400	)	$	18,243		$	(52,900	)
	Weighted-average common shares outstanding			383,400			371,484			382,678			369,435
	Incremental shares attributable to the assumed exercise of outstanding options			8,289			—			11,080			—
	Incremental shares attributable to the assumed conversion of convertible preferred stock			6,087			—			3,185			—
		Total adjusted weighted average common shares		397,776			371,484			396,943			369,435
	Diluted net income (loss) per share attributable to common stockholders		$	0.06		$	(0.03	)	$	0.05		$	(0.14	)

        Incremental shares attributable to the assumed exercise of outstanding options of 1,962,639 and 1,648,793 have been excluded from the calculation of diluted net loss per share in the three and nine months ended July 31, 2003, respectively, as their effect would have been anti-dilutive due to the net loss incurred in those periods.

        In March 2004, the EITF reached a final consensus on Issue 03-6, "Participating Securities and the Two-Class Method under FASB Statement 128." Issue 03-6 requires the two-class method of calculating earnings per share for companies that have issued securities other than common stock that contractually entitle the holder to participate in dividends of the company. Because the Series B preferred stock participates in dividends, we are required to use the two-class method of calculating

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earnings per share, effective this quarter. This change in computational methods had no impact on earnings per share for the three or nine months ended July 31, 2004.

        In June 2004, the EITF reached a tentative conclusion on Issue 04-8, "Accounting Issues Related to Certain Features of Contingently Convertible Debt and the Effect on Diluted Earnings per Share". This issue addresses when the dilutive effect of contingently convertible debt with a market price trigger should be included in diluted earnings per share calculations. The EITF's tentative conclusion is that the market price trigger should be ignored and that these securities should be treated as convertible securities and included in diluted earnings per share regardless of whether the conversion contingencies have been met. Because our senior convertible debentures are contingently convertible debt with a market price trigger, we will be required to comply with EITF Issue 04-8 once a final consensus is reached. Had the tentative conclusions of EITF Issue 04-8 been effective for the three and nine months ended July 31, 2004, reported earnings per share would not have changed due to the timing of our issuance of the senior convertible debentures. However, future earnings per share could be impacted by the adoption of this proposed standard. For example, had the senior convertible debentures been outstanding for the full three and nine months ended July 31, 2004, then on a pro forma basis our diluted earnings per share attributable to common stock would have been $0.05 and $0.03, respectively.

        As of July 31, 2004, our senior convertible debentures are contingently convertible into 52,074,300 shares of common stock. Under current accounting literature, the dilutive effect of these contingently issuable shares of common stock are included in the calculation of diluted earnings per share only when the conversion contingencies have been satisfied. Because none of the conversion contingencies were satisfied during the three or nine months ended July 31, 2004, these contingently issuable shares were excluded in the determination of diluted earnings per share.

Q.    Comprehensive Income

        The components of comprehensive income (loss), net of tax, are as follows:

	Three Months Ended						Nine Months Ended
	July 31, 2004			July 31, 2003			July 31, 2004			July 31, 2003
	(amounts in thousands)
Net income (loss) attributable to common stockholders	$	23,216		$	(12,400	)	$	17,952		$	(52,900	)
Change in net unrealized gain (loss) on investments		(480	)		(1,022	)		(2,685	)		(757	)
Change in pension liability		(41	)		—			(1,522	)		—
Change in cumulative translation adjustments		3,016			5,004			6,379			5,333
Comprehensive income (loss)	$	25,711		$	(8,418	)	$	20,124		$	(48,324	)

        The components of accumulated other comprehensive income, net of related tax, are as follows:

		July 31, 2004			October 31, 2003
		(amounts in thousands)
Net unrealized gain (loss) on investment		$	(1,186	)	$	1,499
Net accumulated pension liability			(1,522	)		—
Net cumulative translation adjustment			11,949			5,569
	Accumulated other comprehensive income	$	9,241		$	7,068

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R.    Stock-Based Compensation

        We account for our stock-based compensation plans for employees under the intrinsic value method of accounting as defined by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. We apply the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure."

        At July 31, 2004, we had authorized several stock-based compensation plans. Under these plans, options to purchase shares of our common stock can be granted to employees, consultants, and outside directors. We generally grant employees stock options at an exercise price equal to the fair market value of our common stock. Thus, in accordance with the intrinsic value method, no compensation expense (except compensation expense related to restricted stock purchase rights, restricted units, below-market option grants, and grants to non-employees) has been recognized for our stock-based compensation.

        If compensation expense for our stock option and other equity plans had been determined based on the fair value of the stock grants, in accordance with SFAS No. 123, our net income (loss) and net income (loss) per share would have been the pro forma amounts indicated below:

		Three Months Ended						Nine Months Ended
		July 31, 2004			July 31, 2003			July 31, 2004			July 31, 2003
		(amounts in thousands, except per share data)
Net income (loss) attributable to common stockholders
	As reported	$	23,216		$	(12,400	)	$	17,952		$	(52,900	)
	Less: total stock-based compensation expense determined under fair value-based method for all awards, net of related tax effects		(13,949	)		(5,997	)		(38,628	)		(22,911	)
	Add: total stock-based compensation expense recorded in the statement of operations		1,294			858			3,781			2,498
	Pro forma	$	10,561		$	(17,539	)	$	(16,895	)	$	(73,313	)
Net income (loss) per share attributable to common stockholders:
	As reported basic and diluted	$	0.06		$	(0.03	)	$	0.05		$	(0.14	)
	Pro forma basic and diluted	$	0.03		$	(0.05	)	$	(0.04	)	$	(0.20	)

        For the purpose of the above table, the fair value of each option grant is 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 third quarters of fiscal 2004 and fiscal 2003: a risk-free interest rate of approximately 3.91% and 2.19%, respectively; a dividend yield of 0% for both quarters; a weighted-average expected life of five years for both quarters, except for the options granted as part of an exchange program which have an average expected life of three years; and a volatility factor of the expected market price of our common stock of 0.77 and 0.81, respectively. The weighted average fair value of options granted in the third quarters of fiscal 2004 and fiscal 2003 was $5.69 and $2.02, respectively.

        For the first nine months of fiscal 2004 and fiscal 2003 assumptions included: a risk-free interest rate of approximately 2.75% and 2.36%, respectively; a dividend yield of 0% for both periods; a weighted-average expected life of five years for both periods, except for the options granted as part of an exchange program which have an average expected life of three years; and a volatility factor of the expected market price of our common stock of 0.77 and 0.82, respectively. The weighted average fair

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value of options granted in the first nine months of fiscal 2004 and fiscal 2003 was $5.66 and $2.30, respectively.

        For purposes of the above table, pro forma compensation expense is estimated for the fair value of rights granted under our employee stock purchase plan using the Black-Scholes option pricing model with the following assumptions as if shares had been issued in the third quarters of fiscal 2004 and fiscal 2003: risk-free interest rate of approximately 1.1% and 2.3%, respectively; a dividend yield of 0% for both periods; a weighted-average expected life of six months for both periods; and a volatility factor of the expected market price of our common stock of 0.77 and 0.88, respectively. The estimated weighted average fair value of the purchase rights issued in the third quarters of fiscal 2004 and fiscal 2003 was $4.19 and $0.93, respectively.

S.     Derivative Instruments

        A large portion of our revenue, expense, and capital purchasing activities is transacted in U.S. dollars. We do not currently hedge currency risks related to revenue or expenses denominated in foreign currencies. However, we hedge currency risks of some assets and liabilities denominated in foreign currencies to protect against reductions in value caused by changes in foreign exchange rates. We have established balance sheet and intercompany hedging programs that use one-month foreign currency forward contracts, primarily on the Euro, Japanese Yen, and certain other European, Latin American and Asian currencies.

        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 July 31, 2004 is insignificant. Gains and losses recognized during a quarter on these foreign currency contracts are recorded as other income or expense and generally offset corresponding gains and losses on the underlying hedged assets and liabilities, resulting in negligible effect to our financial statements.

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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 certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended. All statements, other than statements of historical fact, regarding our strategy, future operations, financial position, estimated revenue, projected costs, projected savings, prospects, plans, opportunities and objectives constitute "forward looking statements". The words "may," "will," "expects," "plans," "anticipates," "believe," "estimates," "potential," or "continue" and similar types of expressions identify such statements, although not all forward-looking statements contain these identifying words. These statements are based upon information that is currently available to us and/or management's expectations, speak only as the date hereof, and are subject to certain risks and uncertainties. We expressly disclaim any obligation or undertaking to update or revise forward-looking statements contained or incorporated by reference herein to reflect any change or expectations with regard thereto or to reflect any change in events, conditions, or circumstances on which any such forward-looking statement is based, in whole or in part. Our actual results may differ materially from the results discussed in or implied by such forward-looking statements. Factors that may cause such a difference include, but are not limited to, those discussed in the "Risk Factors," which is incorporated by reference from our Current Report on Form 8-K filed with the Securities and Exchange Commission on July 2, 2004. We assume no obligation to update any of our forward-looking statements for any reason, except as required by law.

Introduction

        Novell has been a leading provider of information solutions since 1983. We provide cross-platform identity driven applications and services, web application development tools, and resource management products and solutions. We provide these services on Windows, NetWare and Unix. We also develop and deliver a Linux-based open source software platform, all supported by consulting, education and technical services. Through these capabilities, our customers can deliver information or system resources from diverse sources, regardless of how they are implemented, regardless of how they connect, in a secure and personalized way, on a trusted open source platform. With over 5,800 employees globally, we serve customers all over the world.

        Our Chief Executive Officer and Worldwide Management Committee manage the overall growth and performance of the company in terms of the following operating segments:

•

Americas—this geographic segment includes the United States, Canada and Latin America.



•

EMEA—this geographic segment includes Eastern and Western Europe, the Middle East and Africa.



•

Asia Pacific—this geographic segment includes China, Japan, Southeast Asia, Australia, New Zealand and India.



•

Celerant management consulting—this segment, which is a majority-owned subsidiary of Novell, provides operational strategy and implementation consulting services to a variety of customers mainly in Europe and the United States.

        Our strategy focuses on four categories of products and services:

•

Identity management and web services



•

Cross-platform services



•

Worldwide services



•

Celerant management consulting

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        Identity management and web services.    Our identity management products include applications ranging from secure authentication and authorization services, single sign-on, and provisioning, to portal and web services interfaces. Identity management technologies are increasingly becoming core components of a variety of products such as operating systems, applications, cellular phones, and other digital devices. Our strategy has been to develop identity management technologies as a set of discrete services, as opposed to the use of a single application such as a directory. Our products are built to interoperate in a collaborative environment, which has the additional benefit of allowing our customers and strategic partners to extend the functionality needed for their specific situations and products. In addition, because our current products support common standards, they can be easily deployed with other vendors' products as required.

        Our web services solutions or services oriented architecture ("SOA") provide the software and support needed by customers to decouple the business processes and information from their limited, single-purpose platforms and re-purpose them, thereby enabling collaboration and interaction with other people, systems and transactions, inside or outside the organization.

        Cross-platform services.    We believe a major shift toward open source software is underway and that we are uniquely positioned to drive this trend and to benefit from it. While the flexibility and cost savings of Linux and open source has made it attractive to enterprise customers, we believe businesses look to proprietary software vendors to provide applications, management and security. Among other factors, weak technical support and a lack of applications may have kept Linux and open source from achieving its full potential to date. Through our acquisitions of Ximian in August 2003 and SUSE LINUX AG ("SUSE") in January 2004, and through changes to our legacy products to enable them to operate on Linux, we are now able to provide comprehensive network services on Linux—from the desktop to the server to the mainframe and provide the related technical support that has been lacking in this industry. As a result, we offer our customers a cost effective, secure, reliable, and supported means to migrate to Linux and open source solutions. Our goals are to provide a migration strategy to open source and to give existing open source users a richer, more productive computing experience at a reasonable price by leveraging our financial stability, experience and global support capabilities.

        We offer two major operating system platforms—NetWare and SUSE LINUX. Our solutions offer an effective and open approach to networking and collaboration services—including file, print, messaging, scheduling and workspace—while using a cross-platform approach. Our platform offerings provide a robust, scalable, and dependable service infrastructure that supports heterogenous computing environments. In addition, our identity driven management servicesdirectory-based management modules allow customers to manage their entire mixed environment from a single, central location, supporting our identity management and web services offerings.

        We can now offer products on an open source platform that enables our customers to deploy the best of closed and open source software that many businesses find more attractive. As an example, our GroupWise product now allows customers to collaborate seamlessly across their Windows and Linux environments. We provide solutions allowing IT managers to centrally control Windows and Linux systems in a consistent and straightforward way.

        Worldwide services.    We provide worldwide consulting, education and support services to address our customers' needs. Our IT consulting practice provides the business knowledge and technical expertise to help our customers implement and achieve maximum benefit from our products and solutions. We also offer focused open source and identity driven services to develop and implement strategies and solutions for our clients to more rapidly integrate or migrate existing platforms with our open source platform.

        We offer skills assessments, advanced technical training courses, and customized training directly and through authorized training service partners. We also offer testing and certification programs to systems administrators, engineers, salespeople and instructors on a wide variety of technologies,

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including Linux. Over a decade ago, we introduced the concept of software engineer certifications. Building on this program, we introduced our Novell Certified Linux Engineer program to accelerate the adoption of Linux and open source in the enterprise.

        We provide our customers with a global support structure covering proprietary and open source technical support. We deliver our technical support services through a variety of channels, including on-site dedicated resources as well as through telephone, web, e-mail, and remote systems management.

Overview

        Important factors in evaluating our third quarter fiscal 2004 results include the state of the global economy and IT markets and our progress in implementing our strategies. These strategies include increasing our Linux and Identity Management businesses, reducing the rate of revenue decline in our NetWare business, increasing sales of other products and services, including consulting services, and reducing costs.

        An important strategy of ours is to embrace the open source movement, specifically the Linux operating system, and to develop a competitive position in the Linux market. This strategy includes supporting the Linux kernel in addition to the NetWare kernel, by offering Novell products and services that run on both Linux and NetWare platforms. Our acquisitions of Ximian and SUSE, as well as restructurings in this and prior quarters, are direct results of this strategy.

        Our strategies, and their implementation, involve risks and challenges. Our progress with these strategies during the third quarter and their associated risks and challenges were as follows:

•

We released SUSE LINUX Enterprise Server 9, which we believe to be a major milestone in enabling Enterprise Linux computing. We shipped approximately 19,000 SLES 9 units in the quarter (including 12,000 to a single customer) compared to 3,800 units of SLES 8 in the prior quarter. Our expectation is that sales of our SUSE LINUX products will increase as the market becomes more familiar with our products. In addition, we believe that our Linux initiatives provide sales opportunities for other products and, as the Linux market grows in the future, will assist and augment our existing product revenue streams and trends.



•

We continued to successfully cut costs. Improved profitability for the quarter and the first nine months of fiscal 2004 compared to the same periods last year was due in part to our cost reductions over the past few quarters. During the third quarter, we completed a restructuring to eliminate redundancies. Specific actions taken included reducing our work force by 65 employees, mainly in consulting, sales and product development in EMEA and the Americas. In addition, we consolidated facilities, resulting in the closure of two redundant sales offices and the disposal of related excess equipment and tenant improvements.



•

Our Identity Management products continued to earn praise in the marketplace. At the Linux World Conference in August 2004, Nsure, our secure management platform, was named "Best Security Solution," exteNd 5.2 won the "Best Integration Solution" and ZENworks Linux Management won "Best Systems Management Tool." Our expectation is that this kind of recognition favorably affects our sales of products and services.



•

We progressed with the integration of SUSE personnel, operations and technology into our business, although we expect that the benefits of a completed integration may take a year or more to realize.



•

Excluding the impact of foreign currency effects, NetWare revenue for the third quarter of fiscal 2004 declined by 12% compared to the same quarter of fiscal 2003. This decline impacted our results of operations for the quarter, and was mainly due to weaknesses in Germany and the United Kingdom. Excluding the impact of foreign currency effects, NetWare revenue for the first

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nine months of fiscal 2004 decreased by 9% as compared to an average company-wide decline of approximately 15% over the last three years. While this quarter's NetWare revenue results are disappointing, we continue to believe our Linux strategy will positively influence NetWare sales.

•

During the quarter, we acquired Salmon, Ltd. ("Salmon"), a privately-held information technology services and consulting firm headquartered in Watford, England. To stay competitive and grow, we evaluate on an ongoing basis the markets and potential applications for our products and services so that we can meet the technological and cost demands of existing and potential customers worldwide. Some of our customer demands will be accomplished in the future through the acquisition of companies and technologies that expand and complement the products and services that we offer our customers.



•

We raised $600 million through a private placement of senior convertible debt, increasing our cash, cash equivalents and short-term investments balance at July 31, 2004 to $1.1 billion from $636.1 million at April 30, 2004. This additional liquidity significantly strengthens our ability to quickly respond to market developments and business opportunities. We incurred $14.9 million of debt issuance costs in connection with this offering. We used $125 million of these proceeds to repurchase $125 million of common stock. These shares are held in treasury and are classified as treasury stock on our consolidated balance sheet.



•

The economy and IT markets continue to be challenging. We must respond appropriately to economic conditions in the United States and the rest of the world—both general economic conditions and economic conditions that are specific to the IT market. These conditions affect the confidence, spending ability and growth potential of our existing and potential customers and, consequently, the demand of those customers for our products and services. As a result, we are proactive in reviewing and restructuring our operations in response to changes in customer preferences and the IT market.

Results of Operations

Revenue

        We sell our products, services, and solutions primarily to corporations, government entities, educational institutions, resellers and distributors both domestically and internationally. In the statement of operations, we categorize revenue as software licenses or maintenance and services. Software licenses includes new license sales only. Maintenance and services includes all other revenue including SUSE LINUX and upgrade protection.

        Revenues by reporting segment were as follows:

		Three Months Ended						Nine Months Ended
(dollar amounts in thousands)		July 31, 2004		July 31, 2003		Change		July 31, 2004		July 31, 2003		Change
Americas		$	145,617	$	135,635	7	%	$	397,347	$	396,979	—	%
EMEA			92,209		87,400	6	%		279,072		257,800	8	%
Asia Pacific			23,015		23,235	(1	%)		65,959		62,000	6	%
Celerant management consulting			43,756		36,539	20	%		122,882		101,968	21	%
	Total net revenue	$	304,597	$	282,809	8	%	$	865,260	$	818,747	6	%

        We further analyze revenue by solution categories within each operating segment.

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        Revenues by solution category in the Americas were as follows:

		Americas
		Three Months Ended						Nine Months Ended
(dollar amounts in thousands)		July 31, 2004		July 31, 2003		Change		July 31, 2004		July 31, 2003		Change
Identity management & web services		$	13,068	$	13,956	(6	%)	$	36,250	$	38,501	(6	%)
Cross platform services			93,935		81,862	15	%		245,055		239,944	2	%
Worldwide services			38,614		39,817	(3	%)		116,042		118,534	(2	%)
	Total net revenue	$	145,617	$	135,635	7	%	$	397,347	$	396,979	—	%

        The 7% overall increase in Americas segment revenues for the third quarter of fiscal 2004 compared to the same period in fiscal 2003 is primarily due to increased revenue in our Cross Platform Services solution category. This increase is due primarily to the recognition of $13.5 million of royalty revenue related to the legal judgment against The Canopy Group, Inc. ("Canopy"). The remaining $5.0 million of the $18.5 million payment we received from Canopy was recognized as interest income.

        Excluding the Canopy revenue, Americas revenue for the third quarter and the first nine months of fiscal 2004 decreased by 3% compared to the same periods in fiscal 2003. These declines are primarily due to a 12% decline in the third quarter of fiscal 2004 and 11% decline in the first nine months of fiscal 2004 in NetWare revenues. This compares to a 6% decline in NetWare revenues for the second quarter of fiscal 2004 and a 5% decline for the first six months of fiscal 2004. These declines are offset by increases in ZENworks revenues of $3.1 million or 20% for the third quarter and $4.7 million or 10% for the first nine months of fiscal 2004 compared to the same periods in fiscal 2003, principally related to our successful release of ZENworks 6.5 during the third quarter. Revenues in Identity Management and Web Services and Worldwide Services remained relatively flat on an absolute dollar basis.

        Revenues by solution category in the EMEA segment were as follows:

		EMEA
		Three Months Ended						Nine Months Ended
(dollar amounts in thousands)		July 31, 2004		July 31, 2003		Change		July 31, 2004		July 31, 2003		Change
Identity management & web services		$	10,655	$	9,986	7	%	$	29,813	$	26,876	11	%
Cross platform services			50,745		48,649	4	%		161,281		146,462	10	%
Worldwide services			30,809		28,765	7	%		87,978		84,462	4	%
	Total net revenue	$	92,209	$	87,400	6	%	$	279,072	$	257,800	8	%

        The 6% overall increase in EMEA segment revenues for the third quarter and the 8% overall increase in revenues for the first nine months of fiscal 2004 compared to the same periods in fiscal 2003 are due primarily to favorable foreign currency exchange rates which increased revenues by approximately $2 million for the third quarter and $14.3 million for the first nine months of fiscal 2004. This increase is also due to the inclusion of SUSE revenues in the Cross Platform Services solution category of $6.9 million for the third quarter and $16.2 million for the first nine months of fiscal 2004 compared to no SUSE revenue in the same periods in fiscal 2003. Also, revenues for the third quarter of fiscal 2004 increased by approximately $1.3 million due to the inclusion of Salmon revenues.

        Excluding the impact of foreign currency exchange rates, SUSE revenues and Salmon revenues, revenues for EMEA for the third quarter of fiscal 2004 decreased by 6% and revenues for the first nine months of fiscal 2004 decreased by 4% due primarily to declining NetWare revenue and lower than expected maintenance renewals in Germany and the United Kingdom.

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        Revenues by solution category in the Asia Pacific segment were as follows:

		Asia Pacific
		Three Months Ended						Nine Months Ended
(dollar amounts in thousands)		July 31, 2004		July 31, 2003		Change		July 31, 2004		July 31, 2003		Change
Identity management & web services		$	2,997	$	2,158	39	%	$	7,183	$	5,976	20	%
Cross platform services			13,324		14,084	(5	%)		38,687		36,613	6	%
Worldwide services			6,694		6,993	(4	%)		20,089		19,411	3	%
	Total net revenue	$	23,015	$	23,235	(1	%)	$	65,959	$	62,000	6	%

        The 1% overall decline in Asia Pacific segment revenues for the third quarter of fiscal 2004 is primarily due to decreases in NetWare revenue of $1.2 million offset by improved revenues for our ZENworks products. The 6% increase in revenues for the first nine months of fiscal 2004 compared to the same period in the prior year is due primarily to favorable foreign currency exchange rates. Revenues in Identity Management and Web Services and Worldwide Services remained relatively flat on an absolute dollar basis.

        Revenues in the Celerant management consulting segment were as follows:

	Celerant Management Consulting
	Three Months Ended						Nine Months Ended
(dollar amounts in thousands)	July 31, 2004		July 31, 2003		Change		July 31, 2004		July 31, 2003		Change
Celerant management consulting	$	43,756	$	36,539	20	%	$	122,882	$	101,968	21	%

        Celerant revenues for the third quarter of fiscal 2004 increased 20% compared to the same period last year due to a combination of underlying growth in the business and favorable currency exchange rates. Excluding the impact of the foreign currency exchange rates, revenue increased by 15% for the third quarter of fiscal 2004 compared to the same quarter in fiscal 2003 due to improved revenue growth in our European and U.S. businesses.

        Celerant revenues for the first nine months of fiscal 2004 increased 21% compared to the same period last year primarily due to a combination of underlying growth in the business and favorable foreign exchange currency rates. Excluding the impact of changes in foreign exchange currency rates, revenues increased by 12% for the nine months of fiscal 2004 compared to the same period in fiscal 2003. This increase is due to improved revenue growth of 12% in our Celerant European business.

Deferred revenue

        Deferred revenue represents revenue that is expected to be recognized in future periods. The majority of deferred revenue relates to maintenance contracts and subscriptions and is recognized ratably over the related periods, typically one year. At July 31, 2004, deferred revenue increased by $42 million or 14% to $337 million compared to the balance at July 31, 2003. This increase is attributable to a $12.0 million increase due to favorable foreign currency exchange rates, a $14.0 million increase due to the inclusion of SUSE deferred revenue, and the remaining increase is primarily due to advanced invoicing of maintenance contract renewals and to changes in our business mix moving towards more maintenance and subscription contracts.

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Gross profit

		Three Months Ended							As a % of Revenue Three Months Ended
(dollar amounts in thousands)		July 31, 2004		July 31, 2003			Change		July 31, 2004		July 31, 2003
Software license gross profit		$	53,080	$	63,369		(16	%)	90	%	92	%
Maintenance and services gross profit			147,561		111,963		32	%	60	%	52	%
Intangible asset impairments			—		(23,569	)	—		—		—	%
	Total gross profit	$	200,641	$	151,763		32	%	66	%	54	%

		Nine Months Ended							As a % of Revenue Nine Months Ended
(dollar amounts in thousands)		July 31, 2004		July 31, 2003			Change		July 31, 2004		July 31, 2003
Software license gross profit		$	157,147	$	177,688		(12	%)	90	%	91	%
Maintenance and services gross profit			402,839		327,247		23	%	58	%	52	%
Intangible asset impairments			—		(23,569	)	—		—		—	%
	Total gross profit	$	559,986	$	481,366		16	%	65	%	59	%

        The decrease in gross profit from software licenses as a percentage of related revenue for the third quarter and for the first nine months of fiscal 2004 compared to the same periods of fiscal 2003 is primarily due to competitive pricing pressure on new license sales.

        The increase in gross profit from maintenance and services as a percentage of related revenue for the third quarter is primarily due to the recognition of $13.5 million in connection with the Canopy legal judgment during the quarter. Excluding this revenue, gross profit increased by 19% for the first nine months of fiscal 2004 compared to the same period in the prior year as a result of higher consulting billing rates and the reduction of our workforce, mainly in the Americas and EMEA.

        The $23.6 million impairment charge in the third quarter of fiscal 2003 relates to the impairment of intangible assets recorded in connection with the acquisition of SilverStream Software, Inc. in July 2002.

Operating expenses

		Three Months Ended							As a % of Revenue Three Months Ended
(dollar amounts in thousands)		July 31, 2004		July 31, 2003			Change		July 31, 2004		July 31, 2003
Sales and marketing		$	90,998	$	92,470		(2	%)	30	%	33	%
Product development			49,052		48,178		2	%	16	%	17	%
General and administrative			28,729		28,379		1	%	9	%	10	%
Restructuring			9,250		26,350		(65	%)	3	%	9	%
Gain on sale of long-lived assets			—		(24,934	)	—		—		—
	Total operating expenses	$	178,029	$	170,443		4	%	58	%	60	%

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		Nine Months Ended								As a % of Revenue Nine Months Ended
(dollar amounts in thousands)		July 31, 2004			July 31, 2003			Change		July 31, 2004		July 31, 2003
Sales and marketing		$	266,413		$	292,512		(9	%)	31	%	36	%
Product development			151,282			139,454		8	%	18	%	17	%
General and administrative			79,201			86,663		(9	%)	9	%	11	%
Restructuring			13,987			35,025		(60	%)	2	%	4	%
Gain on sale of long-lived assets			(1,977	)		(24,934	)	92	%	—		—
	Total operating expenses	$	508,906		$	528,720		(4	%)	59	%	65	%

        Sales and marketing expenses, in total and as a percentage of revenue, for the third quarter and the first nine months of fiscal 2004, decreased compared to the same periods in fiscal 2003 due primarily to lower marketing spending, mainly in corporate advertising. This decline is offset somewhat by changes in foreign currency exchange rates.

        Product development costs in the third quarter and first nine months of fiscal 2004 increased compared to the same periods in fiscal 2003 due to increased research and development activity from the acquisitions of Ximian and SUSE. Product development headcount increased by 140 engineers compared to the same period in the prior year due primarily to the acquisitions of Ximian and SUSE, offset by decreases in headcount in other areas of product development.

        General and administrative expenses in the third quarter of fiscal 2004 remained relatively flat on an absolute dollar basis and as a percentage of revenue compared to the same period in fiscal 2003. General and administrative costs, in total and as a percentage of revenue, for the first nine months of fiscal 2004 declined compared to the same period in fiscal 2003 primarily due to a favorable legal development that allowed us to reduce our legal reserves by $5 million during the second quarter of fiscal 2004 and an average reduction in our workforce of 47 employees for the first nine months of fiscal 2004 as compared to the same period in fiscal 2003.

        During the second and third quarters of fiscal 2004, we recorded net pre-tax restructuring expenses of $4.7 million and $9.3 million respectively. These restructuring expenses were in response to the evolution of our business strategy of developing a competitive position in the Linux market. This strategy includes plans to support the Linux kernel in addition to the NetWare kernel, by offering our products and services that run on Linux, NetWare and other platforms. The acquisitions of Ximian and SUSE are direct results of the evolution in our business strategy. These changes were made to address market penetration for Linux and NetWare and to address NetWare revenue declines. Specific actions taken included reducing our workforce by 54 employees during the second quarter and 65 employees during the third quarter of fiscal 2004, mainly in consulting, sales and product development in EMEA and the Americas. In addition, we consolidated facilities resulting in the closure of two sales facilities and the disposal of excess equipment and tenant improvements in the United States. By reporting segment, the Americas accounted for 43.1%, EMEA accounted for 55.0% and Asia Pacific accounted for 1.9% of the total restructuring charges for the first nine months of fiscal 2004.

        During the third quarter of fiscal 2003, we recognized a gain of $24.9 million on the sale of our facility in San Jose, California.

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Other income (expense), net

	Three Months Ended								Nine Months Ended
(dollar amounts in thousands)	July 31, 2004			July 31, 2003			Change		July 31, 2004			July 31, 2003			Change
Investment impairments	$	(551	)	$	(8,040	)	93	%	$	(2,447	)	$	(32,564	)	92	%
Investment income		8,127			3,024		169	%		15,999			9,949		61	%
Other		(1,394	)		(66	)	—			(4,518	)		(1,131	)	(299	%)
Other income (expense), net	$	6,182		$	(5,082	)	222	%	$	9,034		$	(23,746	)	138	%

        Novell's long-term investments consist primarily of investments in venture capital partnerships and other direct investments in equity securities of privately-held securities. The decline in investment impairments during the third quarter and first nine months of fiscal 2004 is primarily the result of more stable fund valuations as compared to the same periods in fiscal 2003.

        Investment income for the third quarter and first nine months of fiscal 2004 increased compared to the same periods in fiscal 2003 due to the collection of $5 million of interest income earned in connection with the favorable legal judgment against Canopy during the third quarter of fiscal 2004.

        Other expenses, net, for the third quarter and first nine months of fiscal 2004 increased compared to the same periods in fiscal 2003 primarily due to higher foreign currency transaction losses and a slight increase in interest expense of $0.2 million related to the issuance of senior convertible debentures on July 2, 2004.

Income tax expense (benefit)

	Three Months Ended								Nine Months Ended
(dollar amounts in thousands)	July 31, 2004			July 31, 2003			Change		July 31, 2004			July 31, 2003			Change
Income tax expense (benefit)	$	5,389		$	(11,362	)	(147	%)	$	16,191		$	(18,200	)	189	%
Percentage of revenue		2	%		(4	%)	—			2	%		(2	%)	—
Effective tax (benefit) rate		19	%		(48	%)	—			27	%		(26	%)	—

        The income tax expense relates to income tax expenses incurred on foreign earnings. The effective tax rate on income for the third quarter of fiscal 2004 was 18.7% and the effective tax rate on income for the first nine months of fiscal 2004 was 26.9%. The effective tax rate for fiscal 2003 was 194.3%. The fiscal 2004 effective tax rate differed from the effective tax rate for 2003 because of the establishment of a full valuation allowance against deferred tax assets, resulting in an additional tax expense of $131 million during the fourth quarter of fiscal 2003, related principally to U.S. net operating loss carryforwards.

Preferred stock dividends

	Three Months Ended						Nine Months Ended
(dollar amounts in thousands)	July 31, 2004			July 31, 2003		Change	July 31, 2004			July 31, 2003		Change
Non-cash deemed dividend related to beneficial conversion feature of preferred stock	$	—		$	—	—	$	(25,680	)	$	—	—
Preferred stock cash dividends		(189	)		—	—		(291	)		—	—

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        On March 23, 2004, we entered into a definitive agreement with International Business Machines Corporation ("IBM") providing for an investment of $50 million by IBM in Novell. The primary terms of the investment, which were negotiated in November 2003, entailed the purchase by IBM of 1,000 shares of our Series B redeemable preferred stock that are convertible into 8 million shares of our common stock at a price of $6.25 per common share. The shares are entitled to a dividend of 2% per annum, payable quarterly in cash. Cash dividends paid during the third quarter of fiscal 2004 were $0.2 million.

        Because the fair value of our common stock of $9.46 per share on March 23, 2004 was greater than the conversion price of $6.25 per share, we recorded a one-time, non-cash deemed dividend of $25.7 million attributable to the value of the Series B preferred stock's conversion feature. This beneficial conversion feature had no impact on net income, but did reduce earnings attributable to common stockholders and thus reduced basic and diluted earnings per share by approximately $0.07 in the first nine months of fiscal 2004.

Liquidity and Capital Resources

(dollar amounts in thousands)	July 31, 2004			October 31, 2003			Change
Cash, cash equivalents and short-term investments	$	1,149,387		$	751,852		53	%
Percent of total assets		52	%		48	%	—

        An overview of the significant cash flow activities for the nine months ended July 31, 2004 and July 31, 2003 is as follows:

	Nine Months Ended
(dollar amounts in thousands)	July 31, 2004			July 31, 2003
Cash provided by operating activities	$	67,594		$	2,010
Issuance of senior convertible debentures, net of issuance costs		585,150			—
Issuance of convertible preferred stock		50,000			—
Issuance of common stock, net		47,983			7,854
Repurchase of common stock—held in treasury		(125,000	)		—
Expenditures for property, plant and equipment		(19,524	)		(30,605	)
Cash paid for SUSE		(200,298	)		—
Cash paid for Salmon		(5,322	)		—

        The 53% increase in cash, cash equivalents and short-term investments at July 31, 2004 compared to October 31, 2003 is primarily due to improved cash flows from operations of $68 million due primarily to cost reductions over the past few quarters, the issuance of senior convertible debentures in the amount of $600 million less issuance costs of $14.9 million on July 2, 2004, the issuance of $50 million of Series B preferred stock on March 23, 2004 and the net issuance of $48 million of common stock during the first nine months of fiscal 2004.

        These increases are offset by decreases in cash, cash equivalents and short-term investments of $125 million from the repurchase of common stock during the third quarter of fiscal 2004, the purchase of SUSE on January 10, 2004 for $210 million less $10 million of cash acquired and the purchase of Salmon on July 19, 2004 for $8.2 million less cash acquired of $3.1 million.

        As of July 31, 2004, we had cash, cash equivalents and other short-term investments of $291.4 million held in accounts outside the United States. 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 are subject to market risk. Our short-term investment portfolio includes gross unrealized gains and losses of $0.7 million and $1.6 million, respectively, as of July 31, 2004. We monitor our investments

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and record losses when a decline in the investment's market value is determined to be other than temporary.

        We also invest excess cash in long-term investments mainly consisting of investments in venture capital partnerships for the promotion of our business and strategic objectives. As of July 31, 2004, we had a carrying value of $53.2 million related to investments in various venture capital funds and had commitments to contribute an additional $37.7 million to these funds, of which we estimate approximately $5.1 million could be contributed in fiscal 2004, approximately $17.7 million in fiscal 2005, and approximately $14.9 million thereafter as requested by the fund managers. We intend to fund these investments with cash from operations and cash on hand.

        As of July 31, 2003, we have various operating leases related to facilities with remaining terms of more than one year. These leases have minimum annual lease commitments of $12 million in fiscal 2004, $25 million in fiscal 2005, $20 million in fiscal 2006, $17 million in fiscal 2007, $11 million in fiscal 2008, and $14 million thereafter. Furthermore, we have $24 million of minimum rentals to be received in the future from subleases.

        On July 2, 2004, we issued and sold $600 million aggregate principal amount of our senior convertible debentures ("debentures") due 2024. The debentures pay interest at 0.50% per annum, payable semi-annually on January 15 and July 15 of each year, commencing January 15, 2005. Each $1,000 principal amount of debentures is convertible, at the option of the holders, into 86.7905 shares of our common stock prior to July 15, 2024 if (1) the price of our common stock trades above 130% of the conversion price for a specified duration, (2) the trading price of the debentures is below a certain threshold, subject to specified exceptions, (3) the debentures have been called for redemption, or (4) specified corporate transactions have occurred. The conversion rate is subject to certain adjustments. The conversion rate initially represents a conversion price of $11.52 per share. Holders of the debentures may require us to repurchase all or a portion of their debentures on July 15, 2009, July 15, 2014 and July 15, 2019, or upon the occurrence of certain events including a change in control. The debentures can be redeemed by us for cash beginning on or after July 20, 2009.

        In connection with the issuance of the debentures, we incurred $14.9 million of issuance costs, which primarily consisted of investment banker fees and legal and other professional fees. These costs are being amortized as interest expense using the effective interest method over the term from issuance through the first date that the holders can require repurchase of the debentures (July 15, 2009). Amortization expense related to the issuance costs was $0.2 million for the quarter ended July 31, 2004. In addition, cash interest expense was $0.2 million for the quarter ended July 31, 2004. We intend to use the proceeds from these debentures for general corporate purposes, including potential acquisitions.

        As of July 31, 2004, we also have $25 million of Series B preferred stock outstanding. The preferred stock is redeemable at our option, and by the holder only under certain change in control circumstances.

        Our principal source of liquidity continues to be from operations, cash on hand, and short-term investments. At July 31, 2004, our principal unused sources of liquidity consisted of cash in the amount of $574 million and short-term investments in the amount of $576 million. During the first nine months of fiscal 2004 and during fiscal 2003, we generated $68 million and $2 million, respectively, of cash flow from operations. We anticipate generating positive cash flows from operations in addition to investment income in fiscal 2004 sufficient to fund operations. Our liquidity needs are principally for financing of accounts receivable, property, plant and equipment, strategic investments, product development, and flexibility in a dynamic and competitive operating environment.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

        We are exposed to financial market risks, including changes in interest rates, foreign currency exchange rates, and market prices of equity securities. To mitigate some of our foreign currency exchange 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 July 31, 2004.

Interest Rate Risk

        The primary objective of our short-term investment activities is to preserve principal while maximizing yields without significantly increasing risk. Our strategy 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 $2 million decrease (less than 0.5%) 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 July 31, 2004, gross unrealized gains, before tax effect on the short-term public equity securities totaled $0.4 million. A reduction in prices of 10% of these short-term equity securities would result in approximately a $0.5 million decrease (less than 0.5%) in the fair value of our short-term investments.

        In addition, we invest in equity securities issued by privately-held companies that are included in our long-term portfolio of investments, primarily for the promotion of business and strategic objectives. These investments are generally in thinly capitalized companies in the high-technology industry sector or venture capital funds. Because of the nature of these investments, we are exposed to equity price risks. We typically do not attempt to reduce or eliminate our market exposure on these securities. A 10% adverse change in equity prices of long-term equity securities would result in an approximate $0.4 million decrease in the fair value of our long-term securities.

Foreign Currency Risk

        We use derivatives to hedge those net assets and liabilities that, when re-measured or settled according to accounting principles generally accepted in the United States, impact our consolidated statement of operations. Currency forward contracts are utilized in these hedging programs. All forward contracts entered into by us 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 gains and losses on the net 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 (expense) in the same period as when the gains and losses on re-measurement 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 consolidated statements of cash flows. Our hedging programs reduce, but do not always entirely eliminate, the impact of foreign currency exchange rate movements. If we do 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 $7.5 million. This number represents the exposure related to balance sheet re-measurement 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 July 31, 2004. Actual results may differ materially.

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Item 4. Controls and Procedures

(a)

Evaluation of Disclosure Controls and Procedures

        Novell's management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures as of the end of the period covered by this report were designed and functioning effectively to provide reasonable assurance that the information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. We believe that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system 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.

(b)

Change in Internal Control over Financial Reporting

        No change in Novell's internal control procedures occurred during the most recent fiscal quarter that materially affects, or is reasonably likely to materially affect, internal controls over financial reporting.

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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 Notes K and M of our financial statements contained in Part I, Item 1 of this Form 10-Q.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.

        The information required by this item is incorporated herein by reference to Note C and Note N of our financial statements contained in Part I, Item 1 of this Form 10-Q.

        In addition, in accordance with Item 703, we disclose the following:

Months ended		Number of shares purchased	Average price paid per share		Total number of shares purchased under publicly announced repurchase programs	Maximum dollar value of shares that may yet be repurchased under publicly announced repurchase programs
May 31, 2004		3,923	$	8.98	N/A		N/A
June 30, 2004		15,198,862	$	8.23	15,188,300	$	0.00
July 31, 2004		70,329	$	6.93	N/A		N/A
	Totals	15,273,114			15,188,300	$	0.00

        On June 28, 2004, we filed a Form 8-K announcing our intentions to use a portion of the proceeds from the issuance of senior convertible debentures to repurchase, on a one-time basis, $125 million of common stock (15,188,300 shares at $8.23 per share). These shares were repurchased on July 2, 2004, are held in treasury and are classified as treasury stock on our consolidated balance sheet at July 31, 2004.

        Repurchases of shares of common stock that have not been publicly announced represents forfeited shares by employees who exercised stock options to satisfy tax withholdings.

Item 4. Submission of Matters to a Vote of Security Holders

        None

Item 6. Exhibits and Reports on Form 8-K.

(a)

Exhibits

Exhibit Number	Description
4.1	Indenture dated as of July 2, 2004 between the Registrant and Wells Fargo Bank, National Association, as Trustee.
10.1	Registration Rights Agreement dated July 2, 2004 between the Registrant and Citigroup Global Markets Inc., for itself and on behalf of certain purchasers.
31.1	Rule 13a-14(a) Certification
31.2	Rule 13a-14(a) Certification
32.1	18 U.S.C. Section 1350 Certification
32.2	18 U.S.C. Section 1350 Certification

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SIGNATURES

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

	Novell, Inc. (Registrant)
Date: September 14, 2004	By:	/s/  JOSEPH S. TIBBETTS, JR. Joseph S. Tibbetts, Jr. Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

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EX-4.1

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TABLE OF CONTENTS

NOVELL, INC.,

as Issuer

and

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as Trustee

INDENTURE

Dated as of July 2, 2004

$600,000,000

0.50% CONVERTIBLE SENIOR DEBENTURES DUE 2024

CROSS-REFERENCE TABLE

TIA Section		Indenture Section
310	(a)(1)	5.11
	(a)(2)	5.11
	(a)(3)	n/a
	(a)(4)	n/a
	(a)(5)	5.11
	(b)	5.03;5.11
	(c)	n/a
311	(a)	5.12
	(b)	5.12
	(c)	n/a
312	(a)	2.10
	(b)	14.03
	(c)	14.03
313	(a)	5.07
	(b)(1)	n/a
	(b)(2)	5.07
	(c)	5.07; 14.02
	(d)	5.07
314	(a)(1),(2),(3)	9.04; 14.06
	(a)(4)	9.04; 9.05; 14.06
	(b)	n/a
	(c)(1)	14.05
	(c)(2)	14.05
	(c)(3)	n/a
	(d)	n/a
	(e)	14.06
	(f)	n/a
315	(a)	5.01(a	)
	(b)	5.06; 14.02
	(c)	5.01(b	)
	(d)	5.01(c	)
	(e)	4.14
316	(a)(last sentence)	2.13
	(a)(l)(A)	4.05
	(a)(1)(B)	4.04
	(a)(2)	n/a
	(b)	4.07
	(c)	14.04
317	(a)(1)	4.08
	(a)(2)	4.09
	(b)	2.05
318	(a)	14.01
	(b)	n/a
	(c)	14.01

"n/a" means not applicable.

This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture.

TABLE OF CONTENTS

i

ii

iii

        INDENTURE, dated as of July 2, 2004, between NOVELL, INC., a corporation duly organized and existing under the laws of the State of Delaware, having its principal office at 404 Wyman Street, Waltham, MA 02451 (the "Issuer" or the "Company"), and WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee (the "Trustee").

RECITALS OF THE COMPANY

        The Company has duly authorized the creation of an issue of its 0.50% Convertible Senior Debentures due 2024 (herein called the "Securities") of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture.

        All things necessary to make the Securities, when the Securities are executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done.

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

        For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows:

ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE

        Section 1.01.    Definitions.     For all purposes of this Indenture and the Securities, the following terms are defined as follows:

        "Accepted Purchase Shares" has the meaning set forth in Section 12.04(f)(ii).

        "Act", when used with respect to any Holder of a Security, has the meaning specified in Section 14.04(a) hereof.

        "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control", when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.

        "Bankruptcy Law" means Title 11 of the U.S. Code or any similar federal or state law for the relief of debtors.

        "Board of Directors" means either the board of directors of the Company or any committee of that board empowered to act for it with respect to this Indenture.

        "Board Resolution" means a resolution duly adopted by the Board of Directors, a copy of which, certified by the Secretary or an Assistant Secretary of the Company to be in full force and effect on the date of such certification, shall have been delivered to the Trustee.

        "Business Day" means any day except a Saturday, Sunday or legal holiday on which banking institutions in The City of New York are authorized or obligated by law, regulation or executive order to close.

        "Change of Control" means the occurrence, after the Issue Date, of any of the following:

        (1)   a "person" or "group" within the meaning of Section 13(d) of the Exchange Act other than the Company, its Subsidiaries or the Company's or its Subsidiaries' employee benefit plans, files a Schedule TO or any schedule, form or report under the Exchange Act disclosing that such

person or group has become the direct or indirect ultimate "beneficial owner," as defined in Rule 13d-3 under the Exchange Act, of Common Stock representing more than 50% of the voting power of the Company's Common Stock entitled to vote generally in the election of directors; or

        (2)   consummation of any share exchange, consolidation or merger of the Company or any sale, lease or other transfer in one transaction or a series of related transactions of the consolidated assets of the Company and its Subsidiaries, substantially as an entirety, to any person other than the Company or one or more of its Subsidiaries, pursuant to which the Common Stock is converted into cash, securities or other property; or

        (3)   Continuing Directors cease to constitute at least a majority of the Board of Directors.

        However, a Change of Control will not be deemed to have occurred if in the case of the clause (2) above, at least 90% of the consideration (excluding cash payments for fractional shares or dissenters' appraisal rights) in the transaction or transactions constituting the Change of Control consists of shares of common stock that are, or upon issuance will be, traded on the New York Stock Exchange or quoted on the Nasdaq National Market.

        Beneficial ownership shall be determined in accordance with Rule 13d-3 promulgated by the SEC under the Exchange Act. The term "person" shall include any syndicate or group that would be deemed to be a "person" under Section 13(d)(3) of the Exchange Act.

        "Chief Executive Officer" means the chief executive officer of the Company.

        "Common Stock" means any stock of any class of the Company that has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and that is not subject to redemption by the Company. However, subject to the provisions of Section 12.11 hereof, shares issuable on conversion of Securities shall include only shares of the class designated as Common Stock, par value $0.10 per share, of the Company at the Issue Date or shares of any class or classes resulting from any reclassification or reclassifications thereof and that have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and that are not subject to redemption by the Company, provided, however, that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion that the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications.

        "Company" means the corporation named as the "Company" in the first paragraph of this instrument until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor corporation.

        "Company Notice" has the meaning specified in Section 11.01(b) hereof.

        "Company Order" means a written order signed in the name of the Company by both (1) the Chief Executive Officer, the President or a Vice President and (2) so long as not the same as the officer signing pursuant to clause (1), the Chief Financial Officer, the Treasurer, the Secretary or any Assistant Secretary of the Company, and delivered to the Trustee.

        "Continuing Director" means a director who either was a member of the Board of Directors on June 28, 2004 or who becomes a member of the Board of Directors subsequent to that date and whose appointment, election or nomination for election by the Company's stockholders is duly approved by a majority of the continuing directors on the Board of Directors at the time of such approval, either by a specific vote or by approval of the proxy statement issued by the Company on behalf of the Board of Directors in which such individual is named as nominee for director.

2

        "Conversion Agent" means any Person authorized by the Company to convert Securities in accordance with Article 12 hereof.

        "Conversion Price" as of any day will equal $1,000 divided by the Conversion Rate as of such date.

        "Conversion Rate" has the meaning specified in Section 12.01 hereof.

        "Corporate Trust Office" means for purposes of presentation or surrender of Securities for payment, registration, transfer, exchange, or conversion, the office of Wells Fargo Bank, National Association, located in the City of New York (which at the Issue Date is located at 45 Broadway, 12th Floor, New York, NY 10006-3007), or at such other office or offices of Wells Fargo Bank, National Association as the Trustee may designate from time to time, or for purposes of service of notices or demands upon the Trustee, the office of the Trustee set forth in Section 14.02(b) hereof.

        "Current Market Price" has the meaning specified in Section 12.04(g).

        "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law.

        "Default" means an event that is, or after notice or lapse of time or both would be, an Event of Default.

        "Defaulted Interest" has the meaning specified in Section 2.17 hereof.

        "Depositary" means The Depository Trust Company, its nominees and their respective successors.

        "Dollar", "U.S. Dollar" or "U.S. $" means a dollar or other equivalent unit in such coin or currency of the United States as at the time shall be legal tender for the payment of public and private debts.

        "DTC Participants" has the meaning specified in Section 2.08 hereof.

        "Effective Date" has the meaning specified in Section 7(d)(iv)(B) of the Securities.

        "Event of Default" has the meaning specified in Section 4.01 hereof.

        "Exchange Act" means the Securities Exchange Act of 1934, as amended.

        "Expiration Time" has the meaning specified in Section 12.04(f)(i) hereof.

        "fair market value" has the meaning specified in Section 12.04(g) hereof.

        "Fundamental Change" means the occurrence of any of a Change of Control or a Termination of Trading.

        "Fundamental Change Purchase Notice" has the meaning specified in Section 11.01(c) hereof.

        "Global Security" has the meaning specified in Section 2.02 hereof.

        "Holder", when used with respect to any Security, means the Person in whose name the Security is registered in the Register.

        "Indebtedness", when used with respect to any Person, and without duplication means:

        (1)   all indebtedness, obligations and other liabilities (contingent or otherwise) of such Person for borrowed money (including obligations of the Company in respect of overdrafts, foreign exchange contracts, currency exchange agreements, Interest Rate Protection Agreements, and any loans or advances from banks, whether or not evidenced by notes or similar instruments) or evidenced by bonds, debentures, notes or other instruments for the payment of money, or incurred in connection with the acquisition of any property, services or assets (whether or not the recourse

3

of the lender is to the whole of the assets of such Person or to only a portion thereof), other than any account payable or other accrued current liability or obligation to trade creditors incurred in the ordinary course of business in connection with the obtaining of materials or services;

        (2)   all reimbursement obligations and other liabilities (contingent or otherwise) of such Person with respect to letters of credit, bank guarantees, bankers' acceptances, surety bonds, performance bonds or other guaranty of contractual performance;

        (3)   all obligations and liabilities (contingent or otherwise) in respect of (a) leases of such Person required, in conformity with generally accepted accounting principles, to be accounted for as capitalized lease obligations on the balance sheet of such Person and (b) any lease or related documents (including a purchase agreement) in connection with the lease of real property that provides that such Person is contractually obligated to purchase or cause a third party to purchase the leased property and thereby guarantee a minimum residual value of the leased property to the landlord and the obligations of such Person under such lease or related document to purchase or to cause a third party to purchase the leased property;

        (4)   all obligations of such Person (contingent or otherwise) with respect to an interest rate or other swap, cap or collar agreement or other similar instrument or agreement or foreign currency hedge, exchange, purchase or similar instrument or agreement;

        (5)   all direct or indirect guaranties or similar agreements by such Person in respect of, and obligations or liabilities (contingent or otherwise) of such Person to purchase or otherwise acquire or otherwise assure a creditor against loss in respect of, indebtedness, obligations or liabilities of another Person of the kind described in clauses (1) through (4);

        (6)   any indebtedness or other obligations described in clauses (1) through (4) secured by any mortgage, pledge, lien or other encumbrance existing on property that is owned or held by such Person, regardless of whether the indebtedness or other obligation secured thereby shall have been assumed by such Person; and

        (7)   any and all deferrals, renewals, extensions, refinancings, replacements, restatements and refundings of, or amendments, modifications or supplements to, any indebtedness, obligation or liability of the kind described in clauses (1) through (6).

        "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof.

        "Initial Purchaser" means Citigroup Global Markets Inc.

        "Interest Payment Date" means each January 15 and July 15.

        "Interest Rate" means 0.50% per annum.

        "Interest Rate Protection Agreement" means, with respect to any Person, any interest rate swap agreement, interest rate cap or collar agreement or other financial agreement or arrangement designed to protect such Person against fluctuations in interest rates, as in effect from time to time.

        "Issue Date" means July 2, 2004.

4

        "Liquidated Damages" means all Registration Default Damages (as such term is defined in the Registration Rights Agreement), if any, payable pursuant to Section 7 of the Registration Rights Agreement.

        "Maturity" means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by acceleration, conversion, call for redemption, exercise of a Purchase Right or a Put Purchase Right or otherwise.

        "Nasdaq National Market" means the National Association of Securities Dealers Automated Quotation National Market or any successor national securities exchange or automated over-the-counter trading market in the United States.

        "Non-Electing Share" has the meaning specified in Section 12.11 hereof.

        "Offer Expiration Time" has the meaning specified in Section 12.04(f)(ii).

        "Offering Memorandum" the final offering memorandum of the Company, dated June 28, 2004, prepared in connection with the offering of the Securities.

        "Officer" of the Company means the Chief Executive Officer, the President, the Chief Financial Officer, the Treasurer, any Vice President, the Secretary or any Assistant Secretary of the Company.

        "Officers' Certificate" means a certificate signed by both (1) the Chief Executive Officer, the President or a Vice President and (2) so long as not the same as the officer signing pursuant to clause (1), the Chief Financial Officer, the Treasurer or the Secretary of the Company, and delivered to the Trustee.

        "Opinion of Counsel" means a written opinion of counsel, who may be counsel to the Company (and may include directors or employees of the Company) and which opinion is acceptable to the Trustee, which acceptance shall not be unreasonably withheld or delayed.

        "Optional Redemption Price" has the meaning specified in Section 10.01 hereof.

        "Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except Securities:

        (1)   previously canceled by the Trustee or delivered to the Trustee for cancellation;

        (2)   for the payment or redemption of which money in the necessary amount has been previously deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities, provided, however, that if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture; and

        (3)   that have been paid, in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company.

        "Paying Agent" has the meaning specified in Section 2.05 hereof.

        "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, estate, unincorporated organization or government or any agency or political subdivision thereof.

        "Physical Securities" has the meaning specified in Section 2.02 hereof.

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        "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 2.12 hereof in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security.

        "Purchase Date" has the meaning specified in Section 11.01(a) hereof.

        "Purchase Price" has the meaning specified in Section 11.01(a) hereof.

        "Purchase Right" has the meaning specified in Section 11.01(a) hereof.

        "Put Purchase Date" has the meaning specified in Section 11.02(a) hereof.

        "Put Purchase Notice" has the meaning specified in Section 11.02(c) hereof.

        "Put Purchase Price" has the meaning specified in Section 11.02(a) hereof.

        "Put Purchase Right" has the meaning specified in Section 11.02(a) hereof.

        "QIB" means a "qualified institutional buyer" as defined in Rule 144A.

        "Record Date" means either a Regular Record Date or a Special Record Date, as the case may be, provided that, for purposes of Section 12.04 hereof, Record Date has the meaning specified in Section 12.04(g) hereof.

        "Redemption Date", when used with respect to any Security to be redeemed, means the optional redemption date, in the event of an optional redemption.

        "Redemption Price", when used with respect to any Security to be redeemed, means the Optional Redemption Price, in the event of an optional redemption.

        "Reference Period" has the meaning specified in Section 12.04(d) hereof.

        "Register" has the meaning specified in Section 2.05 hereof.

        "Registrar" has the meaning specified in Section 2.05 hereof.

        "Registration Default" has the mean specified in Section 7 of the Registration Rights Agreement.

        "Registration Rights Agreement" means the Registration Rights Agreement, dated as of July 2, 2004, between the Company and the Initial Purchaser.

        "Regular Record Date" for the interest payable on the Securities (including Liquidated Damages, if any) means the January 1 (whether or not a Business Day) next preceding a January 15 Interest Payment Date and the July 1 (whether or not a Business Day) next preceding an July 15 Interest Payment Date.

        "Responsible Officer", when used with respect to the Trustee, means any officer in the Corporate Trust Office of the Trustee and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject.

        "Restricted Securities" means the Securities defined as such in Section 2.03 hereof.

        "Restricted Securities Legend" has the meaning specified in Section 2.03(a) hereof.

        "Rights" has the meaning specified in Section 12.04(m).

        "Rights Agreement" has the meaning specified in Section 12.04(m).

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        "Rule 144" means Rule 144 under the Securities Act (including any successor rule thereof), as the same may be amended from time to time.

        "Rule 144A" means Rule 144A under the Securities Act (including any successor rule thereof), as the same may be amended from time to time.

        "Sale Price" with respect to the Company's Common Stock or other security means the closing sale price per share (or if no closing sale price is reported, the average of the bid and asked prices or, if more than one in either case, the average of the average bid and the average asked prices) on that date as reported in transactions for the principal U.S. securities exchange on which the Company's Common Stock or other security is traded or, if the Company's Common Stock or other security, as the case may be, is not listed on a U.S. national or regional securities exchange, as reported by the Nasdaq National Market. The Sale Price shall be determined without reference to after-hours or extended market trading. If the Company's Common Stock or other security is not listed for trading on a U.S. national or regional securities exchange and not reported by the Nasdaq National Market on the relevant date, the "Sale Price" shall be the last quoted bid price for the Company's Common Stock or other security, as the case may be, in the over-the-counter market on the relevant date as reported by the National Quotation Bureau or similar organization. If the Company's Common Stock or other security is not so quoted, the "Sale Price" shall be the average of the mid-point of the last bid and asked prices for the Company's Common Stock or other security, as the case may be, on the relevant date from each of at least three nationally recognized independent investment banking firms selected by the Company for this purpose.

        "SEC" means the Securities and Exchange Commission.

        "Securities" has the meaning ascribed to it in the first paragraph under the caption "Recitals of the Company".

        "Securities Act" means the Securities Act of 1933, as amended.

        "Significant Subsidiary" means a "significant subsidiary" as defined in clause (1) or (2) of the definition thereof in Rule 1-02(w) of Regulation S-X under the Securities Act.

        "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Company pursuant to Section 2.17 hereof.

        "Stated Maturity" means the date specified in any Security as the fixed date for the payment of principal on such Security or on which an installment of interest (including Liquidated Damages, if any) on such Security is due and payable.

        "Stock Price" means the price per share of Common Stock paid in connection with a corporate transaction described in Section 7(d)(iv)(B) of the Securities, which shall be equal to (i) if holders of Common Stock receive only cash in such corporate transaction, the cash amount paid per share of Common Stock and (ii) in all other cases, the average of the Sale Prices of Common Stock on the ten Trading Days up to but not including the Effective Date.

        "Subsidiary" means a corporation more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For the purposes of this definition only, "voting stock" means stock that ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency.

        "Termination of Trading" will be deemed to have occurred if the Common Stock (or other Common Stock into which the Securities are then convertible) is neither listed for trading on a U.S. national securities exchange nor approved for trading on the Nasdaq National Market.

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        "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code §77aaa-77bbbb), as in effect on the Issue Date; provided, however, that in the event the TIA is amended after such date, "TIA" means, to the extent required by such amendment, the Trust Indenture Act of 1939, as so amended, or any successor statute.

        "Trading Day" means a day during which trading in securities generally occurs on The New York Stock Exchange or, if the Common Stock is not then listed on The New York Stock Exchange, on the principal other national or regional securities exchange on which the Common Stock is then listed or, if the Common Stock is not then listed on a national or regional securities exchange, on the Nasdaq National Market or, if the Common Stock is not then quoted on the Nasdaq National Market, on the principal other market on which the Common Stock is traded.

        "Trading Price" of the Securities on any date of determination means the average of the secondary market bid quotations per $1,000 principal amount of Securities obtained by the Trustee for $5,000,000 principal amount of the Securities at approximately 3:30 p.m., New York City time, on such determination date from three independent nationally recognized securities dealers selected by the Company; provided, however, that if three such bids cannot reasonably be obtained by the Trustee, but two such bids are obtained, then the average of the two bids shall be used, and if only one such bid can reasonably be obtained by the Trustee, this one bid shall be used. If the Trustee cannot reasonably obtain at least one bid for $5,000,000 principal amount of Securities from a nationally recognized securities dealer, then the trading price per $1,000 principal amount of Securities shall be deemed to be less than 98% of the product of the Sale Price of the Common Stock and the then applicable Conversion Rate.

        "Transfer Agent" means any Person, which may be the Company, authorized by the Company to exchange or register the transfer of Securities.

        "Trigger Event" has the meaning specified in Section 12.04(d) hereof.

        "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee.

        "Vice President", when used with respect to the Company, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president."

        Section 1.02.    Incorporation by Reference of Trust Indenture Act.     Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture.

        The following TIA terms used in this Indenture have the following meanings:

          (i)  "indenture securities" means the Securities;

         (ii)  "indenture security holder" means a Holder;

        (iii)  "indenture to be qualified" means this Indenture;

        (iv)  "indenture trustee" or "institutional trustee" means the Trustee; and

         (v)  "obligor" on the Securities means the Company and any other obligor on the indenture securities.

        All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions.

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        Section 1.03.    Rules of Construction.     For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:

          (i)  the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular;

         (ii)  all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with accounting principles generally accepted in the United States prevailing at the time of any relevant computation hereunder; and

        (iii)  the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.

ARTICLE 2
THE SECURITIES

        Section 2.01.    Title and Terms.     The Securities shall be known and designated as the "0.50% Convertible Senior Debentures due 2024" of the Company. The aggregate principal amount of Securities that may be authenticated and delivered under this Indenture is limited to $600 ,000,000, except for securities authenticated and delivered upon registration of, transfer of, or in exchange for, or in lieu of other Securities pursuant to Section 2.07, 2.08, 2.09, 2.12, 7.05, 10.07, 11.01, 11.02 or 12.02 hereof. The Securities shall be issuable in denominations of $1,000 or whole multiples thereof.

        The Securities shall mature on July 15, 2024.

        Interest shall accrue from July 2, 2004 at the Interest Rate until the principal thereof is paid or made available for payment. Interest shall be payable semiannually in arrears on January 15 and July 15 of each year, commencing January 15, 2005.

        Interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months, and for any period shorter than a full semiannual period for which interest is calculated, on the basis of a 30-day month, and for such periods of less than a month, the actual number of days elapsed over a 30-day month.

        Subject to Section 2.17, a Holder of any Security at the close of business on a Regular Record Date shall be entitled to receive interest (including Liquidated Damages, if any) on such Security on the corresponding Interest Payment Date.

        A Holder of any Security that is converted after the close of business on a Regular Record Date and prior to the corresponding Interest Payment Date shall be entitled to receive interest (including Liquidated Damages, if any) on the principal amount of such Security on such Interest Payment Date, notwithstanding the conversion of such Security prior to such Interest Payment Date. However, any such Holder that surrenders any such Security for conversion during the period beginning with the close of business on such Regular Record Date and ending with the opening of business on the corresponding Interest Payment Date shall be required to pay the Company an amount equal to the interest (excluding Liquidated Damages, if any) on the principal amount of such Security so converted, which is payable by the Company to such Holder on such Interest Payment Date, at the time such Holder surrenders such Security for conversion. Notwithstanding the foregoing, any such Holder that surrenders for conversion any Security (a) that has been called for redemption by the Company in a notice of redemption given by the Company pursuant to Section 10.04 hereof on a Redemption Date after such Regular Record Date and on or prior to the next succeeding Interest Payment Date, (b) with respect to which the Company has specified a Purchase Date that is after such Regular Record Date and on or prior to the next succeeding Interest Payment Date or (c) on which Defaulted Interest is payable at the time of conversion, but only to the extent of such Defaulted Interest. In either case described in clause (a) or clause (b) above, such Holder shall be entitled to receive (and retain) such

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interest and need not pay the Company an amount equal to the interest on the principal amount of such Security so converted at the time such Holder surrenders such Security for conversion.

        Principal of and interest on, Global Securities shall be payable to the Depositary in immediately available funds.

        Principal on Physical Securities shall be payable at the office or agency of the Company maintained for such purpose, initially the Corporate Trust Office of the Trustee. Interest on Physical Securities will be payable by (i) U.S. Dollar check drawn on a bank located in the city where the Corporate Trust Office of the Trustee is located mailed to the address of the Person entitled thereto as such address shall appear in the Register, or (ii) upon application to the Registrar not later than the relevant Record Date by a Holder of an aggregate principal amount in excess of $5,000,000, wire transfer in immediately available funds.

        The Securities shall be redeemable at the option of the Company as provided in Article 10 hereof.

        The Securities shall have the Purchase Rights exercisable at the option of Holders as provided in Article 11 hereof.

        The Securities shall be convertible as provided in Article 12 hereof.

        Section 2.02.    Form of Securities.     The Securities and the Trustee's certificate of authentication to be borne by such Securities shall be substantially in the form annexed hereto as Exhibit A, which is incorporated in and made a part of this Indenture. The terms and provisions contained in the form of Security shall constitute, and are hereby expressly made, a part of this Indenture and to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby.

        Any of the Securities may have such letters, numbers or other marks of identification and such notations, legends and endorsements as the Officer executing the same may approve (execution thereof to be conclusive evidence of such approval) and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any securities exchange or automated quotation system on which the Securities may be listed or designated for issuance, or to conform to usage.

        The Securities will be offered and sold only to QIBs in reliance on Rule 144A and shall be issued initially only in the form of one or more permanent Global Securities (each, a "Global Security") in registered form without interest coupons. The Global Securities shall be:

        (1)   duly executed by the Company and authenticated by the Trustee as hereinafter provided;

        (2)   registered in the name of the Depositary (or its nominee) for credit to the respective accounts of the Holders at the Depositary; and

        (3)   deposited with the Trustee, as custodian for the Depositary.

        The Global Securities shall be substantially in the form of Security set forth in Exhibit A annexed hereto (including the text and schedule called for by footnotes 1 and 2 thereto). The aggregate principal amount of the Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee as required by Section 2.09, as custodian for the Depositary (or its nominee), in accordance with the instructions given by the Holder thereof, as hereinafter provided.

        Securities issued in exchange for interests in the Global Securities pursuant to Section 2.08(d) hereof shall be issued in the form of permanent definitive Securities (the "Physical Securities") in registered form without interest coupons. The Physical Securities shall be substantially in the form set forth in Exhibit A annexed hereto.

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        The Securities shall be typed, printed, lithographed or engraved or produced by any combination of these methods or may be produced in any other manner permitted by the rules of any securities exchange on which the Securities may be listed, all as determined by the Officer executing such Securities, as evidenced by their execution of such Securities.

        Section 2.03.    Legends.     (a) Restricted Securities Legends.    Each Security issued hereunder shall, upon issuance, bear the legend set forth in Section 2.03(a)(i) or Section 2.03(a)(ii) (each, a "Restricted Securities Legend"), as the case may be, and such legend shall not be removed except as provided in Section 2.03(a)(iii). Each Security that bears or is required to bear the Restricted Securities Legend set forth in Section 2.03(a)(i) (together with any Common Stock issued upon conversion of the Securities and required to bear the Restricted Securities Legend set forth in Section 2.03(a)(ii), collectively, the "Restricted Securities") shall be subject to the restrictions on transfer set forth in this Section 2.03(a) (including the Restricted Securities Legend set forth below), and the Holder of each such Restricted Security, by such Holder's acceptance thereof, shall be deemed to have agreed to be bound by all such restrictions on transfer.

        As used in Section 2.03(a), the term "transfer" encompasses any sale, pledge, transfer or other disposition whatsoever of any Restricted Security.

        (i)    Restricted Securities Legend for Securities.    Except as provided in Section 2.03(a)(iii), until the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), any certificate evidencing such Security (and all securities issued in exchange therefor or substitution thereof, other than Common Stock, if any, issued upon conversion thereof, which shall bear the legend set forth in Section 2.03(a)(ii), if applicable) shall bear a Restricted Securities Legend in substantially the following form:

THIS DEBENTURE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 ("THE "SECURITIES ACT"), AND THIS DEBENTURE AND THE COMMON STOCK ISSUABLE UPON CONVERSION THEREOF MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS DEBENTURE IS HEREBY NOTIFIED THAT THE SELLER OF THIS DEBENTURE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.

THE HOLDER OF THIS DEBENTURE AGREES FOR THE BENEFIT OF NOVELL, INC. (THE "COMPANY") THAT (A) THIS DEBENTURE AND THE COMMON STOCK ISSUABLE UPON CONVERSION THEREOF MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (III) TO THE COMPANY OR ANY SUBSIDIARY THEREOF OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS DEBENTURE FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.

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        (ii)    Restricted Securities Legend for Common Stock Issued upon Conversion of the Securities.    Except as provided in Section 2.03(a)(iii), until the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), any stock certificate representing Common Stock issued upon conversion of such Security shall bear a Restricted Securities Legend in substantially the following form:

THE COMMON STOCK EVIDENCED HEREBY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 ("THE "SECURITIES ACT"). THE HOLDER OF THIS CERTIFICATE AGREES FOR THE BENEFIT OF NOVELL, INC. (THE "COMPANY") THAT (A) THIS DEBENTURE AND THE COMMON STOCK ISSUABLE UPON CONVERSION THEREOF MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (III) TO THE COMPANY OR ANY SUBSIDIARY THEREOF OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS DEBENTURE FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.

        (iii)    Removal of the Restricted Securities Legends.    Each Security or share of Common Stock issued upon conversion of such Security shall bear the Restricted Securities Legend set forth in Section 2.03(a)(i) or 2.03(a)(ii), as the case may be, until the earlier of:

        (A)  the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision);

        (B)  such Security or Common Stock has been sold pursuant to a registration statement that has been declared effective under the Securities Act (and that was effective at the time of such sale); or

        (C)  such Common Stock has been issued upon conversion of Securities that have been sold pursuant to a registration statement that has been declared effective under the Securities Act (and that was effective at the time of such sale).

        The Holder must give notice thereof to the Trustee and any transfer agent for the Common Stock, as applicable.

        Notwithstanding the foregoing, the Restricted Securities Legend may be removed if there is delivered to the Company such satisfactory evidence, which may include an opinion of independent counsel, as may be reasonably required by the Company, that neither such legend nor the restrictions on transfer set forth therein are required to ensure that transfers of such Security will not violate the registration requirements of the Securities Act. Upon provision of such satisfactory evidence, the Trustee, at the written direction of the Company, shall authenticate and deliver in exchange for such Securities another Security or Securities having an equal aggregate principal amount that does not bear such legend. If the Restricted Securities Legend has been removed from a Security as provided above, no other Security issued in exchange for all or any part of such Security shall bear such legend, unless the Company has reasonable cause to believe that such other Security is a "restricted security" within

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the meaning of Rule 144 and instructs the Trustee in writing to cause a Restricted Securities Legend to appear thereon.

        Any Security (or security issued in exchange or substitution thereof) as to which such restrictions on transfer shall have expired in accordance with their terms or as to which the conditions for removal of the Restricted Securities Legend set forth in Section 2.03(a)(i) as set forth therein have been satisfied may, upon surrender of such Security for exchange to the Registrar in accordance with the provisions of Section 2.07 hereof, be exchanged for a new Security or Securities, of like tenor and aggregate principal amount, which shall not bear the Restricted Securities Legend required by Section 2.03(a)(i).

        Any such Common Stock as to which such restrictions on transfer shall have expired in accordance with their terms or as to which the conditions for removal of the Restricted Securities Legend set forth in Section 2.03(a)(ii) as set forth therein have been satisfied may, upon surrender of the certificates representing such shares of Common Stock for exchange in accordance with the procedures of the transfer agent for the Common Stock, be exchanged for a new certificate or certificates for a like aggregate number of shares of Common Stock, which shall not bear the Restricted Securities Legend required by Section 2.03(a)(ii).

        (b)    Global Security Legend.    Each Global Security shall also bear the following legend on the face thereof:

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY ("DTC") TO NOVELL, INC. (OR ITS SUCCESSOR) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, CONVERSION OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

        Section 2.04.    Execution, Authentication, Delivery and Dating.     An Officer shall execute the Securities on behalf of the Company by manual or facsimile signature. If the Officer whose signature is on a Security no longer holds that office at the time the Security is authenticated, the Security shall be valid nevertheless.

        At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with such Company Order shall authenticate and deliver such Securities as in this Indenture provided and not otherwise.

        Each Security shall be dated the date of its authentication.

        No Security shall be entitled to any benefit under this Indenture, or be valid or obligatory for any purpose, unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by or on behalf of the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder.

        The Trustee may appoint an authenticating agent or agents reasonably acceptable to the Company with respect to the Securities. Unless limited by the terms of such appointment, an authenticating agent

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may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent.

        Section 2.05.    Registrar and Paying Agent.     The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange (the "Registrar") and an office or agency where Securities may be presented for payment (the "Paying Agent"). The Registrar shall keep a register of the Securities (the "Register") and of their transfer and exchange. The Company may appoint one or more co-Registrars and one or more additional Paying Agents for the Securities. The term "Paying Agent" includes any additional paying agent and the term "Registrar" includes any additional registrar. The Company may change any Paying Agent or Registrar without prior notice to any Holder.

        The Company will cause each Paying Agent (other than the Trustee) to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will:

          (i)  hold all sums held by it for the payment of the principal of or interest (including Liquidated Damages, if any) on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as provided in this Indenture;

         (ii)  give the Trustee notice of any Default by the Company in the making of any payment of principal or interest (including Liquidated Damages, if any); and

        (iii)  at any time during the continuance of any such Default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent.

        The Company shall give prompt written notice to the Trustee of the name and address of any Paying Agent who is not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any Affiliate of the Company may act as Paying Agent or Registrar; provided, however, that none of the Company, its Subsidiaries or the Affiliates of the foregoing shall act:

          (i)  as Paying Agent in connection with redemptions, offers to purchase and discharges, as otherwise specified in this Indenture, and

         (ii)  as Paying Agent or Registrar if a Default or Event of Default has occurred and is continuing.

        The Company hereby initially appoints the Trustee as Registrar and Paying Agent for the Securities.

        Section 2.06.    Paying Agent to Hold Assets in Trust.     Not later than 12:00 Noon (New York City time) on each due date of the principal and interest (including Liquidated Damages, if any) on any Securities, the Company shall deposit with one or more Paying Agents money in immediately available funds sufficient to pay such principal and interest (including Liquidated Damages, if any) so becoming due. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company) shall have no further liability for the money so paid over to the Trustee.

        If the Company shall act as a Paying Agent, it shall, prior to or on each due date of the principal of or interest (including Liquidated Damages, if any) on any of the Securities, segregate and hold in trust for the benefit of the Holders a sum sufficient with monies held by all other Paying Agents, to pay the principal or interest (including Liquidated Damages, if any) so becoming due until such sums shall be paid to such Persons or otherwise disposed of as provided in this Indenture, and shall promptly notify the Trustee of its action or failure to act.

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        Section 2.07.    General Provisions Relating to Transfer and Exchange.     The Securities are issuable only in registered form. A Holder may transfer a Security only by written application to the Registrar stating the name of the proposed transferee and otherwise complying with the terms of this Indenture. No such transfer shall be effected until, and such transferee shall succeed to the rights of a Holder only upon, final acceptance and registration of the transfer by the Registrar in the Register. Furthermore, any Holder of a Global Security shall, by acceptance of such Global Security, agree that transfers of beneficial interests in such Global Security may be effected only through a book-entry system maintained by the Holder of such Global Security (or its agent) and that ownership of a beneficial interest in the Security shall be required to be reflected in a book-entry. Notwithstanding the foregoing, in the case of a Restricted Security, a beneficial interest in a Global Security being transferred in reliance on an exemption from the registration requirements of the Securities Act other than in accordance with Rule 144 and Rule 144A may only be transferred for a Physical Security.

        When Securities are presented to the Registrar with a request to register the transfer or to exchange them for an equal aggregate principal amount of Securities of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirements for such transactions are met (including that such Securities are duly endorsed or accompanied by a written instrument of transfer duly executed by the Holder thereof or by an attorney who is authorized in writing to act on behalf of the Holder). Subject to Section 2.04 hereof, to permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Securities at the Registrar's request. No service charge shall be made for any registration of transfer or exchange or redemption of the Securities, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or other similar governmental charge payable upon exchanges pursuant to Section 2.14, 7.05 or 10.07 hereof).

        In the event of a redemption in part, neither the Company nor the Registrar shall be required to issue, register the transfer of, or exchange, Securities during the period of 15 days before the mailing of the notice of redemption.

        Section 2.08.    Book-Entry Provisions for the Global Securities.     (a) The Global Securities initially shall

          (i)  be registered in the name of the Depositary (or a nominee thereof);

         (ii)  be delivered to the Trustee as custodian for such Depositary; and

        (iii)  bear the Restricted Securities Legend as set forth in Section 2.03(a)(i) hereof.

        Members of, or participants in, the Depositary ("DTC Participants") shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depositary, or the Trustee as its custodian, or under such Global Security, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing contained herein shall prevent the Company, the Trustee or any agent of the Company or Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and the DTC Participants, the operation of customary practices governing the exercise of the rights of a Holder of any Security.

        (b)   The registered Holder of a Global Security may grant proxies and otherwise authorize any Person, including DTC Participants and Persons that may hold interests through DTC Participants, to take any action that a Holder is entitled to take under this Indenture or the Securities.

        (c)   A Global Security may not be transferred, in whole or in part, to any Person other than the Depositary (or a nominee thereof), and no such transfer to any such other Person may be registered.

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Beneficial interests in a Global Security may be transferred in accordance with the rules and procedures of the Depositary and the provisions of Section 2.09 hereof.

        (d)   Notwithstanding any other provisions of this Indenture or the Securities, a Global Security shall not be exchanged in whole or in part for a Security registered in the name of any person other than the Depositary or one or more nominees thereof, provided that a Global Security may be exchanged for Securities registered in the names of any person designated by the Depositary in the event that (i) the Depositary has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or such Depositary has ceased to be a "clearing agency" registered under the Exchange Act, and a successor Depositary is not appointed by the Company within 90 days, (ii) to the extent permitted by the Depositary, the Company determines at any time that the Securities shall no longer be represented by Global Securities and shall inform such Depositary of such determination and participants in such Depository elect to withdraw their beneficial interests in the Global Securities from such Depository, following notification by the Depository of their right to do so; or (iii) a beneficial owner of Securities requests to exchange such beneficial owner's interest in the Global Securities for Certificated Securities. Any Global Security exchanged pursuant to clause (i) above shall be so exchanged in whole and not in part, and any Global Security exchanged pursuant to clause (ii) or (iii) above may be exchanged in whole or from time to time in part as directed by the Depositary. Any Security issued in exchange for a Global Security or any portion thereof shall be a Global Security; provided that any such Security so issued that is registered in the name of a person other than the Depositary or a nominee thereof shall not be a Global Security.

        Upon the occurrence of (i), (ii) or (iii) above, the Depositary shall surrender such Global Security or Global Securities to the Trustee for cancellation and the Company shall execute, and the Trustee, upon receipt of an Officers' Certificate and Company Order for the authentication and delivery of Securities, shall authenticate and deliver in exchange for such Global Security or Global Securities, Physical Securities of like tenor as that of the Global Securities in an aggregate principal amount equal to the aggregate principal amount of such Global Security or Global Securities. Such Physical Securities shall be registered in such names as the Depositary shall identify in writing as the beneficial owners of the Securities represented by such Global Security or Global Securities (or any nominees thereof).

        Notwithstanding the foregoing, in connection with any such surrender and subsequent exchange pursuant to Section 2.08(d) hereof, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of such Global Security in an amount equal to the principal amount of the beneficial interest in such Global Security to be transferred.

        Section 2.09.    Special Transfer Provisions.     Unless a Security is transferred after the time period referred to in Rule 144(k) under the Securities Act or otherwise sold pursuant to a registration statement that has been declared effective under the Securities Act (and that continues to be effective at the time of such sale), the following provisions shall apply:

          (i)  if the Securities to be transferred consist of an interest in the Global Securities, the transfer of such interest may be effected only through the book-entry system maintained by the Depositary; and

         (ii)  if the Securities to be transferred consist of Physical Securities, the Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided on the form of Security stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a

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transferee who has signed the certification provided on the form of Security stating or has otherwise advised the Company and the Registrar in writing that:

        (A)  it is purchasing the Securities for its own account or an account with respect to which it exercises sole investment discretion, in each case for investment and not with a view to distribution;

        (B)  it and any such account is a QIB within the meaning of Rule l44A;

        (C)  it is aware that the sale to it is being made in reliance on Rule 144A;

        (D)  it acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information; and

        (E)  it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A.

        By its acceptance of any Security bearing the Restricted Securities Legend, each Holder of such a Security acknowledges the restrictions on transfer of such Security set forth in this Indenture and agrees that it will transfer such Security only as provided in this Indenture. The Registrar shall not register a transfer of any Security unless such transfer complies with the restrictions on transfer of such Security set forth in this Indenture. The Registrar shall be entitled to receive and rely on written instructions from the Company verifying that such transfer complies with such restrictions on transfer. In connection with any transfer of Securities, each Holder agrees by its acceptance of the Securities to furnish the Registrar or the Company such certifications, legal opinions or other information as either of them may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or a transaction not subject to, the registration requirements of the Securities Act; provided, however, that the Registrar shall not be required to determine (but may rely on a determination made by the Company with respect to) the sufficiency of any such certifications, legal opinions or other information.

        The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.08 hereof or this Section 2.09. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar.

        Section 2.10.    Holder Lists.     The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders and shall otherwise comply with Section 312(a) of the TIA. If the Trustee is not the Registrar, the Company shall furnish to the Trustee prior to or on each Interest Payment Date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders relating to such Interest Payment Date or request, as the case may be.

        Section 2.11.    Persons Deemed Owners.     The Company, the Trustee and any agent of the Company or the Trustee may treat the registered Holder of a Global Security as the absolute owner of such Global Security for the purpose of receiving payment thereof or on account thereof and for all other purposes whatsoever, whether or not such Security be overdue, and notwithstanding any notice of ownership or writing thereon, or any notice of previous loss or theft or other interest therein. The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name any Security is registered as the owner of such Security for the purpose of receiving payment of principal of and interest (including Liquidated Damages, if any) on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and notwithstanding any notice of ownership or writing thereon, or any notice of previous loss or theft or other interest therein.

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        Section 2.12.    Mutilated, Destroyed, Lost or Stolen Securities.     If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding.

        If there is delivered to the Company and the Trustee

          (i)  evidence to their satisfaction of the destruction, loss or theft of any Security, and

         (ii)  such security or indemnity as may be required by them to save each of them and any agent of either of them harmless,

then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and, upon request, the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding.

        In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion, but subject to any conversion rights, may, instead of issuing a new Security, pay such Security, upon satisfaction of the condition set forth in the preceding paragraph.

        Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith.

        Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and such new Security shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder.

        The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.

        Section 2.13.    Treasury Securities.     In determining whether the Holders of the requisite principal amount of Outstanding Securities are present at a meeting of Holders for quorum purposes or have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any Affiliate of the Company shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such determination as to the presence of a quorum or upon any such request, demand, authorization, direction, notice, consent or waiver, only such Securities of which the Trustee has received written notice and are so owned shall be so disregarded.

        Section 2.14.    Temporary Securities.     Pending the preparation of Securities in definitive form, the Company may execute and the Trustee shall, upon written request of the Company, authenticate and deliver temporary Securities (printed or lithographed). Temporary Securities shall be issuable in any authorized denomination, and substantially in the form of the Securities in definitive form but with such omissions, insertions and variations as may be appropriate for temporary Securities, all as may be determined by the Company. Every such temporary Security shall be executed by the Company and authenticated by the Trustee upon the same conditions and in substantially the same manner, and with the same effect, as the Securities in definitive form. Without unreasonable delay, the Company will execute and deliver to the Trustee Securities in definitive form (other than in the case of Securities in global form) and thereupon any or all temporary Securities (other than any such Securities in global form) may be surrendered in exchange therefor, at each office or agency maintained by the Company

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pursuant to Section 9.02 and the Trustee shall authenticate and deliver in exchange for such temporary Securities an equal aggregate principal amount of Securities in definitive form. Such exchange shall be made by the Company at its own expense and without any charge therefor. Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits and subject to the same limitations under this Indenture as Securities in definitive form authenticated and delivered hereunder.

        Section 2.15.    Cancellation.     All securities surrendered for payment, redemption, purchase, conversion, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee. All Securities so delivered shall be canceled promptly by the Trustee, and no Securities shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. Upon written instructions of the Company, the Trustee shall destroy canceled Securities and, after such destruction, shall deliver a certificate of such destruction to the Company. If the Company shall acquire any of the Securities, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Securities unless the same are delivered to the Trustee for cancellation.

        Section 2.16.    CUSIP Numbers.     The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and the Trustee shall use CUSIP numbers in notices of redemption or exchange as a convenience to Holders; provided, however, that any such notice shall state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any such notice and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company shall promptly notify the Trustee of any change in the CUSIP numbers.

        Section 2.17.    Defaulted Interest.     If the Company fails to make a payment of interest (including Liquidated Damages, if any) on any Security when due and payable ("Defaulted Interest"), it shall pay such Defaulted Interest plus (to the extent lawful) any interest payable on the Defaulted Interest, in any lawful manner. It may elect to pay such Defaulted Interest, plus any such interest payable on it, to the Persons who are Holders of such Securities on which the interest is due on a subsequent Special Record Date. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each such Security. The Company shall fix any such Special Record Date and payment date for such payment. At least 15 days before any such Special Record Date, the Company shall mail to Holders affected thereby a notice that states the Special Record Date, the Interest Payment Date, and amount of such interest (and such Liquidated Damages, if any) to be paid.

        Section 2.18.    Rule 144A.     The Company agrees that it will refuse to register any transfer of Securities or Common Stock that is not made in accordance with the provisions of Rule 144A under the Securities Act, pursuant to a registration statement that has been declared effective under the Securities Act or pursuant to an available exemption from the registration requirements of the Securities Act; provided that this Section 2.18 shall not be applicable to any Securities or shares of Common Stock that do not bear the legend set forth in Section 2.03(a)(i) or (ii) hereof.

ARTICLE 3
[RESERVED]

ARTICLE 4
DEFAULTS AND REMEDIES

        Section 4.01.    Events of Default.     An "Event of Default" with respect to the Securities occurs when any of the following occurs (whatever the reason for such Event of Default and whether it shall

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be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):

        (a)   the Company defaults in the payment of the principal on any of the Securities when it becomes due and payable, at Maturity, upon redemption or exercise of a Purchase Right or Put Purchase Right or otherwise; or

        (b)   the Company defaults in the payment of interest (including Liquidated Damages, if any) on any of the Securities when it becomes due and payable and such default continues for a period of 30 days; or

        (c)   the Company fails to deliver shares of Common Stock, together with cash instead of fractional shares, when those shares of Common Stock or cash instead of fractional shares are required to be delivered following conversion of a Security in accordance with Article 12, and that failure continues for 10 days; or

        (d)   the Company fails to perform or observe any other term, covenant or agreement contained in the Securities or this Indenture and the failure continues for a period of 60 days after written notice of such failure, requiring the Company to remedy the same, shall have been given to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the Outstanding Securities; or

        (e)   (i) the Company fails to make any payment by the end of the applicable grace period, if any, after the maturity of any Indebtedness in an amount in excess of $25,000,000 or (ii) there is an acceleration of any Indebtedness in an amount in excess of $25,000,000 because of a default with respect to such Indebtedness without such Indebtedness having been discharged or such acceleration having been cured, waived, rescinded or annulled, in the case of either (i) or (ii) above, for a period of 30 days after written notice to the Company by the Trustee or to the Company and the Trustee by Holders of at least 25% in aggregate principal amount of the Outstanding Securities; or

        (f)    the Company fails, within 15 days after the occurrence of a Fundamental Change, to give to each Holder of Securities notice pursuant to Section 11.01(b) hereof; or

        (g)   the entry by a court having jurisdiction in the premises of (i) a decree or order for relief in respect of the Company, or any Significant Subsidiary of the Company, in an involuntary case or proceeding under any applicable U.S. federal or state bankruptcy, insolvency, reorganization or other similar law or (ii) a decree or order adjudging the Company, or any Significant Subsidiary of the Company, a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company, or any Significant Subsidiary of the Company, under any applicable U.S. federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company, or any Significant Subsidiary of the Company, or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or

        (h)   the commencement by the Company, or any Significant Subsidiary of the Company, of a voluntary case or proceeding under any applicable U.S. federal or state bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by the Company, or any Significant Subsidiary of the Company, to the entry of a decree or order for relief in respect of the Company, or any Significant Subsidiary of the Company, as the case may be, in an involuntary case or proceeding under any applicable U.S. federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against the Company, or

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any Significant Subsidiary of the Company, or the filing by the Company, or any Significant Subsidiary of the Company, of a petition or answer or consent seeking reorganization or relief under any applicable U.S. federal or state law, or the consent by the Company, or any Significant Subsidiary of the Company, to the filing of such petition or to the appointment of or the taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company, or any Significant Subsidiary of the Company, or of any substantial part of its property, or the making by the Company, or any Significant Subsidiary of the Company, of an assignment for the benefit of creditors, or the admission by the Company, or any Significant Subsidiary of the Company, in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company, or any Significant Subsidiary of the Company, expressly in furtherance of any such action.

        Section 4.02.    Acceleration of Maturity; Rescission and Annulment.     If an Event of Default with respect to Outstanding Securities (other than an Event of Default specified in Section 4.01(g) or 4.01(h) hereof) occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the Outstanding Securities, by written notice to the Company, may declare due and payable 100% of the principal amount of all Outstanding Securities plus any accrued and unpaid interest (including Liquidated Damages, if any) to the date of payment. Upon a declaration of acceleration, such principal and accrued and unpaid interest (including Liquidated Damages, if any) to the date of payment shall be immediately due and payable.

        If an Event of Default specified in Section 4.01(g) or 4.01(h) hereof occurs, all unpaid principal of and accrued and unpaid interest (including Liquidated Damages, if any) on the Outstanding Securities shall become and be immediately due and payable, without any declaration or other act on the part of the Trustee or any Holder.

        The Holders of a majority in aggregate principal amount of the Outstanding Securities by written notice to the Trustee may rescind and annul an acceleration and its consequences if:

          (i)  all existing Events of Default, other than the nonpayment of principal of or interest on the Securities that has become due solely because of the acceleration, have been remedied, cured or waived, and

         (ii)  the rescission would not conflict with any judgment or decree of a court of competent jurisdiction;

provided, however, that in the event such declaration of acceleration has been made based on the existence of an Event of Default under Section 4.01(e) hereof and such Event of Default has been remedied, cured or waived in accordance with Section 4.01(e) hereof, then, without any further action by the Holders, such declaration of acceleration shall be rescinded automatically and the consequences of such declaration shall be annulled. No such rescission or annulment shall affect any subsequent Default or impair any right consequent thereon.

        Section 4.03.    Other Remedies.     If an Event of Default with respect to Outstanding Securities occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities.

        The Trustee may maintain a proceeding in which it may prosecute and enforce all rights of action and claims under this Indenture or the Securities, even if it does not possess any of the Securities or does not produce any of them in the proceeding.

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        Section 4.04.    Waiver of Past Defaults.     The Holders, either (a) through the written consent of not less than a majority in aggregate principal amount of the Outstanding Securities or (b) by the adoption of a resolution, at a meeting of Holders of the Outstanding Securities at which a quorum is present, by the Holders of at least a majority in aggregate principal amount of the Outstanding Securities represented at such meeting, may, on behalf of the Holders of all of the Securities, waive an existing Default or Event of Default, except a Default or Event of Default:

          (i)  in the payment of the principal of or interest (including Liquidated Damages, if any) on any Security (provided, however, that subject to Section 4.02 hereof, the Holders of a majority in aggregate principal amount of the Outstanding Securities may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration);

         (ii)  in respect of the failure to convert any Security in accordance with Article 12; or

        (iii)  in respect of a covenant or provision hereof that, under Section 7.02 hereof, cannot be modified or amended without the consent of the Holder of each Outstanding Security affected.

        Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; provided, however, that no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon.

        Section 4.05.    Control by Majority.     The Holders, either (a) through the written consent of not less than a majority in aggregate principal amount of the Outstanding Securities, or (b) by the adoption of a resolution, at a meeting of Holders of the Outstanding Securities at which a quorum is present, by the Holders of at least a majority in aggregate principal amount of the Outstanding Securities represented at such meeting, shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that:

          (i)  conflicts with any law or with this Indenture,

         (ii)  the Trustee determines may be unduly prejudicial to the rights of the Holders not joining therein, or

        (iii)  may expose the Trustee to personal liability.

        The Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction.

        Section 4.06.    Limitation on Suit.     No Holder of any Security shall have any right to pursue any remedy with respect to this Indenture or the Securities (including instituting any proceeding, judicial or otherwise, with respect to this Indenture or for the appointment of a receiver or trustee) unless:

          (i)  such Holder has previously given written notice to the Trustee of an Event of Default that is continuing;

         (ii)  the Holders of at least 25% in aggregate principal amount of the Outstanding Securities shall have made written request to the Trustee to pursue the remedy;

        (iii)  such Holder or Holders have offered to the Trustee indemnity satisfactory to it against any costs, expenses and liabilities incurred in complying with such request;

        (iv)  the Trustee has failed to comply with the request for 60 days after its receipt of such notice, request and offer of indemnity; and

         (v)  during such 60-day period, no direction inconsistent with such written request has been given to the Trustee by the Holders of a majority in aggregate principal amount of the Outstanding

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Securities (or such amount as shall have acted at a meeting pursuant to the provisions of this Indenture);

provided, however, that no one or more of such Holders may use this Indenture to prejudice the rights of another Holder or to obtain preference or priority over another Holder.

        Section 4.07.    Unconditional Rights of Holders to Receive Payment and to Convert.     Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of and interest (including Liquidated Damages, if any) on such Security on the Stated Maturity expressed in such Security (or, in the case of redemption, on the Redemption Date, or in the case of the exercise of a Purchase Right or Put Purchase Right, on the Purchase Date or Put Purchase Date, as applicable) and to convert such Security in accordance with Article 12, and to bring suit for the enforcement of any such payment on or after such respective dates and right to convert, and such rights shall not be impaired or affected without the consent of such Holder.

        Section 4.08.    Collection of Indebtedness and Suits for Enforcement by the Trustee.     The Company covenants that if:

          (i)  a Default or Event of Default occurs in the payment of any interest (including Liquidated Damages, if any) on any Security when such interest (including Liquidated Damages, if any) becomes due and payable and such Default or Event of Default continues for a period of 30 days, or

         (ii)  a Default or Event of Default occurs in the payment of the principal of any Security at the Maturity thereof,

the Company shall, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable (as expressed therein or as a result of any acceleration effected pursuant to Section 4.02 hereof) on such Securities for principal and interest (including Liquidated Damages, if any) and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal and on any overdue interest (including Liquidated Damages, if any), in each case at the Interest Rate, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.

        If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company, wherever situated.

        If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.

        Section 4.09.    Trustee May File Proofs of Claim.     In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or the property of the Company or its creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest (including Liquidated Damages, if any)) shall be entitled and empowered, by intervention in such proceeding or otherwise,

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(1) to file and prove a claim for the whole amount of principal and interest (including Liquidated Damages, if any) owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders of Securities allowed in such judicial proceeding, and (2) to collect and receive any moneys or other property payable or deliverable on any such claim and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceedings is hereby authorized by each Holder of Securities to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders of Securities, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and any other amounts due the Trustee under Section 5.08.

        Nothing contained herein shall be deemed to authorize the Trustee to authorize or consent to or accept, or adopt on behalf of any Holder of a Security, any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder of a Security in any such proceeding.

        Section 4.10.    Restoration of Rights and Remedies.     If the Trustee or any Holder of a Security has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders of Securities shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted.

        Section 4.11.    Rights and Remedies.     Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 2.12, no right or remedy conferred in this Indenture upon or reserved to the Trustee or to the Holders of Securities is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.

        Section 4.12.    Delay or Omission Not Waiver.     No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or any acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders of Securities may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders of Securities, as the case may be.

        Section 4.13.    Application of Money Collected.     Any money and property collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money and property on account of principal or interest (including Liquidated Damages, if any), upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:

        FIRST: To the payment of all amounts due the Trustee;

        SECOND: To the payment of the amounts then due and unpaid for principal of and interest (including Liquidated Damages, if any) on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according

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to the amounts due and payable on such Securities for principal and interest (including Liquidated Damages, if any), respectively; and

        THIRD: Any remaining amounts shall be repaid to the Company.

        Section 4.14.    Undertaking for Costs.     All parties to this Indenture agree, and each Holder of any Security by such Holder's acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in aggregate principal amount of the Outstanding Securities, or to any suit instituted by any Holder of any Security for the enforcement of the payment of the principal of or interest (including Liquidated Damages, if any) on any Security on or after the Stated Maturity expressed in such Security (or, in the case of redemption or exercise of a Purchase Right, on or after the Redemption Date) or for the enforcement of the right to convert any Security in accordance with Article 12.

        Section 4.15.    Waiver of Stay or Extension Laws.     The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim to take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.

ARTICLE 5
THE TRUSTEE

        Section 5.01.    Certain Duties and Responsibilities.     (a) Except during the continuance of an Event of Default,

          (i)  The Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture or the TIA, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and

         (ii)  In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; provided, however, that in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the certificates or opinions to determine whether or not, on their face, they conform to the requirements of this Indenture (but need not investigate or confirm the accuracy of any facts stated therein).

        (b)   In case an Event of Default actually known to a Responsible Officer of the Trustee has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs.

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        (c)   No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:

          (i)  This paragraph (c) shall not be construed to limit the effect of paragraph (a) of this Section 5.01;

         (ii)  The Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and

        (iii)  The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with a direction received by it of the Holders of a majority in principal amount of the Outstanding Securities (or such lesser amount as shall have acted at a meeting pursuant to the provisions of this Indenture) relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture.

        (d)   Whether or not herein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section 5.01.

        (e)   No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers. The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability, cost or expense (including, without limitation, reasonable fees of counsel).

        (f)    The Trustee shall not be obligated to pay interest on any money or other assets received by it unless otherwise agreed in writing with the Company. Assets held in trust by the Trustee need not be segregated from other funds except to the extent required by law.

        (g)   The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney at the sole cost of the Company, and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation.

        (h)   The Trustee shall not be deemed to have notice or actual knowledge of any Event of Default or a Registration Default or the obligation of the Company to pay Liquidated Damages unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event that is in fact a Default is received by the Trustee pursuant to Section 14.02 hereof, and such notice references the Securities and this Indenture.

        (i)    The rights, privileges, protections, immunities and benefits given to the Trustee hereunder, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each Paying Agent, authenticating agent, Conversion Agent or Registrar acting hereunder.

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        Section 5.02.    Certain Rights of Trustee.     Subject to the provisions of Section 5.01 hereof and subject to Sections 315(a) through (d) of the TIA:

          (i)  The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document.

         (ii)  Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel, or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the Officers' Certificate or the Opinion of Counsel.

        (iii)  The Trustee may act through attorneys and agents and shall not be responsible for the misconduct or negligence of any attorney or agent appointed with due care.

        (iv)  The Trustee shall not be liable for any action taken or omitted to be taken by it in good faith that it reasonably believed to be authorized or within the discretion or rights or powers conferred upon it by this Indenture, unless the Trustee's conduct constitutes negligence.

         (v)  The Trustee may consult with counsel of its selection and the advice of such counsel as to matters of law shall be full and complete authorization and protection in respect of any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel.

        (vi)  Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company.

       (vii)  The permissive rights of the Trustee to do things enumerated in this Indenture shall not be construed as a duty unless so specified herein.

        Section 5.03.    Individual Rights of Trustee.     The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest (as such term is defined in Section 310(b) of the TIA), it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee (to the extent permitted under Section 310(b) of the TIA) or resign. Any agent may do the same with like rights and duties. The Trustee is also subject to Section 5.11 and 5.12 hereof.

        Section 5.04.    Money Held in Trust.     Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise expressly agreed with the Company.

        Section 5.05.    Trustee's Disclaimer.     The recitals contained herein and in the Securities (except for those in the certificate of authentication) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity, sufficiency or priority of this Indenture or of the Securities. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof.

        Section 5.06.    Notice of Defaults.     Within 90 days after the occurrence of any Default or Event of Default hereunder of which the Trustee has received written notice, the Trustee shall give notice to Holders pursuant to Section 14.02 hereof, unless such Default or Event of Default shall have been cured or waived; provided, however, that, except in the case of a Default or Event of Default in the payment of the principal of or interest (including Liquidated Damages, if any), or in the payment of any redemption or purchase obligation, on any Security, the Trustee shall be protected in withholding such notice if and so long as Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interest of the Holders.

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        Section 5.07.    Reports by Trustee to Holders.     The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required by Section 313 of the TIA at the times and in the manner provided by the TIA.

        A copy of each report at the time of its mailing to Holders shall be filed with the SEC, if required, and each stock exchange, if any, on which the Securities are listed. The Company shall promptly notify the Trustee when the Securities become listed on any stock exchange.

        Section 5.08.    Compensation and Indemnification.     The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) as the Company and the Trustee shall from time to time agree in writing and the Company covenants and agrees to pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by it or on its behalf in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all agents and other persons not regularly in its employ), except to the extent that any such expense, disbursement or advance is due to its negligence or bad faith. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 4.01 hereof, the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. The Company also covenants to indemnify the Trustee and its officers, directors, employees and agents for, and to hold such Persons harmless against, any loss, liability or expense incurred by them, arising out of or in connection with the acceptance or administration of this Indenture or the trusts hereunder or the performance of their duties hereunder, including the reasonable costs and expenses of defending themselves against or investigating any claim of liability in the premises, except to the extent that any such loss, liability or expense was due to the negligence or willful misconduct of such Persons. The obligations of the Company under this Section 5.08 to compensate and indemnify the Trustee and its officers, directors, employees and agents and to pay or reimburse such Persons for expenses, disbursements and advances shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture or the earlier resignation or removal of the Trustee. Such additional indebtedness shall be a senior claim to that of the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the Holders of particular Securities, and the Securities are hereby subordinated to such senior claim. "Trustee" for purposes of this Section 5.08 shall include any predecessor Trustee, but the negligence or willful misconduct of any Trustee shall not affect the indemnification of any other Trustee.

        Section 5.09.    Replacement of Trustee.     A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 5.09.

        The Trustee may resign and be discharged from the trust hereby created by so notifying the Company in writing. The Holders of at least a majority in aggregate principal amount of Outstanding Securities may remove the Trustee by so notifying the Trustee and the Company in writing. The Company must remove the Trustee if:

          (i)  the Trustee fails to comply with Section 5.11 hereof or Section 310 of the TIA;

         (ii)  the Trustee becomes incapable of acting;

        (iii)  the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; or

        (iv)  a Custodian or public officer takes charge of the Trustee or its property.

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        If the Trustee resigns or is removed or if a vacancy exists in the office of the Trustee for any reason, the Company shall promptly appoint a successor Trustee. The Trustee shall be entitled to payment of its fees and reimbursement of its expenses while acting as Trustee.

        Any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee if the Trustee fails to comply with Section 5.11 hereof.

        If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation or removal, the resigning or removed Trustee, as the case may be, may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee.

        A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The Company shall mail a notice of the successor Trustee's succession to the Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee. Notwithstanding replacement of the Trustee pursuant to this Section 5.09, the Company's obligations under Section 5.08 hereof shall continue for the benefit of the retiring Trustee with respect to expenses, losses and liabilities incurred by it prior to such replacement.

        Section 5.10.    Successor Trustee by Merger, Etc..     Subject to Section 5.11 hereof, if the Trustee consolidates with, merges or converts into, or transfers or sells all or substantially all of its corporate trust business (including the administration of the trust created by this Indenture) to, another corporation or national banking association, the successor entity without any further act shall be the successor Trustee as to the Securities.

        Section 5.11.    Corporate Trustee Required; Eligibility.     The Trustee shall at all times satisfy the requirements of Sections 310(a)(1), (2) and (5) of the TIA. The Trustee shall at all times have (or, in the case of a corporation included in a bank holding company system, the related bank holding company shall at all times have) a combined capital and surplus of at least $100 million as set forth in its (or its related bank holding company's) most recent published annual report of condition. The Trustee is subject to Section 310(b) of the TIA.

        Section 5.12.    Collection of Claims Against the Company.     The Trustee is subject to Section 311(a) of the TIA, excluding any creditor relationship listed in Section 311(b) of the TIA. A Trustee who has resigned or been removed shall be subject to Section 311(a) of the TIA to the extent indicated therein.

ARTICLE 6
CONSOLIDATION, MERGER, SALE, TRANSFER OR LEASE

        Section 6.01.    Company May Consolidate, Etc., Only on Certain Terms.     The Company shall not consolidate with or merge into any other Person or sell, lease or otherwise transfer in one transaction or a series of related transactions the consolidated assets of the Company and its Subsidiaries, substantially as an entirety, to any Person unless:

          (i)  in the event that the Company shall consolidate with or merge into another Person or sell, lease or otherwise transfer in one transaction or a series of related transactions the consolidated assets of the Company and its Subsidiaries, substantially as an entirety, to any other Person, the Person formed by such consolidation or into which the Company is merged or the Person that acquires by sale, lease or other transfer in one transaction or a series of related transactions the consolidated assets of the Company and its Subsidiaries, substantially as an entirety, shall be a corporation, limited liability company, partnership or trust organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and, if the entity surviving such transaction or transferee, purchaser or leasee entity is

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not the Company, then such surviving or transferee, purchaser or leasee entity shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, the due and punctual payment of the principal of and interest (including Liquidated Damages, if any) on all the Securities and the performance of every covenant of this Indenture on the part of the Company to be performed or observed and shall have provided for conversion rights in accordance with Section 12.11 hereof;

         (ii)  at the time of consummation of such transaction, no Event of Default, and no event that, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing; and

        (iii)  the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, lease or other transfer and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Indenture and that all conditions precedent herein provided for relating to such transaction have been complied with in all material respects.

        Section 6.02.    Successor Substituted.     Upon any consolidation or merger by the Company with or into any other Person or any sale, lease or other transfer in one transaction or a series of related transactions of the consolidated assets of the Company and its Subsidiaries, substantially as an entirety, to any Person, in accordance with Section 6.01 hereof, the successor Person formed by such consolidation or into which the Company is merged or to which such sale, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease to another Person, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities.

ARTICLE 7
AMENDMENTS, SUPPLEMENTS AND WAIVERS

        Section 7.01.    Without Consent of Holders of Securities.     Without the consent of any Holders of Securities, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may amend this Indenture and the Securities to:

        (a)   add to the covenants of the Company for the benefit of the Holders of Securities;

        (b)   adding additional Put Purchase Dates on which Holders of the Securities may require the Company to repurchase their Securities;

        (c)   surrender any right or power herein conferred upon the Company;

        (d)   make provision with respect to the conversion rights of Holders of Securities pursuant to Section 12.11 hereof;

        (e)   provide for the assumption of the Company's obligations to the Holders of Securities in the case of a merger, consolidation, sale, lease or other transfer pursuant to Article 6 hereof;

        (f)    increase the Conversion Rate; provided, however, that such increase in the Conversion Rate shall not adversely affect the interest of the Holders of Securities (after taking into account tax and other consequences of such reduction) in any material respect;

        (g)   comply with the requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA;

        (h)   make any changes or modifications to this Indenture necessary in connection with the registration of any Securities under the Securities Act as contemplated in the Registration Rights

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Agreement; provided, however, that such action pursuant to this clause (h) does not adversely affect the interests of the Holders of Securities in any material respect;

        (i)    cure any ambiguity, correct or supplement any defective provision herein; provided that such modification or amendment does not, in the good faith opinion of the Board of Directors and the Trustee, adversely affect the interests of the Holders of Securities in any material respect; provided further that any amendment made solely to conform the provisions of this Indenture to the "Description of Debentures" in the Offering Memorandum will not be deemed to adversely affect the interests of the Holders of the Securities; or

        (j)    add or modify any other provisions with respect to matters or questions arising under this Indenture that the Company and the Trustee may deem necessary or desirable and that shall not be inconsistent with the provisions of this Indenture, provided, however, that such action pursuant to this clause (j) does not adversely affect the interests of the Holders of Securities in any material respect.

        Section 7.02.    With Consent of Holders of Securities.     Except as provided above in Section 7.01 or below in this Section 7.02, this Indenture or the Securities may be amended or supplemented, and noncompliance by the Company in any particular instance with any provision of this indenture or the Securities may be waived, in each case (i) with the written consent of the Holders of at least a majority in aggregate principal amount of the Outstanding Securities or (ii) by the adoption of a resolution, at a meeting of Holders of the Outstanding Securities at which a quorum is present, by the Holders of a majority in aggregate principal amount of the Outstanding Securities represented at such meeting.

        Without the written consent or the affirmative vote of each Holder of Securities affected, an amendment or waiver under this Section 7.02 may not:

        (a)   change the Stated Maturity of the principal of, or any installment of interest (including Liquidated Damages, if any) on, any Security;

        (b)   reduce the principal amount of or premium, if any, on any Security;

        (c)   reduce the Interest Rate or amount of interest (including Liquidated Damages, if any) on any Security, provided that the amount of Liquidated Damages payable to holders of the Common Stock issued upon conversion of Securities may be reduced or eliminated in accordance with the provisions of the Registration Rights Agreement (which require approval of the holders of a majority of the shares of Common Stock issuable upon conversion of the Securities);

        (d)   change the currency of payment of principal of, premium, if any, or interest (including Liquidated Damages, if any) on any Security;

        (e)   impair the right of any Holder to institute suit for the enforcement of any payment on or with respect to, or the conversion of, any Security;

        (f)    except as permitted by Section 12.11 hereof, impair or adversely affect the right to convert any Security as provided in Article 12 hereof, provided that Section 7(d)(ii) of the Securities may be amended or modified with the consent of a majority in aggregate principal amount of the Securities then Outstanding if the Board of Directors determines in good faith that such change is necessary to preserve the accounting treatment of the Securities in effect on June 28, 2004.

        (g)   adversely affect the Purchase Right, Put Purchase Right or the rights of Holders with respect to redemption as set forth in Article 10 hereof;

        (h)   modify any of the provisions of this Section, Section 4.04 or Section 4.11, except to increase any percentage contained herein or therein or to provide that certain other provisions of

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this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby; or

        (i)    reduce the requirements of Section 8.04 hereof for quorum or voting, or reduce the percentage in aggregate principal amount of the Outstanding Securities the consent of whose Holders is required for any such supplemental indenture or the consent of whose Holders is required for any waiver provided for in this Indenture.

        It shall not be necessary for any Act of Holders of Securities under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.

        Section 7.03.    Compliance with Trust Indenture Act.     Every amendment to this Indenture or the Securities shall be set forth in a supplemental indenture that complies with the TIA as then in effect.

        Section 7.04.    Revocation of Consents and Effect of Consents or Votes.     Until an amendment, supplement or waiver becomes effective, a written consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security; provided, however, that unless a record date shall have been established, any such Holder or subsequent Holder may revoke the consent as to its Security or portion of a Security if the Trustee receives written notice of revocation before the date the amendment, supplement or waiver becomes effective.

        An amendment, supplement or waiver becomes effective on receipt by the Trustee of written consents from or affirmative votes by, as the case may be, the Holders of the requisite percentage of aggregate principal amount of the Outstanding Securities, and thereafter shall bind every Holder of Securities; provided, however, if the amendment, supplement or waiver makes a change described in any of clauses (a) through (i) of Section 7.02 hereof, the amendment, supplement or waiver shall bind only each Holder of a Security that has consented to it or voted for it, as the case may be, and every subsequent Holder of a Security or portion of a Security that evidences the same indebtedness as the Security of the consenting or affirmatively voting, as the case may be, Holder.

        Section 7.05.    Notation on or Exchange of Securities.     If an amendment, supplement or waiver changes the terms of a Security:

        (a)   the Trustee may require the Holder of a Security to deliver such Security to the Trustee, the Trustee may place an appropriate notation on the Security about the changed terms and return it to the Holder and the Trustee may place an appropriate notation on any Security thereafter authenticated; or

        (b)   if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms.

        Failure to make the appropriate notation or issue a new Security shall not affect the validity and effect of such amendment, supplement or waiver.

        Section 7.06.    Trustee to Sign Amendment, Etc.     The Trustee shall sign any supplement or amendment authorized pursuant to this Article 7 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If the supplement or amendment does adversely affect the rights, duties, liabilities or immunities of the Trustee, the Trustee may but need not sign it. In signing or refusing to sign such supplement or amendment, the Trustee shall be entitled to receive and shall be fully protected in relying upon an Officers' Certificate and an Opinion of Counsel as conclusive evidence that such amendment is authorized or permitted by this Indenture.

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ARTICLE 8
MEETING OF HOLDERS OF SECURITIES

        Section 8.01.    Purposes for Which Meetings May Be Called.     A meeting of Holders of Securities may be called at any time and from time to time pursuant to this Article to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be made, given or taken by Holders of Securities.

        Notwithstanding anything contained in this Article 8, the Trustee may, during the pendency of a Default or an Event of Default, call a meeting of Holders of Securities in accordance with its standard practices.

        Section 8.02.    Call Notice and Place of Meetings.     (a) The Trustee may at any time call a meeting of Holders of Securities for any purpose specified in Section 8.01 hereof, to be held at such time and at such place in The City of New York. Notice of every meeting of Holders of Securities, setting forth the time and the place of such meeting, in general terms the action proposed to be taken at such meeting and the percentage of the principal amount of the Outstanding Securities that shall constitute a quorum at such meeting, shall be given, in the manner provided in Section 14.02 hereof, not less than 21 nor more than 180 days prior to the date fixed for the meeting.

        (b)   In case at any time the Company, pursuant to a Board Resolution, or the Holders of at least 10% in principal amount of the Outstanding Securities shall have requested the Trustee to call a meeting of the Holders of Securities for any purpose specified in Section 8.01 hereof, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have made the first publication of the notice of such meeting within 21 days after receipt of such request or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Company or the Holders of Securities in the amount specified, as the case may be, may determine the time and the place in The City of New York for such meeting and may call such meeting for such purposes by giving notice thereof as provided in paragraph (a) of this Section.

        Section 8.03.    Persons Entitled to Vote at Meetings.     To be entitled to vote at any meeting of Holders of Securities, a Person shall be (a) a Holder of one or more Outstanding Securities on the Record Date pertaining to such meeting or (b) a Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more Outstanding Securities by such Holder or Holders on the Record Date pertaining to such meeting. The only Persons who shall be entitled to be present or to speak at any meeting of Holders shall be the Persons entitled to vote at such meeting and their counsel, any representatives of the Trustee and its counsel and any representatives of the Company and its counsel.

        Section 8.04.    Quorum; Action.     The Persons entitled to vote a majority in principal amount of the Outstanding Securities shall constitute a quorum. In the absence of a quorum within 30 minutes of the time appointed for any such meeting, the meeting shall, if convened at the request of Holders of Securities, be dissolved. In any other case, the meeting may be adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such adjourned meeting. Notice of the reconvening of any adjourned meeting shall be given as provided in Section 8.02(a) hereof, except that such notice need be given only once and not less than five days prior to the date on which the meeting is scheduled to be reconvened.

        At a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid, any resolution and all matters (except as limited by the second paragraph of Section 7.02 hereof) shall be effectively passed and decided if passed or decided by the Persons entitled to vote not

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less than a majority in principal amount of Outstanding Securities represented and voting at such meeting.

        Any resolution passed or decisions taken at any meeting of Holders of Securities duly held in accordance with this Section shall be binding on all the Holders of Securities, whether or not present or represented at the meeting.

        Section 8.05.    Determination of Voting Rights; Conduct and Adjournment of Meetings.     (a)  Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders of Securities in regard to proof of the holding of Securities and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate.

        (b)   The Trustee shall, by an instrument in writing, appoint a temporary chairman (which may be the Trustee) of the meeting, unless the meeting shall have been called by the Company or by Holders of Securities as provided in Section 8.02(b) hereof, in which case the Company or the Holders of Securities calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Persons entitled to vote a majority in principal amount of the Outstanding Securities represented at the meeting.

        (c)   At any meeting, each Holder of a Security or proxy shall be entitled to one vote for each $1,000 principal amount of Securities held or represented by it; provided, however, that no vote shall be cast or counted at any meeting in respect of any Security challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote, except as a Holder of a Security or proxy.

        (d)   Any meeting of Holders of Securities duly called pursuant to Section 8.02 hereof at which a quorum is present may be adjourned from time to time by Persons entitled to vote a majority in principal amount of the Outstanding Securities represented at the meeting, and the meeting may be held as so adjourned without further notice.

        Section 8.06.    Counting Votes and Recording Action of Meetings.     The vote upon any resolution submitted to any meeting of Holders of Securities shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities or of their representatives by proxy and the principal amounts and serial numbers of the Outstanding Securities held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record, at least in duplicate, of the proceedings of each meeting of Holders of Securities shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more Persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 8.02 hereof and, if applicable, Section 8.04 hereof. Each copy shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one such copy shall be delivered to the Company and another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated.

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ARTICLE 9
COVENANTS

        Section 9.01.    Payment of Principal and Interest.     The Company will duly and punctually pay the principal of and interest (including Liquidated Damages, if any) on the Securities in accordance with the terms of the Securities and this Indenture. The Company will deposit or cause to be deposited with the Trustee as directed by the Trustee, no later than the day of the Stated Maturity of any Security or installment of interest (including Liquidated Damages, if any), all payments so due.

        Section 9.02.    Maintenance of Offices or Agencies.     The Company hereby appoints the Trustee's Corporate Trust Office as its office in The City of New York where Securities may be:

          (i)  presented or surrendered for payment;

         (ii)  surrendered for registration of transfer or exchange;

        (iii)  surrendered for conversion;

and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served.

        The Company may at any time and from time to time vary or terminate the appointment of any such office or appoint any additional offices for any or all of such purposes; provided, however, that until all of the Securities have been delivered to the Trustee for cancellation, or moneys sufficient to pay the principal of and interest (including Liquidated Damages, if any) on the Securities have been made available for payment and either paid or returned to the Company pursuant to the provisions of Section 9.03 hereof, the Company will maintain in The City of New York, an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange, where Securities may be surrendered for conversion and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee, and notice to the Holders in accordance with Section 14.02 hereof, of the appointment or termination of any such agents and of the location and any change in the location of any such office or agency.

        If at any time the Company shall fail to maintain any such required office or agency in The City of New York, or shall fail to furnish the Trustee with the address thereof, presentations and surrenders may be made at, and notices and demands may be served on, the Corporate Trust Office of the Trustee.

        Section 9.03.    Corporate Existence.     Subject to Article 6 hereof, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights (charter and statutory) and franchises; provided, however, that the Company shall not be required to preserve any such right or franchise if the Company determines that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders.

        Section 9.04.    Reports.     (a)    The Company shall make available to the Trustee within 15 days after it files them with the SEC copies of the annual and quarterly reports and other information, documents and other reports deemed "filed" for the purposes of Section 18 of the Exchange Act or incorporated by reference in any filing under the Securities Act or the Exchange Act (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) that the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act; provided, however, that the Company shall not be required to deliver to the Trustee any materials for which the Company has sought and received confidential treatment by the SEC. The Company also shall comply with the other provisions of Section 314(a) of the TIA.

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        (b)   If at any time the Company is not subject to Section 13 or 15(d) of the Exchange Act, upon the request of a Holder of a Security, the Company will promptly furnish or cause to be furnished to such Holder or to a prospective purchaser of such Security designated by such Holder, as the case may be, the information, if any, required to be delivered by it pursuant to Rule 144A(d)(4) under the Securities Act to permit compliance with Rule 144A in connection with the resale of such Security; provided, however, that the Company shall not be required to furnish such information in connection with any request made on or after the date that is two years from the Issue Date.

        Section 9.05.    Compliance Certificate.     The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year of the Company, an Officers' Certificate stating whether or not the signer thereof has knowledge of any failure by the Company to comply with all conditions and covenants then required to be performed under this Indenture and, if so, specifying each such failure and the nature thereof. Within five Business Days of an Officer of the Company coming to have actual knowledge of a Default, regardless of the date, the Company shall deliver an Officers' Certificate to the Trustee specifying such Default and the nature and status thereof.

        Section 9.06.    Liquidated Damages.     If Liquidated Damages are payable by the Company pursuant to the Registration Rights Agreement, the Company shall deliver to the Trustee an Officers' Certificate to that effect stating (i) the amount of such Liquidated Damages that are payable, (ii) the reason why such Liquidated Damages are payable and (iii) the date on which such damages are payable. Unless and until a Responsible Officer of the Trustee receives such an Officers' Certificate, the Trustee may assume without inquiry that no Liquidated Damages are payable. If the Company has paid Liquidated Damages directly to the persons entitled to such amounts, the Company shall deliver to the Trustee a certificate setting forth the particulars of such payment.

ARTICLE 10
REDEMPTION OF SECURITIES

        Section 10.01.    Optional Redemption.     The Securities are not redeemable prior to July 20, 2009. On and after July 20, 2009, the Company may, at its option, redeem the Securities in whole at any time or in part from time to time, on any date prior to maturity, upon notice as set forth in Section 10.04, at a redemption price equal to 100% of the principal amount of the Securities (the "Optional Redemption Price"), plus any accrued and unpaid interest (including Liquidated Damages, if any) but not paid prior to, but excluding, the Optional Redemption Date.

        Section 10.02.    Notice to Trustee.     If the Company elects to redeem Securities pursuant to the redemption provisions of Section 10.01 hereof, it shall notify the Trustee at least 30 days prior to the Redemption Date of such intended Redemption Date, the principal amount of Securities to be redeemed and the CUSIP numbers of the Securities to be redeemed.

        Section 10.03.    Selection of Securities to be Redeemed.     If fewer than all the Securities are to be redeemed, the Trustee shall select the particular Securities to be redeemed from the Outstanding Securities on a pro rata basis or by lot or in accordance with any other method the Trustee considers fair and appropriate. Securities and portions thereof that the Trustee selects shall be in amounts equal to the minimum authorized denominations for Securities to be redeemed or any whole multiple thereof.

        If any Security selected for partial redemption is converted in part before termination of the conversion right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed to be the portion selected for redemption (provided, however, that the Holder of such Security so converted and deemed redeemed shall not be entitled to any additional interest payment as a result of such deemed redemption than such Holder would have otherwise been entitled to receive upon conversion of such Security). Securities that have been converted during a selection of

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Securities to be redeemed may be treated by the Trustee as Outstanding for the purpose of such selection.

        The Trustee shall promptly notify the Company and the Registrar in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed.

        For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities that has been or is to be redeemed.

        No Securities may be redeemed by the Company pursuant to this Article 10 if the principal amount of the Securities has been accelerated, and such acceleration has not been rescinded, on or prior to such redemption.

        Section 10.04.    Notice of Redemption.     Notice of redemption shall be given in the manner provided in Section 14.02 hereof to the Holders of Securities to be redeemed. Such notice shall be given not less than 30 nor more than 60 days prior to the Redemption Date.

        All notices of redemption shall state:

        (1)   the Redemption Date;

        (2)   the Redemption Price and any accrued and unpaid interest (including Liquidated Damages, if any) to, but excluding, the Redemption Date, if any;

        (3)   if fewer than all the Outstanding Securities are to be redeemed, the aggregate principal amount of Securities to be redeemed and the aggregate principal amount of Securities that will be Outstanding after such partial redemption;

        (4)   that on the Redemption Date the Redemption Price and any accrued and unpaid interest (including Liquidated Damages, if any) to, but excluding, the Redemption Date, if any, will become due and payable upon each such Security to be redeemed, and that interest thereon (including Liquidated Damages, if any) shall cease to accrue on and after such date;

        (5)   the Conversion Price, the date on which the right to convert the principal of the Securities to be redeemed will terminate and the places where such Securities may be surrendered for conversion;

        (6)   the place or places where such Securities are to be surrendered for payment of the Redemption Price and any accrued and unpaid interest; and

        (7)   the CUSIP number of the Securities.

        The notice given shall specify the last date on which exchanges or transfers of Securities may be made pursuant to Section 2.07 hereof, and shall specify the serial numbers of Securities and the portions thereof called for redemption.

        Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name of and at the expense of the Company.

        Section 10.05.    Effect of Notice of Redemption.     Notice of redemption having been given as provided in Section 10.04 hereof, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and any accrued and unpaid interest (including Liquidated Damages, if any)) such Securities shall cease to bear interest.

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Upon surrender of any such Security for redemption in accordance with such notice, such Security shall be paid by the Company at the Redemption Price plus any accrued and unpaid interest (including Liquidated Damages, if any); provided, however, that the installments of interest on Securities whose Stated Maturity is prior to or on the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Record Date according to their terms and the provisions of Section 2.01 hereof.

        If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal shall, until paid, bear interest from the Redemption Date at the Interest Rate.

        Section 10.06.    Deposit of Redemption Price.     Prior to or on any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent an amount of money sufficient to pay the Redemption Price of all the Securities to be redeemed on that Redemption Date, other than any Securities called for redemption on that date that have been converted prior to the date of such deposit, and any accrued and unpaid interest (including Liquidated Damages, if any) on such Securities.

        If any Security called for redemption is converted, any money deposited with the Trustee or with a Paying Agent or so segregated and held in trust for the redemption of such Security shall (subject to any right of the Holder of such Security or any Predecessor Security to receive interest as provided in the fourth to last paragraph of Section 2.01 hereof) be paid to the Company upon request of the Company or, if then held by the Company, shall be discharged from such trust.

        Section 10.07.    Securities Redeemed in Part.     Any Security that is to be redeemed only in part shall be surrendered at an office or agency of the Company designated for that purpose pursuant to Section 9.02 hereof (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or the Holder's attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of any authorized denomination as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered.

        Section 10.08.    Conversion Arrangement On Call For Redemption.     In connection with any redemption of Securities, the Company may arrange for the purchase and conversion of any Securities called for redemption by an agreement with one or more investment banks or other purchasers to purchase such Securities by paying to the Trustee in trust for the Holders of the Securities, on or prior to 10:00 a.m. New York City time on the Redemption Date, an amount that, together with any amounts deposited with the Trustee by the Company for the redemption of such Securities, is not less than the Redemption Price of, and any accrued and unpaid interest (including Liquidated Damages, if any) with respect to, such Securities. Notwithstanding anything to the contrary contained in this Article 10, the obligation of the Company to pay the Redemption Price of such Securities shall be deemed to be satisfied and discharged to the extent such amount is so paid by such purchasers. If such an agreement is entered into, any Securities not duly surrendered for conversion by the Holders thereof may, at the option of the Company, be deemed, to the fullest extent permitted by law, acquired by such purchasers from such Holders and surrendered by such purchasers for conversion, all as of immediately prior to the close of business on the Business Day prior to the Redemption Date, subject to payment of the above amount as aforesaid. The Trustee shall hold and pay to the Holders whose Securities are selected for redemption any such amount paid to it for purchase and conversion in the same manner as it would moneys deposited with it by the Company for the redemption of Securities. Without the Trustee's prior written consent, no arrangement between the Company and such purchasers for the purchase and conversion of any Securities shall increase or otherwise affect any of the powers, duties, responsibilities or obligations of the Trustee as set forth in this Indenture, and the Company agrees to indemnify the Trustee from, and hold it harmless against, any loss, liability or expense arising out of or in connection

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with any such arrangement for the purchase and conversion of any Securities between the Company and such purchasers, including the costs and expenses incurred by the Trustee in the defense of any claim or liability arising out of or in connection with the exercise or performance of any of its powers, duties, responsibilities or obligations under this Indenture.

ARTICLE 11
PURCHASE OF SECURITIES

        Section 11.01.    Purchase Right Upon Fundamental Change.     (a)    General. In the event that a Fundamental Change shall occur, each Holder shall have the right (the "Purchase Right"), at the Holder's option to require the Company to purchase, and upon the exercise of such right in accordance with this Section 11.01 hereof the Company shall purchase, all of such Holder's Securities not theretofore called for redemption, or any portion of the principal amount thereof that is equal to $1,000 or any whole multiple thereof (provided, however, that no single Security may be purchased in part unless the portion of the principal amount of such Security to be Outstanding after such purchase is equal to $1,000 or whole multiples thereof), on the date (the "Purchase Date") that is not less than 20 nor more than 35 Business Days after the date of the Company Notice at a purchase price equal to 100% of the principal amount of the Securities to be purchased, plus any accrued and unpaid interest (including Liquidated Damages, if any) to, but excluding, the Purchase Date (the "Purchase Price"); provided, however, that if the Purchase Date falls after a Record Date and on or prior to the corresponding Interest Payment Date, the Company shall pay the full amount of any accrued and unpaid interest (including Liquated Damages, if any) payable on such Interest Payment Date to the Holder of record at the close of business on the corresponding Record Date; provided, further, that installments of interest on Securities whose Stated Maturity is prior to or on the Purchase Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Record Date according to their terms and the provisions of Section 2.01 hereof.

        (b)    Company Notice.     Prior to or on the 15th day after the occurrence of a Fundamental Change, the Company, or, at the written request and expense of the Company, prior to or on the 15th day after such occurrence, the Trustee, shall give to all Holders of Securities notice, in the manner provided in Section 14.02 hereof, of the occurrence of the Fundamental Change and of the Purchase Right set forth herein arising as a result thereof (the "Company Notice"). The Company shall also deliver a copy of such notice of a Purchase Right to the Trustee. Each notice of a Purchase Right shall state:

          (i)  the Purchase Date;

         (ii)  the date by which the Purchase Right must be exercised;

        (iii)  the Purchase Price;

        (iv)  a description of the procedure that a Holder must follow to exercise a Purchase Right, and the place or places where such Securities are to be surrendered for payment of the Purchase Price;

         (v)  that on the Purchase Date the Purchase Price will become due and payable upon each such Security designated by the Holder to be purchased, and that interest thereon shall cease to accrue on and after said date;

        (vi)  the Conversion Rate then in effect, the date on which the right to convert the principal amount of the Securities to be purchased will terminate and the place where such Securities may be surrendered for conversion; and

       (vii)  the place or places where such Securities, together with the Notice of Exercise of Purchase Right certificate included in Exhibit A annexed hereto are to be delivered for payment of the Purchase Price.

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        No failure of the Company to give the foregoing notices or defect therein shall limit any Holder's right to exercise a Purchase Right or affect the validity of the proceedings for the purchase of Securities.

        (c)    Conditions to the Company's Obligation to Purchase.     To exercise a Purchase Right, a Holder shall deliver to the Trustee on or prior to the Purchase Date written notice ("Fundamental Change Purchase Notice") of the Holder's exercise of such right in the form of the Notice of Exercise of Purchase Right certificate included in Exhibit A annexed hereto, which notice shall set forth:

          (i)  the name of the Holder, the principal amount of the Securities to be purchased (and, if any Security is to be purchased in part, the serial number thereof, the portion of the principal amount thereof to be purchased) and a statement that an election to exercise the Purchase Right is being made thereby, and

         (ii)  the applicable Depository procedures or, in the case of Physical Securities, the certificate number(s) of the Holder's Securities with respect to which the Purchase Right is being exercised.

        (d)    Withdrawal of Fundamental Change Purchase Notice.     A Holder may withdraw any Fundamental Change Purchase Notice in whole or in part by a written notice of withdrawal delivered to the Paying Agent prior to the close of business on the applicable Purchase Date. The notice of withdrawal must state:

          (i)  the principal amount of the withdrawn Securities;

         (ii)  the applicable Depositary procedures or, with respect to Physical Securities, the certificate number(s) of the withdrawn Securities; and

        (iii)  the principal amount of Securities, if any, that remains subject to the Fundamental Change Purchase Notice.

        The Paying Agent shall promptly notify the Company of the receipt by it of any Fundamental Change Purchase Notice or written notice of withdrawal thereof.

        (e)    Payment of Purchase Price by the Company; Effect on Holders of Purchased Securities.     Payment of the Purchase Price for a Security for which a Fundamental Change Purchase Notice has been delivered and not withdrawn is conditioned upon book-entry transfer or delivery of the Security, together with necessary endorsements, to the Paying Agent at its Corporate Trust Office in the Borough of Manhattan, The City of New York, or any other office of the Paying Agent, at any time after delivery of the Fundamental Change Purchase Notice. The Company shall pay the Purchase Price for the Security promptly following the later of the Purchase Date and the time of book-entry transfer or delivery of the Security. If the Paying Agent holds money or securities sufficient to pay the Purchase Price on the relevant Purchase Date, then, on and after the Business Day immediately following the Purchase Date:

          (i)  the purchased Securities will cease to be Outstanding and interest will cease to accrue, and

         (ii)  all other rights of the Holders of such purchased Securities will terminate (other than the right to receive the Purchase Price upon delivery or transfer of such purchased Securities),

        in each case, whether or not book-entry transfer of the purchased Securities is made or whether or not the purchased Securities are delivered to the Paying Agent.

        (f)    If any Security (or portion thereof) surrendered for purchase shall not be so paid on the Purchase Date, the principal amount of such Security (or portion thereof, as the case may be) shall, until paid, bear interest to the extent permitted by applicable law from the Purchase Date at the

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Interest Rate, and each Security shall remain convertible into Common Stock until the principal of such Security (or portion thereof, as the case may be) shall have been paid or duly provided for.

        (g)   Any Security that is to be purchased only in part shall be surrendered to the Trustee (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and make available for delivery to the Holder of such Security without service charge, a new Security or Securities, containing identical terms and conditions, each in an authorized denomination in aggregate principal amount equal to and in exchange for the unpurchased portion of the principal of the Security so surrendered.

        (h)   All Securities delivered for purchase shall be delivered to the Trustee to be canceled at the direction of the Trustee, which shall dispose of the same as provided in Section 2.15 hereof.

        (i)    In connection with any purchase of the Securities pursuant to Sections 11.01, the Company will comply with Rule 13e-4 under the Exchange Act to the extent applicable at that time.

        (j)    No Securities may be purchased by the Company in connection with a Fundamental Change pursuant to this Section 11.01 if the principal amount of the Securities has been accelerated, and such acceleration has not been rescinded, on or prior to the Purchase Date.

        (k)   Whenever in this Indenture (including Sections 2.02, 4.01(a) and 4.07 hereof) or Exhibit A annexed hereto there is a reference, in any context, to the principal of any Security as of any time, such reference shall be deemed to include reference to the Purchase Price payable in respect to such Security to the extent that such Purchase Price is, was or would be so payable at such time, and express mention of the Purchase Price in any provision of this Indenture shall not be construed as excluding the Purchase Price in those provisions of this Indenture when such express mention is not made.

        Section 11.02.    Purchase of Securities by the Company at Option of the Holder.     (a)     General. Each Holder shall have the right (the "Put Purchase Right") to require the Company to purchase all or a portion of its Securities on July 15, 2009, July 15, 2014 and July 15, 2019 (or, if any such date is not a Business Day, on the immediately succeeding Business Day) (each, a "Put Purchase Date"), at 100% of the principal amount of the Securities to be so purchased, plus any accrued and unpaid interest (including Liquidated Damages, if any) to, but excluding, such Put Purchase Date (the "Put Purchase Price").

        (b)    Company Notice.     On or before the twenty-first (21st) Business Day prior to each Put Purchase Date, the Company shall provide to the Trustee, the Paying Agent and to all Holders at their respective addresses as shown on the Register, and to beneficial owners of the Securities where required by applicable law, a notice stating, among other things:

          (i)  the name and address of the Trustee, the Paying Agent and the Conversion Agent; and

         (ii)  the procedures that Holders must follow to require the Company to purchase their Securities.

        Simultaneously with providing such notice, the Company shall publish a notice containing this information in a newspaper of general circulation in The City of New York or publish the information on the Company's website or through such other public medium as the Company may use at that time.

        (c)    Conditions to the Company's Obligation to Purchase.     The Company will be required to purchase only Securities with respect to which each of the following conditions has been satisfied:

          (i)  delivery to the Paying Agent by the Holder of a written notice of purchase (a "Put Purchase Notice") during the period beginning at any time from the opening of business on the

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date that is twenty-one (21) Business Days prior to the relevant Put Purchase Date until the close of business on the Business Day prior to such Put Purchase Date stating:

        (A)  the applicable Depositary procedures or, in the case of Physical Securities, the certificate number(s) of the Holder's Securities to be delivered for purchase;

        (B)  the portion of the principal amount of Securities to be purchased, in whole multiples of $l,000; and

        (C)  that the Securities are to be purchased by the Company pursuant to paragraph 6(b) of the Securities and this Section 11.02; and

         (ii)  delivery of such Securities to the Trustee or Paying Agent prior to, on or after the Put Purchase Date (together with all necessary endorsements).

        (d)    Withdrawal of Put Purchase Notice.     A Holder may withdraw any Put Purchase Notice in whole or in part by a written notice of withdrawal delivered to the Trustee or the Paying Agent prior to the close of business on the third (3rd) Business Day prior to the applicable Put Purchase Date. The notice of withdrawal must state:

          (i)  the principal amount of the withdrawn Securities;

         (ii)  the applicable Depositary procedures or, with respect to Physical Securities, the certificate number(s) of the withdrawn Securities; and

        (iii)  the principal amount of Securities, if any, that remains subject to the Put Purchase Notice.

        The Trustee or Paying Agent shall promptly notify the Company of the receipt by it of any Put Purchase Notice or written notice of withdrawal thereof.

        The Put Purchase Price shall be so paid pursuant to this Section 11.02 only if the Securities so delivered by the Holder conform in all respects to the description thereof in the related Put Purchase Notice, as determined by the Company in its sole discretion.

        (e)    Payment of Put Purchase Price by the Company; Effect on Holders of Purchased Securities.     Payment of the Put Purchase Price for a Security for which a Put Purchase Notice has been delivered and not withdrawn is conditioned upon book-entry transfer or delivery of the Security, together with necessary endorsements, to the Paying Agent at its Corporate Trust Office in the Borough of Manhattan, The City of New York, or any other office of the Paying Agent, at any time after delivery of the Put Purchase Notice. The Company shall pay the Put Purchase Price to the Paying Agent promptly following the later of the relevant Put Purchase Date or the time of book-entry transfer or delivery of the purchased Securities. If either the Trustee or the Paying Agent holds money or securities sufficient to pay the Put Purchase Price on the Business Day immediately following the Put Purchase Date, then:

          (i)  the purchased Securities will cease to be Outstanding and interest will cease to accrue, and

         (ii)  all other rights of the Holders of such purchased Securities will terminate (other than the right to receive the Put Purchase Price upon delivery or transfer of such purchased Securities),

in each case, whether or not book-entry transfer of the purchased Securities is made or whether or not the purchased Securities are delivered to the Paying Agent.

        (f)    If any Security (or portion thereof) surrendered for purchase shall not be so paid on the Put Purchase Date, the principal amount of such Security (or portion thereof, as the case may be) shall, until paid, bear interest to the extent permitted by applicable law from the Put Purchase Date at the

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Interest Rate, and each Security shall remain convertible into Common Stock until the principal of such Security (or portion thereof, as the case may be) shall have been paid or duly provided for.

        (g)   Any Security that is to be purchased only in part shall be surrendered to the Trustee (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and make available for delivery to the Holder of such Security without service charge, a new Security or Securities, containing identical terms and conditions, each in an authorized denomination in aggregate principal amount equal to and in exchange for the unpurchased portion of the principal of the Security so surrendered.

        (h)   All Securities delivered for purchase shall be delivered to the Trustee to be canceled at the direction of the Trustee, which shall dispose of the same as provided in Section 2.15 hereof.

        (i)    In connection with any purchase of the Securities pursuant to this Section 11.02, the Company will comply with Rule 13e-4 under the Exchange Act to the extent applicable at that time.

        (j)    No Securities may be purchased by the Company pursuant to this Section 11.02 if the principal amount of the Securities has been accelerated, and such acceleration has not been rescinded, on or prior to the relevant Put Purchase Date.

        (k)   Whenever in this Indenture (including Sections 2.02, 4.01(a) and 4.07 hereof) or Exhibit A annexed hereto there is a reference, in any context, to the principal of any Security as of any time, such reference shall be deemed to include reference to the Put Purchase Price payable in respect to such Security to the extent that such Put Purchase Price is, was or would be so payable at such time, and express mention of the Put Purchase Price in any provision of this Indenture shall not be construed as excluding the Put Purchase Price in those provisions of this Indenture when such express mention is not made.

ARTICLE 12
CONVERSION OF SECURITIES

        Section 12.01.    Conversion Right and Conversion Rate.     (a) (i) Subject to and upon: (A)  compliance with the provisions of this Article and (B) the occurrence of one or more of the conditions set forth in paragraph 7(d) of the Securities, at the option of the Holder thereof, any Security or any portion of the principal amount thereof that is $1,000 or a multiple of $1,000 may be converted at the principal amount thereof, or of such portion thereof, into the number of duly authorized, fully paid and nonassessable shares of Common Stock at the Conversion Rate in effect at the time of conversion. Such conversion right shall expire at the close of business on the Business Day immediately preceding July 15, 2024.

         (ii)  If a Holder of Securities elects to convert its Securities in connection with a specified corporate transaction pursuant to Section 7(d)(iv)(B) of the Securities that occurs on or prior to July 15, 2009, and the corporate transaction also constitutes a transaction described in clause (2) of the definition of Change of Control, such Holder shall be entitled to receive, in addition to a number of shares of Common Stock equal to the Conversion Rate per $1,000 principal amount of Securities, an additional number of shares of Common Stock (the "Additional Shares") as described below; provided that if the Stock Price is equal to or greater than $50.00 or less than $8.23 (subject in each case to adjustment as described below), the number of Additional Shares shall be zero. The number of Additional Shares shall be determined by reference to the table attached as Schedule A hereto, based on the Effective Date and the Stock Price; provided that if the Stock Price is between two Stock Price amounts in the table or the Effective Date is between two Effective Dates in the table, the number of Additional Shares shall be determined by a

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straight-line interpolation between the number of Additional Shares set forth for the higher and lower Stock Price amounts and the two dates, as applicable, based on a 365-day year. The Additional Shares will be delivered to Holders who elect to convert their Securities in connection with an applicable Change of Control on the later of (i) five Business Days following the Effective Date or (ii) the conversion settlement date for those Securities.

        The Stock Prices set forth in the first row of the table in Schedule A hereto and set forth in the proviso in the first sentence of the preceding paragraph shall be adjusted as of any date on which the Conversion Rate of the Securities is adjusted. The adjusted Stock Prices shall equal the Stock Prices applicable immediately prior to such adjustment, multiplied by a fraction, the numerator of which is the Conversion Rate immediately prior to the adjustment giving rise to the Stock Price adjustment and the denominator of which is the Conversion Rate as so adjusted. The Company's obligation to deliver Additional Shares shall be subject to adjustment in the same manner as the Conversion Rate as set forth Section 12.04 and Section 12.11.

        Notwithstanding the foregoing, in no event will the total number of shares of Common Stock issuable upon conversion exceed 121.5067 per $1,000 principal amount of Securities, subject to adjustments in the same manner as the Conversion Rate as set forth in Section 12.04 and Section 12.11.

        Promptly following the Effective Date, the Company shall calculate the Stock Price and the number of Additional Shares based on the applicable Stock Price and Effective Date. No less than five Business Days following the Effective Date, the Company shall notify the Trustee of the results of such calculations and notify the Holders of the Stock Price, the number of Additional Shares per $1,000 principal amount of Securities. The Company shall issue a press release containing the information described in this paragraph and publish such information on its website.

        (b)   In case a Security or portion thereof is called for redemption, such conversion right in respect of the Security or the portion so called, shall expire at the close of business on the Business Day immediately preceding the Redemption Date, unless the Company defaults in making the payment due upon redemption. If a Holder exercises its Purchase Right or Put Purchase Right with respect to a Security or portion thereof, such conversion right in respect of the Security or portion thereof shall expire at the close of business on the Business Day preceding the Purchase Date or Put Purchase Date, as applicable.

        (c)   Each $1,000 principal amount of the Securities shall be convertible into 86.7905 shares of Common Stock (herein called the "Conversion Rate"), subject to adjustment in certain instances as provided in paragraphs (a), (b), (c), (d), (e), (f), (h) and (m) of Section 12.04 hereof.

        Section 12.02.    Exercise of Conversion Right.     To exercise the conversion right, the Holder of any Security to be converted shall surrender such Security duly endorsed or assigned to the Company or in blank, at the office of any Conversion Agent, accompanied by a duly signed conversion notice substantially in the form attached to the Security to the Company stating that the Holder elects to convert such Security or, if less than the entire principal amount thereof is to be converted, the portion thereof to be converted.

        Any Security surrendered for conversion during the period beginning on the close of business on any Regular Record Date and ending with the opening of business on the corresponding interest Payment Date shall be accompanied by payment of an amount equal to the interest (excluding Liquidated Damages, if any) to be received on such Interest Payment Date on the principal amount of the Security being surrendered for conversion. Notwithstanding the foregoing, any Holder that surrenders for conversion any Security (a) that has been called for redemption by the Company in a notice of redemption given by the Company pursuant to Section 10.04 hereof on a Redemption Date after such Regular Record Date and on or prior to the next succeeding Interest Payment Date, (b) with

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respect to which the Company has specified a Purchase Date that is after such Regular Record Date and on or prior to the next succeeding Interest Payment Date or (c) on which Defaulted Interest is payable at the time of conversion, but only to the extent of such Defaulted Interest, need not make the payment referred to in the preceding sentence. In either case described in clause (a) or clause (b) above, such Holder shall be entitled to receive (and retain) the interest to be received on such Interest Payment Date on the principal amount of the Security being surrendered for conversion.

        Securities shall be deemed to have been converted immediately prior to the close of business on the day of surrender of such Securities for conversion in accordance with the foregoing provisions, and at such time the rights of the Holders of such Securities as Holders shall cease, and the Person or Persons entitled to receive the Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such Common Stock at such time. Except as provided above in this Section 12.02, no adjustment shall be made for interest and Liquidated Damages, if any, accrued on any Security converted or for dividends on any shares issued upon the conversion of such Security as provided in this Article 12. As promptly as practicable on or after the conversion date, but in no event later than the fifth Business Day thereafter, the Company shall cause to be issued and delivered to such Conversion Agent a certificate or certificates for the number of full shares of Common Stock issuable upon conversion, together with payment in lieu of any fraction of a share as provided in Section 12.03 hereof.

        In the case of any Security that is converted in part only, upon such conversion the Company shall execute and the Trustee shall authenticate and deliver to the Holder thereof, at the expense of the Company, a new Security or Securities of authorized denominations in aggregate principal amount equal to the unconverted portion of the principal amount of such Securities.

        If shares of Common Stock to be issued upon conversion of a Restricted Security, or Securities to be issued upon conversion of a Restricted Security in part only, are to be registered in a name other than that of the Holder of such Restricted Security, such Holder must deliver to the Conversion Agent a certificate in substantially the form set forth in the form of Security set forth in Exhibit A annexed hereto, dated the date of surrender of such Restricted Security and signed by such Holder, as to compliance with the restrictions on transfer applicable to such Restricted Security. Neither the Trustee nor any Conversion Agent, Registrar or Transfer Agent shall be required to register in a name other than that of the Holder shares of Common Stock or Securities issued upon conversion of any such Restricted Security not so accompanied by a properly completed certificate.

        The Company hereby initially appoints the Trustee as the Conversion Agent.

        Delivery to the Holder of Securities of the full number of shares of Common Stock into which the Securities are convertible pursuant to the terms of this Article 12 shall be deemed to satisfy the Company's obligation with respect to such Securities. Accordingly, any accrued but unpaid interest shall be deemed to be paid in full upon conversion, rather than cancelled, extinguished or forfeited.

        Section 12.03.    Fractional Shares.     No fractional shares of Common Stock shall be issued upon conversion of any Security or Securities. If more than one Security shall be surrendered for conversion at one time by the same Holder, the number of full shares that shall be issued upon conversion thereof shall be computed on the basis of the aggregate principal amount of the Securities (or specified portions thereof) so surrendered. Instead of any fractional share of Common Stock that would otherwise be issued upon conversion of any Security or Securities (or specified portions thereof), the Company shall pay a cash adjustment in respect of such fraction (calculated to the nearest one-100th of a share) in an amount equal to the same fraction of the Sale Price of the Common Stock as of the Trading Day preceding the date of conversion.

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        Section 12.04.    Adjustment of Conversion Rate.     The Conversion Rate shall be subject to adjustments, calculated by the Company, from time to time as follows:

        (a)   In case the Company shall hereafter pay a dividend or make a distribution to all holders of the outstanding Common Stock in shares of Common Stock, the Conversion Rate in effect at the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be increased by multiplying such Conversion Rate by a fraction:

          (i)  the numerator of which shall be the sum of the number of shares of Common Stock outstanding at the close of business on the Record Date (as defined in Section 12.04(g)) fixed for such determination plus the total number of shares constituting such dividend or other distribution, and

         (ii)  the denominator of which shall be the number of shares of Common Stock outstanding at the close of business on such Record Date fixed for such determination.

Such increase shall become effective immediately after the opening of business on the day following the Record Date. If any dividend or distribution of the type described in this Section 12.04(a) is declared but not so paid or made, the Conversion Rate shall again be adjusted to the Conversion Rate that would then be in effect if such dividend or distribution had not been declared.

        (b)   In case the outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately increased, and conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately reduced, such increase or reduction, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective.

        (c)   In case the Company shall issue rights or warrants to all holders of its outstanding shares of Common Stock entitling them to subscribe for or purchase shares of Common Stock for a period expiring 45 days or less from the date of issuance of such rights or warrants (or securities convertible into Common Stock) at a price per share (or having a conversion price per share) less than the Current Market Price (as defined in Section 12.04(g)) on the Record Date fixed for the determination of stockholders entitled to receive such rights or warrants, the Conversion Rate shall be increased so that the same shall equal the rate determined by multiplying the Conversion Rate in effect at the opening of business on the date after such Record Date by a fraction:

          (i)  the numerator of which shall be the number of shares of Common Stock outstanding at the close of business on the Record Date plus the total number of additional shares of Common Stock so offered for subscription or purchase (or into which the convertible securities so offered are convertible), and

         (ii)  the denominator of which shall be the number of shares of Common Stock outstanding on the close of business on the Record Date plus the number of shares that the aggregate offering price of the total number of shares so offered for subscription or purchase (or the aggregate conversion price of the convertible securities so offered) would purchase at such Current Market Price.

Such adjustment shall become effective immediately after the opening of business on the day following the Record Date fixed for determination of stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock (or securities convertible into Common Stock) are not delivered pursuant to such rights or warrants, upon the expiration or termination of such rights or

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warrants the Conversion Rate shall be readjusted to the Conversion Rate that would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of the delivery of only the number of shares of Common Stock (or securities convertible into Common Stock) actually delivered. In the event that such rights or warrants are not so issued, the Conversion Rate shall again be adjusted to be the Conversion Rate that would then be in effect if such date fixed for the determination of stockholders entitled to receive such rights or warrants had not been fixed. Notwithstanding the foregoing, after a period of 45 days from the date of issuance of such rights or warrants, the Conversion Rate shall be readjusted to the Conversion Rate that would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of the delivery of only the number of shares of Common Stock (or securities convertible into Common Stock) actually delivered during such period. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Common Stock at less than such Current Market Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received for such rights or warrants, the value of such consideration if other than cash, to be determined by the Board of Directors.

        (d)   In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock shares of any class of capital stock of the Company (other than any dividends or distributions to which Section 12.04(a) applies) or evidences of its indebtedness, cash or other assets, including securities, but excluding (1) any rights or warrants referred to in Section 12.04(c), (2) any stock, securities or other property or assets (including cash) distributed in connection with a reclassification, change, merger, consolidation, binding share exchange, combination, sale, lease or other transfer to which Section 12.11 hereof applies and (3) dividends and distributions paid exclusively in cash (the distributed securities not excluded by the foregoing clauses (1), (2) and (3) hereinafter in this Section 12.04(d) called the "securities"), then, in each such case, subject to the second succeeding paragraph of this Section 12.04(d), the Conversion Rate shall be increased so that the same shall be equal to the rate determined by multiplying the Conversion Rate in effect immediately prior to the close of business on the Record Date (as defined in Section 12.04(g)) with respect to such distribution by a fraction:

          (i)  the numerator of which shall be the Current Market Price (determined as provided in Section 12.04(g)) on such date, and

         (ii)  the denominator of which shall be such Current Market Price on such date less the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and set forth in a Board Resolution) on such date of the portion of the shares of capital stock, evidences of indebtedness, cash or other assets, including securities, so distributed applicable to one share of Common Stock (determined on the basis of the number of shares of the Common Stock outstanding on the Record Date).

        Such increase shall become effective immediately prior to the opening of business on the day following the Record Date. However, in the event that the then fair market value (as so determined) of the portion of the shares of capital stock, evidences of indebtedness, cash or other assets, including securities, so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion of a Security (or any portion thereof) the amount of shares of capital stock, evidences of indebtedness, cash or other assets, including securities, such Holder would have received had such Holder converted such Security (or portion thereof) immediately prior to such Record Date. In the event that such dividend or distribution is not so paid or made, the Conversion Rate shall again be adjusted to be the Conversion Rate that would then be in effect if such dividend or distribution had not been declared.

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        In the event that the Company makes a distribution to all holders of the Common Stock consisting of capital stock of, or similar equity interests in, a Subsidiary or other business unit of the Company, the Conversion Rate will be adjusted based on the market value of the securities so distributed relative to the market value of the Common Stock, in each case based on the average of the Sale Prices of those securities for each of the 10 Trading Days commencing on and including the fifth Trading Day after the date on which "ex-distribution trading" commences for such dividend or distribution on the Nasdaq National Market or such other national or regional exchange or market on which the securities are then listed or quoted.

        If the Board of Directors determines the fair market value of any distribution for purposes of this Section 12.04(d) by reference to the actual or when issued trading market for any securities comprising all or part of such distribution, it must in doing so consider the prices in such market over the same period (the "Reference Period") used in computing the Current Market Price pursuant to Section 12.04(g) to the extent possible, unless the Board of Directors in a Board Resolution determines in good faith that determining the fair market value during the Reference Period would not be in the best interest of the Holder.

        Rights or warrants distributed by the Company to all holders of Common Stock entitling the holders thereof to subscribe for or purchase shares of the Company's capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events ("Trigger Event"):

          (i)  are deemed to be transferred with such shares of Common Stock,

         (ii)  are not exercisable, and

        (iii)  are also issued in respect of future issuances of Common Stock

shall be deemed not to have been distributed for purposes of this Section 12.04(d) (and no adjustment to the Conversion Rate under this Section 12.04(d) will be required) until the occurrence of the earliest Trigger Event. If such right or warrant is subject to subsequent events, upon the occurrence of which such right or warrant shall become exercisable to purchase different securities, evidences of indebtedness or other assets or entitle the holder to purchase a different number or amount of the foregoing or to purchase any of the foregoing at a different purchase price, then the occurrence of each such event shall be deemed to be the date of issuance and record date with respect to a new right or warrant (and a termination or expiration of the existing right or warrant without exercise by the holder thereof). In addition, in the event of any distribution (or deemed distribution) of rights or warrants, or any Trigger Event or other event (of the type described in the preceding sentence) with respect thereto, that resulted in an adjustment to the Conversion Rate under this Section 12.04(d):

        (1)   in the case of any such rights or warrants that shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Rate shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder of Common Stock with respect to such rights or warrant (assuming such holder had retained such rights or warrants), made to all holders of Common Stock as of the date of such redemption or repurchase, and

        (2)   in the case of such rights or warrants all of which shall have expired or been terminated without exercise, the Conversion Rate shall be readjusted as if such rights and warrants had never been issued.

        For purposes of this Section 12.04(d) and Section 12.04(a), 12.04(b) and 12.04(c), any dividend or distribution to which this Section 12.04(d) is applicable that also includes shares of Common Stock, a subdivision or combination of Common Stock to which Section 12.04(b) applies, or rights or warrants

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to subscribe for or purchase shares of Common Stock to which Section 12.04(c) applies (or any combination thereof), shall be deemed instead to be:

        (1)   a dividend or distribution of the evidences of indebtedness, assets, shares of capital stock, rights or warrants other than such shares of Common Stock, such subdivision or combination or such rights or warrants to which Section 12.04(a), 12.04(b) and 12.04(c) apply, respectively (and any Conversion Rate increase required by this Section 12.04(d) with respect to such dividend or distribution shall then be made), immediately followed by

        (2)   a dividend or distribution of such shares of Common Stock, such subdivision or combination or such rights or warrants (and any further Conversion Rate increase required by Section 12.04(a), 12.04(b) and 12.04(c) with respect to such dividend or distribution shall then be made), except:

        (A)  the Record Date of such dividend or distribution shall be substituted as (x) "the date fixed for the determination of stockholders entitled to receive such dividend or other distribution", "Record Date fixed for such determination" and "Record Date" within the meaning of Section 12.04(a), (y) "the day upon which such subdivision becomes effective" and "the day upon which such combination becomes effective" within the meaning of Section 12.04(b), and (z) "the Record Date fixed for the determination of stockholders entitled to receive such rights or warrants," such "Record Date," "the Record Date fixed for the determination of stockholders entitled to receive such rights or warrants" and "such dated fixed for the determination of stockholders entitled to receive such rights or warrants" within the meaning of Section 12.04(c), and

        (B)  any shares of Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the Record Date fixed for such determination" within the meaning of Section 12.04(a) and any reduction or increase in the number of shares of Common Stock resulting from such subdivision or combination shall be disregarded in connection with such dividend or distribution.

        (e)   In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding any cash that is distributed upon a reclassification, change, merger, consolidation, binding share exchange, combination, sale, lease or other transfer to which Section 12.11 hereof applies), then and in each such case, immediately after the close of business on the Record Date with respect to such distribution, the Conversion Rate shall be increased so that the same shall equal the rate determined by multiplying the Conversion Rate in effect immediately prior to the close of business on such Record Date by a fraction:

          (i)  the numerator of which shall be equal to the Current Market Price on the Record Date, and

         (ii)  the denominator of which shall be equal to the Current Market Price on such date less an amount equal to the quotient of (x) the aggregate amount of the cash distribution and (y) the number of shares of Common Stock outstanding on the Record Date.

In the event that such dividend or distribution is not so paid or made, the Conversion Rate shall again be adjusted to be the Conversion Rate that would then be in effect if such dividend or distribution had not been declared.

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        (f)    (i) In case a tender or exchange offer made by the Company or any Subsidiary for all or any portion of the Common Stock shall expire and such tender or exchange offer (as amended upon the expiration thereof) shall require the payment to stockholders of consideration per share of Common Stock having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) that as of the last time (the "Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it may be amended) exceeds the Current Market Price of a share of Common Stock on the Trading Day next succeeding the Expiration Time, the Conversion Rate shall be increased so that the same shall equal the rate determined by multiplying the Conversion Rate in effect immediately prior to the Expiration Time by a fraction:

        (A)  the numerator of which shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) at the Expiration Time multiplied by the Sale Price of the Common Stock on the Trading Day next succeeding the Expiration Time, and

        (B)  the denominator shall be the product of the number of shares of Common Stock outstanding (including any Purchased Shares) at the Expiration Time and the Sale Price of the Common Stock on the Trading Day next succeeding the Expiration Time.

        Such increase (if any) shall become effective immediately prior to the opening of business on the day following the Expiration Time. In the event that the Company is obligated to purchase shares pursuant to any such tender offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Rate shall again be adjusted to be the Conversion Rate that would then be in effect if such tender or exchange offer had not been made. If the application of this Section 12.04(f)(i) to any tender or exchange offer would result in a decrease in the Conversion Rate, no adjustment shall be made for such tender or exchange offer under this Section 12.04(f)(i).

         (ii)  In case of a tender or exchange offer made by a Person other than the Company or any Subsidiary for an amount that increases the offeror's ownership of Common Stock to more than twenty-five percent (25%) of the Common Stock outstanding and shall involve the payment by such Person of consideration per share of Common Stock having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive, and described in a resolution of the Board of Directors) that as of the last time (the "Offer Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended) exceeds the Sale Price per share of the Common Stock on the Trading Day next succeeding the Offer Expiration Time, and in which, as of the Offer Expiration Time the Board of Directors is not recommending rejection of the offer, the Conversion Rate shall be increased so that the same shall equal the rate determined by multiplying the Conversion Rate in effect immediately prior to the Offer Expiration Time by a fraction,

        (A)  the numerator of which shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Offer Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Accepted Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any

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Accepted Purchased Shares) at the Offer Expiration Time and the Sale Price of the Common Stock on the Trading Day next succeeding the Offer Expiration Time, and

        (B)  the denominator of which shall be the number of shares of Common Stock outstanding (including any Accepted Purchased Shares) at the Offer Expiration Time multiplied by Sale Price of the Common Stock on the Trading Day next succeeding the Offer Expiration Time,

such adjustment to become effective immediately prior to the opening of business on the day following the Offer Expiration Time. In the event that such Person is obligated to purchase shares pursuant to any such tender or exchange offer, but such Person is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Rate shall again be adjusted to be the Conversion Rate that would then be in effect if such tender or exchange offer had not been made. Notwithstanding the foregoing, the adjustment described in this Section 12.04(f)(ii) shall not be made if, as of the Offer Expiration Time, the offering documents with respect to such offer disclose a plan or intention to cause the Company to engage in any transaction described in Section 12.11.

        (g)   For purposes of this Section 12.04, the following terms shall have the meanings indicated:

        (1)   "Current Market Price" of the Common Stock on any day means the average of the Sale Price of the Common Stock for each of the 10 consecutive Trading Days ending on the earlier of the day in question and the day before the "ex-date" with respect to the issuance or distribution requiring such computation.

        For purposes of this paragraph, the term "ex" date, when used:

        (A)  with respect to any issuance or distribution, means the first date on which the shares of the Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive such issuance or distribution;

        (B)  with respect to any subdivision or combination of shares of Common Stock, means the first date on which the Common Stock trades regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective, and

        (C)  with respect to any tender or exchange offer, means the first date on which the Common Stock trades regular way on such exchange or in such market after the Expiration Time of such offer.

        Notwithstanding the foregoing, whenever successive adjustments to the Conversion Rate are called for pursuant to this Section 12.04, such adjustments shall be made to the Current Market Price as may be necessary or appropriate to effectuate the intent of this Section 12.04 and to avoid unjust or inequitable results as determined in good faith by the Board of Directors.

        (1)   "fair market value" shall mean the amount that a willing buyer would pay a willing seller in an arm's length transaction.

        (2)   "Record Date" shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of stockholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise).

        (h)   The Company may make such increases in the Conversion Rate, in addition to those required by Section 12.04(a), (b), (c), (d), (e) or (f), as the Board of Directors considers to be advisable to avoid

51

or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes.

        The Company may from time to time, to the extent permitted by law and subject to applicable rules of the Nasdaq National Market, increase the Conversion Rate of the Securities by any amount for any period of at least 20 days. In such event, the Company shall give at least 15 days notice of such increase. The Company may make such increases in the Conversion Rate, in addition to those set forth above, as the Board of Directors deems advisable to avoid or diminish any income tax to Holders of the Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes.

        (i)    No adjustment in the Conversion Rate shall be required unless such adjustment would require an increase or decrease of at least 1% in the Conversion Price; provided, however, that any adjustments that by reason of this Section 12.04(i) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. Notwithstanding the foregoing, all such carried forward adjustments shall be made at the time the Company mails a notice of redemption or notifies Holders of the Securities of a specified corporate transaction that would entitle them to convert their Securities and thereafter any Conversion Rate adjustment shall be made without regard to the 1% threshold described in the preceding sentence.

        Except as otherwise provided in this Article 12, no adjustment need be made for the issuance of Common Stock or any securities convertible into or exchangeable for Common Stock or that carry the right to purchase any of the foregoing. All calculations under this Article 12 shall be made by the Company and shall be made to the nearest cent or to the nearest one hundredth of a share, as the case may be. No adjustment need be made for a change in the par value or no par value of the Common Stock.

        (j)    To the extent the Holders of Securities may participate on an as-converted basis equally with the holders of Common Stock in any event or occurrence, then Section 12.04 hereof shall not apply to such event on occurrence.

        (k)   In any case in which this Section 12.04 provides that an adjustment shall become effective immediately after a Record Date for an event, the Company may defer until the occurrence of such event (i) issuing to the Holder of any Security converted after such Record Date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such holder any amount in cash in lieu of any fraction pursuant to Section 12.03 hereof.

        (l)    For purposes of this Section 12.04, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company.

        (m)  The Company has entered into a Preferred Shares Rights Agreement, dated as of December 7, 1988, as amended and restated effective September 20, 1999, by and between the Company and ChaseMellon Shareholder Services, L.L.C. (as amended from time to time, the "Rights Agreement"). Under the Rights Agreement, preference share purchase rights (the "Rights") have been, and may in the future be, issued in respect of shares of Common Stock. Each share of Common Stock issued upon conversion of Securities pursuant to this Article 12 shall be entitled to receive the appropriate number of Rights, if any, and the certificates representing the Common Stock issued upon such conversion shall bear such legends, if any, in each case as provided by and subject to the terms of

52

the Rights Agreement as in effect at the time of such conversion. If hereafter the Rights separate from the Common Stock in accordance with the provisions of the Rights Agreement so that a Holder of Securities would thereafter not be entitled to receive any Rights in respect of the Common Stock issuable upon conversion of such Security, the Conversion Rate will be adjusted as provided in Section 12.04(d) on the separation date.

        Section 12.05.    Notice of Adjustments of Conversion Rate.     Whenever the Conversion Rate is adjusted as herein provided (other than in the case of an adjustment pursuant to the second paragraph of Section 12.04(h) for which the notice required by such paragraph has been provided), the Company shall promptly file with the Trustee and any Conversion Agent other than the Trustee an Officers' Certificate setting forth the adjusted Conversion Rate and showing in reasonable detail the facts upon which such adjustment is based. Unless and until a Responsible Officer of the Trustee receives an Officers' Certificate describing an adjustment of the Conversion Price, the Trustee may assume without inquiry that no such adjustment has been made. Promptly after delivery of such Officers' Certificate, the Company shall prepare a notice stating that the Conversion Rate has been adjusted and setting forth the adjusted Conversion Rate and the date on which each adjustment becomes effective, and shall mail such notice to each Holder at the address of such Holder as it appears in the Register within 20 days of the effective date of such adjustment. Failure to deliver such notice shall not affect the legality or validity of any such adjustment.

        Section 12.06.    Notice Prior to Certain Actions.     In case at any time after the date hereof:

        (1)   the Company shall declare a dividend (or any other distribution) on its Common Stock payable otherwise than in cash out of its capital surplus or its consolidated retained earnings;

        (2)   the Company shall authorize the granting to the holders of its Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class (or of securities convertible into shares of capital stock of any class) or of any other rights;

        (3)   there shall occur any reclassification of the Common Stock of the Company (other than a subdivision or combination of its outstanding Common Stock, a change in par value, a change from par value to no par value or a change from no par value to par value), or any merger, consolidation, binding share exchange or combination to which the Company is a party and for which approval of any shareholders of the Company is required, or the sale, lease or other transfer in one transaction or a series of related transactions to another corporation of the consolidated assets of the Company and its Subsidiaries, substantially as an entirety; or

        (4)   there shall occur the voluntary or involuntary dissolution, liquidation or winding up of the Company;

the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of securities pursuant to Section 9.02 hereof, and shall cause to be provided to the Trustee and all Holders in accordance with Section 14.02 hereof, at least 20 days (or 10 days in any case specified in clause (1) or (2) above) prior to the applicable record or effective date hereinafter specified, a notice stating:

        (A)  the date on which a record is to be taken for the purpose of such dividend, distribution, rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights or warrants are to be determined, or

        (B)  the date on which such reclassification, merger, consolidation, binding share exchange, combination, sale, lease, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property

53

deliverable upon such reclassification, merger, consolidation, binding share exchange, sale, lease, transfer, dissolution, liquidation or winding up.

        Neither the failure to give such notice nor any defect therein shall affect the legality or validity of the proceedings or actions described in clauses (1) through (4) of this Section 12.06.

        Section 12.07.    Company to Reserve Common Stock.     The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock, for the purpose of effecting the conversion of Securities, the full number of shares of fully paid and non-assessable Common Stock then issuable upon the conversion of all Outstanding Securities.

        Section 12.08.    Tax on Conversions.     Except as provided in the next sentence, the Company will pay any and all taxes (other than taxes on income) and duties that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of Securities pursuant hereto. A Holder delivering a Security for conversion shall be liable for and will be required to pay any tax or duty that may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the Holder of the Security or Securities to be converted, and no such issue or delivery shall be made unless the Person requesting such issue has paid to the Company the amount of any such tax or duty, or has established to the satisfaction of the Company that such tax or duty has been paid.

        Section 12.09.    Covenant as to Common Stock.     The Company covenants that all shares of Common Stock that may be issued upon conversion of Securities will upon issue be fully paid and nonassessable and, except as provided in Section 12.08, the Company will pay all taxes, liens and charges with respect to the issue thereof.

        Section 12.10.    Cancellation of Converted Securities.     All Securities delivered for conversion shall be delivered to the Trustee to be canceled by or at the direction of the Trustee, which shall dispose of the same as provided in Section 2.09.

        Section 12.11.    Effect of Recapitalization, Reclassification, Consolidation, Merger or Sale.     If any of following events occur, namely:

          (i)  any recapitalization, reclassification or change of the outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination),

         (ii)  any merger, consolidation, binding share exchange or combination of the Company with another corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock or

        (iii)  any sale, lease or other transfer of the consolidated assets of the Company and its Subsidiaries, substantially as an entirety, to any other corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock,

the Company or the successor or purchasing corporation, as the case may be, shall execute with the Trustee a supplemental indenture (which shall comply with the TIA as in force at the date of execution of such supplemental indenture if such supplemental indenture is then required to so comply) providing that each Security shall be convertible into the kind and amount of shares of stock and other securities or property or assets (including cash) that such Holder would have been entitled to receive upon such recapitalization, reclassification, change, merger, consolidation, binding share exchange, combination, sale, lease or other transfer had such Securities been converted into Common Stock immediately prior to such recapitalization, reclassification, change, merger, consolidation, binding share exchange, combination, sale, lease or other transfer assuming such holder of Common Stock did not exercise its

54

rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such recapitalization, reclassification, change, merger, consolidation, binding share exchange, combination, sale, lease or other transfer (provided that, if the kind or amount of securities, cash or other property receivable upon such recapitalization, reclassification, change, merger, consolidation, binding share exchange, combination, sale, lease or other transfer is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised ("Non-Electing Share"), then for the purposes of this Section 12.11 the kind and amount of securities, cash or other property receivable upon such recapitalization, reclassification, change, merger, consolidation, binding share exchange, combination, sale, lease or other transfer for each Non-Electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-Electing Shares). Such supplemental indenture shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 12. If, in the case of any such recapitalization, reclassification, change, merger, consolidation, binding share exchange, combination, sale, lease or other transfer, the stock or other securities and assets receivable thereupon by a holder of shares of Common Stock includes shares of stock or other securities and assets of a corporation other than the successor or purchasing corporation, as the case may be, in such recapitalization, reclassification, change, merger, consolidation, binding share exchange, combination, sale, lease or other transfer, then such supplemental indenture shall also be executed by such other corporation and shall contain such additional provisions to protect the interests of the Holders of the Securities as the Board of Directors shall reasonably consider necessary by reason of the foregoing, including to the extent practicable the provisions providing for the Purchase Rights and Put Purchase Rights set forth in Article 11 hereof.

        The Company shall cause notice of the execution of such supplemental indenture to be mailed to each Holder, at the address of such Holder as it appears on the Register, within 20 days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of such supplemental indenture.

        The above provisions of this Section 12.11 shall similarly apply to successive recapitalizations, reclassifications, mergers, consolidations, binding share exchanges, combinations, sales, leases or other transfers.

        If this Section 12.11 applies to any event or occurrence, Section 12.04 hereof shall not apply.

        Section 12.12.    Responsibility of Trustee for Conversion Provisions.     The Trustee, subject to the provisions of Section 5.01 hereof, and any Conversion Agent shall not at any time be under any duty or responsibility to any Holder of Securities to determine whether any facts exist that may require any adjustment of the Conversion Price, or with respect to the nature or intent of any such adjustments when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same. Neither the Trustee, subject to the provisions of Section 5.01 hereof, nor any Conversion Agent shall be accountable with respect to the validity or value (of the kind or amount) of any Common Stock, or of any other securities or property, that may at any time be issued or delivered upon the conversion of any Security; and it or they do not make any representation with respect thereto. Neither the Trustee, subject to the provisions of Section 5.01 hereof, nor any Conversion Agent shall be responsible for any failure of the Company to make any cash payment or to issue, transfer or deliver any shares of stock or share certificates or other securities or property upon the surrender of any Security for the purpose of conversion; and the Trustee, subject to the provisions of Section 5.01 hereof, and any Conversion Agent shall not be responsible or liable for any failure of the Company to comply with any of the covenants of the Company contained in this Article.

55

ARTICLE 13
[RESERVED]

ARTICLE 14
OTHER PROVISIONS OF GENERAL APPLICATION

        Section 14.01.    Trust Indenture Act Controls.     This Indenture is subject to the provisions of the TIA that are required to be part of this Indenture, and shall, to the extent applicable, be governed by such provisions.

        Section 14.02.    Notices.     Any notice or communication to the Company or the Trustee is duly given if in writing and delivered in person or mailed by first-class mail to the address set forth below:

(a)

if to the Company:






Novell, Inc.
404 Wyman Street
Waltham, MA 02451
Attention: General Counsel

with a copy (which shall not constitute notice) to:

Morgan, Lewis & Bochius LLP
101 Park Avenue
New York, NY 10178-0060






Attention: Howard L. Shecter



(b)

if to the Trustee:






Wells Fargo Bank, National Association, as Trustee
Attention: Corporate Trust Services Department—CMG Utah
299 South Main Street, 12th Floor
Salt Lake City, Utah 84111






Attention: Corporate Trust Department

        The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications.

        Any notice or communication to a Holder shall be mailed by first-class mail to his address shown on the Register kept by the Registrar. Failure to mail a notice or communication to a Holder or any defect in such notice or communication shall not affect its sufficiency with respect to other Holders.

        If a notice or communication is mailed or sent in the manner provided above within the time prescribed, it is duly given as of the date it is mailed, whether or not the addressee receives it, except that notice to the Trustee shall only be effective upon receipt thereof by the Trustee.

        If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee at the same time.

        Section 14.03.    Communication by Holders with Other Holders.     Holders may communicate pursuant to Section 312(b) of the TIA with other Holders with respect to their rights under the Securities or this Indenture. The Company, the Trustee, the Registrar and anyone else shall have the protection of Section 312(c) of the TIA.

56

        Section 14.04.    Acts of Holders of Securities.     (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders of Securities may be embodied in and evidenced by:

        (1)   one or more instruments of substantially similar tenor signed by such Holders in person or by agent or proxy duly appointed in writing;

        (2)   the record of Holders of Securities voting in favor thereof, either in person or by proxies duly appointed in writing, at any meeting of Holders of Securities duly called and held in accordance with the provisions of Article 8; or

        (3)   a combination of such instruments and any such record.

        Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments or record or both are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments and record (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders of Securities signing such instrument or instruments and so voting at such meeting. Proof of execution of any such instrument or of a writing appointing any such agent or proxy, or of the holding by any Person of a Security, shall be sufficient for any purpose of this Indenture and (subject to Section 5.01 hereof) conclusive in favor of the Trustee and the Company if made in the manner provided in this Section. The record of any meeting of Holders of Securities shall be proved in the manner provided in Section 8.06 hereof.

        (b)   The fact and date of the execution by any Person of any such instrument or writing may be provided in any manner that the Trustee reasonably deems sufficient.

        (c)   The principal amount and serial numbers of Securities held by any Person, and the date of such Person holding the same, shall be proved by the Register.

        (d)   Any request, demand, authorization, direction, notice, consent, election, waiver or other Act of the Holders of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security.

        (e)   The Company may, but is not obligated to, fix a record date (which need not be within the time limits otherwise prescribed by Trust Indenture Act Section 316(c)) for the purpose of determining the Holders entitled to act with respect to any amendment or waiver or in any other regard, except that during the continuance of an Event of Default, only the Trustee may set a record date as to notices of default, any declaration or acceleration or any other remedies or other consequences of the Event of Default. If a record date is fixed, those Persons that were Holders at such record date and only those Persons will be entitled to act, or to revoke any previous act, whether or not those Persons continue to be Holders after the record date. No act with respect to any amendment or waiver or in any other regard under this Indenture will be effective for more than 90 days after the record date for the taking of such action.

        Section 14.05.    Certificate and Opinion as to Conditions Precedent.     In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.

        Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon an Opinion of Counsel, unless such officer knows, or in the exercise of reasonable care

57

should know, that the Opinion of Counsel with respect to the matters upon which such certificate or opinion is based is erroneous. Any such Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or representations with respect to such matters are erroneous.

        Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.

        Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with, except that in the case of any such application or request as to which the furnishing of such document is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate need be furnished.

        Section 14.06.    Statements Required in Certificate or Opinion.     Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include:

        (1)   a statement that each individual signing such certificate or opinion on behalf of the Company has read such covenant or condition and the definitions herein relating thereto;

        (2)   a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

        (3)   a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and

        (4)   a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with.

        Section 14.07.    Effect of Headings and Table of Contents.     The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.

        Section 14.08.    Successors and Assigns.     All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not.

        Section 14.09.    Separability Clause.     In case any provision in this Indenture or the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

        Section 14.10.    Benefits of Indenture.     Nothing contained in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, the holders of Senior Debt and the Holders of Securities, any benefit or legal or equitable right, remedy or claim under this Indenture.

        Section 14.11.    Governing Law.     THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

        Section 14.12.    Counterparts.     This instrument maybe executed in any number of counterparts, each of which when so executed shall be deemed to be an original but all such counterparts shall together constitute but one and the same instrument.

58

        Section 14.13.    Legal Holidays.     In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security or the last day on which a Holder of a Security has a right to convert such Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest (including Liquidated Damages, if any) or principal or conversion of the Securities, need not be made on such day, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date or Redemption Date or at the Stated Maturity or on such last day for conversion; provided, however, that in the case that payment is made on such succeeding Business Day, no interest shall accrue on the amount so payable for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be.

        Section 14.14.    Recourse Against Others.     No recourse for the payment of the principal of or interest (including Liquidated Damages, if any) on any Security, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, shareholder, officer or director, as such, past, present or future, of the Company or of any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance thereof and as part of the consideration for the issue thereof, expressly waived and released.

59

SIGNATURES

        IN WITNESS WHEREOF, the parties hereto have caused this indenture to be duly executed all as of the day and year first above written.

NOVELL, INC., as Issuer
By:	Name: Title:
WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee
By:	Name: Title:

SCHEDULE A

Additional Shares Table

	Stock Price
Effective Date
	$8.23	$9.00	$10.00	$11.00	$12.00	$13.00	$14.00	$20.00	$25.00	$30.00	$40.00	$50.00
July 15, 2004	34.7162	29.7281	24.6400	20.6905	17.5653	15.0519	13.0026	6.1049	3.6079	2.2543	0.9626	0.0000
July 15, 2005	34.3158	29.1131	23.8413	19.7818	16.5963	14.0564	12.0033	5.2751	2.9588	1.7556	0.6704	0.0000
July 15, 2006	34.5429	28.9457	23.3206	19.0334	15.7064	13.0845	10.9908	4.3854	2.2750	1.2477	0.3975	0.0000
July 15, 2007	34.6260	28.4647	22.3448	17.7528	14.2515	11.5447	9.4270	3.1686	1.4229	0.6699	0.1383	0.0000
July 15, 2008	34.3067	27.1858	20.2453	15.1874	11.4679	8.7111	6.6535	1.4484	0.4335	0.1178	0.0000	0.0000
July 15, 2009	0.0000	0.0000	0.0000	0.0000	0.0000	0.0000	0.0000	0.0000	0.0000	0.0000	0.0000	0.0000

EXHIBIT A

FORM OF SECURITY

[FACE OF SECURITY]

        UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY ("DTC") TO NOVELL, INC. (OR ITS SUCCESSOR) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, CONVERSION OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR OF SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.(1)

        THIS DEBENTURE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 ("THE "SECURITIES ACT"), AND THIS DEBENTURE AND THE COMMON STOCK ISSUABLE UPON CONVERSION THEREOF MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS DEBENTURE IS HEREBY NOTIFIED THAT THE SELLER OF THIS DEBENTURE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.

        THE HOLDER OF THIS DEBENTURE AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS DEBENTURE AND THE COMMON STOCK ISSUABLE UPON CONVERSION THEREOF MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (III) TO NOVELL, INC. OR ANY SUBSIDIARY THEREOF OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS DEBENTURE FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.

(1)

This legend should be included only if the Security is issued in global form.

A-1

NOVELL, INC.

0.50% Convertible Senior Debenture due 2024

	CUSIP NO.
No.	$

        NOVELL, INC., a Delaware corporation (the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to                        , or its registered assigns, the principal sum of            U.S. Dollars ($            ) on July 15, 2024.

        Interest Payment Dates: January 15 and July 15, commencing January 15, 2005.

        Regular Record Dates: January 1 and July 1.

        Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.

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        IN WITNESS WHEREOF, the Company has caused this Security to be duly executed manually or by facsimile by a duly authorized Officer.

Dated: July 2, 2004

NOVELL, INC.
By:	Name: Title:

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Trustee's Certificate of Authentication

        This is one of the 0.50% Convertible Senior Debentures due 2024 described in the within-named Indenture.

WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee
By:	Authorized Signatory
	Name: Title:

Dated: July 2, 2004

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[REVERSE OF SECURITY]

NOVELL, INC.

0.50% Convertible Senior Debenture due 2024

        Capitalized terms used herein but not defined shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.

        1.    Principal and Interest.     Novell, Inc., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Security at the Interest Rate from the date of issuance until repayment at Maturity, redemption or repurchase. The Company shall pay interest on this Security semiannually in arrears on January 15 and July 15 of each year (each an "Interest Payment Date"), commencing January 15, 2005.

        Interest on this Security shall be computed on the basis of a 360-day year of twelve 30-day months and for any period shorter than a full semiannual period for which interest is calculated, on the basis of a 30-day month and, for such periods of less than a month, the actual number of days elapsed over a 30-day month.

        Subject to Section 2.17 of the Indenture, a Holder of any Security at the close of business on a Regular Record Date shall be entitled to receive interest on such Security on the corresponding Interest Payment Date. A Holder of any Security that is converted after the close of business on a Regular Record Date and prior to the corresponding Interest Payment Date shall be entitled to receive interest (including Liquidated Damages, if any) on the principal amount of such Security, notwithstanding the conversion of such Security prior to such Interest Payment Date. However, any such Holder that surrenders any such Security for conversion during the period between the close of business on such Regular Record Date and ending with the opening of business on the corresponding Interest Payment Date shall be required to pay the Company an amount equal to the interest (excluding Liquidated Damages, if any) on the principal amount of such Security so converted, that is payable by the Company to such Holder on such Interest Payment Date, at the time such Holder surrenders such Security for conversion. Notwithstanding the foregoing, any such Holder that surrenders for conversion any Security (a) that has been called for redemption by the Company in a notice of redemption given by the Company pursuant to Section 10.04 of the Indenture on a Redemption Date after such Regular Record Date and on or prior to the next succeeding Interest Payment Date, (b) with respect to which the Company has specified a Purchase Date that is after such Regular Record Date and on or prior to the next succeeding Interest Payment Date or (c) on which Defaulted Interest is payable at the time of conversion, but only to the extent of such Defaulted Interest, need not make the payment referred to in the preceding sentence. In either case described in clause (a) or clause (b) above, such Holder shall be entitled to receive (and retain) the interest to be received on such Interest Payment Date on the principal amount of the Security being surrendered for conversion.

        The Company shall pay Liquidated Damages in accordance with the terms of the Registration Rights Agreement.

        Any amount of Liquidated Damages shall be payable in cash semiannually, in arrears, on each Interest Payment Date and shall cease to accrue on the earlier of (i) the day after the end of the Shelf Registration Period (as defined in the Registration Rights Agreement) and (ii) the date the Registration Default is cured. The Holder of this Security is entitled to the benefits of the Registration Rights Agreement.

        2.    Method of Payment.     Interest on any Security that is payable, and is to be punctually paid or duly provided for, on any Interest Payment Date shall be paid to the person in whose name that

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Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest.

        Principal of and interest on, Global Securities shall be payable to the Depositary in immediately available funds.

        Principal of Physical Securities shall be payable at the office or agency of the Company maintained for such purpose, initially the Corporate Trust Office of the Trustee. Interest on Physical Securities shall be payable by (i) U.S. Dollar check drawn on a bank located in the city where the Corporate Trust Office of the Trustee is located mailed to the address of the Person entitled thereto as such address shall appear in the Register, or (ii) upon application to the Registrar not later than the relevant Record Date by a Holder of an aggregate principal amount of Securities in excess of $5,000,000, wire transfer in immediately available funds.

        3.    Paying Agent and Registrar.     Initially, Wells Fargo Bank, National Association, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change the Paying Agent or Registrar without notice to any Holder.

        4.    Indenture.     The Company issued this Security under an Indenture, dated as of July 2, 2004 (the "Indenture"), between the Company and Wells Fargo Bank, National Association, as trustee (the "Trustee"). The terms of this Security include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended ("TIA"). This Security is subject to all such terms, and Holders are referred to the Indenture and the TIA for a statement of all such terms. To the extent permitted by applicable law, in the event of any inconsistency between the terms of this Security and the terms of the Indenture, the terms of the Indenture shall control.

        5.    Optional Redemption.     This Security is not redeemable prior to July 20, 2009. This Security may be redeemed in whole or in part, upon not less than 30 nor more than 60 days' notice, at any time on or after July 20, 2009, at the option of the Company, at a redemption price equal to 100% of the principal amount of the Securities plus any accrued and unpaid interest (including Liquidated Damages, if any) but not paid prior to, but excluding, the Redemption Date.

        If fewer than all the Securities are to be redeemed, the Trustee shall select the particular Securities to be redeemed from the Outstanding Securities by the methods as provided in the Indenture. If any Security selected for partial redemption is converted in part before termination of the conversion right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed to be the portion selected for redemption (provided, however, that the Holder of such Security so converted and deemed redeemed shall not be entitled to any additional interest payment as a result of such deemed redemption than such Holder would have otherwise been entitled to receive upon conversion of such Security). Securities that have been converted during a selection of Securities to be redeemed may be treated by the Trustee as Outstanding for the purpose of such selection.

        On and after the Redemption Date, interest shall cease to accrue on Securities or portions of Securities called for redemption, unless the Company defaults in the payment of the Optional Redemption Price and any accrued and unpaid interest.

        Notice of redemption shall be given by the Company to the Holders as provided in the Indenture.

        6.    Purchase Rights.

        (a)    Purchase Right Upon a Fundamental Change.    If a Fundamental Change occurs, the Holder of Securities, at the Holder's option, shall have the right, in accordance with the provisions of the Indenture, to require the Company to purchase the Securities (or any portion of the principal amount hereof that is at least $1,000 or a multiple thereof; provided, however, that the portion of the principal amount of this Security to be Outstanding after such purchase is at least equal to $1,000) at a purchase price equal to 100% of the principal amount of the Securities to be

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purchased, plus any accrued and unpaid interest (including Liquidated Damages, if any) to, but excluding, the Purchase Date (the "Purchase Price"); provided, however, that if the Purchase Date falls after a Record Date and on or prior to the corresponding Interest Payment Date, the Company shall pay the full amount of any accrued and unpaid interest (including Liquated Damages, if any) payable on such Interest Payment Date to the Holder of record at the close of business on the corresponding Record Date; provided, further, that installments of interest on Securities whose Stated Maturity is prior to or on the Purchase Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Record Date according to their terms and the provisions of Section 2.01 of the Indenture.

        A Company Notice shall be given by the Company to the Holders as provided in the Indenture. To exercise a Purchase Right, a Holder must deliver to the Trustee a written notice as provided in the Indenture.

        (b)    Purchase by the Company at the Option of the Holder.    Subject to the terms and conditions of the Indenture, each Holder shall have the right to require the Company to purchase all or a portion of their Securities on July 15, 2009, July 15, 2014 and July 15, 2019 (or, if any such date is not a Business Day, on the immediately succeeding Business Day) (each, a "Put Purchase Date"), at 100% of the principal amount of the Securities to be so purchased, plus any accrued and unpaid interest (including Liquidated Damages, if any), if any, to, but excluding, such Put Purchase Date (the "Put Purchase Price"). On or before the twenty-first (21st) Business Day prior to each Put Purchase Date, the Company shall provide to the Trustee, the Paying Agent and to all Holders at their respective addresses as shown on the Register, and to beneficial owners of the Securities where required by applicable law, a notice as provided in the Indenture. The Company will be required to purchase only Securities with respect to which a Holder has delivered a Purchase Notice in accordance with the terms and conditions of the Indenture and subject to the satisfaction of the other conditions set forth in the Indenture.

        7.    Conversion Rights.     (a) Subject to and upon compliance with the provisions of the Indenture and the occurrence of one or more of the conditions set forth in clause (d) of this paragraph 7, the Holder of Securities shall be entitled, at such Holder's option, at any time before the close of business on the Business Day immediately preceding July 15, 2024, to convert the Holder's Securities (or any portion of the principal amount hereof that is $1,000 or a multiple thereof), at the principal amount thereof or of such portion thereof into duly authorized, fully paid and nonassessable shares of Common Stock of the Company at the Conversion Rate in effect at the time of conversion.

        (b)   In the case of a Security (or a portion thereof) called for redemption, such conversion right in respect of the Security (or such portion thereof) so called shall expire at the close of business on the Business Day immediately preceding the Redemption Date, unless the Company defaults in making the payment due upon redemption. If a Holder exercises its Purchase Right or Put Purchase Right with respect to a Security (or a portion thereof), such conversion right in respect of the Security (or portion thereof) shall expire at the close of business on the Business Day preceding the Purchase Date or Put Purchase Date, as applicable.

        (c)   Each $1,000 principal amount of the Securities shall initially be convertible into 86.7905 shares of Common Stock (referred to as the "Conversion Rate"). The Conversion Price shall be initially equal to approximately $11.52 per share of Common Stock. The Conversion Rate shall be adjusted under certain circumstances as provided in the Indenture. If a Holder of Securities elects to convert its Securities in connection with a specified corporate transaction pursuant to Section 7(d)(iv)(B) below that occurs on or prior to July 15, 2009, and the corporate transaction also constitutes a transaction described in clause (2) of the definition of Change of Control, such Holder shall be entitled to receive, in addition to a number of shares of Common Stock equal to

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the Conversion Rate per $1,000 principal amount of Securities, a number of Additional Shares as described in Section 12.01(a)(ii) of the Indenture.

        (d)   Regardless of anything else contained herein, Holders may surrender their Securities for conversion into shares of the Company's Common Stock prior to the close of business on the Business Day immediately preceding July 15, 2024 only in the following circumstances:

        (i)    Conversion Upon Satisfaction of Sale Price Condition.

        (A)  A Holder may surrender any of its Securities for conversion into shares of the Company's Common Stock in any fiscal quarter (and only during such fiscal quarter) after the fiscal quarter ending October 31, 2004 if the Sale Price of the Company's Common Stock, for at least 20 Trading Days during the period of 30 consecutive Trading Days ending on the last Trading Day of the previous fiscal quarter, is greater than or equal to 130% of the applicable Conversion Price per share of the Company's Common Stock on such last Trading Day.

        (B)  The "Sale Price" of the Company's Common Stock on any date means the closing sale price per share (or if no closing sale price is reported, the average of the bid and asked prices or, if more than one in either case, the average of the average bid and the average asked prices) on that date as reported in transactions for the principal U.S. securities exchange on which the Company's Common Stock is traded or, if the Company's Common Stock is not listed on a U.S. national or regional securities exchange, as reported by the Nasdaq National Market. The Sale Price shall be determined without reference to after-hours or extended market trading. If the Company's Common Stock is not listed for trading on a U.S. national or regional securities exchange and not reported by the Nasdaq National Market on the relevant date, the "Sale Price" shall be the last quoted bid price for the Company's Common Stock in the over-the-counter market on the relevant date as reported by the National Quotation Bureau or similar organization. If the Company's Common Stock is not so quoted, the "Sale Price" shall be the average of the mid-point of the last bid and asked prices for the Company's Common Stock on the relevant date from each of at least three nationally recognized independent investment banking firms selected by the Company for this purpose.

        (ii)    Conversion Upon Satisfaction of Trading Price Condition.

        (A)  A Holder may surrender its Securities for conversion into the Company's Common Stock during the five Business Days immediately following any five consecutive Trading-Day period (the "measurement period") in which the Trading Price per $1,000 principal amount of Securities (as determined following a request by a Holder of the Securities in accordance with the procedures described below) for each day of the measurement period was less than 98% of the product of the Sale Price of the Company's Common Stock and the then applicable Conversion Rate; provided, however, that a Holder may not convert Securities in reliance on this clause (d)(ii) of this paragraph 7 after July 15, 2019 if on any Trading Day during the measurement period, the Sale Price of the Company's Common Stock was between 100% and 130% of the Conversion Price in effect on such Trading Day.

        (B)  In connection with any conversion upon satisfaction of the condition set forth in clause (A) above, the Trustee shall have no obligation to determine the Trading Price of the Securities unless the Company has requested such determination, and the Company shall have no obligation to make such request unless the Holder provides the Company with reasonable evidence that the Trading Price per $1,000 principal amount of the Securities would be less than 98% of the product of the Sale Price of the Company's

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Common Stock and the then applicable Conversion Rate; at which time the Company shall instruct the Trustee to determine the Trading Price of the Securities beginning on the next Trading Day and on each successive Trading Day until the trading price is greater than or equal to 98% of the product of the Sale Price of the Company's Common Stock and the then applicable Conversion Rate.

        (iii)    Conversion Upon Notice of Redemption.    If the Company calls any or all of the Securities for redemption pursuant to the provisions of Article 10 of the Indenture, Holders may convert those Securities into the Company's Common Stock at any time prior to the close of business on the Business Day immediately preceding the Redemption Date, even if the Securities are not otherwise convertible at such time. If a Holder already has delivered a Put Purchase Notice with respect to a Security, however, the Holder may not surrender that Security for conversion until the Holder has withdrawn the Put Purchase Notice in accordance with the Indenture.

        (iv)    Conversion Upon Specified Corporate Transactions.

        (A)  If the Company elects to: (1) distribute to all holders of the Company's Common Stock rights entitling them to purchase shares of the Company's Common Stock at less than the Sale Price of a share of the Company's Common Stock on the Trading Day immediately preceding the declaration date of the distribution, or (2) distribute to all holders of the Company's Common Stock the Company's assets, debt securities or rights to purchase the Company's securities, which distribution has a per share value as determined by the Board of Directors exceeding 10% of the Sale Price of a share of the Company's Common Stock on the Trading Day immediately preceding the declaration date of the distribution, the Company must notify the Holders of the Securities at least 20 days prior to the ex-dividend date for such distribution. Upon such notice, Holders may surrender their Securities for conversion at any time until the earlier of the close of business on the Business Day immediately prior to the ex-dividend date or the Company's announcement that such distribution will not take place, even if the Securities are not otherwise convertible at such time. No Holder may exercise this right to convert if the Holder otherwise may participate in the distribution without conversion. The ex-dividend date is the first date upon which a sale of the Common Stock does not automatically transfer the right to receive the relevant distribution from the seller of the Common Stock to its buyer.

        (B)  If the Company is a party to a consolidation, merger or binding share exchange or any sale, lease or other transfer in one transaction or a series of related transactions of the consolidated assets of the Company and its Subsidiaries, substantially as an entirety, to any Person other than the Company or one or more of its Subsidiaries, pursuant to which the Company's Common Stock would be converted into cash, securities or property, a Holder may surrender Securities for conversion at any time from and after the date that is 15 days prior to the anticipated effective date of the transaction until 15 days after the actual effective date (the "Effective Date") of such transaction (or if such transaction also constitutes a Fundamental Change, the Purchase Date). The Company shall notify Holders and the Trustee as promptly as practicable following the date that it publicly announces any such transaction (but in no event less than 15 days prior to the Effective Date of such transaction).

        (e)   To exercise the conversion right, the Holder must surrender the Security (or portion thereof) duly endorsed or assigned to the Company or in blank, at the office of the Conversion Agent, accompanied by a duly signed conversion notice to the Company. Any Security surrendered for conversion during the period between the close of business on any Regular Record Date and

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the opening of business on the corresponding Interest Payment Date shall be accompanied by payment of an amount equal to the accrued and unpaid interest (excluding Liquidated Damages, if any) payable on such Interest Payment Date by the Company on the principal amount of the Security being surrendered for conversion (but excluding any overdue interest on the principal amount of such Security so converted that exists at the time such Holder surrenders such Security for conversion). Notwithstanding the foregoing, any such Holder that surrenders for conversion any Security (a) that has been called for redemption by the Company in a notice of redemption given by the Company pursuant to Section 10.04 of the Indenture on a Redemption Date after such Regular Record Date and on or prior to the next succeeding Interest Payment Date or (b) with respect to which the Company has specified a Purchase Date that is after such Regular Record Date and on or prior to the next succeeding Interest Payment Date, in either case, need not pay the Company an amount equal to the interest on the principal amount of such Security so converted at the time such Holder surrenders such Security for conversion.

        (f)    No fractional shares of Common Stock shall be issued upon conversion of any Securities. Instead of any fractional share of Common Stock that would otherwise be issued upon conversion of such Securities, the Company shall pay a cash adjustment as provided in the Indenture.

        8.[Reserved]     

        9.    Denominations; Transfer; Exchange.     The Securities are issuable in registered form, without coupons, in denominations of $1,000 principal amount and whole multiples of $1,000 in excess thereof. A Holder may register the transfer or exchange of Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture.

        In the event of a redemption in part, neither the Company nor the Registrar shall be required to issue, register the transfer of, or exchange any certificated Securities during the period of 15 days immediately preceding the mailing of the redemption notice.

        In the event of redemption, conversion or purchase of the Securities in part only, a new Security or Securities for the unredeemed, unconverted or unpurchased portion thereof shall be issued in the name of the Holder hereof.

        10.    Persons Deemed Owners.     The registered Holder of this Security shall be treated as its owner for all purposes.

        11.    Unclaimed Money.     The Trustee and the Paying Agent shall pay to the Company any money held by them for the payment of principal or interest that remains unclaimed for two years after the date upon which such payment shall have become due. After payment to the Company, Holders entitled to the money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another Person, and all liability of the Trustee and the Paying Agent with respect to such money shall cease.

        12.[Reserved]     

        13.    Amendment; Supplement; Waiver.     The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Outstanding Securities (or such lesser amount as shall have acted at a meeting pursuant to the provisions of the Indenture). The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities at the time Outstanding, on behalf of the Holders of all the Securities, to waive compliance by the Company with certain provisions of the Indenture and

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certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security or such other Security.

        No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest (including Liquidated Damages, if any) on this Security at the times, places and rate, and in the coin or currency, herein prescribed or to convert this Security as provided in the Indenture.

        14.    Defaults and Remedies.     The Indenture provides that an Event of Default with respect to the Securities occurs when any of the following occurs:

        (a)   the Company defaults in the payment of the principal on any of the Securities when it becomes due and payable, at Maturity, upon redemption or exercise of a Purchase Right or Put Purchase Right or otherwise; or

        (b)   the Company defaults in the payment of interest (including Liquidated Damages, if any) on any of the Securities when it becomes due and payable and such default continues for a period of 30 days; or

        (c)   the Company fails to deliver shares of Common Stock, together with cash instead of fractional shares, when those shares of Common Stock or cash instead of fractional shares is required to be delivered following conversion of a Security in accordance with the provisions of Article 12 of the Indenture and that failure continues for 10 days; or

        (d)   the Company fails to perform or observe any other term, covenant or agreement contained in the Securities or the Indenture and such default continues for a period of 60 days after written notice of such failure is given as specified in the Indenture; or

        (e)   (i) the Company fails to make any payment by the end of the applicable grace period, if any, after the maturity of any Indebtedness for borrowed money in an amount in excess of $25,000,000, or (ii) there is an acceleration of any Indebtedness for borrowed money in an amount in excess of $25,000,000 because of a default with respect to such Indebtedness without such Indebtedness having been discharged or such acceleration having been cured, waived, rescinded or annulled, in the case of either clause (i) or (ii) above, for a period of 30 days after written notice is given to the Company as specified in the Indenture; or

        (f)    the Company fails, within 15 days after the occurrence of a Fundamental Change, to give to each Holder of Securities notice pursuant to Section 11.01(b) of the Indenture; or

        (g)   there are certain events of bankruptcy, insolvency or reorganization of the Company or any Significant Subsidiary of the Company.

        If an Event of Default shall occur and be continuing, the principal of all the Securities maybe declared due and payable in the manner and with the effect provided in the Indenture.

        15.    Authentication.     This Security shall not be valid until the Trustee (or authenticating agent) executes the certificate of authentication on the other side of this Security.

        16.    Abbreviations.     Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act).

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        17.    Additional Rights of Holders of Registrable Securities.     In addition to the rights provided to Holders under the Indenture, Holders of Registrable Securities shall have all the rights set forth in the Registration Rights Agreement.

        18.    CUSIP Numbers.     Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on this Security and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on this Security or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon.

        19.    Governing Law.     The Indenture and this Security shall be governed by, and construed in accordance with, the laws of the State of New York.

        20.    Successor Corporation.     In the event a successor corporation assumes all the obligations of the Company under this Security, pursuant to the terms hereof and of the Indenture, the Company shall be released from all such obligations.

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ASSIGNMENT FORM

        To assign this Security, fill in the form below and have your signature guaranteed: (I) or (we) assign and transfer this Security to:

(Insert assignee's soc. sec. or tax ID. no.)

(Print or type assignee's name, address and zip code)

and irrevocably appoint                        to transfer this Security on the books of the Company. The agent may substitute another to act for him.

Dated:

Your Name:	(Print your name exactly as it appears on the face of this Security)
Your Signature:	(Sign exactly as your name appears on the face of this Security)

Signature Guarantee*:

* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).

In connection with any transfer of this Security occurring prior to the end of the period referred to in Rule 144(k) under the Securities Act, the undersigned confirms that without utilizing any general solicitation or general advertising:

[Check One]

o (a) this Security is being transferred in compliance with the exemption from registration under the Securities Act of 1933, as amended, provided by Rule 144A thereunder.

or

o (b) this Security is being transferred other than in accordance with (a) above and documents are being furnished that comply with the conditions of transfer set forth in this Security and the Indenture.

If none of the foregoing boxes is checked, the Trustee or other Registrar shall not be obligated to register this Security in the name of any Person other than the Holder hereof unless the conditions to any such transfer of registration set forth herein and in Sections 2.07, 2.08 and 2.09 of the Indenture shall have been satisfied.

Dated:

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NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatsoever.

Signature Guarantee: Signature must be guaranteed by a participant in a recognized signature guaranty medallion program or other signature guarantor acceptable to the Trustee.

TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.

The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion, in each case for investment and not with a view to distribution, and that it and any such account is a "Qualified Institutional Buyer" within the meaning of Rule 144A under the Securities Act of 1933 and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A.

Dated:

NOTICE: To be executed by an executive officer

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CONVERSION NOTICE

TO:

NOVELL, INC.
404 Wyman Street
Waltham, MA 02451
Attention: General Counsel

        The undersigned registered owner of this Security hereby irrevocably exercises the option to convert this Security, or the portion hereof (which is $1,000 principal amount or a whole multiple thereof) below designated, into shares of Common Stock in accordance with the terms of the Indenture referred to in this Security, and directs that the shares issuable and deliverable upon such conversion, together with any check in payment for fractional shares and any Securities representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any portion of this Security not converted are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Any amount required to be paid to the undersigned on account of interest accompanies this Security.

Dated:

Your Name:	(Print your name exactly as it appears on the face of this Security)
Your Signature:	(Sign exactly as your name appears on the face of this Security)
Signature Guarantee*:
Social Security or other Taxpayer Identification Number:

Principal amount to be converted (if less than all): $                  

* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).

Fill in for registration of shares (if to be issued) and Securities (if to be delivered) other than to and in the name of the registered holder:

(Name)

(Street Address)

(City, State and Zip Code)

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In connection with any conversion of this Security occurring prior to the end of the period referred to in Rule 144(k) under the Securities Act, if any shares of the Common Stock to be issued upon conversion of this Security are to be registered in a name other than that of the undersigned registered owner, the undersigned confirms that without utilizing any general solicitation or general advertising:

[Check One]

o (a) this Security and the shares of Common Stock to be issued upon conversion of this Security are being transferred in compliance with the exemption from registration under the Securities Act of 1933, as amended, provided by Rule 144A thereunder.

or

o (b) this Security and the shares of Common Stock to be issued upon conversion of this Security are being transferred other than in accordance with (a) above and documents are being furnished that comply with the conditions of transfer set forth in this Security and the Indenture.

If none of the foregoing boxes is checked, the Trustee or other Registrar shall not be obligated to register this Security or the shares of Common Stock to be issued upon conversion of this Security in the name of any Person other than the Holder hereof unless the conditions to any such transfer of registration set forth herein and in Sections 2.07, 2.08 and 2.09 of the Indenture shall have been satisfied.

TO BE COMPLETED BY TRANSFEREE IF (a) ABOVE IS CHECKED.

The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion, in each case for investment and not with a view to distribution, and that it and any such account is a "Qualified Institutional Buyer" within the meaning of Rule 144A under the Securities Act of 1933 and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A.

Dated:

NOTICE: To be executed by an executive officer

A-16

NOTICE OF EXERCISE OF PURCHASE RIGHT

TO:

NOVELL, INC.
404 Wyman Street
Waltham, MA 02451
Attention: General Counsel

        The undersigned registered owner of this Security hereby acknowledges receipt of a notice from Novell, Inc. (the "Company") as to the occurrence of a Fundamental Change with respect to the Company and requests and instructs the Company to repay the entire principal amount of this Security, or the portion thereof (which is $1,000 principal amount or a multiple thereof) below designated, in accordance with the terms of the Indenture referred to in this Security, together with any interest (including Liquidated Damages, if any) accrued and unpaid to, but excluding, such date, to the registered holder hereof, in cash.

Dated:

Your Name:	(Print your name exactly as it appears on the face of this Security)
Your Signature:	(Sign exactly as your name appears on the face of this Security)
Signature Guarantee*:
Social Security or other Taxpayer Identification Number:

Principal amount to be repurchased (if less than all): $                  

* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).

Serial Number:            

Certificate Number (if Physical Security):            

A-17

SCHEDULE OF EXCHANGES FOR PHYSICAL SECURITIES(2)

The following exchanges of a part of this Global Security for Physical Securities have been made:

Date of Exchange
Amount of decrease
in Principal Amount
of this Global
Security Amount of increase
in Principal Amount
of this Global
Security Principal Amount of
this Global
Security following
such decrease (or
increase) Signature of
authorized officer
of Trustee

(2)

This schedule should be included only if the Security is issued in global form.

A-18

EX-10.1

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Exhibit 10.1

EXECUTION COPY

NOVELL, INC.

0.50% Convertible Senior Debentures Due 2024

REGISTRATION RIGHTS AGREEMENT

July 2, 2004

Citigroup Global Markets Inc.
As Representative of the Initial Purchasers
c/o Citigroup Global Markets Inc.
388 Greenwich Street
New York, New York 10013

Ladies and Gentlemen:

        Novell, Inc., a corporation organized under the laws of Delaware (the "Company"), proposes to issue and sell to certain purchasers (the "Initial Purchasers"), for whom you (the "Representative") are acting as representative, its 0.50% Convertible Senior Debentures Due 2024 (the "Securities"), upon the terms set forth in the Purchase Agreement between the Company and the Representative dated June 28, 2004 (the "Purchase Agreement") relating to the initial placement (the "Initial Placement") of the Securities. The Securities will be convertible into fully paid, nonassessable shares of common stock, par value $0.10 per share, of the Company (the "Common Stock") on the terms, and subject to the conditions, set forth in the Indenture (as defined herein). To induce the Initial Purchasers to enter into the Purchase Agreement and to satisfy a condition to your obligations thereunder, the Company agrees with you for your benefit and the benefit of the holders from time to time of the Securities and the Common Stock issued upon conversion of the Securities (including the Initial Purchasers) (each a "Holder" and, collectively, the "Holders"), as follows:

        1.    Definitions.     Capitalized terms used herein without definition shall have their respective meanings set forth in the Purchase Agreement. As used in this Agreement, the following capitalized defined terms shall have the following meanings:

        "Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder.

        "Affiliate" shall have the meaning specified in Rule 405 under the Act and the terms "controlling" and "controlled" shall have meanings correlative thereto.

        "Broker-Dealer" shall mean any broker or dealer registered as such under the Exchange Act.

        "Business Day" shall mean any day other than a Saturday, a Sunday or a legal holiday or a day on which banking institutions or trust companies are authorized or obligated by law to close in New York City.

        "Closing Date" shall mean the date of the first issuance of the Securities.

        "Commission" shall mean the Securities and Exchange Commission.

        "Damages Payment Date" shall mean each Interest Payment Date. For purposes of this Agreement, if no Securities are outstanding, "Damages Payment Date" shall mean each January 15 and July 15.

        "Deferral Period" shall have the meaning indicated in Section 3(h) hereof.

        "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder.

        "Final Memorandum" shall mean the offering memorandum, dated June 28, 2004, relating to the Securities, including any and all exhibits thereto and any information incorporated by reference therein as of such date.

        "Holder" shall have the meaning set forth in the preamble hereto.

        "Indenture" shall mean the Indenture relating to the Securities, dated as of July 2, 2004, between the Company and Wells Fargo Bank, National Association, as trustee, as the same may be amended from time to time in accordance with the terms thereof.

        "Initial Placement" shall have the meaning set forth in the preamble hereto.

        "Initial Purchasers" shall have the meaning set forth in the preamble hereto.

        "Interest Payment Date" shall have the meaning set forth in the Indenture.

        "Losses" shall have the meaning set forth in Section 5(d) hereof.

        "Majority Holders" shall mean, on any date, Holders of a majority of the then outstanding shares of Common Stock constituting Registrable Securities (with Holders of Securities deemed to be Holders, for purposes of this definition, of the number of outstanding shares of Common Stock into which such Securities are would be convertible as of such date) registered under a Registration Statement.

        "Managing Underwriters" shall mean the investment banker or investment bankers and manager or managers that administer an underwritten offering, if any, conducted pursuant to Section 6 hereof.

        "NASD Rules" shall mean the Conduct Rules and the By-Laws of the National Association of Securities Dealers, Inc.

        "Notice and Questionnaire" shall mean a written notice delivered to the Company substantially in the form attached as Annex A to the Final Memorandum.

        "Notice Holder" shall mean, on any date, any Holder of Registrable Securities that has delivered a completed and executed Notice and Questionnaire and any other information reasonably requested by the Company pursuant to Section 3(l) hereof to the Company on or prior to such date.

        "Prospectus" shall mean a prospectus included in the Shelf Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A under the Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Shelf Registration Statement, and all amendments and supplements thereto, including any and all exhibits thereto and any information incorporated by reference therein.

        "Purchase Agreement" shall have the meaning set forth in the preamble hereto.

        "Record Holder" shall mean with respect to any Damages Payment Date, each person who is a Holder on the record date with respect to the Interest Payment Date on which such Damages Payment Date shall occur. In the case of a Holder of shares of Common Stock issued upon conversion of the Securities, "Record Holder" shall mean each person who is a Holder of shares of Common Stock which constitute Registrable Securities on the January 1 or July 1 immediately preceding the Damages Payment Date.

        "Registrable Securities" shall mean Securities and each share of Common Stock issued upon conversion of Securities other than those that have been (i) registered under the Shelf Registration Statement and disposed of in accordance therewith or (ii) distributed to the public pursuant to

2

Rule 144 under the Act or any successor rule or regulation thereto that may be adopted by the Commission.

        "Registration Default Damages" shall have the meaning set forth in Section 7 hereof.

        "Securities" shall have the meaning set forth in the preamble hereto.

        "Shelf Registration Period" shall have the meaning set forth in Section 2(c) hereof.

        "Shelf Registration Statement" shall mean a "shelf" registration statement of the Company pursuant to the provisions of Section 2 hereof which covers some or all of the Registrable Securities on an appropriate form under Rule 415 under the Act, or any similar rule that may be adopted by the Commission, amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein.

        "Special Counsel" means Davis Polk & Wardwell or one such other successor counsel as shall be specified by the Majority Holders.

        "Trustee" shall mean the trustee with respect to the Securities under the Indenture.

        "Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as amended, and the rules and regulations of the Commission promulgated thereunder.

        "underwriter" shall mean any underwriter of Registrable Securities in connection with an offering thereof under the Shelf Registration Statement.

        2.    Shelf Registration.     (a) The Company shall as promptly as practicable (but in no event more than 90 days after the Closing Date) file with the Commission a Shelf Registration Statement providing for the registration of, and the sale on a continuous or delayed basis by the Holders of, all of the Registrable Securities, from time to time in accordance with the methods of distribution elected by such Holders, pursuant to Rule 415 under the Act or any similar rule that may be adopted by the Commission.

        (b)   The Company shall use its reasonable best efforts to cause the Shelf Registration Statement to become or be declared effective under the Act as promptly as practicable (but in no event more than 180 days after the Closing Date).

        (c)   The Company shall use its reasonable best efforts to keep the Shelf Registration Statement continuously effective, supplemented and amended as required by the Act, in order to permit the Prospectus forming part thereof to be usable by Holders for a period (the "Shelf Registration Period") from the date the Shelf Registration Statement is declared effective by the Commission until the earlier of (i) the date upon which there are no Registrable Securities outstanding, (ii) the date as of which all the Registrable Securities have been sold either under Rule 144 under the Act (or any similar provision then in force) or pursuant to the Shelf Registration Statement, or (iii) the date on which all Registrable Securities held by non-Affiliates are eligible to be sold to the public pursuant to Rule 144(k) under the Act.

        (d)   The Company shall cause the Shelf Registration Statement and the related Prospectus and any amendment or supplement thereto, as of the effective date of the Shelf Registration Statement or such amendment or supplement, (i) to comply in all material respects with the applicable requirements of the Act; and (ii) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein (in the case of the Prospectus, in the light of the circumstances under which they were made) not misleading.

        (e)   At the time the Shelf Registration Statement is declared to be effective, each Holder that became a Notice Holder on or prior to the date 15 Business Days prior to such time of effectiveness

3

shall be named as a selling securityholder in the Shelf Registration Statement and the related Prospectus in such a manner as to permit such Holder to deliver such Prospectus to purchasers of Registrable Securities in accordance with applicable law, subject to the terms and conditions hereof. Following the date that the Shelf Registration Statement is declared effective, each Holder that is not a Notice Holder wishing to sell Registrable Securities pursuant to a Shelf Registration Statement and related Prospectus agrees to deliver a Notice and Questionnaire (and such other information as is required by Section 3(l)) to the Company prior to any intended distribution by it of Registrable Securities under the Shelf Registration Statement. From and after the date the Shelf Registration Statement is declared effective and during the Shelf Registration Period (but excluding any Deferral Period), the Company shall as promptly as is practicable after the date a Notice and Questionnaire (and such other information as is required by Section 3(l)) is delivered, and in any event within the later of (x) 15 Business Days after such date or (y) 15 Business Days after the expiration of any Deferred Period in effect when the Notice and Questionnaire (and such other information as is required by Section 3(l)) is delivered, file a supplement to the Shelf Registration Statement and related Prospectus as is necessary and permitted to name such Holder as a selling securityholder or if not permitted to name such Holder as a selling securityholder by supplement, file any necessary post-effective amendments to the Shelf Registration Statement or prepare and, if required by applicable law, file an amendment or supplement to any document incorporated by reference or file any other required document so that such Holder is named as selling securityholder, and use its best efforts to cause such post-effective amendment to be declared effective under the Act as promptly as practicable, but in no event later than the date (the "Amendment Effectiveness Deadline Date") that is 45 days after the date such post-effective amendment is required to be filed; provided that the Company shall not be obligated to file more than one post-effective amendment in any 60-day period. In connection with such filing, the Company agrees to:

        (i)    provide such Holder copies of any documents filed pursuant to Section 2(e) hereof; and

        (ii)   notify such Holder as promptly as practicable after the effectiveness under the Act of any post-effective amendment filed pursuant to Section 2(e) hereof;

Notwithstanding anything contained herein to the contrary, the Company shall be under no obligation to name any Holder that is not a Notice Holder as a selling holder in the Shelf Registration Statement or related Prospectus; provided, however, that any Holder that becomes a Notice Holder pursuant to the provisions of this Section 2(e) (whether or not such Holder was a Notice Holder at the time the Shelf Registration Statement was declared effective) shall be named as a selling holder in the Shelf Registration Statement or related Prospectus in accordance with the requirements of this Section 2(e).

        3.    Registration Procedures.     The following provisions shall apply in connection with the Shelf Registration Statement.

        (a)   The Company shall:

          (i)  furnish to the Representative and to Special Counsel for the Notice Holders, not less than five Business Days prior to the filing with the Commission a copy of the Shelf Registration Statement and each amendment thereof and each amendment or supplement, if any, to the Prospectus included therein (including all documents incorporated by reference therein after the initial filing) and shall use its best efforts to reflect in each such document, when so filed with the Commission, such comments as the Representative reasonably proposes; and

         (ii)  include information regarding the Notice Holders and the methods of distribution they have elected for their Registrable Securities provided to the Company in Notices and Questionnaires as necessary to permit such distribution by the methods specified therein.

4

        (b)   The Company shall give notice to the Representatives, the Notice Holders and, subject to Section 6 hereof, any underwriter that has provided in writing to the Company a telephone or facsimile number and address for notices, and confirm such advice by notice in writing (which notice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the Prospectus until the Company shall have remedied the basis for such suspension):

          (i)  when the Shelf Registration Statement and any amendment thereto has been filed with the Commission and when the Shelf Registration Statement or any post-effective amendment thereto has become effective;

         (ii)  of any request by the Commission for any amendment or supplement to the Shelf Registration Statement or the Prospectus or for additional information;

        (iii)  of the issuance by the Commission of any stop order suspending the effectiveness of the Shelf Registration Statement or the institution of any proceeding for that purpose;

        (iv)  of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities included therein for sale in any jurisdiction or the institution of any proceeding for such purpose; and

         (v)  of the happening of any event that requires any change in the Shelf Registration Statement or the Prospectus so that, as of such date, they (A) do not contain any untrue statement of a material fact and (B) do not omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in the light of the circumstances under which they were made) not misleading.

        (c)   The Company shall use its best efforts to prevent the issuance of any order suspending the effectiveness of the Shelf Registration Statement or the qualification of the securities therein for sale in any jurisdiction, and if issued, to obtain as soon as possible the withdrawal thereof.

        (d)   The Company shall furnish to each Notice Holder who so requests in writing, without charge, at least one copy of the Shelf Registration Statement and any post-effective amendment thereto, and, if a Notice Holder so requests in writing, all material incorporated therein by reference and all exhibits thereto (including exhibits incorporated by reference therein).

        (e)   During the Shelf Registration Period, the Company shall promptly deliver to each Initial Purchaser, each Notice Holder, and any sales or placement agents or underwriters acting on their behalf, without charge, as many copies of the Prospectus (including the preliminary Prospectus) included in the Shelf Registration Statement and any amendment or supplement thereto as any such person may reasonably request. The Company consents to the use of the Prospectus or any amendment or supplement thereto by each of the foregoing in connection with the offering and sale of the Registrable Securities (except during any Deferral Period, as defined below).

        (f)    Prior to any offering of Registrable Securities pursuant to the Shelf Registration Statement, the Company shall arrange for the qualification of the Registrable Securities for sale under the laws of such jurisdictions as any Notice Holder shall reasonably request and shall maintain such qualification in effect so long as required; provided that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not then so qualified or to take any action in connection therewith that would subject it to taxation or service of process in suits, other than those arising out of the Initial Placement or any offering pursuant to the Shelf Registration Statement, in any jurisdiction where it is not then so subject.

        (g)   Upon the occurrence of any event contemplated by subsections (b)(ii) through (v) above, the Company shall promptly (or within the time period provided for by Section 3(h) hereof, if applicable) prepare a post-effective amendment to the Shelf Registration Statement or an amendment or supplement to the related Prospectus or file any other required document so that, as thereafter

5

delivered to purchasers of the securities included therein, the Prospectus will not include an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

        (h)   The Company may suspend each Holder's use of the Shelf Registration and any Prospectus for a maximum of 45 days in any 90-day period, and not to exceed an aggregate of 90 days in any 12 month period, if (i) the Company, in its reasonable judgment, believes it may possess material non-public information the disclosure of which would be seriously detrimental to the Company and its subsidiaries taken as a whole or (ii) the Shelf Registration Statement and any Prospectus would, in the Company's judgment, contain a material misstatement or omission as a result of an event that has occurred or is continuing. However, if the disclosure relates to a proposed or pending material business transaction, the disclosure of which the Company determines in good faith would be reasonably likely to impede its ability to consummate such transaction, or would otherwise be seriously detrimental to the Company and its subsidiaries taken as a whole, the Company may extend the suspension period from 45 days to 60 days. Any suspension period described in this Section 3(h) shall be referred to herein as the "Deferral Period." The Company shall give notice to the Notice Holders that the availability of the Shelf Registration is suspended and upon notice duly given pursuant to Section 10 hereof, each Notice Holder agrees not to sell any Registrable Securities pursuant to the Shelf Registration until such Notice Holder's receipt of copies of the supplemented or amended Prospectus provided for in Section 3(h) hereof, or until it is advised in writing by the Company that the Prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such Prospectus. The Company need not specify the nature of the event giving rise to a suspension in any notice to holders of the Securities of the existence of such a suspension.

        (i)    Not later than the effective date of the Shelf Registration Statement, the Company shall provide a CUSIP number for the Registrable Securities registered under the Shelf Registration Statement and, if required, provide the Trustee with printed certificates for such Securities, free of any restrictive legends, in a form eligible for deposit with The Depository Trust Company.

        (j)    The Company shall comply with all applicable rules and regulations of the Commission and shall make generally available to its security holders an earnings statement satisfying the provisions of Section 11(a) of the Act as soon as practicable after the effective date of the Shelf Registration Statement and in any event no later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Shelf Registration Statement.

        (k)   The Company shall cause the Indenture to be qualified under the Trust Indenture Act in a timely manner.

        (l)    The Company may require each Holder of Registrable Securities to be sold pursuant to the Shelf Registration Statement to deliver to the Company a completed and executed Notice and Questionnaire and to furnish to the Company such other information regarding the Holder and the distribution of such Registrable Securities as the Company may from time to time reasonably require for inclusion in the Shelf Registration Statement. The Company may exclude (i) from the initial Shelf Registration Statement the Registrable Securities of any Holder that fails to return a completed and executed Notice and Questionnaire and fails to furnish such other information no later than 15 Business Days before the initial effectiveness of the Shelf Registration Statement and (ii) from any post-effective amendment or supplement the Registrable Securities of any Holder that fails to return a completed and executed Notice and Questionnaire and fails to furnish such other information no later than 15 Business Days before the date of filing any post-effective amendment or supplement to the Shelf Registration Statement contemplated by Section 2(e)(i), as applicable.

6

        (m)  The Company shall enter into customary agreements (including, if requested, an underwriting agreement in customary form) and take all other appropriate actions as reasonably requested by the Notice Holders in order to expedite or facilitate the registration or the disposition of the Registrable Securities, and in connection therewith, if an underwriting agreement is entered into, cause the same to contain indemnification provisions and procedures no less favorable than those set forth in Section 5 hereof.

        (n)   The Company shall:

          (i)  make reasonably available for inspection during normal business hours by the Notice Holders of Registrable Securities to be registered thereunder, any underwriter participating in any disposition pursuant to the Shelf Registration Statement, and any attorney, accountant or other agent retained by the Holders or any such underwriter all relevant financial and other records and pertinent corporate documents of the Company and its subsidiaries;

         (ii)  cause the Company's officers, directors, employees, accountants and auditors to supply all relevant information reasonably requested by the Notice Holders or any such underwriter, attorney, accountant or agent in connection with any the Shelf Registration Statement as is customary for similar due diligence examinations; provided that the inspection and information gathering pursuant to clause (i) and (ii) shall be coordinated by a single party (or a single counsel (which shall be the Special Counsel) on behalf of the parties so inspecting and gathering);

        (iii)  make such representations and warranties to the Holders of Registrable Securities registered thereunder and the underwriters in form, substance and scope as are customarily made by issuers to underwriters in primary underwritten offerings and covering matters, including, but not limited to, those set forth in the Purchase Agreement;

        (iv)  obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the Managing Underwriters, if any) addressed to each selling Holder and the underwriters, if any, covering such matters as are customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such Holders and underwriters;

         (v)  obtain "comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Shelf Registration Statement), addressed to each selling Holder of Registrable Securities registered thereunder and the underwriters, if any, in customary form and covering matters of the type customarily covered in "comfort" letters in connection with primary underwritten offerings; and

        (vi)  deliver such documents and certificates as may be reasonably requested by the Majority Holders or the Managing Underwriters, if any, including those to evidence compliance with Section 3(i) hereof and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company.

Notwithstanding the foregoing, the actions set forth in clauses (iii), (iv), (v) and (vi) of this paragraph (n) shall only be performed in connection with an underwritten offering pursuant to Section 6 hereof and only if requested by the underwriters thereof.

        (o)   In the event that any Broker-Dealer shall underwrite any Registrable Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the NASD Rules) thereof, whether as a Holder of such Registrable Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, the Company shall assist such Broker-Dealer in complying with the NASD Rules.

7

        (p)   The Company shall upon (i) the filing of the initial Shelf Registration Statement and (ii) the effectiveness of the initial Shelf Registration Statement, announce the same, in each case by release to Reuters Economic Services and Bloomberg Business News.

        (q)   The Company shall use its best efforts to take all other steps necessary to effect the registration of the Registrable Securities covered by the Shelf Registration Statement.

        4.    Registration Expenses.     The Company shall bear all expenses incurred in connection with the performance of its obligations under Sections 2 and 3 hereof and shall reimburse the Holders for the reasonable fees and disbursements of one firm or counsel (which shall be the Special Counsel) to act as counsel for the Holders in connection therewith. The Holders will bear their individual selling expenses, including commissions and discounts and transfer taxes.

        5.    Indemnification and Contribution.     (a)    The Company agrees to indemnify and hold harmless each Holder of Registrable Securities covered by the Shelf Registration Statement, each Initial Purchaser, the directors, officers, employees, Affiliates and agents of each such Holder or Initial Purchaser and each person who controls any such Holder or Initial Purchaser within the meaning of either the Act or the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Shelf Registration Statement or in any amendment thereof, in each case at the time such became effective under the Act, or in any preliminary Prospectus or the Prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of any preliminary Prospectus or the Prospectus, in the light of the circumstances under which they were made) not misleading, and agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by it in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of the party claiming indemnification specifically for inclusion therein. This indemnity agreement shall be in addition to any liability that the Company may otherwise have.

        The Company also agrees to indemnify as provided in this Section 5(a) or contribute as provided in Section 5(d) hereof to Losses of each underwriter, if any, of Registrable Securities registered under the Shelf Registration Statement, its directors, officers, employees, Affiliates or agents and each person who controls such underwriter on substantially the same basis as that of the indemnification of the Initial Purchasers and the selling Holders provided in this paragraph (a) and shall, if requested by any Holder, enter into an underwriting agreement reflecting such agreement, as provided in Section 3(n) hereof.

        (b)   Each Holder of securities covered by the Shelf Registration Statement (including each Initial Purchaser that is a Holder, in such capacity) severally and not jointly agrees to indemnify and hold harmless the Company, each of its directors, each of its officers who signs the Shelf Registration Statement and each person who controls the Company within the meaning of either the Act or the Exchange Act, to the same extent as the foregoing indemnity from the Company to each such Holder, but only with reference to written information relating to such Holder furnished to the Company by or on behalf of such Holder specifically for inclusion in the documents referred to in the foregoing indemnity. This indemnity agreement shall be acknowledged by each Notice Holder that is not an

8

Initial Purchaser in such Notice Holder's Notice and Questionnaire and shall be in addition to any liability that any such Notice Holder may otherwise have.

        (c)   Promptly after receipt by an indemnified party under this Section 5 or notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 5, notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party (i) will not relieve it from liability under paragraph (a) or (b) above unless such failure results in the forfeiture by the indemnifying party of substantial rights and defenses or otherwise materially prejudices the indemnifying party; and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint counsel (including local counsel) of the indemnifying party's choice at the indemnifying party's expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel, other than local counsel if not appointed by the indemnifying party, retained by the indemnified party or parties except as set forth below); provided, however, that such counsel shall be reasonably satisfactory to the indemnified party. Notwithstanding the indemnifying party's election to appoint counsel (including local counsel) to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest; (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties that are different from or additional to those available to the indemnifying party; (iii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action; or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. An indemnifying party will not, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding.

        (d)   In the event that the indemnity provided in paragraph (a) or (b) of this Section 5 is unavailable to or insufficient to hold harmless an indemnified party for any reason, then each applicable indemnifying party shall have a joint and several obligation to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending loss, claim, liability, damage or action) (collectively "Losses") to which such indemnified party may be subject in such proportion as is appropriate to reflect the relative benefits received by such indemnifying party, on the one hand, and such indemnified party, on the other hand, from the Initial Placement and the Shelf Registration Statement which resulted in such Losses; provided, however, that in no case shall any Initial Purchaser be responsible, in the aggregate, for any amount in excess of the purchase discount or commission applicable to such Security received by such Initial Purchaser in connection with the Initial Placement, nor shall any underwriter be responsible for any amount in excess of the underwriting discount or commission applicable to the securities purchased by such underwriter under the Shelf Registration Statement which resulted in such Losses. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the indemnifying party and the indemnified party shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of such

9

indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. Benefits received by the Company shall be deemed to be equal to the total net proceeds from the Initial Placement (before deducting expenses) as set forth in the Final Memorandum. Benefits received by the Initial Purchasers shall be deemed to be equal to the total purchase discounts and commissions received in connection with the Initial Placement, and benefits received by any other Holders shall be deemed to be equal to the value of receiving Securities registered under the Act. Benefits received by any underwriter shall be deemed to be equal to the total underwriting discounts and commissions, as set forth on the cover page of the Prospectus forming a part of the Shelf Registration Statement which resulted in such Losses. Relative fault shall be determined by reference to, among other things, whether any untrue or any alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information provided by the indemnifying party, on the one hand, or by the indemnified party, on the other hand, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties agree that it would not be just and equitable if contribution were determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 5, each person who controls a Holder within the meaning of either the Act or the Exchange Act and each director, officer, employee and agent of such Holder shall have the same rights to contribution as such Holder, and each person who controls the Company within the meaning of either the Act or the Exchange Act, each officer of the Company who shall have signed the Shelf Registration Statement and each director of the Company shall have the same rights to contribution as the Company, subject in each case to the applicable terms and conditions of this paragraph (d).

        (e)   The provisions of this Section 5 shall remain in full force and effect, regardless of any investigation made by or on behalf of any Holder or the Company or any of the indemnified persons referred to in this Section 5, and shall survive the sale by a Holder of Registrable Securities covered by the Shelf Registration Statement.

        6.    Underwritten Registrations.     (a)    The Registrable Securities may be sold in an underwritten offering only with the consent of the Company, and, in such event, the Managing Underwriters shall be selected by the Majority Holders and shall be reasonably acceptable to the Company.

        (b)   No person may participate in any underwritten offering pursuant to the Shelf Registration Statement unless such person (i) agrees to sell such person's Registrable Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements; and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements.

        7.    Registration Defaults.     (a)    If:

          (i)  the Shelf Registration Statement is not filed with the Commission on or prior to the 90th day following the Closing Date; or

         (ii)  the Shelf Registration Statement is not declared effective by the Commission on or prior to the 180th day following the Closing Date; or

        (iii)  the Company has failed to perform its obligations set forth in Section 2(e)within the time required therein; or

10

        (iv)  any post-effective amendment to a Shelf Registration Statement filed pursuant to Section 2(e) has not become effective under the Securities Act on or prior to the Amendment Effectiveness Deadline Date; or

         (v)  the aggregate duration of Deferral Periods in any period exceeds the number of days permitted in respect of such period pursuant to Section 3(i) hereof (in each case except as the result of filing a post-effective amendment solely to add additional selling securityholders);

(each such event referred to in the foregoing clauses (i) through (v), a "Registration Default"), the Company hereby agrees to pay liquidated damages ("Liquidated Damages") with respect to the Registrable Securities from and including the day following the Registration Default to but excluding the earlier of (1) the day after the end of the Shelf Registration Period and (2) the day on which the Registration Default has been cured:

        (A)  in respect of the Registrable Securities that are Securities, to each holder thereof, (x) with respect to the first 90-day period during which a Registration Default shall have occurred and be continuing, in an amount per year equal to an additional 0.25% of the principal amount of the Securities and (y) with respect to the period commencing on the 91st day following the day the Registration Default shall have occurred and be continuing, in an amount per year equal to an additional 0.50% of the principal amount of the Securities; provided that in no event shall Liquidated Damages accrue at a rate per year exceeding 0.50% of the principal amount of the Securities; and

        (B)  in respect of Registrable Securities that are shares of Common Stock issued upon conversion of the Securities, to each holder thereof, (x) with respect to the first 90-day period in which a Registration Default shall have occurred and be continuing, in an amount per year equal to 0.25% of the principal amount of the converted Securities and (y) with respect to the period commencing the 91st day following the day the Registration Default shall have occurred and be continuing, in an amount per year equal to 0.50% of the principal amount of the converted Securities; provided, however, that in no event shall Liquidated Damages accrue at a rate per year exceeding 0.50% of the principal amount of the converted Securities.

        (b)   All accrued Liquidated Damages shall be paid in arrears to Record Holders by the Company on each Damages Payment Date by wire transfer of immediately available funds or by federal funds check. Following the cure of all Registration Defaults relating to any particular Securities or share of Common Stock, the accrual of Liquidated Damages with respect to such Securities or share of Common Stock will cease.

        All obligations of the Company set forth in this Section 7 that are outstanding with respect to any Registrable Securities at the time such security ceases to be a Registrable Security shall survive until such time as all such obligations with respect to such Registrable Security shall have been satisfied in full.

        The parties hereto agree that the Liquidated Damages provided for in this Section 7 constitute a reasonable estimate of the damages that may be incurred by Holders by reason of a Registration Default and that such Liquidated Damages are the only monetary damages available to Holders with respect to a Registration Default.

        8.    No Inconsistent Agreements.     The Company has not entered into, and agrees not to enter into, any agreement with respect to its securities that is inconsistent with the rights granted to the Holders herein or that otherwise conflicts with the provisions hereof.

        9.    Amendments and Waivers.     The provisions of this Agreement may not be amended, qualified, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of the Holders of a majority of the then

11

outstanding shares of Common Stock constituting Registrable Securities (with Holders of Securities deemed to be Holders, for purposes of this Section, of the number of outstanding shares of Common Stock into which such Securities would be convertible as of the date on which such consent is requested); provided that, with respect to any matter that adversely affects the rights of any Initial Purchaser hereunder, the Company shall obtain the written consent of each such Initial Purchaser against which such amendment, qualification, supplement, waiver or consent is to be effective; provided, further, that no amendment, qualification, supplement, waiver or consent with respect to Section 7 hereof (other than the reduction or elimination of the amount of Liquidated Damages payable to Holders of Common Stock constituting Registrable Securities, which may be effected with the written consent of the Holders of a majority of the then outstanding shares of Common Stock constituting Registrable Securities (with Holders of Securities deemed to be Holders, for purposes of this Section, of the number of outstanding shares of Common Stock into which such Securities would be convertible as of the date on which such consent is requested)) shall be effective as against any Holder of Registered Securities unless consented to in writing by such Holder; and provided, further, that the provisions of this Article 9 may not be amended, qualified, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of the Initial Purchasers and each Holder.

        10.    Notices.     All notices, requests and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail, telex, facsimile or air courier guaranteeing overnight delivery:

        (a)   if to a Holder, at the most current address given by such holder to the Company in accordance with the provisions of the Notice and Questionnaire, which address initially is, with respect to each Holder, the address of such Holder maintained by the Registrar under the Indenture;

        (b)   if to the Initial Purchasers or the Representatives, initially at the address or addresses set forth in the Purchase Agreement; and

        (c)   if to the Company, initially at its address set forth in the Purchase Agreement.

        All such notices and communications shall be deemed to have been duly given on the earliest of (i) at the time delivered, if delivered by hand-delivery; (ii) three business days after being deposited in the mail, postage prepaid, if mailed by first-class mail; (iii) when receipt is acknowledged and confirmed as sent by sender's telex or facsimile machine, if sent by telex or facsimile transmission; and (iv) on the day delivered, if sent by overnight air courier guaranteeing next day delivery.

        The Initial Purchasers or the Company by notice to the other parties may designate additional or different addresses for subsequent notices or communications.

        11.    Remedies.     Each party, in addition to being entitled to exercise all rights provided to it herein, in the Indenture or in the Purchase Agreement or granted by law, including recovery of liquidated or other damages, will be entitled to specific performance of its rights under this Agreement. Each party agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive in any action for specific performance the defense that a remedy at law would be adequate.

        12.    Successors.     This Agreement shall inure to the benefit of and be binding upon the parties hereto, their respective successors and assigns, including, without the need for an express assignment or any consent by the Company thereto, subsequent Holders of Registrable Securities, and the indemnified persons referred to in Section 5 hereof. The Company hereby agrees to extend the benefits of this Agreement to any Holder of Registrable Securities, and any such Holder may specifically enforce the provisions of this Agreement as if an original party hereto.

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        13.    Counterparts.     This Agreement may be signed in one or more counterparts, each of which shall constitute an original and all of which together shall constitute one and the same agreement.

        14.    Headings.     The section headings used herein are for convenience only and shall not affect the construction hereof.

        15.    Applicable Law.     This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in the State of New York. The parties hereto each hereby waive any right to trial by jury in any action, proceeding or counterclaim arising out of or relating to this Agreement.

        16.    Severability.     In the event that any one of more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired or affected thereby, it being intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law.

        17.    Securities Held by the Company, etc.     Whenever the consent or approval of Holders of Registrable Securities is required hereunder, Registrable Securities held by the Company or its Affiliates (other than subsequent Holders of Securities if such subsequent Holders are deemed to be Affiliates solely by reason of their holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.

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        If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this letter and your acceptance shall represent a binding agreement between the Company and the several Initial Purchasers.

Very truly yours,
Novell, Inc.
By:
	Name:
	Title:

The foregoing Agreement is hereby confirmed and
accepted as of the date first above written.

Citigroup Global Markets Inc.
By
	Name:
	Title:
For itself and the other several Initial Purchasers named in Schedule I to the Purchase Agreement.

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Exhibit 10.1
EXECUTION COPY
1. Definitions.
2. Shelf Registration.
3. Registration Procedures.

4. Registration Expenses.
5. Indemnification and Contribution.
6. Underwritten Registrations.
7. Registration Defaults.
8. No Inconsistent Agreements.
9. Amendments and Waivers.
10. Notices.
11. Remedies.
12. Successors.
13. Counterparts.
14. Headings.
15. Applicable Law.
16. Severability.
17. Securities Held by the Company, etc.

EX-31.1

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Exhibit 31.1

CERTIFICATIONS

I, Jack L. Messman, President and Chief Executive Officer of Novell, Inc., certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Novell, Inc;

2.

Based on my knowledge, this 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 report;

3.

Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: September 14, 2004

/s/  JACK L. MESSMAN Jack L. Messman
President and Chief Executive Officer

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CERTIFICATIONS

EX-31.2

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Exhibit 31.2

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 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 report;

3.

Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: September 14, 2004

/s/  JOSEPH S. TIBBETTS, JR. Joseph S. Tibbetts, Jr.
Senior Vice President and Chief Financial Officer

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Exhibit 31.2

EX-32.1

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EXHIBIT 32.1

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, to my knowledge:

(1)

The Company's periodic report on Form 10-Q for the period ended July 31, 2004 (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: September 14, 2004

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SECTION 906 CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER

EX-32.2

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EXHIBIT 32.2

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, to my knowledge:

(1)

The Company's periodic report on Form 10-Q for the period ended July 31, 2004 (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: September 14, 2004

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SECTION 906 CERTIFICATION BY THE CHIEF FINANCIAL OFFICER