-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G109H1OrqHieNrXKgVIhAc4DM8D10OxOZxrXFv/woUu4fXB5A14mz+M2Te/Nf5Mt /el2Pw7fXMsGTWn1TEUpmw== 0000891618-02-000286.txt : 20020414 0000891618-02-000286.hdr.sgml : 20020414 ACCESSION NUMBER: 0000891618-02-000286 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20011031 FILED AS OF DATE: 20020128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOVELL INC CENTRAL INDEX KEY: 0000758004 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 870393339 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13351 FILM NUMBER: 02519582 BUSINESS ADDRESS: STREET 1: 1800 SOUTH NOVELL PLACE CITY: PROVO STATE: UT ZIP: 84606 BUSINESS PHONE: 8018617000 MAIL ADDRESS: STREET 1: 1800 SOUTH NOVELL PLACE CITY: PROVO STATE: UT ZIP: 84606 10-K 1 f77744e10-k.txt FORM 10-K FISCAL YEAR ENDED OCTOBER 31, 20001 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ------------------------ [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED OCTOBER 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO ________________ . COMMISSION FILE NUMBER 0-13351 NOVELL, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 87-0393339 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1800 SOUTH NOVELL PLACE PROVO, UTAH 84606 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE) (801) 861-7000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR VALUE $.10 PER SHARE (TITLE OF CLASS) PREFERRED SHARE PURCHASE RIGHTS (TITLE OF CLASS) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the registrant's common stock held by non-affiliates on January 22, 2002 (based on the last reported price of the Common Stock on the NASDAQ National Market System on such date) was $1,675,013,958. For purposes of this disclosure, shares of common stock held by persons who hold more than 5% of the outstanding common stock and common stock held by executive officers and directors of the registrant have been excluded in that such persons may be deemed to be "affiliates" as that term is defined under the rules and regulations promulgated under the Securities Act of 1933. This determination is not necessarily conclusive for other purposes. As of January 22, 2002 there were 362,590,822 shares of the Registrant's common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of Registrant's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on April 17, 2002, are incorporated by reference in Part III of this Form 10-K to the extent stated herein. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NOVELL, INC. TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business.................................................... 1 Item 2. Properties.................................................. 11 Item 3. Legal Proceedings........................................... 11 Item 4. Submission of Matters to a Vote of Security Holders......... 12 Executive Officers of the Registrant........................ 12 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................................... 15 Item 6. Selected Financial Data..................................... 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 17 Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................................ 32 Item 8. Financial Statements and Supplementary Data................. 33 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 60 PART III Item 10. Directors and Executive Officers of the Registrant.......... 60 Item 11. Executive Compensation...................................... 60 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 60 Item 13. Certain Relationships and Related Transactions.............. 60 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................................... 61
i NOVELL, INC. FORM 10-K PART I In addition to historical information, this Annual Report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts included in this Annual Report on Form 10-K, regarding our strategy, future operations, financial position, estimated revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. As contained herein, the words "expects," "anticipates," "believes," "intends," "will," and similar types of expressions identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements are based on information that is currently available to the Company, speak only as of the date hereof, and are subject to certain risks and uncertainties. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's 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. The Company's actual results may differ materially from the results discussed in such forward-looking statements. Factors that may cause such a difference include, but are certainly not limited to, those discussed in the sections in Item 1 entitled "Competition", "Copyrights, Licenses, Patents and Trademarks" and "Additional Factors Affecting Financial Results and Stock Price" and the section in Item 7 entitled "Risk Factors Affecting Future Results of Operations." Readers should carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission, including the Quarterly Reports on Form 10-Q to be filed by the Company in 2002. All period references are to the Company's fiscal years ended October 31, 2001, 2000, and 1999, unless otherwise indicated. ITEM 1. BUSINESS THE COMPANY Novell, Inc. ("Novell" or the "Company") provides eBusiness solutions and Net services software designed to secure and power the networked world. Novell and its services division, Cambridge Technology Partners, help organizations solve complex business challenges, simplify their systems and processes, and capture new opportunities. Novell provides worldwide channel, consulting, education and developer programs to support its offerings. The Company was incorporated in Delaware on January 25, 1983. Novell's headquarters are located at 1800 South Novell Place, Provo, Utah 84606. Its telephone number at that address is (801) 861-7000. The Company markets its products and services through 50 U.S. and 85 international sales offices. The Company licenses its products through site-license agreements that are either sold directly by Novell, or service providers and software distribution channel partners. The Company also distributes licenses as packaged software products that are resold by systems integrators and other value-added resellers ("VARs"). In addition, Novell products are licensed to original equipment manufacturers ("OEMs"). The Company primarily conducts product development activities in San Jose, California; Provo, Utah; Ireland; and India. It also contracts out some product development activities to third-party developers. Changes in the economic and business environment for network software and consulting services have occurred in the last several years, which have led to strategic and operational changes at Novell. The Company has evolved its business to focus on eBusiness solutions and Net services software applications, which support highly distributed network solutions and capitalize on the growth of the Internet. Novell has expanded its Net Novell annual report 2001 1 - -------------------------------------------------------------------------------- - ---------- services offerings around open Internet standards and its own eDirectory(TM) network infrastructure products. The Company's education and training, service and support, and consulting business have also been refocused and expanded to provide support for new eBusiness and Net services based solutions. On July 10, 2001, the Company acquired Cambridge Technology Partners (Massachusetts), Inc. ("Cambridge"), a technology consulting company focused on helping its customers develop and accelerate their transition to eBusiness solutions and processes. The acquisition of Cambridge helped support the Company's strategy of providing a foundation for e-business with Novell(R) Net services software and eDirectory products. BUSINESS STRATEGY Novell provides eBusiness solutions and Net services software designed to secure and power the networked world -- the Internet, intranets, and extranets; wired to wireless; corporate and public -- across leading operating systems. Novell and its services division, Cambridge Technology Partners, help organizations solve complex business challenges, simplify their systems and processes, and capture new opportunities with one Net solutions. Novell provides worldwide channel, consulting, education and developer programs to support its offerings. With both software and services offerings, Novell can determine how Net services can be used by an organization and the requirements of Net services to ensure proper security and access, which can then be turned into an e-business solutions approach to help the customer deliver the right information, to the right individual, at the right time, and on the right device. Novell's network solutions provide essential network management, messaging and groupware capabilities integrated through Novell's directory services. Networks are inherently a varied mix of infrastructure, computer systems, applications and other devices. Novell software provides the framework and applications for managing, maintaining and accessing the information and services of these networks. Today, businesses are rapidly developing corporate intranets that leverage the broad range of capabilities of the Internet. Novell has oriented all of its products and services to Internet standards and offers the expertise to make them work in various environments, enabling customers to increase the performance of traditional local and wide area networks. PRINCIPAL MARKETS AND SEGMENT AND GEOGRAPHIC INFORMATION Novell sells its products, technologies and solutions primarily to large-scale corporations, government entities, educational institutions, resellers and distributors both domestically and internationally. The Company has traditionally operated in one business segment, directory-enabled networking software and services. All products, technologies and solutions were evaluated as a single unit. Segment disclosures and geographical information for fiscal years 2001, 2000, and 1999 are presented in Part II, Item 8, Footnote O to the notes to the consolidated financial statements of this report, which is incorporated by reference into this Part I, Item 1. As the Company integrates Cambridge and completes its restructuring, it is analyzing its business to determine how to best evaluate performance and operating results. This may lead to changes in segment disclosures during fiscal 2002. PRODUCTS, TECHNOLOGIES AND SOLUTIONS Net Directory Services. Novell's Net Directory business includes all of Novell's eDirectory solutions as well as DirXML(TM), iChain(R), SecureLogin and Novell Modular Authentication Service (NMAS(TM)). Novell eDirectory 8.5 is a full-service, platform-independent directory that serves as the foundation for a myriad of directory-enabled services. The number of directory-based applications is rapidly increasing, many of which provide crucial e-business functionality such as automated business-relationship management, supply-chain management, and electronic storefronts. Other services that directory-enabled products can 2 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- provide include automated provisioning, enhanced security, customer profiling, electronic wallets, automated notification systems, customized Web interfaces and virtual private networks (VPNs). Many application service providers (ASPs), Internet service providers (ISPs), software developers, and other companies that aggressively compete in the Internet economy have made eDirectory their directory of choice. Novell's eDirectory product significantly simplifies the complexities of managing users and resources in a mixed Win2000, NT, NetWare(R), UNIX* and Linux* environment. It is a secure, scalable, cross-platform directory service, allowing organizations to centrally store and manage information across all networks and operating systems, and leverage existing IT investments. DirXML 1.0, Novell's powerful data-sharing and synchronization solution, automatically distributes new and updated information across every designated application and directory on a network ensuring that trusted e-business customers, partners, and suppliers are accessing consistent information, regardless of the applications and directories to which they have access. DirXML significantly reduces costs while leveraging the existing network infrastructure. No modification or consolidation of existing applications, directories, or databases is necessary. Information is entered into any designated directory and DirXML updates it across the entire network. For companies with hundreds of directories spread across multiple applications, this can mean a potential savings of thousands of hours and significant cost reductions. Novell iChain is an identity-based security solution that controls access to application, Web and network resources across technical and organizational boundaries. iChain separates security from individual applications and Web servers, enabling single-point, policy-based management of authentication and access privileges throughout the Net. This optimizes productivity in the development of eBusiness applications by leveraging fine-grained security that transcends firewalls. As a result, businesses can simplify the management of Net access security, based on identities and control the use of digital assets across the extended enterprise. Novell SecureLogin is a directory-integrated authentication solution that delivers reliable, single sign-on access across multi-platform networks. Novell SecureLogin simplifies password management by eliminating the need for users to remember more than one password. Once a user has officially logged into the network, Novell SecureLogin automatically authenticates that user to the applications and data used during a network session. Novell SecureLogin delivers single sign-on functionality to virtually every application and environment, which simplifies administration and substantially reduces costs. Novell Modular Authentication Service 2.0 is an extensible security product that offers an easy way to centrally manage multiple authentication methods across a network. With Novell Modular Authentication Service, stronger forms of authentication and authorization can be implemented to secure critical corporate resources. Novell Modular Authentication Service also helps remove the administrative overhead involved with maintaining password information throughout an organization. By supporting the leading smart card, token, biometric and digital-certificate vendor's authentication products, Novell Modular Authentication Service provides a way to centrally and easily manage authentication methods. Net Management Services. Novell's Net Management Services business includes all NetWare products, collaboration products (GroupWise(R) and Novell Internet Messaging System(TM) (NIMS(TM))), Novell Portal Services, BorderManager(R), and ZENworks(R). Novell NetWare 6 is the Net services software solution that offers secure non-stop access to core network resources. With NetWare 6, access to files, printers, directories, e-mail and databases across all types of networks, storage platforms and client desktops is seamless. NetWare 6 leverages the powerful Novell eDirectory product, allowing easy management of networks from virtually any Web-enabled wireless device or traditional desktop computer. NetWare 6 also supports open Internet standards and includes innovative, browser-based Net services. NetWare 6 revolutionizes file access and management by incorporating Novell iFolder(TM), a unique Net services solution that enables access to files -- from anywhere, at anytime -- through virtually any Web-enabled device. NetWare 6 also includes Novell iPrint, a printing solution that provides Novell annual report 2001 3 - -------------------------------------------------------------------------------- - ---------- global access to print resources through a standard Web browser, which helps simplify, secure and accelerate document printing processes. GroupWise 6 is a secure, dynamic collaboration solution that offers traditional and deskless users support for any communication over intranets, extranets and the Internet. GroupWise 6 utilizes industry-leading technology to accelerate corporate productivity. GroupWise 6 includes the only bundled wireless solution in the industry, Novell GroupWise Wireless, which runs on any device that supports Wireless Access Protocol (WAP). The addition of this wireless solution increases the scope of how and where collaboration takes place. With GroupWise 6 and a supported wireless device -- including a wireless telephone, a personal digital assistant (PDA) or a wireless laptop computer -- even deskless workers can take advantage of the collaboration services provided by GroupWise 6. Novell Internet Messaging System (NIMS) 3.0 is a scalable, high-performance e-mail and calendaring system that is based on Internet-standard messaging and security protocols. An essential component of Novell's one Net vision, NIMS simplifies the complexities of eBusiness communication and provides the power and flexibility organizations need to succeed in the Net economy. NIMS allows users to connect to a scalable, secure e-mail and calendaring system -- from anywhere, at anytime -- while driving down the costs associated with incorporating a high-performance messaging system. In addition, NIMS dramatically simplifies e-mail administration: administrators use it to streamline internal communications and optimize the use of hardware resources. Novell Portal Services reduces the time and complexity of deploying secure, personalized portals to every member of an organization. These portal solutions give each user access to the most up-to-date information, news, applications, and Net services, regardless of the user's location or Web-enabled device. As a result, users and work groups always have the latest information at their fingertips, allowing them to make better decisions, to act sooner, and to increase their productivity. Novell Portal Services offers a simple way to consolidate and present data that has, traditionally, been difficult and expensive to integrate and share. BorderManager Enterprise Edition 3.6 is a suite of network services used to connect a network securely to the Internet or any other network. It improves network performance and security at the borders between networks. BorderManager controls outside access to intranets and user access to the Internet. It allows remote access to intranets and the Internet and can establish a VPN using the Internet. It also accelerates access to content on both intranets and the Internet. BorderManager supports VPNs over Network Address Translation (NAT) devices, enabling cable modem and DSL customers with NAT to work from home. It also supports cookie-based session identifiers for customers with NAT and Citrix* servers. This means that organizations running a thin-client environment have control over which Web sites their employees can access. The ZENworks (Zero Effort Networking) product family consists of two revolutionary products that protect the integrity of networks. Built to leverage Novell eDirectory, ZENworks products centralize, automate, and simplify every aspect of network management from distributing vital information across the enterprise to maintaining consistent policies on desktops, servers, and devices. ZENworks capacity is not limited to the internal corporate network; customers can also exercise centralized control of network elements behind the firewalls of their business partners or on the Internet. ZENworks for Desktops 3 is powerful, directory-enabled software that automates workstation management and application deployment which saves administrators countless hours of work. ZENworks for Servers 2 eliminates the need for network administrators to configure each server manually, especially servers at remote sites. Using the eDirectory structure, it enforces consistent server policies across a network and corrects policies when they are inadvertently altered. Volera(TM) Net Content Services. Volera, a majority-owned subsidiary of Novell, provides content networking products and services that improve the web experience through high-speed delivery and intelligent management of rich web content. 4 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- Volera's Excelerator product is a robust software platform that accelerates the delivery of web content. Internet-enabled organizations that deploy Volera Excelerator can gain customer loyalty and increase employee productivity by significantly decreasing Internet wait times. Volera Excelerator-based appliances demonstrate superior performance at independent caching benchmark events. Media Excelerator is an add-on to Volera Excelerator product that allows customers to cache and split streaming media files. Supported protocols include Real*, Quicktime*, and Windows Media*. Volera's Secure Excelerator provides customers with the ability to cache and accelerate the delivery of secure content. The Velocity Management Suite allows users to manage an entire Volera Excelerator-powered network, and the content it delivers, from a single interface. The suite consists of three products: System Controller, for managing, configuring, and controlling the customer's internet infrastructure; Content Controller, which allows users to control and automate the delivery of content; and Content Accountant, which when integrated with leading billing software provides customers with the data needed for bill-backs and usage charges. Velocity CDN(TM) aggregates the above product suite into a comprehensive, end-to-end software solution that comprises all of the delivery, management and services capabilities needed for intelligent content networking. Finally, Volera's services organization delivers the knowledge and expertise customers require in order to architect, integrate, and operate content networking solutions. Novell Consulting(SM) Services. The acquisition of Cambridge Technology Partners in July 2001 resulted in a significant expansion of Novell's Consulting Services. The combined Consulting Services group helps organizations solve complex business challenges, simplify their systems and processes, and capture new opportunities. Novell consultants deliver advanced consulting expertise to Novell's customers and partners throughout the world. Using proven methodologies, Novell consultants design and deliver technology-based business solutions focusing on Internet, intranet, extranet, and e-Business. Novell Consulting also delivers expertise in design, planning, and implementation of Novell's Net Directory, Net Management, and Net Content products, allowing all types of networks to work together as one Net. Cambridge consultants perform technology and consulting services to help clients develop and accelerate their transition to Internet-based e-business solutions and processes. Cambridge consultants also provide systems integration services as well as operations management consulting to help transform clients into eBusinesses. Working in collaboration with large corporations and middle market companies, Cambridge combines a deep understanding of New Economy issues with integrated, end-to-end services, and a proven track record of shared risk and rapid delivery. Cambridge's service offerings generally include Digital Business Strategy, eCommerce, eCustomer Relationship Management, supply Chain Management, eEnterprise Resource Management, User Experience Design, and Technology. Novell Customer Services. Novell Customer Services is composed of Technical Services and Education. Novell Technical Services has an established infrastructure worldwide with support centers in the United States, Europe and Asia. Novell Technical Services(SM) offers a wide variety of flexible support offerings, bringing critical network issues to a quick and efficient resolution. Premium Services includes around-the-clock direct access to Novell's most experienced engineers. Dedicated Support Engineer, Primary Support Engineer, and Account Management programs allow customers to build an ongoing support relationship with Novell. Novell Education is a pioneer in the networking certification arena. Novell Education has issued over 700,000 certifications to IT professionals around the world. Novell Education continues to demonstrate innovative leadership in the IT certification and training industry with new programs focused on Novell's Novell annual report 2001 5 - -------------------------------------------------------------------------------- - ---------- Directory and on the Internet. In addition to the Certified Novell Engineer(SM) (CNE(R)) certification program, Novell Education offers a Certified Directory Engineer(R) (CDE(SM)) certification program. Both CNE and CDE students receive advanced technical telephone support (Level II) from Novell. Resellers, independent support organizations, or Novell Support Organizations (NSOs) may employ CNE and CDE certification holders. Novell Education also offers education to end users through nearly 700 independent Novell Authorized Education Centers(SM) (NAEC(SM)) and 600 Novell Education Academic Partners(SM) (NEAP(SM)) worldwide, which use Novell-developed courses to instruct students in the use and maintenance of Novell products. Information regarding revenues for various product categories is incorporated by reference from Note O to the Notes to Consolidated Financial Statements in Part II into this Part I, Item 1. PROGRAMS Technical Support Alliance. In May 1991, Novell and 40 other software and technology companies announced the formation of the Technical Support Alliance (TSA). The TSA was organized to provide one-stop multi-vendor support. Member companies provide cooperative efforts to support their customers. Current membership consists of over 130 companies worldwide, including Apple, Compaq, Hewlett-Packard, Intel, IBM, Lotus, Microsoft, and Oracle. Certified Novell Engineer Program. Through the Certified Novell Engineer (CNE) program, Novell is strengthening the networking industry's Level I support self-sufficiency. CNE certificate holders are individuals who receive high-level training, information, and high-level skills to administer Novell and other networks. Certified Directory Engineer Program. Through the Certified Directory Engineer (CDE) program, Novell is strengthening the directory industry's Level II support self-sufficiency. CDE certificate holders are individuals who receive high-level directory training and skills to administer eBusinesses and eDirectories in the Net economy. Professional Education Program (PEP). PEP offers both instructor led and e-Learning solutions to customers directly and through Novell's Authorized Education Channel. PEP delivers courses that provide a thorough understanding of the implementation, configuration, and administration of the subject matter being presented. In addition, PEP offers Advanced Technical Training(TM) (ATT) at an engineering level and customized training solutions. The ATT course subject matter will cover support issues, in-depth architectural reviews, and advanced enterprise solutions. STRATEGIC RELATIONSHIPS Development Partners. When customers request that Novell add a new service or function to its products, Novell investigates the most effective way to deliver that functionality to the user. In certain situations, Novell will determine that the best way to add a new service or function to its products is to form a strategic relationship with a company that has expertise in that area. By forming strategic relationships, the combination of Novell's core expertise in Net services solutions and the strategic partner's expertise in the given product area combine to deliver a better solution faster than if Novell attempted to develop it alone. Systems Partners. Novell forms strategic relationships with companies who have complementary software and hardware. The resulting solution is a powerful combination of products that deliver enterprise-wide connectivity solutions. These strategic partners include system suppliers like IBM, Compaq and HP, as well as system integration experts like Deloitte & Touche, Cap Gemini Ernst & Young, and Perot Systems. Application Partners. Novell works closely with application developers to provide integrated software products and support for end users. As Net services and directory solutions grow in importance, this program is designed to help assure broad availability of well integrated, multi-vendor applications. 6 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- Enterprise Consulting Partners. Leading systems integrators and consulting organizations work with Novell to deliver distributed client/server solutions for customers with large enterprise-wide networks. Worldwide Service and Support. The Company is a global corporation, servicing its customers from offices located throughout the world. It is committed to providing service and support on a worldwide basis to its resellers and to their end-user customers. The Company has established agreements with third-party service vendors to expand and complement the service provided directly by the Company's service personnel and the Company's resellers. Multiple Channel Distribution Network. The Company markets and delivers its products through a broad range of distributors, dealers, value-added resellers, systems integrators, and OEMs as well as to major end users. PRODUCT DEVELOPMENT Due to the rapid pace of technological change in its industry, Novell believes that its future success will depend, in part, on its ability to enhance and develop its software products and deliver solutions that satisfactorily meet dynamic market needs. Product development expenses for the fiscal years 2001, 2000, and 1999, are discussed in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of this report, which is incorporated by reference into this Part I, Item 1. Novell's move to a business unit environment has resulted in the product development groups having greater direct interaction with customers. Novell's acquisition of Cambridge provided the consulting groups the potential to better integrate Novell's products within the customer's business and to provide solutions our customers require. It has also led to increased interaction between business groups within Novell, resulting in better solutions for customers. Business unit developers work with consulting and support to solve specific customer problems and in the process generate integrated solutions that can be used more broadly. Product development activities are placed strategically throughout the world to translate, test and meet the needs of our customers worldwide. Novell's commitment to deliver world-class products that simplify, secure and accelerate the Net means continued investment in product development. SALES AND MARKETING Novell markets its networking and Net Services products through distributors, dealers, vertical market resellers, systems integrators, and OEMs who meet the Company's criteria, as well as to major end users. In addition, the Company conducts sales and marketing activities and provides technical support, training, and field service to its customers from its offices in San Jose, California; Boston, Massachusetts; Provo, Utah; and from its 50 U.S. and 85 international sales offices. Distributors. Novell has established a network of independent distributors, which resell the Company's products to dealers, VARs, and computer retail outlets. As of December 31, 2001, there were two U.S. distributors and approximately 40 international distributors. Dealers. The Company also markets its products to large-volume dealers and regional and national computer retail chains. VARs and Systems Integrators. Novell also sells directly to VARs and systems integrators who market data processing systems to vertical markets, and whose volume of purchases warrants buying directly from the Company. OEMs. The Company licenses its systems software to domestic and international OEMs for integration with their products. Novell annual report 2001 7 - -------------------------------------------------------------------------------- - ---------- End Users. Generally, the Company refers prospective end-user customers to its resellers. However, the Company has the internal resources to work directly with major end users and has developed U.S. and international master license agreements with approximately 2,000 customers to date. Additionally, some upgrade products are sold directly to end users. Customers can also purchase some products and services through Novell's commercial website, ShopNovell(SM), or be directed to a Dealer or Reseller near their geographic location. International Sales. In fiscal 2001, 2000, and 1999, approximately 44%, 43%, and 45%, respectively, of the Company's net sales were to customers outside the U.S. Approximately 45% of all international sales have been invoiced by the Company in U.S. dollars. The exceptions to the U.S. dollar invoicing are Japanese Yen sales through the Company's joint venture in Japan, Indian Rupee sales through the Company's joint venture in India, certain sales from its distribution center in Dublin, Ireland and certain local office billings. No one foreign country accounted for more than 10% of net sales in any period. For information regarding risk related to foreign operations, see Part II, Item 7, "Risk Factors Affecting Future Results of Operations," which information is incorporated by reference into this Part I, Item 1. Major Customers. In fiscal 1999, the Company had one multinational distributor, which accounted for 11% of net sales; otherwise, no customer accounted for more than 10% of revenue in any of the last three fiscal years. Marketing. The Company's marketing activities include distribution of sales literature, press releases, advertising, periodic product announcements, support of NetWare user groups, publication of technical and other articles in the trade press, and participation in industry seminars, conferences, and trade shows. The marketing department of the Company employs technical laboratories, which test and evaluate networked computer equipment and individual devices. The knowledge derived from these laboratories is the basis for the technical literature published by the Company. These activities are designed to educate the market about Net services solutions in general, as well as to promote the Company's products. Through the Professional Developers Program, the Company strongly supports independent software and hardware vendors in developing products that work with Novell Net services solutions. Thousands of multiuser application software packages are now compatible with Net services. In March 2001, the sixteenth annual BrainShare(R) Conference was held to inform and educate developers about Novell product strategy, Novell open architecture programming interfaces, and Novell third-party product certification programs. MANUFACTURING SUPPLIERS The Company's products, which consist primarily of software diskettes and manuals, are duplicated by outside vendors. This allows the Company to minimize the need for expensive capital equipment in an industry in which multiple high-volume manufacturers are available. The Company does not rely on a single provider for its raw materials, nor has it encountered problems with its existing suppliers. BACKLOG Lead times for the Company's products are typically short. Consequently, the Company does not believe that backlog is a reliable indicator of future sales or earnings. The Company's practice is to ship its products promptly upon the receipt of purchase orders from its customers and, therefore, backlog is not significant. COMPETITION Novell competes in a highly challenging market for computer software. One pervasive factor underlying all of the Company's business endeavors is the presence of Microsoft in all sectors of the software business, and Microsoft's dominance in many of those sectors. 8 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- In a finding upheld by the Circuit Court for the District of Columbia, the United States District Court found that Microsoft violated Section 2 of the Sherman Act by unlawfully acting to maintain its monopoly over desktop operating systems. The Company believes that Microsoft is exploiting its desktop operating monopoly in a way that is designed to extend its market power into the market for server operating systems, and to claim control of network and web services such as authentication, using many of the same anti-competitive practices found by the United States District Court to be in violation of the nation's anti-trust laws. The Company is concerned that the Revised Proposed Final Judgment of the litigation between the Department of Justice and Microsoft will not benefit competition or consumers in a meaningful way and, if approved, could result in continued harm to the Company. Additionally, the Company does not have the product breadth and market power of Microsoft. Microsoft's ability to ship networking products with features and functionality that compete with Novell's, together with its ability to offer incentives to customers to purchase certain products in order to obtain favorable sales terms or necessary compatibility or information with respect to other products, may significantly inhibit Novell's ability to grow its business. Microsoft has significant financial resources, which could allow it to aggressively price its products and services for long periods of time to the potential detriment of competitors. Microsoft in the past has also employed tactics that limit or block effective and efficient interoperability with Novell's products. Microsoft frequently bundles software features into its operating system for free which compete directly with stand-alone products from Novell. As Microsoft creates new operating systems and applications, there can be no assurance that Novell will be able to ensure that its products will be compatible with those of Microsoft. Although these market conditions and the judgments reached in litigation concerning Microsoft may affect overall Novell performance, the Company believes its strong product offering and "One Net" business strategy will be competitive in the marketplace. Additionally, if the more meaningful relief being sought by the nine litigating states is imposed on Microsoft, there could be a restoration of competition in the marketplace that would benefit Novell. The market for consulting services is highly competitive due to such factors as the existence of several large consulting firms specializing in the information systems area such as Compaq Computer Corporation, Hewlett-Packard Company, IBM, Accenture, Cap Gemini and the three remaining consulting arms of the "Big Five" accounting firms. Many of these companies have greater financial, technical and marketing resources and greater name recognition in the consulting area, which could inhibit the Company's ability to grow its consulting business. COPYRIGHT, LICENSES, PATENTS AND TRADEMARKS The Company relies on copyright, patent, trade secret and trademark law, as well as provisions in its license, distribution and other agreements in order to protect its intellectual property rights. The Company's portfolio of patents, copyrights and trademarks as a whole are material to the Company's business; no one piece of intellectual property is critical to the Company's business, so no individual piece is discussed on its own. The Company has been issued what it considers to be valuable patents and has numerous other patents pending. No assurance can be given that the patents pending will be issued or, if issued, will provide protection for the Company's competitive position. The Company has an increasing concern that computer industry companies that have huge financial resources and patent portfolios such as Lucent, AT&T, Microsoft, and IBM, will increasingly assert patent infringement claims against smaller companies such as Novell. While Novell has no reason to think it would not have defensible claims, the cost and time of defending such claims can be significant. Although Novell intends to protect its patent rights vigorously, there can be no assurance that these measures will be successful or that the claims on any patents held by the Company will be sufficiently broad to protect the Company's technology. In addition, no assurance can be given that any patents issued to the Company will not be challenged, invalidated or circumvented or that the rights granted thereunder will provide competitive advantages to the Company. The loss of patent protection on the Novell annual report 2001 9 - -------------------------------------------------------------------------------- - ---------- Company's technology or the circumvention of its patent protection by competitors could have a material adverse effect on the Company's ability to compete successfully in its business. The software industry is characterized by frequent litigation regarding copyright, patent and other intellectual property rights. The Company has from time to time had infringement claims asserted by third parties against it and its products. While there are no known or pending threatened claims against the Company that are expected to result in unsatisfactory resolution that would have a material adverse effect on the Company's results of operations and financial condition, there can be no assurance that such third party claims will not be asserted, or if asserted, will be resolved in a satisfactory manner. In addition, there can be no assurance that third parties will not assert other claims against the Company with respect to any third-party technology. In the event of litigation to determine the validity of any third-party claims, such litigation could result in significant expense to the Company and divert the efforts of the Company's technical and management personnel, whether or not such litigation is determined in favor of the Company. In the event of an adverse result in any such litigation, the Company could be required to expend significant resources to develop non-infringing technology or to obtain licenses to the technology, which is the subject of the litigation. There can be no assurance that the Company would be successful in such development or that any such licenses would be available. In addition, the laws of certain countries in which Novell's products are or may be developed, manufactured or sold may not protect the Company's products and intellectual property rights to the same extent as the laws of the United States. Although the Company does incorporate software it licenses from third parties into its products and its solutions, no one license is critical to the Company's business, so no individual license is discussed on its own. SEASONALITY The Company often experiences a higher volume of sales at the end of each quarter and during the fourth quarter. EMPLOYEES As of December 31, 2001, the Company had 6,521 permanent and temporary employees. The functional distribution of its employees was: sales and marketing -- 1,446; product development -- 1,293; general and administrative -- 913; service, consulting, education, and operations -- 2,869. Of these, 3,376 employees are in locations outside the U.S. All other Company personnel are based at the Company's facilities in Utah, California, Massachusetts, and various U.S. field offices. None of the employees is represented by a labor union, and the Company considers its employee relations to be good. Competition for qualified personnel in the computer industry is intense. To make a long-term relationship with the Company rewarding, Novell endeavors to give its employees challenging work, educational opportunities, competitive wages, sales commission plans, bonuses, and opportunities to participate financially in the ownership and success of the Company through stock option and stock purchase plans. ADDITIONAL FACTORS AFFECTING FINANCIAL RESULTS AND STOCK PRICE In addition to factors described above under "Competition" and "Copyrights, Licenses, Patents, and Trademarks" that may adversely affect the Company's results of operations and stock price, other factors may also adversely affect the Company's results of operations and stock price, including but not limited to: - competition for qualified employees - delays in the introduction of new products - success of new products or technologies 10 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- - successful integration of Cambridge and Novell - stock market fluctuations unrelated to Company performance For further discussion of risks the Company faces, please refer to the section entitled "Risk Factors Affecting Future Results of Operations" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of this filing, which information is incorporated by reference to Part I, Item 1. ITEM 2. PROPERTIES The Company owns and occupies approximately 872,000 square feet of office space on 46 acres in Provo, Utah, which is the Company's corporate headquarters and is also used as a product development center. Additionally, the Company owns approximately 48 acres of land in San Jose, California on which it owns a 545,000 square-foot office complex, which is used as an administrative office, of which approximately 258,000 rentable square-feet is subleased to various tenants. The Company also owns 218,873 square feet of office space and leases an additional 235,274 square feet of office space in a business complex in Orem, Utah. The Company leases 120,407 square feet of the owned space in Orem to various subtenants. Volera, a majority-owned subsidiary of Novell, occupies approximately 27,000 square feet of the leased space in Orem. The balance of the owned and leased space in Orem is unoccupied. The Company has the ability to build on its land in San Jose, California, and in Provo and Orem, Utah. The Company leases a 177,000 square-foot office building in Cambridge, Massachusetts of which it occupies approximately 100,000 square feet, which is used as administrative offices, and subleases approximately 21,000 square feet. The balance of space in Cambridge is unoccupied. In addition, the Company owns a 380,000 square-foot manufacturing and distribution facility on 23 acres in Lindon, Utah, 338,000 square feet of which is leased to a third party. Internationally, the Company owns a 84,650 square-foot office building in the United Kingdom, a 42,000 square-foot building in the Netherlands and a 18,000 square-foot building in Johannesburg, South Africa, all of which are used for administrative offices. The Company leases sales and support offices in Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Massachusetts, Michigan, Minnesota, Missouri, New York, Ohio, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, and Washington. The Company also leases an office in Berkeley Heights, New Jersey, which is used for certain product development efforts by Volera. The Company has subsidiaries in Argentina, Australia, Austria, Belgium, Brazil, Canada, Columbia, Czech Republic, Denmark, Finland, France, Germany, Hong Kong, Hungary, India, Ireland, Israel, Italy, Japan, Malaysia, Mexico, the Netherlands, New Zealand, Norway, Philippines, Poland, Portugal, Puerto Rico, Russia, Singapore, Spain, Sweden, Switzerland, Thailand, Taiwan, United Kingdom, and Venezuela -- each of which leases its facilities. The terms of the above leases vary from month-to-month to up to 23 years. The Company believes that its existing facilities are adequate to meet its current requirements and it anticipates that suitable additional or substitute space will be available, as necessary, pursuant to terms that are favorable to the Company. ITEM 3. LEGAL PROCEEDINGS In February 1998, a suit was filed in the U.S. District Court, District of Utah, against Novell and certain of its officers and directors, alleging violation of federal securities laws by concealing the true nature of Novell's financial condition and seeking unspecified damages. The lawsuit was brought as a purported class Novell annual report 2001 11 - -------------------------------------------------------------------------------- - ---------- action on behalf of purchasers of Novell common stock from November 1, 1996, through April 22, 1997. The Federal District Court dismissed the original complaint November 2, 2000; however, the plaintiffs filed an amended complaint November 22, 2000 in an effort to remedy inadequacies in the original complaint. Novell has moved the court to dismiss the amended complaint on the same grounds relied on in the court's dismissal of the original complaint. If the case continues, Novell intends to vigorously defend against the allegations. While there can be no assurance as to the ultimate disposition of the lawsuit, Novell does not believe that the resolution of this litigation will have a material adverse effect on its financial position, results of operations, or cash flows. In January 2001, Novell began a jury trial in a suit filed against Novell by Lantec, Inc. in January 1995 in the U.S. District Court, the District of Utah, for alleged anti-trust violations arising from Novell's acquisition of the GroupWise technology. The plaintiffs were seeking to demonstrate damages of $300 million. On April 19, 2001, the judge ruled in favor of Novell and dismissed the original complaint; however, on June 8, 2001 the plaintiffs filed a Notice of Appeal. Novell intends to vigorously defend against the claims. While there can be no assurance as to the ultimate disposition of the lawsuit, Novell does not believe that the resolution of this litigation will have a material adverse effect on its financial position, results of operations, or cash flows. The Company is a party to a number of additional legal claims arising in the ordinary course of its business. The Company believes the ultimate resolution of these claims will not have a material adverse effect on its financial position, results of operations, or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below are the names, ages, and titles of the persons currently serving as executive officers of Novell.
NAME AGE POSITION - ---- --- -------- Chairman of the Board, President and Chief Executive Jack L. Messman...................... 61 Officer Stewart G. Nelson.................... 41 Executive Vice President, Chief Operating Officer Ronald C. Foster..................... 51 Senior Vice President, Chief Financial Officer Alan J. Friedman..................... 54 Senior Vice President, People Joseph A. LaSala, Jr................. 47 Senior Vice President, General Counsel and Secretary Carl S. Ledbetter, Ph.D. ............ 52 Senior Vice President, Chief Technology Officer Ralph T. Linsalata................... 63 Senior Vice President, Venture Investments Gary F. Schuster..................... 60 Senior Vice President, Communications
Jack L. Messman Jack L. Messman became President and Chief Executive Officer of Novell in July 2001 in connection with the Cambridge acquisition, and was appointed Chairman of the Board of Directors in November 2001. He has been a director of Novell since 1985. From August 1999 to July 2001, Mr. Messman was President and Chief Executive Officer of Cambridge. Mr. Messman was the Chief Executive Officer of Union Pacific Resources Group Inc., an energy company, from 1991 to August 1999 and its Chairman from 1996 to August 1999. Mr. Messman is also a director of Metallurg Inc., Safeguard Scientifics, Inc., RadioShack Corporation, and USDATA Corporation. 12 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- Stewart G. Nelson Stewart G. Nelson joined Novell in June 1994 and has served in various product development positions. From October 1996 to September 1997 he served as Vice President of Applications. In October 1997, he was elected a corporate officer as Senior Vice President of Application. In June 1998 he became Senior Vice President of Product Development. In November 1999 he was named Senior Vice President, Marketing and Products and in November 2000 he was appointed Executive Vice President and Chief Operating Officer. Ronald C. Foster Ronald C. Foster has served as Senior Vice President and Chief Financial Officer of Novell since July 2001. Mr. Foster joined Novell as Vice President and Corporate Controller in November 1998. Prior to joining Novell, Mr. Foster served as Vice President of Finance, Operations Controller with Applied Materials, Inc., a manufacturer of semiconductor fabrication equipment, from March 1996 to October 1998. Alan J. Friedman Alan J. Friedman became Senior Vice President, People of Novell in July 2001 in connection with the Cambridge acquisition. Mr. Friedman served as Cambridge's Senior Vice President of Human Resources, Enterprises Learning and Knowledge Management from January 2000 to July 2001, and had joined Cambridge in December 1999 as Vice President of Learning and Knowledge Management. Prior to joining Cambridge, Mr. Friedman was Senior Vice President of Human Resources for Arthur D. Little, Inc., a consulting firm from June 1993 to December 1999. Joseph A. LaSala, Jr. Joseph A. LaSala, Jr. become Senior Vice President, General Counsel and Secretary of Novell in July 2001 in connection with the Cambridge acquisition. From March 2000 to July 2001, Mr. LaSala served as Senior Vice President, General Counsel and Secretary of Cambridge. Prior to joining Cambridge, Mr. LaSala served as Vice President, General Counsel and Secretary of Union Pacific Resources Group Inc. from January 1996 to March 2000. Carl S. Ledbetter, Ph.D. Carl S. Ledbetter, Ph.D. has served as Senior Vice President and Chief Technology Officer of Novell since May 2000. Dr. Ledbetter joined Novell in October 1999 as Senior Vice President, Business and Corporate Development. From January 1996 to October 1999, Dr. Ledbetter served as Chairman of the Board of Directors and Chief Executive Officer of Hybrid Networks, Inc., a manufacturer and supplier of broadband access products for wireless systems. From April 1993 to January 1996, Dr. Ledbetter served as president of the consumer products division of AT&T, and from October 1991 to April 1993, Dr. Ledbetter served as the head of the PC networking division of Sun Microsystems, a computer manufacturer. In July 2000, Dr. Ledbetter entered into a settlement agreement in the form of a consent decree with the Securities and Exchange Commission (the "SEC") in connection with the SEC's investigation of Hybrid Networks, Inc. of which Dr. Ledbetter served as Chairman, President and Chief Executive Officer, generally concerning alleged violations of the federal securities laws. Without admitting or denying any violations of the federal securities laws, Dr. Ledbetter agreed to pay a civil fine and entered into a permanent injunction prohibiting him from knowingly circumventing or failing to implement a system of internal accounting controls and from engaging in violations of certain specified reporting provisions and accounting control provisions of the federal securities laws. Ralph T. Linsalata Ralph T. Linsalata joined Novell as Senior Vice President, Venture Investments in July 2001 in connection with the Cambridge acquisition. Prior to that, Mr. Linsalata joined Cambridge in December 1999 Novell annual report 2001 13 - -------------------------------------------------------------------------------- - ---------- and served as Executive Vice President, NEWCO Investments. Before joining Cambridge, Mr. Linsalata served as a senior vice president of Hill Holliday Advertising, Inc., an advertising agency, holding positions as a Strategic Consultant and Managing Director of that company's interactive group since March 1997. From 1994 to 1997, Mr. Linsalata served as Chief Executive Officer of Weston Corporate Development, Inc. Gary F. Schuster Gary F. Schuster became Senior Vice President, Communications in July 2001 in connection with the Cambridge acquisition. From August 2000 to July 2001, Mr. Schuster was Senior Vice President, Communications for Cambridge. Prior to joining Cambridge, Mr. Schuster served as Vice President for Corporate Relations at Union Pacific Corporation, a transportation company, from October 1987 to August 2000. 14 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Novell's common stock trades in the Nasdaq National Market under the NASDAQ symbol "NOVL." The following chart sets forth the high and low closing prices of the Company's Common Stock during each quarter of the last two fiscal years:
FIRST SECOND THIRD FOURTH FISCAL QUARTER QUARTER QUARTER QUARTER YEAR ------- ------- ------- ------- ------- FISCAL 2001 High........................... $ 9.344 $ 8.719 $ 5.690 $ 5.050 $ 9.344 Low............................ $ 4.906 $ 3.550 $ 4.500 $ 3.100 $ 3.100 FISCAL 2000 High........................... $39.938 $43.063 $18.938 $12.250 $43.063 Low............................ $18.438 $19.188 $ 7.969 $ 7.719 $ 7.719
No dividends have been declared on the Company's Common Stock. The Company has no current plans to pay cash dividends and intends to retain its earnings for use in its business. There were 10,744 shareholders of record at January 22, 2002. Novell annual report 2001 15 - -------------------------------------------------------------------------------- - ---------- ]ITEM 6. SELECTED FINANCIAL DATA
FISCAL YEAR ENDED ----------------------------------------------------------------------- OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, 2001 2000 1999 1998 1997 ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS Net sales.................... $1,040,097 $1,161,735 $1,272,820 $1,083,887 $1,007,311 Gross profit................. 712,162 834,337 974,979 825,992 726,403 Income (loss) from operations................. (120,813) (31,582) 223,052 98,446 (200,004) Income (loss) from operations without restructuring and integration charges(1)..... (32,074) 16,310 223,052 98,446 (144,669) Income (loss) before taxes... (276,766) 70,672 243,836 141,634 (150,570) Income (loss) before taxes without restructuring, integration and impairment charges(2)................. 20,275 118,564 243,836 141,634 (95,235) Income tax expense (benefit).................. (14,944) 21,202 53,089 39,658 (72,274) Net income (loss) before accounting change.......... (261,822) 49,470 190,747 101,976 (78,296) Cumulative effect of accounting change, net of tax........................ (11,048) -- -- -- -- Net income (loss)............ (272,870) 49,470 190,747 101,976 (78,296) Net income (loss) without restructuring, integration and impairment charges(3)................. 16,584 85,367 190,747 101,976 (44,320) Net income (loss) per share Basic...................... $ (0.82) $ 0.15 $ 0.57 $ 0.29 $ (0.22) Diluted.................... $ (0.82) $ 0.15 $ 0.55 $ 0.29 $ (0.22) Diluted without restructuring, integration, impairment charges and accounting change.................. $ 0.05 $ 0.25 $ 0.55 $ 0.29 $ (0.13) BALANCE SHEET Cash and short-term investments................ $ 705,243 $ 698,193 $ 895,404 $1,007,167 $1,033,473 Working capital.............. 416,463 552,281 895,984 1,021,005 1,148,426 Total assets................. 1,904,006 1,712,346 1,942,319 1,924,112 1,910,649 Long-term obligations........ -- -- -- -- -- Shareholders' equity......... 1,270,667 1,245,085 1,492,241 1,493,498 1,565,417
See the Management's Discussion and Analysis of Financial Condition and Results of Operations section for discussion of data comparisons. - --------------- (1) Excludes restructuring charges of $80.2 million and integration charges of $8.7 million in fiscal 2001, restructuring charges of $47.9 million in fiscal 2000, and restructuring charges of $55.3 million in fiscal 1997. (2) Excludes items noted in footnote (1) and investment impairment charges of $208.4 million in fiscal 2001. (3) Excludes items noted in footnotes (1) and (2), the tax adjustments related to each item, and the cumulative effect of an accounting change of $11.0 million in fiscal 2001. 16 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- ITEM 7. 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-K contain forward-looking statements that involve risks and uncertainties. All forward-looking statements are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. The Company's actual results may differ materially from the results discussed in such forward-looking statements as a result of a number of factors, which include, but are certainly not limited to, those set forth below in the MD&A sections entitled "Risk Factors Affecting Future Results of Operations," "Euro Conversion," "Financial Market Risks," and those factors set forth in sections of Item 1 of this Form 10-K entitled "Competition," "Copyrights, Licenses, Patents and Trademarks" and "Additional Factors Affecting Earnings and Stock Price." INTRODUCTION Novell Inc., ("Novell" or the "Company") provides eBusiness solutions and Net services software designed to secure and power the networked world. Novell and its services division, Cambridge Technology Partners, help organizations solve complex business challenges, simplify their systems and processes, and capture new opportunities. Novell provides worldwide channel, consulting, education and developer programs to support its offerings. The Company markets its products and services through 50 U.S. and 85 international sales offices. The Company licenses its products through site-license agreements that are either sold directly by Novell, or service providers and software distribution channel partners. The Company also distributes licenses as packaged software products that are resold by systems integrators and other value-added resellers. In addition, Novell products are licensed to original equipment manufacturers. Changes in the economic and business environment for network software and consulting services have occurred in the last several years, which have led to strategic and operational changes at Novell. The Company has evolved its business to focus on eBusiness solutions and Net services software applications, which support highly distributed network solutions and capitalize on the growth of the Internet. Novell has expanded its Net services offerings around open Internet standards and its own eDirectory(TM) network infrastructure products. The Company's education and training, service and support, and consulting business have also been refocused and expanded to provide support for new eBusiness and Net services based solutions. On July 10, 2001, the Company acquired Cambridge Technology Partners (Massachusetts), Inc. ("Cambridge"), a technology consulting company focused on helping its customers develop and accelerate their transition to eBusiness solutions and processes. The acquisition of Cambridge helped support the Company's strategy of providing a foundation for e-business with Novell Net services software and eDirectory products. CRITICAL ACCOUNTING POLICIES The Company considers certain accounting policies related to revenue recognition and impairment of long-lived assets and valuation of deferred tax assets to be critical policies due to the estimation processes involved in each. Revenue recognition. The Company's IT consulting services business derives a significant portion of its revenue from fixed-price, fixed-time contracts, which require the accurate estimation of the cost, scope and duration of each engagement. Revenue and the related costs for these projects are recognized on percentage of completion, using the time-to-completion method to measure the percent complete with revisions to estimates reflected in the period in which changes become known. If the Company does not accurately estimate the resources required or the scope of work to be performed, or does not manage its projects properly within the Novell annual report 2001 17 - -------------------------------------------------------------------------------- - ---------- planned periods of time or satisfy its obligations under the contracts, then future consulting margins may be significantly and negatively affected or losses on existing contracts may need to be recognized. Any such resulting reductions in margins or contract losses could be material to the Company's results of operations. The Company records a provision for estimated sales returns and allowances on product and service related sales in the same period as the related revenues are recorded. These estimates are based on historical sales returns, analysis of credit memo data and other known factors. If the historical data the Company uses to calculate these estimates does not properly reflect future returns, revenue could be overstated. Impairment of long-lived assets and valuation of deferred tax assets. The Company's long-lived assets include long-term investments, goodwill and other intangible assets. At October 31, 2001, the Company had $115 million of long-term investments, $188 million of goodwill and other intangible assets, and $94 million of net deferred tax assets, current and non-current, accounting for approximately 21% of the Company's total assets. The fair value of the long-term investments is dependant on the performance of the companies or venture funds in which the Company has invested, as well as volatility inherent in the external markets for these investments. In assessing potential impairment for these investments the Company will consider these factors as well as forecasted financial performance of its investees. If these forecasts are not met the Company may have to record additional impairment charges not previously recognized. During the year ended October 31, 2001, the Company recognized $177 million of impairment losses related to its long-term investments. In assessing the recoverability of the Company's goodwill and other intangibles the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges for these assets not previously recorded. On November 1, 2001 the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," and will be required to analyze its goodwill for impairment issues during the first six months of fiscal 2002, and then on a periodic basis thereafter. During the year ended October 31, 2001, the Company did not record any impairment losses related to goodwill and other intangible assets. Carrying value of the Company's net deferred tax assets assumes that the Company will be able to generate sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions. If these estimates and related assumptions change in the future, the Company may be required to record additional valuation allowances against its deferred tax assets resulting in additional income tax expense in the Company's consolidated statement of operations. Management evaluates the realizability of the deferred tax assets quarterly and assesses the need for additional valuation allowances quarterly. During the year ended October 31, 2001, the Company recorded $174 million of valuation allowances related to its net deferred tax assets. RESULTS OF OPERATIONS Acquisition On July 10, 2001, the shareholders of Cambridge approved the acquisition of Cambridge by Novell. The Company issued 0.668 shares of its common stock for each share of Cambridge common stock outstanding on July 10, 2001. The transaction was accounted for as a purchase and the fair value of the consideration was approximately $261.0 million, of which $250.6 million related to the number of shares exchanged at a per share value of $5.907 (the average closing price of a share of Novell common stock for the seven trading day 18 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- period beginning three days before the announcement date of the acquisition), and $10.5 million related to direct transaction costs. The value of the acquisition was preliminarily allocated as follows (in millions): Adjusted net assets acquired.......................... $ 81 Goodwill.............................................. 180 ---- $261 ====
Results of operations for Cambridge are included in Novell's results of operations beginning July 10, 2001. In accordance with Statements of Financial Accounting Standards ("SFAS") No. 142, "Business Combinations," issued by the Financial Accounting Standards Board ("FASB") in June 2001, the Company will not amortize the goodwill associated with this acquisition. Beginning in fiscal year 2002, the Company will review the goodwill periodically for potential impairment issues. Net sales
2001 CHANGE 2000 CHANGE 1999 ------ ------ ------ ------ ------ Net sales (millions)........................... $1,040 (10)% $1,162 (9)% $1,273
The Company operates in one business segment, directory-enabled networking software and services. The Company's products are sold throughout the world. In the United States, products are sold through direct, OEM, reseller, and distributor channels. Internationally, products are marketed through distributors who sell to dealers and end users. The Company's chief decision-makers, the President and Chief Executive Officer and Executive Management Committee, evaluate performance of the Company based on total Company results. Revenue is evaluated based on geographic region and product category. Separate financial information is not available by product category in regards to asset allocation, expense allocation, or profitability. Novell categorizes its products into the following four areas, all within the directory-enabled networking software and services segment. - Net Management Services, which includes directory-enabled operating systems such as NetWare, management and collaboration products, and UNIX or other royalties - Net Directory Services, which include NDS(R) eDirectory, DirXML, iChain, and Single Sign On products - Volera Net Content Services - Consulting, Support Services, and Education, which is generated from customer service, educational products and courses, and consulting, including Cambridge and Celerant, a subsidiary of Cambridge primarily focused on management consulting Net management services revenue was $707 million in fiscal 2001, compared to $914 million in fiscal 2000 and $1,077 million in fiscal 1999. The decrease from fiscal 2000 to fiscal 2001 was primarily the result of the decline in sales of the older NetWare versions 4 and 5 products, partially offset by sales of NetWare version 6, lower management and collaboration product sales, and lower UNIX and other royalties. The decrease from fiscal 1999 to fiscal 2000 was due to the decline in sales of older NetWare versions 3 and 4 and the $36 million one-time settlement with Caldera in fiscal 1999, partially offset by sales of Netware version 5 and an increase in management and collaboration product sales. NetWare sales have been affected by lower sales of boxed product through the Company's distribution channel, which decreased significantly year over year, from 27% of total revenue in fiscal 1999 to 8% of total revenue in fiscal 2000 and only 3% of total revenue in fiscal 2001. NetWare licensing revenue has increased slightly to offset some of this decline. The net management software product line represented 68% of total revenue in fiscal 2001 compared to 79% of total revenue in fiscal 2000 and 85% of total revenue in fiscal 1999. Novell annual report 2001 19 - -------------------------------------------------------------------------------- - ---------- Revenue from net directory services products was $31 million in fiscal 2001 compared to $28 million in fiscal 2000 and $19 million in fiscal 1999. The increase in fiscal 2001 revenue compared to fiscal 2000 is primarily the result of a full year of DirXML and iChain sales. The increase in fiscal 2000 revenue compared to fiscal 1999 was the result of increased NDS eDirectory sales and a full year of Single Sign-On sales. Net directory services revenue represented 3% of total revenue in fiscal 2001 compared to 2% of total revenue in fiscal 2000 and 2% of total revenue in fiscal 1999. Revenue from Volera net content products was $8 million in fiscal 2001 compared to $7 million in fiscal 2000 and $1 million in 1999. The increase in fiscal 2001 revenue was due primarily to improved sales and marketing efforts. During fiscal 2001, Novell completed the formation of Volera, Inc. a majority owned joint venture among Novell, Inc., Nortel Networks Corp., and Accenture Ltd. The increase in fiscal 2000 revenue compared to fiscal 1999 was primarily due to a full year's revenue in fiscal 2000 compared to only one quarter in fiscal 1999. Volera net content revenues were less than 1% of total revenues in fiscal 2001, 2000, and 1999. Consulting, support services, and education revenue was $293 million in fiscal 2001 compared to $213 million in fiscal 2000 and $175 million in fiscal 1999. The increase in fiscal 2001 revenue compared to fiscal 2000 is primarily the result of the acquisition of Cambridge, which contributed $62 million from Cambridge consulting and $33 million from Celerant, and increases in Novell consulting and services. These increases were offset somewhat by lower Novell education revenue. The increase in fiscal 2000 revenue compared to fiscal 1999 was primarily the result of the Company's continued focus on expanding the consulting, support services, and education business. Consulting, support services, and education revenues were 28% of total revenue in fiscal 2001 compared to 18% of total revenue in fiscal 2000 and 14% of total revenue in fiscal 1999. The Company previously recognized revenue related to product sales to distribution channel partners upon shipment to the partner and provided a reserve for contractual return obligations and other estimated product returns. Effective November 1, 2000, the Company changed its method of accounting for revenue related to these product sales to recognize such revenues upon the sell-through of the respective product from the distribution channel partner to the reseller or end user. The Company believes the change in accounting principle is preferable based on guidance provided in the SEC's Staff Accounting Bulletin 101. The $11 million ($0.03 per share) cumulative effect of the change (after reduction for income taxes of $6 million) was included in income in the first quarter of fiscal 2001. Also, during the three months ended January 31, 2001, the Company recognized $7 million in revenue that was included in the cumulative effect adjustment at November 1, 2000. The effect of that revenue on the first quarter was to increase net income by $5 million ($0.01 per share). Had the Company reported under its previous method of accounting for revenue recognition, the effect on earnings without consideration of the cumulative effect of the change would be a decrease in earnings of approximately $10 million, or $0.03 per share, during fiscal 2001. The pro forma amounts presented in the consolidated statements of operations were calculated assuming the accounting change was made retroactively to prior periods. Sales outside the U.S., comprised of sales to international customers in Europe, the Middle East, Africa, Canada, South America, Australia, and Asia Pacific, represented 44% of total revenue in fiscal 2001 compared to 43% of total revenue in fiscal 2000 and 45% of total revenue in fiscal 1999. Sales outside the U.S. increased in fiscal 2001 due primarily to the addition of Cambridge. Sales outside the U.S. decreased in fiscal 2000 from fiscal 1999 primarily due to weak sales in Europe and to the declining value of the Euro and other European currencies. Gross profit
2001 CHANGE 2000 CHANGE 1999 ---- ------ ---- ------ ---- Gross profit (millions)............................ $712 (15)% $834 (14)% $975 Percentage of net sales............................ 69% 72% 77%
20 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- The decrease in gross profit dollars and as a percentage of sales from fiscal 2000 to fiscal 2001 and from fiscal 1999 to fiscal 2000 is due primarily to the addition of Cambridge consulting in fiscal 2001, which carries lower margins, and a change in the mix of sales as software sales decreased and services and consulting revenues increased, which also typically carry lower margins. Operating expenses
2001 CHANGE 2000 CHANGE 1999 ---- ------ ---- ------ ---- Sales and marketing (millions)..................... $444 (10)% $495 14% $434 Percentage of net sales............................ 43% 43% 34% Product development (millions)..................... $192 (16) $228 (3)% $234 Percentage of net sales............................ 18% 20% 18% General and administrative (millions).............. $117 24% $ 95 13% $ 84 Percentage of net sales............................ 11% 8% 7% Restructuring charges (millions)................... $ 80 67% $ 48 -- -- Percentage of net sales............................ 8% 4% -- Total operating expenses (millions)................ $833 (4)% $866 15% $752 Percentage of net sales............................ 80% 75% 59%
Operating expenses decreased in fiscal 2001 compared to fiscal 2000 due primarily to lower salary costs resulting from the fiscal 2000 and 2001 restructurings and decreased advertising costs, offset somewhat by $37 million of additional operating expenses related to the addition of Cambridge, $80 million in restructuring charges compared to $48 million in fiscal 2000 and $9 million of integration expense related to the acquisition of Cambridge. Operating expenses increased in fiscal 2000 compared to fiscal 1999 due primarily to a $48 million restructuring charge and increased advertising and promotional spending to promote Novell brand recognition. Operating expenses also increased as a percentage of net sales in fiscal 2001 and 2000 due to decreased revenue. Sales and marketing expenses decreased 10% in fiscal 2001 compared to fiscal 2000 due primarily to decreased headcount from restructurings and lower advertising and marketing promotions offset somewhat by Cambridge sales and marketing costs of approximately $16 million. Sales and marketing expenses increased 14% in fiscal 2000 compared to fiscal 1999 due primarily to costs related to sales force training and development and increased spending for advertising and promotion. In fiscal 2000, the Company ran a large-scale marketing promotion, including print and television advertising, which it traditionally had not done. Sales and marketing expenses as a percentage of sales were higher in fiscal 2001 and 2000 compared to fiscal 1999 primarily due to lower revenue. Sales and marketing expenses can fluctuate as a percentage of net sales in any given period due to product promotions, advertising, and other discretionary expenses. Product development expenses decreased in total and as a percentage of sales in fiscal 2001 compared to fiscal 2000 due primarily to lower headcount resulting from the fiscal 2000 and 2001 restructurings. Product development expenses decreased slightly in fiscal 2000 from fiscal 1999 due primarily to decreased headcount. The increase as a percentage of sales from fiscal 1999 to fiscal 2000 is primarily due to lower sales levels. General and administrative expenses increased in total and as a percentage of sales during fiscal 2001 compared to fiscal 2000 primarily due to Cambridge integration costs, $19 million related to the addition of Cambridge general and administrative costs during the last four months of fiscal 2001, costs related to the formation of Volera, and lower revenue. General and administrative expenses increased in total and as a percentage of sales from fiscal 1999 to fiscal 2000 primarily due to higher bad debt expense, increased consulting fees, and lower revenue. At the end of the fourth quarter of fiscal 2001, the Company incurred $51 million of pre-tax, restructuring charges resulting from general market conditions, customer demands and the Company's evolution of its Novell annual report 2001 21 - -------------------------------------------------------------------------------- - ---------- business strategy. The new business strategy focuses on eBusiness solutions along with Net services software designed to secure and power the networked world across leading operating systems. This included refining the Company's consulting initiatives, refocusing research and development efforts, defining sales and marketing efforts to be more customer and solutions oriented, and adjusting the overall cost structure given current revenue levels and company direction. The charge included $33 million of severance and employee related costs for a reduction in workforce of approximately 1,100 personnel, $11 million for excess facilities and related property and equipment disposals, $5 million for future committed payments related to abandonment of a management consulting contract that no longer fits with the Company's strategic focus, and $2 million for other related charges. The Company also realigned its remaining resources to better manage and control its business. Of the total $51 million charge, cash payments of $11 thousand were paid out during the year. After writing off certain non-cash charges, accruals of $45 million remain as of October 31, 2001, primarily related to severance and benefits to be paid out during fiscal 2002 and excess facility charges, which will be paid over the respective lease terms. During the third quarter of fiscal 2001, the Company recorded a restructuring charge of approximately $30 million as a result of the Company's acquisition of Cambridge and changes in the Company's business to move towards the Company's eBusiness strategy. Specific actions and the related charges taken included $16 million to reduce the Company's workforce worldwide by approximately 280 employees across all functional areas (approximately 5% before the addition of Cambridge), $11 million to consolidate facilities and dispose of excess property and equipment, $1 million to abandon and write off technologies that no longer fit within the Company's new strategy, $2 million to discontinue unprofitable product lines, and $1 million for other related restructuring costs. Of the total $30 million charge, cash payments of $15 million were paid out during the year. After writing off certain non-cash charges, accruals of $14 million remain as of October 31, 2001, primarily related to severance and benefits to be paid out during fiscal 2002 and excess facility charges, which will be paid over the respective lease terms. As a result of two fiscal 2001 reorganizations, the Company estimates that its operating expenses will be reduced by approximately $150 million annually compared to fourth quarter fiscal 2001 levels, before increased strategic expenditures. During the fourth quarter of fiscal 2000, the Company incurred $48 million of pre-tax, restructuring charges resulting from the Company's plan to change its business strategy to address changes in the market due to technology changes, customer demands, and methods of distribution. The new business strategy focuses on a Net services business model and on electronic or e-solutions. This included a reorganization of the Company into new business units, refocusing research and development efforts, analyzing profitability of products and discontinuing unprofitable ones, defining sales and marketing efforts to be more customer-oriented and market driven, and adjusting the overall cost structure given current revenue levels. The charge included $17 million of severance for a reduction in workforce of approximately 700 personnel, $5 million for redundant facilities, $23 million for abandonment of technologies that no longer fit with the Company's strategic focus, and $3 million for other related charges. Of the total $48 million charge, cash payments of $21 million have been paid out in cash. After writing off certain non-cash charges, accruals of $3 million remain as of October 31, 2001, primarily related to excess facility and long-term contract charges to be paid out over the contract terms. The Company could incur additional restructuring charges in the future as it continues to develop its eBusiness strategy. 22 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- Employees
OCTOBER 31, OCTOBER 31, OCTOBER 31, 2001 CHANGE 2000 CHANGE 1999 ----------- ------ ----------- ------ ----------- Employees............................... 7,003 43% 4,893 (10)% 5,430 Revenue per average employee (000's).... $ 175 $ 225 $ 254
Fiscal 2001 headcount increased compared to fiscal 2000 and 1999 due to the acquisition of Cambridge, offset somewhat by employee reductions. The acquisition of Cambridge increased headcount by approximately 2,500 employees. The Company continues to monitor headcount to ensure the Company's resources are aligned with expected business levels and its new business strategy, as well as in line with leading industry benchmarks. Other income (expense), net
2001 CHANGE 2000 CHANGE 1999 ----- ------ ---- ------ ---- Other income (expense), net (millions)............. $(156) (253)% $102 392% $21 Percentage of net sales............................ (15)% 9% 2%
The primary component of other income (expense), net, is net investment income (loss), which was a loss of $155 million in fiscal 2001 and income of $109 million and $41 million, in fiscal 2000 and 1999, respectively. In fiscal 2001, the Company recognized impairment losses on several of its short and long-term investments totaling $208 million and realized net gains on investments totaling $9 million. In fiscal 2000, the Company realized higher gains on the sale of equity securities and lower investment write-offs compared to fiscal 2001 and 1999. Other income, net, excluding investment income, increased slightly in fiscal 2001 compared to fiscal 2000 primarily due to the impact of decreased minority interest profits in the Company's Japanese and Volera subsidiaries. Other income, net, excluding investment income, increased in fiscal 2000 compared to fiscal 1999 primarily due to decreased legal settlements, other asset writeoffs, and increased foreign currency translation gains. Income tax expense (benefit)
2001 CHANGE 2000 CHANGE 1999 ---- ------ ---- ------ ---- Income tax expense (benefit)(millions)............... $(15) (171)% $21 (60)% $53 Percentage of net sales.............................. (1)% 2% 4% Effective tax (benefit) rate......................... (5)% 30% 22%
Absent the restructuring charges and the valuation allowance on the investment impairment in 2001, the effective tax benefit rate would have been 21% in fiscal 2001. Absent restructuring charges in 2000 and the Internal Revenue Service settlement in 1999, the effective tax rate for 2000 and 1999 would have been 28%. The fiscal 2001 benefit rate is lower than the effective tax rate for 2000 and 1999 and the statutory rate of 35% primarily due to non-deductible capital losses resulting from the investment impairment. The Company cannot be assured at this time that it can generate sufficient capital gains during the five year carry-over period to recognize the tax benefit of the capital losses. Accordingly, a valuation allowance has been established. In addition the Company established a valuation allowance in 2001 against other tax attributes. The effective tax rate for 2000 and 1999 is lower than the federal statutory rate of 35% primarily due to research credits, tax exempt income and low taxed foreign earnings. At October 31, 2001, the Company had deferred tax assets of $149 million, net of a valuation allowance. A portion of these assets is realizable based on the Company's ability to offset existing deferred tax liabilities of $55 million. Realization of the remaining portion of these assets is dependent on the Company's ability to generate approximately $480 million of future taxable income. Management believes that sufficient taxable income will be earned in the future to realize these assets net of the valuation allowances. Management will Novell annual report 2001 23 - -------------------------------------------------------------------------------- - ---------- evaluate the realizability of the deferred tax assets quarterly and assess the need for additional valuation allowances. Net income (loss) and net income (loss) per share
2001 CHANGE 2000 CHANGE 1999 ------ ------ ----- ------ ----- Net income (loss) before accounting change (millions)..................................... $ (262) (629)% $ 49 (74)% $ 191 Percentage of net sales.......................... (25)% 4% 15% Cumulative effect of accounting change, net of tax............................................ $ (11) -- -- -- -- Net income (loss) (millions)..................... $ (273) (652)% $ 49 (74)% $ 191 Percentage of net sales.......................... (26)% 4% 15% Net income without restructuring, integration, investment impairment charges, and accounting change (millions).............................. $ 17 (80)% $ 85 (55)% $ 191 Net income (loss) per share Basic.......................................... $(0.82) (642)% $0.15 (74)% $0.57 Diluted........................................ $(0.82) (642)% $0.15 (73)% $0.55 Diluted without restructuring, integration, investment impairment charges, and accounting change........................... $ 0.05 (80)% $0.25 (55)% $0.55
Net income (loss) per share decreased in fiscal 2001 compared to fiscal 2000 due primarily to lower revenue, $80 million (pre-tax) restructuring charges (compared to $48 million in fiscal 2000), $208 million (pre-tax) impairment charges and $9 million (pre-tax) integration costs related to the acquisition of Cambridge, as discussed above. In addition, shares outstanding increased during fiscal 2001 due to the issuance of shares for the acquisition of Cambridge. Net income (loss) per share decreased in fiscal 2000 compared to fiscal 1999 due primarily to decreased revenue, a $48 million (pre-tax) restructuring charge, and increased sales and marketing expenses, as discussed above. LIQUIDITY AND CAPITAL RESOURCES
OCTOBER 31, OCTOBER 31, 2001 CHANGE 2000 ----------- ------ ----------- Cash and short-term investments (millions)........... $705 1% $698 Percentage of total assets........................... 37% 41%
Cash and short-term investments increased to $705 million at October 31, 2001 from $698 million at October 31, 2000. The fiscal 2001 increase can be attributed to $92 million cash provided from operations, $26 million received as an investment in Volera by minority shareholders, $72 million cash acquired from Cambridge and the sale of Excell, a division of Cambridge, and $11 million from stock issuances, offset by $72 million expended for the repurchase of common stock, $33 million related to expenditures for fixed assets, and $89 million related to purchases of long-term investments, venture capital funds, and other investing activities. The Company's investment portfolio is diversified among security types, industry groups, and individual issuers. To achieve potentially higher returns, a portion of the Company's investment portfolio is invested in equity securities and mutual funds, which incur market risk. The Company's combined short and long-term investment portfolio includes securities with net unrealized gains of $7 million, before effects of deferred taxes, as of October 31, 2001. The Company's principal source of liquidity continues to be from operations and on-hand cash and investments. At October 31, 2001, the Company's principal unused sources of liquidity consisted of cash and short-term investments and available borrowing capacity of approximately $7 million under its lines of credit and additional capacity under two outstanding credit facilities. The Company's liquidity needs are principally 24 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- for financing of accounts receivable, capital assets, strategic investments, product development, and flexibility in a dynamic and competitive operating environment. The Company anticipates being able to fund its current operations and capital expenditures planned for the foreseeable future with existing cash and short-term investments together with internally generated funds. The Company believes that borrowings under the Company's credit facilities or public offerings of equity or debt securities are available if the need arises, although public offerings may not be acceptable to the Company. Investments will continue in product development and in new and existing areas of technology. Cash may also be used to acquire technology through purchases and strategic acquisitions. Capital expenditures in fiscal 2002 are anticipated to be approximately $50 million, but could be reduced if the growth of the Company is less than presently anticipated. The Company also intends to commit an additional $60 million during fiscal 2002 to external and internal venture capital funds. During the fourth quarter of 2001, the Board of Directors extended the stock repurchase program through June 30, 2003 and authorized the use of up to $400 million for the repurchase of additional outstanding shares of the Company's common stock. As of October 31, 2001, $89 million had been spent to repurchase 14 million shares under this plan during fiscals 2000 and 2001 at an average price of $6.19 per share. Euro Conversion On January 1, 2002, 12 of the 15 members of the European Union established fixed conversion rates among their existing sovereign currencies and adopted the Euro as their common legal currency and eliminated their legacy currencies. The Company is currently conducting transactions in the Euro and expects to have all affected information systems fully converted by January 31, 2002. Novell does not expect the Euro conversion to have a material effect on its competitive position or financial results. SUBSEQUENT EVENTS On December 21, 2001, the Company completed the sale of its 100,000 square foot office building in Herndon, Virginia for $16 million cash resulting in a net gain of approximately $8 million. Novell currently occupies approximately 20,000 square feet for sales offices and leases this space from the new owners of the building. On December 21, 2001, the Company formed a venture capital fund, Novell Technology Capital Fund I, L.P. ("NTC I") and related entities that include Novell Technology CGP, Inc. ("CGP") and Novell Technology GPLP I, LP ("GPLP"). GPLP is the General Partner of NTC I, which has limited partners including Novell, directly, and several Novell employees including two executive officers of Novell, and Co-Managing Directors of NTC I, who are directly involved in the management and operation of both NTC I and Cambridge Technology Capital Fund I L.P., Novell's venture capital fund acquired with Cambridge. Novell has committed up to $30 million in capital to NTC I, with an initial commitment of $15 and funding of $14 million as part of the first closing on December 21, 2001. NTC I is in the process of seeking additional outside institutional investors. Financial and operating results of NTC I and related entities will be consolidated in Novell's financial statements beginning in the first quarter of fiscal 2002. RISK FACTORS AFFECTING FUTURE RESULTS OF OPERATIONS The Company's future results of operations involve a number of risks and uncertainties. Among the factors that could cause actual results to differ materially from historical results are the following: business conditions and the general economy; competitive factors, such as rival operating systems, directories and applications; acceptance of new products and services and price pressures; availability of third-party compatible products at below market prices; risk of nonpayment of accounts or notes receivable; risks associated with foreign operations; risk of product line or inventory obsolescence due to shifts in technologies Novell annual report 2001 25 - -------------------------------------------------------------------------------- - ---------- or market demand; timing of software product introductions; market fluctuations of investment securities; and litigation. Other factors may also adversely affect the Company's earnings and stock price, including but not limited to: - competition for qualified employees - competition from other product and service companies - delays in the introduction of new products - success of new products or technologies - stock market fluctuations unrelated to Company performance - failure to properly estimate costs of fixed fee engagements - failure to properly manage consulting engagements within fees agreed to by customers The Current Economic Climate and Outlook in the Technology and Information Technology Services Sector Is Very Weak The weakened economic climate, particularly in the technology sector, has had an adverse effect on Novell's stock price and operations. Future economic projections for this sector do not anticipate a quick recovery. A continuation of the weakened economy could have further negative effects on the Company's stock price and operations in the future. Our Financial Results May Vary The Company often experiences a higher volume of sales at the end of each quarter and during the Company's fourth quarter. Because of this, fixed costs that are out of line with sales levels may not be detected until late in any given quarter and results of operations could be adversely affected. Operating results have been, and may also be affected, by other factors including, but not limited to: - timing of orders from customers and shipments to customers - product mix, including a shift from higher margin to lower margin products or services - delays or problems with our fulfillment agents - impact of foreign currency exchange rates on the price of our products in international locations - inability to respond to the decline in sales through the distribution channel - inability to derive benefits from the restructuring and new corporate strategy - inability to deliver solutions as expected by our consulting customers - differences in estimates versus actual results We Compete in a Challenging Market for Computer Software and Consulting Services Novell competes in a highly challenging market for computer software. One pervasive factor underlying all of the Company's business endeavors is the presence of Microsoft in all sectors of the software business, and Microsoft's dominance in many of those sectors. In a finding upheld by the Circuit Court for the District of Columbia, the United States District Court found that Microsoft violated Section 2 of the Sherman Act by unlawfully acting to maintain its monopoly 26 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- over desktop operating systems. The Company believes that Microsoft is exploiting its desktop operating monopoly in a way that is designed to extend its market power into the market for server operating systems, and to claim control of network and web services such as authentication, using many of the same anti-competitive practices found by the United States District Court to be in violation of the nation's anti-trust laws. The Company is concerned that the Revised Proposed Final Judgment of the litigation between the Department of Justice and Microsoft will not benefit competition or consumers in a meaningful way and, if approved, could result in continued harm to the Company. Additionally, the Company does not have the product breadth and market power of Microsoft. Microsoft's ability to ship networking products with features and functionality that compete with Novell's, together with its ability to offer incentives to customers to purchase certain products in order to obtain favorable sales terms or necessary compatibility or information with respect to other products, may significantly inhibit Novell's ability to grow its business. Microsoft has significant financial resources, which could allow it to aggressively price its products and services for long periods of time to the potential detriment of competitors. Microsoft in the past has also employed tactics that limit or block effective and efficient interoperability with Novell's products. Microsoft frequently bundles software features into its operating system for free which compete directly with stand-alone products from Novell. As Microsoft creates new operating systems and applications, there can be no assurance that Novell will be able to ensure that its products will be compatible with those of Microsoft. Although these market conditions and the judgments reached in litigation concerning Microsoft may affect overall Novell performance, the Company believes its strong product offering and "One Net" business strategy will be competitive in the marketplace. Additionally, if the more meaningful relief being sought by the nine litigating states is imposed on Microsoft, there could be a restoration of competition in the marketplace that would benefit Novell. The market for consulting services is highly competitive due to such factors as the existence of several large consulting firms specializing in the information systems area such as Compaq Computer Corporation, Hewlett-Packard Company, IBM, Accenture, Cap Gemini and the three remaining consulting arms of the "Big Five" accounting firms. Many of these companies have greater financial, technical and marketing resources and greater name recognition in the consulting area, which could inhibit the Company's ability to grow its consulting business. Additionally, the Company may face competition from other industry companies, which could introduce competitive products and/or services. If any of these competing products or services achieves market acceptance, Novell's business and results of operations could be materially adversely affected. Novell believes that additional factors that affect success in the marketplace include technical innovation to meet dynamic market needs, marketing strength, system performance, customer service and support, reliability, ease of use, security, and price compared to performance. Novell seeks to address all of these factors with its marketing and product development. However, these factors are also addressed by competitors, including Microsoft, in ways that may cause Novell's chances of success to be diminished. We Face Intense Competition for Qualified Personnel in the Computer and Consulting Industries The ability of the Company to maintain its competitive technological position will depend, in large part, on its ability to attract and retain highly qualified development, consulting, and managerial personnel. Competition for such personnel is intense and there is a risk of departure due to the competitive environment in the software and consulting industries. The loss of a significant group of key personnel would adversely affect the Company's performance. The failure to successfully promote and hire suitable replacements in a timely manner could have a material adverse effect on the Company's business. Novell annual report 2001 27 - -------------------------------------------------------------------------------- - ---------- We Depend on a Number of Key Executives Who Have Recently Joined Us and Whom We May Not Be Able To Retain Most members of our senior management have recently joined us. Many of these individuals have not previously worked with one another, and it will take time for the management team to become integrated and work effectively together. It may also take time for these individuals to effect change within the organizations that lie within their respective areas of responsibility. Due to the competitive nature of our industry, we may not be able to retain all of our senior managers. Although Our Acquisition of Cambridge Was Intended to Result in Benefits to the Combined Company, Those Benefits May Not be Realized. Additionally, Neither Novell nor Cambridge is Experienced in Organizing an Integration of Businesses of This Complexity and Scale Achieving the benefits of the Cambridge acquisition will depend in part on the successful integration of personnel, operations and technology. The integration of the two companies has been and will be a complex, time consuming and expensive process and may continue to disrupt Novell's business if not completed in a timely and efficient manner. The challenges involved in this integration include the following: - Obtaining synergies from the companies' professional services organizations; - Obtaining synergies from the companies' service and product offerings effectively and quickly; - Coordinating sales efforts so that customers can do business easily with the combined company; - Integrating technology, back office, human resources, accounting and financial systems; - Bringing together marketing efforts so that the market receives useful information about the combined company; - Assimilating our employees into a common business culture; and - Retaining key officers and employees who possess the necessary skills and experience to quickly and effectively transition and integrate the businesses. Neither Novell nor Cambridge has experience in integrating operations on the complexity and scale presented by the merger. The integration process has been and will continue to be complicated and has been and will continue to involve a number of special risks and challenges, including the possibility that management may be distracted from regular business operations. It is not certain that Novell and Cambridge can be successfully integrated in a timely manner or that the anticipated benefits will be realized. Failure to effectively complete the integration could materially harm the business and operating results of the combined company. In addition, goodwill related to the acquisition of Cambridge could become impaired. We Have Experienced Delays in the Introduction and Acceptance of New Products Due to Various Factors As is common in the computer software industry, Novell has, in the past experienced delays in the introduction of new products due to a number of factors, including the complexity of software products, the need for extensive testing of software to ensure compatibility of new releases with a wide variety of application software and hardware devices, and the need to "debug" products prior to extensive distribution. Significant delays in developing, completing or shipping new or enhanced products would adversely affect the Company. Moreover, the Company may experience delays in market acceptance of new releases of its products as the Company engages in marketing and education of the user base regarding the advantages and system requirements for new products and as customers evaluate the advantages and disadvantages of upgrading. The Company has encountered these issues on each major new release of its products, and expects that it will encounter such issues in the future. Novell's ability to achieve desired levels of sales growth depends at least in part on the successful completion, introduction and sale of new versions of its products. There can be no 28 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- assurance that the Company will be able to respond effectively to technological changes or new product announcements by others, or that the Company's research and development efforts will be successful. Should Novell experience material delays or sales shortfalls with respect to new product releases, the Company's sales and net income could be adversely affected. If Third Parties Claim that We Infringed Upon Their Intellectual Property, Our Ability to Use Some Technologies and Products Could Be Limited and We May Incur Significant Costs to Resolve These Claims Litigation regarding intellectual property rights is common in the Internet and software industries. Novell expects third-party infringement claims involving Internet technologies and software products and services to increase. If an infringement claim is filed against Novell, it may be prevented from using some technologies and may incur significant costs to resolve the claim. Novell has in the past received letters suggesting that it is infringing upon the intellectual rights of others, and it may from time to time encounter disputes over rights and obligations concerning intellectual property. Novell's products and services may be found to infringe on the intellectual property rights of third parties. In addition, Novell has agreed, and may agree in the future, to indemnify customers against claims that its products infringe upon the intellectual property rights of others. Novell could incur substantial costs in defending itself and its customers against infringement claims. In the event of a claim of infringement, Novell and its customers may be required to obtain one or more licenses from third parties. In such instances, Novell or its customers may not be able to obtain necessary licenses from third parties at a reasonable cost or at all. We May Not Be Able to Protect Our Confidential Information, Which May Adversely Affect Our Business The Company generally enters into contractual relationships with its employees that protect its confidential information. In the event that the Company's trade secrets or other proprietary information are misappropriated, the Company's business could be seriously harmed. In addition, the Company may not be able to timely detect unauthorized use of its intellectual property and take appropriate steps to enforce its rights. In the event the Company is unable to enforce these contractual obligations, its business could be adversely affected. We May Not Be Successful at Introducing New Technologies One goal of the Company is to achieve widespread acceptance and adoption of Novell's Net Services and e-solutions products, Directory Services ("NDS"), and the products and applications that take advantage of directory services. The Company's ability to achieve success with its Net Services and NDS solutions is dependent on a number of factors including, but not limited to, the following: development of key Net Services and directory products and upgrades, the acceptance of those products by large industry partners, the marketing of those products through appropriate channels of distribution, and the acceptance of those products in major accounts. The Company has only had limited success in introducing new technologies and there can be no assurance of success with Net Services or NDS solutions. Our Existing Product Sales May Deteriorate More Rapidly Than Sales of Our New Products Increase The Company has several existing products, which it has been selling and upgrading for many years. Technology shifts or competition could occur causing sales of these products to decline at a faster rate than the Company is able to increase sales of new products or technologies. Although revenues from Net Directory Services and Net Content Services increased during fiscal 2001, revenues from Net Management Services decreased by 23%, resulting in overall declines in net sales by 10% in fiscal 2001 compared to the same period of fiscal 2000. Novell annual report 2001 29 - -------------------------------------------------------------------------------- - ---------- We Face Increased Risks in Conducting a Global Business, Which May Damage Business Results Novell is a multi-national corporation with offices and subsidiaries around the world and, as such, it faces risks in doing business abroad that it does not face domestically. Certain aspects inherent in transacting business internationally could negatively impact the operating results of the Company, including: - costs and difficulties in staffing and managing international operations; - unexpected changes in regulatory requirements; - tariffs and other trade barriers; - difficulties in enforcing contractual and intellectual property rights; - longer payment cycles; - local political and economic conditions; - potentially adverse tax consequences, including restrictions on repatriating earnings and the threat of "double taxation"; and - fluctuations in currency exchange rates. Some of Our Short-term, Long-term, and Venture Capital Fund Investments Have Become Impaired. Additional Investments Could Become Impaired Novell's investment portfolio includes investments in public equity securities, small capitalization stocks in the high-technology industry sector, and funds managed by venture capitalists. Many of these investments might become other than temporarily impaired. During its fiscal 2001 year, Novell recorded an impairment charge of $208 million related to some of the investments in its portfolio whose market value had experienced an other than temporary decline. As of October 31, 2001, the Company had net unrealized gains, net of taxes, on investments totaling approximately $5 million; however, there can be no assurances that these gains will be realized and that losses will not occur. Our Existing Relationships With Other Information Technology Services Organizations May Be Impaired Novell relies on existing relationships with information technology services organizations that recommend, design and implement solutions for their customers' eBusiness that include Novell Net services products. A change in the willingness of these information technology service organizations to do business with Novell could undercut Novell's efforts to become a solutions-based Net services software company. Our Business May Be Negatively Affected if We Do Not Continue to Adapt to Rapid Technological Change, Evolving Business Practices and Changing Consumer Requirements The software industry and Internet professional services market is characterized by rapidly changing technology, evolving business practices and changing client needs. Accordingly, Novell's future success will depend in part on its ability to continue to adapt and meet these challenges. Among the most important challenges facing the Company are the need to continue to: - effectively identify and use leading technologies; - develop strategic and technical expertise; - influence and respond to emerging industry standards and other technology changes and to orient management teams to capitalize on these changes; - recruit and retain qualified project personnel; 30 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- - enhance current services; - develop new services that meet changing customer needs; and - effectively advertise and market services. Our Services Contracts Contain Pricing Risks Novell's Cambridge IT services business derives a significant portion of its revenue from fixed-price, fixed-time contracts. Because of the complex nature of the services provided, it is sometimes difficult to accurately estimate the cost, scope and duration of particular client engagements. If the Company does not accurately estimate the resources required for a project, does not accurately assess the scope of work associated with a project, does not manage the project properly, or does not satisfy its obligations in a manner consistent with the contract, then the Company's costs to complete the project could increase substantially. The Company has occasionally had to commit unanticipated additional resources to complete projects, and it may have to take similar action in the future. The Company may not be compensated for these additional costs or the commitment of these additional resources. Our Cambridge IT Services Clients Can Cancel or Reduce the Scope of Their Engagements With Us on Short Notice If the Company's clients cancel or reduce the scope of an engagement with the Cambridge IT services business, the Company may be unable to reassign its professionals to new engagements without delay. Personnel and related costs constitute a substantial portion of the Company's operating expenses. Because these expenses are relatively fixed, and because the Company establishes the levels of these expenses well in advance of any particular quarter, cancellations or reductions in the scope of client engagements could result in the under-utilization of the Company's professional services employees, causing significant reductions in operating results for a particular quarter. Our Stock Price Will Fluctuate The Company's future earnings and stock price could be subject to significant volatility, particularly on a quarterly basis. Due to analysts' expectations of continued growth, any such shortfall in earnings can be expected to have an immediate and significant adverse effect on the trading price of Novell's Common Stock in any given period. Revenue fluctuations may also contribute to the volatility of the trading price of Novell Common Stock in any given period. In addition, the market prices for securities of software companies have been very volatile recently and historically they have also been volatile as well. The market price of Novell Common Stock, in particular, has been subject to wide fluctuations in the past. As a result of the foregoing factors and other factors that may arise in the future, the market price of Novell's Common Stock may be subject to significant fluctuations within a short period of time. These fluctuations may be due to factors specific to the Company, to changes in analysts' earnings estimates, or to factors affecting the computer industry or the securities markets in general. Novell annual report 2001 31 - -------------------------------------------------------------------------------- - ---------- ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to financial market risks, including changes in interest rates, foreign currency exchange rates and marketable equity security prices. To mitigate some of these risks, the Company utilizes currency forward contracts and currency options. The Company does not use derivative financial instruments for speculative or trading purposes, and no significant derivative financial instruments were outstanding at October 31, 2001. Interest Rate Risk The primary objective of the Company's short-term investment activities is to preserve principal while maximizing yields without significantly increasing risk. This is accomplished by investing 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 $4 million decrease (approximately 1%) in the fair value of the Company's available-for-sale securities. Market Risk The Company also holds available-for-sale equity securities in its short-term investment portfolio. A reduction in prices of 10% of these short-term equity securities would result in approximately $1 million decrease in the fair value of the Company's short-term investments. As of October 31, 2001, the Company had net unrealized gains on short-term public equity securities totaling $0.5 million. In addition, the Company invests in equity, securities, included in its long-term portfolio of investments, for the promotion of business and strategic objectives. These investments are generally in small capitalization stocks in the high-technology industry sector, both public and private. Because of the nature of these investments, the Company is exposed to equity price risks. The Company typically does not attempt to reduce or eliminate its market exposure on these securities. A 10% adverse change in equity prices of long-term equity securities would result in approximately $11 million decrease in the fair value of the Company's available-for-sale long-term securities. Foreign Currency Risk The Company hedges currency risks of investments denominated in foreign currencies with currency forward contracts when hedging is deemed to be available and beneficial. Foreign currency gains and losses on these foreign currency investments would generally be offset by corresponding losses and gains on the related hedging instruments, resulting in negligible net exposure to the Company. A substantial majority of the Company's revenue, expense and capital purchasing activities are transacted in U.S. dollars. However, the Company does enter into transactions in other currencies, primarily Japanese yen and certain other Asian and European currencies. The Company generally does not use any derivative instruments for trading purposes and did not utilize any such instruments during the year. The Company, however, does utilize some natural hedging to mitigate our foreign currency exposures and we hedge certain residual exposures through the use of one-month forward contracts. Due to the short period of time between entering into the forward contracts and the year end, the fair value of the derivatives as of October 31, 2001 is insignificant and accordingly did not have a material impact on our financial position or results of operations. The Company's hedging programs reduce, but do not always entirely eliminate, the impact of foreign currency exchange rate movements. If the Company did not hedge against foreign currency exchange rate movement, an adverse change of 10% in exchange rates would result in a decline in income before taxes of approximately $11 million, net of existing hedges. All of the potential changes noted above are based on sensitivity analyses performed on the Company's financial position at October 31, 2001. Actual results may differ materially. 32 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA NOVELL, INC.
PAGE ---- Consolidated Statements of Operations....................... 34 Consolidated Balance Sheets................................. 35 Consolidated Statements of Shareholders' Equity............. 36 Consolidated Statements of Cash Flows....................... 37 Notes to Consolidated Financial Statements.................. 38 Report of Ernst & Young LLP, Independent Auditors........... 58 Selected Consolidated Quarterly Financial Data -- Unaudited......................................... 59
Novell annual report 2001 33 - -------------------------------------------------------------------------------- - ---------- NOVELL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED ----------------------------------------------- OCTOBER 31, OCTOBER 31, OCTOBER 31, 2001 2000 1999 ------------- ------------- ------------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales.............................................. $1,040,097 $1,161,735 $1,272,820 Cost of sales.......................................... 327,935 327,398 297,841 ---------- ---------- ---------- Gross profit........................................... 712,162 834,337 974,979 Operating expenses: Sales and marketing.................................. 443,828 495,245 434,339 Product development.................................. 191,709 228,002 234,032 General and administrative........................... 117,261 94,780 83,556 Restructuring charges................................ 80,177 47,892 -- ---------- ---------- ---------- Total operating expenses..................... 832,975 865,919 751,927 Income (loss) from operations.......................... (120,813) (31,582) 223,052 Other income (expense): Investment income (loss)............................. (154,572) 109,390 41,472 Other, net........................................... (1,381) (7,136) (20,688) ---------- ---------- ---------- Other income (expense), net............................ (155,953) 102,254 20,784 Income (loss) before taxes............................. (276,766) 70,672 243,836 Income tax expense (benefit)........................... (14,944) 21,202 53,089 ---------- ---------- ---------- Income (loss) before accounting change................. (261,822) 49,470 190,747 Cumulative effect of accounting change, net of tax..... (11,048) -- -- ---------- ---------- ---------- Net income (loss)...................................... $ (272,870) $ 49,470 $ 190,747 ========== ========== ========== Weighted average shares outstanding: Basic................................................ 332,582 326,621 334,460 Diluted.............................................. 332,582 335,034 349,393 Net income (loss) per share: Basic Before cumulative effect of accounting change..... $ (0.79) $ 0.15 $ 0.57 Cumulative effect of accounting change............ (0.03) -- -- ---------- ---------- ---------- $ (0.82) $ 0.15 $ 0.57 ========== ========== ========== Diluted Before cumulative effect of accounting change..... $ (0.79) $ 0.15 $ 0.55 Cumulative effect of accounting change............ (0.03) -- -- ---------- ---------- ---------- $ (0.82) $ 0.15 $ 0.55 ========== ========== ========== PRO FORMA AMOUNTS ASSUMING THE ACCOUNTING CHANGE IS APPLIED RETROACTIVELY Net income............................................. $ 75,750 $ 197,875 ========== ========== Net income per share -- diluted........................ $ 0.23 $ 0.57 ========== ==========
See notes to consolidated financial statements. 34 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- NOVELL, INC. CONSOLIDATED BALANCE SHEETS ASSETS
OCTOBER 31, OCTOBER 31, 2001 2000 ------------- ------------- (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Current assets: Cash and short-term investments........................... $ 705,243 $ 698,193 Receivables, less allowances ($47,249 -- 2001, $33,469 -- 2000)....................................... 227,044 196,672 Inventories............................................... 947 2,621 Prepaid expenses.......................................... 29,808 26,120 Deferred income taxes..................................... 34,595 60,109 Other current assets...................................... 29,729 23,644 ---------- ---------- Total current assets.............................. 1,027,366 1,007,359 Property, plant, and equipment, net......................... 496,620 290,104 Long-term investments....................................... 114,971 383,583 Goodwill and other intangible assets........................ 192,016 8,599 Other assets................................................ 73,033 22,701 ---------- ---------- Total assets...................................... $1,904,006 $1,712,346 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 77,571 $ 85,050 Accrued compensation...................................... 87,382 54,546 Accrued marketing liabilities............................. 13,672 13,632 Other accrued liabilities................................. 150,842 59,644 Income taxes payable...................................... 38,175 39,043 Deferred revenue.......................................... 243,261 203,163 ---------- ---------- Total current liabilities......................... 610,903 455,078 Minority interests.......................................... 22,436 12,183 Shareholders' equity: Common stock, par value $.10 per share Authorized -- 600,000,000 shares; Issued -- 362,341,403 shares, 2001; 327,618,192 shares, 2000.................................................. 36,234 32,762 Preferred stock, par value $.10 per share Authorized -- 500,000 shares; Issued -- 0 shares..................................... -- -- Additional paid-in capital................................ 256,332 -- Retained earnings......................................... 985,486 1,319,853 Accumulated other comprehensive income (loss)............. 2,455 (84,427) Other..................................................... (9,840) (23,103) ---------- ---------- Total shareholders' equity........................ 1,270,667 1,245,085 ---------- ---------- Total liabilities and shareholders' equity........ $1,904,006 $1,712,346 ========== ==========
See notes to consolidated financial statements. Novell annual report 2001 35 - -------------------------------------------------------------------------------- - ---------- NOVELL, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ACCUMULATED COMMON COMMON ADDITIONAL OTHER STOCK STOCK PAID-IN RETAINED COMPREHENSIVE SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) OTHER TOTAL ------- ------- ---------- ---------- ------------- -------- ---------- (AMOUNTS IN THOUSANDS) Balance -- October 31, 1998........ 337,593 $33,759 $ 200,897 $1,290,337 $ (26,099) $ (5,396) $1,493,498 Stock issued from stock plans...... 11,946 1,194 102,690 -- -- (6,251) 97,633 Stock plans' income tax benefits... -- -- 50,659 -- -- -- 50,659 Shares cancelled................... (94) (9) (2,409) -- -- -- (2,418) Shares repurchased and retired..... (22,851) (2,285) (351,837) (48,460) -- -- (402,582) Amortization of unearned stock compensation..................... -- -- -- -- -- 3,416 3,416 Unrealized gain on investments..... -- -- -- -- 62,108 -- 62,108 Cumulative translation adjustment....................... -- -- -- -- (820) -- (820) Net income......................... -- -- -- 190,747 -- -- 190,747 ---------- Comprehensive income............... -- -- -- -- -- -- 252,035 ------- ------- --------- ---------- --------- -------- ---------- Balance -- October 31, 1999........ 326,594 $32,659 $ -- $1,432,624 $ 35,189 $ (8,231) $1,492,241 Stock issued from stock plans...... 12,997 1,300 119,469 -- -- (29,848) 90,921 Stock plans' income tax benefits... -- -- 22,918 -- -- -- 22,918 Stock issued for acquisitions...... 645 65 17,301 -- -- -- 17,366 Shares cancelled................... (265) (27) (4,690) -- -- 2,156 (2,561) Shares repurchased and retired..... (12,353) (1,235) (154,998) (162,241) -- -- (318,474) Amortization of unearned stock compensation..................... -- -- -- -- -- 12,820 12,820 Unrealized loss on investments..... -- -- -- -- (118,956) -- (118,956) Cumulative translation adjustment....................... -- -- -- -- (660) -- (660) Net income......................... -- -- -- 49,470 -- -- 49,470 ---------- Comprehensive loss................. -- -- -- -- -- -- (70,146) ------- ------- --------- ---------- --------- -------- ---------- Balance -- October 31, 2000........ 327,618 $32,762 $ -- $1,319,853 $ (84,427) $(23,103) $1,245,085 Stock issued from stock plans...... 6,095 608 28,660 -- -- (12,380) 16,888 Stock issued for acquisitions...... 42,416 4,242 246,323 -- -- -- 250,565 Shares cancelled................... (1,240) (124) (9,517) -- -- 3,981 (5,660) Shares repurchased and retired..... (12,548) (1,254) (9,134) (61,497) -- -- (71,885) Amortization of unearned stock compensation..................... -- -- -- -- -- 21,662 21,662 Unrealized gain on investments..... -- -- -- -- 86,226 -- 86,226 Cumulative translation adjustment....................... -- -- -- -- 656 -- 656 Net loss........................... -- -- -- (272,870) -- -- (272,870) ---------- Comprehensive loss................. -- -- -- -- -- -- (185,988) ------- ------- --------- ---------- --------- -------- ---------- Balance -- October 31, 2001........ 362,341 $36,234 $ 256,332 $ 985,486 $ 2,455 $ (9,840) $1,270,667 ======= ======= ========= ========== ========= ======== ==========
See notes to consolidated financial statements. 36 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- NOVELL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED ----------------------------------------- OCTOBER 31, OCTOBER 31, OCTOBER 31, 2001 2000 1999 ----------- ----------- ----------- (AMOUNTS IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)........................................... $(272,870) $ 49,470 $ 190,747 Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization............................. 86,708 81,909 70,156 Stock plans' income tax benefits.......................... -- 22,918 50,659 Loss on impaired investments and fixed assets............. 215,472 -- -- Restructuring charges..................................... 67,646 22,635 -- Decrease (increase) in receivables........................ 47,682 87,838 (52,718) Decrease (increase) in inventories........................ 1,674 1,132 (191) Decrease in prepaid expenses.............................. 317 21,618 15,427 (Increase) decrease in deferred and refundable income taxes................................................... (18,691) 18,610 38,979 Decrease (increase) in other current assets............... 8,786 20,301 (9,276) (Decrease) increase in current liabilities, net........... (44,747) 15,446 24,937 --------- --------- ----------- Net cash provided by operating activities.......... 91,977 341,877 328,720 CASH FLOWS FROM FINANCING ACTIVITIES Issuance of common stock, net............................. 11,228 88,360 95,215 Repurchases of common stock............................... (71,885) (318,474) (402,582) --------- --------- ----------- Net cash used by financing activities.............. (60,657) (230,114) (307,367) CASH FLOWS FROM INVESTING ACTIVITIES Expenditures for property, plant, and equipment........... (33,289) (57,811) (69,181) Proceeds from the sale of property, plant and equipment... -- 53,579 -- Purchases of short-term investments....................... (752,833) (839,645) (1,743,695) Maturities of short-term investments...................... 639,507 644,655 1,346,432 Sales of short-term investments........................... 114,047 348,519 689,910 Proceeds from investment by Volera minority shareholders............................................ 25,975 -- -- Cash acquired from acquisition of Cambridge Technology Partners................................................ 72,358 -- -- Increase in restricted cash............................... -- (36,881) (91,668) Purchases of long-term investments........................ (36,461) (206,272) (37,358) Other..................................................... (12,234) (2,639) 2,983 --------- --------- ----------- Net cash provided (used) by investing activities... 17,070 (96,495) 97,423 Total increase in cash and cash equivalents................. 48,390 15,268 118,776 Cash and cash equivalents -- beginning of period............ 289,537 274,269 155,493 --------- --------- ----------- Cash and cash equivalents -- end of period.................. 337,927 289,537 274,269 Short-term investments -- end of period..................... 367,316 408,656 621,135 --------- --------- ----------- Cash and short-term investments -- end of period............ $ 705,243 $ 698,193 $ 895,404 ========= ========= =========== SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING AND INVESTING ACTIVITIES: Issuance of stock for acquisitions.......................... $ 250,565 $ 17,366 $ -- Property, plant and equipment acquired with restricted cash...................................................... $ 223,027 $ -- $ --
See notes to consolidated financial statements. Novell annual report 2001 37 - -------------------------------------------------------------------------------- - ---------- NOVELL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Novell provides eBusiness solutions and Net services software designed to secure and power the networked world. Novell and its services division, Cambridge Technology Partners, help organizations solve complex business challenges, simplify their systems and processes, and capture new opportunities. Novell provides worldwide channel, consulting, education and developer programs to support its offerings. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates. The consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany accounts and transactions have been eliminated. The following summarizes the significant accounting policies of the Company: - The Company considers all highly liquid debt instruments purchased with a term to maturity of three months or less to be cash equivalents. Short-term investments are widely diversified, consisting primarily of short-term investment grade securities, substantially all of which either mature within the next twelve months or have characteristics of short-term investments. Municipal securities included in short-term investments have contractual maturities ranging from one to seven years. Money market preferreds have contractual maturities of less than 180 days. No other short-term investments have contractual maturities. All marketable debt and equity securities are included in cash and short-term investments and are considered available-for-sale and carried at fair market value, with the unrealized gains and losses, net of tax and after applicable valuation allowances, included in shareholders' equity. Fair market values are based on quoted market prices where available; if quoted market prices are not available, then fair market values are based on quoted market prices of comparable instruments. The cost of securities sold is based on the specific identification method. Such securities are anticipated to be used for current operations and are therefore classified as current assets, even though some maturities may extend beyond one year. Realized gains and losses are recorded in investment income. - Accounts receivable include amounts owed by geographically dispersed end users, distributors, resellers, and OEM customers. No collateral is required. Provisions are provided for sales returns, product exchanges and bad debts. - Property, plant and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization expense related to plant and equipment totaled $57 million, $57 million, and $66 million, in fiscal 2001, 2000, and 1999, respectively. - Provision for depreciation and amortization is computed on the straight-line method over the estimated useful lives of the assets, or lease term if shorter, and are as follows: ASSET CLASSIFICATION
USEFUL LIVES ------------ Buildings............................................... 30 years Furniture and equipment................................. 3 - 7 years Leasehold improvements and other........................ 3 - 20 years Intangible assets....................................... 3 years
38 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- NOVELL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - Assets and liabilities of the Company's wholly owned subsidiaries, except its Japan, India, and Cambridge international subsidiaries, are denominated in the local currency of the subsidiary and are remeasured into U.S. dollars (the functional currency) at year-end exchange rates, except for equipment and leasehold improvements, which are remeasured at the historical rates of exchange prevailing when acquired. Income and expense items are remeasured at average rates of exchange prevailing during the year, except that depreciation is remeasured at historical rates. Remeasurement gains and losses are included in net income (loss) in the period incurred and were not material for fiscal 2001, 2000, and 1999. - For the Company's subsidiaries in Japan and India, and for the foreign Cambridge subsidiaries, the functional currency has been determined to be the local currency, and therefore assets and liabilities are translated at year-end exchange rates, and income statement items are translated at average exchange rates prevailing during the year. Such translation adjustments are recorded in accumulated comprehensive income (loss). - The Company recognizes revenue on software-related sales in accordance with Statement of Position 97-2 (SOP 97-2), "Software Revenue Recognition," and Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101), which requires that revenue recognized from software arrangements be allocated to each element of the arrangement based on the relative fair values of the elements, such as software products, upgrades, enhancements, post-contract customer support, installation, and training. Revenue from product sales including license fees is recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, the fee is fixed or determinable and collection is probable. If the fee due from the customer is not fixed or determinable, revenue is recognized as payments become due from the customer. If collection is not considered probable, revenue is recognized when the fee is collected. Consulting project contracts are either time-and-materials or fixed-price contracts. Revenue from consulting projects is recognized only if a signed contract exists, the fee is fixed or determinable, and collection of the resulting receivable is reasonably assured. Revenue from fixed price contracts is recognized on percentage of completion method, using the time-to-completion method to measure the percent complete. The cumulative impact of any revision in estimates of the percent complete or recognition of losses on loss contracts is generally reflected in the period in which the changes or losses become known. To date, the Company has not recorded a significant adjustment caused by the failure to accurately estimate the costs, scope, or duration of a fixed-price contract. Net sales exclude reimbursable expenses charged to clients. Revenue on services, including maintenance contracts and consulting, is recognized as services are performed. Certain sales require continuing service, support, and performance by the Company, and accordingly a portion of the revenue is deferred until the future service, support, and performance are provided. Reserves for estimated sales returns and allowances are recorded in the same period as the related revenues. - Product development costs are expensed as incurred. Due to use of the working model approach, capitalized development costs have not been material. - The cost of advertising is expensed as incurred. Advertising expenses totaled $52 million, $50 million, and $29 million, in fiscal 2001, 2000, and 1999, respectively. Novell annual report 2001 39 - -------------------------------------------------------------------------------- - ---------- NOVELL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - Basic earnings (loss) per share excludes any dilutive effects of options, warrants, and convertible securities. Diluted earnings (loss) per share includes the dilutive effects of stock options, warrants, and convertible securities. The effects of stock options have not been included in fiscal 2001 diluted loss per share as their effect would have been anti-dilutive. In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 supersedes Accounting Principles Board ("APB") Opinion 16 "Business Combinations" and SFAS No. 38 "Accounting for Pre-acquisition Contingencies," and eliminates the pooling-of-interests method of accounting for business combinations except for qualifying business combinations that were initiated prior to July 1, 2001. SFAS No. 141 also includes new criteria to recognize intangible assets separately from goodwill. The requirements of SFAS 141 are effective for any business combination accounted for by the purchase method that is completed after June 30, 2001 (i.e., the acquisition date is July 1, 2001 or after). The Company applied the criteria under this statement in regards to its acquisition of Cambridge in July 2001. SFAS No. 142, supersedes APB Opinion No. 17, "Intangible Assets," and states that goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed for impairment annually, or more frequently if impairment indicators arise. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. The discontinuing of amortization provisions under SFAS No. 142 of goodwill and indefinite lived intangible assets apply to assets acquired after June 30, 2001. In addition, the impairment provisions of SFAS 142 apply to assets acquired prior to July 1, 2001 upon adoption of SFAS 142. Novell has elected early adoption of this statement beginning in the first quarter of fiscal 2002. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS No. 144"), which supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of." The primary objectives of SFAS No. 144 is to develop one accounting model based on the framework established in SFAS No. 121 for long-lived assets to be disposed of by sale, and to address significant implementation issues. The provisions of this statement are effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early application encouraged. Novell is evaluating the impact of SFAS No. 144 on its financial position and results of operations. Numbers reported for prior years may have been adjusted from what was reported in those years to reflect certain reclassifications to conform to the current year's presentation. None of these adjustments have affected net income for the prior periods. B. ACQUISITIONS On July 10, 2001, the shareholders of Cambridge Technology Partners (Massachusetts), Inc. ("Cambridge") approved the acquisition of Cambridge by Novell. The acquisition of Cambridge enhances the Company's strategy of providing a foundation for e-business with Novell Net services software and eDirectory products. The Company issued 0.668 shares of its common stock for each share of Cambridge common stock outstanding on July 10, 2001. The results of operations of Cambridge from July 11, 2001 through October 31, 2001 are included in the Company's fiscal 2001 operating results. The fair value of the consideration was approximately $261 million, of which $251 million related to the number of shares exchanged at a per share value of $5.907 (the average closing price of a share of Novell common stock for the seven trading day period beginning three days before the announcement date of the acquisition), and 40 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- NOVELL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) $10 million related to direct transaction costs. The acquisition was accounted for as a purchase. The value of the acquisition was preliminarily allocated as follows: The total purchase consideration was preliminarily allocated to the acquired assets and assumed liabilities based on fair values as follows (in thousands): Cash........................................................ $ 72,358 Accounts receivable, net.................................... 61,825 Other current assets........................................ 86,699 Net fixed assets and other assets........................... 77,751 Liabilities assumed......................................... (218,050) Goodwill.................................................... 180,460 --------- Total purchase consideration................................ $ 261,043 =========
Assumed liabilities includes approximately $109 million of estimated merger-related costs, including costs to exit certain activities of Cambridge. These costs included approximately $12 million to involuntarily terminate and relocate certain Cambridge employees, approximately $18 million to exit certain Cambridge facilities, approximately $77 million related to a valuation allowance on Cambridge deferred tax assets, and approximately $2 million for other related costs. Of these total merger costs, approximately $105 million remained at October 31, 2001. Deferred tax assets are discussed in Note G. The Company will not amortize the goodwill associated with this acquisition. The Company will review the asset periodically for potential impairment issues. The unaudited pro forma consolidated statement of operations data for fiscal 2001, 2000, and 1999 set forth below gives effect to the acquisition of Cambridge as if it occurred on November 1, 1998. The unaudited pro forma results for these periods include an adjustment to reflect amortization of goodwill recorded in conjunction with the acquisition. The basic and diluted net loss per share amounts are computed using the weighted average number of shares of common stock outstanding after the issuance of the Company's common stock to acquire the outstanding shares of Cambridge.
FISCAL 2001 FISCAL 2000 FISCAL 1999 ------------- ------------- ------------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Revenue................................................ $1,340,982 $1,764,705 $1,914,316 Net income (loss) before accounting change............. (370,310) (61,446) 180,436 Net income (loss)...................................... (381,358) (61,446) 180,436 Earnings (loss) per share -- Basic..................... $ (1.04) $ (0.17) $ 0.48 Earnings (loss) per share -- Diluted................... $ (1.04) $ (0.16) $ 0.46
Novell annual report 2001 41 - -------------------------------------------------------------------------------- - ---------- NOVELL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) C. CASH AND SHORT-TERM INVESTMENTS
FAIR MARKET COST AT GROSS GROSS VALUE AT OCTOBER 31, UNREALIZED UNREALIZED OCTOBER 31, 2001 GAINS LOSSES 2001 ----------- ---------- ---------- ----------- (AMOUNTS IN THOUSANDS) Cash and cash equivalents: Cash......................................... $156,088 $ -- $ -- $156,088 Corporate debt............................... 3,995 -- -- 3,995 Money market funds........................... 177,844 -- -- 177,844 -------- ------ ------- -------- Total cash and cash equivalents...... 337,927 -- -- 337,927 Short-term investments: State and local government debt.............. 151,459 5,074 -- 156,533 Corporate debt............................... 138,679 2,255 (9) 140,925 Money market preferreds...................... 17,034 -- (34) 17,000 Mutual funds................................. 41,014 -- -- 41,014 Equity securities............................ 12,336 538 (1,030) 11,844 -------- ------ ------- -------- Total short-term investments......... 360,522 7,867 (1,073) 367,316 -------- ------ ------- -------- Total cash and short-term investments........................ $698,449 $7,867 $(1,073) $705,243 ======== ====== ======= ========
FAIR MARKET COST AT GROSS GROSS VALUE AT OCTOBER 31, UNREALIZED UNREALIZED OCTOBER 31, 2000 GAINS LOSSES 2000 ----------- ---------- ---------- ----------- (AMOUNTS IN THOUSANDS) Cash and cash equivalents: Cash......................................... $137,968 $ -- $ -- $137,968 Corporate debt............................... 54,514 1 -- 54,515 Money market funds........................... 97,054 -- -- 97,054 -------- ------- -------- -------- Total cash and cash equivalents...... 289,536 1 -- 289,537 Short-term investments: State and local government debt.............. 221,565 -- (1,274) 220,291 Corporate debt............................... 48,257 238 -- 48,495 Money market preferreds...................... 57,000 -- -- 57,000 Mutual funds................................. 54,082 -- (8,543) 45,539 Equity securities............................ 25,221 20,267 (8,157) 37,331 -------- ------- -------- -------- Total short-term investments......... 406,125 20,505 (17,974) 408,656 -------- ------- -------- -------- Total cash and short-term investments........................ $695,661 $20,506 $(17,974) $698,193 ======== ======= ======== ========
The Company had unrealized gains related to short-term investments, net of deferred taxes, of $5 million and $2 million at October 31, 2001 and 2000, respectively. The Company realized gains on the sales of securities of $11 million, $60 million, and $51 million, in fiscal 2001, 2000, and 1999, respectively, while realizing losses on sales of securities of $2 million, $2 million, and $62 million, during those same periods, respectively. In addition, during fiscal 2001, the Company recognized a $32 million loss on short-term investments due to impairment. 42 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- NOVELL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) D. PROPERTY, PLANT, AND EQUIPMENT
OCTOBER 31, OCTOBER 31, 2001 2000 ----------- ----------- (AMOUNTS IN THOUSANDS) Buildings and land................................... $ 406,902 $ 187,859 Furniture and equipment.............................. 333,658 305,759 Leasehold improvements and other..................... 97,628 90,790 --------- --------- Property, plant, and equipment at cost............... 838,188 584,408 Accumulated depreciation............................. (341,568) (294,304) --------- --------- Property, plant, and equipment, net.................. $ 496,620 $ 290,104 ========= =========
In October 2001, the Company purchased the San Jose and Provo campus facilities it had been leasing with $223 million of cash collateral the Company had previously recorded in long-term investments. E. LONG-TERM INVESTMENTS The primary components of long-term investments as of October 31, 2001 and 2000 were investments made through the Novell Venture account, Cambridge Technology Capital Fund I L.P. ("CTC I"), and strategic long-term equity investments. In addition at October 31, 2000, long-term investments included investments related to restricted cash for the Company's off balance sheet financing of its buildings in San Jose and Provo, which was used to purchase the buildings in October 2001. Long-term investments are accounted for at cost. Investments made through the Novell Venture account generally are in private companies, primarily small capitalization stocks in the high-technology industry sector, and funds managed by venture capitalists. Investments made through CTC I generally are in expansion-stage, private companies providing products and services within the technology industry. The value of the investments made through the Novell Venture account and CTC I are dependent on the performance, successful acquisition, and/or initial public offering of the investees. The Company routinely reviews its investments in private securities and venture funds for impairment. During fiscal 2001 and 1999, the Company recognized impairment losses on long-term investments totaling $177 million and $7 million, respectively. During fiscal 2000, no material impairment losses were recognized on long-term investments. As of October 31, 2001, there were no unrealized losses on public long-term equity securities and at October 31, 2000, unrealized losses totaled $83 million, the majority of which related to the investment in marchFIRST, which was written off due to impairment during fiscal 2001. F. GOODWILL AND OTHER INTANGIBLE ASSETS The following is a summary of goodwill and other intangible assets as of October 31, 2001 and 2000.
OCTOBER 31, OCTOBER 31, 2001 2000 ----------- ----------- (AMOUNTS IN THOUSANDS) Cambridge goodwill.................................... $180,460 $ -- Other goodwill........................................ 7,335 1,552 Acquisition-related intangibles....................... 4,221 7,047 -------- ------ Goodwill and other intangible assets.................. $192,016 $8,599 ======== ======
Novell annual report 2001 43 - -------------------------------------------------------------------------------- - ---------- NOVELL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Cambridge goodwill will not be amortized because it was purchased after June 30, 2001. Other goodwill and intangibles relate to several small acquisitions that occurred prior to July 1, 2001 and are amortized over a three-year period. Beginning in fiscal 2002, the Company will adopt SFAS No. 141 for these acquisitions and will no longer amortize goodwill acquired prior to July 1, 2001. Goodwill and intangibles will be reviewed for impairment on a periodic basis. G. INCOME TAXES
FISCAL YEAR ENDED ----------------------------------------- OCTOBER 31, OCTOBER 31, OCTOBER 31, 2001 2000 1999 ----------- ----------- ----------- (AMOUNTS IN THOUSANDS) Income tax expense (benefit): Current: Federal.............................................. $ -- $ 8,512 $ 21,366 State................................................ 555 2,682 11,791 Foreign.............................................. 16,851 16,452 30,671 -------- ------- -------- Total current income tax expense................ 17,406 27,646 63,828 Deferred: Federal.............................................. (35,475) (8,267) (15,250) State................................................ (4,412) 887 352 Foreign.............................................. 7,537 936 4,159 -------- ------- -------- Total deferred income tax benefit............... (32,350) (6,444) (10,739) -------- ------- -------- Total income tax expense (benefit).............. $(14,944) $21,202 $ 53,089 ======== ======= ========
Differences between the U.S. statutory and effective tax rates are as follows:
FISCAL YEAR ENDED ----------------------------------------- OCTOBER 31, OCTOBER 31, OCTOBER 31, 2001 2000 1999 ----------- ----------- ----------- U.S. statutory rate....................................... (35.0)% 35.0% 35.0% State income taxes, net of federal tax effect............. (0.9) 3.3 3.2 Research and development tax credits...................... (1.9) (9.3) (5.3) Tax exempt income......................................... (1.2) (6.4) (3.7) Foreign income taxed at different rates than U.S. Statutory rate.......................................... 2.1 (2.8) -- Non-deductible goodwill................................... -- 5.6 -- Tax losses and credit carryforwards subject to valuation allowance............................................... 30.8 2.0 -- Other, net................................................ 0.7 2.6 (1.2) IRS settlement............................................ -- -- (6.2) ----- ---- ---- Effective tax (benefit) rate.............................. (5.4)% 30.0% 21.8% ===== ==== ====
During October 1999, the Company reached a settlement with the Internal Revenue Service for years 1994 through 1997. All years prior to 1994 had been settled. This settlement resulted in a 6.2% reduction in the provision for income taxes during the fourth quarter of 1999. The reduction is a result of the favorable settlement of items related to corporate acquisitions, research and development tax credits, and various foreign items, including foreign sales corporation benefits, foreign tax credits, and other immaterial items. 44 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- NOVELL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Domestic and foreign components of income (loss) before taxes are as follows:
FISCAL YEAR ENDED ----------------------------------------- OCTOBER 31, OCTOBER 31, OCTOBER 31, 2001 2000 1999 ----------- ----------- ----------- (AMOUNTS IN THOUSANDS) Domestic......................................... $(309,864) $24,070 $ 81,827 Foreign.......................................... 33,098 46,602 162,009 --------- ------- -------- Total income (loss) before taxes................. $(276,766) $70,672 $243,836 ========= ======= ======== Cash paid for income taxes....................... $ 13,710 $32,105 $ 17,800 ========= ======= ========
The components of deferred tax assets at October 31, 2001 and 2000 are as follows:
OCTOBER 31, OCTOBER 31, 2001 2000 ----------- ----------- (AMOUNTS IN THOUSANDS) Deferred income taxes: Deferred tax assets: Accruals............................................... $ 41,229 $ 18,775 Capital loss carryforward.............................. 27,955 -- Credit carryforwards................................... 107,863 81,674 Net operating loss carryforwards....................... 112,189 50,865 Intangibles from acquisitions.......................... 8,836 2,366 Investment impairments................................. 32,933 -- Receivable valuation accounts.......................... 19,882 8,340 Unrealized loss on investments......................... 42,930 31,076 Other individually immaterial items.................... 3,239 63 --------- -------- Gross deferred tax assets............................ 397,056 193,159 Valuation allowance.................................. (247,759) (73,336) --------- -------- Total deferred tax assets......................... 149,297 119,823 Deferred tax liabilities: Depreciation.............................................. (14,177) (6,833) Foreign earnings.......................................... (41,147) (36,839) --------- -------- Total deferred tax liabilities.................... (55,324) (43,672) --------- -------- Net deferred tax assets..................................... $ 93,973 $ 76,151 ========= ========
Realization of the Company's net deferred tax assets is dependent upon the Company generating sufficient taxable income in future years in appropriate tax jurisdictions to obtain benefit from the reversal of temporary differences and from tax credit carryforwards. The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are reduced. As of October 31, 2001, the Company has U.S. net operating loss carryforwards for federal tax purposes of approximately $184 million that will expire in 2020 and 2021. These amounts do not include an additional $144 million net operating losses from acquired companies that will expire in years 2010 through 2020. Subject to certain annual limitations and increases in taxable income, these losses will be utilized to offset Novell annual report 2001 45 - -------------------------------------------------------------------------------- - ---------- NOVELL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) future taxable income. The Company has $72 million in capital loss carryforwards, which expire in 2006. In addition, the Company has approximately $28 million of foreign loss carryforwards, of which $6 million, $10 million, $1 million, and $7 million are subject to expire in 2002, 2003, 2004, and 2006 respectively. The remaining losses do not expire. The Company also has various credit carryforwards of approximately $98 million that expire between 2003 and 2022. The remaining credits do not expire. The Company has provided valuation allowances on certain of its deferred tax assets. The valuation allowance on deferred tax assets increased by $174 million during 2001. This increase was due primarily to the need to value deferred tax assets relating to the investment impairment, acquired deferred tax assets subject to limitation under the change of ownership rules of the Internal Revenue Code, foreign losses and foreign tax credits. As of October 31, 2001, deferred tax assets of approximately $40 million pertain to certain tax credits and net operating loss carryforwards resulting from the exercise of employee stock options. A valuation allowance was provided for this amount in 2000. When recognized, the tax benefit of these credits and losses will be accounted for as a credit to shareholders' equity. In addition, as of October 31, 2001, deferred tax assets of approximately $42 million pertain to unrealized losses on investments. A valuation allowance has been provided for this amount, and any tax benefit will be credited to shareholders' equity when realized. H. RESTRUCTURING CHARGES At the end of the fourth quarter of fiscal 2001, the Company incurred $51 million of pre-tax, restructuring charges resulting from general market conditions, customer demands, and the Company's evolution of its business strategy. The new business strategy focuses on eBusiness solutions along with Net services software designed to secure and power the networked world across leading operating systems. This included refining the Company's consulting initiatives, refocusing research and development efforts, defining sales and marketing efforts to be more customer and solutions oriented, and adjusting the overall cost structure given current revenue levels and Company direction. Specific actions included reducing the Company's workforce worldwide by approximately 1,100 (approximately 16%), consolidating excess facilities and disposing of excess property and equipment, abandoning a management consulting contract that no longer fits with the Company's strategic focus, and abandoning and writing off technologies that no longer fit within the integrated Company's new strategy. The Company also realigned its remaining resources to better manage and control its business. The following table summarizes the restructuring costs and activities during the fourth quarter of fiscal 2001.
AMOUNT BALANCE AT CHARGED TO CASH NON-CASH OCTOBER 31, RESTRUCTURING PAYMENTS CHARGES 2001 ------------- -------- -------- ----------- (AMOUNTS IN THOUSANDS) Severance and benefits............................ $32,793 $ -- $ -- $32,793 Excess facilities and property and equipment...... 10,896 -- -- 10,896 Abandoned management consulting contract.......... 5,016 -- (5,016) -- Abandoned technology.............................. 1,035 -- (1,035) -- Other restructuring-related costs................. 922 (11) -- 911 ------- ---- ------- ------- $50,662 $(11) $(6,051) $44,600 ======= ==== ======= =======
46 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- NOVELL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) As of October 31, 2001, the remaining portion of the restructuring charge included in accrued liabilities related to severance and benefits, which will be paid out during fiscal 2002, and redundant facilities costs, which will be paid over the respective remaining lease terms. During the third quarter of fiscal 2001, the Company recorded a restructuring charge of approximately $30 million as a result of the Company's acquisition of Cambridge and changes in the Company's business to move towards an eBusiness strategy. Specific actions included reducing the Company's workforce worldwide by approximately 280 employees (approximately 5% before the addition of Cambridge) across all functional areas, consolidating facilities and disposing of excess property and equipment, abandoning and writing off technologies that no longer fit within the Company's new strategy, and discontinuing unprofitable product lines. The following table summarizes the fiscal 2001 activity related to the third quarter fiscal 2001 restructuring costs.
AMOUNT BALANCE AT CHARGED TO CASH NON-CASH OCTOBER 31, RESTRUCTURING PAYMENTS CHARGES 2001 ------------- -------- -------- ----------- (AMOUNTS IN THOUSANDS) Severance and benefits........................... $15,978 $(12,601) $ -- $ 3,377 Abandoned technology............................. 856 -- (645) 211 Excess facilities and property and equipment..... 10,740 (360) (644) 9,736 Exit unprofitable product lines.................. 2,111 (1,625) -- 486 Other restructuring-related costs................ 708 (181) -- 527 ------- -------- ------- ------- $30,393 $(14,767) $(1,289) $14,337 ======= ======== ======= =======
As of October 31, 2001, the remaining portion of the restructuring charge included in accrued liabilities largely related to severance and benefits, which will be paid out during fiscal 2002, and excess facilities costs, which will be paid over the respective remaining lease terms. During the fourth quarter of fiscal 2000, the Company recorded a restructuring charge of approximately $48 million as a result of the Company's plan to change its business strategy to address changes in the market due to technology changes, customer demands, and methods of distribution. The new business strategy focuses on a net services business model and on electronic or e-solutions. Specific actions taken included reducing the Company's workforce worldwide by approximately 700 employees (approximately 13%), consolidating facilities and disposing of excess property and equipment, abandoning and writing off technologies that no longer fit within the Company's new strategy, discontinuing unprofitable products and closing offices in unprofitable locations. The following table summarizes the activity related to the fiscal 2000 restructuring during fiscal 2001.
BALANCE AT NON-CASH BALANCE AT OCTOBER 31, CASH CHARGES & OCTOBER 31, 2000 PAYMENTS ADJUSTMENTS 2001 ----------- -------- ----------- ----------- (AMOUNTS IN THOUSANDS) Severance and benefits............................ $ 6,139 $(6,068) $ -- $ 71 Abandoned technology.............................. 286 (286) -- -- Excess facilities and property and equipment...... 4,726 (1,242) (1,166) 2,318 Other restructuring-related costs................. 2,616 (417) (767) 1,432 ------- ------- ------- ------ $13,767 $(8,013) $(1,933) $3,821 ======= ======= ======= ======
Novell annual report 2001 47 - -------------------------------------------------------------------------------- - ---------- NOVELL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) As of October 31, 2001, the remaining portion of the fiscal 2000 restructuring charge included in accrued liabilities related mainly to redundant facilities and other fixed contracts, which will be paid over the respective remaining contract terms. I. LINE OF CREDIT The Company currently has a $10 million unsecured revolving bank line of credit, with interest at the prime rate. The line of credit expires on February 28, 2002 and can be renewed at the option of the Company for a one-year period. The line can be used for either letter of credit or working capital purposes. The line is subject to the terms of a loan agreement containing financial covenants and restrictions, none of which are expected to significantly affect the Company's operations. At October 31, 2001, there were standby letters of credit of $2.9 million outstanding under this agreement. A subsidiary of the Company has a Letter Agreement and stand-by letters of credit of $1.5 million at October 31, 2001 with the same bank. The Letter Agreement is subject to financial covenants and restrictions, none of which are expected to significantly affect the Company's operations. The Company also has an additional credit facility with another bank, which is not subject to a loan agreement. At October 31, 2001, there was a minimal amount of standby letters of credit outstanding under this arrangement. J. COMMITMENTS AND CONTINGENCIES The Board of Directors has established the Novell Venture account within Novell's investment portfolio for the purpose of making investments in private companies, mainly small capitalization stocks in the high-technology industry sector, and funds managed by venture capitalists for the promotion of the Company's business and strategic objectives. As of October 31, 2001, the Company had invested $72 million into various venture capital funds and had commitments to contribute an additional $91 million to these funds over the next two to three years, as requested by the fund managers. Novell, through its acquisition of Cambridge, also owns both limited and general partnership interests in the Cambridge Technology Capital Fund I ("CTC I") of approximately 24%. As of October 31, 2001, the Company had contributed $5.7 million to CTC I and had commitments to contribute an additional $300,000 through 2007. As of October 31, 2001, the Company has various operating leases related to the Company's facilities with remaining terms of more than one year. These leases have minimum annual lease commitments of $32 million in fiscal 2002, $24 million in fiscal 2003, $15 million in fiscal 2004, $11 million in fiscal 2005, $9 million in fiscal 2006, and $50 million thereafter. Furthermore, the Company has $52 million of minimum rentals to be received in the future from subleases. Rent expense for operating and month-to-month leases was $35 million, $34 million, and $25 million in fiscal 2001, 2000, and 1999, respectively. In February 1998, a suit was filed in the U.S. District Court, District of Utah, against Novell and certain of its officers and directors, alleging violation of federal securities laws by concealing the true nature of Novell's financial condition and seeking unspecified damages. The lawsuit was brought as a purported class action on behalf of purchasers of Novell common stock from November 1, 1996 through April 22, 1997. The Federal District Court dismissed the original complaint November 2, 2000; however, the plaintiffs filed an amended complaint November 22, 2000 in an effort to remedy inadequacies in the original complaint. Novell has moved the court to dismiss the amended complaint on the same grounds relied on in the court's dismissal of the original complaint. If the case continues, Novell intends to vigorously defend against the allegations. While there can be no assurance as to the ultimate disposition of the lawsuit, Novell does not believe that the 48 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- NOVELL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) resolution of this litigation will have a material adverse effect on its financial position, results of operations, or cash flows. In January 2001, Novell began a jury trial in a suit filed against Novell by Lantec, Inc. in January 1995 in the U.S. District Court, the District of Utah, for alleged anti-trust violations arising from Novell's acquisition of the GroupWise technology. The plaintiffs were seeking to demonstrate damages of $300 million. On April 19, 2001, the judge ruled in favor of Novell and dismissed the original complaint; however, on June 8, 2001 the plaintiffs filed a Notice of Appeal. Novell intends to vigorously defend against the claims. While there can be no assurance as to the ultimate disposition of the lawsuit, Novell does not believe that the resolution of this litigation will have a material adverse effect on its financial position, results of operations, or cash flows. The Company is a party to a number of additional legal claims arising in the ordinary course of its business. The Company believes the ultimate resolution of these claims will not have a material adverse effect on its financial position, results of operations, or cash flows. K. SHAREHOLDERS' EQUITY In December 1988, the Board of Directors adopted a Shareholder Rights Plan. This plan was most recently amended in September 1999 and expires on November 21, 2006. The plan provides for a dividend of rights, which cannot be exercised until certain events occur, to purchase shares of preferred stock of the Company. Each shareholder of record receives one right for each share of common stock owned. This plan was adopted to ensure that all shareholders of the Company receive fair value for their common stock in the event of any proposed takeover of the Company and to guard against coercive tactics to gain control of the Company without offering fair value to the Company's shareholders. The Company has 500,000 authorized shares of preferred stock with a par value of $0.10 per share, none of which were outstanding at October 31, 2001 or October 31, 2000. In June 2000, the Board of Directors authorized a stock repurchase program. During the fourth quarter of 2001, the Board of Directors extended the stock repurchase program through June 30, 2003 and authorized the use of up to $400 million for the repurchase of additional outstanding shares of the Company's common stock. As of October 31, 2001, $89 million had been spent to repurchase 14 million shares under this plan during fiscals 2000 and 2001 at an average price of $6.19 per share. Stock Option Plans The Company currently has five stock option plans. Options under all five plans expire ten years from the date of grant. Three of these plans are broad based plans, the 2000 Stock Plan (the "2000 Plan"), approved by shareholders in April 2000, the 2000 Nonqualified Stock Option Plan (the "2000 NQ Plan"), most recently approved by the Board of Directors in April 2001, and the 1991 Stock Plan (the "1991 Plan"), most recently approved by the shareholders in March 1994. The 2000 Plan provides for the issuance of incentive stock options, nonstatutory stock options, stock purchase rights and common stock equivalents. The 2000 NQ Plan provides for the issuance of nonstatutory stock options. The 1991 Plan provides for the issuance of incentive stock options, nonqualified stock options, stock purchase rights, stock appreciation rights, and long-term performance awards. The Company grants nonstatutory options to virtually all employees and restricted stock purchase rights to selected members of management. During fiscal 2000, restricted stock purchase rights were also used to retain key employees. Nonstatutory options are granted at the fair market value of the Company's common stock at the date of grant, generally vest over 48 months (although options have been granted that Novell annual report 2001 49 - -------------------------------------------------------------------------------- - ---------- NOVELL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) vest over 30, 36 or 42 months), are exercisable upon vesting and expire up to ten years from the date of grant. The Company has reserved 16 million shares of common stock for issuance under the 2000 Plan, 28 million shares of common stock for issuance under the 2000 NQ Plan and 80,278,305 shares of common stock for issuance under the 1991 Plan. There are 1.9 million shares of outstanding common stock, related to the restricted stock, that were unvested and subject to repurchase at fiscal year end. The Company has a Stock Option Plan for Non-Employee Directors, (the "Director Plan"), under which 1.5 million shares are reserved for issuance. The Director Plan provides for two types of non-discretionary stock option grants: an initial grant of 30,000 options at the time a director is first elected or appointed to the Board, with options vesting over four years and exercisable upon vesting; and an annual grant of 15,000 options upon reelection to the Board, with options vesting over two years and exercisable upon vesting. The Company also has the 1997 Stock Plan (the "1997 Plan"), which was approved by the Board of Directors in 1997 to grant options to the Company's former Chief Executive Officer, at his time of hire. The options were granted at fair market value on the date of grant and vest over five years. The Company reserved 1.25 million shares of common stock for issuance under the 1997 Stock Plan. The 1997 Stock Plan will expire by its terms in fiscal 2002. The Company's 1986 Stock Option Plan and plans assumed due to acquisitions have terminated, and no further options may be granted under these plans. Options previously granted under these plans will continue to be administered under such plans, and any portions that expire or become unexercisable for any reason shall cancel and be unavailable for future issuance. A summary of the status of the Company's stock option plans as of October 31, 2001, 2000 and 1999 and changes during the years ended on those dates is presented below.
FISCAL 2001 FISCAL 2000 FISCAL 1999 -------------------------- -------------------------- -------------------------- WEIGHTED- WEIGHTED- WEIGHTED- NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER OF AVERAGE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE --------- -------------- --------- -------------- --------- -------------- (NUMBER OF OPTIONS IN THOUSANDS) Outstanding at beginning of year......................... 67,108 $15.38 55,277 $14.21 48,401 $ 8.89 Granted: Price at fair value.......... 33,720 $ 4.89 35,314 $16.99 21,335 $23.04 Price at greater than fair value..................... 134 $19.30 -- -- -- -- Price less than fair value... 2,114 $ 0.37 2,804 $ 0.10 316 $ 0.10 Exercised...................... (2,718) $ 2.30 (11,453) $ 6.82 (10,758) $ 7.64 Cancelled...................... (25,848) $20.87 (14,834) $18.62 (4,017) $13.35 ------- ------ ------- ------ ------- ------ Outstanding at end of year..... 74,510 $ 8.79 67,108 $15.38 55,277 $14.22 ======= ====== ======= ====== ======= ====== Options exercisable at year end.......................... 29,879 $11.12 21,660 $12.55 17,460 $ 8.78
50 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- NOVELL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following table summarizes information about stock options outstanding at October 31, 2001.
OPTIONS OUTSTANDING --------------------------------- OPTIONS EXERCISABLE WEIGHTED- ---------------------------- NUMBER OF AVERAGE WEIGHTED- NUMBER OF WEIGHTED- OPTIONS REMAINING AVERAGE OPTIONS AVERAGE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE ----------- ---------------- -------------- ----------- -------------- (NUMBER OF OPTIONS IN THOUSANDS) $ 0.10 - $ 3.92 6,282 9.86 $ 3.87 222 $ 2.70 $ 4.00 - $ 4.68 12,840 9.79 $ 4.67 80 $ 4.68 $ 4.70 - $ 6.91 15,964 8.23 $ 5.63 4,578 $ 6.80 $ 7.00 - $ 9.22 16,681 7.53 $ 8.81 10,593 $ 8.79 $ 9.63 - $10.63 14,623 7.64 $10.34 8,670 $10.22 $11.00 - $38.88 8,120 7.49 $22.47 5,434 $21.57 ------ ---- ------ ------ ------ $ 0.10 - $38.88 74,510 8.28 $ 8.79 29,577 $11.19 ====== ==== ====== ====== ======
FISCAL 2001 FISCAL 2000 Other information ----------- ----------- (NUMBER OF SHARES AND OPTIONS IN THOUSANDS) Options available for future grants......................... 19,895 17,558 Shares of common stock outstanding at year end.............. 362,341 327,618 Option reserve increase..................................... 12,000 -- Options granted as a percentage of outstanding common stock, net of cancellations...................................... 3% 7% Option holders as a percentage of total employees........... 100% 100%
Employee Stock Purchase Plan Under the Company's 1989 Employee Stock Purchase Plan, as amended (the "Purchase Plan"), the Company is authorized to issue up to 24 million shares of common stock to its employees who work at least 20 hours a week and more than five months a year. Under the terms of the Purchase Plan, there are two six- month offerings per year, and employees can choose to have up to 10% of their salary withheld to purchase the Company's common stock. The purchase price of the stock is 85% of the lower of the subscription date fair market value and the purchase date fair market value. Approximately 43% of the eligible employees have participated in the Purchase Plan in fiscal 2001, 53% in 2000, and 49% in fiscal 1999. Under the Purchase Plan, the Company issued 3.4 million, 1.5 million, and 1.2 million, shares to employees in fiscal 2001, 2000, and 1999, respectively. This plan has approximately 7.2 million shares available for future issuance. Stock-based Compensation At October 31, 2001, the Company had authorized stock-based compensation plans under which options to purchase shares of Company common stock could be granted to employees, consultants and outside directors. The Company applies the intrinsic value method and related interpretations in accounting for its plans. Accordingly, no compensation expense (except compensation expense related to restricted stock purchase grants, below-market option grants, and grants to non-employees) has been recognized for the Company's stock-based plans. If compensation expense for the Company's stock-based compensation plans Novell annual report 2001 51 - -------------------------------------------------------------------------------- - ---------- NOVELL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) had been determined based on the fair value of the stock grants, the Company's net income (loss) and net income (loss) per share would have been the pro forma amounts indicated below.
FISCAL YEAR ENDED ----------------------------------------- OCTOBER 31, OCTOBER 31, OCTOBER 31, 2001 2000 1999 ----------- ----------- ----------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income (loss): As reported.................................... $(272,870) $ 49,470 $190,747 Pro forma...................................... $(394,561) $(49,823) $118,319 Net income (loss) per share: As reported basic.............................. $ (0.82) $ 0.15 $ 0.57 Pro forma basic................................ $ (1.30) $ (0.15) $ 0.35 As reported diluted............................ $ (0.82) $ 0.15 $ 0.55 Pro forma diluted.............................. $ (1.30) $ (0.15) $ 0.34
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 fiscal 2001, 2000 and 1999: a risk-free interest rate of approximately 4.8% for fiscal 2001, 6.3% for fiscal 2000 and 5.5% for fiscal 1999; a dividend yield of 0.0% for all years; a weighted-average expected life of five years for all years; and a volatility factor of the expected market price of the Company's common stock of 2.09 for fiscal 2001, 0.75 for fiscal 2000 and 0.58 for fiscal 1999. The weighted average fair value of options granted in fiscal 2001, 2000 and 1999 was $4.83, $11.09, and $13.08, respectively. The Company does not recognize compensation expense related to employee purchase rights under the Purchase Plan. Pro forma compensation expense is estimated for the fair value of the employees' purchase rights using the Black-Scholes model with the following assumptions for these rights granted in fiscal 2001, 2000, and 1999: a dividend yield of 0.0% for all years; an expected life of 6 months for all years; an expected volatility factor of 2.09 for fiscal 2001, 0.75 for fiscal 2000, and 0.58 in fiscal 1999; and a risk-free interest rate of approximately 4.4% for fiscal 2001, 5.9% for fiscal 2000 and 5.5% for fiscal 1999. The weighted average fair value of the purchase rights granted on April 23, 2001, October 23, 2000, April 21, 2000, October 26, 1999, April 26, 1999, and October 26, 1998 was $3.22, $3.10, $6.07, $7.20, $7.11, and $3.88, respectively. Because the fair value method of accounting has not been applied to options and employee purchase rights granted prior to October 28, 1995, the resulting pro forma compensation expense may not be representative of that to be expected in future years. Furthermore, fair value compensation is applicable only to options and purchase rights granted subsequent to October 28, 1995; therefore, the pro forma effect was not fully reflected until fiscal 2000. L. EMPLOYEE SAVINGS AND RETIREMENT PLAN The Company adopted a 401(k) savings and retirement plan in December 1986. The plan covers all Novell U.S. employees who are 21 years of age or older who are scheduled to complete 1,000 hours of service during any consecutive 12-month period. The Company's retirement and savings plan allows the Company to contribute an amount equal to 100% of the employee's contribution up to the higher of 4% or the maximum contribution allowed by tax laws, of each employee's compensation. Cambridge established a 401(k) savings and profit-sharing plan in 1992 covering substantially all of Cambridge's employees. Under the plan, Cambridge may elect to make contributions, which they did, based 52 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- NOVELL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) on a percentage of employees' contributions, subject to limitations as defined in the 401(k) plan. Beginning January 1, 2002, the Cambridge benefit plans will be rolled into the Novell plan. The Company also has other retirement plans in certain countries outside of the U.S. in which the Company employs personnel. Each plan is consistent with local laws and business practices. Company matching contributions on 401(k) and other retirement plans were $15 million, $15 million, and $14 million, in fiscal 2001, 2000, and 1999, respectively. M. COMPREHENSIVE INCOME The Company's other comprehensive income (loss) is comprised of:
FISCAL YEAR ENDED ----------------------------------------- OCTOBER 31, OCTOBER 31, OCTOBER 31, 2001 2000 1999 ----------- ----------- ----------- (AMOUNTS IN THOUSANDS) Total gross unrealized gain (loss) during the year, net of tax expense (benefit) of $(33,634), $(92,552), and $44,255, respectively.................................. $(53,546) $(147,344) $70,454 Add: adjustment for unrealized loss written off due to impairment............................................. 136,851 -- -- Less: adjustment for net realized gains (losses) included in net income, net of tax expense (benefit) of $1,835, $17,832, and $(5,243), respectively.................... 2,921 28,388 (8,346) -------- --------- ------- Net unrealized gain (loss) on investments................ 86,226 (118,956) 62,108 Cumulative translation adjustments, net of tax (expense) benefit of ($412), $415, and $515, respectively........ 656 (660) (820) -------- --------- ------- Other comprehensive income (loss).............. $ 86,882 $(119,616) $61,288 ======== ========= =======
N. RELATED PARTY TRANSACTIONS In fiscal 2001, 2000, and 1999, legal fees of approximately $3 million, $1 million, and $2 million, respectively, were paid to Wilson, Sonsini, Goodrich & Rosati, a law firm in which a director of the Company is a senior partner. During 2001, Novell received consulting services from J.D. Robinson Incorporated. The agreement provides for payments of $200,000 per year for these services. Mr. Robinson, a director of Novell, is Chairman and Chief Executive Officer and the sole shareholder of J.D. Robinson Incorporated. O. SEGMENT INFORMATION During fiscal 2001, 2000, and 1999, the Company operated in one business segment, directory-enabled networking software and services. The Company's products are sold throughout the world. In the United States, products are sold through direct, OEM, reseller, and distributor channels. Internationally, products are marketed through distributors who sell to dealers and end users. The Company's chief decision-makers, the Chief Executive Officer and Executive Council, evaluate performance of the Company based on total Company results. Revenue is evaluated based on geographic region and by product category. Separate financial information is not available by product category in regards to asset allocation, expense allocation, or profitability. Novell annual report 2001 53 - -------------------------------------------------------------------------------- - ---------- NOVELL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Novell categorizes its products into the following four areas, all within the directory-enabled networking software and services segment. - Net Management Services, which includes directory-enabled operating systems such as NetWare, management and collaboration products, and UNIX or other royalties - Net Directory Services, which include NDS eDirectory, DirXML, iChain, and Single Sign On products - Volera Net Content Services - Consulting, Support Services, and Education, which is generated from customer service, educational products and courses, and consulting, including Cambridge and Celerant REVENUE BY PRODUCT CATEGORY
FISCAL YEAR ENDED ----------------------------------------- OCTOBER 31, OCTOBER 31, OCTOBER 31, 2001 2000 1999 ----------- ----------- ----------- (AMOUNTS IN THOUSANDS) Net Management Services................................ $ 707,498 $ 914,277 $1,076,976 Net Directory Services................................. 31,251 27,686 19,096 Volera Net Content Services............................ 8,120 7,009 1,482 Consulting Support Services, Education................. 293,228 212,763 175,266 ---------- ---------- ---------- Total net revenue............................ $1,040,097 $1,161,735 $1,272,820 ========== ========== ==========
GEOGRAPHIC INFORMATION Sales outside the U.S. are comprised of sales to international customers in Europe, Africa, the Middle East, Canada, South America, Australia, and Asia Pacific. Other than sales in Ireland, international sales were not material individually in any other international location. Intercompany sales between geographic areas are accounted for at prices representative of unaffiliated party transactions. "U.S. operations" include shipments to customers in the U.S., licensing to OEMs, and exports of finished goods directly to international customers, primarily in Canada, South America, and Asia.
FISCAL YEAR ENDED ----------------------------------------- OCTOBER 31, OCTOBER 31, OCTOBER 31, 2001 2000 1999 ----------- ----------- ----------- (AMOUNTS IN THOUSANDS) Net sales U.S. operations...................................... $ 740,836 $ 837,399 $ 890,533 Irish operations..................................... 278,085 328,991 348,210 Other international operations....................... 83,987 70,820 59,316 Eliminations......................................... (62,811) (75,475) (25,239) ---------- ---------- ---------- Total net sales.............................. $1,040,097 $1,161,735 $1,272,820 ========== ========== ========== Long-lived assets at year end U.S. operations...................................... $1,176,378 $ 695,506 $ 685,188 Irish operations..................................... 109,554 110,327 33,216 Other international operations....................... 74,290 75,480 48,829 Eliminations......................................... (542,960) (192,368) (172,191) ---------- ---------- ---------- Total long-lived assets at year end.......... $ 817,262 $ 688,945 $ 595,042 ========== ========== ==========
54 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- NOVELL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Reconciliation of long-lived assets to total assets is as follows:
OCTOBER 31, OCTOBER 31, OCTOBER 31, 2001 2000 1999 ----------- ----------- ----------- (AMOUNTS IN THOUSANDS) Long-lived assets...................................... $ 817,262 $ 688,945 $ 595,042 Other long-term assets................................. 59,378 16,042 11,661 Current assets......................................... 1,027,366 1,007,359 1,335,616 ---------- ---------- ---------- Total assets................................. $1,904,006 $1,712,346 $1,942,319 ========== ========== ==========
In fiscal 2001, 2000, and 1999, sales to international customers were approximately $460 million, $504 million, and $575 million, respectively. In fiscal 2001, 2000, and 1999, international sales to European countries were 68%, 64%, and 70% of international sales, respectively. No one foreign country accounted for more than 10% of total sales in any period. In fiscal 1999, the Company had one multinational distributor, which accounted for 11% of revenue; otherwise, no customer accounted for more than 10% of revenue in any period. P. NET INCOME (LOSS) PER SHARE
FISCAL YEAR ENDED ---------------------------------------------- OCTOBER 31, OCTOBER 31, OCTOBER 31, 2001 2000 1999 ------------ ------------ ------------ (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) Basic net income (loss) per share computation: Net income (loss)..................................... $(272,870) $ 49,470 $190,747 Weighted average shares outstanding................... 332,582 326,621 334,460 ========= ======== ======== Basic net income (loss) per share..................... $ (0.82) $ 0.15 $ 0.57 ========= ======== ======== Diluted net income per share computation: Net income (loss)..................................... $(272,870) $ 49,470 $190,747 Weighted average shares outstanding................... 332,582 326,621 334,460 Incremental shares attributable to the assumed exercise of outstanding options (treasury stock method)............................................ -- 8,413 14,933 --------- -------- -------- Total......................................... 332,582 335,034 349,393 ========= ======== ======== Diluted net income (loss) per share................... $ (0.82) $ 0.15 $ 0.55 ========= ======== ========
Had the Company recognized net income in fiscal 2001, incremental shares attributable to the assumed exercise of outstanding options would have increased diluted shares outstanding by 29 thousand shares. Q. CHANGE IN ACCOUNTING PRINCIPLE -- REVENUE RECOGNITION The Company previously recognized revenue related to product sales to distribution channel partners upon shipment to the partner and provided a reserve for contractual return obligations and other estimated product returns. Effective November 1, 2000, the Company changed its method of accounting for revenue related to these product sales to recognize such revenues upon the sell-through of the respective product from the distribution channel partner to the reseller or end user. The Company believes the change in accounting principle is preferable based on guidance provided in SAB 101. The $11 million ($0.03 per share) charge for Novell annual report 2001 55 - -------------------------------------------------------------------------------- - ---------- NOVELL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) the cumulative effect of the change (after reduction for income taxes of $6 million) was included in income in the first quarter of fiscal 2001. Also, during the three months ended January 31, 2001, the Company recognized $7 million in revenue that was included in the cumulative effect adjustment at November 1, 2000. The effect of that revenue on the first quarter was to increase net income by $5 million ($0.01 per share). Had the Company reported under its previous method of accounting for revenue recognition, the effect on earnings without consideration of the cumulative effect of the change would be a decrease in earnings of approximately $10 million, or $0.03 per share, during fiscal 2001. The pro forma amounts presented in the consolidated statements of income were calculated assuming the accounting change was made retroactively to prior periods. R. DERIVATIVE INSTRUMENTS During the first quarter of fiscal 2001, the Company adopted Statements of Financial Accounting Standards No. 133 and 138, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133 and SFAS 138). SFAS 133 established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities requiring all companies to recognize derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS 138 is an amendment to SFAS 133, which amended or modified certain issues discussed in SFAS 133. Implementation of SFAS 133 and SFAS 138 did not have a material impact on the Company's statement of financial position, results of operations or cash flows. The Company hedges currency risks of investments denominated in foreign currencies with currency forward contracts through the use of one-month forward contracts. Gains and losses on these foreign currency investments would generally be offset by corresponding losses and gains on the related hedging instruments, resulting in negligible net exposure to the Company. A substantial majority of the Company's revenue, expense and capital purchasing activities are transacted in U.S. dollars. However, the Company does enter into transactions in other currencies, primarily Japanese yen and certain other Asian and European currencies. Due to the short period of time between entering into the forward contracts and the year end, the fair value of the derivatives as of October 31, 2001 is insignificant and accordingly did not have a material impact on our financial position or results of operations. S. JOINT VENTURE In April 2001, Novell completed the formation of Volera, Inc., a majority owned joint venture among Novell, Inc., Nortel Networks Corp., and Accenture Ltd. The Company contributed cash, fixed assets and products and technologies in exchange for a 89.9% ownership in Volera. Nortel and Accenture contributed $26 million in cash for the remaining 10.1% ownership. T. SUBSEQUENT EVENTS (UNAUDITED) On December 21, 2001, the Company completed the sale of its 100,000 square foot office building in Herndon, Virginia for $16 million cash resulting in a net gain of approximately $8 million. Novell currently occupies only approximately 20,000 square feet for sales offices and leases this space from the new owners of the building. On December 21, 2001, the Company formed a venture capital fund, Novell Technology Capital Fund I, L.P. ("NTC I") and related entities that include Novell Technology CGP, Inc. ("CGP") and Novell Technology GPLP I, LP ("GPLP"). GPLP is the General Partner of NTC I, which has limited partners 56 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- NOVELL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) including Novell, directly, and several Novell employees including two executive officers of Novell and the Co-Managing Directors of NTC I, who are directly involved in the management and operation of both NTC I and Cambridge Technology Capital Fund I L.P., Novell's venture capital fund acquired with Cambridge. Novell has committed up to $30 million in capital to NTC I, with an initial commitment of $15 million and funding of $14 million as part of the first closing on December 21, 2001. NTC I is in the process of seeking additional outside institutional investors. Financial and operating results of NTC I and related entities will be consolidated in Novell's financial statements beginning in the first quarter of fiscal 2002. Novell annual report 2001 57 - -------------------------------------------------------------------------------- - ---------- REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Shareholders -- Novell, Inc. We have audited the accompanying consolidated balance sheets of Novell, Inc. as of October 31, 2001 and October 31, 2000, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended October 31, 2001. Our audits also included the financial statement schedule listed in the Index at Item 14(a)(2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Novell, Inc. at October 31, 2001 and October 31, 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended October 31, 2001, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in Note Q to the consolidated financial statements, in fiscal 2001 the Company changed its method of accounting for revenue recognition for sales to distributors, which has been reflected as of November 1, 2000, in accordance with guidance in Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." ERNST & YOUNG LLP San Jose, California November 21, 2001 58 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- NOVELL, INC. SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA -- UNAUDITED
FISCAL YEAR ENDED FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER OCTOBER 31 ------------- -------------- ------------- -------------- ----------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) FISCAL 2001 Net sales........................ $245,035 $ 240,755 $246,697 $ 307,610 $1,040,097 Gross profit..................... 178,081 173,630 172,908 187,543 712,162 Income (loss) before taxes....... 4,547 (154,176) (23,068) (104,069) (276,766) Net income (loss) before accounting change.............. 3,274 (151,311) (19,274) (94,511) (261,822) Net (loss)....................... (7,774) (151,311) (19,274) (94,511) (272,870) Net income (loss) per share before accounting change Basic.......................... $ 0.01 $ (0.48) $ (0.06) $ (0.26) $ (0.79) Diluted........................ 0.01 (0.48) (0.06) (0.26) (0.79) Net (loss) per share Basic.......................... $ (0.02) $ (0.48) $ (0.06) $ (0.26) $ (0.82) Diluted........................ (0.02) (0.48) (0.06) (0.26) (0.82) FISCAL 2000 Net sales........................ $316,043 $ 302,349 $270,019 $ 273,324 $1,161,735 Gross profit..................... 237,316 218,607 184,996 193,418 834,337 Income (loss) before taxes....... 62,271 43,084 11,904 (46,587) 70,672 Net income (loss)................ 44,835 31,020 8,572 (34,957) 49,470 Net income (loss) per share Basic.......................... $ 0.14 $ 0.09 $ 0.03 $ (0.11) $ 0.15 Diluted........................ 0.13 0.09 0.03 (0.11) 0.15 FISCAL 1999 Net sales........................ $285,806 $ 315,652 $326,808 $ 344,554 $1,272,820 Gross profit..................... 218,039 236,285 250,719 269,936 974,979 Income before taxes.............. 40,136 53,787 68,488 81,425 243,836 Net income....................... 28,898 38,726 49,311 73,812 190,747 Net income per share Basic.......................... $ 0.09 $ 0.12 $ 0.15 $ 0.22 $ 0.57 Diluted........................ 0.08 0.11 0.14 0.21 0.55
Novell annual report 2001 59 - -------------------------------------------------------------------------------- - ---------- ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT The information required with respect to directors is incorporated herein by reference to the information contained in the section captioned "Election of Directors" of the Registrant's definitive proxy statement (the "Proxy Statement") for the Annual Meeting of Shareholders to be held April 17, 2002, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). Information regarding the Registrant's executive officers is set forth above following Item 4 in Part I hereof under the heading entitled "Executive Officers" which information is incorporated by reference into this Part III, Item 10. The information regarding filings under Section 16(a) of the Exchange Act is incorporated herein by reference to the section captioned "Section 16(a) Beneficial Ownership Reporting Compliance" of the Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 of Form 10-K is incorporated by reference to the information contained in the section captioned "Executive Compensation" of the Registrant's Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 of Form 10-K is incorporated by reference to the information contained in the section captioned "Securities Ownership by Principal Shareholders and Management" of the Registrant's Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 of Form 10-K is incorporated by reference to the information contained in the sections captioned "Executive Compensation -- Employment Contract, Termination of Employment and Change-in-Control Arrangements" and "Certain Transactions" of the Registrant's Proxy Statement. 60 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS: The following documents are filed as a part of this Annual Report on Form 10-K for Novell, Inc.: Consolidated Statements of Operations for the fiscal years ended October 31, 2001, October 31, 2000, and October 31, 1999. Consolidated Balance Sheets at October 31, 2001 and October 31, 2000. Consolidated Statements of Shareholders' Equity for the fiscal years ended October 31, 2001, October 31, 2000, and October 31, 1999. Consolidated Statements of Cash Flows for the fiscal years ended October 31, 2001, October 31, 2000, and October 31, 1999. Notes to Consolidated Financial Statements. Report of Ernst & Young LLP, Independent Auditors. 2. FINANCIAL STATEMENT SCHEDULES: The following consolidated financial statement schedule is included on page 63 of this Form 10-K: Schedule II -- Valuation and Qualifying Accounts
Schedules other than that listed above are omitted because they are not required, not applicable or because the required information is shown in the consolidated financial statements or notes thereto. 3. EXHIBITS: A list of the exhibits required to be filed as part of this report is set forth in the Exhibit Index on page 64 of this Form 10-K, which immediately precedes such exhibits, and is incorporated herein by reference. (b) REPORTS ON FORM 8-K The following Reports on Form 8-K were filed by the Registrant during the quarter ended October 31, 2001: Report on Form 8-K providing notice of Novell's scheduled report of third quarter results and related conference call to be held on August 23, 2001, filed on August 3, 2001 under Item 5. Report on Form 8-K announcing an extension of a stock repurchase program, filed September 25, 2001 under Item 5. (c) EXHIBITS See Item 14(a)(3). (d) FINANCIAL STATEMENT SCHEDULES See Item 14(a)(2). Novell annual report 2001 61 - -------------------------------------------------------------------------------- - ---------- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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: January 28, 2002 By: /s/ JACK L. MESSMAN ------------------------------------ (Jack L. Messman, Chairman of the Board, President and Chief Executive Officer) POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jack L. Messman, Ronald C. Foster and Joseph A. LaSala, Jr., jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Report on Form 10-K, and file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ Jack L. Messman Chairman of the Board, January 28, 2002 - --------------------------------------------------- President, Chief Executive (Jack L. Messman) Officer and Director (Principal Executive Officer) /s/ Ronald C. Foster Senior Vice President, Chief January 28, 2002 - --------------------------------------------------- Financial Officer (Principal (Ronald C. Foster) Financial and Accounting Officer) /s/ John W. Poduska, Sr. Director January 28, 2002 - --------------------------------------------------- (John W. Poduska, Sr.) /s/ Elaine R. Bond Director January 28, 2002 - --------------------------------------------------- (Elaine R. Bond) /s/ Reed E. Hundt Director January 28, 2002 - --------------------------------------------------- (Reed E. Hundt) /s/ James D. Robinson, III Director January 28, 2002 - --------------------------------------------------- (James D. Robinson, III) /s/ Richard L. Nolan Director January 28, 2002 - --------------------------------------------------- (Richard L. Nolan) /s/ Larry W. Sonsini Director January 28, 2002 - --------------------------------------------------- (Larry W. Sonsini) /s/ Carl J. Yankowski Director January 28, 2002 - --------------------------------------------------- (Carl J. Yankowski)
62 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- NOVELL, INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS ACCOUNTS RECEIVABLE ALLOWANCE (IN THOUSANDS)
ADDITIONS ADDITIONS ADDITIONS DEDUCTIONS DEDUCTIONS BALANCE AT CHARGED TO CHARGED TO FROM FROM FROM BAD BALANCE BEGINNING RETURN BAD DEBT CAMBRIDGE RETURN DEBT AT END OF PERIOD RESERVES RESERVES ACQUISITION RESERVES RESERVES OF PERIOD ---------- ---------- ---------- ----------- ---------- ---------- --------- Fiscal year ended October 31, 1999................ $47,921 $69,713 $3,581 $ -- $80,984 $3,913 $36,318 Fiscal year ended October 31, 2000................ $36,318 $78,010 $6,508 $ -- $81,578 $5,789 $33,469 Fiscal year ended October 31, 2001................ $33,469 $29,727 $4,287 $21,580 $39,394 $2,420 $47,249
Novell annual report 2001 63 - -------------------------------------------------------------------------------- - ---------- EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 2.1 Agreement and Plan of Reorganization, dated as of March 12, 2001, by and among Novell, Inc., Ceres Neptune Acquisition Corp. and Cambridge Technology Partners (Massachusetts), Inc.(1) (Exhibit 2.1) 2.2 Amendment No. 1 to Agreement and Plan of Reorganization, dated as of May 24, 2001, by and among Novell, Inc., Ceres Neptune Acquisition Corp. and Cambridge Technology Partners (Massachusetts), Inc.(2) (Annex A) 3.1 Restated Certificate of Incorporation, as amended and restated July 10, 2001(2) (Exhibit 3(i)). 3.2 By-Laws, as amended and restated November 12, 2001.(15) 4.1 Reference is made to Exhibit 3.1. 4.2 Form of certificate representing the shares of Novell Common Stock.(3) (Exhibit 4.3) 4.3 Preferred Shares Rights Agreement, dated as of December 7, 1988, as amended and restated effective September 20, 1999, by and between the Registrant and ChaseMellon Shareholder Services, L.L.C.(4) (Exhibit 1) 10.1* Novell Inc., Employee Retirement and Savings Plan dated December 8, 1996.(5) (Exhibit 10.9) 10.2* Novell, Inc. 1989 Employee Stock Purchase Plan.(6) (Exhibit 4.1) 10.3* Novell, Inc. 1991 Stock Plan.(7) (Exhibit 4.1) 10.4* Novell, Inc. 2000 Stock Plan.(8) (Exhibit 4.2) 10.5* Novell, Inc. 2000 Stock Option Plan.(8) (Exhibit 4.1) 10.6* UNIX System Laboratories, Inc. Stock Option Plan.(9) (Exhibit 4.3) 10.7* Novell, Inc. Novell/WordPerfect Stock Plan.(10) (Exhibit 10.1) 10.8* Novell, Inc. Stock Option Plan for Non-Employee Directors.(11) (Exhibit 4.1) 10.9* Novell, Inc. 1997 Non-Statutory Stock Option Plan.(12) (Exhibit 4.1) 10.10* Novell, Inc. Senior Management Severance Plan dated April 11, 2000.(13) (Exhibit 10.10) 10.11* Employment Agreement dated November 1, 2000 between Novell, Inc. and Stewart G. Nelson.(13) (Exhibit 10.12) 10.12 Common stock and warrant agreement between Novell, Inc. and marchFIRST (formerly Whittman Hart, Inc.), dated September 29, 1999.(14) (Exhibit 1). 10.13* Key Employment Agreement dated as of May 22, 2001 between Novell, Inc. and Jack L. Messman.(2) (Exhibit C to Annex A) 10.14* Agreement dated August 13, 2001 between Novell, Inc. and Eric E. Schmidt.(15) 10.15* Letter Agreement dated July 14, 2001 between Novell, Inc. and Dennis R. Raney.(15) 10.16* Loan Agreement dated April 4, 2001 between Novell, Inc. and Ronald C. Foster and Collateral Note dated April 4, 2001 executed by Ronald C. Foster in favor of Novell, Inc.(15) 21 Subsidiaries of the Registrant.(15) 23.1 Consent of Ernst & Young LLP, Independent Auditors.(15) 24.1 Power of Attorney. Contained in the signature page of this Annual Report on Form 10-K.
- --------------- * Indicates management contracts or compensatory plans (1) Incorporated by reference to the Exhibit identified in parentheses, filed as an exhibit to the Registrant's Report on Form 8-K, filed March 16, 2001 (File No. 0-13351). 64 Novell annual report 2001 - -------------------------------------------------------------------------------- ---------- (2) Incorporated by reference to the Annex or Exhibit identified in parentheses, filed as an annex or exhibit to the Proxy Statement-Prospectus forming a part of the Registration Statement on Form S-4 (Reg. No. 333-59326) of the Registrant, filed April 20, 2001 and amended May 25, 2001. (3) Incorporated by reference to the Exhibit identified in parentheses, filed as an exhibit to the Registrant's Registration Statement on Form S-1, filed November 30, 1984, and amendments thereto (File No. 2-94613). (4) Incorporated by reference to the Exhibit identified in parentheses, filed as an exhibit to the Registrant's Report on Form 8-A, dated December 13, 1999 (File No. 0-13351). (5) Incorporated by reference to the Exhibit identified in parentheses, filed as an exhibit to the Registrant's Annual Report on Form 10-K, filed for the fiscal year ended October 25, 1986 (File No. 0-13351). (6) Incorporated by reference to the Exhibit identified in parentheses, filed as an exhibit to the Registrant's Registration Statement on Form S-8, filed October 12, 2001 (File No. 333-62087). (7) Incorporated by reference to the Exhibit identified in parentheses, filed as an exhibit to the Registrant's Registration Statement on Form S-8, filed May 29, 1996 (File No. 333-04775). (8) Incorporated by reference to the Exhibit identified in parentheses, filed as an exhibit to the Registrant's Registration Statement on Form S-8, filed July 1, 2000 (File No. 333-41328). (9) Incorporated by reference to the Exhibit identified in parentheses, filed as an exhibit to the Registrant's Registration Statement on Form S-8, filed July 2, 1993 (File No. 33-65440). (10) Incorporated by reference to the Exhibit identified in parentheses, filed as an exhibit to the Registrant's Registration Statement on Form S-8, filed July 8, 1994 (File No. 33-55483). (11) Incorporated by reference to the Exhibit identified in parentheses, filed as an exhibit to the Registrant's Registration Statement on Form S-8, filed May 30, 1996 (File No. 333-04823). (12) Incorporated by reference to the Exhibit identified in parentheses, filed as an exhibit to the Registrant's Registration Statement on Form S-8, filed August 24, 1998 (File No. 333-62103). (13) Incorporated by reference to the Exhibit identified in parentheses, filed as an exhibit to the Registrant's Annual Report on Form 10-K, filed for the fiscal year ended October 31, 2000 (File No. 0-13351). (14) Incorporated by reference to the Exhibit identified in parentheses, filed as an exhibit to the Registrant's Statement on Schedule 13D, filed October 12, 1999. (15) Filed herewith. Novell annual report 2001 65 - -------------------------------------------------------------------------------- - ---------- EX-3.2 3 f77744ex3-2.txt EXHIBIT 3.2 EXHIBIT 3.2 Adopted November 12, 2001 Adopted September 21, 1998 Adopted May 27, 1998 Adopted Feb. 16, 1995 BY-LAWS OF NOVELL, INC. (A DELAWARE CORPORATION) ARTICLE I OFFICES AND FISCAL YEAR SECTION 1.01. Registered Office. The registered office of the corporation shall be in the City of Wilmington, County of New Castle, State of Delaware until otherwise established by a vote of a majority of the board of directors in office, and a statement of such change is filed in the manner provided by statute. SECTION 1.02. Other Offices. The corporation may also have offices at such other places within or without the State of Delaware as the board of directors may from time to time determine or the business of the corporation requires. SECTION 1.03. Fiscal Year. The fiscal year of the corporation shall end on the last day of October in each year. ARTICLE II Meetings of Stockholders SECTION 2.01. Place of Meeting. All meetings of the stockholders of the corporation shall be held at the registered office of the corporation, or at such other place within or without the State of Delaware as shall be designated by the board of directors in the notice of such meeting. SECTION 2.02. Annual Meeting. The board of directors may fix the date and time of the annual meeting of the stockholders, but if no such date and time is fixed by the board, the meeting for any calendar year shall be held on the Second Tuesday of March in such year, if not a legal holiday, and if a legal holiday then on the next succeeding business day at 10:00 o'clock A.M., and at said meeting the stockholders then entitled to vote shall elect directors and shall transact such other business as may properly be brought before the meeting. 1 SECTION 2.03. Special Meetings. Special meetings of the stockholders of the corporation for any purpose or purposes for which meetings may lawfully be called, may be called at any time by the chairman of the board, a majority of the board of directors, the president, or at the request, in writing, of stockholders owning a majority of the amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. At any time, upon written request of any person or persons who have duly called a special meeting, which written request shall state the purpose or purposes of the meeting, it shall be the duty of the secretary to fix the date of the meeting to be held at such date and time as the secretary may fix, not less than ten nor more than sixty days after the receipt of the request, and to give due notice thereof. If the secretary shall neglect or refuse to fix the time and date of such meeting and give notice thereof, the person or persons calling the meeting may do so. SECTION 2.04. Notice of Meetings. Written notice of the place, date and hour of every meeting of the stockholders, whether annual or special, shall be given to each stockholder of record entitled to vote at the meeting not less than ten nor more than sixty days before the date of the meeting. Every notice of a special meeting shall state the purpose or purposes thereof. SECTION 2.05. Quorum, Manner of Acting and Adjournment. The holders of a majority of the stock issued and outstanding (not including treasury stock) and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute, by the certificate of incorporation or by these by-laws. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At any such adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. When a quorum is present at any meeting, the vote of the holders of the majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the applicable statute or these by-laws, a different vote is required in which case such express provision shall govern and control the decision of such question. Except upon those questions governed by the aforesaid express provisions, the stockholders present in person or by proxy at a duly organized meeting can continue to do business until adjournment, notwithstanding withdrawal of enough stockholders to leave less than a quorum. SECTION 2.06. Organization of Annual Stockholder's Meeting. The Chairman of the Board of Directors shall preside at each meeting of shareholders. In the absence of the Chairman, the meeting shall be chaired by an officer of the corporation in accordance with the following order: Vice-Chairman, President, Executive Vice President, Senior Vice President and Vice President. The Secretary or in his or her absence an Assistant Secretary or in the absence of the Secretary and all 2 Assistant Secretaries a person whom the Chairman of the meeting shall appoint shall act as Secretary of the meeting and keep a record of the proceeding thereof. The Board of Directors of the Company shall be entitled to make such rules or regulations for the conduct of meetings of shareholders as it shall deem necessary, appropriate or convenient. Subject to the rules and regulations of the Board of Directors, if any, the Chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the Judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to shareholders of record of the Company and their duly authorized and constituted proxies, and such other persons as the Chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comment by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot, unless, and to the extent, determined by the Board of Directors or the chairman of the meeting, meetings of shareholders shall not be required to be held in accordance with rules of parliamentary procedure. SECTION 2.07. Voting. Each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of capital stock having voting power held by such stockholder. No proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Every proxy shall be executed in writing by the stockholder or by his duly authorized attorney-in-fact and filed with the secretary of the corporation. A proxy, unless coupled with an interest, shall be revocable at will, notwithstanding any other agreement or any provision in the proxy to the contrary, but the revocation of a proxy shall not be effective until notice thereof has been given to the secretary of the corporation. A duly executive proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. A proxy shall not be revoked by the death or incapacity of the maker unless, before the vote is counted or the authority is exercised, written notice such death or incapacity is given to the secretary of the corporation. SECTION 2.08. Consent of Stockholders in Lieu of Meeting. Any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date 3 shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the board of directors. Any stockholder of record or other person or entity seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the secretary, request the board of directors to fix a record date. The board of directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date (unless a record date has previously been fixed by the board of directors pursuant to the first sentence of this paragraph). If no record date has been fixed by the board of directors pursuant to the first sentence of this paragraph or otherwise within ten (10) days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or to any officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the board of directors and prior action by the board of directors is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be the date on which the board of directors adopts the resolution taking such prior action. In the event of the delivery, in the manner provided by the second paragraph of this Section 2.08 to the corporation of the requisite written consent or consents to take corporate action and/or any related revocation or revocations, the corporation shall appoint inspectors of elections for the purpose of promptly performing a ministerial review of the validity of the consents and/or revocations. For the purpose of permitting the inspectors to perform such review, no action by written consent without a meeting shall be effective until such date as the inspectors certify to the corporation that the consents delivered to the corporation in accordance with the second paragraph of this Section 2.08 represent at least the minimum number of votes that would be necessary to take the corporate action. Nothing contained in this Section shall in any way be construed to suggest or imply that the board of directors or any stockholder shall not be entitled to contest the validity of any consent or revocation thereof, whether before or after such certification by the inspectors, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation). Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated written consent received in accordance with the second paragraph of this Section 2.08, a written consent or consents signed by a sufficient number of holders to take such action are delivered to the corporation in the manner prescribed in this Section 2.08. 4 SECTION 2.09. Voting Lists. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting. The list shall be arranged in alphabetical order showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period or at least ten days prior to the meeting either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 2.10. Judges of Election. All elections of directors shall be by written ballot, unless otherwise provided in the certificate of incorporation; the vote upon any other matter need not be by ballot. In advance of any meeting of stockholders the board of directors may appoint judges of election, who need not be stockholders, to act at such meeting or any adjournment thereof. If judges of election are not so appointed, the chairman of any such meeting may, and upon the demand of any stockholder or his proxy at the meeting and before voting begins shall, appoint judges of election. The number of judges shall be either one or three, as determined, in the case of judges appointed upon demand of a stockholder, by stockholders present entitled to cast a majority or the votes which all stockholders present are entitled to cast thereon. No person who is a candidate for office shall act as a judge. In case any person appointed as judge fails to appear or fails or refuses to act, the vacancy may be filled by appointment made by the board of directors in advance of the convening of the meeting, or at the meeting by the chairman of the meeting. If judges of election are appointed as aforesaid, they shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies, receive votes or ballots, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes, determine the result, and do such acts as may be proper to conduct the election or vote with fairness to all stockholders. If there be three judges of election, the decision, act or certificate of a majority shall be effective in all respects as the decision, act or certificate of all. On request of the chairman of the meeting or of any stockholder or his proxy, the judges shall make a report in writing of any challenge or question or matter determined by them, and execute a certificate of any fact found by them. SECTION 2.11. Nominations and Proposals. Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the stockholders may be made at any meeting of stockholders only (a) pursuant to the Corporation's notice of meeting; (b) by or at the direction of the Board of Directors; or (c) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in these by-laws, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 2.11. 5 In addition to any other applicable legal or regulatory requirements, for nominations or other business to be properly brought before a stockholders meeting by a stockholder pursuant to clause (c) of the preceding sentence, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation, and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder's notice must be given either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation and received by the Secretary not later than sixty (60) days prior to the first anniversary of the date on which notice of the prior year's annual meeting was first mailed to stockholders. In no event shall the public announcement of an adjournment of a stockholders meeting commence a new time period for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (or any successor thereto) and Rule 14a-11 thereunder (or any successor thereto) (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting, and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner, and (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner. Notwithstanding any provision herein to the contrary, no business shall be conducted at a stockholders meeting except in accordance with the procedures set forth in this Section 2.11. The person presiding over the stockholders meeting shall, if the facts warrant, determine and declare at the meeting that the nomination was not properly made or that the business was not properly brought before the meeting, as the case may be, in accordance with the provisions of this Section 2.11, and, if he or she should so determine, he or she shall so declare at the meeting that any such person not properly nominated shall not be eligible to receive votes in the election of directors at the meeting or that any such business not properly brought before the meeting shall not be transacted, as the case may be. ARTICLE III Board of Directors SECTION 3.01. Powers. The board of directors shall have full power to manage the business and affairs of the corporation; and all powers of the corporation, except those specifically 6 reserved or granted to the stockholders by statute, the certificate of incorporation or these by-laws, are hereby granted to and vested in the board of directors. SECTION 3.02. Number and Term of Office. The board of directors shall consist of such number of directors, not less than three nor more than nine, as may be determined from time to time by resolution of the board of directors. Each director shall serve until the next annual meeting of the stockholders and until his successor shall have been elected and qualified, except in the event of his death, resignation or removal. All directors of the corporation shall be natural persons, but need not be residents of Delaware or stockholders of the corporation. SECTION 3.03. Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. SECTION 3.04. Resignations. Any director of the corporation may resign at any time by giving written notice to the president or the secretary of the corporation. Such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 3.05. Organization. At every meeting of the board of directors, the chairman of the board, if there be one, or, in the case of a vacancy in the office or absence of the chairman of the board, one of the following officers present in the order stated: the vice chairman of the board, if there be one, the president, the vice presidents in their order of rank and seniority, or a chairman chosen by a majority of the directors present, shall preside, and the secretary, or, in his absence, an assistant secretary, or in the absence of the secretary and the assistant secretaries, any person appointed by the chairman of the meeting, shall act as secretary. SECTION 3.06. Place of Meeting. The board of directors may hold its meetings, both regular and special, at such place or places within or without the State of Delaware as the board of 7 directors may from time to time appoint, or as may be designated in the notice calling the meeting. SECTION 3.07. Organization Meeting. The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place for such first meeting of the newly elected board of directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. SECTION 3.08. Regular Meetings. Regular meetings of the board of directors may be held without notice at such time and place as shall be designated from time to time by resolution of the board of directors. If the date fixed for any such regular meeting be a legal holiday under the laws of the State where such meeting is to be held, then the same shall be held on the next succeeding business day, not a Saturday, or at such other time as may be determined by resolution of the board of directors. At such meetings, the directors shall transact such business as may properly be brought before the meeting. SECTION 3.09. Special Meeting. Special meetings of the board of directors shall be held whenever called by the president or by two or more of the directors. Notice of each such meeting shall be given to each director by telephone or in writing at least 24 hours (in the case of notice by telephone) or 48 hours (in the case of notice by telegram) or five days (in the case of notice by mail) before the time at which the meeting is to be held. Each such notice shall state the time and place of the meeting to be so held. SECTION 3.10. Quorum, Manner of Acting and Adjournment. At all meetings for the board a majority of the directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board. SECTION 3.11. Executive and Other Committees. The board of directors may, by resolution adopted by a majority of the whole board, designate an executive committee and one or more other committees, each committee to consist of one or more directors. The board may 8 designate one or more directors as alternative members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member, and the alternate or alternates, if any, designated for such member, of any committee the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another director to act at the meeting in the place of any such absent or disqualified member. Any such committee to the extent provided in the resolution establishing such committee shall have and may exercise all the power and authority of the board of directors in the management of the business and affairs of the corporation, including the power or authority to declare a dividend or to authorize the issuance of stock, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the Delaware General Corporation Law ("DGCL"), fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation), adopting an agreement of merger or consolidation under Section 251 or 252 or the DGCL, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the by-laws of the corporation; and, unless the resolution expressly so provides, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the DGCL. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Each committee so formed shall keep regular minutes of its meetings and report the same to the board of directors when required. SECTION 3.12. Compensation of Directors. Unless otherwise restricted by the certificate of incorporation, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. SECTION 3.13. Notification of Director Nominations. Nominations for the election of Directors may be made by the Board of Directors or by any shareholder entitled to vote for the election of Directors. Any shareholder entitled to vote for the election of Directors at a meeting may nominate persons for election as Directors only if written notice of such shareholder's intent to make such nomination is given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Company not later that (i) with respect to an election to be held at an annual 9 meeting of shareholders, 90 days in advance of such meeting, and (ii) with respect to an election to be held at a special meeting of shareholders for the election of Directors, the close of business on the seventh day following the date on which notice of such meeting is first given to shareholders. Each such notice shall set forth: (a) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated, (b) a representation that such shareholder is a holder of record of stock of the Company, the number of shares currently held by such shareholder, whether or not such shareholder is entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice, (c) a description of all arrangements or understandings between such shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by such shareholder, (d) such other information regarding each nominee proposed by such shareholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each nominee been nominated, or intended to be nominated by the Board of Directors, and (e) the consent of each nominee to serve as a Director of the Company if elected. The Chairman of a shareholder meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. ARTICLE IV Notice - Waivers - Meetings SECTION 4.01. Notice, What Constitutes. Whenever, under the provision of the statutes of Delaware or the certificate of incorporation or of these by-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given in accordance with Section 3.09 of Article III hereof. SECTION 4.02 Waivers of Notice. Whenever any written notice is required to be given under the provisions of the certificate of incorporation, these by-laws, or by statute, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Except in the case of a special meeting of stockholders, neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice of such meeting. Attendance of a person, either in person or by proxy, at any meeting, shall constitute a waiver of notice of such meeting, except where a person attends a meeting for the express purpose of objecting to the transaction of any business because the meeting was not lawfully called or convened. 10 SECTION 4.03. Conference Telephone Meetings. One or more directors may participate in a meeting of the board, or of a committee of the board, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this section shall constitute presence in person at such meeting. ARTICLE V Officers SECTION 5.01. Number, Qualifications and Designation. The officers of the corporation shall be chosen by the board of directors and shall be a president, one or more vice presidents, a secretary, a treasurer, and such other officers as may be elected in accordance with the provisions of Section 5.03 of this Article. One person may hold more than one office. Officers may be, but need not be, directors or stockholders of the corporation. The board of directors may elect from among the members of the board a chairman of the board and a vice chairman of the board who shall be officers of the corporation. SECTION 5.02. Election and Term of Office. The officers of the corporation, except those elected by delegated authority pursuant to Section 5.03 of this Article, shall be elected annually by the board of directors, and each such officer shall hold his office until his successor shall have been elected and qualified, or until his earlier resignation or removal. Any officer may resign at any time upon written notice to the corporation. SECTION 5.03. Subordinate Officers, Committees and Agents. The board of directors may from time to time elect such other officers and appoint such committees, employees or other agents as it deems necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as are provided in these by-laws, or as the board of directors may from time to time determine. The board of directors may delegate to any officer or committee the power to elect subordinate officers and to retain or appoint employees or other agents, or committees thereof, and to prescribe the authority and duties of such subordinate officers, committees, employees or other agents. SECTION 5.04. The Chairman and Vice Chairman of the Board. The chairman of the board or in his absence, the vice chairman of the board, shall preside at all meetings of the stockholders and of the board of directors, and shall perform such other duties as may from time to time be assigned to them by the board of directors. SECTION 5.05. The President. The president shall be the chief executive officer of the corporation and shall have general supervision over the business and operations of the corporation, subject, however, to the control of the board of directors. He shall sign, execute, and acknowledge, in the name of the corporation, deeds, mortgages, bonds, contracts or other instruments, authorized by 11 the board of directors, except in cases where the signing and execution thereof shall be expressly delegated by the board of directors, or by these by-laws, to some other officer or agent of the corporation; and, in general, shall perform all duties incident to the office of the president, and such other duties as from time to time may be assigned to him by the board of directors. SECTION 5.06. The Vice Presidents. The vice presidents shall perform the duties of the president in his absence and such other duties as may from time to time be assigned to them by the board of directors or by the president. SECTION 5.07. The Secretary. The secretary, or an assistant secretary, shall attend all meetings of the stockholders and of the board of directors and shall record the proceedings of the stockholders and of the directors and of committees of the board in a book or books to be kept for that purpose; see that notices are given and records and reports properly kept and filed by the corporation as required by law; be the custodian of the seal of the corporation and see that it is affixed to all documents to be executed on behalf of the corporation under its seal; and, in general, perform all duties incident to the office of secretary, and such other duties as may from time to time be assigned to him by the board of directors or the president. SECTION 5.08. The Treasurer. The treasurer or an assistant treasurer shall have or provide for the custody of the funds or other property of the corporation and shall keep a separate book account of the same to his credit as treasurer; collect and receive or provide for the collection and receipt of moneys earned by or in any manner due to or received by the corporation; deposit all funds in his custody as treasurer in such banks or other places of deposit as the board of directors may from time to time designate; whenever so required by the board of directors, render an account showing his transactions as treasurer and the financial condition of the corporation; and, in general, discharge such other duties as may from time to time be assigned to him by the board of directors or the president. SECTION 5.09. Officers' Bonds. No officer of the corporation need provide a bond to guarantee the faithful discharge of his duties unless the board of directors shall by resolution so require a bond in which event such officer shall give the corporation a bond (which shall be renewed if and as required) in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office. SECTION 5.10. Salaries. The salaries of the officers and agents of the corporation elected by the board of directors shall be fixed from time to time by the board of directors. ARTICLE VI Certificates of Stock, Transfer, Etc. SECTION 6.01. Issuance. Each stockholder shall be entitled to a certificate or certificates for shares of stock of the corporation owned by him upon his request therefor. The stock certificates 12 of the corporation shall be numbered and registered in the stock ledger and transfer books of the corporation as they are issued. They shall be signed by the president or a vice president and by the secretary or an assistant secretary or the treasurer or an assistant treasurer, and shall bear the corporate seal, which may be a facsimile, engraved or printed. Any of or all the signatures upon such certificate may be a facsimiles, engraved or printed. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed upon, any share certificate shall have ceased to be such officer, transfer agent or registrar, before the certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent or registrar at the date of its issue. SECTION 6.02. Transfer. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. No transfer shall be made which would be inconsistent with the provisions of Article 8, Title 6 of the Delaware Uniform Commercial Code-investment Securities. SECTION 6.03. Stock Certificates. Stock certificates of the corporation shall be in such form as provided by statute and approved by the board of directors. The stock record books and the blank stock certificates books shall be kept by the secretary or by any agency designated by the board of directors for that purpose. SECTION 6.04. Lost, Stolen, Destroyed or Mutilated Certificates. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. SECTION 6.05. Record Holder of Shares. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. SECTION 6.06. Determination of Stockholders of Record. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or 13 entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty day prior to any other action. If no record date is fixed: (1) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (2) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the board of directors is necessary, shall be the day on which the first written consent is expressed. (3) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. ARTICLE VII Indemnification of Directors, Officers and Other Authorized Representatives SECTION 7.01. Indemnification of Authorized Representative in Third Party Proceedings. The corporation shall indemnify any person who was or is an "authorized representative" of the corporation (which shall mean for purposes of this Article a director or officer of the corporation, or a person serving at the request of the corporation as a director, officer, or trustee, of another corporation, partnership, joint venture, trust or other enterprise) and who was or is a "party" (which shall include for purposes of this Article the giving of testimony or similar involvement) or is threatened to be made a party to any "third party proceeding" (which shall mean for purposes of this Article any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the corporation) by reason of the fact that such person was or is an authorized representative of the corporation, against expenses (which shall include for purposes of this Article attorneys' fees), judgments, penalties, fines and amounts paid in settlement actually and reasonable incurred by such person in connection with such third party proceeding if such person acted in good faith and in a manner such person 14 reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal third party proceeding (including any action or investigation which could or does lead to a criminal third party proceeding) had no reasonable cause to believe such conduct was unlawful. The termination of any third party proceeding by judgment, order, settlement, indictment, conviction or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that the authorized representative did not act in good faith and in a manner which such person reasonable believed to be in or not opposed to, the best interests of the corporation, and, with respect to any criminal third party proceeding, had reasonable cause to believe that such conduct was unlawful. SECTION 7.02. Indemnification of Authorized Representatives in Corporate Proceedings. The corporation shall indemnify any person who was or is an authorized representative of the corporation and who was or is a party or is threatened to be made a party to any "corporate proceeding" (which shall mean for the purposes of this Article any threatened, pending or competed action or suit by or in the right of the corporation to procure a judgment in its favor or investigative proceeding by the corporation) by reason of the fact that such person was or is an authorized representative of the corporation, against expenses actually and reasonable incurred by such person in connection with the defense or settlement of such corporate action if such person acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of such person's duty to the corporation unless and only to the extent that the Court of Chancery or the court in which such corporate proceeding was pending shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such authorized representative is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. SECTION 7.03. Mandatory Indemnification of Authorized Representatives. To the extent that an authorized representative of the corporation has been successful on the merits or otherwise in defense of any third party or corporate proceeding or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses actually and reasonably incurred by such person in connection therewith. SECTION 7.04. Determination of Entitlement to Indemnification. Any indemnification under Section 7.01, 7.02, or 7.03 of this Article (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the authorized representative is proper in the circumstances because such person has either met the applicable standard of conduct set forth in Section 7.01 or 7.02 or had been successful on the merits or otherwise as set forth in Section 7.03 and that the amount requested has been actually and reasonably incurred. Such determination shall be made: (1) By the board of directors by a majority of a quorum consisting of directors who were not parties to such third party or corporate proceeding, or 15 (2) If such a quorum is not obtainable, or, even if obtainable, a majority vote of such a quorum so directs, by independent legal counsel in written opinion, or (3) By the stockholders. SECTION 7.05. Advancing Expenses. Expenses actually and reasonably incurred in defending a third party or corporate proceeding shall be paid on behalf of an authorized representative by the corporation in advance of the final disposition of such third party or corporate proceeding as authorized in the manner provided in Section 7.04 of this Article upon receipt of an undertaking by or on behalf of the authorized representative to repay such amount unless it shall ultimately be determined that such person is entitled to be indemnified by the corporation as authorized in this Article. The financial ability of such authorized representative to make such repayment shall not be a prerequisite to the making of an advance. SECTION 7.06. Employee Benefit Plans. For purposes of this Article, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include and excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Article. SECTION 7.07. Scope of Article. The indemnification of authorized representatives, as authorized by this Article, shall (1) not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any statute, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity, (2) continue as to a person who has ceased to be an authorized representative and (3) inure to the benefit of the heirs, executors and administrators of such a person. SECTION 7.08. Reliance on Provisions. Each person who shall act as an authorized representative of the corporation shall be deemed to be doing so in reliance upon rights of indemnification provided by this Article. ARTICLE VIII General Provisions SECTION 8.01. Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in 16 shares or the capital stock of the corporation, subject to the provisions of the certificate of incorporation. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. SECTION 8.02. Annual Statements. The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. SECTION 8.03. Contracts. Except as otherwise provided in these by-laws, the board of directors may authorized any officer or officers including the chairman and vice chairman of the board of directors, or any agent or agents, to enter into any contract or to execute or deliver any instrument on behalf of the corporation and such authority may be general or confined to specific instances. SECTION 8.04. Checks. All checks, notes, bills of exchange or other orders in writing shall be signed by such person or persons as the board of directors may from time to time designate. SECTION 8.05. Corporate Seal. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. SECTION 8.06 Deposits. All funds of the corporation shall be deposited from time to time to the credit of the corporation in such banks, trust companies, or other depositories as the board of directors may approve or designate, and all such funds shall be withdrawn only upon checks signed by such one or more officers or employees as the board of directors shall from time to time determine. SECTION 8.07 Corporate Records. At least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of and number of shares registered in the name of each stockholder, shall be open to the examination of any stockholder, for any purpose germane to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Every stockholder shall, upon written demand under oath stating the purpose thereof, have a right to examine, in person or by agent or attorney, during the usual hours for business, for any 17 proper purpose, the stock ledger, books or records of account, and records of the proceedings of the stockholders and directors, and make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business. Where the stockholder seeks to inspect the books and records of the corporation, other than its stock ledger or list of stockholders, the stockholder shall first establish (1) compliance with the provisions of this section respecting the form and manner of making demand for inspection of such document; and (2) that the inspection sought is for a proper purpose. Where the stockholder seeks to inspect the stock ledger or list of stockholders of the corporation and has complied with the provisions of this section respecting the form and manner of making demand for inspection of such documents, the burden of proof shall be upon the corporation to establish that the inspection sought is for an improper purpose. Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders and its other books and records for a purpose reasonable related to his position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger and the stock list and to make copies or extracts therefrom. The court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the court may deem just and proper. SECTION 8.10. Amendment of By-Laws. These by-laws may be altered, amended or repealed or new by-laws may be adopted by the stockholders or by the board of directors, when such power is conferred upon the board of directors by the certificate of incorporation, at any regular meeting of the stockholders or of the board of directors or at any special meeting of the stockholders or of the board of directors if notice of such alteration, amendment, repeal or adoption of new by-laws be contained in the notice of such special meeting. 18 EX-10.14 4 f77744ex10-14.txt EXHIBIT 10.14 EXHIBIT 10.14 AGREEMENT This Agreement ("Agreement") is made by and between Novell, Inc. (the "Company"), and Eric E. Schmidt ("Consultant"). WHEREAS, Consultant was employed by the Company as President and Chief Executive Officer and acts as Chairman of the Company's Board of Directors (the "Board") pursuant to the terms and conditions of a key employment agreement entered into by and between Consultant and the Company as of March 18, 1997 (the "Employment Agreement"); WHEREAS, Consultant has terminated as President and Chief Executive Officer of the Company effective as of July 10, 2001; WHEREAS, Consultant is entitled to certain benefits under the Employment Agreement as a result of his "Constructive Termination" thereunder; WHEREAS, in accordance with the terms of the Employment Agreement, the Company wishes to continue to retain Consultant as Chairman of the Board. The Company desires that Consultant remain a special consultant to the Company for a period of at least twelve months following his termination as President and Chief Executive Officer; WHEREAS, Consultant is willing to accept the benefits and compensation offered by the Company under the terms and conditions set forth in this Agreement and Consultant specifically agrees and acknowledges that the compensation set forth herein, excluding the accelerated vesting referenced below, satisfies the severance payments that Consultant is entitled to under the terms and conditions of the Employment Agreement; WHEREAS, Consultant is willing to accept the accelerated vesting of any unvested shares subject to his stock options that would have expired after June 10, 2002 under the terms and conditions set forth in this Agreement as consideration for the mutual promises made herein; NOW THEREFORE, in consideration of the mutual promises made herein, the Company and Consultant (collectively referred to as "the Parties") hereby agree as follows: 1. Termination. (a) Termination Date. Consultant's employment with the Company as President and Chief Executive Officer terminated on July 10, 2001 (the "Termination Date"). Notwithstanding Consultant's employment termination, Consultant continues to serve as Chairman of the Board and as a special consultant to the Company. Consultant agrees and acknowledges that although he will continue to be Chairman of the Board following the Termination Date, he will relinquish all other officer and director positions with the Company and its affiliates (except as set forth in Section 2). 19 (b) Payment. The Company agrees to pay Consultant the lump sum amount of $64,326.00, (which amount represents all unreimbursed business expenses and accrued but unpaid salary and vacation as of the Termination Date) less applicable withholding, within ten (10) days from the "Effective Date" (as defined herein) of this Agreement. In addition, the Company agrees to pay Consultant at the rate of $100,000 per month (which amount represents Consultant's monthly "Base Salary" and "Target Bonus" as such terms are defined in the Employment Agreement), less applicable withholding, for the time period from the Termination Date through the twelve (12) month anniversary of the Termination Date (the "Payment Period") in accordance with the Company's payroll practices, whether or not Consultant continues to provide services to the Company in any capacity during the Payment Period. Notwithstanding the foregoing, such monthly payments shall be offset by any payment that Consultant received from the Company after July 10, 2001 and prior to the commencement of the monthly payments set forth in this Section. Consultant shall also be entitled to receive an amount equal to the cost of COBRA continuation until the earlier of (i) the date Consultant is no longer eligible to receive continuation coverage pursuant to COBRA, or (ii) the end of the Payment Period. During the Payment Period, Consultant will not be entitled to accrual of any employee benefits, including, but not limited to, participation in the Company's benefit plans and programs, accrual of vacation benefits, new stock option or restricted stock grants, participation in any Company option repricings or exchanges, 401(k) contributions or bonuses. Absent a prior written agreement, Consultant will not be entitled to any additional salary and bonus payments following the conclusion of the Payment Period. (c) Restricted Stock. As of the Termination Date, the Company's right to repurchase any shares of restricted stock purchased by Consultant (the "Restricted Stock") shall lapse as to all unvested shares subject to such Restricted Stock as set forth on Exhibit A hereto. Except as otherwise provided in this Agreement, such accelerated shares shall continue to be subject to the terms and conditions of the applicable Company stock plan and restricted stock purchase agreements by and between Consultant and the Company. Such shares of Restricted Stock are now duly authorized, legally issued, fully paid, and nonassessable shares of the Company's common stock. 2. Chairman and Consulting Arrangement. (a) Chairman/Member of the Board. Following the Termination Date, Consultant will serve as Chairman of the Board or solely a member of the Board for such period of time as determined by the Board and/or stockholders. Consultant agrees and acknowledges that his continued service as either Chairman of the Board or solely a member of the Board will be subject to any required Board and stockholder approval. (b) Consultancy. The Company will retain Consultant as a special consultant following his service as a member of the Board for a minimum period of twelve calendar months or such longer period of time as determined by the Board (the "Consulting Term"). Consultant will report directly to the President and Chief Executive Officer of the Company during the Consulting Term and will render such business and professional services as shall reasonably be assigned to him by the Board or the President and Chief Executive Officer of the Company, including, but not limited to, advising the President and Chief Executive Officer of the Company and the Board on strategic issues and representing the Company at various trade conferences as a speaker and promoter of the Company's products and solutions. Notwithstanding the foregoing, the Consulting Term may be -2- terminated by the Company at any time with or without cause or notice with thirty (30) days written notice to Consultant. (c) Stock Options. As of the Termination Date, the vesting and exercisability of any stock options granted to Consultant by the Company (the "Options") shall accelerate as to all unvested shares subject to such Options as set forth on Exhibit A hereto. Such accelerated options shall remain exercisable until the earlier of: (i) the term/expiration date of the Options, or (iii) at least sixty (60) days following the date that Consultant no longer serves as a member of the Board or as a consultant to the Company. Except as otherwise provided in this Agreement, the Options shall continue to be subject to the terms and conditions of the applicable Company stock plan and option agreements by and between Consultant and the Company. (d) Use of Company Aircraft. While a member of the Board or a consultant to the Company, Consultant shall be permitted to use, for business purposes only, the Company's corporate aircraft and pilot for up to four to six business-related trips per year; provided, however, that such use shall be subject to the Company's policies and aircraft usage requirements and shall be contingent upon the Company continuing to own the aircraft. Any usage of the aircraft by the Consultant must be approved in advance and in writing by the Company's President and Chief Executive Officer and must not interfere with any other usage of the aircraft by the Company. 3. Confidential Information. Consultant shall continue to maintain the confidentiality of all confidential and proprietary information of the Company. Consultant agrees at all times during the term of his employment and/or consultancy hereunder and thereafter, to hold in strictest confidence, and not to use, except for the benefit of the Company, to fulfill his employment obligations, or to disclose to any person, firm or corporation without written authorization of the Board of Directors of the Company, any "Confidential Information" of the Company. Consultant understands that "Confidential Information" means any Company proprietary information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, services, customer lists and customers (including, but not limited to, customers of the Company on whom Consultant called or with whom Consultant became acquainted during the term of his employment), markets, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, finances or other business information disclosed to Consultant by the Company either directly or indirectly in writing, orally or by drawings or observation of parts or equipment. Consultant further understands that Confidential Information does not include any of the foregoing items which has become publicly known and made generally available through no wrongful act of Consultant or of others who were under confidentiality obligations as to the item or items involved. Consultant agrees that, at the end of the Consulting Term, Consultant will deliver to the Company (and will not keep in his possession, recreate or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items developed by Consultant pursuant to his employment and consultancy with the Company or otherwise belonging to the Company, its successors or assigns. -3- 4. Payment of Salary. Consultant acknowledges and represents that except as provided in Sections 1 and 2 the Company has paid to Consultant all salary, wages, bonuses, accrued vacation and any and all other benefits due to Consultant. 5. Release of Claims. Consultant agrees that the foregoing consideration represents settlement in full of all outstanding obligations owed to Consultant by the Company. Consultant, on behalf of himself, and his respective heirs, family members, executors and assigns, hereby fully and forever releases the Company and its past, present and future officers, agents, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, parents, predecessor and successor corporations, and assigns, from, and agrees not to sue or otherwise institute or cause to be instituted any legal or administrative proceedings concerning any claim, duty, obligation or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that he may possess arising from any omissions, acts or facts that have occurred up until and including the Effective Date of this Agreement including, without limitation, (a) any and all claims relating to or arising from Consultant's employment relationship with the Company and the termination of that relationship; (b) any and all claims relating to, or arising from, Consultant's right to purchase, or actual purchase of shares of stock of the Company, including, without limitation, any claims for fraud, misrepresentation, breach of fiduciary duty, breach of duty under applicable state corporate law, and securities fraud under any state or federal law; (c) any and all claims for wrongful discharge of employment; termination in violation of public policy; discrimination; breach of contract, both express and implied; breach of a covenant of good faith and fair dealing, both express and implied; promissory estoppel; negligent or intentional infliction of emotional distress; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; unfair business practices; defamation; libel; slander; negligence; personal injury; assault; battery; invasion of privacy; false imprisonment; and conversion; (d) any and all claims for violation of any federal, state or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, the Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974, The Worker Adjustment and Retraining Notification Act, the California Fair Employment and Housing Act, and Labor Code section 201, et seq. and section 970, et seq. and all amendments to each such Act as well as the regulations issued thereunder; (e) any and all claims for violation of the federal, or any state, constitution; (f) any and all claims arising out of any other laws and regulations relating to employment or employment discrimination; and (g) any and all claims for attorneys' fees and costs. -4- Consultant agrees that the release set forth in this section shall be and remain in effect in all respects as a complete general release as to the matters released. This release does not extend to any obligations incurred under this Agreement. 6. Acknowledgment of Waiver of Claims under ADEA. Consultant acknowledges that he is waiving and releasing any rights he may have under the Age Discrimination in Employment Act of 1967 ("ADEA") and that this waiver and release is knowing and voluntary. Consultant and the Company agree that this waiver and release does not apply to any rights or claims that may arise under the ADEA after the Effective Date of this Agreement. Consultant acknowledges that the consideration given for this waiver and release is in addition to anything of value to which Consultant was already entitled. Consultant further acknowledges that he has been advised by this writing that (a) he should consult with an attorney prior to executing this Agreement; (b) he has twenty-one (21) days within which to consider this Agreement; (c) he has seven (7) days following the execution of this Agreement by the parties to revoke the Agreement; and (d) this Agreement shall not be effective until the revocation period has expired. Any revocation should be in writing and delivered to the President and Chief Executive Officer at the Company, by close of business on the seventh (7th) day from the date that Consultant signs this Agreement. 7. Civil Code Section 1542. Consultant represents that he is not aware of any claims against the Company other than the claims that are released by this Agreement. Consultant acknowledges that he has been advised by legal counsel and is familiar with the provisions of California Civil Code Section 1542, which provides as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. Consultant, being aware of said code section, agrees to expressly waive any rights he may have thereunder to the extent permitted by applicable law. 8. No Pending or Future Lawsuits. Consultant represents that he has no lawsuits, claims, or actions pending in his name, or on behalf of any other person or entity, against the Company or any other person or entity referred to herein. Consultant also represents that he does not intend to bring any claims on his own behalf or on behalf of any other person or entity against the Company or any other person or entity referred to herein. 9. Confidentiality. Consultant agrees to use his best efforts to maintain in confidence the existence of this Agreement, the contents and terms of this Agreement, and the consideration for this Agreement (hereinafter collectively referred to as "Settlement Information"). Consultant agrees to take every reasonable precaution to prevent disclosure of any Settlement Information to third parties, and agrees that there will be no publicity, directly or indirectly, concerning any Settlement Information. Consultant agrees to take every precaution to disclose Settlement Information only to -5- those attorneys, accountants, governmental entities, and family members who have a reasonable need to know of such Settlement Information. 10. Covenant Not to Compete and Not to Solicit. (a) Consultant shall not for a period of one (1) year following the Termination Date, directly or indirectly, engage in (whether as employee, consultant, proprietor, partner, director or otherwise), or have any ownership interest in, or participate in the financing, operation, management or control of, any person, firm, corporation or business that is a "Restricted Business" (as defined below) in a "Restricted Territory" (as defined below) without the prior written consent of the Company. The following shall not constitute a violation of this provision: (i) ownership of no more than two percent (2%) of the outstanding voting stock of a publicly-traded corporation or any stock owned by Consultant as of March 18, 1997, or (ii) Consultant's acting as a member of any Board of Directors on which Consultant served as of March 18, 1997. For this purpose, "Restricted Business" shall mean: (i) the design, development, manufacture, marketing or support of local or wide area network products, computer operating systems, applications products, or any other software products of the type designed, developed, manufactured, sold or supported by the Company or as proposed to be designed, developed, manufactured, sold or supported by the Company pursuant to a development project which is actually being pursued prior to the end of Consultant's status as a director or consultant to the Company. For this purpose, "Restricted Territory" shall mean the counties, cities or states of the United States. (b) Following the Termination Date, Consultant shall not for a period of one (1) year thereafter, (i) hire, solicit, encourage, or take any other action which is intended to induce any other employee of the Company to terminate his or her employment with the Company; or (ii) interfere with the contractual or employment relationship between the Company and any such employee of the Company. The foregoing shall not prohibit Consultant or any entity with which Consultant may be affiliated from hiring a former employee of the Company; provided that such hiring results exclusively from such former employee's affirmative response to a general recruitment effort. (c) The parties intend that the covenants contained in the preceding paragraphs shall be construed as a series of separate covenants, one for each county, city and state or other political subdivision of the Restricted Territory. Except for geographic coverage, each such separate covenant shall be deemed identical in terms to the covenant contained in the preceding paragraphs. If, in any judicial proceeding, a court shall refuse to enforce any of the separate covenants (or any part thereof deemed included in said paragraphs), then such unenforceable covenant (or such part) shall be deemed eliminated from this Agreement for the purpose of those proceedings to the extent necessary to permit the remaining separate covenants (or portions thereof) to be enforced. (d) In the event that the provisions of this Section should ever be deemed to exceed the time, scope or geographic limitations permitted by applicable laws, then such provisions shall be reformed to the maximum time, scope or geographic limitations, as the case may be, permitted by applicable laws. -6- (e) Consultant represents that he is familiar with the covenants not to compete, not to hire and not to solicit, and is fully aware of and acknowledges his obligations hereunder, including without limitation, the reasonableness of the length of time and scope of these covenants. Consultant acknowledges that breach of Consultant's covenants not to compete and not to solicit in this Section would cause irreparable injury to the Company, and agrees that in the event of such breach, the Company shall be entitled to seek injunctive relief under applicable law without the necessity of proving actual damages. 11. No Cooperation. Consultant agrees he will not act in any manner that might damage the business of the Company. Consultant agrees that he will not counsel or assist any attorneys or their clients in the presentation, prosecution or litigation of any disputes, differences, grievances, claims, charges, or complaints by any third party against the Company and/or any officer, director, employee, agent, representative, shareholder or attorney of the Company, unless under a subpoena or other court order to do so. Consultant agrees to notify the Company if he receives a subpoena or court order as specified above. 12. Cooperation. Consultant agrees to assist the Company in good faith in the presentation, prosecution or litigation of any disputes, differences, grievances, claims, charges, or complaints by any third party against the Company and/or any officer, director, employee, agent, representative, shareholder or attorney of the Company and to be responsive and cooperative in such event. 13. Non-Disparagement. Consultant and the Company mutually agree to refrain from (i) any defamation, libel or slander of the Company and its respective officers, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns, or the Consultant, as applicable, or (ii) tortious interference with the contracts and relationships of the Company and its respective officers, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns, or the Consultant, as applicable. 14. No Admission of Liability. Consultant understands and acknowledges that this Agreement constitutes a compromise and settlement of disputed claims. No action taken by the Company, either previously or in connection with this Agreement shall be deemed or construed to be (a) an admission of the truth or falsity of any claims heretofore made or (b) an acknowledgment or admission by the Company of any fault or liability whatsoever to the Consultant or to any third party. 15. Costs. The Parties shall each bear their own costs, expert fees, attorneys' fees and other fees incurred in connection with this Agreement. 16. Assignment. This Agreement will be binding upon and inure to the benefit of (a) the heirs, executors and legal representatives of Consultant upon Consultant's death and (b) any successor of the Company. Any such successor of the Company will be deemed substituted for the Company under the terms of this Agreement for all purposes. For this purpose, "successor" means any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. None of the rights of Consultant to receive any form of compensation payable -7- pursuant to this Agreement may be assigned or transferred except by will or the laws of descent and distribution. Any other attempted assignment, transfer, conveyance or other disposition of Consultant's right to compensation or other benefits will be null and void. 17. Arbitration. The Parties agree that any and all disputes arising out of the terms of this Agreement, their interpretation, and any of the matters herein released, including any potential claims of harassment, discrimination or wrongful termination shall be subject to binding arbitration, to the extent permitted by law, in Santa Clara County, California, before the American Arbitration Association under its National Rules for the Resolution of Employment Disputes. CONSULTANT AGREES AND HEREBY WAIVES HIS RIGHT TO JURY TRIAL AS TO MATTERS ARISING OUT OF THE TERMS OF THIS AGREEMENT AND ANY MATTERS HEREIN RELEASED TO THE EXTENT PERMITTED BY LAW. The Parties agree that the prevailing party in any arbitration shall be entitled to injunctive relief in any court of competent jurisdiction to enforce the arbitration award. 18. Authority. Consultant represents and warrants that he has the capacity to act on his own behalf and on behalf of all who might claim through him to bind them to the terms and conditions of this Agreement. 19. No Representations. Consultant represents that he has had the opportunity to consult with an attorney, and has carefully read and understands the scope and effect of the provisions of this Agreement. Neither party has relied upon any representations or statements made by the other party hereto which are not specifically set forth in this Agreement. 20. Breach. Consultant agrees and understands that his right to receive the consideration referenced in this Agreement shall be conditioned upon his compliance with the terms of this Agreement. Consultant shall forfeit any rights to such consideration upon his material breach of the terms of this Agreement. Likewise, the Company agrees and understands that its rights to enforce the terms in this Agreement shall be conditioned upon its compliance with such terms. The Company shall forfeit any rights hereunder upon its material breach of the terms of this Agreement. 21. Severability. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision. 22. Entire Agreement. This Agreement and any agreements incorporated herein by reference represent the entire agreement and understanding between the Company and Consultant concerning Consultant's employment separation from the Company and continued relationship as a consultant to the Company, and satisfies the severance payments and other obligations concerning Consultant's employment relationship with the Company and his compensation by the Company under the terms and conditions of the Employment Agreement. 23. No Oral Modification. This Agreement may only be amended in writing signed by Consultant and the President of the Company. 24. Governing Law. This Agreement shall be governed by the internal substantive laws, but not the choice of law rules, of the State of California. -8- 25. Effective Date. This Agreement is effective eight (8) days after it has been signed by both Parties (the "Effective Date"). 26. Counterparts. This Agreement may be executed in counterparts, and each counterpart shall have the same force and effect as an original and shall constitute an effective, binding agreement on the part of each of the undersigned. 27. Voluntary Execution of Agreement. This Agreement is executed voluntarily and without any duress or undue influence on the part or behalf of the Parties hereto, with the full intent of releasing all claims. The Parties acknowledge that: (a) They have read this Agreement; (b) They have been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of their own choice; (c) They understand the terms and consequences of this Agreement and of the releases it contains; (d) They are fully aware of the legal and binding effect of this Agreement. -9- IN WITNESS WHEREOF, the Parties have executed this Agreement on the respective dates set forth below. NOVELL, INC. Dated: August 13 , 2001 By /S/ ALAN FRIEDMAN ------------------- ------------------------------- Alan Friedman, Senior VP People ERIC E. SCHMIDT, an individual Dated: August 13 , 2001 /S/ ERIC E. SCHMIDT ------------------- ------------------------------- Eric E. Schmidt EX-10.15 5 f77744ex10-15.txt EXHIBIT 10.15 EXHIBIT 10.15 [NOVELL, INC. LETTERHEAD] July 11, 2001 Mr. Dennis Raney 3645 Washington San Francisco, CA 94118 Dear Dennis: This letter agreement (the "Agreement") confirms the agreement that we have reached regarding your separation from employment with Novell, Inc. ("Novell" or the "Company"). The purpose of this Agreement is to establish an amicable arrangement for ending your employment relationship, to release the Company and its affiliates from any claims that you may have against any of them, and to permit you to receive certain separation pay, acceleration of vesting of stock options, and related benefits. You understand that the benefits under this Agreement are greater than those offered to you in lieu of those for which you otherwise would be eligible under the Novell, Inc. Senior Management Severance Plan ("Plan"). You acknowledge that you are entering into this Agreement voluntarily. By entering into this Agreement, you understand that you are giving up your right to the fullest extent permitted by law to bring legal claims against the Company including, among others, claims relating to your employment and its termination. If you were not to enter into this Agreement and were to bring any claims against the Company, the Company would dispute the merits of those claims and would contend that it acted lawfully and for good business reasons with respect to you. Neither the Company nor you want your employment relationship to end with a legal dispute. You understand that by offering to enter into this Agreement the Company is not admitting in any way that it violated any legal obligation that it owed to you or to any other person. To the contrary, the Company's willingness to enter into this Agreement demonstrates that it is continuing to deal with you fairly and in good faith. With those understandings and in exchange for the promises of you and the Company set forth below, you and the Company agree as follows: 1. Effective Date This Agreement shall be deemed to have been executed as of the date of your signature below (the "Execution Date"). The Agreement shall become effective on the eighth (8th) day following the Execution Date (the "Effective Date") unless you exercise your right to revoke in accordance with Section 14 below. Mr. Dennis Raney July 6, 2001 Page 2 2. Termination Your employment is terminated effective as of July 16, 2001 (the "Termination Date"). You agree that on the Termination Date all offices and positions that you hold with Novell and all related or affiliated entities also terminate. The Company will pay to you all base salary earned by you through the Termination Date, all accrued but unused vacation pay due to you based on your employment through the Termination Date and unreimbursed business expenses incurred prior to the Termination Date subject to the Company's expense reimbursement policy. The Company's group health plan also will continue to process claims incurred prior to the Termination Date in accordance with the terms and conditions thereof. You further acknowledge that you are not entitled to or owed any additional compensation, including, but not limited to, bonuses by the Company. 3. Payments In exchange for and subject to the terms and conditions of this Agreement, including, without limitation, the general release of Claims in Section 5 and the Acknowledgement of Waiver in Section 6, Novell shall: (a) pay you One Million Five Hundred Thousand Dollars ($1,500,000) (i.e., an amount equal to 300% of your Base Salary (the "Severance Payment"). The Severance Payment shall be paid by check or wire transfer, as you direct, by the Company to you in equal installments over thirty-six (36) months, such installments payable in accordance with Novell's regular payroll practices for senior executives, subject to your continuing compliance with Section 8 below, with the first such payment being made on the first regular payroll date next following the Effective Date. For purposes of this Agreement, the term "Base Salary" shall mean your gross salary on an annualized basis, exclusive of bonuses, commissions or other incentive pay, as in effect immediately prior to the Termination Date. (b) pay you One Million One Hundred and Twenty-five Thousand Dollars ($1,125,000) (the "Additional Severance"). The Additional Severance shall be paid by check or wire transfer, as you direct, by the Company to you in two equal installments with the first such installment payable eighteen (18) months following the Effective Date and the second such installment payable thirty-six (36) months following the Effective Date, subject to your continuing compliance with Section 8 below. (c) pay you Three Hundred and Thirty Thousand Dollars ($330,000), by check or wire transfer, as you direct, on the business day following the Effective Date (d) accelerate to the Termination Date the vesting of that portion or portions of your stock options and restricted stock grants, which would have vested within two and one Mr. Dennis Raney July 6, 2001 Page 3 half (2 1/2 ) years after the Termination Date. Subject to the original term of the option grant or grants, the vested options shall otherwise remain exercisable, subject to your continuing compliance with Section 8 below, for a period of up to twelve (12) months following the Termination Date. The Company hereby waives its repurchases rights with respect to vested restricted stock. (e) provide you with reimbursement for personal financial planning and tax return preparation, not to exceed Eleven Thousand Dollars ($11,000) in aggregate per year, for each of 2001, 2002 and 2003. 4. Benefits Your eligibility to participate in all Company employee benefit plans and programs will cease effective on or after the Termination Date pursuant to applicable benefit plan terms and benefit practices. Any continuing rights to benefits that you may have are governed by the terms of those benefit plans and programs and the Consolidated Omnibus Budget Reconciliation Act of 1986, as amended. The Company shall pay you a monthly amount equal to the premium it would have paid on your behalf if you remained employed, under your health and dental plan elections in effect as of the Termination Date, until the earlier of the date on which you become eligible for health or dental coverage through another employer or the third (3rd) anniversary of the Effective Date. 5. Tax Deductions and Reporting Novell shall reduce all payments made to you under this Agreement by those deductions and withholdings that it reasonably determines to be required for tax purposes and shall make such tax-related reporting that it reasonably determines to be required with respect to payments under this Agreement. 6. General Releases of Claims (a) You voluntarily release and discharge Novell and its affiliates and subsidiaries, its and their respective predecessors, successors, and assigns, and the current and former officers, directors, investors, shareholders, employees, and agents of the foregoing in such capacities (any and all of which hereinafter are referred to as the "Released Parties") generally from all charges, complaints, claims, promises, agreements, causes of action, damages, and debts of any nature whatsoever, known or unknown (collectively referred to as "Claims"), which you have, claim to have, ever had, or ever claimed to have had against the Released Parties. This general release of Claims includes, without implication of limitation, all Claims related to your employment with the Company, the compensation provided to you by the Company, rights or benefits under the Plan, the circumstances of your termination from Mr. Dennis Raney July 6, 2001 Page 4 employment with the Company, or your activities on behalf of the Company, including, without implication of limitation, any Claims of wrongful discharge, breach of contract, breach of an implied covenant of good faith and fair dealing, tortious interference with advantageous relations, any intentional or negligent misrepresentation, and unlawful discrimination or retaliation under any federal, state or local common law, statute, order, ordinance or regulation (including, without implication of limitation, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, The Americans with Disabilities Act and any similar California state or local law or ordinance). You also waive any Claim for reinstatement, damages of any nature, severance pay, attorney's fees, or costs. Notwithstanding anything in this general release to the contrary, this general release shall not be construed to limit your rights (i) to enforce this Agreement, (ii) to indemnification in accordance with the Company's by-laws or (iii) to be covered as an insured under the terms and conditions of the Company's Directors and Officers insurance policy. (b) You shall not hereafter pursue or accept damages or other relief in any type of claim or action against any of the Released Parties with respect to anything that has occurred up to your execution of this Agreement; provided, however, that nothing in this Agreement shall be construed to limit your rights under this Agreement. (c) You hereby represent and warrant that you have not heretofore assigned any Claim otherwise released pursuant to this Agreement to any third party. You further represent and warrant that you have not heretofore filed any Claim with any court or administrative agency. 7. Acknowledgments of Waiver of Cal. Civ. Code Section 1542 You agree that you are releasing unknown claims and waiving all rights under Section 1542 of the Civil Code of the State of California or under any statute or common law principle of similar effect. Section 1542 provides as follows: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. 8. Employee Covenants In accordance with the terms of this severance offer, the Company's obligation to provide and your eligibility to receive the payments and benefits described in Sections 3 and 4 above (collectively, the "Severance Benefits") are expressly conditioned upon your compliance with the following covenants. You understand and acknowledge that, in accordance with the terms of Mr. Dennis Raney July 6, 2001 Page 5 this severance offer, in the event you materially breach your obligations to the Company under the following covenants in this Section 8, the Company's obligation to provide the Severance Benefits to you shall cease, without prejudice to any other remedies that may be available to the Company. For purposes of this Agreement, the terms "materially breach" and "material breach" shall mean a breach of any covenant in this Section 8, other than an inadvertent and isolated breach, which breach cannot be and is not completely cured by you within 10 days after demand is made by the Company to cure such breach. (a) Covenant Concerning Confidential Information. (i) You acknowledge that, by reason of your duties for Company you had access to and were brought into frequent contact with and became informed of confidential or proprietary information which the Company possesses or to which the Company has access, and which related to the Company and/or its business, is not generally known to the public or in the trade and is a competitive asset and/or constitutes a "trade secret," as that term is defined by the laws of Utah, of the Company (collectively, "Confidential Information"). You further acknowledge and agree that Confidential Information includes, without limitation, all information, whether reduced to writing (or in a form from which information can be obtained, translated, or derived into reasonably usable form), or maintained in your mind or memory, which derives independent economic value, actual or potential, from not being readily known to or ascertainable by proper means by others who can obtain economic value from the disclosure or use of such information, including without limitation, non-public (A) planning data and marketing strategies; (B) terms of any new products and investment strategies; (C) information relating to personnel matters; (D) financial results and information about business condition; (E) terms of any investment, management or advisory agreement or other material contract; (F) proprietary software and related documents; (G) client and prospecting lists and contact persons at such clients and prospects; (H) business relationships (prospective or otherwise); and (I) material information concerning Customers or their operations, condition (financial or otherwise) or plans. You hereby acknowledge and agree that reasonable efforts have been put forth by the Company to maintain the confidentiality of such Confidential Information. (ii) You acknowledge that your employment created a relationship of confidence and trust on your part with respect to Confidential Information to which you have access during your employment, and that Confidential Information, whether compiled or created by you or the Company is and will remain the sole property of the Company. You faithfully shall keep Confidential Information in strict confidence and shall not, either directly or indirectly, at any time, make known, divulge, reveal, furnish, make available, or use Confidential Information without the prior written consent of an authorized officer of the Company. You understand and acknowledge that your Mr. Dennis Raney July 6, 2001 Page 6 obligations under this Section 8(a) will survive termination of your employment, regardless of reason, and will continue indefinitely unless and until any such Confidential Information has become, in Company's reasonable judgment, stale, or, through no fault of yours, generally known to the public or you are required by law (after providing the Company with notice within not more than 24 hours after you become notified or aware of such requirement) to make disclosure. (iii) You shall not, directly or indirectly, use the Company's Confidential Information to compete with the business or activities of the Company. (b) Covenant Concerning Solicitation of Customers. (i) For two (2) years from the Termination Date (the "Restricted Period"), you shall not, in any capacity, directly or indirectly, alone or with others (A) solicit any Customer business that is competitive with the Company's current business or planned business (as such current business or planned business exists as of the Termination Date), (B) divert, entice, or otherwise take away from the Company the business or patronage of any Customer, (C) solicit or induce any Customer to terminate or reduce its business relationship with the Company; (D) refer a Customer to another provider of services or products competitive with those of the Company (as such services or products are offered or planned as of the Termination Date). The foregoing shall not be violated by actions taken by you while working on behalf of Customers. (ii) For purposes of this Section 8(b), "Customer" refers to any person or entity with whom you had contact in your capacity as an employee of Company and who (A) is purchasing goods or services from the Company on the Termination Date , (B) has placed an order(s) for goods or services with the Company as of the Termination Date, (C) regularly purchases goods or services from the Company, even if no orders are pending as of the Termination Date, (D) has purchased goods or services from the Company within six (6) months preceding the Termination Date, or (E) you solicited, directly or indirectly, in whole or in part, on behalf of Company within one (1) year preceding the Termination Date. (c) Covenant Concerning Solicitation of Employees. (i) During the Restricted Period, you shall not in any capacity, directly or indirectly: (A) solicit, encourage or take any other action which is intended to induce any Person to terminate his or her employment or other relationship with the Company; (B) interfere in any manner with the contractual or employment relationship between the Company and any Person; or (C) hire or retain any Person. The foregoing Mr. Dennis Raney July 6, 2001 Page 7 shall not prohibit you from providing employment references to third parties with respect to any Person who, at the time such reference is provided, is no longer, through no fault of yours, employed or engaged by the Company. (ii) For purposes of this Section 8(c), the term "Person" refers to any individual who provided services to the Company, directly or indirectly, as an employee, independent contractor or consultant (other than entities and individuals working for entities such as law firms, accounting firms or management consulting firms) on or after January 1, 2001. (d) Covenant Concerning Unfair Competition. During the Restricted Period, you shall not work as an employee of or independent contractor for any of the following entities or their respective affiliates: International Business Machines; Sun Microsystems; Microsoft; Oracle; Genuity; Critical Path; Network Appliances, Casheflow; Netegrity ("Restricted Companies"). You acknowledge and agree that in your capacity as Chief Financial Officer of Novell, you had access to Confidential Information, including, without limitation, Novell's business plans and strategies, that use or disclosure of that Confidential Information to Restricted Companies would be especially harmful to Novell and that it would be impossible for you to perform any services for or on behalf of the foregoing entities without using or disclosing (inadvertently or otherwise) Confidential Information. You agree that this Section 8(d) is intended to protect Confidential Information and is reasonably and narrowly drafted for that purpose. You further acknowledge and agree that this Section 8(d) does not prohibit or restrain you from pursuing an entire business, trade or profession and that the skills, experience and training that qualify you to be a chief financial officer are readily transferable to a wide range of business pursuits beyond the limited restrictions contained herein. (e) Cooperation. You shall use commercially reasonable best efforts to cooperate with Novell in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of Novell which relate to events or occurrences that transpired while you were employed by Novell. Such cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of Novell at mutually convenient times. Similarly, you shall use commercially reasonable best efforts to cooperate with Novell in connection with any investigation or review by any federal, state or local agency or regulatory authority as any such investigation or review relates to events or occurrences that transpired while you were employed by Novell. Novell shall attempt to make requests for such cooperation so as not to interfere with your search for or performance of your subsequent employment. Novell shall provide and reimburse you for any reasonable out-of-pocket expenses incurred in connection with your performance of obligations pursuant to this Section 8(e). Mr. Dennis Raney July 6, 2001 Page 8 (f) Nondisparagement. During the Restricted Period, you shall not with intent to damage, take any action or make any statement, written or oral, to any current or former employee of Novell or to any other person which disparages or criticizes Novell and its affiliates, its and their officers, directors, employees, or practices or which could disrupt or impair its or their normal operations. Neither Novell formally (e.g., through press releases, SEC mandated public filings, etc.), nor any of its current senior management (i.e., direct reports to the Chief Executive Officer or the Chief Operating Officer of Novell), shall, with intent to damage, take any action or make any statement, written or oral, which disparages or criticizes you during the Restricted Period. (g) Return of Property. All documents, records, materials, software, equipment, and other physical property, and all copies of any of the foregoing, whether or not pertaining to Confidential Information, that have come into your possession or been produced by you in connection with your employment ("Property") have been and remain solely the property of the Company. You agree that you will return to the Company all Property immediately; provided, that you may retain, and Novell hereby assigns to you the home computer and laptop computer currently provided to you so long as you use your best efforts to cooperate with the Company to ensure that all Confidential Information and licensed software are removed from said computers. (h) Disclosure of Certain Provisions. You shall disclose the existence and terms of this Section 8 to any prospective employer, partner or co-venturer prior to entering into an employment, partnership or other business relationship with such person or entity. (i) Breach. You specifically acknowledge and agree that (i) any material breach by you of the provisions of Section 8 of this Agreement will result in irreparable injury to the Company, (ii) a remedy at law alone will be an inadequate remedy for such breach, and (iii) in addition to any other remedy the Company, it shall be entitled (a) to discontinue further payments to you, (b) to seek restitution from you, and (c) to enforce the specific performance of this Agreement by and to obtain both temporary and permanent injunctive relief without the necessity of proving actual damages. (j) Interpretation. The covenants contained herein are intended to be construed as a series of separate covenants, one for each county, city and state or other political subdivision within the United States. Except for geographic coverage, each such separate covenant shall be deemed identical in terms to the covenants contained in the preceding paragraphs. If, at any judicial proceeding, the court shall refuse to enforce any of these separate covenants (or any part thereof) deemed included in such paragraphs (after giving effect to Mr. Dennis Raney July 6, 2001 Page 9 Section 10 below), then such an unenforceable covenant (or such part) shall be deemed to be eliminated from this Agreement for the purpose of those proceedings to the extent necessary to prevent the remaining separate covenants (or portions thereof) to be enforced. 9. Confidentiality of Agreement You agree that you shall keep the terms of this Agreement strictly confidential except as provided in Paragraph 8(h) hereof. Notwithstanding the foregoing, nothing in this Agreement shall prevent you from making disclosure regarding the terms of this Agreement (a) to your attorneys and accountants, but only to the extent necessary to receive legal, accounting or tax advice, or (b) as required by court order or other legal process after first providing Novell with notice within 24 hours of your receipt of such order or process. 10. Severability You agree that if any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the court may amend such portion or provision so as to comply with the law in a manner consistent with the intention of this Agreement, the remainder of this Agreement, or the application of such illegal or unenforceable portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of the Plan shall be valid and enforceable to the fullest extent permitted by law. 11. Applicable Law, Jurisdiction and Venue This Agreement shall be deemed to be made and entered into in the State of Utah, and shall in all respects be interpreted, enforced and governed under the internal laws of Utah, without giving effect to choice of law principles thereunder. To that extent, you hereby agree to consent to exclusive personal jurisdiction and venue of the State and Federal courts situated within or for Utah for purposes of enforcing this Agreement, and waive any objection that you might have to personal jurisdiction or venue in those courts. 12. Assignment; Successors and Assigns, etc. Neither the Company nor you may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other party; provided that the Company may assign its rights under this Agreement without your consent in the event that it shall effect a reorganization, consolidate with or merge into any other corporation, partnership, organization or other entity ("Purchaser"), or transfer all or substantially all of its properties or assets to any Purchaser and provided further, the Company Mr. Dennis Raney July 6, 2001 Page 10 shall ensure that any such Purchaser assumes the remaining payment obligations under Sections 3 and 4 above. This Agreement shall inure to the benefit of and be binding upon the Company and you, their respective successors, executors, administrators, heirs and permitted assigns. 13. Death In the event you die prior to the third (3rd) anniversary of the Effective Date, the Company shall make the payments remaining under Sections 3 and 4 hereunder to The Raney Family Trust, Dennis and Gwen Raney Trustees. 14. Integration. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements between the parties with respect to any related subject matter. 15. Notices, Acknowledgments and Other Terms You are advised to consult with an attorney before signing this Agreement. This Agreement constitutes the entire agreement between you and the Company, and all previous agreements or promises between you and the Company, with the exception of those Option Agreements and Restricted Stock Agreements and the equity plan(s) to which they relate as described herein and the Intellectual Property Agreement by and between you and the Company dated May 28, 1998, are hereby superseded, null, and void. You understand and agree that this is a full and final agreement applying not only to all claims as described above that you know of, anticipate, or have been told about, but also to all claims that are unknown, unanticipated, and undisclosed to you. You acknowledge that you have been given the opportunity, if you so desire, to consider this Agreement for twenty-one (21) days before executing it. If not signed by you and returned to me so that I receive it within twenty-one (21) days of your receipt of the Agreement, this Agreement will not be valid. In addition, if you breach any of the conditions of the Agreement within the twenty-one (21) day period, the offer of this Agreement will be withdrawn and your execution of the Agreement will not be valid. In the event that you execute and return this Agreement within less than twenty-one (21) days of the date of its delivery to you, you acknowledge that such decision was entirely voluntary and that you had the opportunity to consider this letter agreement for the entire twenty-one (21) day period. The Company acknowledges that for a period of seven (7) days from the date of the execution of this Agreement, you shall retain the right to revoke this Agreement by written notice that I receive before the end of such period, and that this Agreement shall not become effective or enforceable Mr. Dennis Raney July 6, 2001 Page 11 until the expiration of such revocation period. By signing this Agreement, you acknowledge that you are doing so voluntarily. You also acknowledge that you are not relying on any representations by the Company or any other representative of the Company concerning the meaning of any aspect of this Agreement. In the event of any dispute, this Agreement shall be construed as a whole, shall be interpreted in accordance with its fair meaning, and shall not be construed strictly for or against either you or the Company. The law of the State of Utah shall govern any dispute about this Agreement, including any interpretation or enforcement of this Agreement, without giving effect to the conflict of laws principles of Utah law. In the event that any provision or portion of a provision of this Agreement shall be determined to be unenforceable, the remainder of this Agreement shall be enforced to the fullest extent possible as if such provision or portion of a provision were not included. This Agreement may be modified only by a written agreement signed by you and an authorized representative of the Company. Mr. Dennis Raney July 6, 2001 Page 12 If you agree to these terms, please sign and date below and return this Agreement to me within the time limitation set forth above. Sincerely, NOVELL, INC. By: /s/ ALAN J. FRIEDMAN ------------------------------- Accepted and agreed to: /s/ DENNIS R. RANEY July 17, 2001 - -------------------------- ---------------------------------- Dennis Raney Date July 14, 2001 EX-10.16 6 f77744ex10-16.txt EXHIBIT 10.16 EXHIBIT 10.16 [NOVELL LOGO] LOAN AGREEMENT THIS AGREEMENT made this fourth day of April 2001 by and between Ronald C. Foster residing at 1530 Hillview Road, Los Altos, CA 94024 (hereinafter referred to as the Borrower) and Novell, Inc., a Delaware Corporation, having a principal place of business at 1800 South Novell Place, Provo, UT 84606 (hereinafter referred to as the Lender). WHEREAS, the Borrower desires to borrow money from the Lender for the purpose of paying taxes due to close window policy and unable to sell Novell, Inc. common stock, to be secured as hereinafter provided; and WHEREAS, the Lender desires to loan said money to Borrower to enable him to pay such taxes; NOW, THEREFORE, this Agreement WITNESSETH: 1. That the Lender agrees to loan and hereby does loan to the Borrower, the sum of $65,000, receipt of which is hereby acknowledged, for the express purpose that Borrower may pay taxes. 2. The Borrower shall make and deliver to the Lender, his Collateral Note in writing, requiring the repayment of the sum of $65,000 upon the earlier of: 1. Thirty (30) days following the termination of employment of the Borrower with the Lender for any reason; 2. Borrower's notice to Lender to release the shares of stock deposited with Lender as collateral security, as set forth in Section 4 below, for sale with Borrower's assignment to Lender of the proceeds of the sale of such stock in an amount equal to the amount of the loan made by Lender to Borrower hereunder; or 3. On the first anniversary of the date of the loan. 3. The loan made by Lender to Borrower hereunder, shall bear interest at 4.63 percent per annum during the term of the loan. Notwithstanding the foregoing, interest at the rate of 8 percent per annum shall be paid to the Lender between a date repayment of the loan is required hereunder, and the date the loan is actually repaid by borrower. 4. As collateral security for the repayment of the sum loaned to Borrower by Lender as herein provided, Borrower shall deposit with Lender 15,408 shares of the common stock of Novell, Inc., having a market value on the date of this instrument of $4.21875 per share. Should Borrower fail to pay this loan at the time it becomes due and payable in accordance with this Agreement, Lender may sell all or any part of the Collateral upon five (5) days notice to Borrower. 5. This Agreement shall be binding upon and inure to the benefit of the respective parties, their heirs, executors, administrators, successors and assigns. 6. This Agreement shall be construed in accordance with the laws of the State of Utah. Lender: NOVELL, INC. Borrower: Ronald C. Foster By: /S/ DENNIS R. RANEY By: /S/ RONALD C. FOSTER -------------------------------- Title: Chief Financial Officer Title: ----------------------------- Date: April 4, 2001 Date: 4/4/01 ----------------------------- COLLATERAL NOTE 1. For value received, I, Ronald C. Foster, ("Debtor"), promise to pay to the order of Novell, Inc. ("Creditor") the sum of $65,000. This note is payable at the principal office of Novell, Inc. located at 1800 South Novell Place, Provo, UT 84606. 2. Debtor has deposited with Creditor as collateral, security for the payment of the debt, 15,408 shares of the common stock of Novell, Inc., having a market value on the date of this instrument of $4.21875 per share. Debtor has also delivered to Creditor a stock power signed by Debtor in blank. 3. If the total market value of the collateral should decline to less than $45,000 for a continuous 15-day trading period, on or after six months from the date of this note, Creditor may demand that the Debtor deposit additional collateral so that the total market value of the collateral at all times is at least $45,000. 4. Should Debtor fail to deliver additional collateral when demanded by Creditor in accordance with paragraph 3 of this note, this note shall become immediately due and payable. 5. Should Debtor fail to pay this note at the time it becomes due and payable in accordance with paragraph 4, or the loan agreement entered into in connection herewith, Creditor may sell all or any part of the collateral upon five (5) days written notice to Debtor. 6. Creditor can sell all or any part of the collateral on an open market, through a broker, or at a public or private sale. Creditor may purchase the collateral at such sale, free of any claims that Debtor may have on it. 7. The proceeds derived from a sale of the collateral shall be distributed as follows: 1. The proceeds shall first be applied to the costs and expenses of selling the collateral and collecting the proceeds, including legal fees and broker's commission; 2. The remaining proceeds shall then be used to pay the Creditor the sum due and payable on this note; and 3. Should there be any balance remaining after this note has been paid, the balance shall be turned over to the Debtor. Debtor: Ronald C. Foster Date: 4/4/01 Signature: /S/ RONALD C. FOSTER --------------- --------------------- EX-21 7 f77744ex21.txt EXHIBIT 21 EXHIBIT 21 NOVELL, INC. SUBSIDIARIES OF THE REGISTRANT As of October 31, 2001, the following companies were subsidiaries of Novell, Inc.:
STATE OF INCORPORATION OR WHOLLY OWNED COUNTRY IN WHICH ORGANIZED - ------------ -------------------------- Novell de Argentina S.A. ................................... Argentina Novell Belgium N.V. ........................................ Belgium Novell do Brasil Software Ltda. ............................ Brazil Novell Canada, Ltd. ........................................ Canada Novell Chile S.A. .......................................... Chile Novell Corporation (Malaysia) Sdn Bhd....................... Malaysia Novell Software de Colombia S.A. ........................... Colombia Novell Praha SRO............................................ Czech Republic Novell Denmark A/S.......................................... Denmark Novell Europe, Inc. ........................................ Delaware Novell European Services Ltd. .............................. United Kingdom Novell Finland OY........................................... Finland Novell GmbH (Austria)....................................... Austria Novell GmbH................................................. Germany Novell Hong Kong Ltd. ...................................... Hong Kong Novell Hungary Software Ltd. ............................... Hungary Novell International, Ltd. ................................. Barbados Novell Ireland Real Estate.................................. Ireland Novell Ireland Software Limited............................. Ireland Novell Israel Software Ltd. ................................ Israel Novell Italia S.R.L. ....................................... Italy Novell Korea Co., Ltd. ..................................... Korea Novell de Mexico, S.A. de C.V. ............................. Mexico Novell Netherland B.V. ..................................... Netherlands Novell New Zealand Ltd. .................................... New Zealand Novell Norway A/S........................................... Norway Novell de Panama S.A. ...................................... Panama Novell Peru S.A. ........................................... Peru Novell Philippines, Inc. ................................... Philippines Novell Polska Sp.Z.o.o. .................................... Poland Novell Portugal Informatica LDA. ........................... Portugal Novell Pty, Ltd. ........................................... Australia Novell de Puerto Rico, Inc. ................................ Puerto Rico Novell S.A.R.L. ............................................ France Novell Singapore Pte Ltd. .................................. Singapore Novell Software Development Pvt., Ltd. ..................... India Novell Software International, Ltd. ........................ Ireland Novell Software Latino America Norte, CA. .................. Venezuela Novell Software (Thailand) Ltd. ............................ Thailand Novell South Africa Proprietary Ltd. ....................... South Africa Novell Spain S.A. .......................................... Spain Novell Svenska A.B. ........................................ Sweden Novell Schweiz A.G. ........................................ Switzerland Novell Taiwan Co., Ltd. .................................... Taiwan Novell U.K., Ltd. .......................................... United Kingdom Novell Uruguay S.A.......................................... Uruguay JustOn, Inc. ............................................... California Ukiah Software, Inc. ....................................... California WordPerfect International................................... Utah WordPerfect America Latina.................................. Utah Cambridge Technology Partners, Inc. ........................ Delaware Cambridge Technology Partners International, Inc. .......... Delaware Cambridge Technology Partners (Latin America), Inc. ........ Delaware Cambridge Technology Partners (Europe), Inc. ............... Delaware Cambridge Technology Partners (Asia), Inc. ................. Delaware Cambridge Technology Capital Management, Inc. .............. Delaware Cambridge Technology CGP, Inc. ............................. Delaware Cambridge Technology Capital Fund I, L.P. .................. Delaware Cambridge Technology GPLP, L.P. ............................ Delaware Cambridge PCHL L.L.C. ...................................... Delaware Excell Data Corporation..................................... Delaware Cambridge Technology Partners Securities Corporation........ Delaware Cambridge Technology Partners Cambridge Management Consulting, Inc. .......................................... California Celerant, Inc. ............................................. Delaware Peter Chadwick, Inc. ....................................... Delaware Cambridge Management Consulting NV.......................... Belgium Cambridge Management Consulting............................. Canada Cambridge Management Consulting SA.......................... France Cambridge Management Consulting GMBH........................ Germany Cambridge Management Consulting Netherlands Holdings B.V. .. Netherlands Cambridge Management Consulting Nordic AS................... Norway Cambridge Management Consulting Limited..................... United Kingdom Celerant Holdings Limited................................... United Kingdom Peter Chadwick (Training) Limited........................... United Kingdom PCH Investments Limited..................................... United Kingdom Cambridge Technology Partners A/S Denmark................... Denmark Cambridge Technology Partners (Puerto Rico), Inc............ Puerto Rico Cambridge Technology Partners CTP, Skandinavien Aktiebolag................................................. Sweden Cambridge Technology Partners PTY Limited................... Australia Cambridge Technology Partners (Netherlands) B.V. ........... Netherlands Cambridge Technology Partners Ltd. ......................... Canada Cambridge Technology Partners India Private Limited......... India Cambridge Technology Partners do Brasil s.c. Ltda........... Brazil Cambridge Technology Partners (UK) LTD. .................... United Kingdom Cambridge Technology Partners (Mexico), S/A. de C.V. ....... Mexico CTP Services, S.A. de C.V. ................................. Mexico IOS-Gruppen Aktiebolag...................................... Sweden Cambridge Technology Partners (Venezuela) C.A. ............. Venezuela Cambridge Technology Partners Deutschland GmbH.............. Germany Cambridge Technology Partners Ireland Limited............... Ireland Cambridge Technology Partners Limited....................... Japan Cambridge Technology Partners (Switzerland) SA.............. Switzerland Cambridge Technology Partners Italia S.R.L. ................ Italy Cambridge Technology Partners Columbia S.A. ................ Columbia Cambridge Technology Partners (France) SARL................. France Cambridge Technology Partners (Benelux) B.V. ............... Netherlands MAJORITY OWNED - -------------- Novell Japan, Ltd. ......................................... Japan Onward Novell Software Pvt., Ltd. .......................... India Empirical Acquisition Corp. ................................ California Volera, Inc. ............................................... Delaware
EX-23.1 8 f77744ex23-1.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 33-14531, No. 33-54483, No. 33-64998, No. 33-65440, No. 33-68336, No. 333-04775, No. 333-04823, No. 333-62087, No. 333-62103, No. 333-95409, No. 333-41328, and No. 333-71502) pertaining to the Employee Stock Option and Stock Purchase Plans of Novell, Inc. of our report dated November 21, 2001, with respect to the consolidated financial statements and schedule of Novell, Inc. included in the Annual Report (Form 10-K) for the year ended October 31, 2001. San Jose, California January 28, 2002 -----END PRIVACY-ENHANCED MESSAGE-----