Novell's NASDAQ headaches

. . . keeping an eye on the penguin

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Sep. 21, 2006

When it rains, it pours. Novell Inc. announced on September 20 that it had received a staff determination notice from the NASDAQ Stock Market stating that the Linux common stock is in danger of being delisted from the market.

NASDAQ is threatening this action because the company was late in filing its quarterly Form 10-Q with the Securities and Exchanges Commission for the period ending July 31 2006. By NASDAQ rules, if these reports aren't filed on time, the Market has to consider delisting the stock.

Novell had said on September 11 that it would be late for its 10-Q, stating that it was conducting a voluntary audit of its historical stock-based compensation practices.

Novell has lots of company. Over one hundred businesses have announced that they are involved in either internal or SEC investigations related to their past options granting practices.

The scandal behind all these audits is that, starting this summer, corporate executives started being accused of backdating the dates of stock-option grants for their own profit at the cost of the other shareholders. While no one is accusing Novell's executives, or many of the other companies engaged in this accounting exercise, of doing this, many technology companies are double-checking their option-granting records.

Novell will appeal and request a hearing before a NASDAQ listing qualifications panel, which will automatically stay delisting of the company's common stock pending the panel's review and determination.

The bad news wasn't over though. Novell also announced on the 20th that it had received a letter from Wells Fargo Bank N.A. regarding Novell's $600 million 0.50% convertible senior debentures (the written agreement between the issuer of a bond and the bondholders), which said that Novell is in default because of its delay in filing its Form 10-Q. The letter went on to state that this asserted default will not become an "event of default" if the company files the 10-Q within 60 days after the date of the notice.

In a press release, Novell stated that it does not believe that it has failed to perform its obligations under the indenture. The company therefore believes that the above-mentioned notice of default is invalid and without merit, it said.

The company maintains that its indenture requires that it provide the trustee copies of all SEC filings within 15 days after such filings are actually made, not by simply being late in filing them to the SEC. Novell will comply with this requirement by providing the 10-Q to the trustee after filing it with the SEC.

If the two cannot come to an agreement on this matter, and it does indeed become an "event of default," then Wells Fargo or the bond holders of at least 25 percent in aggregate outstanding principal amount of the debentures may accelerate the maturity of the debentures. In short, they can be demanded to be paid sooner.

-- Steven J. Vaughan-Nichols

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Use of this site is governed by our Terms of Service and Privacy Policy. Except where otherwise specified, the contents of this site are copyright © 1999-2009 Ziff Davis Enterprise Holdings Inc. All Rights Reserved. Reproduction in whole or in part in any form or medium without express written permission of Ziff Davis Enterprise is prohibited. Linux is a registered trademark of Linus Torvalds. All other marks are the property of their respective owners.