Novell, Nasdaq, and Wells Fargo Bicker Over Debt Default

Published: September 26, 2006

by Timothy Prickett Morgan

Commercial Linux distributor Novell warned customers and investors last week that it is in the middle of a dispute with Wells Fargo Bank that it is technically in default on $600 million in debt that it issued in June 2004 because of a delay in filing its quarterly report with the Securities and Exchange Commission.

This saga all started a few weeks ago, when Novell pre-announced its third quarter results and said that it would be undertaking a review, initiated by itself and not by any regulatory body, of its stock-based compensation over the past several years. A lot of companies have been busted back-dating their stock options, and Novell wants to check out what the prior executive team did. Of course, because this review is taking time, Novell said that it might have to delay its third quarter 10Q report (for the 13 weeks ending July 31). Those forms were due September 20, and the Nasdaq market, where Novell's stock traded, said the company's stock was in danger of being delisted.

Wells Fargo, which managed an issue of $600 million in convertible subordinated notes in 2004 for Novell, which are due in 2024, warned Novell that it has 60 days to get its paperwork together. Novell is planning to appeal the delisting to the Nasdaq listing qualifications panel, which can stay the delisting until Novell's stock compensation review is completed, and therefore make it not in default on the terms of the debt issue. Novell added that, technically, all that it is required to give Wells Fargo is copies of the filings within 15 days of when they are issued. This is not what Wells Fargo believes.

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