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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS
MICHAEL ROSENBERG individually and on ) behalf of all others similarly situated, ) ) Plaintiff, ) Case No.: 10-12272 ) v. ) CLASS ACTION COMPLAINT ) FOR VIOLATION OF THE RONALD HOVSEPIAN, RICHARD ) FEDERAL SECURITIES LAWS, CRANDALL, RICHARD NOLAN, JOHN ) AND FOR VIOLATION OF PODUSKA, FRED CORRADO, ALBERT ) STATE LAW BREACHES OF AIELLO, PATRICK JONES, GARY ) FIDUCIARY DUTY GREENFIELD, JUDITH HAMILTON, ) NOVELL, INC., ATTACHMATE ) JURY TRIAL DEMANDED CORPORATION and LONGVIEW ) SOFTWARE ACQUISITION CORP., ) ) Defendants. ) ) ) )
Plaintiff, by their attorneys, alleges upon information and belief, except for their own
acts, which are alleged on knowledge, as follows:
1. Plaintiff brings this action on behalf of the public stockholders of Novell, Inc.
(“Novell” or the “Company”) against Novell and its Board of Directors (the “Board” or the
“Individual Defendants”) seeking equitable relief for their violations of Section 14(a) of the
Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 14a-9 promulgated thereunder
(“Rule 14a-9”), and breaches of fiduciary duty, arising out of their attempt to sell the Company
to Attachmate Corporation and Longview Software Acquisition Corp. (collectively
“Attachmate”) for $6.10 in cash for each share of Novell common stock (the “Proposed Case 1:10-cv-12272-DPW Document 1 Filed 12/29/10 Page 2 of 36
Transaction” or the “Merger”). The Proposed Transaction is valued at approximately $2.2 billion. The Individual Defendants have breached their fiduciary duties by approving the
Proposed Transaction at an unfair price and via an unfair process, arising out of their attempts to provide certain Novell insiders and directors with preferential treatment.
2. As described below, the Proposed Transaction as currently constituted is unfair to
Novell’s shareholders because it does not adequately value the Company’s future growth prospects, which will inure to Attachmate if the Proposed Transaction is consummated. Rather,
the Individual Defendants were motivated to sell the Company in order to cash out their
otherwise illiquid holdings in the Company through the accelerated vesting of stock options,
restricted stock units, and restricted stock awards, as well as to take advantage of significant
change-in-control and other personal financial benefits that are to accrue to them upon the sale of
Novell to Attachmate. Specifically, each Individual Defendant is receiving at least $190,008
through the acceleration and vesting of stock options, restricted stock units, and restricted stock
awards that will be cashed out following consummation of the Proposed Transaction. Reaping
the most benefit is defendant Ronald Hovsepian (“Hovsepian”), the Company’s CEO and
director, who is receiving over $5.5 million for his previously unvested stock options and
restricted stock units. In addition, Hovsepian is entitled to receive another $6.9 million pursuant
to change of control severance payments.
3. Accordingly, in their evaluation of strategic alternatives, the Board was predisposed to favoring a transaction that resulted in a change of control due to the significant
change-in-control and acceleration and vesting benefits. As a result, and as described in more
detail below, throughout the process conducted by the Board, the Board did in fact unreasonably
favor a sale of Novell that would result in a change of control, while failing to adequately pursue
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and consider other offers received by the Company where parties sought to acquire only
individual units or assets of Novell.
4. Moreover, as part of the Proposed Transaction, Elliott Associates, L.P. (“Elliot”),
one of Novell’s largest shareholders, owning approximately 7.1 % of the Company’s outstanding
common stock and holding an economic interest in an additional 1.5% of the Company’s
common stock, will become an equity shareholder in Attachmate. The Company permitted, and
in fact, aided in the solicitation of Elliot’s participation in the Proposed Transaction with
Attachmate. However, the Company failed to provide the same benefit for the Company’s other public stockholders who will be cashed out and will be unable to reap the benefits of the post-
merger company’s growth.
5. Defendants have exacerbated their breaches of fiduciary duty by agreeing to lock
up the Proposed Transaction with deal protection devices that preclude other bidders from
making a successful competing offer for the Company. Specifically, pursuant to the merger
agreement dated November 21, 2010 (the “Merger Agreement”), defendants agreed to: (i) a no-
solicitation provision that prevents the Company from soliciting and continuing discussion and
negotiations with other potential acquirors; (ii) a matching rights provision that allows
Attachmate five business days to match any competing proposal in the event one is made; and
(iii) a provision that requires the Company to pay Attachmate an unreasonable termination fee of
$60,000,000 in the event the Merger Agreement is terminated in order to accept a superior proposal. These provisions substantially limit the Board’s ability to act with respect to
investigating and pursuing superior proposals and alternatives including a sale of all or part of
Novell.
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6. In addition, concurrent with the announcement of the Proposed Transaction,
Novell also announced it has entered into a definitive agreement for the concurrent sale of
certain intellectual property assets to CPTN Holdings LLC (“CPTN”), a consortium of
technology companies organized by Microsoft Corporation (“Microsoft”), for $450 million in
cash (the “Asset Purchase Agreement”), which cash payment is reflected in the merger
consideration to be paid by Attachmate. The intellectual property assets subject to the Patent
Purchase Agreement are extremely valuable to the Company and critical to the Company’s
operations. As described below, the Asset Purchase Agreement, at CPTN’s election, will remain
in full force and effect even if the Merger is voted down by the Company’s shareholders.
Accordingly, if the Merger Agreement is rejected, the Company will be left without a substantial portion of their assets. With the possibility of this scenario occurring, it was the duty of the
Board to undertake a process that sought the best transaction available for the Company’s patents
and patent applications and obtain the maximum value. The Board has failed to adequately
undertake such a process and is in violation of their fiduciary duties.
7. On December 14, 2010, the Company filed a Schedule 14A Proxy Statement (the
“Proxy”) with the United States Securities and Exchange Commission (“SEC”) in connection
with the Proposed Transaction. The Proxy fails to provide the Company’s shareholders with
material information and/or provides them with materially misleading information thereby
rendering the shareholders unable to cast an informed vote regarding the Proposed Transaction.
8. In pursuing the improper plan to sell Novell to Attachmate and provide Novell
insiders and directors with substantial personal pecuniary benefits in connection with Proposed
Transaction, each of the Individual Defendants violated and is violating applicable law by
directly breaching and/or aiding and abetting the other defendants’ breaches of their fiduciary
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duties of loyalty, due care, candor, good faith and to maximize shareholder value, and by their
violations of Rule 14a-9.
JURISDICTION AND VENUE
9. This Court has subject matter jurisdiction under 28 U.S.C. § 1331 (federal
question jurisdiction), as this Complaint alleges violations of Rule 14a-9. This court has jurisdiction over the state law claims pursuant to 28 U.S.C. §1367.
10. Venue is proper in this District because many of the acts and practices
complained of herein occurred in substantial part in this District. In addition, Novell maintains
its principal executive offices in Massachusetts.
PARTIES
11. Plaintiff is, and has been at all relevant times, the owner of shares of common
stock of Novell.
12. Novell is a corporation organized and existing under the laws of the State of
Delaware. It maintains its principal corporate offices at 404 Wyman Street, Suite 500, Waltham,
Massachusetts 02451, and develops, sells and installs enterprise-quality software that is positioned in the operating systems and infrastructure software layers of the information
technology industry.
13. Defendant Ronald Hovsepian (“Hovsepian”) has been the President, Chief
Executive Officer, and a director of the Company since June 2006. Hovsepian served as
President and Chief Operating Officer from October 2005 to June 2006. From May 2005 to
November 2005, Hovsepian served as Executive Vice President and President, Worldwide Field
Operations. Hovsepian joined the company in June 2003 as President, Novell North America..
14. Defendant Richard Crandall (“Crandall”) has been Chairman of the Board of the
Company since 2008.
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15. Defendant Richard Nolan (“Nolan”) has been a director of the Company since
1998.
16. Defendant John Poduska (“Poduska”) has been a director of the Company since
2001.
17. Defendant Fred Corrado (“Corrado”) has been a director of the Company since
2002.
18. Defendant Albert Aiello (“Aiello”) has been a director of the Company since
2003.
19. Defendant Patrick Jones (“Jones”) has been a director of the Company since
2007.
20. Defendant Gary Greenfield (“Greenfield”) has been a director of the Company
since 2009.
21. Defendant Judith Hamilton (“Hamilton”) has been a director of the Company
since 2009.
22. Defendants referenced in ¶¶ 13 through 21 are collectively referred to as
Individual Defendants and/or the Novell Board. The Individual Defendants as officers and/or
directors of Novell, have a fiduciary relationship with Plaintiff and other public shareholders of
Novell and owe them the highest obligations of good faith, fair dealing, loyalty and due care.
23. Defendant Attachmate Corporation is a Washington corporation and is owned by
an investment group led by Francisco Partners, Golden Gate Capital and Thoma Bravo, and
enables IT organizations to extend mission critical services and assures they are managed, secure
and compliant.
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24. Defendant Longview Software Acquisition Corp. is a Delaware corporation
wholly owned by Attachmate Corporation that was created for the purposes of effectuating the
Proposed Transaction.
INDIVIDUAL DEFENDANTS’ FIDUCIARY DUTIES
25. By reason of Individual Defendants’ positions with the Company as officers
and/or directors, they are in a fiduciary relationship with Plaintiff and the other public
shareholders of Novell and owe them, as well as the Company, a duty of highest good faith,
loyalty and full, candid and adequate disclosure.
26. Where the officers and/or directors of a publicly traded corporation undertake a
transaction that will result in either: (i) a change in corporate control; (ii) a break up of the
corporation’s assets; or (iii) sale of the corporation, the Directors have an affirmative fiduciary
obligation to obtain the highest value reasonably available for the corporation’s shareholders,
and if such transaction will result in a change of corporate control, the shareholders are entitled
to receive a significant premium. To diligently comply with their fiduciary duties, the Individual
Defendants may not take any action that:
(a) adversely affects the value provided to the corporation’s shareholders;
(b) favors themselves or will discourage or inhibit alternative offers to purchase control of the corporation or its assets;
(c) contractually prohibits them from complying with their fiduciary duties;
(d) will otherwise adversely affect their duty to search and secure the best
value reasonably available under the circumstances for the corporation’s shareholders; and/or
(e) will provide the Individual Defendants with preferential treatment at the
expense of, or separate from, the public shareholders.
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27. In accordance with their duties of loyalty and good faith, the Individual
Defendants are obligated to refrain from:
(a) participating in any transaction where the Individual Defendants’ loyalties
are divided;
(b) participating in any transaction where the Individual Defendants receive,
or are entitled to receive, a personal financial benefit not equally shared by the public
shareholders of the corporation; and/or
(c) unjustly enriching themselves at the expense or to the detriment of the
public shareholders.
28. Plaintiff alleges herein that the Individual Defendants, separately and together, in
connection with the Proposed Transaction are knowingly or recklessly violating their fiduciary
duties, including their duties of loyalty and good faith owed to Plaintiff and other public
shareholders of Novell, or are aiding and abetting others in violating those duties.
29. Defendants also owe the Company’s stockholders a duty of candor, which
includes the disclosure of all material facts concerning the Proposed Transaction and,
particularly, the fairness of the price offered for the stockholders’ equity interest. Defendants are
knowingly or recklessly breaching their fiduciary duties of candor by failing to disclose all
material information concerning the Proposed Transaction, and/or aiding and abetting other
Defendants’ breaches.
CONSPIRACY, AIDING AND ABETTING AND CONCERTED ACTION
30. In committing the wrongful acts alleged herein, each of the Defendants has
pursued, or joined in the pursuit of, a common course of conduct, and acted in concert with and
conspired with one another, in furtherance of their common plan or design. In addition to the
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wrongful conduct herein alleged as giving rise to primary liability, the Defendants further aided
and abetted and/or assisted each other in breach of their respective duties as herein alleged.
31. During all relevant times hereto, the Defendants, and each of them, initiated a
course of conduct which was designed to and did: (i) permit Attachmate to attempt to eliminate
the public shareholders’ equity interest in Novell pursuant to a defective sales process, and (ii) permit Attachmate to buy the Company for an unfair price. In furtherance of this plan,
conspiracy and course of conduct, Defendants, and each of them, took the actions as set forth
herein.
32. Each of the Defendants herein aided and abetted and rendered substantial
assistance in the wrongs complained of herein. In taking such actions, as particularized herein,
to substantially assist the commission of the wrongdoing complained of, each Defendant acted
with knowledge of the primary wrongdoing, substantially assisted the accomplishment of that
wrongdoing, and was aware of his or her overall contribution to, and furtherance of, the
wrongdoing. The Defendants’ acts of aiding and abetting included, inter alia, the acts each of
them are alleged to have committed in furtherance of the conspiracy, common enterprise and
common course of conduct complained of herein.
CLASS ACTION ALLEGATIONS
33. Plaintiff brings this action on his own behalf and as a class action on behalf of all
owners of Novell common stock and their successors in interest, except Defendants and their
affiliates (the “Class”).
34. This action is properly maintainable as a class action for the following reasons:
(a) the Class is so numerous that joinder of all members is impracticable. As
of November 30, 2010, Novell has approximately 351.30 million shares outstanding.
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(b) questions of law and fact are common to the Class, including, inter alia, the following:
(i) Have the Individual Defendants misrepresented and omitted
material facts in violation of Section 14(a) of the Exchange Act;
(ii) Have the Individual Defendants breached their fiduciary duties
owed by them to Plaintiff and the others members of the Class;
(iii) Are the Individual Defendants, in connection with the Proposed
Transaction of Novell by Attachmate, pursuing a course of conduct
that does not maximize Novell’s value in violation of their
fiduciary duties;
(iv) Have the Individual Defendants misrepresented and omitted
material facts in violation of their fiduciary duties owed by them to
Plaintiff and the other members of the Class;
(v) Have Novell and Attachmate aided and abetted the Individual
Defendants’ breaches of fiduciary duty; and
(vi) Is the Class entitled to injunctive relief or damages as a result of
Defendants’ wrongful conduct.
(c) Plaintiff is committed to prosecuting this action and have retained competent counsel experienced in litigation of this nature.
(d) Plaintiff’s claims are typical of those of the other members of the Class.
(e) Plaintiff has no interests that are adverse to the Class.
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(f) The prosecution of separate actions by individual members of the Class
would create the risk of inconsistent or varying adjudications for individual members of the
Class and of establishing incompatible standards of conduct for Defendants.
(g) Conflicting adjudications for individual members of the Class might as a practical matter be dispositive of the interests of the other members not parties to the
adjudications or substantially impair or impede their ability to protect their interests.
FURTHER SUBSTANTIVE ALLEGATIONS
35. Novell develops, sells and installs enterprise-quality software that is positioned in
the operating systems and infrastructure software layers of the information technology (“IT”)
industry. The Company develops and delivers Linux operating system software for the full range
of computers from desktops to servers. In addition, the Company provides a portfolio of
integrated IT management software for systems, identity and security management for both
Linux and mixed-platform environments.
36. In a press release dated November 22, 2010, the Company announced that it had
entered into a merger agreement with Attachmate, an entity owned by owned by an investment
group led by Francisco Partners, Golden Gate Capital and Thoma Bravo, pursuant to which
Attachmate would acquire Novell for $6.10 per share in cash in a transaction valued at
approximately $2.2 billion.
37. Concurrent with the announcement of the Proposed Transaction, Novell also
announced it has entered into a definitive agreement for the concurrent sale of certain intellectual property assets to CPTN, a consortium of technology companies organized by Microsoft for
$450 million in cash, which cash payment is reflected in the merger consideration to be paid by
Attachmate.
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38. The Proposed Transaction equates to an enterprise value of $2.2 billion, but
Attachmate, looks to be paying just about $750 million. That's after backing out $1 billion of net
cash and another $450 million that is being paid by a Microsoft-led consortium for certain
Novell patents.
39. As stated in an article on the Wall Street Journal online, “Analyst Richard
Williams of Cross Research estimates the company can generate $150 million of free cash flow
next year. But Novell isn't exactly running lean. Shaving operating expenses could pump that up
to more than $200 million. Attachmate could be paid back its whole investment in a few years.”
40. The Proposed Transaction consideration is inadequate. The $6.10 per share
consideration represents a 9% premium to Novell’s closing stock price of $5.59 on November
19, 2010 and a negative premium compared to the $6.53 price Novell stock traded at as recently
as September 22, 2010. Further, at least one Wall Street analyst, Oscar Gruss, had a price target
of $7.00 per share before the Proposed Transaction was announced.
41. In fact, on March 20, 2010, the Board rejected a $5.75 per share acquisition offer
from Elliott stating that the offer is “inadequate and that it undervalues the Company’s franchise
and growth prospects.” Yet, the Proposed Transaction price is selling for a mere 6% more than
the offer that ‘undervalued’ it.
42. One analyst commented that Novell’s individual units may have generated more
than selling the Company as whole: “Novell may be one of those companies where the sum of
the parts could be greater than the whole, under new leadership,” said Rebecca Wettemann, the
vice president of research for IT analyst firm Nucleus Research. The challenge, she said, is for
Attachmate to “pull it all together and deliver the next generation of products.”
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43. Numerous analysts were surprised that the Company would sell its valuable Linux
assets. “Probably the biggest plum here is the SUSE Linux assets,” said Pund-IT analyst Charles
King. “SUSE has run a fairly distant second to Red Hat, simply because I don't think Novell had
the wherewithal to expand services around Linux. They were a bit over their heads there. With
Attachmate being focused on enterprise modernization, cloud computing and so on, I can see
where Linux could be a particularly valuable asset there.” As stated by another analyst on
Zacks.com “We believe Novell’s Linux assets deserve premium valuation as it has a valued
customer base and generates significant revenue. Novell remains the #2 maker of the open
source Linux operating system behind Red Hat.” As stated by another analyst on
computerworlduk.com, “SUSE is one of the crown jewels of Novell’s portfolio, with steady
growth, gaining market share, generating increasing revenues, and from the outside at least, a profitable business.”
44. Novell shareholders are being cashed out at the unfairly low price of $6.10 per
share, which doesn’t adequately take into account the tremendous growth potential for Novell
and its valuable Linux assets. On the other hand, Attachmate, along with Elliot, will be able to
realize benefits from the future growth of the Company. Accordingly, Attachmate is picking up
Novell at the most opportune time, at a time when Novell is poised for growth and its stock price
is trading at a huge discount to its intrinsic value.
Novell’s Executives Officers and Directors Stand to Receive Unique Material Financial Benefits in the Acquisition Not Available to Novell’s Public Shareholders
45. The Company’s executive officers and directors have material conflicts of interest
and are acting to better their own personal interests through the Proposed Transaction at the
expense of Novell’s public shareholders.
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46. The Company’s directors and executive officers hold unvested stock options to
acquire Novell common stock that, pursuant to the Merger Agreement, will automatically vest prior to the closing of the Proposed Transaction, and will entitle the holder to receive the
Proposed Transaction consideration of $6.10 per share. Led by Defendant Hovespian, who will
receive $2,806,826 from cashing out his previously unvested stock options, the Company’s
executive officers and directors will receive significant amounts by cashing out such stock
options. The following chart show the value of unvested stock options held by the Company’s
directors and executive officers that they will receive when cashing out such shares upon
consummation of the Proposed Transaction:
Option Spread Value of Unexercisable Accelerated Stock Name Options Ronald W. Hovsepian $ 2,806,826 Dana C. Russell 1,083,708 John K. Dragoon 868,128 Colleen A. O’Keefe 514,301 Joseph H. Wagner 556,718 Russell C. Poole 162,732 Scott N. Semel 356,196 James P. Ebzery 603,212 Javier Colado 280,531 Albert Aiello 31,695 Fred Corrado 31,695 Richard L. Crandall 31,695 Gary G. Greenfield 86,945 Judith H. Hamilton 86,945 Patrick S. Jones 31,695 Richard L. Nolan 31,695 John W. Poduska, Sr. 31,695
47. The Merger Agreement also provides that all restricted stock units (“RSUs”) held by the Company’s directors and executive officers will be cancelled at the effective time of the
merger and will be converted into the right to receive $6.10 per share. The following chart
shows the value of the RSUs held by each officer and director that they will receive upon
cashing out their restricted shares.
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Name RSU Value of Restricted Stock Units Ronald W. Hovsepian $ 2,759,463 Dana C. Russell 1,182,967 John K. Dragoon 974,585 Colleen A. O’Keefe 517,914 Joseph H. Wagner 539,844 Russell C. Poole 268,296 Scott N. Semel 575,236 James P. Ebzery 679,790 Javier Colado 511,485 Albert Aiello 68,216 Fred Corrado 68,216 Richard L. Crandall 68,216 Gary G. Greenfield 68,216 Judith H. Hamilton 158,313 Patrick S. Jones 158,313 Richard L. Nolan 68,216 John W. Poduska, Sr. 68,216
48. In addition, certain of the Company’s directors hold restricted stock awards of the
Company that prior to the effective time of the merger will be cancelled and converted into the
right to receive $6.10 for each share. By cashing out their previously restricted stock awards,
Defendants Aiello, Corrado, Crandall, Greenfield, Nolan, and Poduska will each receive
$90,097.
49. In addition, as stated in the Proxy, Defendant Crandall was awarded two $50,000 payments in “recognition of his increased work effort, time commitment and contributions in
connection with the merger.”
50. In addition, each of the Company’s executive officers, including Defendant
Hovsepian, have severance agreements with the Company, pursuant to which the executive is
entitled to receive severance payments upon a termination following a change in control. The
following chart shows the shows the cash payments that will be made to the Company’s
executive officers pursuant to their respective severance agreements with the Company, in the
event they are terminated upon consummation of the Proposed Transaction.
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Health Lump Sum and 401(k) Estimated Cash Dental Matching Tax Total Cash Payment Coverage Contributions Gross-up Payments Name ($)(1) ($) (2) ($) (3) ($) (4) ($) (5) Ronald W. Hovsepian 6,851,404 48,291 19,919 — 6,919,614 Dana C. Russell 2,807,635 48,291 19,919 — 2,875,845 John K. Dragoon 1,955,986 48,291 19,919 — 2,024,196 Colleen A. O’Keefe 1,739,177 48,291 19,919 — 1,807,387 Joseph H. Wagner 1,507,807 48,291 19,919 — 1,576,017 Russell C. Poole 1,383,439 4,536 19,919 — 1,407,894 Scott N. Semel 1,511,082 48,291 19,919 709,121 2,288,413 James P. Ebzery 1,581,116 48,291 19,919 — 1,649,326 Javier Colado(6) 2,389,974 3,105 11,819 — 2,404,898
51. Based on the above, the Proposed Transaction is unfair to Novell’s public
shareholders, and represents an effort by the Individual Defendants to aggrandize their own
financial position and interests at the expense of and to the detriment of Class members.
Unfair Process
52. In its evaluation of strategic alternatives, the Board was predisposed to favoring a
transaction that resulted in a change of control due to the significant change-in-control and
acceleration and vesting benefits described above. And as described below, throughout the process conducted by the Board, the Board did in fact unreasonably favor a sale of Novell that
would result in a change of control, while failing to adequately pursue and consider other offers
received by the Company where parties sought to acquire only individual units or assets of
Novell.
53. On March 2, 2010, the Board received an unsolicited proposal from Elliot to
acquire the Company for $5.75 per share in cash. On March 19, 2010, the Board met to discuss
Elliot’s non-binding proposal. J.P. Morgan Securities Inc. (“J.P. Morgan”), the Company’s
financial advisor, made a presentation to the Board regarding various possible alternatives to
enhance stockholder value including “a return of capital to stockholders through a stock
repurchase or cash dividend, strategic partnerships and alliances, joint ventures, a recapitalization
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and a sale of Novell...as well as proceeding in the ordinary course with management’s plans for
the business.” Despite the numerous possible alternatives, the Board determined at this meeting
to commence a process “in which the initial focus would be on a sale of the entire company.”
54. From March 2010 through August 2010, J.P. Morgan contacted approximately 52 potential buyers for the sale of Novell. On May 19, 2010 and May 20, 2010, Attachmate and
eight other parties submitted preliminary non-binding proposals to acquire the Company with prices ranging from $5.50 to $7.50 per share. On May 25, 2010, the Board agreed on a list of
five potential buyers for the next phase of the process.
55. While the Board was focused on a sale of the entire company, many parties that
were contacted were interested in other types of transactions, including the acquisition of only
certain parts of Novell. For example,
(a) On July 27, 2010, a potential financial buyer submitted an indication of
interest to purchase Novell’s collaboration solutions business at a price range of $250 million to
$350 million. There is no indication in the Proxy that the Board ever adequately considered the
sale of Novell’s collaboration solutions business on its own, nor is there any indication in the
Proxy of the results of the discussions and negotiations with this party.
(b) On August 16, 2010, Party C submitted an indication of interest to acquire
the assets and certain liabilities of the Company’s systems and resource management, identity
and security management and collaboration solutions businesses, the Company’s businesses
other than their open platform solutions business, for total consideration of $725 million to $760
million. With the Board preferring a sale of the whole company, Party C was asked by J.P.
Morgan on August 20, 2010 to submit a revised proposal letter containing terms for the
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acquisition of 100% of the Company’s common stock. On August 24, 2010, Party C submitted a
revised proposal to acquire 100% of the Company’s common stock for $4.65 per share.
(c) On August 17, 2010, Attachmate submitted a non-binding letter of intent
to acquire all of the Company’s businesses other than the open platform solutions business for
$4.50 per share in cash. The letter also offered to acquire all of the Company’s businesses for
$5.10 per share in cash.
(d) On August 17, 2010, a potential financial buyer submitted a proposal to
acquire the Company’s collaboration solutions business at a value range between $250 million to
$300 million. Again, there is no indication in the Proxy that the Board ever adequately
considered the sale of Novell’s collaboration solutions business on its own, nor is there any
indication in the Proxy of the results of the discussions and negotiations with this party.
(e) On August 20, 2010, Party B submitted two different proposals. In one proposal, Party B offered to acquire between seven and eight percent of outstanding shares of
common stock in a privately negotiated transaction for $6.00 per share. In the second proposal,
Party B offered to arrange a transaction through which members of a consortium would purchase
the Company’s open platform solutions business and Party B would acquire certain of the
Company’s issued patents and patent applications, including patents relevant to the Company’s
identity and security management business (the “Select Patents”), for an aggregate purchase price of between $525 million and $575 million in cash. On August 26, 2010, Party B revised its proposal offering to purchase the Select Patents and the Company’s open platform solutions business for $550 million in cash.
56. On August 24, 2010, the Board met to consider the various proposals it received.
At the meeting, J.P. Morgan detailed various strategic alternatives to the sale of Novell,
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including a sale of certain assets with the remaining assets retained, financial repositioning, and
operating the open platform solutions business as a standalone public company. Despite having
received only one offer to acquire the Company as a whole (Attachmate’s August 17, 2010 proposal), and despite having various other alternatives, the Board was set on ensuring that the
entire company would be sold. Accordingly, the Board determined at this meeting to solicit sales
of the open platform solutions business to one party and the systems and resource management,
identity and security management and collaboration solutions businesses, representing the
remainder of Novell, to another party.
57. On August 27, 2010, Attachmate submitted a revised letter of intent to acquire the
Company’s business other than the open platform solutions business for $4.80 per share in cash.
On August 27, 2010, Party C submitted a revised indication of interest to acquire the Company’s business other than their open platform solutions business for $4.86 per share. With Party B
interested in the open platform solutions business and the Select Patents, the Company, on
August 31, 2010, sent a letter to each of Attachmate and Party C requesting that they confirm or
revise their respective proposals on the assumption that they would not receive ownership of the
Select Patents. The Board was attempting to structure a transaction to ensure that all pieces of
Novell were sold off without adequately considering the notion of retaining certain individual
units. On September 1, 2010 Attachmate confirmed its $4.80 per share proposal, while Party C
indicated on September 1, 2010 that in light of the exclusion of the Select Patents it would revise
its proposal to decrease its proposed purchase price.
58. On September 1, 2010, Party D submitted a proposal to acquire the Company’s business other than that proposed to be acquired by the Attachmate Group and Party C,
19 Case 1:10-cv-12272-DPW Document 1 Filed 12/29/10 Page 20 of 36
excluding assets and liabilities that may be identified but including all of the Company’s
intellectual property, for an aggregate purchase price of $570 million in cash.
59. On September 2, 2010, the Board met and discussed Party D’s proposal. The
Board never properly considered the possibility of entering into a transaction with Party D
without ensuring the sale of the remainder of the Company. Rather, the Board dismissed Party
D’s proposal due to, among other reasons, the “potential incompatibilities” between the Party D
and the Attachmate proposal.
60. On the other hand, Party B and Attachmate’s respective proposals together
equated to a sale of the entire company. Accordingly, and despite having other parties still
interested and participating in the sales process, the Board determined to enter into an exclusivity
arrangement with Attachmate with respect to a sale of the Company’s systems and resource
management, identity and security management and collaboration solutions businesses and to
enter into an exclusivity arrangement with Party B with respect to a sale of the Company’s open platform solutions business and the Select Patents. On September 3, 2010, the Company entered
into an agreement with Party B granting Party B exclusivity until September 28, 2010, and with
Attachmate granting exclusivity to Attachmate until September 27, 2010.
61. Thereafter, over the following weeks, the Company negotiated with Attachmate
and Party B and exchanged drafts of the various asset purchase agreement and related agreement
with Attachmate and Party B. And despite other parties presumably still interested in a
transaction with the Company, including Party C, Party D, and other “participating parties,” the
Board continuously extended the exclusivity agreement with parties B and Attachmate.
Specifically, on September 21, 2010, the Board authorized management to extend the exclusivity periods with Attachmate and Party B by up two additional weeks. On September 27, 2010, the
20 Case 1:10-cv-12272-DPW Document 1 Filed 12/29/10 Page 21 of 36
exclusivity agreement with Attachmate was extended until October 8, 2010, and on September
28, 2010, the exclusivity period with Party B was extended until October 8, 2010. On October 8,
2010, the Board again extended the exclusivity agreement with Attachmate until October 13,
2010.
62. On October 14, 2010, Party B indicated to the Company that it had decided
against proceeding with its proposal to acquire the Company’s open platform solutions business
and the Select Patents.
63. That same day, following the expiration of the exclusivity period with
Attachmate, defendant Hovsepian had a conversation Party E, a strategic buyer that expressed possible interest in acquiring certain of the Company’s intellectual property.
64. On October 15, 2010, the Board met to discuss among other things Party B’s
withdrawal and discussed possible alternative transaction structures in light of such withdrawal.
Despite the previous interest showed by parties C and D, and the new interest showed by Party
E, the Board was focused on ensuring the consummation of a transaction that would equate to a
sale of the whole company. Accordingly, at this meeting, the Board again authorized
management to extend the exclusivity period with Attachmate, with the intention of finding a buyer for the open platform solutions business and Select Patents that comprised the remainder
of the Company that Attachmate was not buying.
65. During the weeks of October 18, 2010 and October 25, 2010, members of the
Company’s senior management solicited various potential buyers, including Microsoft as to their
interest in Novell’s open platform solutions business or the Select Patents. On October 21, 2010,
Microsoft submitted a non-binding letter of intent to either enter into a license agreement for the
Select Patents or a license and acquisition agreement for the Select Patents. With Microsoft now
21 Case 1:10-cv-12272-DPW Document 1 Filed 12/29/10 Page 22 of 36
interested in the Select Patents, the Board had to find a buyer for the open platform solutions business. Accordingly, on or about October 21, 2010, at the request of defendant Crandall,
defendant Greenfield had a conversation with a representative from Francisco Partners, one of
the principal shareholders of Attachmate, requesting that Attachmate reconsider a transaction for
a sale of all of Novell, including Novell’s open platform solutions business.
66. On October 28, 2010, the Attachmate Group submitted a revised letter of intent
offering to acquire the entire capital stock of Novell for $5.25 in cash. In the morning on
October 29, 2010, Microsoft submitted a revised letter of intent pursuant to which Microsoft proposed to acquire, together with at least two other interested investors, certain identified issued patents and patent applications for $450 million. Later that day on October 29, 2010,
defendant Crandall and two members of the Company’s senior management proposed to
Attachmate terms for a sale of Novell that assumed the prior purchase by Microsoft of certain patents. On November 1, 2010, Attachmate submitted a revised letter of intent offering to purchase all of the outstanding shares of the Company’s common stock at a price per share of
$6.10 in cash. Accordingly, the Board had successfully arranged a structure that ensured the sale
of the whole company and would thus allow them to cash out the significant change-in-control
and acceleration and vesting benefits.
67. Despite other parties still being interested in a transaction with the Company, on
November 1, 2010, the Board determined to enter into exclusive discussions with Microsoft and
to continue exclusive discussions with Attachmate. Over the following weeks, discussions and
negotiations occurred between the Company, Microsoft, and Attachmate, and on November 21,
2010, the Merger Agreement and the Patent Purchase Agreement were executed.
22 Case 1:10-cv-12272-DPW Document 1 Filed 12/29/10 Page 23 of 36
The Preclusive Deal Protection Devices
68. To protect their self-serving interests, the Individual Defendants have agreed to
lock up the Proposed Transaction through the use of onerous deal protection devices that preclude competing bidders from making a successful bid for all or part of the Company to
compete with the unfair Proposed Transaction.
69. By way of example, §6.3(a) of the Merger Agreement includes a “no solicitation” provision barring the Board and any Company personnel from attempting to procure a price in
excess of the amount offered by Attachmate. This section also demands that the Company
terminate any and all prior or on-going discussions with other potential suitors. Despite the fact
that they have locked up the Company and bound it to not solicit alternative bids, the Merger
Agreement provides other ways that guarantee the only suitor will be Attachmate.
70. Pursuant to §6.3 of the Merger Agreement, should an unsolicited bidder arrive on
the scene, the Company must notify Attachmate of the bidder’s offer. Thereafter, should the
Board determine that the unsolicited offer is superior, Attachmate is granted five business days
to amend the terms of the Merger Agreement to make a counter-offer so that the competing bid
ceases to constitute a superior proposal, i.e. the Attachmate needs merely to match the superior proposal. Attachmate is able to match the unsolicited offer because it is granted unfettered
access to the unsolicited offer, in its entirety, eliminating any leverage that the Company has in
receiving the unsolicited offer.
71. In other words, the Merger Agreement gives Attachmate access to any rival bidder’s information and allows Attachmate a free right to top any superior offer. Accordingly,
no rival bidder is likely to emerge and act as a stalking horse, because the Merger Agreement
23 Case 1:10-cv-12272-DPW Document 1 Filed 12/29/10 Page 24 of 36
unfairly assures that any “auction” will favor Attachmate and piggy-back upon the due diligence
of the foreclosed second bidder.
72. In addition, the Merger Agreement provides that a termination fee of $60,000,000
must be paid to Attachmate by Novell if the Company decides to pursue said other offer, thereby
essentially requiring that the alternate bidder agree to pay a naked premium for the right to provide the shareholders with a superior offer. The $60,000,000 termination is highly
unreasonable considering it equates to 8% of the $750 million purchase price that Attachmate
has to actually pay for Novell.
73. Ultimately, these preclusive deal protection provisions illegally restrain the
Company’s ability to solicit or engage in negotiations with any third party regarding a proposal
to acquire all or a significant interest in the Company. The circumstances under which the Board
may respond to an unsolicited written bona fide proposal for an alternative acquisition that
constitutes or would reasonably be expected to constitute a superior proposal are too narrowly
circumscribed to provide an effective “fiduciary out” under the circumstances. Likewise, these provisions also foreclose any likely alternate bidder from providing the needed market check of
Attachmate’s inadequate offer price.
The Patent Purchase Agreement
74. As described above, concurrent with the announcement of the Proposed
Transaction, the Company entered into the Patent Purchase Agreement with CPTN, a consortium
of technology companies organized by Microsoft. Upon the terms of the Patent Purchase
Agreement, the Company will sell all of their rights, titles and interest in 882 issued patents and patent applications to CPTN for $450 million in cash. Pursuant to the terms agreed to by the
Company and Microsoft, the Patent Purchase Agreement does not require a vote of the
24 Case 1:10-cv-12272-DPW Document 1 Filed 12/29/10 Page 25 of 36
Company’s stockholders, and the Company’s stockholders will not consider or vote on the patent
sale when they vote on the Merger Agreement.
75. In addition, even if the Company’s stockholders vote to reject the Proposed
Transaction, the Patent Purchase Agreement, if CPTN so elects, will still remain in effect. As
stated in a Form 8-K filed by the Company on November 22, 2010:
In addition, CPTN may also elect to continue the Patent Purchase Agreement in the event that the Merger Agreement is terminated for any other reason than Novell’s receipt of an acquisition proposal for the entire company that it deems to be a superior proposal to the Merger, in which case the Patent Purchase Agreement will remain in full force and effect and references in the Patent Purchase Agreement to the Merger Agreement shall automatically be deemed to be of no force or effect.
76. Accordingly, even if the Merger Agreement is voted down, Microsoft can still
gain ownership of the 882 issued patents and patent applications under the Patent Purchase
Agreement.
77. The Company’s patent portfolio is critical to the operation of the Company’s business. As stated in the Company’s latest Annual Report filed on Form 10-K on December 13,
2010:
Our portfolio of patents, copyrights, and trademarks as a whole is material to our business...We have what we consider to be valuable patents and have numerous other patents pending.... While the durations of our patents vary, we believe that the durations of our patents are adequate relative to the expected lives of our products.
78. Accordingly, if the Merger Agreement is rejected and CPTN elects to keep the
Asset Purchase Agreement in effect, the Company will be left without a substantial portion of
their assets. With the possibility of this scenario occurring, it was the duty of the Board to
undertake a process that sought the best transaction available for the Company’s valuable patents
25 Case 1:10-cv-12272-DPW Document 1 Filed 12/29/10 Page 26 of 36
and patent applications and obtain the maximum value. The Board has failed to adequately
undertake such a process and is in violation of their fiduciary duties.
Elliot’s Involvement In The Proposed Transaction
79. As part of the Proposed Transaction, Elliot, one of Novell’s largest shareholders,
owning approximately 7.1 % of the Company’s outstanding common stock and holding an
economic interest in an additional 1.5% of the Company’s common stock, will become an equity
shareholder in Attachmate.
80. The Company favored Elliot in the Proposed Transaction over the Company’s
other public shareholders. On July 28, 2010, in the midst of its negotiations with Attachmate, J.P.
Morgan, the Company’s financial advisor, received a letter from Attachmate asking J.P. Morgan
the opportunity to speak to Elliot regarding financing the Proposed Transaction.
81. As stated in the Proxy, on July 30, 2010, representatives of J.P. Morgan contacted
Elliot to solicit Elliot’s interest in acting as a financing source for a possible transaction.
Thereafter, the Company entered into a non-disclosure agreement with Elliot, who ultimately did
act as a financing source and will now be an equity stakeholder in the post-merger company.
82. While the Company permitted, and in fact, aided in the solicitation of Elliot’s participation in the Proposed Transaction with Attachmate, the Company failed to provide the
same benefit for the Company’s other public stockholders who will be cashed out and will be
unable to reap the benefits of the post-merger company’s growth.
The Materially Misleading and Incomplete Proxy Statement
83. On December 14, 2010, the Company filed the Proxy with the SEC in connection
with the Proposed Transaction. The Proxy fails to provide the Company’s shareholders with
26 Case 1:10-cv-12272-DPW Document 1 Filed 12/29/10 Page 27 of 36
material information and/or provides them with materially misleading information thereby
rendering the shareholders unable to cast an informed vote regarding the Proposed Transaction.
Disclosures Related to Projections and Valuations
84. The Proxy fails to disclose the extrapolated projections of the Company for years
2013 through 2020 that were prepared by the Company management and provided to J.P.
Morgan, the Company’s financial advisor, and used by J.P. Morgan in connection with their
fairness opinion.
85. In addition, if projections existed for each of the Company’s business units, they
must be disclosed. As described above, the Company received a wide variety of offers to acquire
different parts of the Company, including offers to acquire just the Company’s open platform
solutions business, offers to acquire just the Company’s collaboration solutions business, and
offers to acquire the Company’s systems and resource management, identity and security
management and collaboration solutions businesses. If projections were prepared for individual business units, they must be disclosed, so that shareholders can independently assess whether the
Board chose the best available transaction.
86. Similarly, the Proxy states that on October 24, 2010, J.P. Morgan and members
of the Company management presented to the Board “preliminary valuations for various
transaction permutations” including a sale of the Company’s systems and resource management,
identity and security management and collaboration solutions businesses that would leave the
Company’s open platform solutions business as a stand-alone public company, a concurrent sale
of the Select Patents and a sale of the entire company with and without the Select Patents
including the contingencies and assumptions associated with each. The Proxy must disclose the
27 Case 1:10-cv-12272-DPW Document 1 Filed 12/29/10 Page 28 of 36
“preliminary valuations” for each possible transaction structure, the analysis performed to derive
the valuations, as well the contingencies and assumptions associated with each.
87. Moreover, in conjunction with the Proposed Transaction, the Company entered
into the Patent Purchase Agreement with CPTN for the sale of 882 issued patents and patent
applications to CPTN. The Proxy must disclose details regarding which patents and patent
applications are included in the Patent Purchase Agreement. In addition, as described above, the
Company received various offers throughout the sales process for some or all of the Company’s
intellectual property assets, including from Parties B, D, and E. The Proxy must disclose any
analyses prepared by the Company to value its intellectual property assets, including the 882 patents that are part of the Patent Purchase Agreement, as well as analyses prepared to value the
various offers it received from parties for certain or all of the Company’s patents and intellectual property assets. Again, this information is material so that shareholders can independently assess
whether the Board chose the best transaction among the many available alternatives.
Disclosures Related to the Financial Analyses Conducted by J.P. Morgan
88. The Proxy completely fails to disclose the underlying methodologies, key inputs
and multiples relied upon and observed by J.P. Morgan so that shareholders can properly assess
the credibility of the various analyses performed by J.P. Morgan and relied upon by the Board in
recommending the Proposed Transaction. For example, with respect to the Discounted Cash
Flow Analysis conducted by J.P. Morgan, the Proxy fails to disclose (a) the “free cash flow”
amounts for years 2011 through 2010 used by J.P. Morgan in the analysis; (b) the calculations
made by J.P. Morgan to derive the Company’s free cash flow amounts, including how stock- based compensation was treated; (c) the criteria used by J.P. Morgan to select perpetual growth
rates of -1.0% to 1.0% that were used to calculate a terminal value range; (d) Novell’s tax
28 Case 1:10-cv-12272-DPW Document 1 Filed 12/29/10 Page 29 of 36
benefits, including the Company’s domestic net operating losses and tax credits over a 16 year period that were prepared by Company management and provided to J.P. Morgan, that were used
in the analysis; (e) the key inputs used to calculate the Company’s weighted average cost of
capital that was used to select the 9.5% to 11.5% discount rate, including betas, risk premiums,
and assumed capital structure.
89. With respect to the Publicly Trading Peer Multiples Analysis, the Proxy fails to
disclose the EV to estimated EBIDTA for CY11 multiples observed for each company in the
analysis and the criteria used to select the 4.0x to 6.0x multiple reference range that was applied
to Novell’s estimated EBITDA for CY11. Disclosure of this information is particularly important
considering the Infrastructure software companies used in the analysis ranged from a low of 5.9x
to a high of 9.5x, well above the 4.0x to 6.0x reference range that was selected. The Proxy also
fails to disclose the cash adjusted market value/CY11 cash adjusted net income multiple
observed for each company as well as the criteria used to select the 6.5x to 10.x multiple
reference range that was applied to Novell’s estimated cash adjusted net income for CY11. With
respect to the Selected Transaction Analysis, the Proxy fails to disclose the criteria used by J.P.
Morgan to select the transactions used in the analysis, the one-year forward enterprise
value/EBITDA multiple observed for each transaction, as well as which transactions were
multiples not calculated because they were not publicly available.
Disclosures Related to the Process Conducted by the Board
90. In addition, the Proxy fails to disclose material information concerning the process conducted by the Board, including the criteria used to select potential parties, the
discussions and negotiations with potential acquirors of all or part of Novell including the values
of offers that were submitted, and the decision-making process of the Board when determining
29 Case 1:10-cv-12272-DPW Document 1 Filed 12/29/10 Page 30 of 36
which transactions and transaction structures presented the best available value to the Company’s
shareholders. For example, the Proxy:
(a) Fails to disclose the reasons the Board determined on March 19, 2010 that
their “initial focus would be on a sale of the entire company” among the many alternatives
reviewed.
(b) Fails to disclose the criteria used to select the 52 parties that were
contacted between March and August 2010, as well how many parties were strategic and how
many were financial.
(c) Fails to disclose the value of each of the 8 indications of interest that were
received by potential parties on May 19-20, 2010, as well as the results of the discussions and
negotiations with each party, including when and the reasons discussions ultimately ceased.
(d) Fails to disclose the results of the discussions and negotiations with the party that submitted an indication of interest on May 19-20, 2010 with a high range of $7.50 per
share.
(e) Fails to disclose the criteria used by the Board to select the five parties that
were submitted into the next phase of the process on May 25, 2010; how many of the five parties
were strategic and how many were financial, as well as whether parties A, B,C, and D were
among the five parties.
(f) Fails to disclose the results of the discussions and negotiations with the
financial buyers who submitted indications of interest to purchase the Company’s collaboration
solutions business on August July 27, 2010 and August 17, 2010.
30 Case 1:10-cv-12272-DPW Document 1 Filed 12/29/10 Page 31 of 36
(g) Fails to disclose whether Attachmate provided reasons for reducing its proposal to acquire the Company from $6.50 to $7.25 per share on May 19-20, 2010 to $5.10 per
share on August 17, 2010.
(h) Fails to disclose the “implications of selling our systems and resource
management, identity and security management and collaboration solutions businesses in the
absence of a consummation of a sale of our open platform solutions business” that was discussed by the Board on August 29, 2010.
(i) Fails to disclose the reasons the Company entered into an exclusivity
agreement with Attachmate on September 3, 2010 considering other parties were still interested,
including Party C.
(j) Fails to disclose whether other potential buyers contacted the Company
when they were in exclusivity with Attachmate, and if so to disclose the nature of such contact
and the Company’s response.
(k) Fails to disclose when director Defendant Greenfield first disclosed to the
other directors of his relationship with Francisco Partners, one of the principal shareholders of
Attachmate, and the reasons the Board determined on September 21, 2010 that “Greenfield’s
continued participation in the process would be beneficial and enhance the ability of our board of
directors to consider and pursue our and out stockholders’ best interests.”
(l) Fails to disclose the “alternative transaction structures” that were
discussed by the Board on September 21, 2010 and on October 8, 2010.
(m) Fails to disclose the reasons Party B indicated to the Company on October
14, 2010 “that it had decided against proceeding with its proposal to acquire the Company’s open platform solutions business and the Select Patents.”
31 Case 1:10-cv-12272-DPW Document 1 Filed 12/29/10 Page 32 of 36
(n) Fails to disclose the “possible alternative transaction structures in light of
[Party B’s] withdrawal” that was discussed by the Board on October 15, 2010.
(o) Fails to disclose the reasons the Company agreed to extend the exclusivity
agreement with Attachmate on numerous occasions, and especially on October 15, 2010
considering Party B had just withdrawn its offer and Party E had contacted the Company and
expressed interest in acquiring certain of the Company’s intellectual property.
(p) States that on October 15, 2010, the Board discussed “how a transaction
with the Attachmate Group, in the absence of Party B, would be structured and the required
analysis to determine the optimal structure,” but fails to disclose the results of such discussion
including the analysis to determine the optimal structure that was reviewed.
(q) Fails to disclose the “potential value for stockholders that could be
realized by pursuing the respective proposals” and “the advantages and disadvantages of pursuing the respective proposals” discussed by the Board on November 1, 2010.
(r) Fails to disclose the reasons the Board determined on November 1, 2010
to “continue exclusive discussions with the Attachmate Group with respect to its November 1,
2010 proposal” considering Party C had just submitted a proposal on October 28, 2010.
It is absolutely necessary for shareholders to receive a Proxy that provides all material
disclosures related to the sales process in order for shareholders to be able to cast a fully
informed decision regarding the Proposed Transaction.
91. Lastly, the Proxy fails to, but should disclose, the ownership interest that will be
held by Elliot in the post-merger company.
92. Accordingly, Plaintiff seeks injunctive and other equitable relief to prevent the
irreparable injury that Company shareholders will continue to suffer absent judicial intervention.
32 Case 1:10-cv-12272-DPW Document 1 Filed 12/29/10 Page 33 of 36
CLAIMS FOR RELIEF
COUNT I Violations of Section 14(a) of the Exchange Act and Rule 14a-9 Promulgated Thereunder
93. Plaintiff repeats all previous allegations as if set forth in full herein.
94. Defendants have issued the Proxy with the intention of soliciting shareholder
support of the Proposed Transaction.
95. Rule 14a-9, promulgated by SEC pursuant to Section 14(a) of the Exchange Act provides that a proxy statement shall not contain “any statement which, at the time and in the
light of the circumstances under which it is made, is false or misleading with respect to any
material fact, or which omits to state any material fact necessary in order to make the statements
therein not false or misleading.” 17 C.F.R. §240.14a-9.
96. Specifically, the Proxy violates the Section 14(a) and Rule 14a-9 because it omits
material facts, including those set forth above. Moreover, in the exercise of reasonable care,
Defendants should have know that the Proxy is materially misleading and omits material facts
that are necessary to render them non-misleading.
97. The misrepresentations and omissions in the Proxy are material to Plaintiff and
the Class, and Plaintiff and the Class will be deprived of their entitlement to cast a fully informed
vote if such misrepresentations and omissions are not corrected prior to the vote on the Proposed
Transaction.
COUNT II Breach of Fiduciary Duty – Failure to Maximize Shareholder Value (Against All Individual Defendants)
98. Plaintiff repeats all previous allegations as if set forth in full herein.
33 Case 1:10-cv-12272-DPW Document 1 Filed 12/29/10 Page 34 of 36
99. As Directors of Novell, the Individual Defendants stand in a fiduciary relationship to Plaintiff and the other public stockholders of the Company and owe them the highest fiduciary obligations of loyalty and care. The Individual Defendants’ recommendation of the Proposed
Transaction will result in change of control of the Company which imposes heightened fiduciary responsibilities to maximize Novell’s value for the benefit of the stockholders and requires enhanced scrutiny by the Court.
100. As discussed herein, the Individual Defendants have breached their fiduciary duties to Novell shareholders by failing to engage in an honest and fair sale process.
101. As a result of the Individual Defendants’ breaches of their fiduciary duties,
Plaintiff and the Class will suffer irreparable injury in that they have not and will not receive their fair portion of the value of Novell’s assets and will be prevented from benefiting from a value-maximizing transaction.
102. Unless enjoined by this Court, the Individual Defendants will continue to breach their fiduciary duties owed to Plaintiff and the Class, and may consummate the Proposed
Transaction, to the irreparable harm of the Class.
103. Plaintiff and the Class have no adequate remedy at law.
COUNT III Breach of Fiduciary Duty -- Disclosure (Against Individual Defendants)
104. Plaintiff repeats all previous allegations as if set forth in full herein.
105. The fiduciary duties of the Individual Defendants in the circumstances of the
Proposed Transaction require them to disclose to Plaintiff and the Class all information material to the decisions confronting Novell’s shareholders.
106. As set forth above, the Individual Defendants have breached their fiduciary duty through materially inadequate disclosures and material disclosure omissions.
34 Case 1:10-cv-12272-DPW Document 1 Filed 12/29/10 Page 35 of 36
107. As a result, Plaintiff and the Class members are being harmed irreparably.
108. Plaintiff and the Class have no adequate remedy at law.
COUNT IV Aiding and Abetting (Against Novell and Attachmate)
109. Plaintiff repeats all previous allegations as if set forth in full herein.
110. As alleged in more detail above, Novell and Attachmate are well aware that the
Individual Defendants have not sought to obtain the best available transaction for the Company’s public shareholders. Defendants Novell and Attachmate aided and abetted the Individual
Defendants’ breaches of fiduciary duties.
111. As a result, Plaintiff and the Class members are being harmed.
112. Plaintiff and the Class have no adequate remedy at law.
WHEREFORE, Plaintiff demands judgment against Defendants jointly and severally, as
follows:
(A) declaring this action to be a class action and certifying Plaintiff as the
Class representatives and his counsel as Class counsel;
(B) declaring that the Proxy is materially misleading and contains omissions
of material fact in violation of Section 14(a) of the Exchange Act and Rule 14a-9 promulgated
thereunder;
(C) enjoining, preliminarily and permanently, the Proposed Transaction;
(D) in the event that the transaction is consummated prior to the entry of this
Court’s final judgment, rescinding it or awarding Plaintiff and the Class rescissory damages;
35 Case 1:10-cv-12272-DPW Document 1 Filed 12/29/10 Page 36 of 36
(E) directing that Defendants account to Plaintiff and the other members of the
Class for all damages caused by them and account for all profits and any special benefits obtained as a result of their breaches of their fiduciary duties;
(F) awarding Plaintiff the costs of this action, including a reasonable allowance for the fees and expenses of Plaintiffs’ attorneys and experts; and
(G) granting Plaintiff and the other members of the Class such further relief as the Court deems just and proper.
Dated: December 29, 2010 MATORIN LAW OFFICE, LLC
Mitchell J. Matorin (BBO# 649304) 200 Highland Avenue Suite 306 Needham, MA 02494 P: (781) 453-0100 F: (888) 628-6746 E: [email protected]
OF COUNSEL LEVI & KORSINSKY, LLP Eduard Korsinsky, Esq. 30 Broad Street, 15th Floor New York, New York 10004 Tel: (212) 363-7500 Fax: (212) 363-7171
Counsel for Plaintiff
36