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Blum Letters

September 6, 2005

Mr. Jack Messman 
Chairman, President, and Chief Executive Officer
Novell, Inc.  
404 Wyman Street 
Suite 500 
Waltham, MA 02451

Dear Jack,

We received your letter dated June  24,  2005  acknowledging  our
letter  dated  June  20, 2005. The terse, one-sentence correspon-
dence thanking Blum Capital for our input led us to  believe  you
and  the Board would not seriously consider the operating and fi-
nancial proposals we outlined in our previous letters, dated June
6,  2005  and June 20, 2005 (attached).  Needless to say, we were
disappointed by your response (or lack thereof) as you stated  in
your prior letter dated June 16, 2005 that "We seriously consider
your views when offered." For more than 20  years,  Blum  Capital
has  worked  collaboratively with all of our portfolio investment
companies, and we have most often waited  for  tangible  evidence
indicating  whether  or  not a company would employ our suggested
strategies to maximize shareholder value. In  Novell's  case,  we
are disappointed in not only your failure to consider our propos-
als but also at the clear  lack  of  urgency  in  implementing  a
strategic plan.

Over  two  months  have  elapsed since your last response, and we
have been discouraged by Novell's recent progress towards what we
believe  should be the company's goals. On August 1, 2005, Novell
announced plans to eliminate 120 to 150 jobs in Europe, the  Mid-
dle  East,  and Africa in an effort to cut costs by approximately
$12 million to $16 million per year. While this is a step in  the
right  direction,  it is de minimis on a total expense base of $1
billion. We believe that you and the Board do not appreciate  the
immediacy  or the magnitude of what must be accomplished for Nov-
ell to return to an appropriate level of profitability, and  sub-
sequently an attractive level of growth.

To  reiterate,  we believe it is imperative that Novell must: (1)
reduce costs to an appropriate level necessary to operate all  of
its businesses profitability; (2) divest non-core businesses; (3)
become a leader in Linux and identity  management  through  joint
ventures and selective acquisitions; and (4) optimize its capital
structure to maximize shareholder value. The predominant theme in
this  four-step plan is the employment of disciplined analysis in
allocating capital.

Addressing our first point, we believe operating expenses can  be
curtailed while actually improving productivity if funds for R&D,
sales and marketing, and general and administrative functions are
scrutinized  and deployed judiciously. We estimate that over $225
million of operating expense reduction could  be  implemented  in
2006  prior to the incremental costs associated with any acquisi-
tions. As most of these cost savings are  cash  expenses,  a  key
benefit  would  be  the  reinvestment of funds into higher return
projects. In addition, our $225 million estimate may  prove  con-
servative  as  we  have  identified  only the obvious targets for
costs savings, including the company's  two  corporate  jets,  an
overstaffed  R&D department, the redevelopment of legacy products
such as ZenWorks and GroupWise, and the maintenance of  over  400
Netware engineers. As it is, this plan would yield a run rate op-
erating profit margin of 22% during 2006, up from an unacceptable
2% estimated for 2005.

Secondly,  the  same  argument can be made to sell non-core busi-
nesses to reduce unnecessary costs, monetize value, and  redeploy
funds  more  productively. We estimate that Novell could generate
approximately $500 million of pretax cash  (or  equity  value  in
spin  offs)  as  follows: $175 million for Celerant, $150 million
for Zenworks/Tally Systems, $100 million for Groupwise,  and  $75
million  for Cambridge Technology Partners. If generated in cash,
the realized proceeds  could  further  enhance  liquidity,  which
would  further  facilitate  Novell's  ability to pursue necessary
growth opportunities.

Regarding our third point, we  believe  we  have  identified  key
product  areas  that management should pursue either via acquisi-
tions or joint ventures to position Novell as  "The  Open  Stack"
for  Linux and to capture more value "further up the stack." Com-
bining these products and services with Novell?s  existing  Linux
offerings would create a formidable player in the industry offer-
ing the most complete, secure stack for mixed  open  and  propri-
etary IT environments. We are aware that Novell has announced re-
cent joint ventures that provide a small portion of  these  capa-
bilities.  Our  plan  is  likely directionally similar to manage-
ment's in this regard, but we feel the window of  opportunity  to
achieve  this goal is much narrower than Novell's current percep-
tion. Furthermore,  we  believe  that  this  "growth"  initiative
should  only  be  pursued  concurrent with a well defined plan of
cost cutting, divestitures,  capital  structure  rationalization,
and  overriding investment discipline. Failure to do so will most
certainly result, at best, in suboptimal returns  for  sharehold-
ers,  and at worst, a missed market opportunity and a deteriorat-
ing business.

Our final point is perhaps the simplest to execute,  but  equally
compelling.  Therefore,  it confounds us as to why Novell has yet
to implement a major share repurchase program of $500 million. In
our prior letters, we outlined the potential for 20% returns giv-
en the current depressed stock valuation, while still leaving am-
ple  liquidity for strategic acquisitions and customer assurance.
In addition, it bears repeating that should Novell employ all  of
our  operating  and financial strategies, the market value of the
company's stock would most likely  appreciate  to  a  level  that
would  exceed the conversion price of the outstanding convertible
debentures, thereby generating an additional $600 million of cash
availability. Our analysis has the company repurchasing $750 mil-
lion of stock at $7.50 per share, approximately $500  million  of
additional  acquisitions, $500 million of divestitures, and still
leaves approximately $950 million of gross cash  on  the  balance
sheet at year end 2006 ($350 million net cash if the converts are
not exercised), and a company that is again  a  substantial  cash

Implementing  all  of  our  proposals,  we estimate run rate 2006
earnings per share would be approximately 30 cents,  growing  ap-
proximately  20% per annum thereafter for the next several years.
As the preeminent company in the Linux field, with 22%  operating
margins  and  surplus  free cash flow, we believe the stock would
receive a premium multiple and a $10 per share price would be re-
alistic,  with approximately $1 per share of value in net cash on
the balance sheet. That represents over 43%  appreciation  versus
today's current stock quote of $7 in a 12 to 18 month time frame,
and a sustained growth profile of a vibrant business  capable  of
compounding shareholder returns for many years in the future.

We  are deeply concerned about the direction and pace you and the
Board are currently taking and have been  dissatisfied  with  the
company's  results.   Given  the  company's recent weak operating
performance, we believe that the majority of Novell's  sharehold-
ers  share  our  discontent. Our conviction is firm in the future
promise of the company. The question is whether the current  man-
agement and board will execute.


Colin Lind            Greg Jackson

/s/ N. Colin Lind     /s/ Greg Jackson

Managing Partner      Partner

cc:  Albert Aiello
     Fred Corrado
     Richard L. Crandall
     Wayne Mackie
     Claudine B. Malone
     Richard Nolan
     Thomas G. Plaskett
     John W. Poduska, Sr.
     James D. Robinson, III
     Kathy Brittain White
     Ron Hovsepian

June 20, 2005

Mr. Jack Messman 
Chairman, President, and Chief Executive Officer
Novell, Inc.  
404 Wyman Street 
Suite 500 
Waltham, MA 02451

Dear Jack,

Thank you for your letter dated June 16, 2005. We appreciate your
feedback  regarding  our  proposals  as detailed in our letter to
you, dated June 2, 2005.

While we certainly respect differences in opinion relating to the
strategic  direction  of the company, we are compelled to dispute
several conclusions in your response based on our own understand-
ing of facts.

Regarding  our  proposal  to curtail R&D expenses, you responded:
"To suggest that all our business efforts must be profitable  to-
day,  is to not fully appreciate our strategy or the need to make
the investments necessary to successfully implement  the  strate-
gy."  We are well aware that some level of investment is required
to maintain future growth and profitability.  However,  our  pro-
posal  to  reduce  R&D  expenses stems from Novell's historically
poor investments in both R&D and acquisitions that  have  yielded
sub-optimal  returns  for  shareholders  with little, if any, new
product sales of significance. As evidence, we point out Novell's
-5.4%  compounded  annual sales decline since fiscal 1994 through
the ten years ended fiscal 2004.  During those  same  ten  years,
Novell has spent approximately $2.5 billion in R&D expenses, $365
million in acquisitions, and $635  million  in  capital  expendi-
tures.  Since  your  assumption  of the CEO duties in late fiscal
2001, sales growth has been just 3.5% through fiscal  2004  which
is certainly an improvement from prior years, but driven primari-
ly through acquisitions.  Beginning in fiscal 2002, R&D  has  to-
taled  $382 million, capital expenditures $94 million, and acqui-
sitions $353 million. We believe such a high level of  investment
for  3.5%  annual  sales growth is not satisfactory. In addition,
the most recent quarter's (Q2 05) lackluster 1.2% revenue  growth
is  continuing confirmation that extraordinarily heavy investment
in the combination of R&D and acquisitions is not justified. Giv-
en this track record, we submit that the current strategy to sub-
stantially increase spending on growth initiatives carries a much
higher  risk profile than management appreciates. To be clear, we
are not against R&D expenses and acquisitions per se.  Quite  the
contrary,  we  recognize that the judicious allocation of capital
to both areas is essential for the long term health of the  orga-
nization,  as  long  as  it  is within the means of the company's
ability to remain profitable and that it is subjected to a rigor-
ous  analytical  process.  Therefore,  under  the current circum-
stances we believe that reducing R&D is not only appropriate  but
also  necessary  to  ensure  all  investment opportunities (being
viewed as a scarce and valuable resource) are subjected to a dis-
ciplined  process  whereby  only the highest return projects sur-

Regarding our proposal to divest Celerant Consulting, you  wrote:
"Although  Celerant  is a non-core asset, it would not be prudent
to rush a transaction through, thus creating a risk that the  key
assets  of  Celerant,  its  highly-valued employees, could become
dissatisfied with the end result, thereby destroying  value  that
is due to all shareholders." We are open to discussions with man-
agement and the Board on this issue, and look forward to pursuing
this  idea  further.  However,  we offer the following opinion on
this matter: a spin-off of Celerant to Novell shareholders as  an
independent,publicly  traded company in our view would retain em-
ployees who would see their direct efforts  reflected  in  equity
value  appreciation over time. Today, as part of Novell, Celerant
employees' fortunes are tied to the overall enterprise's  operat-
ing  performance  which  has led to a decline in equity value de-
spite solid results within Celerant.  In addition,  surplus  cash
generation  could  be reinvested in Celerant's own growth initia-
tives rather than Novell's other operations where there has  been
no value creation historically.

Regarding  our  proposal to implement a $500 million share repur-
chase program, you said, "To date,  our  analysis  has  indicated
that  the  current time is not appropriate for a stock buy back."
It is our firm belief that your analysis is incorrect in that  we
cannot  imagine  a  better,  risk-adjusted rate of return offered
than buying back stock given the current valuation. Had Novell at
the  beginning  of 2002 not deployed the $353 million it spent on
acquisitions plus the $53 million it spent on long-term  (venture
capital) investments and instead invested that capital in a share
repurchase program, using average stock prices for  fiscal  years
2002, 2003 and 2004, shares outstanding would be almost 20% lower
today. Assuming that the combined acquisitions and venture  capi-
tal  investments  resulted in a net neutral contribution to earn-
ings, and assuming the same  price  earnings  multiple  that  the
stock  price currently trades at, per share market value would be
20% higher today. We note that our assumption of a  neutral  con-
tribution from acquisitions may be optimistic given the $158 mil-
lion write down of goodwill and intangible  assets  since  fiscal
2002,  but  that  only  strengthens  our analysis in that current
earnings would be higher than our estimate.

Applying that same analysis, should the company  repurchase  $500
million  of  the  outstanding  shares at today's market price, it
could retire approximately 80 million shares or more than 20%  of
the  company.  Again,  assuming the same price earnings multiple,
the stock price would be more than  20%  higher.  The  same  com-
pelling opportunity that existed over the past three years avails
itself today.

We are curious that management and the Board believes the current
time  is not appropriate for a stock buy back given this high re-
turn profile and that Novell continues to fund long term  invest-
ments in various private, venture capital investments. At the end
of fiscal 2004, Novell had a carrying value  of  $54  million  in
such  long  term  investments (recently writing off $1 million in
the past quarter), with further commitments of $33 million in the
future.   In  examining Novell's financial statements, it appears
the rate of return on these investments has been  far  below  the
level  a share repurchase program would have yielded historically
. We would be willing to share our  analysis  with  you  and  the
Board in more detail to facilitate further discussion.

Finally,  you  stated  your  "need for cash as a demonstration to
customers of our market staying power and  viability,"  and  that
customers  need  comfort  that  they will be "supported by us for
many years to come," and a "strong balance sheet is an undisputed
way to give customers that comfort." We believe that our proposal
of leaving $500 million of cash on the balance  sheet  is  suffi-
cient to allay any customer concerns, particularly if Novell were
to adopt our operating proposals to run each division  profitably
such  that  the  overall  company generates significant free cash
flow.  The ability to generate  substantial  free  cash,  in  our
opinion,  is  of  higher  priority than a large, but wasting cash
balance in convincing both customers and shareholders  that  Nov-
ell's economic future is sound.

We  look  forward to additional constructive dialogue in the near
future.  We thank you and the Board for taking our proposals  se-
riously,  and  responding to our concerns and suggestions expedi-


/s/ Colin Lind    /s/ Greg Jackson

Colin Lind & Greg Jackson

June 6. 2005

Mr. Jack Messman 
Chairman, President, and Chief Executive Officer
Novell, Inc.  
404 Wyman Street Suite 
500 Waltham, MA 02451

Dear Jack,

Thank  you for meeting with us at your offices on May 27. We very
much appreciated discussing the  future  strategic  direction  of
Novell,  as  well as the opportunity to express our own views re-
garding maximization of shareholder value. Toward  that  end,  we
would  like  to reiterate the following proposals that we offered
at our meeting:

R&D expenses along with other  investments  should  be  curtailed
such  that  Novell's core software and services business produces
an operating profit, excluding interest income and  subsidization
from  Celerant  Consulting.   Our analysis indicates that without
Celerant and the interest income from Novell's  large  cash  bal-
ance,  the  core software and services business currently runs at
an estimated loss of $50 million. In  our  opinion,  shareholders
would be better served if each of Novell's business units were to
independently produce an operating profit. While  R&D  and  other
investments are important for future growth and profitability, we
believe that the company could achieve these goals  even  with  a
reduction in overall expenses through a more rigorous capital al-
location process.  The most critically important discipline  man-
agement  needs  to  exercise is making every business unit within
Novell profitable and self-financing, even  during  a  transition
period,  in  order to ensure the best allocation of the company's
resources. We believe it is a grave mistake to rely solely on fu-
ture  revenue growth, which may or may not materialize, to return
the core business to profitability.

Celerant Consulting should be sold or spun off to  Novell  share-
holders.   Novell  has  publicly stated that it will focus on two
key areas: identity management and SuSE Linux. We agree with man-
agement's  decision to align all business objectives around these
two very promising markets. In our experience, companies  focused
on  a few key businesses tend to execute better yielding more fa-
vorable long-term returns for shareholders. We  believe  the  di-
vestiture  of  Celerant  would increase management's attention on
its core business and provide additional value for  shareholders.
Our preliminary analysis suggests an estimated $300 million value
for Celerant.

Novell should adopt a  disciplined  return  on  invested  capital
methodology  in  evaluating  all  capital allocation projects. We
agree with management that the  opportunities  facing  Novell  in
identity  management and SuSE Linux look very promising. However,
it is unclear to us if Novell has analyzed all available  invest-
ment  opportunities, prioritized them, and then allocated capital
accordingly. In particular, the decision to not repurchase any of
the  company's  stock  in  favor of making acquisitions indicates
that there is no discernable process at  Novell  that  rationally
guides  the deployment of cash to maximize returns for sharehold-

Novell should implement and execute a $500 million share purchase
program  immediately.   As  we emphasized in our meeting, a share
repurchase program should be thought of as another opportunity to
increase  shareholder value, not as an artifact to prop up a com-
pany's stock price. Given the current low valuation of the compa-
ny's  stock,  we  find  it highly unlikely that the company could
find an acquisition or other investment  opportunity  that  would
offer a higher rate of return for Novell's shareholders than buy-
ing back stock. Our analysis suggests a $500 million share repur-
chase  program at the current market price would be more than 20%
accretive to earnings per share by the  end  of  2006.  Moreover,
with  $1  billion  of  net cash on the balance sheet, a stock buy
back program would address Novell's inefficient capital structure
as well. Even if our suggested share repurchase is implemented as
outlined above, the Company would still  have  $500  million  net
cash  on  the balance sheet and sufficient flexibility to execute
the 10 to 20 acquisitions ranging from $25 million to $50 million
in  purchase  price that you articulated in our meeting (assuming
such acquisitions with higher return potential than a  share  re-
purchase become available).

We  have  been on boards of many public companies. We clearly un-
derstand the duty of directors to ensure that the  long-term  fi-
nancial  flexibility  of  a company is not compromised. Under our
proposals not only would the Company retain $500 million  in  net
cash  on  its  balance sheet (gross of $1.1 billion) but it would
have the opportunity to create further material liquidity through
the  divestiture  of  Celerant (estimated $300 million of value).
Additionally, the enhanced operating  discipline  resulting  from
implementation  of  such  steps  should  result in an appreciated
stock price making the  outstanding  debentures  convertible  and
thereby freeing up an additional $600 million of net cash.

We  would be happy to answer any questions you may have regarding
our proposals. As significant shareholders, we  look  forward  to
working  with  you,  other members of management and the board of
directors in exploring all possible avenues to maximize value for
all shareholders.


/s/ Colin Lind                /s/ Greg Jackson

Colin Lind                    Greg Jackson