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Novell Details Microsoft Deal

Microsoft (MSFT - Get Report) will make an upfront payment to Novell (NOVL) of $240 million and spend $94 million over five years to market Linux as part of the unusual agreement announced by the two companies last week.

Microsoft has also agreed not to enter into a collaborative arrangement with another Linux distributor for three years, according to a Novell filing with the Securities and Exchange Commission on Tuesday. That provision of the agreement effectively shuts out Red Hat (RHAT), the leading distributor of Linux, and the company with the most to lose as Microsoft cozies up to Novell.

Last week, Microsoft and Novell agreed to collaborate in an effort to make it simpler for businesses to run Windows and Novell's Suse Linux on the same server in a process called "virtualization."

Microsoft will also put its considerable marketing muscle behind Novell's Linux products.

A separate provision of the agreement concerns patent and intellectual-property protection. Under that provision, Microsoft will make a net upfront payment to Novell of $108 million, and Novell will make ongoing payments of at least $40 million over five years to Microsoft.

The exact amount of those payments will depend upon the volume of revenue from sales of various Novell products.

Shares of Microsoft recently rose a penny to $28.96 after hours; Novell shares gained 29 cents to $6.79.

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