SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Novell, Inc.
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(Name of Registrant as Specified In Its Charter)
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Novell, Inc. Phone 801-861-7000
1800 South Novell Place
Provo, UT 84606 www. novell.com
March 5, 2001
[LOGO OF NOVELL]
Dear Shareholder:
It is my pleasure to invite you to attend the Annual
Meeting of Shareholders. The meeting will be held on
Tuesday, April 17, 2001, at 2 p.m. in our Silicon
Valley facility at 2211 North First Street, San Jose,
California 95131.
At the meeting we will elect eight directors, ask for
approval of an increase in the shares reserved under
the 1989 Employee Stock Purchase Plan from 18,000,000
to 24,000,000, ask for ratification of the appointment
of our auditors, consider a shareholder proposal (if
properly presented), review our performance during
fiscal 2000, and answer your questions.
The vote of every shareholder is important. Please
vote your proxy by using the Internet, telephone or by
mailing in your proxy card. Your cooperation is
greatly appreciated.
On behalf of Novell's Board of Directors and
management team, I look forward to greeting you and
our other valued shareholders who are able to attend.
Sincerely,
/s/ Eric E. Schmidt
Eric E. Schmidt
Chairman of the Board and
Chief Executive Officer
Novell, Inc.
NOVELL, INC.
Notice of the 2001 Annual Meeting of Shareholders
The 2001 Annual Meeting of Shareholders of Novell Inc. will be held on
Tuesday, April 17, 2001 at 2:00 p.m. at our Silicon Valley facility at 2211
North First Street, San Jose, California 95131, for the following purposes:
1. To elect eight directors;
2. To approve an amendment to the 1989 Employee Stock Purchase Plan to
increase the shares reserved;
3. To ratify the selection of Ernst & Young LLP as independent auditors for
Novell, Inc. for fiscal 2001;
4. To consider a shareholder proposal regarding a proposed amendment to the
Company's by-laws; and
5. To transact such other business as may properly come before the meeting.
Shareholders owning Company shares at the close of business on February 21,
2001 are entitled to attend and vote at the meeting. A complete list of these
shareholders will be available at the Company's California facility at 2211
North First Street, San Jose, California 95131, for at least ten days prior to
the meeting.
By Order of the Board of Directors,
/s/ Josephine T. Parry
Josephine T. Parry
Senior Vice President, General Counsel
and Corporate Secretary
March 5, 2001
Proxy Statement
Table of Contents
Page
Number
------
Questions and Answers................................................... 2
Share Ownership by Principal Shareholders and Management................ 5
Proposal One to be Voted On--ELECTION OF DIRECTORS...................... 6
Biographies of the Board of Directors.................................. 6
Meeting and Committees of the Board of Directors....................... 8
Vote Required and Board Recommendation................................. 9
Proposal Two to be Voted On--APPROVAL OF AN AMENDMENT TO THE 1989
EMPLOYEE STOCK PURCHASE PLAN TO INCREASE SHARES RESERVED............... 9
Proposed Amendment..................................................... 9
Description of the Purchase Plan....................................... 9
Certain Federal Income Tax Considerations.............................. 10
Participation in the Purchase Plan..................................... 11
Vote Required and Board Recommendation................................. 12
Proposal Three to be Voted On--RATIFICATION OF THE SELECTION OF ERNST &
YOUNG LLP AS INDEPENDENT AUDITORS...................................... 13
Fees Billed to the Company by Ernst & Young during Fiscal 2000......... 13
Proposal Four to be Voted On--SHAREHOLDER PROPOSAL...................... 13
Proponent's Proposal................................................... 13
Proponent's Supporting Statement....................................... 14
Novell's Response...................................................... 14
Executive Compensation.................................................. 15
Summary Compensation Table............................................. 15
Director Compensation.................................................. 16
Stock Option Grants in Fiscal Year 2000................................ 17
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Values......................................................... 18
Employment Contract, Termination of Employment and Change-in-Control
Arrangements.......................................................... 18
Report of the Compensation Committee of the Board of Directors on
Executive Compensation................................................. 21
Report of the Audit Committee of the Board of Directors................. 24
Performance Graph....................................................... 25
Certain Transactions.................................................... 27
Section 16(a) Beneficial Ownership Reporting Compliance................. 27
Deadline for Future Proposals of Shareholders........................... 27
Additional Information.................................................. 28
Other Matters........................................................... 28
Appendix................................................................ A-1
Audit Committee Charter................................................ A-1
Map to Location of Shareholders' Meeting (on the Back Cover)
SHAREHOLDERS OWNING NOVELL, INC. SHARES OF RECORD
AT THE CLOSE OF BUSINESS ON FEBRUARY 21, 2001
ARE ENTITLED TO ATTEND
AND VOTE AT THE MEETING
The Board of Directors of Novell, Inc. is soliciting proxies for the 2001
Annual Meeting of Shareholders. This Proxy Statement contains important
information for you to consider when deciding how to vote on the matters
brought before the meeting. Please read it carefully.
The Annual Meeting of Shareholders will be held on Tuesday, April 17, 2001
at 2 p.m. at our Silicon Valley facility at 2211 North First Street, San Jose,
California 95131.
The Board of Directors of Novell, Inc. set February 21, 2001 as the record
date for the meeting. Shareholders who owned the Company's Common Stock of
record at the close of business on that date are entitled to vote at and
attend the meeting, with each share entitled to one vote. There were
317,612,148 shares of the Company's Common Stock outstanding on the record
date. On the record date, the closing price of the Company's Common Stock on
the Nasdaq National Stock Market was $6.34 per share.
This Proxy Statement is being mailed on or about March 5, 2001 to
shareholders entitled to vote at the meeting.
In this Proxy Statement:
. ""We'' and "Company" mean Novell, Inc.
. Holding shares in "street name" means your Company shares are held in an
account at a brokerage firm and the stock certificates and record
ownership are not in your name.
. ""SEC'' means the Securities and Exchange Commission.
. ""Beneficial ownership" of stock is defined under various SEC rules in
different ways for different purposes. Generally it means that, although
you (or the person or entity in question) do not hold the shares of
record in your name, you do have investment or voting control (and/or an
economic or "pecuniary" interest) in the shares through an agreement,
relationship or the like.
1
QUESTIONS AND ANSWERS
Q: When and where is the shareholder meeting?
A: Novell's Annual Meeting of Shareholders is being held on Tuesday, April 17,
2001 at 2:00 p.m. at the Company's Silicon Valley facility, 2211 North
First Street, San Jose, CA 95131.
Q: Do I need a ticket to attend the shareholder meeting?
A: No, you will not need a ticket to attend the meeting.
Q: Why am I receiving this Proxy Statement and proxy card?
A: You are receiving a Proxy Statement and proxy card from us because you
owned shares of common stock in Novell, Inc. on the record date. This Proxy
Statement describes issues on which we would like you, as a shareholder, to
vote. It also gives you information on these issues so that you can make an
informed decision. The proxy card is used for voting.
Q: What is the effect of signing and returning my proxy card?
A: When you sign and return the proxy card, you appoint Eric E. Schmidt and
Dennis R. Raney as your representatives at the meeting. Dr. Schmidt and Mr.
Raney will vote your shares, as you have instructed them on the proxy card,
at the meeting. This way, your shares will be voted whether or not you
attend the Annual Meeting. Even if you plan to attend the meeting, it is a
good idea to complete, sign and return your proxy card or vote via the
Internet or telephone in advance of the meeting, just in case your plans
change. You can always vote in person at the meeting, even if you have
already sent in your proxy card.
If an issue comes up for a vote at the meeting that is not described in
this proxy statement, Dr. Schmidt and Mr. Raney will vote your shares,
under your proxy, in their discretion.
If you do not indicate on the proxy card how you want your votes cast, the
proxies (as your representatives) will vote your shares in favor of all of
management's nominees FOR director, FOR approval of an amendment to the
1989 Employee Stock Purchase Plan to increase the shares reserved, FOR
ratification of the appointment of auditors, and AGAINST the shareholder
proposal.
Q: What am I voting on?
A: You are being asked to vote on:
. the election of eight nominees to serve on the Novell Board of
Directors;
. the approval of an amendment to the 1989 Employee Stock Purchase Plan
to increase the shares reserved;
. the ratification of the appointment of our independent auditors for
fiscal year 2001; and
. a shareholder proposal regarding Novell's by-laws.
Q: How do I vote?
A: There are four ways you may vote. (Please see detailed instructions on your
proxy card.)
. Place your vote via the Internet.
Please follow the instructions that came with your Proxy Statement. If you
vote on the Internet, you do not need to mail in your proxy card.
2
OR
. Place your vote by telephone.
Please follow the instructions that came with your Proxy Statement. If you
vote by telephone, you do not need to mail in your proxy card. Shareholders
with rotary service will not be able to vote by telephone.
OR
. Mail in your completed, signed and dated proxy card.
If you return a signed card but do not provide voting instructions, your
shares will be voted: FOR the eight named nominees; FOR approval and
ratification of the adoption of an amendment to the Novell, Inc. 1989
Employee Stock Purchase Plan to increase the shares reserved for issuance
thereunder from 18,000,000 to 24,000,000; FOR ratification of the auditors;
and AGAINST the shareholder proposal.
OR
. Vote in person by attending our Annual Meeting.
We will pass out written ballots to any shareholder wanting to vote in
person at the meeting. If you hold your shares in street name, you must
request a legal proxy from your stock broker in order to vote at the
meeting.
Q: What does it mean if I receive more than one proxy card?
A: It means that you have multiple accounts at the transfer agent and/or with
stock brokers. Please sign and return all proxy cards to ensure that all
your shares are voted.
Q: What if I change my mind after I return my proxy card?
A: You may revoke your proxy (that is, cancel it) and change your vote at any
time prior to the voting at the Annual Meeting by written notice to the
Corporate Secretary.
You may also do this by:
. Signing and returning another proxy card with a later date,
. Voting via the Internet or by telephone on a date after the date on
your proxy card (your latest vote is counted,) or
. Voting in person at the meeting.
Q: Will my shares be voted if I do not sign and return my proxy card?
A: If your shares are held in street name, your brokerage firm may either vote
your shares on "routine matters" (such as election of directors) or leave
your shares un-voted. Your brokerage firm may not vote on "non-routine
matters" such as a proposal submitted by a shareholder.
We encourage you to provide instructions to your brokerage firm by
completing the proxy that they send to you. This ensures your shares will
be voted at the meeting.
Q: How many shares can be voted at the meeting?
A: As of the record date, 317,612,148 shares of Common Stock were outstanding.
Each outstanding share of Common Stock entitles the holder to one vote on
all matters covered in this proxy statement. Therefore, there are a maximum
of 317,612,148 votes that may be cast at the meeting.
3
Q: What is a "quorum"?
A: A "quorum" is the number of shares that must be present, in person or by
proxy, in order for business to be transacted at the meeting. The required
quorum for the Annual Meeting is a majority of the shares outstanding on
the record date. There must be a quorum present for the meeting to be held.
All completed and signed proxy cards, Internet votes, telephone votes,
whether representing a vote for, against, withheld, abstained or a broker
non-vote, will be counted toward the quorum.
Q: How are abstentions counted?
A: Abstentions are counted for the purposes of determining both (1) the
presence or absence of a quorum and (2) the total number of votes cast with
respect to a proposal. Abstentions thus have the same effect as a vote
"Against"on the proposals that are being presented at this meeting.
Q: What is a "broker non-vote"?
A: Under the rules that govern brokers who have record ownership of shares
that are held in "street name" for their clients, who are the beneficial
owners of the shares, brokers have the discretion to vote such shares on
routine matters, but not on non-routine matters. Thus, if the proposals to
be acted upon at the meeting include both routine and non-routine matters,
the broker may turn in a proxy card for uninstructed shares that votes
"FOR" the routine matters (such as election of directors, the adoption of
the increase in shares reserved under the Novell, Inc. 1989 Employee Stock
Purchase Plan and ratification of auditors), but expressly states that the
broker is NOT voting on the non-routine matter (such as the shareholder
proposal). The vote with respect to the shareholder proposal in this case
is referred to as a "broker non-vote."
Q: How are broker non-votes counted?
A: Broker non-votes will be counted for the purpose of determining the
presence or absence of a quorum, but will not be counted for determining
the number of votes cast. A broker non-vote will not affect the outcome on
any proposal in this Proxy Statement.
Q: What is the required vote for a proposal to pass?
A: For the proposals in this Proxy Statement, the required vote is the
affirmative (i.e. "FOR") vote of a majority of the votes cast. The votes
cast on a particular proposal includes votes FOR, AGAINST, WITHHELD, and
ABSTAINED, but does not include broker non-votes.
Q: Who is soliciting my vote?
A: This proxy solicitation is being made and paid for by Novell, Inc. In
addition to this solicitation by mail, proxies may be solicited by our
directors, officers and other employees by telephone, Internet, or fax, in
person or otherwise. Such person will not receive any additional
compensation for assisting in the solicitation. We will also request
brokerage firms, nominees, custodians and fiduciaries to forward proxy
materials to the beneficial owners. We will reimburse such persons and the
Company's transfer agent for their reasonable out-of-pocket expenses in
forwarding such material. We have also retained the services of Corporate
Investor Communications, Inc. ("CIC") to perform the broker nominee search
and to distribute proxy materials to banks, brokers, nominees and
intermediaries. CIC will also solicit voted proxies from shareholders for
the Annual Meeting. We will pay approximately $6,500, plus out-of-pocket
expenses, for these services.
Q: Where are Novell's principal executive offices located?
A: Novell's principal executive offices are located at 1800 South Novell
Place, Provo, Utah 84606.
4
SHARE OWNERSHIP BY
PRINCIPAL SHAREHOLDERS AND MANAGEMENT
This table shows how much Company Common Stock is beneficially owned by
owners of more than 5% of the outstanding shares, directors and certain
executive officers, as of January 31, 2001. There were 317,653,609 shares of
Novell Common Stock Outstanding on January 31, 2001.
AMOUNT AND NATURE OF SHARES BENEFICIALLY OWNED
Number of Total Shares Percent of
Outstanding Right to Restricted Beneficially Outstanding
Name Shares Owned(1) Acquire(2) Stock(3) Owned Shares
---- --------------- --------- ---------- ------------ -----------
Taunus Corporation(4)... 23,502,298 -- -- 23,502,298 7.4%
31 West 52nd Street
New York, NY 10019
Eric E. Schmidt......... 543,826 2,606,250 225,000 3,375,076 1.1%
John A. Young........... 10,000 206,375 -- 216,375 *
Elaine R. Bond.......... 5,000 172,625 -- 177,625 *
Reed E. Hundt........... 9,500 55,625 -- 65,125 *
William N. Joy.......... 20,000 55,625 -- 75,625 *
Jack L. Messman......... 240,000 140,625 -- 380,625 *
Richard L. Nolan........ 10,000 45,625 -- 55,625 *
Larry W. Sonsini(5)..... 13,587 140,625 -- 154,212 *
Dennis R. Raney......... 7,871 356,250 273,050 637,171 *
Stewart G. Nelson....... -- 568,562 323,050 891,612 *
Richard A. Nortz........ 17,550 436,500 120,338 574,388 *
Carl S. Ledbetter....... 30,762 78,125 78,982 187,869 *
Ronald E. Heinz, Jr.(6). 13 -- -- 13 *
All current directors
and executive officers
as a group (12
persons)............... 908,096 4,862,812 1,020,420 6,791,328 2.1%
- --------
* less than one percent
(1) Includes shares for which the named person:
. has sole voting and investment power, or
. has shared voting and investment power with his or her spouse, unless
otherwise indicated in the footnotes.
Excludes shares that:
. may be acquired through stock option exercises, or
. are restricted stock holdings.
(2) Shares that can be acquired through stock option exercises through April 1,
2001. These shares cannot be voted at the meeting unless the option is
actually exercised prior to the record date.
(3) These shares can be voted, but are subject to a vesting schedule,
forfeiture risk and other restrictions.
(4) Based upon Amendment No.1 to Schedule 13G filed February 14, 2001 by Taunus
Corporation with the Securities and Exchange Commission. Taunus Corporation
has sole voting power with respect to 12,268,286 shares and sole investment
power with respect to all shares. Taunus Corporation is a parent holding
company. The shares are held of record by its indirect wholly owned
subsidiaries, Bankers Trust Company, DB Alex.Brown LLC, Deutsche Bank
Securities Inc. and NDB Capital Markets Corporation, and by Alex.Brown
Investment Management, a limited partnership that is 50% owned by Taunus
Corporation ("ABIM"). Based upon a separate Schedule 13G filed February 15,
2001 by ABIM, an investment adviser with a principal place of business of
217 E. Redwood Street, # 1400, Baltimore, Maryland 21202, ABIM has sole
voting power with respect to 8,486,954 shares and sole dispositive power
with respect to 18,889,316 shares. ABIM beneficially owns a total of
18,909,316 shares (6.0%)
(5) Includes 6,987 shares held by WS Investments, a partnership of which Mr.
Sonsini is a general partner. Mr. Sonsini disclaims beneficial ownership of
all shares except those in which he is deemed to have a pecuniary interest.
(6) Former executive officer
5
PROPOSAL ONE
ELECTION OF DIRECTORS
Since last year's annual meeting of shareholders, the Board of Directors has
adopted a resolution decreasing the number of authorized directors from nine
to eight effective January 19, 2001. Accordingly, a Board of eight directors
is to be elected at the Annual Meeting. Directors elected at the Annual
Meeting will hold office until the next annual meeting of shareholders, and
until their successors are elected and qualified, except in the event of their
earlier death, resignation or removal. All of the nominees have indicated that
they are able and willing to serve if elected. If any nominee should become
unavailable prior to the election, the Board of Directors may recommend
another person and Dr. Schmidt and Mr. Raney, as your representatives, will
vote for such person if you have given them your proxy.
Biographies of the Board of Directors
Eric E. Schmidt
Director since 1997
Dr. Schmidt, age 45, joined the Company in March 1997 as Chief Executive
Officer. Dr. Schmidt has been Chairman of the Board and Chief Executive
Officer of the Company since April 7, 1997. From 1983 until March 1997, Dr.
Schmidt held various positions at Sun Microsystems, Inc., a supplier of
network computing solutions. These positions included Chief Technology Officer
from February 1994 to March 1997 and President of Sun Technology Enterprises
from February 1991 until February 1994. Dr. Schmidt is also a director of
Siebel Systems, Inc.
John A. Young
Director since 1995
Mr. Young, age 68, has been Vice Chairman of the Board of the Company since
April 1997. Mr. Young was acting Chairman of the Novell Board of Directors
from August 1996 until April 1997. Mr. Young retired in 1992 from his position
as Chief Executive Officer of Hewlett-Packard Company, an international
computation and measurement company, a position he held for fifteen years. He
has had a long association with competitiveness issues, having chaired
President Reagan's Commission on Industrial Competitiveness and founded the
Council on Competitiveness in 1986. Mr. Young is also a director of
Affymetrix, Ciphergen Biosystems, Inc., Chevron Corp., Lucent Technology, and
GlaxcoSmithKline plc and is a member of The Business Council.
Elaine R. Bond
Director since 1993
Ms. Bond, age 65, retired in December 1994 as a Chase Fellow and Senior
Consultant for Chase Manhattan Bank, a New York based Money Center Bank, a
position held since December 1991. Ms. Bond also served as Senior Vice
President of Systems from 1982 to 1991.
Reed E. Hundt
Director since 1998
Mr. Hundt, age 52, has served as senior advisor to McKinsey & Co., a
consulting company, since November 1998. Mr. Hundt has also been a principal
at Charles Ross Partners, LLC, a firm providing consulting and investment
advice on telecommunications, since November 1997. From November 1993 to
November 1997, Mr. Hundt was chairman of the Federal Communications
Commission. Mr. Hundt is also a director of Allegiance Telcom, Inc.,
NorthPoint Communications, Inc. and Brience, Inc.
6
William N. Joy
Director since 1998
Mr. Joy, age 46, is a cofounder of Sun Microsystems, Inc., a supplier of
network computing solutions. From 1982, Mr. Joy has held various positions at
Sun Microsystems, including Chief Scientist from December 1998 to the present
and Vice President Research from November 1995 to December 1998.
Jack L. Messman
Director since 1985
Mr. Messman, age 60, is Chief Executive Officer and Chairman of the Board of
Cambridge Technology Partners, Inc., a management consulting and eBusiness
systems integration company, since August 1999. Mr. Messman served as Chairman
of the Board and Chief Executive Officer of Union Pacific Resources Group,
Inc., an oil and gas company, from October 1996 until August 1999. Mr. Messman
previously served as President and Chief Executive Officer of Union Pacific
Resources Group, Inc. from October 1995 to October 1996. Mr. Messman is also a
director of Cambridge Technology Partners, Inc., Tandy Corporation, Safeguard
Scientific, Inc. and U.S. Data, Inc.
Richard L. Nolan
Director since 1998
Mr. Nolan, age 60, has served as William Barclay Harding Professor of
Management of Technology, Harvard Business School, an institution of higher
education, since September 1991. Mr. Nolan served as Chairman and Chief
Executive Office of Nolan, Norton and Company, an IT management consulting
company, from 1977 until 1987 when the company was acquired by KPMG. Mr. Nolan
then served as Chairman of Nolan, Norton and Company and Partner of KPMG from
1987 to 1991. Mr. Nolan is also a director of Great Atlantic and Tea Company.
Larry W. Sonsini
Director since 1988
Mr. Sonsini, age 60, has been a Member and Chairman of the Executive
Committee of Wilson Sonsini Goodrich & Rosati, Professional Corporation, a law
firm, for more than the last five years. Mr. Sonsini is also a director of
Brocade Communications Systems, Inc., Commerce One, Inc., Echelon Corporation,
Lattice Semiconductor Corporation, LSI Logic, Inc., PIXAR, Inc. and Tibco
Software, Inc.
7
Meetings and Committees of the Board of Directors
The Board of Directors held thirteen meetings, including 6 telephone
meetings, during the last fiscal year ended October 31, 2000. During the last
fiscal year, all current directors attended at least 75 percent of the
meetings of the Board and applicable committee meetings, except Director Joy
who only attended 71 percent of the meetings and Director Sonsini who only
attended 46 percent of the meetings. The Corporate Governance Committee
generally performs the functions of a nominating committee; however, during
the last fiscal year, the full Board of Directors performed such functions.
Number of
Name of Committee Meetings in
and Members Functions of the Committee Fiscal 2000
----------------- -------------------------- -----------
AUDIT Recommends selection of independent 7
auditors to the Board
Elaine R. Bond
Hans-Werner Hector(2) Reviews internal accounting controls
Jack L. Messman(1)
Richard L. Nolan(3) Confers with independent auditors and
internal accounting personnel regarding
scope of auditors' examinations
See "Report of the Audit Committee of the
Board of Directors" and Appendix, Exhibit
A--Audit Committee Charter
COMPENSATION Reviews performance of CEO and other 8
executive officers
Reed E. Hundt
William N. Joy Determines total compensation package for
CEO and other
Richard L. Nolan executive officers
John A. Young(1)
Administrator of the Company's Variable
Pay Plans
Administrator of the Company's employee
stock plans
See "Report of Compensation Committee of
the Board of Directors on Executive
Compensation"
CORPORATE GOVERNANCE Identifies nominees and establishes 0(4)
qualifications for Board
Reed E. Hundt(1) membership
Jack L. Messman
Richard L. Nolan Receives and reviews shareholder
suggestions for nominees
John A. Young for Board membership(3)
Reviews procedures for CEO succession and
director retirement
Establishes general guidelines for the
operation of the Board
- --------
(1) Chairperson
(2) Director Hector resigned from the Board of Directors and the committees
thereof on December 31, 2000.
(3) Director Nolan appointed February 22, 2001.
(4) The full Board of Directors served the function of a corporate
governance/nominating committee in fiscal 2000. Any suggestion for a
nominee should be submitted to the Secretary of the Company at the
Company's principal executive offices. Such potential nominees will be
reviewed by the Corporate Governance Committee in accordance with its
established procedures.
8
Vote Required and Board Recommendation
The eight nominees for director receiving the highest number of affirmative
votes shall be elected as directors. Votes withheld from any director are
counted for purposes of determining the presence or absence of a quorum for
the transaction of business, but have no other legal effect under Delaware
law. Shareholders do not have the right to cumulate their votes in the
election of directors.
The Board of Directors recommends that shareholders vote FOR the slate of
nominees set forth above.
PROPOSAL TWO
APPROVAL OF AN AMENDMENT TO THE 1989 EMPLOYEE STOCK PURCHASE PLAN TO INCREASE
THE SHARES RESERVED
Proposed Amendment
On November 14, 2000, the Board of Directors of the Company approved an
amendment to the Novell, Inc. 1989 Employee Stock Purchase Plan (the "Purchase
Plan") to increase the number of shares available for issuance under the
Purchase Plan from eighteen million (18,000,000) to twenty four million
(24,000,000). At the 2001 Annual Meeting, the shareholders are being asked to
approve such increase in shares under the Purchase Plan.
The Board of Directors believes that the Purchase Plan encourages and
assists Novell employees to acquire an equity interest in the Company, helps
align employee interests with other shareholders, helps provide for the future
financial security of Novell employees and fosters good employee relations.
Therefore, the Purchase Plan may be helpful in attracting, retaining and
motivating employees. The terms of the Purchase Plan are described below. The
Company will furnish a copy of the amended Purchase Plan to any shareholder
upon written request to the Corporate Secretary.
During 1997, the Financial Accounting Standards Board issued Emerging Issues
Task Force No. 97-12, "Accounting for Increased Share Authorizations in an IRS
Section 423 Employee Stock Purchase Plan under APB Opinion No. 25, Accounting
for Stock Issued to Employees" ("EITF 97-12"). EITF 97-12 requires that
companies have a sufficient number of shares, approved by shareholders, at the
beginning of each offering period. In the event that additional shares are
needed during the offering period, a compensation expense to the Company could
result. Therefore, the Company must plan farther ahead in obtaining
shareholder approval of a sufficient number of shares to fund future offering
periods, especially offering periods that are scheduled to begin prior to the
2002 Shareholder Meeting.
Description of Purchase Plan
The following is a brief summary of the material features of the Purchase
Plan.
Eligibility. Any person who is employed by Novell (or by any of its
designated subsidiaries) for at least twenty hours per week and more than five
months per calendar year is eligible to participate in the Purchase Plan
subject to certain limitations imposed by Section 423(b) of the Internal
Revenue Code of 1986, as amended (the "Code"). No person who owns or holds
options to purchase, or who, as a result of participation in the Purchase
Plan, would own or hold options to purchase five percent (5%) or more of the
outstanding stock of the Company is eligible to participate in the Purchase
Plan. As of January 31, 2001, approximately 4,800 employees were eligible to
participate.
Participation in an Offering. Each offering of Common Stock under the
Purchase Plan ("Offering") will be for a period of approximately six months.
The commencement of each Offering under the Purchase Plan will start at the
beginning of the Company's regular payroll periods that falls closest to
November 1 and May 1 of
9
each year. To participate in the Purchase Plan, eligible employees must
authorize payroll deductions pursuant to the Purchase Plan. Such payroll
deductions may not exceed ten percent (10%) of regular base salary (including
sales commissions that are not in excess of target income). Once an employee
becomes a participant in the Purchase Plan, the employee will automatically
participate in each successive Offering until such time as the employee
withdraws from the Purchase Plan or the employee's employment terminates. As
of January 31, 2000 there were approximately 2,300 participants in the
Purchase Plan.
Purchase Price. The purchase price per share of Common Stock under the
Purchase Plan will be equal to 85% of the lesser of the fair market value of
the Common Stock on (i) the first day of the Offering or (ii) the last day of
the Offering. The fair market value of the Common Stock on these measurement
dates will be equal to the closing bid price per share as reported on the
Nasdaq National Market.
Shares Purchased. The number of shares of the Common Stock a participant
purchases in each Offering is determined by dividing the total amount of
payroll deductions withheld from the participant's paychecks during the
Offering by the purchase price. In any six-month Offering period, no
participant may purchase more than $12,500 worth of stock (determined based on
the fair market value of the shares at the time the option is granted). At
Novell's option, any cash not applied to the purchase of fractional shares
will either be returned to the participant or applied toward the purchase of
shares in subsequent Offerings.
Withdrawal. A participant may withdraw from an Offering at any time without
affecting his or her eligibility to participate in future Offerings. However,
once a participant withdraws from an Offering, that participant may not
subsequently participate in the same Offering.
Administration and Amendment. The Purchase Plan is to be administered, at
the Company's expense, by the Board of Directors or a committee appointed by
the Board, and is currently being administered by the Board's Compensation
Committee. All questions of interpretation or application of the Purchase Plan
are determined in the sole discretion of the committee, and its decisions are
final and binding upon all participants. Members of the Board of Directors or
its committee who are eligible employees are permitted to participate in the
Purchase Plan but may not vote on any matters that affect the administration
of the Purchase Plan. No member of the Board who is eligible to participate in
the Purchase Plan may be a member of the committee appointed to administer the
Purchase Plan. The committee may at any time amend or terminate the Purchase
Plan, however, such termination or amendment may not make any changes in an
option previously granted that would adversely affect the rights of any
participant. No amendment may be made to the Purchase Plan without the
approval or ratification of the shareholders of the Company if such amendment
would require shareholder approval under Section 423 of the Code, or any other
applicable law or regulation.
Certain Federal Income Tax Considerations
The following summary is intended only as a general guide as to federal
income tax consequences under current law of participation in the Purchase
Plan and does not attempt to describe all potential tax consequences. Tax
consequences are subject to change and a taxpayer's particular situation may
be such that some variation of the described rules is applicable. Accordingly,
participants have been advised to consult their own tax advisors with respect
to the tax consequences of participating in the Purchase Plan.
The Purchase Plan is intended to be an "employee stock purchase plan" within
the meaning of Section 423 of the Code. Under this type of plan, no taxable
income will be reportable by a participant, and no deductions will be
allowable to the Company, due to the grant of the option at the beginning of
an Offering or the purchase of shares at the end of an Offering. A participant
will, however, recognize taxable income in the year in which the shares
purchased under the Purchase Plan are sold or otherwise made the subject of
disposition.
A sale or other disposition of the purchase shares will be a disqualifying
disposition if it is made within two years after the date the option is
granted (i.e., the commencement date of the Offering to which the option
pertains).
10
If the participant makes a disqualifying disposition of the purchased
shares, the Company will be entitled to an income tax deduction for the
taxable year of the Company in which the disposition occurs. The income tax
deduction may be limited by the deductibility of compensation paid to certain
officers of the Company under Section 162(m) of the Code. To the extent
allowed, the Company's tax deduction is generally measured as the amount by
which the fair market value of the shares on the date of purchase exceeds the
purchase price. In no other instance will the Company be allowed a deduction
with respect to the participant's disposition of the purchased shares.
If the participant disposes of the shares after satisfying the holding
period outlined above (a qualifying disposition), then the participant will
realize ordinary income in the year of disposition equal to the lesser of
(i) the amount by which the fair market value of the shares on the date of
disposition exceeds the purchase price or (ii) 15% of the fair market value of
the shares on the day the option relating to the disposed shares was first
granted. This amount of ordinary income will be added to the basis in the
shares and any gain (or loss) recognized upon the disposition will be a long-
term capital gain (or loss). Currently, the long-term capital gains rate is
capped at 20%.
If the shares are disposed of in a disqualifying disposition, the excess of
the fair market value of the shares on the date of purchase over the purchase
price will be treated as ordinary income to the participant at the time of
such disposition. Even if the shares are disposed of for less than their fair
market value measured as of the date of purchase, the same amount of ordinary
income is attributed to a participant. In this case a capital loss is
recognized equal to the difference between the sales price and the fair market
value of the shares on such date of the purchase.
Participation in the Purchase Plan
Participation in the Purchase Plan is open to all employees of the Company
who work 20 hours or more during a normal work week and more than five months
per calendar year, including the Named Officers. Participation is voluntary
and is dependent on each eligible employee's election to participate and their
designated payroll deductions. Future purchases under the Purchase Plan are
not determinable. No purchases have been made under the Purchase Plan since
the amendments described above. As of the date of this proxy statement,
13,440,369 shares of Common Stock have been acquired by employees of the
Company through participation in the Purchase Plan. The Company has received
approximately $140 million from the purchase of stock by employees through the
Purchase Plan. Non-employee directors are not eligible to participate in the
Purchase Plan.
11
The following table sets forth information with respect to purchases of
Common Stock by Named Officers, to all current executive officers as a group
and to all other employees as group during the last fiscal year ended October
31, 2000:
AMENDED PLAN BENEFITS
1989 Employee Stock Purchase Plan
Number of Shares
Purchased under Dollar
Name of Individual or Purchase Plan Value
Identity of Group and Position (#) ($)(1)
------------------------------ ---------------- ----------
Eric E. Schmidt..................................... 1,374 $ 5,129
Chairman of the Board and Chief Executive Officer
Dennis R. Raney..................................... 1,351 4,995
Executive Vice President, Chief Financial Officer
Stewart G. Nelson................................... -- --
Executive Vice President, Chief Operations Officer
Richard A. Nortz.................................... 1,374 5,129
Senior Vice President Worldwide Sales
Carl S. Ledbetter................................... 1,374 5,129
Senior Vice President, Chief Technology Officer
Ronald E. Heinz, Jr. (2)............................ 749 4,356
Former Senior Vice President Worldwide Sales
All current executive officers as a group (12
persons)........................................... 5,473 25,511
All other employees as a group...................... 1,538,083 $4,847,879
- --------
(1) Fair market value on date of purchase, minus the purchase price
(2) Former executive officer
Vote Required and Board Recommendation
Ratification and approval of the increase in shares reserved under the
Purchase Plan requires the affirmative vote of a majority of the votes cast.
Accordingly, abstentions will have the same effect as votes against this
proposal and broker non-votes will not affect the outcome of voting on this
proposal.
The Board of Directors believes that the Purchase Plan encourages and
assists employees of Novell to acquire an equity interest in the Company,
helps align employee interests with other shareholders, helps provide for the
future financial security of Novell employees and fosters good employee
relations. The opportunity for employees to acquire shares pursuant to the
Purchase Plan will be important to attract and retain qualified employees who
are essential to the success of the Company.
The Board of Directors recommends that shareholders vote "FOR" the approval
of the amendment to the Company's 1989 Employee Stock Purchase Plan.
12
PROPOSAL THREE
RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP
AS INDEPENDENT AUDITORS
The Audit Committee, composed entirely of non-employee directors,
recommended to the Board of Directors that Ernst & Young LLP ("Ernst & Young")
be appointed as independent auditors. As our independent auditors, Ernst &
Young would audit our consolidated financial statements for fiscal 2001 and
perform audit-related services and consultation in connection with various
accounting and financial reporting matters. Ernst & Young also performs
certain non-audit services for the Company.
The Board approved the selection of Ernst & Young as independent auditors
for fiscal 2001 and is asking the shareholders for ratification of their
selection. Shareholder ratification is not required by the Company's by-laws
or other applicable legal requirement. However, the Board is submitting the
selection of Ernst & Young to the shareholders for ratification as a matter of
good corporate practice. The affirmative vote of a majority of the votes cast
is required for ratification. If the shareholders do not approve the selection
of Ernst & Young, the Audit Committee and the Board will reconsider the
appointment.
Ernst & Young or its predecessors have audited the consolidated financial
statements of the Company since 1987.
Ernst & Young will have a representative present at the Annual Meeting who
will be available to respond to appropriate questions. The representative will
also have the opportunity to make a statement if he or she desires to do so.
Fees billed to the Company by Ernst & Young during fiscal 2000
Fees billed to the Company by Ernst & Young during fiscal year 2000 for the
last annual audit were $809,000. All other fees billed to the Company by Ernst
& Young during the fiscal year 2000 were $4,800,000, including audit related
services of $3,500,000 and non audit related services of $1,300,000.
The Board of Directors recommends a vote "FOR" the ratification of the
selection of Ernst & Young LLP as independent auditors.
PROPOSAL FOUR
The Board Recommends a Vote AGAINST the Proposal
SHAREHOLDER PROPOSAL
The Company receives many suggestions from shareholders, some as formal
shareholder proposal. All of the suggestions that the Company receives are
given careful attention, and the Company has adopted a number of suggestions
made by shareholders.
The Board of Directors and Management of the Company disagree strongly with
the adoption of the resolution proposed below by Martin Glotzer (the
"Shareholder Proposal") and ask shareholders to read carefully the Company's
response to Mr. Glotzer's proposal.
The author and proponent of the following shareholder resolution, Martin
Glotzer, 7061 N. Kedzie Ave., Suite 301, Chicago, Illinois 60645, has
requested that the Company include the following proposal in its proxy
statement. The proponent owns 312 shares of the Company's Common Stock as of
the Record Date. Mr. Glotzer's proposal, as contained in his letter to the
Company, is quoted verbatim below:
Proponent's Proposal
"RESOLVED: That the stockholders of Novell, Inc. assembled in Annual Meeting
in person and by proxy, hereby request that the by-laws be amended to read:
Any two or more offices, may be held by the same person,
13
except that the Chairman and President and the Corporate Secretary and the
Treasurer shall not be held by the same person.
Proponent's Supporting Statement
Believe this will be a smarter division at the top. Corporations are too big
for any one man to hold the office of Chairman and President. One should
should be Chairman and Chief Executive Officer and another the President and
Chief Operating Officer.
Believe splitting the job of Chairman-President, as I suggest, makes for
better decentralization of management and more shareholder protection in
administration of business over a long period of time.
If you agree, please mark your proxy for this resolution, otherwise it is
automatically cast against it, unless you have marked to abstain."
Novell's Response
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE AGAINST THIS
PROPOSAL FOR THE FOLLOWING REASONS:
The Board of Directors believes that the interests of Novell and its
stockholders are best served by having the President and Chief Executive
Officer serve as Chairman of the Board of Directors. Currently the Company has
one person filling the position of Chairman of the Board, President, and Chief
Executive Officer. Another individual is Executive Vice President and Chief
Operating Officer. However, assignment of these roles can and do change
depending on the needs of the corporation and the talent and experience of the
individuals. The Board of Directors is in the best position to determine how
to organize and staff the officers and other senior management positions of
the company.
The proponent seems to imply that the independence of our Board of Directors
is compromised by having the President and Chief Executive Officer also serve
as Chairman of the Board. The Board does not believe this to be the case,
particularly given that six of the eight current members of the Board are
independent, unaffiliated directors, and all three committees of the Board--
Audit Committee, Compensation Committee and the Corporate Governance
Committee--are comprised entirely of independent, unaffiliated directors. As
noted in the Compensation Committee Report in this Proxy Statement, the
Compensation Committee periodically reviews the Chairman and Chief Executive
Officer's compensation. In addition, no member of management is present during
the review of his or her performance and salary.
The independent insight, advice and counsel that each outside Director
contributes to Novell would not be enhanced, at this time, by separating the
office of Chairman and President. Contrary to the implications of the
proposal, the Corporation's by-laws neither provide the Chairman with special
oversight responsibilities, nor do they insulate an executive Chairman from
Board oversight. The by-laws simply provide that the Chairman presides at
meetings of the Board and stockholders.
The Board believes that Novell and its stockholders benefit from the full-
time attention of a Chairman who is also the President and Chief Executive
Officer. The President and Chief Executive Officer, as the sole employee
Director, is uniquely positioned to share with and prioritize for the Board
those issues facing management and the Company that require the attention of
the Board. Through a Chairman who is also President and Chief Executive
Officer of the Corporation, the Board believes it not only is kept very well-
informed about Novell and the technology industry, but that it can more
effectively hold management accountable.
In addition, Novell does not currently, nor has it in the past, had the same
person serving as Corporate Secretary and Treasurer. However, the occupants of
these positions should be determined by the Board of Directors not mandated by
the by-laws.
Accordingly, the Board believes the existing structure supports the Board's
exercise of its oversight responsibilities and does not compromise the
independence of the Board of Directors. It would be very unwise to mandate in
the by-laws how any senior management position is to be filled. The Board of
Directors should have the flexibility to determine the staffing and the office
titles to achieve the optimum results for the shareholders.
FOR THE REASONS STATED ABOVE, THE BOARD OF DIRECTORS RECOMMENDS A VOTE
AGAINST THIS PROPOSAL
14
EXECUTIVE COMPENSATION
Summary Compensation Table
The table below shows, for the last three fiscal years, compensation paid to
the Company's Chief Executive Officer and the four other most highly
compensated executive officers during fiscal 2000 (based on salary and bonus)
serving at fiscal year end. The table also lists one former executive officer
who would have been included had he still been an executive officer of the
Company at fiscal 2000 year end. We refer to all of these officers and the
former officers as the "Named Officers".
Long-Term Compensation
Annual Compensation(1) Awards
----------------------------------- -----------------------
Other Securities
Annual Restricted Underlying All Other
Name and Principal Salary Bonus Compensation Stock Awards Options Compensation
Position Year ($) ($)(2) ($)(3) ($)(4) (#) ($)(5)
------------------ ---- -------- -------- ------------ ------------ ---------- ------------
Eric E. Schmidt......... 2000 $602,308 $399,495 $103,216 -- 1,000,000 $ 27,079
Chairman of the Board
and 1999 $602,308 $600,540 -- -- 500,000 $ 26,226
Chief Executive Officer 1998 $602,308 $619,420 -- -- -- $ 10,425
Dennis R. Raney(6)...... 2000 $420,360 $202,071 -- $1,638,937 400,000 $ 2,761
Executive Vice
President and 1999 $401,539 $257,819 -- -- 250,000 $ 5,190
Chief Financial Officer 1998 $150,431 $170,500 -- -- 300,000 $ 2,984
Stewart G. Nelson....... 2000 $414,086 $201,485 $ 61,372 $2,315,187 250,000 $ 5,845
Executive Vice
President and 1999 $351,345 $212,543 -- -- 350,000 $ 4,838
Chief Operations
Officer 1998 $230,791 $305,687 -- -- 400,000 $ 6,400
Richard A. Nortz........ 2000 $345,072 $145,320 -- $1,137,957 200,000 $ 16,070
Senior Vice President, 1999 $326,250 $201,930 -- -- 275,000 $ 15,282
Worldwide Sales 1998 $301,153 $192,240 -- -- 200,000 $ 19,057
Carl S. Ledbetter(7).... 2000 $351,346 $141,345 -- $ 173,101 50,000 $ 13,215
Senior Vice President
and 1999 -- -- -- $1,671,250 250,000 --
Chief Technology
Officer
Ronald E. Heinz, Jr.(8). 2000 $221,034 $ 52,442 -- -- -- $575,854
Former Senior Vice
President, 1999 $376,443 $215,319 -- -- 300,000 $ 16,944
Worldwide Sales 1998 $351,345 $213,051 -- -- 200,000 $ 8,910
- --------
(1) Compensation deferred at the election of the executive, pursuant to the
Novell, Inc. Retirement and Savings Plan and the Deferred Compensation
Plan, is included in the year earned.
(2) Cash bonuses for services rendered in fiscal years 2000, 1999 and 1998
have been listed in the year earned. Bonuses were calculated based on the
operating results of the Company and performance of the individuals.
Bonuses earned in all years were paid quarterly with fiscal fourth quarter
bonuses paid in the following fiscal year. For fiscal year 2000, no
quarterly bonus was paid for the second quarter. See "Report of the
Compensation Committee of the Board of Directors on Executive
Compensation". Mr. Nelson also participated in a retention program prior
to becoming an executive officer, $117,500 from the program was paid in
fiscal 1998.
(3) No Named Officer received perquisites in an amount greater than the lesser
of (i) $50,000 or (ii) 10 percent of such Named Officer's total salary
plus bonus, except Dr. Schmidt and Mr. Nelson. Dr. Schmidt's perquisites
included $31,304 for financial planning, $14,088 for executive physical,
$21,548 for personal use of the corporate jet, and $36,276 for one week of
payment-in-lieu of flexible time off. Mr. Nelson's perquisites included
$38,296 for financial planning and $23,076 for one week of payment-in-lieu
of flexible time off.
(4) Restricted stock awards are valued at the Company's closing price on the
date of grant less the purchase price. Officers have the right to vote the
shares and to receive cash dividends, if any. The dividends have the same
vesting restrictions as the shares.
As of fiscal 2000 year-end, Dr. Schmidt had 225,000 unvested restricted
shares with a value of $2,025,000. As of fiscal 2000 year-end, the other
Named Officers have the following unvested shares and values: Mr. Raney,
172,050 shares, value $1,548,450; Mr. Nelson, 223,050 shares, value
$2,007,450; Mr. Nortz, 120,338 shares, valve $1,083,042; and Mr. Ledbetter,
78,983 shares, value $710,847.
15
(5) The stated amounts for all Named Officers except Mr. Heinz are Company
matching contributions to the Novell, Inc. Retirement and Savings Plan and
the Deferred Compensation Plan. Mr. Heinz's amount for fiscal 2000 includes
(i) a payment of $564,666 based on the terms of his separation agreement
and (ii) $11,188 of Company matching contributions.
(6) Mr. Raney became an executive officer in April 1998.
(7) Mr. Ledbetter joined the Company on October 25, 1999.
(8) Mr. Heinz resigned from all Company positions in July 2000.
Director Compensation
Non-employee Directors of the Company receive the following compensation:
. Annual retainer
--$100,000 for vice chairperson
--$20,000 for other non-employee directors
--Additional $2,500 annual retainer for service as a committee
chairperson
. Meeting fees
--$1,200 for each Board meeting attended
--$1,000 for each committee meeting attended
. Reimbursement for their expenses incurred in attending meetings
. Participation in the director option plan (described below)
The Company's Stock Option Plan for Non-Employee Directors ("the Director
Plan") allows for each non-employee Director who joins the Board to
automatically receive options to purchase 30,000 shares vesting 25 percent
annually over four years. In addition, each current non-employee Director
receives an annual grant of an option to purchase 15,000 shares vesting 50
percent annually over two years. All options are non-statutory options, have an
exercise price equal to the fair market value on the date of grant and have a
term of ten years. Upon a change in control, options granted under the Director
Plan become exercisable in full by a non-employee Director if within one year
of such change in control the non-employee Director ceases for any reason to be
a member of the Board.
Upon forced retirement at age 70, options granted under the Director Plan
become fully vested and the Director has one year in which to exercise.
All Directors were each granted an option to purchase 15,000 shares under the
Director Plan on April 11, 2000 having an exercise price of $22.50 per share.
On April 11, 2000, Directors Bond, Hector, Joy, Messman and Nolan were also
granted common stock equivalent shares. Prior to April 11, 2000, each Director
designated the amount of their annual retainer that would be deferred through
the purchase of common stock equivalents and what date in the future such
common stock equivalents would be paid out in shares of common stock. Directors
Hector, Joy, Messman and Nolan deferred all of their retainer; Directors
Hector, Joy and Nolan acquired 888 common stock equivalents and director
Messman acquired 1,000 common stock equivalents. Director Bond deferred 50
percent of her retainer and acquired 444 common stock equivalents. Upon
Director Hector's resignation on December 31, 2000, his 888 common stock
equivalents were converted to shares of common stock.
16
On October 31, 2000, fiscal 2000 year end, options to purchase 681,500 shares
of the Company's Common Stock under the Director Plan were outstanding at a
weighted average exercise price of $19.49 per share.
Novell has a Directors' Charitable Award Program (the "Charitable Program")
to acknowledge the service of directors to the Company and enhance indirectly
the ability of the Company to attract and retain directors of the highest
caliber. All members of the Board are eligible for the Charitable Program,
subject to vesting requirements. The Charitable Program is funded by life
insurance policies purchased by the Company, which provide for a $1 million
death benefit to participating directors. Upon the death of a participating
director, the Company will donate $1,000,000 (paid in ten equal annual
installments) to non-profit organizations recommended by the director.
Individual directors derive no financial benefit from the Charitable Program
since all available insurance proceeds and tax deductions accrue solely to the
Company. The aggregate cost to the Company of the life insurance premiums paid
during fiscal 2000 to fund the Charitable Program was $202,000.
Stock Option Grants in Fiscal Year 2000
This table shows stock option grants during fiscal 2000 to the Named
Officers. No stock appreciation rights have been granted by the Company to the
Named Officers.
Potential Realizable
Value
at Assumed Annual
Rates
of Stock Price
Appreciation for
Individual Grants Option Term(1)
----------------------------------------- ----------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees Exercise
Granted in Fiscal Price Expiration
Name (#)(2) Year(3) ($/Sh) Date 5% ($) 10% ($)
- ---- ---------- ---------- -------- ---------- ---------- -----------
Eric E. Schmidt......... 500,000 1.30% $18.44 11/12/09 $5,798,408 $14,684,305
500,000 1.30% $10.63 5/4/10 $3,342,575 $ 8,470,741
Dennis R. Raney......... 100,000 0.26% $34.07 2/24/10 $2,142,644 $ 5,429,881
300,000 0.79% $10.63 5/4/10 $2,005,545 $ 5,082,445
Stewart G. Nelson....... 250,000 0.66% $10.63 5/4/10 $1,671,287 $ 4,235,371
Richard A. Nortz........ 100,000 0.26% $10.63 5/4/10 $ 668,515 $ 1,694,148
100,000 0.26% $ 9.07 6/12/10 $ 570,407 $ 1,445,524
Carl S. Ledbetter....... 50,000 0.13% $10.63 5/4/10 $ 334,257 $ 847,074
Ronald E. Heinz, Jr. ... -- -- -- -- -- --
- --------
(1) Potential realizable value assumes the stock price will appreciate at the
annual rates shown. These rates are compounded annually from the date of
grant until the end of the 10-year term of the option. The potential
realizable value is:
. the potential stock price per share at the end of the term based on the
5 percent and 10 percent assumed appreciation rates
. less the exercise price per share
. times the number of shares subject to the option
These numbers are calculated based on the requirements of the Securities
and Exchange Commission and do not reflect the Company's estimate of future
stock price growth.
(2) A committee of the Board of Directors administrators the Novell option
plans. The committee determines the eligibility of employees, directors and
consultants, the number of shares to be subject to the options granted and
the terms of such grants. All options shown in the table have exercise
prices equal to the fair market value on date of grant, vest over 48 months
and have a term of ten years. In the event of a change in control, except
as otherwise determined by the Board prior to the occurrence of such change
in control, all options shall be fully exercisable and vested and shall be
terminated in exchange for a net cash payment. In
17
the event of a merger of the Company or the sale of substantially all of the
assets of the Company that does not constitute a change in control, the
acquiring company shall assume the unvested options. The Board of Directors
can accelerate unvested options if the acquiring company does not assume the
options. The plans provide for various methods of exercise. The Company
currently allows for cash, cashier's check or cashless exercise.
(3) Options to purchase a total of approximately 38 million shares were granted
to employees in fiscal 2000.
(4) Former executive officer.
On January 31, 2001, all employees (other than executive officers) who had
not received a stock option grant within the past six months and one day were
offered the opportunity to have their outstanding options, with an exercise
price greater than $10 per share, cancelled. Upon cancellation, the employee
received a promise to regrant the same number of options, with the same terms,
six months and one day in the future at the then fair market value. Although
the new option will have the same vesting as the cancelled option, it will not
be exercisable until February 17, 2002. Options to purchase a total of 13.6
million shares having a weighted average exercise price of $26.82 per share
were cancelled in connection with this option exchange. A like number of
options will be granted on August 17, 2001 at an exercise price equal to the
fair market value on that date.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
This table shows information regarding stock option exercises during fiscal
2000 and the number and value of options held at 2000 fiscal year end by the
Named Officers.
Number of Securities Underlying Value of Unexercised
Shares Unexercised In-the-Money Options
Acquired Value Options at Fiscal Year End (#) at Fiscal Year End(1)($)
on Exercise Realized --------------------------------- -------------------------
Name (#) ($)(2) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- --------------- ---------------- ----------- -------------
Eric E. Schmidt......... -- -- 2,158,333 2,091,667 $862,239 $340,885
Dennis R. Raney......... -- -- 262,500 687,500 -- --
Stewart G. Nelson....... -- -- 470,500 646,500 $294,680 $ 66,685
Richard A. Nortz........ -- -- 346,125 527,875 $136,969 $ 45,375
Carl S. Ledbetter....... -- -- 62,500 237,500 -- --
Ronald E. Heinz, Jr.(3). 18,650 $79,558 140,625 -- $105,968 --
- --------
(1) Value of unexercised in-the-money options is
. the fair market value of the Company's Common Stock at fiscal 2000 year
end ($9.00 per share)
. less the option exercise price per share of in-the-money options
. times the number of shares subject to the options.
(2) Value realized upon exercise is:
. the fair market value of the Company's Common Stock on the date of
exercise
. less the option exercise price per share
. times the number of shares exercised.
(3) Former executive officer.
Employment Contract, Termination of Employment and Change-in-Control
Arrangements
On March 18, 1997, the Company entered into an employment contract with Dr.
Eric E. Schmidt whereby Dr. Schmidt agreed to become Chief Executive Officer
and Chairman of the Board of Novell on April 7, 1997. During the interim period
from March 18, 1997 until April 7, 1997, Dr. Schmidt agreed to work as an
employee of Novell on a part-time basis.
18
Pursuant to the employment contract, Dr. Schmidt's annual base salary was
set at $600,000 and, starting in fiscal 1998, Dr. Schmidt was to participate
in the Incentive Bonus Plan. Based upon the accomplishment of certain
performance goals, Dr. Schmidt is eligible to earn a bonus of 100 percent of
his base salary plus additional bonus compensation if such goals are exceeded.
Upon entering into the employment contract, Dr. Schmidt was granted, at fair
market value, a non-qualified stock option to purchase 2,750,000 shares of
Novell Common Stock at an exercise price of $8.5625 per share. The options
vested 20 percent on the first year anniversary (March 18, 1998) and
thereafter continue vesting monthly at a rate of 1/48 per month over the next
four years. The vesting is conditioned upon his continued employment or
consulting relationship with Novell. Dr. Schmidt was also granted the right to
purchase 900,000 shares of restricted stock at a purchase price of $9,000. The
shares vest annually, in accordance with the following schedule: 30 percent on
the first anniversary, 25 percent on the second anniversary, 20 percent on the
third anniversary, 15 percent on the fourth anniversary and 10 percent on the
fifth anniversary of the grant date. The vesting is conditioned upon Dr.
Schmidt's continued employment or consulting relationship with Novell as of
the vesting dates. This restricted stock grant was provided by Novell due in
part to Dr. Schmidt's forfeiture of in-the-money unvested stock options held
by him at his prior employment.
If Novell terminates Dr. Schmidt without cause or if a constructive
termination should occur, he shall be entitled to receive the following: (i)
an amount equal to his annual base salary and target bonus at time of
termination; (ii) an amount equal to the cost of employee benefits for one
year; (iii) accelerated vesting of one year for all stock options; and (iv)
waiving of repurchase rights on any remaining unvested restricted stock.
In the event of termination without cause due to a change in control or
constructive termination within two months before or one year after a change
in control, Dr. Schmidt will receive the following: (i) an amount equal to
twice his annual base salary and target bonus at time of termination; (ii) an
amount equal to the cost of employee benefits for 18 months; (iii) accelerated
vesting of one year for all stock options; and (iv) waiving of repurchase
rights on restricted stock as to vesting of the greater of (a) the number of
shares that would have vested within one year after Dr. Schmidt's termination
date, or (b) one-half of the number of shares not vested on his termination
date.
On November 1, 2000, Mr. Nelson was promoted to Executive Vice President,
Chief Operations Officer and the Company entered into an employment agreement
with Mr. Nelson. Pursuant to the terms of the employment agreement, Mr.
Nelson's annual base salary was set at $500,000 and he was to participate in
the Incentive Bonus Plan, where, based upon the accomplishment of certain
performance goals, Mr. Nelson is eligible to earn a bonus of 75 percent of his
base salary. Upon entering into his employment agreement, Mr. Nelson was
granted the right to purchase 100,000 shares of restricted stock at a purchase
price of $10,000. The shares vest annually, in accordance with the following
schedule: 40 percent on the first anniversary, 30 percent on the second and
third anniversary of the grant date. The vesting is conditioned upon Mr.
Nelson's continued employment or consulting relationship with Novell as of the
vesting dates.
If Novell terminates Mr. Nelson without cause or if he is involuntarily
terminated following a change of control, he shall be entitled to receive the
following: (i) an amount equal to three times annual base salary and target
bonus at time of termination; (ii) an amount equal to the cost of COBRA
benefits for a period of not less then three years; (iii) accelerated vesting
of two years for all stock options; and (iv) a waiver of Novell's repurchase
rights on any remaining unvested restricted stock.
In the event of Mr. Nelson's death or disability no severance payments will
be made, however he would be entitled to (i) accelerated vesting of twelve
months for all stock options and (ii) a waiver of Novell's repurchase rights
as to the number of restricted shares that would vest on the next anniversary.
In January 1998, all executive officers, including the Named Officers, but
excluding Dr. Schmidt, who were under employment contracts, signed a Senior
Management Severance Plan (the "Severance Plan") Agreement. Under the terms of
the Severance Plan, their prior contract was terminated. Mr. Raney and Mr.
Ledbetter entered
19
into the Severance Plan Agreement with the Company at their time of employment
in June 1998 and October 1999, respectively. On November 1, 2000, Mr. Nelson,
upon entering into his employee agreement is no longer eligible for payment
under the Severance Plan. The Severance Plan provides each participant, in the
event of involuntary termination by the Company, benefits of (i) 150 percent
of their base annual salary, (ii) payment to cover 18 months of COBRA
continuation, (iii) accelerated vesting of the portion of their stock options,
if any, that would have vested within one year, and (iv) a waiver of Novell's
repurchase rights as to the number of shares, if any, of Restricted Stock that
would vest on the next anniversary of the Restricted Stock grant date.
During fiscal 2000, the Board of Directors amended the Severance Plan to
include the following benefits, in the event of an involuntary termination
after a change-in-control: (i) three times their base salary and target bonus,
(ii) payment to cover 36 months of COBRA continuation, (iii) accelerated
vesting of the portion of their stock options, if any, that would have vested
within two years, and (iv) a waiver of Novell's repurchase rights as to the
number of shares, if any, of Restricted Stock that would vest on the next two
anniversaries of the Restricted Stock grant date.
In the event of a change in control, the Board may amend the Severance Plan
but participants will not receive less benefits than stated above. "Change in
control" is defined in the contract as: (i) the Company sells or otherwise
disposes of all or substantially all of its assets, (ii) the Company merges or
consolidates with another company where the shareholders of Novell immediately
after the transaction do not hold at least 50 percent of the voting power of
the surviving entity or (iii) any person or entity including any "person" as
defined by Section 13(d)(3) of Securities Exchange Act, as amended, becomes
the beneficial owner of Common Stock of Novell represented by 50 percent or
more of the combined voting power (excluding any persons who are now officers
of Novell).
At Mr. Heinz's termination from the Company in July 2000, he received
benefits under the Severance Plan.
20
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
Membership of the Committee
The Compensation Committee of the Board of Directors (the "Committee") is
composed of four non-employee directors: Mr. Young (Chairperson), Mr. Hundt,
Mr. Joy and Mr. Nolan. No member of the Compensation Committee has a
relationship that would constitute an interlocking relationship with executive
officers or directors of another entity. From time to time, Dr. Schmidt,
Chairman and Chief Executive Officer (the "CEO"), certain officers of the
Company and outside consultants attend meetings of the Committee. No officer
of the Company is present during discussions or deliberations regarding his or
her own compensation.
Responsibilities of the Committee
Acting on behalf of the Board of Directors, the Committee's responsibilities
include the following:
. Reviewing the performance of the CEO and other executive officers.
. Determining the total compensation package for the CEO and other
executive officers.
. Reviewing the general Company compensation philosophy for all
employees, including the CEO and other executive officers.
. Administering the Company's Variable Pay Plans by establishing Company
performance objectives, approving target bonuses and setting actual
bonus payments for the CEO and other executive officers.
. Administering the Company's employee stock option and stock purchase
plans (the "Stock Plans"), including determining eligibility, the
number and type of options to be granted and the terms of such grants.
Executive Officer Compensation Program
The Company's executive compensation program is designed to support the
achievement of Company performance objectives, to ensure that executive
officers' interests are aligned with the success of the Company and to provide
compensation opportunities that will attract, retain and motivate superior
executive personnel. Consistent with these objectives, the Committee believes
that the compensation of executive officers should be significantly influenced
by performance. Accordingly, 37.5% of the cash compensation of each executive
officer and 50% of the cash compensation of the CEO is contingent upon Company
performance and adjusted as appropriate for team and individual performance.
Starting on November 1, 2000, Executive Vice Presidents Nelson and Raney have
43% of their cash compensation contingent upon Company performance and
adjusted as appropriate for team and individual performance.
The Company's compensation program for executive officers is structured to
be competitive within the high technology industry. The Company's Human
Resources Department, working with independent outside consulting firms, has
developed executive compensation data from nationally recognized surveys from
a group of comparable companies selected on the basis of similarity in revenue
level, industry segment and competitive employment market to the Company. Most
of the companies included in this group for the 2000 executive compensation
analysis are also included in the Nasdaq Computer and Data Processing Services
index used to compare the Company's stock price performance on the Performance
Graph on pages 25 and 26.
The Company's executive level positions, including the CEO, are matched to
comparable survey positions and competitive levels are determined for base
salary and target bonus incentives. The target incentive is the amount that
would be paid after each fiscal quarter if both the Company and the executive
officer achieve the performance objectives established for that quarter.
Factors considered in determining actual incentive bonus for each executive
officer include Company, team and individual performance, and the scope of
each executive
21
officer's responsibilities. The relative weight given to such factors varies
between executive officers, based upon their respective responsibilities and
capacity to affect Company performance.
Market practices with respect to stock option grants are also reviewed based
on survey data. Grants under the Company's Stock Plans are designed to further
strengthen the linkage between executive compensation and shareholder return,
to provide additional incentives to executive officers tied to growth of stock
price over time and encourage continued employment with the Company. Stock
option grants are based upon industry survey data and individual executive
performance. Stock options generally become exercisable over a four-year
period and are granted at a price that is equal to the fair market value of
the Company's stock on the date of grant. Restricted stock purchase grants,
which allow an officer to purchase shares at a nominal cost, are generally
subject to a two-year to five-year vesting schedule.
2000 Executive Officer Compensation
The Committee reviewed and approved the Novell Variable Pay Plans for fiscal
2000, to be used for all employees including the Named Officers. The Committee
established the Company revenue and expense objectives and performance targets
to be used for incentive determination.
In January 2000, the Committee reviewed industry compensation survey data
and current executive responsibility. The Committee felt base salaries were
generally in line with market data except for Named Officers Nelson and Raney.
The committee approved a base salary increase for Mr. Nelson and Mr. Raney
effective February 1, 2000.
In May 2000, stock options were reviewed in conjunction with the annual
stock option grants and were compared to survey data. All current Named
Officers including the CEO, were granted a stock option. In addition, the
Committee reviewed a proposal of restricted stock to the top three percent of
employees below Senior Vice Presidents, as an additional retention tool. The
Committee approved the proposal and felt it was in the best interest of the
Company to also include the Named Officers for such a grant.
In June 2000, Named Officer Nortz changed responsibilities to Senior Vice
President Worldwide Sales and received an increase in his base salary.
In September 2000, the Committee reviewed industry compensation survey data
and current executive responsibility. The Committee felt that executive base
salaries were not in line with the market data and approved merit increases to
become effective November 1, 2000. The Committee also discussed the promotion
of Senior Vice Presidents Nelson and Raney. Both Senior Vice Presidents would
be promoted to Executive Vice Presidents, receive a base salary increase and
bonus targets to be increased from 60 percent to 75 percent of base salary to
become effective November 1, 2000. This change in target bonus further
strengthens Novell's philosophy for increased pay at risk. Named Officers
Nelson and Raney were each also given a restricted stock grant as part of this
promotion.
2000 CEO Compensation
The Committee also reviewed Dr. Schmidt's employment contract, which stated
that his base salary is subject to a normal review for potential performance
adjustments. After reviewing both the market data and his employment contract,
the Committee did not increase Dr. Schmidt's base pay.
In November 1999, the Committee also reviewed Dr. Schmidt's stock options
based on survey data. The Committee stated that Dr. Schmidt should be granted
additional stock options. Due to the limitations of the total amount that
could be granted under the then current plan, half of the grant would be
granted now and the remaining half would be granted when the new stock plan
was approved by shareholders in April 2000 at the then fair market value.
22
Qualifying Compensation
The Committee has considered the potential impact of Section 162(m) of the
Internal Revenue Code ("Section 162(m)") adopted under the Federal Revenue
Reconciliation Act of 1993. Section 162(m) disallows a tax deduction for any
publicly held corporation for certain executive officers' compensation
exceeding $1 million per person in any taxable year unless it is "performance
based" within the meaning of Section 162(m). Prior to fiscal 1998, the cash
compensation plus restricted stock vesting of each of the Company's executive
officers was below the $1 million threshold and options granted under the
Company's option plan were designed to meet the requirement of being
performance-based under the provisions of Section 162(m). Therefore, Section
162(m) did not reduce the tax deduction available to the Company for fiscal
1997 or prior years. However, non-option compensation of the Chief Executive
Officer exceeded $1 million in fiscal 1998, 1999, and 2000 and is expected to
exceed $1 million in 2001. Accordingly, a portion of the CEO's compensation
was not deductible by the Company. Executive Vice President, Nelson and Raney
are expected to have non-option compensation that will exceed $1 million in
2001. The Company's policy is, to the extent reasonable, to qualify its
executive officers' compensation for deductibility under the applicable tax
laws. However, the Company believes that providing an appropriate level of
cash compensation (through salary and bonus) and maintaining flexibility in
determining compensation is more important than preserving a tax deduction for
amounts in excess of $1,000,000.
Respectfully submitted,
John A. Young, Chairperson
Reed E. Hundt
William N. Joy
Richard L. Nolan
23
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee of the Novell Board of Directors (the Committee) was
composed of three independent directors during fiscal 2000. It operates under
a written charter adopted by the Board of Directors in November 1999
(Appendix--Exhibit A). The members of the Committee for fiscal year 2000 were
Jack L. Messman (Chairperson), Elaine Bond and Hans-Werner Hector. Each member
is "independent" within the meaning of the Nasdaq Nation Market rules.
Director Hector resigned from the Board of Directors and the Audit Committee
on December 31, 2000. The Committee recommends to the Board of Directors,
subject to shareholder ratification, the selection of the Company's
independent accountants.
Management is responsible for the Company's internal controls and the
financial reporting process. The independent auditors are responsible for
performing an independent audit of the Company's consolidated financial
statements in accordance with generally accepted auditing standards and
expressing an opinion on the conformity of those audited financial statements
in accordance with generally accepted accounting principles. The Committee's
responsibility is to monitor and oversee these processes.
Review With Management
The Committee has met and held discussions with management regarding the
audited financial statements. Management has represented to the Committee that
the Company's consolidated financial statements were prepared in accordance
with generally accepted accounting principles.
Review and Discussion with Independent Auditors
The Committee has discussed with Ernst & Young LLP, the Company's
independent auditors, matters required to be discussed by Statement of
Auditing Standards No. 61 (Communication with Audit Committees). These
discussions have included a review as to the quality, not just the
acceptability of the Company's accounting principles.
The Company's independent auditors also provided to the Committee written
disclosures required by Independence Standards Board Standard No. 1
(Independence Discussion with Audit Committees), and the Committee discussed
with the independent auditors the auditors independence from management and
the Company. The committee has also considered the compatibility of nonaudit
services with the auditors' independence.
Conclusion
Based on the Committee's discussion with management and the independent
auditors, the Committee's review of the representations of management and the
report of the independent auditors to the Committee, the Committee recommended
that the Board of Directors include the audited consolidated financial
statements in the Company's Annual Report on Form 10-K for the year ended
October 31, 2000 filed with the Securities and Exchange Commission.
Respectfully submitted,
Jack L. Messman, Chairperson
Elaine R. Bond
Hans-Warner Hector (until December 31, 2000)
Richard L. Nolan (since February 22, 2001)
24
PERFORMANCE GRAPH
The following two graphs compare the performance of the Company's Common
Stock with the performance of the Standard & Poor's 500 Composite Stock Price
Index (the "S&P 500 Index") and an industry index over the past five fiscal
years and the past ten fiscal years starting from November 1, 1995 and November
1, 1990, respectively. The graphs assume that $100 was invested on November 1,
1995 and November 1, 1990 in the Company's Common Stock, the S&P 500 Index and
the industry index, and that all dividends were reinvested.
The Company's industry index is The Nasdaq Computer & Data Processing
Services Index, which is composed of all Nasdaq companies with an SIC Code of #
737. A list of the companies included in this index will be furnished by the
Company to any shareholder upon written request of the Corporate Secretary.
PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
Among Novell, Inc., S&P 500 and Nasdaq C&DPS
[GRAPH APPEARS HERE]
Indexed/Cumulative Returns
----------------------------------
Base Fiscal Year
Period ----------------------------------
Company/Index Name 1995 1996 1997 1998 1999 2000
------------------ ------ ------ ------ ------ ------ ------
Novell, Inc.......................... 100 56.06 51.14 90.15 121.59 54.55
S&P 500 Index........................ 100 124.10 163.96 200.02 251.36 266.67
Nasdaq Computer & Data Processing
Services............................ 100 115.95 156.45 201.20 378.02 404.42
Past five year average Compounded Annual Return
Novell, Inc........................................................ -25.30%
S&P 500 Index...................................................... 101.22%
Nasdaq Computer & Data Processing Services......................... 151.22%
25
PERFORMANCE GRAPH
COMPARISON OF TEN-YEAR CUMULATIVE TOTAL RETURN
Among Novell, Inc., S&P 500 and Nasdaq C&DPS
[GRAPH APPEARS HERE]
Indexed/Cumulative Returns
------------------------------------------------------------------------
Base Fiscal Year
Period ------------------------------------------------------------------------
Company/Index Name 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- -------
Novell, Inc............. 100 418.18 492.93 347.48 298.99 266.67 149.50 136.36 240.40 324.24 145.46
S&P 500 Index........... 100 133.77 147.00 168.52 175.24 221.90 275.26 364.39 444.83 559.89 596.35
Nasdaq C&DPS............ 100 218.90 255.37 285.36 343.55 524.32 607.95 820.28 1054.92 1982.04 2120.47
Past ten year average Compounded Annual Return
Novell, Inc........................................................ 182.02%
S&P 500 Index...................................................... 208.71%
Nasdaq Computer & Data Processing Services......................... 721.32%
26
CERTAIN TRANSACTIONS
In fiscal 2000, Wilson Sonsini Goodrich & Rosati, Professional Corporation,
a law firm in which Larry W. Sonsini, a director of the Company, is a senior
partner, performed legal services for the Company. The Company proposes to
continue to retain such law firm in fiscal 2001 for advice on legal matters.
In July 2000, Mr. Ledbetter entered into a settlement agreement in the form
of a consent decree with the Securities and Exchange Commission (the "SEC") in
connection with the SEC's investigation of Hybrid Networks, Inc. of which Mr.
Ledbetter served as Chairman, President and Chief Executive Officer, generally
concerning alleged violations of the federal securities laws. Without
admitting or denying any violations of the federal securities laws, Mr.
Ledbetter agreed to pay a civil fine and to the entry of a permanent
injunction prohibiting him from knowingly circumventing or failing to
implement a system of internal accounting controls and from engaging in
violations of certain specified reporting provisions and accounting control
provisions of the federal securities laws.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes that all Forms 3, 4 and 5 required to be filed by its
directors, officers and greater than 10% shareholders were filed on time
during fiscal 2000, except that director Larry W. Sonsini reported one Form 4
transaction late on a Form 5.
DEADLINE FOR FUTURE
PROPOSALS OF SHAREHOLDERS
Proposals that shareholders desire to have included in the Company's proxy
materials for the 2002 Annual Meeting of Shareholders of the Company must be
received by the Secretary of the Company at its principal office (1800 South
Novell Place, Provo, UT 84606, Attention Corporate Secretary) no later than
November 5, 2001 in order to be considered for possible inclusion in such
proxy materials.
The Company's bylaws contain an advance notice provision regarding
shareholder proposals, which provides that, to be timely, a stockholder's
notice of intention to bring business before a meeting must be given either by
personal delivery or by United States mail, postage prepaid, to the Secretary
of the Corporation and received by the Secretary not later than sixty (60)
days prior to the first anniversary of the date on which notice of the prior
year's annual meeting was first mailed to stockholders.
For a shareholder proposal that is not intended to be included in the
Company's proxy materials but is intended to be raised by the shareholder from
the floor at the 2002 Annual Meeting of Shareholders, the shareholder must
provide timely advance notice in accordance with the bylaw provision described
above. Advance notice must be received by the Secretary of the Company at its
principal executive offices no later than January 4, 2002 in order to be
timely. Any proposal received after that date will not be permitted to be
raised at the meeting.
27
ADDITIONAL INFORMATION
Annual Report
The Company's Annual Report to Shareholders for the fiscal year ended
October 31, 2000, including the consolidated financial statements and related
notes thereto, together with the report of the independent auditors and other
information with respect to the Company, is being mailed to shareholders
together with this Proxy Statement.
Annual Meeting Summary
The Company will provide a summary of the activities at the Annual Meeting
to Shareholders, including the final vote on all proposals. The summary will
be available on the Novell Investor Relations web site at www.novell.com/ir
approximately one week after the meeting. Shareholders may also obtain a copy
by calling (800) 317-3195.
OTHER MATTERS
The Company is not aware of any other business to be presented by management
at the Annual Meeting.
If matters other than those described herein should properly arise at the
meeting, the proxies will use their discretion to vote on such matters in
accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS
Josephine T. Parry
Senior Vice President, General
Counsel
And Corporate Secretary
March 5, 2001
Provo, Utah
28
APPENDIX
EXHIBIT A
Novell, Inc. Audit Committee Charter
I. RESPONSIBILITY
The Novell Audit Committee (the "Committee") was established to assist the
Board of Directors (the "Board") of Novell (the "Company") in carrying out
its oversight responsibilities that relate to the Company's financial
reporting, internal control, and compliance with laws, regulations and
ethics.
The Committee shall have the power to conduct or authorize investigations
into any matters within the Committee's scope of responsibilities. The
Committee is empowered to retain independent counsel, accountants, or
others to assist it in the conduct of any investigation. The President, the
Chief Financial Officer or the Corporate Secretary of the Company shall
provide or arrange to provide such other information, data and services as
the Committee may request. The Committee shall conduct such interviews or
discussions as it deems appropriate with personnel of the Company, and/or
others whose views would be considered helpful to the Committee.
Specific duties of the Committee shall include:
A. Financial Reporting
Committee procedures shall include:
1. Selection of Independent Public Accountants
The Committee shall create a clear understanding with the
independent auditors that the auditors are ultimately accountable to
the Board and to the Committee, as the shareholders'
representatives, and that the Committee and the Board have the
ultimate authority to engage, evaluate, and, if appropriate,
terminate their services. The Committee shall review senior
management's recommendation on the annual selection of the external
auditors. The Committee shall submit its selection and
recommendation to the Board for their approval. The Committee's
review shall include the following:
--Opinions on the performance of the external auditors by
appropriate management.
--Inquiries as to whether the external auditors face any significant
litigation or disciplinary actions by the SEC or others.
--Auditor engagement letters and estimated fees.
--The report of the external auditor's latest peer review conducted
pursuant to a professional quality control program.
--Management's letter of representation and any significant
operational or reporting issues that may affect the financial
statements.
2. The Committee shall obtain from the independent auditors a written
communication delineating all of their relationships and
professional services provided to the Company, consistent with
Independence Standards Board Standard. Review with the independent
auditors the nature and scope of any disclosed relationships or
professional services that may affect the objectivity and
independence of the external auditors and take, or recommend that
the Board take, appropriate action to ensure the continuing
independence of the auditors.
A-1
3. The Committee shall meet with Novell's general counsel, and outside
counsel when appropriate, to discuss legal matters that may have a
significant impact on Novell's financial statements.
4. Post-Audit Review
The Committee shall meet with management and the external auditors
to review the scope and the results of the annual audit, including
carefully reviewing any comments or recommendations of the
independent auditors based on the findings of the audit. The review
will include the following:
--The financial statements and the auditors' opinion.
--Filings with the SEC and other published documents containing
Novell's financial statements and consideration as to whether the
information contained in these documents is consistent with the
information contained in the audited financial statements.
--Explanations from financial management and the external auditors
of changes in accounting standards or rules promulgated by the
Financial Accounting Standards Board, Securities and Exchange
Commission or other regulatory bodies that have an effect on the
financial statements.
--Any scope restrictions or significant operational or reporting
issues affecting Novell's financial statements and SEC fillings.
--Other matters related to the conduct of the audit that are
required to be communicated to the Committee by the external
auditors under Generally Accepted Auditing Standards.
5. The Committee shall review the quarterly and annual financial
statements contained in the Form 10-Q, 10-K and quarterly press
releases with management and the independent auditors to determine
that the independent auditors are satisfied with the disclosure and
content of the financial statements to be presented to the
shareholders and to the public. Any changes in accounting principles
should be reviewed.
B. The Committee will review with the independent auditors, the company's
internal auditor, and financial and accounting personnel, the adequacy
and effectiveness of the accounting and financial controls of the
Company. This review should elicit any recommendations for the
improvement of such internal control procedures or particular areas
where new or more detailed controls or procedures are desirable.
Particular emphasis should be given to the adequacy of such internal
controls to expose any payments, transactions, or procedures that might
be deemed illegal or otherwise improper.
C. Compliance with Laws, Regulations, and Ethics
The Committee shall review reports and other information to gain
reasonable assurance that Novell is in compliance with pertinent laws
and regulations, is conducting its affairs ethically, and is
maintaining effective controls against conflict of interest and fraud.
Committee procedures shall include:
--Review Novell's policies relating to compliance with laws,
regulations, ethics, and conflict of interest policies.
--Review significant cases of conflict of interest, misconduct, or
fraud and the resolution of such cases.
--Review Novell's policies and processes for compliance with U.S. and
foreign country export controls, laws and regulations.
--Review Novell's policies and processes for compliance with the
Foreign Corrupt Practices Act.
--Review compliance reports received from regulators and consider legal
and regulatory matters that may have a material impact on the
financial statements.
A-2
--Review internal and external auditor's reports that relate to the
monitoring of compliance with Novell's policies on business ethics.
--Review policies and procedures covering officers' expense accounts
and perquisites, including their use of corporate assets, and consider
the results of any review of these areas by internal or external
auditors.
II. OVERSIGHT OF INTERNAL AUDIT FUNCTION
The Committee shall schedule meetings as necessary to receive and discuss
reports from staff, other committees, and consultants. Particular emphasis
will be given by the Committee to significant control deficiencies, and
actions taken by management to correct them. The Committee may request
through the Chief Financial Officer or the corporate Controller that the
Internal Audit Department or external auditors perform special studies,
investigations, or other services in matters of interest or concern to the
Committee.
Policies concerning the Committee's oversight of the internal audit
coverage shall include:
A. Internal Audit Department
A representative from the Internal Audit group shall attend Committee
meetings and report, at least semi-annually, to the Committee on audit
results for the period and the status of the audit schedule. Reports
may be made at more frequent intervals if deemed necessary by the
Committee or as may be requested by the Audit Department.
The Internal Audit Department has the responsibility to direct a broad,
comprehensive program of internal auditing within Novell. To accomplish
this responsibility, the Internal Audit Department shall have
unrestricted access to all Novell's records, reports, personnel, and
physical properties determined by Internal Audit to be relevant to the
performance of their audits.
Committee procedures shall include:
--Periodic review of the Internal Audit Charter to ensure that it
provides for the independence and objectivity of the internal audit
function, and make recommendations relating thereto.
--Review of the annual audit plan and significant interim changes,
including work schedule and staffing requirements.
--Review of audit objectives, schedules and results.
--Review of audit reports, management responses and the status of
corrective action.
--Inquiries as to any difficulties encountered in the course of their
audits, including any restrictions on the scope of their work or
access to required information.
III. COMMITTEE MEMBERSHIP
The Audit Committee shall consist of at least three members of the Board
all of whom shall be independent of the company, its management, and its
subsidiaries. Directors shall be considered independent if they have no
relationship to the company that may interfere with the exercise of their
independence from the Company, its subsidiaries, and management nor have
they had such a relationship in the past three years. In the event that any
member is deemed not to be independent, this lack of independence will be
disclosed in the proxy statement to the shareholders. At least one member
of the Audit Committee must be financially literate in order for the
committee to meet its oversight responsibilities.
Vacancies occurring in the Committee may be filled by appointments made by
the Board. No member of the Committee shall be removed except by vote of a
majority of Directors present at any regular or special meeting of the
Board.
A-3
The Secretary of the Committee shall be the Secretary of the Company. The
Secretary of the Committee shall prepare minutes of the meetings, maintain
custody of copies of data furnished to and used by the Committee, and
generally assist the Committee in connection with preparation of agendas,
notices of meetings and otherwise.
IV. CONDUCT OF BUSINESS
All meetings require the presence of a majority of the members of the
Committee to conduct business. Each Committee member shall have one vote.
All actions or determinations by the Committee must be by majority vote of
the members present. The Board of Directors shall have overall authority
over all Committee actions.
V. TIME AND PLACE OF MEETINGS
Committee meetings shall be held quarterly or more frequently as necessary
at an agreed upon location. The Committee may ask members of management or
others to attend the meeting and provide pertinent information as
necessary.
VI. PRESENTATION OF REPORTS TO THE BOARD OF DIRECTORS
The Committee shall make an annual presentation to the Board of Directors
within three months after the receipt of the external auditor's opinion on
Novell's financial statements. The presentation shall provide an overview
of the Committee's activities, findings of importance, conclusions,
recommendations, and items that require follow-up or action by the Board.
Presentations may be made at more frequent intervals if deemed necessary by
the Committee or as requested by the Board of Directors.
VII. AUDIT COMMITTEE CHARTER
The Committee will reassess this Charter at least annually, including
obtaining full Board of Directors' approval of this Charter and publishing
the charter tri-annually in its entirety in the proxy statement to the
shareholders.
A-4
[MAP LOGO]
From San Francisco: Take Hwy 101 south to Brokaw-North First Street exit. Turn
left on Brokaw to North First Street; left on North First to Novell. (Corner of
Guadalupe-make U-turn).
From Oakland: Take Hwy 880 south to Montague Expressway. Exit right to Trimble
Rd. Take Trimble to North First; turn left to Novell.
From South San Jose: Take Hwy 101 north to Brokaw-North First Street exit. Turn
left on Brokaw to North First Street; right on North First to Novell. (Corner
of Guadalupe-make U-turn).
From San Jose Airport: From Terminal A turn left on Airport Parkway to
Guadalupe Pkwy. From Terminal C exit left on Airport Blvd., bear right on
Airport Parkway to Guadalupe Pkwy. In both cases turn left on the Guadalupe
Parkway and drive over Hwy 101 straight to the Novell parking lot entrance.
(About one mile).
[RECYCLE LOGO APPEARS HERE]
______________________________________________________________________________________ Please mark your
The Board of Directors recommends a vote FOR items 1, 2 and 3 and AGAINST item 4. votes as indicated [ X ]
______________________________________________________________________________________ in this example
1. Election of Directors -- Nominees FOR WITHHOLD FOR All
Except
as noted
01 Eric E. Schmidt 04 Reed E. Hundt 07 Richard L. Nolan [_] [_] [_]
02 John A. Young 05 William N. Joy 08 Larry W. Sonsini
03 Elaine R. Bond 06 Jack L. Messman
_____________________________________________________________
Except Nominee(s) written on the line above
2. Approval of amendment to the 1989 Employee Stock Purchase Plan FOR AGAINST ABSTAIN
to increase reserve by 6,000,000 shares. [_] [_] [_]
3. Ratification of Ernst & Young LLP as independent auditors. FOR AGAINST ABSTAIN
[_] [_] [_]
The Board of Directors recommends a vote AGAINST item 4.
4. Shareholder Proposal for Amendment to the by-laws. FOR AGAINST ABSTAIN
[_] [_] [_]
IN THEIR DISCRETION, the proxy holders are authorized to vote upon such other
business as may properly come before the meeting or any adjournments thereof.
I Plan to Attend Annual Meeting [_]
DATED __________________________________________ 2001
_______________________________________________________
Signature of Shareholder(s)
_______________________________________________________
Signature of Shareholder(s)
Please sign exactly as name appears hereon. When shares
are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee
or guardian, please give full title as such. If a
corporation, please sign in full corporate name by
president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
- FOLD AND DETACH HERE AND READ THE REVERSE SIDE -
VOTE BY TELEPHONE OR INTERNET
QUICK *** EASY *** IMMEDIATE
Your telephone or Internet vote authorizes the named proxies to vote your shares
in the same manner as you marked, signed and returned your proxy card.
VOTE BY PHONE: CALL TOLL-FREE ON A TOUCH-TONE TELEPHONE 1-800-840-1208 ANYTIME.
THERE IS NO CHARGE TO YOU FOR THIS CALL.
You will be asked to enter the 11-digit Control Number located
in the lower right of this form.
________________________________________________________________________________
OPTION A: To vote as the Board of Directors recommends on ALL items,
press 1. The Board recommends FOR proposals 1, 2, and 3, and
AGAINST Proposal 4.
________________________________________________________________________________
________________________________________________________________________________
OPTION B: If you wish to vote on each proposal separately, press 0. You
will hear these instructions:
________________________________________________________________________________
Proposal 1: To vote FOR ALL nominees, press 1; to WITHHOLD FROM
ALL nominees, press 9. To WITHHOLD FOR AN INDIVIDUAL nominee,
press 0. Please make your selection now.
Proposal 2: You may make your selection at any time: To vote
FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
Proposal 3: You may make your selection at any time: To vote
FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
Proposal 4: You may make your selection at any time: To vote
FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
When asked, you must confirm your vote by pressing 1.
IF NO SELECTION IS MADE, YOUR VOTES WILL BE CAST AS THE BOARD OF DIRECTORS
RECOMMENDS.
VOTE BY INTERNET: THE WEB ADDRESS IS http://www.proxyvoting.com/novl/
THANK YOU FOR VOTING.
NOVELL, INC
1800 South Novell Place
Provo, UT 84606
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Eric E. Schmidt and
Dennis R. Raney, and each of them, as true and lawful agents and proxies with
full power of substitution in each, to represent the undersigned at the Annual
Meeting of Shareholders of Novell, Inc. to be held at the Company's Silicon
Valley facilities, 2211 North First Street, San Jose, California 95131 on
Tuesday, April 17, 2001, at 2 p.m. local time and at any adjournments thereof,
and to vote all shares of Common Stock that the undersigned would be entitled
to vote if then and there personally present on the matters set forth on the
reverse side.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL NOMINEES TO THE BOARD OF DIRECTORS, FOR APPROVAL OF AMENDMENT TO
THE 1989 EMPLOYEE STOCK PURCHASE PLAN TO INCREASE SHARES RESERVED, FOR
RATIFICATION OF INDEPENDENT AUDITORS, AGAINST THE SHAREHOLDER PROPOSAL, AND AS
THE PROXY HOLDER MAY DETERMINE IN HIS DISCRETION WITH REGARD TO ANY OTHER
MATTER PROPERLY BROUGHT BEFORE THE MEETING.
PLEASE VOTE BY TELEPHONE OR THE INTERNET OR MARK, SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
(Continued on reverse side)
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
You can vote in one of three ways:
1. Call toll-free 1-800-840-1208 on a Touch-Tone telephone and follow the
instruction on the reverse side. There is NO CHARGE to you for this call.
or
2. Vote by Internet at our Internet Address: http://www.proxyvoting.com/novl/
or
3. Mark, sign and date your proxy card and return it promptly in the enclosed
envelope.
If you vote by telephone or internet, it is not necessary to mail your proxy
card.
PLEASE VOTE