SCHEDULE 14A INFORMATION
(Rule 14a-101)
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential. For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-12
NOVELL, INC.
----------------------------------------------
(Name of Registrant as Specified in Its Charter)
N/A
----------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: not
applicable
(2) Aggregate number of securities to which transaction applies: not
applicable
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): not
applicable
(4) Proposed maximum aggregate value of transaction: not applicable
(5) Total fee paid: not applicable
[_] Fee paid previously with preliminary materials:
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously paid: not applicable
(2) Form, Schedule or Registration Statement No.: not applicable
(3) Filing party: not applicable
(4) Date filed: not applicable
Notes:
Novell, Inc.
1800 South Novell Place
Provo, Utah 84606
Phone 801-861-7000
www.novell.com
February 28, 2002
[LOGO]
Novell(R)
Dear Stockholder:
It is my pleasure to invite you to attend the Annual
Meeting of Stockholders. The meeting will be held on
Wednesday, April 17, 2002, at 10 a.m. in our offices
located at 8 Cambridge Center, Cambridge,
Massachusetts 02142.
At the meeting we will elect seven directors, seek
ratification of appointment of our auditors, consider
a stockholder proposal (if properly presented),
review our performance during fiscal 2001, and answer
your questions.
The vote of every stockholder is important. Please
vote your proxy by using the Internet or 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 stockholders who are able to attend.
Sincerely,
/s/ JACK L. MESSMAN
Jack L. Messman
Chairman of the Board,
President and Chief Executive Officer
Novell, Inc.
NOVELL, INC.
1800 South Novell Place
Provo, Utah 84606
Notice of the 2002 Annual Meeting of Stockholders
The 2002 Annual Meeting of Stockholders of Novell, Inc. will be held on
Wednesday, April 17, 2002 at 10:00 a.m. at our offices at 8 Cambridge Center,
Cambridge, Massachusetts 02142 for the following purposes:
1. To elect seven directors;
2. To ratify the selection of Ernst & Young LLP as independent auditors for
Novell, Inc. for the fiscal year ending October 31, 2002;
3. To consider a stockholder proposal regarding a proposed amendment to the
Company's bylaws to separate the offices of Chairman and President, and
Secretary and Treasurer; and
4. To transact such other business as may properly come before the meeting.
All holders of record of shares of Novell common stock at the close of business
on February 19, 2002 are entitled to notice of, to attend and to vote at the
meeting. A complete list of these stockholders will be available at our
principal executive offices at 1800 South Novell Place, Provo, Utah 84606 for
at least ten days prior to the meeting. Such list shall also be produced and
kept at 8 Cambridge Center, Cambridge, Massachusetts 02142 during the meeting.
By Order of the Board of Directors,
/s/ Joseph A. LaSala, Jr.
Joseph A. LaSala, Jr.
Senior Vice President,
General Counsel and Secretary
February 28, 2002
Stockholders are requested to vote via the Internet or by telephone in
accordance with the instructions listed on the enclosed proxy card, or to
sign the proxy card and return it in the enclosed stamped envelope by return
mail.
Proxy Statement
Table of Contents
Page
Number
------
Questions and Answers................................................................... 2
Share Ownership by Principal Stockholders and Management................................ 5
Proposal One--ELECTION OF DIRECTORS..................................................... 6
Biographies of the Board of Directors.................................................. 6
Meetings and Committees of the Board of Directors...................................... 8
Vote Required and Board Recommendation................................................. 9
Proposal Two--RATIFICATION OF AUDITORS.................................................. 9
Fees Billed to the Company by Ernst & Young During Fiscal 2001......................... 9
Vote Required and Board Recommendation................................................. 10
Proposal Three--STOCKHOLDER PROPOSAL.................................................... 10
Proponent's Proposal................................................................... 10
Proponent's Supporting Statement....................................................... 10
Novell's Response...................................................................... 10
Vote Required and Board Recommendation................................................. 11
Executive Compensation.................................................................. 12
Summary Compensation Table............................................................. 12
Director Compensation.................................................................. 14
Stock Option Grants in Fiscal Year 2001................................................ 15
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values...... 17
Additional Executive Officer........................................................... 17
Employment Contracts, Termination of Employment and Change-in-Control Arrangements..... 17
Report of the Compensation Committee of the Board of Directors on Executive Compensation 20
Report of the Audit Committee of the Board of Directors................................. 23
Performance Graph....................................................................... 24
Certain Transactions.................................................................... 25
Section 16(a) Beneficial Ownership Reporting Compliance................................. 25
Deadline for Future Proposals of Stockholders........................................... 26
Additional Information.................................................................. 26
Annual Report.......................................................................... 26
Annual Meeting Summary................................................................. 26
Other Matters........................................................................... 27
NOVELL, INC.
1800 South Novell Place
Provo, Utah 84606
PROXY STATEMENT
February 28, 2002
STOCKHOLDERS OWNING NOVELL, INC. SHARES OF RECORD
AT THE CLOSE OF BUSINESS ON FEBRUARY 19, 2002
ARE ENTITLED TO ATTEND AND VOTE AT THE MEETING
The Board of Directors of Novell, Inc. ("Novell" or the "Company") is
soliciting proxies for the 2002 Annual Meeting of Stockholders. 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 Stockholders will be held on Wednesday, April 17, 2002
at 10:00 a.m. at our offices at 8 Cambridge Center, Cambridge, Massachusetts
02142.
The Board of Directors of Novell, Inc. set February 19, 2002 as the record
date for the meeting. Stockholders 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 362,635,933
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 $3.76 per share.
This Proxy Statement is being mailed on or about February 28, 2002 to
stockholders 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) may not hold the shares of
record in your name, you will be treated as the beneficial owner of the
stock if 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 stockholder meeting?
A: Novell's Annual Meeting of Stockholders is being held on Wednesday, April
17, 2002 at 10:00 a.m. at our offices at 8 Cambridge Center, Cambridge,
Massachusetts 02142.
Q: Do I need a ticket to attend the stockholder 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 of Novell, Inc. on the record date. This Proxy
Statement describes issues on which we would like you, as a stockholder, 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 Jack L. Messman, Ronald
C. Foster and Joseph A. LaSala, Jr. as your representatives at the meeting.
Messrs. Messman, Foster and LaSala 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, Messrs. Messman, Foster and LaSala 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 FOR all of
management's nominees for director, FOR ratification of the appointment of
auditors, and AGAINST the stockholder proposal.
Q: What am I voting on?
A: You are being asked to vote on:
. the election of seven nominees to serve on the Novell Board of Directors;
. the ratification of the appointment of our independent auditors for fiscal
year 2002; and
. a stockholder proposal regarding Novell's bylaws.
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 in the envelope together with
your Proxy Statement. If you vote on the Internet, you do not need to mail
in your proxy card.
OR
. Place your vote by telephone.
Please follow the instructions that came in the envelope together with
your Proxy Statement. If you vote by telephone, you do not need to mail in
your proxy card. Stockholders with rotary telephone service will not be
able to vote by telephone.
2
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 each of the seven named nominees for director,
FOR ratification of the appointment of auditors and AGAINST the
stockholder proposal.
OR
. Vote in person by attending our Annual Meeting.
We will pass out written ballots to any stockholder 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 vote each account by telephone, via the Internet or by
signing and returning all proxy cards to ensure that all your shares are
voted.
Q: What if I change my mind after I have voted?
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:
. Voting via the Internet or by telephone again after you have voted (only
your latest vote will be counted),
. Signing and returning another proxy card that is dated after the date of
your first proxy card (again, only your latest vote will be 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 unvoted. Your brokerage firm may not vote on "non-routine
matters" such as a proposal submitted by a stockholder.
We encourage you to provide instructions to your brokerage firm by
completing the proxy that they send to you. This enables your shares to be
voted at the meeting as you direct.
Q: How many shares can be voted at the meeting?
A: As of the record date, 362,635,933 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 362,635,933 votes that may be cast at the meeting.
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, and telephone votes,
whether representing a vote for, against, withheld, or abstained or a broker
non-vote, will be counted toward the quorum.
3
Q: What is the required vote for a proposal to pass?
A: The votes cast on a particular proposal include votes FOR, AGAINST,
WITHHELD, and ABSTAINED, but do not include broker non-votes. The election
of directors by the stockholders shall be determined by a plurality of the
votes cast by stockholders entitled to vote. For the other proposals set
forth in this Proxy Statement, the required vote is the affirmative (i.e.
"FOR") vote of a majority of the votes cast.
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, because the proposals to be
acted upon at a 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), but expressly states that
the broker is NOT voting on the non-routine matters (such as the stockholder
proposal). The vote with respect to the stockholder 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 the purpose of
determining the number of votes cast. A broker non-vote will not affect the
outcome on any proposal in this Proxy Statement.
Q: How are abstentions counted?
A: Abstentions are counted for the purposes of determining both (1) the
presence of a quorum and (2) the total number of votes cast with respect to
a proposal. Abstentions will have no effect on the outcome of the election
of directors, but will have the same effect as a vote "AGAINST" all other
proposals being presented at this meeting.
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 Innisfree
M&A Incorporated ("Innisfree") to perform the broker nominee search and to
distribute proxy materials to banks, brokers, nominees and intermediaries.
Innisfree will also solicit voted proxies from stockholders 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 STOCKHOLDERS AND MANAGEMENT
This table shows how much Company Common Stock is beneficially owned as of
January 31, 2002 by owners of more than 5% of the outstanding shares, directors
and certain executive officers. There were 362,616,299 shares of Novell Common
Stock outstanding on January 31, 2002.
Number of Total
Outstanding Shares Percent of
Shares Right to Restricted Beneficially Outstanding
Name Owned(1) Acquire(2) Stock(3) Owned Shares
- ---- ----------- ---------- ---------- ------------ -----------
Harris Associates L.P. (4)............................. 30,633,800 -- -- 30,633,800 8.5%
Two North LaSalle Street, Suite 500
Chicago, IL 60602
Jack L. Messman........................................ 327,174 591,141 715,780 1,634,095 *
Elaine R. Bond......................................... 5,444 207,625 -- 213,069 *
Reed E. Hundt.......................................... 9,500 93,125 -- 102,625 *
Richard L. Nolan....................................... 10,000 83,125 -- 93,125 *
John W. Poduska, Sr.................................... 103,275 -- -- 103,275 *
James D. Robinson, III................................. 12,024 -- -- 12,024 *
Larry W. Sonsini (5)................................... 13,587 175,625 -- 189,212 *
Carl J. Yankowski...................................... -- -- -- -- *
Ronald C. Foster....................................... 60,131 140,312 -- 200,443 *
Carl S. Ledbetter...................................... 87,501 202,500 30,000 320,001 *
Ralph T. Linsalata..................................... 8,016 75,000 60,000 143,016 *
Stewart G. Nelson...................................... 115,622 913,875 180,000 1,209,497 *
Eric E. Schmidt (6).................................... 586,154 4,250,000 -- 4,836,154 1.3%
Richard A. Nortz (7)................................... 154,058 949,000 -- 1,103,058 *
Dennis R. Raney (7).................................... -- 1,031,250 -- 1,031,250 *
All current directors and executive officers as a group
(15 persons).......................................... 770,310 2,707,328 1,135,780 4,613,418 1.3%
- --------
* less than 1%
(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,
2002. 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 Schedule 13G filed February 11, 2002 by Harris Associates L.P.
and Harris Associates Inc. (collectively, "Harris Associates") with the
Securities and Exchange Commission. Harris Associates has shared voting
power with respect to all shares, sole investment power with respect to
23,633,800 shares and shared investment power with respect to 7,000,000
shares. Harris Associates has been granted the power to vote all shares in
circumstances it determines to be appropriate in connection with assisting
its advised clients to whom it renders financial advice in the ordinary
course of business, by either providing information or advice to the
persons having such power, or by exercising the power to vote. In addition,
Harris Associates serves as investment adviser to the Harris Associates
Investment Trust (the "Trust"), and various officers and directors of
Harris Associates are also officers and trustees of the Trust. Harris
Associates does not consider that the Trust is controlled by such persons.
The Trust, through its various series, owns 7,000,000 shares, which are
included as shares over which Harris Associates has shared voting and
investment power, and thus, as shares beneficially owned by Harris
Associates because of Harris Associates' power to manage the Trust's
investments.
(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 director and executive officer.
(7) Former executive officer.
5
PROPOSAL ONE
ELECTION OF DIRECTORS
Since last year's annual meeting of stockholders, the Board of Directors has
adopted a resolution fixing the number of directors at seven. Accordingly, a
Board of seven directors is to be elected at the Annual Meeting. Directors
elected at the Annual Meeting will hold office until the next annual meeting of
stockholders, 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 Messrs. Messman, Foster and LaSala, as your
representatives, will vote for such person if you have given them your proxy.
There are no family relationships among executive officers and directors of
the Company.
Biographies of the Board of Directors
Jack L. Messman
Director since 1985
Chairman since November 2001
Mr. Messman, age 61, became President and Chief Executive Officer of Novell
in connection with Novell's acquisition of Cambridge Technology Partners
(Massachusetts), Inc. ("Cambridge"), an eBusiness systems integration company,
in July 2001. Mr. Messman was elected Chairman of the Board of Directors of
Novell in November 2001. Prior to joining Novell, Mr. Messman served as
President and Chief Executive Officer of Cambridge from August 1999 to July
2001. 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 is also a director of RadioShack
Corporation, Safeguard Scientifics, Inc. and U.S. Data, Inc.
Elaine R. Bond
Director since 1993
Ms. Bond, age 66, retired in December 1994 as a Chase Fellow and Senior
Consultant for Chase Manhattan Bank, a New York based financial institution, a
position held since December 1991.
Richard L. Nolan
Director since 1998
Mr. Nolan, age 61, 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 Officer of Nolan, Norton and Company, an information technology
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.
John W. Poduska, Sr., Ph.D.
Director since 2001
Dr. Poduska, age 64, was the Chairman of Advanced Visual Systems, Inc., a
provider of visualization software, from January 1992 to December 2001. From
December 1989 until December 1991, Dr. Poduska was President and Chief
Executive Officer of Stardent Computer, Inc., a computer manufacturer. From
December 1985 until December 1989, Dr. Poduska was founder, Chairman and Chief
Executive Officer of Stellar Computer, Inc., a computer manufacturer and the
predecessor of Stardent Computer, Inc. Prior to founding Stellar Computer,
Inc., Dr. Poduska founded Apollo Computer Inc. and Prime Computer Inc. Dr.
Poduska is also a director of Anadarko Petroleum Corporation, Safeguard
Scientifics, Inc. and eMerge Interactive, Inc.
6
James D. Robinson, III
Director since 2001
Mr. Robinson, age 66, is co-founder and has served as Chairman and Chief
Executive Officer of RRE Investors, LLC, a private information technology
venture investment firm, since 1994 and Chairman of Violy Byorum & Partners
Holdings, LLC, a private firm specializing in financial advisory and investment
banking activities in Latin America, since 1995. He has also served as
Chairman, Chief Executive Officer and sole stockholder of J.D. Robinson
Incorporated, a strategic consulting company, since 1993. He previously served
as Chairman and Chief Executive Officer of American Express Company, a
financial services company, from 1977 to 1993. Mr. Robinson is a director of
Bristol-Myers Squibb Company, The Coca-Cola Company, First Data Corporation,
Sunbeam Corporation, ScreamingMedia Inc. and Claxson Interactive Group Inc. Mr.
Robinson is a member of the Business Council and the Council on Foreign
Relations. He is Honorary Co-Chairman of Memorial Sloan-Kettering Cancer
Center, an honorary trustee of the Brookings Institution, and Chairman Emeritus
of the World Travel and Tourism Council. Mr. Robinson served as Co-Chairman of
the Business Roundtable and as Chairman of the Advisory Committee on Trade
Policy and Negotiations.
Larry W. Sonsini
Director since 1988
Mr. Sonsini, age 61, has been a Member and Chairman and Chief Executive
Officer of Wilson Sonsini Goodrich & Rosati, Professional Corporation, a law
firm, for more than the last five years. Wilson Sonsini Goodrich & Rosati
serves as counsel to the Company. Mr. Sonsini is also a director of Brocade
Communications Systems, Inc., Commerce One, Inc., Echelon Corporation, Lattice
Semiconductor Corporation, LSI Logic, Inc., PIXAR, Inc., Simplex Solutions,
Inc. and Tibco Software, Inc.
Carl J. Yankowski
Director since 2001
Mr. Yankowski, age 53, was the Chief Executive Officer of Palm, Inc., a
computer software and hardware manufacturer, and one of its directors from
December 1999 to November 2001. From September 1998 to December 1999, Mr.
Yankowski was Executive Vice President of Reebok International Ltd., a footwear
and apparel company, and President and Chief Executive Officer of the Reebok
Division. From November 1993 to January 1998, Mr. Yankowski was President and
Chief Operating Officer of Sony Electronics Inc., a subsidiary of the Sony
Corporation and a manufacturer of electronic devices. Mr. Yankowski also serves
as a director of Safeguard Scientifics, Inc., and he is a member of the board
of advisors of Boston College Business School.
7
Meetings and Committees of the Board of Directors
The Board of Directors held 12 meetings during the last fiscal year ended
October 31, 2001. During the last fiscal year, each current director attended
at least 75% of the meetings of the Board and the committees on which they
served. 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. The following are the current members of
the committees of the Board of Directors.
Number of
Meetings in
Name of Committee and Members Summary of the Functions of the Committee Fiscal 2001
- ----------------------------- ---------------------------------------------------------- -----------
AUDIT Recommends selection of independent auditors to the 5
Elaine R. Bond (1) Board
Richard L. Nolan
Carl J. Yankowski Reviews internal accounting controls
Confers with independent auditors and internal accounting
personnel regarding scope and results of auditors'
examinations
See "Report of the Audit Committee of the Board of
Directors" and the Company's Audit Committee Charter,
filed as an appendix to the Proxy Statement for the 2001
Annual Meeting of Stockholders
COMPENSATION Reviews performance of CEO and other executive officers 7
John W. Poduska, Sr. (1)
Richard L. Nolan Determines total compensation package for CEO and
Carl J. Yankowski other executive officers
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 (2) Identifies nominees and establishes qualifications for 0
James D. Robinson, III (1) Board Membership
Jack L. Messman
Larry W. Sonsini Receives and reviews stockholder suggestions for
nominees for Board membership
Reviews procedures for CEO succession and director
retirement
Establishes general guidelines for the operation of the
Board
OPTION GRANT COMMITTEE Makes grants of stock options to non-executive 2
Jack L. Messman participants to allow for efficient response to hiring and
other personnel needs
- --------
(1) Chairperson
(2) The full Board of Directors served the function of a corporate
governance/nominating committee in fiscal 2001. 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 seven 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.
Stockholders do not have the right to cumulate their votes in the election of
directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE SLATE OF
NOMINEES SET FORTH ABOVE.
PROPOSAL TWO
RATIFICATION OF AUDITORS
The Audit Committee, composed entirely of independent, non-employee
directors, recommended to the Board of Directors that Ernst & Young LLP ("Ernst
& Young") be reappointed as independent auditors. The Board approved the
selection of Ernst & Young as independent auditors for fiscal 2002 and is
asking the stockholders for ratification of their selection. Stockholder
ratification is not required by the Company's bylaws or under any other
applicable legal requirement. If the stockholders 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. As our independent auditors, Ernst &
Young would audit our consolidated financial statements for fiscal 2002 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 Audit Committee has determined that the
provision of the services provided by Ernst & Young as set forth herein are
compatible with maintaining Ernst & Young's independence.
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 2001
Audit Fees
The aggregate fees billed by Ernst & Young for professional services
rendered for the audit of the Company's annual financial statements for the
fiscal year ended October 31, 2001 and for the review of the financial
statements included in the Company's Forms 10-Q for the fiscal year ended
October 31, 2001 were $1,310,000.
Financial Information Systems Design and Implementation Fees
Ernst & Young did not bill any fees to the Company for financial information
systems design and implementation professional services for the fiscal year
ended October 31, 2001.
All Other Fees
The aggregate fees billed by Ernst & Young for services other than those
described above for the fiscal year ended October 31, 2001 were $4,878,000,
which included audit-related services of $1,633,000.
9
Vote Required and Board Recommendation
The affirmative vote of a majority of the votes cast on this proposal will
be required for its approval.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
SELECTION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR THE FISCAL YEAR
ENDING OCTOBER 31, 2002.
PROPOSAL THREE
STOCKHOLDER PROPOSAL
The Board of Directors and Management of the Company disagree strongly with
the adoption of the resolution proposed below by Martin Glotzer (the
"Stockholder Proposal") and ask stockholders to read carefully the Company's
response to Mr. Glotzer's proposal.
The author and proponent of the following stockholder resolution, Martin
Glotzer, 7061 N. Kedzie Ave., Suite 301, Chicago, Illinois 60645, has requested
that the Company include the following proposal in this Proxy Statement. Mr.
Glotzer has informed the Company that he was the holder of 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 bylaws be amended to
read: Any two or more offices, may be held by the same person, 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 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. However, assignment of these roles can and does change
depending on the needs of the Company 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
10
to be the case, particularly given that four of the seven members of the Board
are independent, unaffiliated directors, and the Audit Committee and the
Compensation 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 performance and 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 Company's bylaws neither provide the Chairman with special management
oversight responsibilities, nor do they insulate an executive Chairman from
Board oversight. The bylaws 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 Company, 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 bylaws.
Accordingly, the Board believes the existing bylaws support the Board's
exercise of its oversight responsibilities and do not compromise the
independence of the Board of Directors. It would be unwise to mandate in the
bylaws how any senior management position is to be filled. The Board of
Directors should have the flexibility to determine the staffing and the officer
titles to achieve the optimum results for the stockholders.
Vote Required and Board Recommendation
The affirmative vote of a majority of the votes cast on the Stockholder
Proposal will be required for its approval.
FOR THE REASONS STATED ABOVE, THE BOARD OF DIRECTORS RECOMMENDS A VOTE
AGAINST THIS PROPOSAL.
11
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 2001 (based on salary and bonus)
serving at fiscal year end. The table also lists our former Chief Executive
Officer and two other former executive officers who would have been included
had they still been executive officers of the Company at fiscal 2001 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 Restricted Securities
Annual Stock Underlying All Other
Salary Bonus Compensation Awards Options Compensation
Name and Principal Position Year ($) ($)(2) ($)(3) ($)(4) (#) ($)(5)
- --------------------------- ---- -------- -------- ------------ ---------- ---------- ------------
Jack L. Messman (6)....................... 2001 $258,839 -- $ 38,100 $3,521,638 2,423,045 $ 313(7)
Chairman of the Board, President and
Chief Executive Officer
Ronald C. Foster (8)...................... 2001 $306,106 $275,093 -- $ 135,321 180,000 $ 11,519
Executive Vice President and
Chief Financial Officer
Carl S. Ledbetter (9)..................... 2001 $375,398 $367,175 -- $ 184,524 100,000 $ 9,275
Senior Vice President and 2000 $351,346 $141,345 -- $ 173,101 50,000 $ 13,215
Chief Technology Officer 1999 -- -- -- $1,671,250 250,000 --
Ralph T. Linsalata (10)................... 2001 $127,993 $ 63,000 -- $ 295,200 200,000 $ 1,540(7)
Senior Vice President,
Venture Investments
Stewart G. Nelson (11).................... 2001 $523,883 $569,780 -- $1,131,434 125,000 $ 8,563
Executive Vice President and 2000 $414,086 $201,485 $ 61,372 $2,315,187 250,000 $ 5,845
Chief Operations Officer 1999 $351,345 $212,543 -- -- 350,000 $ 4,838
Eric E. Schmidt (12)...................... 2001 $410,428 $271,500 -- -- -- $1,234,658
Former Chairman of the Board, 2000 $602,308 $399,495 $103,216 -- 1,000,000 $ 27,079
Chief Executive Officer and President 1999 $602,308 $600,540 -- -- 500,000 $ 26,226
Richard A. Nortz (13)..................... 2001 $410,481 $404,283 -- $ 209,131 100,000 $ 25,898
Former Senior Vice President, 2000 $345,072 $145,320 -- $1,137,957 200,000 $ 16,070
Worldwide Sales 1999 $326,250 $201,930 -- -- 275,000 $ 15,282
Dennis R. Raney (14)...................... 2001 $355,530 $266,468 -- $1,131,434 125,000 $2,957,971
Former Executive Vice President and 2000 $420,360 $202,071 -- $1,638,937 400,000 $ 2,761
Chief Financial Officer 1999 $401,539 $257,819 -- -- 250,000 $ 5,190
- --------
(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 2001, 2000 and 1999
have been listed in the year earned, although some payments may have been
made shortly after the end of the applicable fiscal year. Bonus amounts
listed for 2001 to Messrs. Foster, Ledbetter, Nelson and Nortz include
retention bonuses of $125,681, $173,451, $221,781 and $191,644,
respectively.
(3) No Named Officer received perquisites in an amount greater than the lesser
of (i) $50,000 or (ii) 10% of such Named Officer's total salary plus
bonus, except Dr. Schmidt and Mr. Nelson in fiscal year 2000.
Dr. Schmidt's perquisites for 2000 included $31,304 for financial
planning, $14,088 for executive physical, $21,548 for personal use of the
corporate aircraft, and $36,276 for one week of payment-in-lieu
12
of flexible time off. Mr. Nelson's perquisites for 2000 included $38,296
for financial planning and $23,076 for one week of payment-in-lieu of
flexible time off. The payments-in-lieu of flexible time off for
Dr. Schmidt and Mr. Nelson were part of a one-time arrangement offered to
all employees. In 2001, Mr. Messman received payments of $38,100 in
connection with his services while serving as a nonemployee director of the
Company.
(4) Restricted stock awards are valued at the fair market value on the date of
grant (as defined in the Company's stock plans) less the purchase price.
Officers have the right to vote the shares and to receive cash dividends,
if any. Any stock dividends that may be received will have the same
vesting restrictions as the shares. As of fiscal 2001 year-end,
Mr. Messman had 715,780 unvested restricted shares with a value of
$2,533,861. As of fiscal 2001 year-end, the other Named Officers have the
following unvested shares and values: Mr. Foster, 10,891 shares with a
value of $38,554; Mr. Ledbetter, 44,851 shares with a value of $158,773;
Mr. Nelson, 239,801 shares with a value of $848,896; Mr. Linsalata, 60,000
shares with a value of $212,400; Mr. Nortz, 76,832 shares with a value of
$271,985; Dr. Schmidt and Mr. Raney, no unvested shares. The grants to
Messrs. Foster, Ledbetter, Nelson, Nortz and Raney for 2001 vested 50% on
August 26, 2001 and another 50% on November 26, 2001. All other grants of
restricted stock reflected on the table vest 40% on the first annual
anniversary of the grant date, and another 30% on each of the second and
third annual anniversaries of the grant date.
(5) Except as otherwise noted in footnotes (7), (11) and (13), the stated
amounts for all Named Officers are Company matching contributions to the
Novell, Inc. Retirement and Savings Plan and the Deferred Compensation
Plan.
(6) Mr. Messman became an executive officer of the Company on July 10, 2001.
(7) Amounts for Messrs. Messman and Linsalata in 2001 reflect premiums paid
for life insurance. Messrs. Messman and Linsalata have collaterally
assigned these life insurance policies to Novell to secure the repayment
to Novell of up to the entire amount of the premiums paid by Novell
pursuant to this policy.
(8) Mr. Foster became an executive officer on July 10, 2001.
(9) Mr. Ledbetter joined the Company on October 25, 1999 and did not receive
any salary or bonus during the fiscal year ended October 31, 1999.
(10) Mr. Linsalata joined the Company on July 10, 2001.
(11) On February 26, 2002, the Company announced that Mr. Nelson will be
leaving the Company effective March 15, 2002.
(12) Dr. Schmidt resigned as Chief Executive Officer of the Company on July 10,
2001 but entered into a Consulting Agreement dated August 13, 2001 to
serve as a special consultant to the Company through July 10, 2002.
Compensation of $1,200,000 payable to Dr. Schmidt pursuant to the
Consulting Agreement is reported under the column "All Other Compensation"
for 2001. The balance of $34,658 represents Company matching contributions
to the Novell, Inc. Retirement and Savings Plan and the Deferred
Compensation Plan.
(13) Mr. Nortz executed a separation agreement with the Company in August 2001,
and resigned from all Company positions effective January 4, 2002.
(14) Mr. Raney resigned from all Company positions effective July 16, 2001.
Compensation of $2,955,000 payable to Mr. Raney in connection with his
resignation as an executive officer is reported under the column "All
Other Compensation" for 2001. The balance of $2,971 represents Company
matching contributions to the Novell, Inc. Retirement and Savings Plan and
the Deferred Compensation Plan.
13
Director Compensation
Non-employee directors of the Company receive the following compensation:
. Annual retainer of $25,000 for board membership
. Annual retainer of $2,500 for service as a committee chairperson, if
applicable
. Meeting fees
-- $1,200 for each Board meeting attended
-- $1,000 for each committee meeting attended
. Reimbursement for expenses incurred in attending meetings
. Participation in the director option plan (described below).
Directors have the right to designate all or a portion of their annual
retainers to be deferred through the purchase of common stock equivalents and
designate what date in the future such common stock equivalents will be paid
out in shares of the Company's Common Stock. Ms. Bond deferred 50% of her
retainer and acquired 2,500 common stock equivalents on April 17, 2001.
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% annually
over four years. In addition, each non-employee director receives an annual
grant of an option to purchase 15,000 shares vesting 50% 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 from the Board of Directors at age 70, options granted
under the Director Plan become fully vested and the director has one year in
which to exercise.
The non-employee directors as of April 17, 2001 were each granted an option
having an exercise price of $4.00 per share to purchase 15,000 shares under the
Director Plan on April 17, 2001. Dr. Poduska, Mr. Robinson and Mr. Yankowski
were each granted an option having an exercise price of $4.98 per share to
purchase 30,000 shares under the Director Plan on July 10, 2001 in connection
with their initial appointment to the Board of Directors. On October 31, 2001,
options to purchase 714,500 shares of the Company's Common Stock under the
Director Plan were outstanding at a weighted average exercise price of $16.07
per share.
Additionally, each non-employee director as of September 10, 2001 was
granted an option having an exercise price of $3.92 per share to purchase
50,000 shares of the Company's Common Stock under the Novell, Inc. 2000 Stock
Plan on September 10, 2001. Each option has a term of 10 years and becomes
vested and exercisable with respect to 25% of the shares of Common Stock
subject to the option on the first annual anniversary of the date of grant, and
an additional 6.25% of the shares subject to the option become vested and
exercisable as of each succeeding quarterly anniversary of the date of grant,
so that the option becomes exercisable in full on the fourth anniversary of the
date of grant.
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 $1,000,000
death benefit to participating directors. Upon the death of a participating
director, the Company will donate the proceeds of the $1,000,000 death benefit
(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 2001 to fund the Charitable Program was
$156,851.
14
Stock Option Grants in Fiscal Year 2001
This table shows stock option grants during fiscal 2001 to the Named
Officers. No stock appreciation rights have been granted by the Company to the
Named Officers.
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term(1)
------------------------------------------- ---------------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees Exercise
Granted in Fiscal Price Expiration
Name (#)(2) Year(3) ($/Sh) Date 5% ($) 10% ($)
- ---- ---------- ---------- -------- ---------- ---------- -----------
Jack L. Messman...... 15,000(4) 0.04% $ 4.00 4/17/2011 $ 37,734 $ 95,625
1,108,045(5) 3.13% $ 5.02 7/12/2011 $3,498,155 $ 8,865,011
1,300,000(6) 3.67% $ 5.02 7/12/2011 $4,104,166 $10,400,763
Ronald C. Foster..... 80,000(7) 0.23% $6.3125 2/26/2011 $ 317,592 $ 804,840
100,000(6) 0.28% $ 5.02 7/12/2011 $ 315,705 $ 800,059
Carl S. Ledbetter.... 100,000(7) 0.28% $6.3125 2/26/2011 $ 396,990 $ 1,006,050
Stewart G. Nelson.... 125,000(8) 0.35% $6.3125 2/26/2011(9) $ 496,237 $ 1,257,562
Ralph T. Linsalata... 200,000(5) 0.56% $ 5.02 7/12/2011 $ 631,410 $ 1,600,117
Eric E. Schmidt (10). -- -- -- -- -- --
Richard A. Nortz (10) 100,000(8) 0.28% $6.3125 2/26/2011(9) $ 396,990 $ 1,006,050
Dennis R. Raney (10). 125,000(8) 0.35% $6.3125 2/26/2011 (9) $ 496,237 $ 1,257,562
- --------
(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% and 10% 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. Actual gains, if any, on stock option exercises
and Common Stock holdings are dependent on, among other things, the timing
of such exercise and the future performance of the Company's Common Stock.
There can be no assurance that the rates of appreciation assumed in this
table can be achieved or that the amounts reflected will be received by
the individuals.
(2) All options shown in the table have exercise prices equal to the fair
market value on date of grant 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 become
fully exercisable and vested and shall be terminated in exchange for a net
cash payment. In 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 35,452,524 shares were
granted to employees in fiscal 2001.
(4) This option was granted under the Director Plan while Mr. Messman was a
non-employee director, and becomes vested and exercisable with respect to
50% of the shares of Common Stock subject to the option
15
on each of the first and second annual anniversaries of the date of grant,
so that the option becomes exercisable in full on the second anniversary of
the date of grant.
(5) This option was vested and exercisable with respect to 25% of the shares
of Common Stock subject to the option as of the date of grant, and an
additional 6.25% of the shares subject to the option become vested and
exercisable as of each succeeding quarterly anniversary of the date of
grant, so that the option becomes exercisable in full on the third
anniversary of the date of grant.
(6) This option becomes vested and exercisable with respect to 25% of the
shares of Common Stock subject to the option on the first annual
anniversary of the date of grant, and an additional 6.25% of the shares
subject to the option become vested and exercisable as of each succeeding
quarterly anniversary of the date of grant, so that the option becomes
exercisable in full on the fourth anniversary of the date of grant.
(7) This option becomes vested and exercisable with respect to 40% of the
shares of Common Stock subject to the option on the first annual
anniversary of the date of grant, and an additional 10% of the shares
subject to the option become vested and exercisable as of each succeeding
quarterly anniversary of the date of grant, so that the option becomes
exercisable in full on the thirtieth monthly anniversary of the date of
grant.
(8) At the time of grant, the option was to become vested and exercisable with
respect to 40% of the shares of Common Stock subject to the option on the
first annual anniversary of the date of grant, and an additional 10% of
the shares subject to the option were to become vested and exercisable as
of each succeeding quarterly anniversary of the date of grant, so that the
option was to become exercisable in full on the thirtieth monthly
anniversary of the date of grant. The vesting on these options was
accelerated in connection with the termination of the Named Officer's
employment such that they are fully vested.
(9) Although the option has a ten-year term, it will expire on the first
anniversary of the effective date of termination of the Named Officer's
employment.
(10) 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. Options to
purchase a total of 13,760,898 shares having a weighted average exercise price
of $26.82 per share were cancelled in connection with this option exchange.
Accordingly, options to purchase a total of 12,211,042 shares were granted on
August 17, 2001 at an exercise price of $4.68 per share. Although the new
options have the same vesting as each cancelled option, none were exercisable
until February 17, 2002 except in certain circumstances of termination of
employment.
16
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
This table shows information regarding the number and value of options held
at 2001 fiscal year end by the Named Officers. There were no stock option
exercises during fiscal 2001 by the Named Officers.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year End (#) at Fiscal Year End(1)($)
------------------------------ -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Jack L. Messman..... 518,763 2,109,282 -- --
Ronald C. Foster.... 82,687 280,313 -- --
Carl S. Ledbetter... 140,625 259,375 -- --
Stewart G. Nelson... 745,125 496,875 -- --
Ralph T. Linsalata.. 62,500 137,500 -- --
Eric E. Schmidt (2). 4,250,000 -- -- --
Richard A. Nortz (2) 949,000 -- -- --
Dennis R. Raney (2). 1,031,250 -- -- --
- --------
(1) Value of unexercised in-the-money options is:
. the fair market value of the Company's Common Stock at fiscal 2001 year
end ($3.54 per share)
. less the option exercise price per share of in-the-money options
. times the number of shares subject to the options.
All options held by the Named Officers were out-of-the-money at October 31,
2001.
(2) Former executive officer.
Additional Executive Officer
Information pertaining to the Company's executive officers was included in
Novell's Annual Report on Form 10-K filed with the SEC on January 28, 2002. On
February 26, 2002, the Company announced the appointment of Christopher Stone
to the newly created position of Vice Chairman, Office of the CEO, effective
March 1, 2002. In January 2000, Mr. Stone founded Tilion, Inc., a software
company providing event management solutions for logistics and supply chain
managers, and has served as its President and Chief Executive Officer since
then. Prior to founding Tilion, Mr. Stone served as Novell's Vice President for
Strategy and Development from September 1997 to October 1999. Prior to joining
Novell, Mr. Stone founded and served as the Chief Executive Officer of Object
Management Group, a software development standardization group.
Employment Contracts, Termination of Employment and Change-in-Control
Arrangements
Mr. Messman has entered into an employment agreement with Novell that
provides for his employment as Chief Executive Officer and President of Novell.
The agreement became effective upon the closing of the Company's acquisition of
Cambridge and provides for an initial annual base salary of $781,981, which was
increased to $950,000 in September 2001. Mr. Messman is also entitled to a
bonus of 100% of his base salary if performance goals are met, and such
additional bonus compensation as is specified by the Board of Directors if the
performance goals are exceeded. Mr. Messman received options to purchase a
total of 2,408,045 shares of Novell's Common Stock at a purchase price of $5.02
per share. Mr. Messman also received the right to purchase 715,780 restricted
shares of Novell's Common Stock for an aggregate purchase price of $71,578. The
shares of restricted stock will vest as follows: 299,672 shares will vest on
July 12, 2002, an additional 66,800 shares will vest on January 12, 2003, an
additional 174,654 shares will vest on July 12, 2003, and the remaining
174,654 shares will vest on July 12, 2004.
17
Pursuant to the employment agreement, Mr. Messman will be entitled to
receive employee benefits made available to other employees and officers of
Novell and their eligible dependents. Novell will also maintain long-term
disability insurance, short-term disability insurance, term life insurance
coverage, accidental death and dismemberment coverage, and business travel
accident insurance for the benefit of Mr. Messman.
Under the terms of the employment agreement, in the event Mr. Messman is
terminated without "cause" or if he is "constructively terminated" (each as
defined in the employment agreement), or if he becomes permanently disabled or
dies, Mr. Messman will receive the following benefits: (i) a severance payment
equal to one and a half times Mr. Messman's annual salary and target bonus;
(ii) a pro rated single sum bonus based on his actual accomplishments for the
portion of the year he was employed by Novell; (iii) continued medical, dental,
vision and life insurance and other applicable welfare benefits for himself and
his eligible dependents for 18 months following his termination; (iv) the
acceleration of the vesting of his outstanding options that would have become
vested and exercisable within the one year period after his termination of
employment; and (v) the lapse of restrictions on any outstanding restricted
stock he holds that would have lapsed within the one year period after his
termination of employment.
In the event that Novell experiences a "change-in-control" (as defined in
the employment agreement) and Mr. Messman is terminated without "cause" or if
he is "constructively terminated," Mr. Messman will receive the following
benefits: (i) a severance payment equal to three times his annual salary and
target bonus; (ii) a pro rated single sum bonus based on his actual
accomplishments for the portion of the year he was employed by Novell; (iii)
medical, dental, vision and life insurance and other applicable welfare
benefits will be continued for three years following his termination; (iv) the
full acceleration of the vesting of his options; (v) the restrictions on all
outstanding restricted stock held by Mr. Messman will lapse; (vi) Novell will
pay for the costs of attorney's fees on behalf of Mr. Messman in the event of a
dispute regarding Mr. Messman's change-in-control benefits; and (vii) in the
event that any payments or benefits Mr. Messman receives from Novell are
subject to excise tax under Section 280G of the Internal Revenue Code, Novell
will pay Mr. Messman an additional amount so that the net amount retained by
Mr. Messman after deduction of (x) any excise tax and (y) any federal, state
and local tax and excise tax imposed upon the additional amount, shall be equal
to the value of such payments or benefits.
Mr. Messman's employment agreement provides certain covenants by Mr. Messman
not to compete with Novell during the term of the agreement and for one year
thereafter. Mr. Messman also agreed pursuant to the employment agreement not to
solicit or interfere with the employment of any Novell employee for one year
after the termination of the agreement. The agreement also provides that Novell
will indemnify Mr. Messman and advance his costs and expenses, to the fullest
extent legally permitted or authorized by Novell's certificate of incorporation
or by-laws or resolutions of Novell's Board or, if greater, by the laws of the
State of Delaware, against all costs, expenses, liabilities and losses
reasonably incurred or suffered by him in connection any action, suit or
proceeding arising out his services as a director, officer or employee of
Novell or its affiliated entities.
On November 1, 2000, Mr. Nelson was promoted to Executive Vice President,
Chief Operating 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, which was increased to
$675,000 in September 2001. Mr. Nelson is eligible to participate in an
incentive bonus plan, where, based upon the accomplishment of certain
performance goals, Mr. Nelson is eligible to earn a bonus that was initially
set at 75% of his base salary, and which was increased to 100% in September
2001. 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% on the first anniversary of the grant date and 30% on each of the second
and third anniversaries of the grant date. The vesting is conditioned upon Mr.
Nelson's continued employment or consulting relationship with Novell as of the
vesting dates.
On February 26, 2002, the Company announced that Mr. Nelson will be leaving
the Company effective March 15, 2002. Accordingly, pursuant to the terms of Mr.
Nelson's November 2000 employment agreement, Mr. Nelson shall be entitled to
receive the following: (i) a single sum payment equal to three times his annual
18
base salary and target bonus at time of termination; (ii) a single sum payment
equal to the cost of COBRA benefits for a period of not less then three years;
(iii) accelerated vesting by two years for all his outstanding stock options;
and (iv) a waiver of Novell's repurchase rights on any remaining unvested
restricted stock. Mr. Nelson's agreement also provides for certain covenants by
Mr. Nelson not to compete with Novell for one year after the termination of his
agreement. Mr. Nelson also agreed pursuant to the agreement not to solicit or
interfere with the employment of any Novell employee for one year after the
termination of the agreement.
On August 13, 2001, the Company entered into a consulting agreement (the
"Consulting Agreement") with Dr. Schmidt pursuant to which Dr. Schmidt will
serve as a special consultant to the Company through July 10, 2002. The
Consulting Agreement provides for: (i) the lump sum payment by the Company of
approximately $64,000; (ii) the payment by the Company of fees of $100,000 per
month from July 10, 2001 through July 10, 2002; (iii) the payment by the
Company of an amount equal to the cost of COBRA continuation through July 10,
2002; (iv) the lapse of the Company's right to repurchase Dr. Schmidt's
unvested restricted stock; (v) the full acceleration on the vesting of Dr.
Schmidt's stock options; and (vi) limited use of the Company's aircraft for
Novell business purposes. Dr. Schmidt's Consulting Agreement also provides
certain covenants by Dr. Schmidt not to compete with the Company during the
term of the agreement and for one year thereafter. Dr. Schmidt also agreed
pursuant to the employment agreement not to solicit or interfere with the
employment of any Company employee for one year after the termination of the
agreement. The Consulting Agreement provides that the payments made thereunder
shall be deemed to satisfy the Company's obligations under its employment
agreement with Dr. Schmidt dated March 18, 1997.
Mr. Nortz resigned from the Company effective January 4, 2002. In connection
with his resignation from the Company, the Company and Mr. Nortz entered into a
letter agreement effective as of August 14, 2001 (the "Nortz Agreement")
pursuant to which Mr. Nortz voluntarily forfeited his benefits under the Senior
Management Severance Plan. The Nortz Agreement provides for: (i) the payment by
the Company of a severance payment of $850,000, payable in equal installments
over 24 months; (ii) the payment by the Company of an additional severance
payment of $510,000, half of which was payable within two weeks of the
effective date of Mr. Nortz' resignation, and the other half payable in four
equal quarterly installments, commencing three months after the effective date
of Mr. Nortz' resignation; (iii) 24 months of acceleration on the vesting of
Mr. Nortz' stock options and restricted stock; (v) the waiver by the Company of
its right to repurchase Mr. Nortz' unvested restricted stock; (vi) the
reimbursement for Mr. Nortz' personal financial planning and tax return
preparation for 2002, not to exceed $11,000; and (vii) monthly payments by the
Company of the amount it would have paid on Mr. Nortz' behalf under his health
and dental plan elections for a period of not less than 24 months from the
effective date of Mr. Nortz' resignation. Mr. Nortz' agreement also provides
certain covenants by Mr. Nortz not to compete with the Company, not to solicit
or interfere with the employment of any Company employee, and not to interfere
with the Company's business with customers for two years from the effective
date of his resignation.
In connection with his resignation from the Company, the Company and Mr.
Raney entered into a letter agreement effective as of July 16, 2001 (the
"Severance Agreement") pursuant to which Mr. Raney voluntarily forfeited his
benefits under the Senior Management Severance Plan. The Severance Agreement
provides for: (i) the payment by the Company of a severance payment of
$1,500,000, payable in equal installments over 36 months; (ii) the payment by
the Company of an additional severance payment of $1,125,000, payable in two
equal installments, one on the 18-month and the other on the 36-month
anniversary of the date of the termination of Mr. Raney's employment with the
Company; (iii) a payment of $330,000 payable immediately in connection with Mr.
Raney's termination of employment; (iv) 30 months of acceleration on the
vesting of Mr. Raney's stock options and restricted stock; (v) the waiver by
the Company of its right to repurchase Mr. Raney's vested restricted stock;
(vi) the reimbursement for Mr. Raney's personal financial planning and tax
return preparation for 2001, 2002 and 2003, not to exceed $11,000 in the
aggregate per year; and (vii) monthly payments by the Company of the amount it
would have paid on Mr. Raney's behalf under his health and dental plan
elections for a period of not less than 36 months. Mr. Raney's agreement also
provides certain covenants by Mr. Raney not to compete with the Company, not to
solicit or interfere with the employment of any Company employee, and not to
interfere with the Company's business with customers for two years from the
termination of the agreement.
19
All executive officers, including the Named Officers, but excluding Messrs.
Messman and Nelson whose severance is governed by the provisions of their
employment agreements, are eligible to participate in the Senior Management
Severance Plan (the "Severance Plan"). The Severance Plan provides each
participant, in the event of involuntary termination by the Company, benefits
of: (i) payments by the Company of 150% of his or her base
annual salary; (ii) payments by the Company to cover 18 months of COBRA
continuation; (iii) accelerated vesting of the portion of his or her 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. In addition, in the event of an involuntary termination after a
change-in-control, terminated participants are entitled to receive the
following: (i) payments by the Company of three times their base salary and
target bonus; (ii) payments by the Company 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 Severance Plan as where: (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 stockholders of Novell
prior to the transaction do not hold at least 50% 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% or more of the
combined voting power (excluding any persons who are now officers of Novell).
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 "Compensation
Committee") is composed of three non-employee directors: John W. Poduska, Sr.
(Chairperson), Richard L. Nolan and Carl J. Yankowski. Mr. Poduska has been the
Chairperson and has served on the Compensation Committee since September 1,
2001. Mr. Yankowski was appointed to the Compensation Committee effective
September 1, 2001. Mr. Nolan and Mr. Hundt were members of the Compensation
Committee for all of fiscal 2001, but Mr. Hundt stepped down from the
Compensation Committee effective October 31, 2001. John A. Young served as the
Chairperson and a member of the Compensation Committee until September 1, 2001
and William N. Joy served as a member of the Compensation Committee until
September 1, 2001. During the periods that each member served on the
Compensation Committee, no member had a relationship that would constitute an
interlocking relationship with executive officers or directors of another
entity. From time to time, the Chief Executive Officer, other members of the
Board of Directors, certain officers of Novell and outside consultants attended
meetings of the Compensation Committee. No officer of Novell is present during
discussions or deliberations regarding his or her own compensation.
Responsibilities of the Compensation Committee
Acting on behalf of the Board of Directors, the Compensation 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.
20
. 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.
. Serving as an administrator of 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 Compensation
Committee believes that the compensation of executive officers should be
significantly influenced by performance. Accordingly, between 38% and 50% 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.
The Company's compensation program for executive officers, including the
CEO, 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 of a group of comparable companies selected on the basis of
similarity in revenue level, industry segment or employment market conditions
to those of the Company. The survey group includes information from a group of
60 companies, approximately half of which are included in the industry index
used in the Company's performance graph.
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 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.
Many of the Company's executive officers joined the Company in July 2001 in
connection with the Company's acquisition of Cambridge Technology Partners
("Former Cambridge Executives"). The compensation of the Former Cambridge
Executives in most cases was what they had been earning at Cambridge, and the
incentive bonus determinations for these persons were made based upon the bonus
plans that were in place at Cambridge. In the future, incentive bonuses for
these executives will be determined in accordance with the procedures outlined
above for the Company's executive level positions.
Grants under the Company's Stock Plans, including those to the CEO, are
designed to further strengthen the linkage between executive compensation and
stockholder return, to provide additional incentives to executive officers tied
to growth of stock price over time and to 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 three-year vesting schedule.
2001 Executive Officer Compensation
At the beginning of fiscal 2001, the Compensation Committee reviewed and
approved the Novell variable pay plans for fiscal 2001, to be used for all
employees including senior executives, except for the Former Cambridge
Executives. The Compensation Committee then established the Company revenue and
operating
21
income objectives and performance targets to be used for incentive
determination under the variable pay plans. The Compensation Committee met in
November 2001 to determine appropriate incentive bonuses for Former Cambridge
Executives.
In February 2001, the Compensation Committee implemented a Retention Program
to retain certain senior executives. Eligible executives received (i) a cash
bonus equal to 50% of their annual base salary, half to be paid in August 2001
and half to be paid in November 2001, (ii) a grant of restricted stock with a
market value equal to 50% of their annual base salary, half to vest in August
2001 and half to vest in November 2001 and (iii) a stock option grant. Each
payment and vesting installment outlined above was subject to the continued
employment of each executive, unless the executive was terminated by the
Company.
In September 2001, the Compensation Committee reviewed industry compensation
survey data and current executive responsibility. The Compensation Committee
approved increases in the base salaries for those executives it felt were not
in line with market data.
2001 CEO Compensation
The Compensation Committee reviewed Dr. Schmidt's employment contract, which
provided 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 Compensation Committee did not increase Dr. Schmidt's
base pay. Upon the termination of Dr. Schmidt's employment in July 2001, the
Company entered into a consulting agreement with Dr. Schmidt to secure the
benefits of his continued contributions, while at the same time satisfying
severance obligations that otherwise would have been payable to Dr. Schmidt.
In connection with the Company's acquisition of Cambridge in July 2001, the
Company entered into an employment agreement with Mr. Messman. For a
description of this agreement, see "Executive Compensation--Employment
Contracts, Termination of Employment and Change-in-Control Arrangements" above.
The terms of the agreement were negotiated as part of the acquisition, and the
entry into the agreement was a condition to closing the acquisition. In
September 2001, the Compensation Committee reviewed Mr. Messman's salary in
light of industry compensation survey data and Mr. Messman's current executive
responsibilities. The Compensation Committee approved an increase in Mr.
Messman's base salary.
Qualifying Compensation
The Compensation 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 $1,000,000 per person in any taxable year unless it is
"performance based" within the meaning of Section 162(m). Non-performance based
compensation of some of the Named Officers exceeded $1 million in fiscal 1999,
2000, and 2001 and is expected to exceed $1 million in 2002. Accordingly, a
portion of the compensation to these individuals was not, and would not be,
deductible by the Company. 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 W. Poduska, Sr., Chairperson (since September 1, 2001)
John A. Young, Chairperson (until September 1, 2001)
Reed E. Hundt (until October 31, 2001)
William N. Joy (until September 1, 2001)
Richard L. Nolan
Carl J. Yankowski (since September 1, 2001)
22
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee of the Novell Board of Directors (the "Audit Committee")
operates under a written charter adopted by the Board of Directors in November
1999 and filed as an exhibit to the Appendix to the Proxy Statement for the
2001 Annual Meeting of Stockholders. The Audit Committee is currently comprised
of Elaine R. Bond (Chairperson), Richard L. Nolan and Carl J. Yankowski. Ms.
Bond has been the Chairperson since July 10, 2001, and served on the Audit
Committee during all of fiscal 2001. Mr. Nolan was appointed to the Audit
Committee effective February 22, 2001. Messrs. Hundt and Yankowski were
appointed to the Audit Committee effective July 10, 2001. Until July 10, 2001,
Jack L. Messman served as the Chairperson of the Audit Committee. Mr. Hundt
resigned from the Board of Directors and all committees thereof effective
February 22, 2002. During the periods that each member served on the Audit
Committee, each was "independent" within the meaning of the Nasdaq National
Market rules.
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 auditing standards generally accepted in the
United States and expressing an opinion on the conformity of those audited
financial statements in accordance with accounting principles generally
accepted in the United States. The Audit Committee's responsibility is to
monitor and oversee these processes. The Audit Committee also recommends to the
Board of Directors the selection of the Company's independent accountants.
Review With Management
The Audit Committee has reviewed the audited financial statements and met
and held discussions with management regarding the audited financial
statements. Management has represented to the Audit Committee that the
Company's consolidated financial statements were prepared in accordance with
accounting principles generally accepted in the United States.
Review and Discussion with Independent Auditors
The Audit 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 Audit Committee the
written disclosures required by Independence Standards Board Standard No. 1
(Independence Discussion with Audit Committees), and the Audit Committee
discussed with the independent auditors the auditors' independence from
management and the Company. The Audit Committee has also considered the
compatibility of non-audit services with the auditors' independence.
Conclusion
Based on the Audit Committee's discussion with management and the
independent auditors, the Audit Committee's review of the audited financial
statements, the representations of management and the report of the independent
auditors to the Audit Committee, the Audit 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, 2001 filed
with the Securities and Exchange Commission.
Respectfully submitted,
Elaine R. Bond, Chairperson (since July 10, 2001)
Jack L. Messman, Chairperson (until July 10, 2001)
Richard L. Nolan (since February 22, 2001)
Carl J. Yankowski (since July 10, 2001)
Reed E. Hundt (from July 10, 2001 until February 22, 2002)
23
PERFORMANCE GRAPH
The following graph compares 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
starting from November 1, 1996. The graphs assume that $100 was invested on
November 1, 1996 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 stockholder upon written request of the Corporate Secretary.
[CHART]
PERFORMANCE GRAPH
COMPARISON OF fIVE-YEAR CUMULATIVE TOTAL RETURN*
AMONG NOVELL, INC., S&P 500 AND NASDAQ C&DPS
NOVELL, INC. S & P 500 NASDAQ COMPUTER & DATA PROCESSING
10/96 100.00 100.00 100.00
10/97 91.22 132.11 134.93
10/98 160.81 161.16 173.50
10/99 216.89 202.54 325.87
10/00 97.30 214.87 348.11
10/01 38.27 161.36 158.61
*$100 invested on 10/31/96 in stock or index-including reinvestment of
dividends. Fiscal year ending October 31.
Copyright (C)2002, Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. All rights reserved.
Indexed/Cumulative Returns
----------------------------------
Base Fiscal Year
Period ----------------------------------
Company/Index Name 1996 1997 1998 1999 2000 2001
- ------------------ ------ ------ ------ ------ ------ ------
Novell, Inc...................................... 100 91.22 160.81 216.89 97.30 38.27
S&P 500 Index.................................... 100 132.11 161.16 202.54 214.87 161.36
Nasdaq Computer & Data Processing Services....... 100 134.93 173.50 325.87 348.11 158.61
24
CERTAIN TRANSACTIONS
In fiscal 2001, Wilson Sonsini Goodrich & Rosati, Professional Corporation,
a law firm of which Larry W. Sonsini, a director of the Company, is Chairman
and a member, performed legal services for the Company. The Company proposes to
continue to retain such law firm in fiscal 2002 for advice on legal matters.
During 2001, Novell received consulting services from J.D. Robinson
Incorporated. The Agreement provides for payments of $200,000 per year for
these services. Mr. Robinson, a director of the Company, is Chairman and Chief
Executive Officer and the sole stockholder of J.D. Robinson Incorporated.
On April 4, 2001, Mr. Foster and the Company entered into a loan agreement
that provided for a loan of $65,000 to Mr. Foster. On that date, Mr. Foster
executed a promissory note (the "Note") in favor of the Company. The Note bears
interest at 4.63% per annum, is secured by 15,408 shares of the Company's
Common Stock, and is repayable on the first to occur of (i) 30 days following
the termination of Mr. Foster's employment and (ii) April 4, 2002. As of
January 23, 2002, a balance of $30,000 remained outstanding.
On December 21, 2001, the Company formed a venture capital fund, Novell
Technology Capital Fund I, L.P. (the "Fund"), and related entities that include
Novell Technology GPLP I, L.P. ("GPLP"), the general partner of the Fund. The
general partner of GPLP is a wholly-owned corporate subsidiary of Novell.
Novell has committed to an aggregate investment of $15,000,000 in GPLP and the
Fund, primarily through a limited partnership commitment to the Fund. This
commitment may increase as additional limited partners are brought into the
Fund, to a cap of $30,000,000. Additionally, Novell is entitled to 68.25% of
the amounts allocable to GPLP by the Fund, which is generally equal to 20% of
the net gains of the Fund. Mr. Messman, a director and the Company's Chief
Executive Officer and President, committed to an investment of $182,500 in the
Fund as a limited partner. Mr. Linsalata, the Company's Senior Vice President,
Venture Investments, committed to an investment of $100,000 in the Fund as a
limited partner, and to an investment of $82,500 in GPLP as a limited partner.
Additionally, Mr. Linsalata is entitled to 13.75% of the amounts allocable to
GPLP by the Fund, which is generally equal to 20% of the net gains of the Fund.
No amounts have been distributed by the Fund or GPLP.
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% stockholders under Section 16(a) of
the Securities Exchange Act of 1934 were filed on time during fiscal 2001,
except that Mr. Robinson reported two Form 4 transactions late on a Form 5.
25
DEADLINE FOR FUTURE PROPOSALS OF STOCKHOLDERS
Proposals that stockholders desire to have included in the Company's proxy
materials for the 2003 Annual Meeting of Stockholders 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
October 31, 2002 in order to be considered for possible inclusion in such proxy
materials.
The Company's bylaws contain an advance notice provision regarding
stockholder 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 Company 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 stockholder proposal that is not intended to be included in the
Company's proxy materials but is intended to be raised by the stockholder from
the floor at the 2003 Annual Meeting of Stockholders, the stockholder must
provide timely advance notice in accordance with the bylaws provision described
above. Advance notice must be received by the Secretary of the Company at its
principal executive offices no later than December 30, 2002 in order to be
timely. Any proposal received after that date will not be permitted to be
raised at the meeting.
ADDITIONAL INFORMATION
Annual Report
The Company's Annual Report to Stockholders for the fiscal year ended
October 31, 2001, 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 stockholders of
record as of the close of business on February 19, 2002, together with this
Proxy Statement.
Annual Meeting Summary
The Company will provide a summary of the activities at the Annual Meeting
to Stockholders, 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. Stockholders may also obtain a copy
by calling (800) 317-3195.
26
OTHER MATTERS
The Company is not aware of any other business to be presented by management
at the Annual Meeting. Other than the stockholder proposal contained in this
Proxy Statement, no stockholder advised the Company of the intent to present
any business to the Annual Meeting prior to the January 4, 2002 deadline.
Accordingly, no other stockholder business will be permitted to be raised 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
Joseph A. LaSala, Jr.
Senior Vice President,
General Counsel and Secretary
February 28, 2002
Provo, Utah
27
Please mark
your votes as [X]
indicated in
this example
The Board of Directors recommends
a vote FOR Proposals 1 and 2.
PROPOSAL 1 - Election of Directors FOR all nominees WITHHOLD AUTHORITY
listed (except as to vote for all
Nominees indicated below) nominees listed
-------- [ ] [ ]
01. Jack L. Messman
02. Elaine H. Bond
03. Richard L. Nolan
04. John W. Poduska, Sr.
05. James D. Robinson, III
06. Larry W. Sonsini
07. Carl J. Yankowski
______________________________________________
Except Nominee(s) written on the above line
PROPOSAL 2 - Ratification of Auditors
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
The Board of Directors recommends
a vote AGAINST Proposal 3.
PROPOSAL 3 - Stockholder proposal to amend bylaws regarding certain corporate
offices.
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
ADJOURNMENT THEREOF
By checking the box to the right, I consent
to future delivery of annual reports, proxy
statements, prospectuses and other materials
and stockholder communications, electronically
via the Internet at a webpage which will be
disclosed to me. I understand that the Company
may no longer distribute printed materials to
me for any future stockholder meeting until [ ]
such consent is revoked. I understand that I may
revoke my consent at any time by contacting the
Company's transfer agent, Mellon Investor
Services LLC, Ridgefield Park, NJ and that
costs normally associated with electronic
delivery, such as usage and telephone charges
as well as any costs I may incur in printing
documents, will be my responsibility.
I PLAN TO ATTEND THE MEETING [ ]
Signature_____________________ Signature________________________ Date__________
Please sign exactly as name(s) appears hereon. When shares are held by joint
tenants, both must 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
Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week
Please vote prior to 4:00 p.m. Eastern Time on April 16, 2002.
Your Internet or telephone vote authorizes the named proxies to vote
your shares in the same manner as if you marked, signed
and returned your proxy card.
- --------------------------------- --------------------------------------- --------------------------------------
Internet Telephone Mail
http://www.eproxy.com/novl 1-800-435-6710
Use the Internet to vote your Use any touch-tone telephone to vote Mark, sign and date
proxy. Have your proxy card in your proxy. Have your proxy card in your proxy card
hand when you access the web OR hand when you call. You will be prompted OR and
site. You will be prompted to to enter your control number, located return it in the
enter your control number, in the box below, and follow directions enclosed postage-paid
located in the box below. given. envelope.
If you vote your proxy by Internet or by telephone,
you do NOT need to mail back your proxy card.
PLEASE VOTE
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 Jack L. Messman, Ronald C.
Foster and Joseph A. LaSala, Jr., and each of them, his true and lawful agents
and proxies with full power of substitution in each, to represent the
undersigned at the Annual Meeting of Stockholders of Novell, Inc. to be held at
the Company's Cambridge facility, 8 Cambridge Center, Cambridge, Massachusetts
02142 on Wednesday, April 17, 2002 at 10 a.m. local time and at any adjournments
or postponements 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 STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR ALL NOMINEES TO THE BOARD OF DIRECTORS, FOR RATIFICATION OF THE
--- ---
AUDITORS, AGAINST THE STOCKHOLDER PROPOSAL, AND AS THE PROXY HOLDER MAY
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DETERMINE IN HIS DISCRETION WITH REGARD TO ANY OTHER MATTER PROPERLY BROUGHT
BEFORE THE MEETING.
PLEASE VOTE BY THE INTERNET OR TELEPHONE OR MARK, SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
(Continued on reverse side)
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FOLD AND DETACH HERE
Access your Novell account online
via Investor ServiceDirect/sm/ (ISD)
Mellon Investor Services LLC, agent for Novell, now makes it easy and convenient
to get current information on your stockholder account. After a simple and
secure process of establishing a Personal Identification Number (PIN), you are
ready to log in and access your account to:
. View account status . Make address changes
. View certificate history . Change your PIN
http://www.melloninvestor.com
Step 1: FIRST TIME USERS - Establish a PIN Step 2: Log in for Account Access Step 3: Account Status Screen
You must first establish a Personal To access you account please enter To access you account information, Click on
Identification Number (PIN) online by your: the appropriate button to view or initiate
following the directions provided in the transactions.
upper right portion of the web screen as . SSN
follows. You will also need your Social . PIN . Certificate History
Security Number (SSN) available to . Then click on the Submit button . Address Change
establish a PIN.
If you have more than one account,
Investor ServiceDirect/sm/ is currently you will now be asked to select
only available for domestic individual the appropriate account.
and joint accounts.
. SSN
. PIN
. Then click on the Establish PIN button
Please be sure to remember your PIN, or
maintain it in a secure place for future
reference.
For Technical Assistance Call 1-877-978-7778 between
9am-7pm Monday-Friday Eastern Time