to Cyreenik book index

Following the Money: The Incentive Story

Another important agenda item at the March 1983 meeting was approval of the stock incentive plan. The plan used a combination of stock grants and stock options to “incent” key employees. Eight employees would be allowed to buy a total 26,500 shares for a nickel per share ($1,325 total). Although the plan was adopted in March, Ray apparently waited about six weeks before making the actual distributions to employees.

In March, Jack Messman bought 20,000 shares at a nickel per share ($1,000), and eight other Novell employees bought a total 371,000 shares at the same price ($18,550). In July, Jack bought another 280,000 shares also at that price ($14,000).

At initial capitalization, Ray had invested $125,000 for 200,000 shares, or $.625 per share. Safeguard “invested” assets worth $1,015,381 and received 350,000 shares of convertible preferred stock, the equivalent of $2.90 a share. In October 1984, Safeguard converted these shares to 4.9 million shares of Novell common stock.

Ray made sure that all his employees had a generous stake in the new company. True, the shares were worthless at the time they were issued, but it was clear to all that if they could make Novell a success they could do very well for themselves.

The most important people Ray had to please were the four SuperSet guys who had created NetWare. Drew, Dale, Kyle, and Mark were not employees of Novell but outside consultants. In exchange for the rights to NetWare and continuing work for Novell each of the four was allowed to buy 11,875 shares at a nickel per share ($593.75). The shares were to vest over four installments from May 1983 to January 1986. In addition, each member of SuperSet was to be paid a salary. In the fiscal year ended October 1984 the four SuperSet members received a total of $248,200.

Dale recalled the contract negotiations as another example of Ray’s “win-win” philosophy.

He doubled SuperSet’s equity position in Novell when he came on board. We had already negotiated a position with Safeguard, and we had a position in Novell based on our value and so on.

When Ray came in, he doubled it. He said, “You guys, I need you to be here and I need to keep your attention a long time, and that isn’t enough.”

Other employees and consultants were given the right to buy a total 56,500 shares of Novell for an average exercise price of $2.42 per share ($136,600). The employees put up a cash total of $5,700 for their shares and the company lent them the balance of $130,900.

Different employees were given different opportunities to purchase stock. Harry received 5,000 shares plus options that would vest in annual increments over the next four years. Reid received 3,000 shares plus options to purchase 4,000 more over the next four years. Since Judy and Reid were a couple, Judy received no shares of her own. (Remember, this was the ’80s. In Utah, in Utah Valley.)

In December 1983, Novell sold the SuperSet consultants an additional 30,000 shares at $.29 per share.

Following the Money Further: Some Loans Are Made

By the summer of 1983 the new Novell was taking its first tentative steps forward as a company. Ray had his key people in place, properly incented, and had eliminated those employees he didn’t want. He had addressed his problems in manufacturing and the list of successful installations was growing almost weekly. He had a new name and marketing image for the company and the flagship product. He had a vision of a future LAN industry that would grow from the file server model developed by Novell.

In June an incident occurred that illustrates an aspect of Ray’s involvement in the computer industry. As Novell struggled on its upward climb to profitability Ray approved a loan of up to $200,000, made by Novell, to Gateway Communications, Inc., a company in which Ray owned a substantial interest and served as director. The loan was apparently designed to improve Gateway’s financial standing; Gateway actually borrowed only $20,000 of the $200,000 available to it.

The loan was paid back a year later but it shows how Ray could use one company to serve another. As President and CEO, Ray’s energies were focused on Novell but he continued to take an interest in other high tech companies as an investor, director, founder, and where appropriate, strategic partner. Ray’s involvement in other companies was an asset to Novell in many cases, although his critics suggest that certain deals may have been more to Ray’s benefit than Novell’s.

As the orders for S-Net LANs grew, the company needed additional capital to build and ship the systems. In November, Ray made a personal loan to Novell of $125,000. By March 1984 he had loaned an additional $25,000. Safeguard also made a series of loans to the fledgling company which by the end of 1983 totaled some $800,000.

The Company Prospers

At Novell’s Comdex booth in Las Vegas in November ’83, the mood was confident, determined, and optimistic in contrast to the fey but ultimately pessimistic mood of a year before.

By January 1984 at the end of its first year of business the new Novell had a pulse and seemed likely to survive. From zero sales in January 1983 the company had somehow managed to bring in $3.8 million. True, there was still a year-end loss of almost $1 million, but if the income continued to grow as projected the company would be in the black in fiscal 1984. Foreign shipments contributed significantly to first year sales—30%, in fact—and this was largely due to Reid’s efforts. On January 13, 1984, Novell’s stock split four for one.

On New Year’s Day, 1984, most Novell employees felt good about the progress made in 1983 and the work that lay before them. There was, however, at least one casualty from the rebirth of Novell. That was the marriage of Reid and Judy Clark. In light of the role Judy came to play in the company it is a casualty worth mentioning.

According to Reid, Novell presented a vast new set of opportunities and possibilities for Judy and she wanted to be free to pursue them.

“She just got to a point where she didn’t want to have to report where she was going or what she was doing. What she wanted at that moment was not to have a husband. She saw a wholly different lifestyle for herself. So I said, ‘Well, if that’s what you want, then we can arrange that.’ Because everything else had changed, you know, she had stopped going to church, taken off her garments.”

Adult Mormons, which includes anyone married in a Mormon temple, wear special underclothes called temple garments. For a married Mormon to stop wearing garments is an indication of apostasy.

“There was a split in terms of what she was doing in her lifestyle,” Reid went on.

By the end of the year, they were divorced.

to Cyreenik book index