Stock Options Suit Against Novell Stretches to Board Members

October 23, 2006 ( - The third backdating-related suit to hit software and operating system company Novell Inc. claims that board members, not just executives, were awarded stock option grants at a low strike price.

According to The Recorder, this latest federal suit focuses on grants board members awarded themselves in October 1999 in addition to awards already dictated by the company’s stock plan. The additional grants were awarded at a date on which the company’s stock price was at a 17-month low.

The stock plan provided that non-employee board members would automatically receive options on the date of the company’s annual meeting, and a proxy statement indicated the 1999 grants were allowed under the company’s stock plan, the newspaper reported. However, the lawsuit alleges a 1996 revision to the stock plan would not have allowed the additional grants.

The lawsuit, filed Wednesday by a San Diego firm, also lays blame on current top managers and board members and the Massachusetts company’s former chief executive officer Jack Messman and former chief financial officer Joseph Tibbetts Jr. for fraudulent accounting from 1999 to 2006. Messman and Tibbetts Jr. stepped down in June – a move the company said was not related to the stock options investigation, according to The Recorder.

Novell is among several software giants that have been plagued allegations relating to the backdating of options, including Apple, Comverse Technology Inc. and McAfee, Inc., which ousted CEO George Samenuk earlier this month (See  McAfee Hit with Options Scandal Upheaval ).

Novell said in August it would hire an outside firm to investigate its stock options practice, but has not announced that it is the focus of any government investigations (See  The Bottom Line: The Backdating Debate ).