<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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 Section 240.14a-11(c) or Section
240.14a-12
MICROWARE SYSTEMS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
MICROWARE SYSTEMS CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
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):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/ / 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:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
MICROWARE SYSTEMS CORPORATION
------------------
1900 NW 114TH STREET
DES MOINES, IOWA 50325
July 29, 1996
Notice of Annual Shareholders Meeting:
You are hereby notified that the Annual Meeting of Shareholders of Microware
Systems Corporation (the "Company") will be held at Glen Oaks, 1401 Glen Oaks
Drive, West Des Moines, Iowa, at 10:00 a.m. local time, on Tuesday, September
10, 1996, for the following purposes:
1. To elect two Class I directors to hold office until the 1999 Annual
Meeting.
2. To consider a proposal to ratify the selection of KPMG Peat Marwick LLP
as independent public accountants of the Company for the fiscal year
ending March 31, 1997.
3. To transact such other business as may properly come before the Meeting
or any adjournment thereof.
The Board of Directors has fixed the close of business on July 8, 1996 as
the record date for the determination of shareholders entitled to notice of and
to vote at the Meeting.
You are urged to attend the Meeting in person. Whether or not you expect to
be present in person at the Meeting, please date, sign and return the enclosed
proxy in the envelope provided.
By Order of the Board of Directors
LAWRENCE A. CRANE
SECRETARY
<PAGE>
MICROWARE SYSTEMS CORPORATION
1900 NW 114TH STREET
DES MOINES, IOWA 50325
------------------------
1996 ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 10, 1996
---------------------
PROXY STATEMENT
GENERAL
This Proxy Statement and the accompanying proxy are furnished to
shareholders of Microware Systems Corporation (the "Company") in connection with
the solicitation of proxies by the Company's Board of Directors for use at the
1996 Annual Meeting of Shareholders (the "Meeting") to be held at Glen Oaks,
1401 Glen Oaks Drive, West Des Moines, Iowa, at 10:00 a.m. local time, on
Tuesday, September 10, 1996, for the purposes set forth in the accompanying
Notice of Meeting. This Proxy Statement, the form of proxy included herewith and
the Company's Annual Report to Shareholders for the fiscal year ended March 31,
1996, are expected to be mailed to shareholders on or about July 29, 1996.
Shareholders of record at the close of business on July 8, 1996 are entitled
to notice of and to vote at the Meeting. On such date there were outstanding
13,575,952 shares of common stock, no par value (the "Common Stock"). The
presence, in person or by proxy, of the holders of a majority of the shares of
Common Stock outstanding and entitled to vote at the Meeting is necessary to
constitute a quorum. In deciding all questions, each holder of Common Stock
shall be entitled to one vote, in person or by proxy, for each share held on the
record date.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the election inspector appointed for the Meeting and will determine whether or
not a quorum is present. Neither the Company's Articles of Incorporation,
By-laws nor Iowa law determines the treatment and effect of abstentions and
broker non-votes; the election inspectors will treat abstentions as shares that
are present and entitled to vote but as not voted for purposes of determining
the approval of any matter submitted to the shareholders for a vote. If a broker
indicates on the proxy that it does not have discretionary authority as to
certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter.
Properly executed proxies will be voted in the manner directed by the
shareholders. If no direction is made, such proxies will be voted FOR the
election of both nominees named under the captions "Election of Directors" as
set forth therein as directors of the Company and FOR the ratification of the
selection of KPMG Peat Marwick LLP as independent public accountants. Any proxy
may be revoked by the shareholder at any time prior to the voting thereof by
notice in writing to the Secretary of the Company, either prior to the Meeting
(at the above address) or at the Meeting if the shareholder attends in person. A
later dated proxy will revoke a prior dated proxy. As of the date of this Proxy
Statement, the Board of Directors knows of no other business which will be
presented for consideration at the Meeting. If other proper matters are
presented to the Meeting, however, it is the intention of the proxy holders
named in the enclosed form of proxy to take such actions as shall be in
accordance with their best judgment.
The information contained in this Proxy Statement relating to the
occupations and security holdings of directors and officers of the Company and
their transactions with the Company is based upon information received from each
individual as of July 8, 1996.
<PAGE>
HOLDINGS OF SHAREHOLDERS, DIRECTORS
AND EXECUTIVE OFFICERS
The following table sets forth, as of July 8, 1996, the name, address and
holdings of each person (including any "group" as defined in Section 13(d)(3) of
the Securities Exchange Act of 1934) known by the Company to be the beneficial
owner of more than five percent of the Company's Common Stock, and the amount of
Common Stock beneficially owned by each of the directors and named executive
officers of the Company and by all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
- --------------------------------------------------------------------------------- ---------------------- -----------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Kenneth B. Kaplan................................................................ 5,495,086(2) 40.5
George J. Barry.................................................................. 103,695(3) *
Lawrence A. Crane................................................................ 2,045,271(4) 15.1
Charles R. Ball.................................................................. 1,189,170(5) 8.5
Michael J. Burgher............................................................... 101,200(6) *
Steven L. Johnson................................................................ 58,600(7) *
Arthur Don....................................................................... 10,000(8) *
James A. Gordon.................................................................. 748,640(9) 5.5
Daniel P. Howell................................................................. 748,640(10) 5.5
Dennis E. Young.................................................................. 4,000(11) *
Robert L. Growney................................................................ 1,526,232(12) 11.2
All executive officers and directors as a group (11 persons)
(2)(3)(4)(5)(6)(7)(8)(9)(10)(11)(12)............................................ 10,534,178 74.5
OTHER FIVE PERCENT SHAREHOLDERS
Motorola, Inc. (12) ............................................................. 1,526,232 11.2
1303 East Algonquin Road
Schaumburg, Illinois 60196
Microware Profit Sharing Plan ................................................... 748,179 5.5
1900 Northwest 114th St.
Des Moines, Iowa 50325
Edgewater Private Equity Fund, L.P. (9) ......................................... 748,640 5.5
666 Locust Street
Des Moines, Iowa 50309
Mesirow Capital Partners IV (10) ................................................ 748,640 5.5
350 North Clark Street
Chicago, Illinois 60610
</TABLE>
- ------------------------
* Less than 1% of the outstanding Common Stock.
(1) Unless otherwise indicated in the footnotes to this table, the Company
believes the individuals named in this table have sole voting and investment
power with respect to all shares of Common Stock reflected in this table.
(2) Comprises 4,746,907 shares held by Mr. Kaplan directly, and 748,179 shares
held by the Microware Profit Sharing Plan of which Mr. Kaplan is a
co-trustee with Messrs. Ball and Crane.
(3) Comprises 83,695 shares held directly by Mr. Barry and options for 20,000
shares of Common Stock which are deemed to be currently exercisable.
(4) Comprises 1,297,092 shares held by Mr. Crane directly, and 748,179 shares
held by the Microware Profit Sharing Plan of which Mr. Crane is a co-trustee
with Messrs. Kaplan and Ball.
2
<PAGE>
(5) Comprises 64,991 shares held by Mr. Ball directly, options for 376,000
shares of Common Stock which are currently exercisable, and 748,179 shares
held by the Microware Profit Sharing Plan of which Mr. Ball is a co-trustee
with Messrs. Kaplan and Crane.
(6) Comprises 1,200 shares held by Mr. Burgher directly and options for 100,000
shares of Common Stock which are deemed to be currently exercisable.
(7) Comprises 1,200 shares held by Mr. Johnson directly and 20,000 options which
are deemed to be currently exercisable, and 2,400 shares and 35,000 options
held by Mr. Johnson's spouse which are deemed to be currently exercisable.
(8) Comprises options deemed to be currently exercisable.
(9) Mr. Gordon is General Partner of Edgewater Private Equity Fund, L.P., which
is the direct beneficial owner of such shares.
(10) Mr. Howell is Executive Vice President of Mesirow Private Equity
Investments, Inc., an affiliate of the corporate general partner of Mesirow
Capital Partners VI, which is the direct beneficial owner of such shares.
(11) Comprises options deemed to be currently exercisable.
(12) Mr. Growney is an Executive Vice President of Motorola, and President of
its Messaging, Information and Media Sector. Motorola is the direct
beneficial owner of such shares.
No public market existed for the Common Stock as of the end of the 1996
fiscal year. The Company's Common Stock began trading on the Nasdaq National
Market on April 3, 1996.
ELECTION OF DIRECTORS
Two directors are to be elected by a plurality of the shareholder votes cast
at the Meeting, to serve until the 1999 Annual Meeting of Shareholders and until
their successors shall be elected and shall qualify. The Class I directors,
Kenneth B. Kaplan and Daniel P. Howell, are nominees at this meeting. The Class
II directors, Charles R. Ball, James A. Gordon and Robert L. Growney, are
scheduled to serve as directors until the 1997 Annual Meeting. The Class III
directors, Lawrence A. Crane, Dennis E. Young and Arthur Don, are scheduled to
serve as directors until the 1998 Annual Meeting.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(S)
DURING THE PAST FIVE YEARS DIRECTOR OF
NAME AGE AND OTHER PUBLIC DIRECTORSHIPS COMPANY SINCE
- ----------------------- --- ------------------------------------------------------------------- -----------------
<S> <C> <C> <C>
Kenneth B. Kaplan 43 Mr. Kaplan has been Chairman of the Board of Directors, President 1977
and Chief Executive Officer of the Company since it was founded in
1977. Mr. Kaplan was one of the principal designers of the OS-9
real time operating system. Mr. Kaplan is a member of the board of
directors of the Interactive Multimedia Association and is a
Trustee of Drake University and Buena Vista University.
Daniel P. Howell 43 Mr. Howell is Executive Vice President of Mesirow Private Equity 1994
Investments, Inc., an affiliate of the corporate general partner
of Mesirow Capital Partners VI, a venture capital partnership. Mr.
Howell also is currently a director of IMNET Systems, Inc. Mr.
Howell was elected a director of the Company as a designee of the
holders of Series A Preferred Stock.
</TABLE>
THE ENCLOSED PROXIES CANNOT BE VOTED FOR A GREATER NUMBER OF PERSONS THAN
TWO, THE NUMBER OF NOMINEES NAMED IN THIS PROXY STATEMENT.
3
<PAGE>
The Board of Directors knows of no reason why any of the foregoing nominees
will be unavailable to serve, but, in the event of any such unavailability, the
proxies received will be voted for such substitute nominees as the Board of
Directors may recommend. Information about the nominees for the director whose
term of office will continue after the Annual Meeting is set forth in the
following paragraphs:
NOMINEES WHOSE TERMS EXPIRES IN 1997
Charles R. Ball Director since 1983
Mr. Ball became the Executive Vice President of the Company in September
1995. Mr. Ball is currently General Manager of International Operations.
James A. Gordon Director since 1994
Mr. Gordon was elected as a nominee of the holders of Series A Preferred
Stock. Mr. Gordon currently is President of Gordon Management, Inc., an
investment management company based in Des Moines, Iowa, which was founded in
1992. Gordon Management, Inc. serves as the General Partner of Edgewater Private
Equity Fund, L.P., a venture capital partnership. From 1971 to 1992, Mr. Gordon
was the President of Gordon Wholesalers, Inc., a grocery and tobacco wholesaler.
Mr. Gordon is a director if IMNET Systems, Inc., Advanced Photonix, Inc. and
SoftNet Systems, Inc.
Robert L. Growney Director since 1995
Mr. Growney was elected director as the nominee of Motorola, Inc.
("Motorola"), pursuant to the Stock and Warrant Purchase Agreement between the
Company and Motorola dated July 31, 1995. Mr. Growney has been Executive Vice
President of Motorola and President of its Messaging, Information and Media
Sector (formerly its Paging and Wireless Data Group) since September 1992.
NOMINEES WHOSE TERMS EXPIRE IN 1998
Lawrence A. Crane Director since 1981
Mr. Crane was one of the principal designers of the OS-9 real time operating
system. Mr. Crane became Executive Vice President of the Company in September
1995 and Secretary in 1987. Mr. Crane advises on the design and development of
many of the Company's products and coordinates the Company's advanced research
efforts.
Dennis E. Young Director since 1994
Since 1984, Mr. Young has been Senior Vice President, Treasurer and a
director of Norwest Financial Inc., a financial services firm headquartered in
Des Moines, Iowa.
Arthur Don Director since 1995
Mr. Don has been a partner in the law firm of D'Ancona & Pflaum, Chicago,
Illinois, counsel to the Company, since 1985.
DIRECTOR COMMITTEES
The Board of Directors has established an Executive Committee, an Audit
Committee, a Compensation Committee and a Strategy Committee.
The Executive Committee is empowered to act with all authority granted to
the Board of Directors between meetings, except with respect to those matters
required by Iowa law or by the Company's By-laws to be subject to the power and
authority of the Board of Directors. Messrs. Kaplan (Chair), Crane and Gordon
currently serve on the Executive Committee. During the 1996 fiscal year, the
Executive Committee held one meeting and acted by unanimous consent on 5
occasions.
The functions of the Audit Committee are to recommend annually to the Board
of Directors the appointment of the independent public accountants of the
Company, to discuss and review the scope and the fees of the prospective annual
audit and to review the results thereof with the Company's
4
<PAGE>
independent public accountants, to review and approve non-audit services of the
independent public accountants, to review compliance with existing major
accounting and financial policies of the Company, to review the adequacy of the
financial organization of the Company and to review management's procedures and
policies relative to the adequacy of the Company's internal accounting controls.
Messrs. Young (Chair), Gordon and Howell currently serve on the Audit Committee.
During the 1996 fiscal year, the Audit Committee held one meeting.
The functions of the Compensation Committee are to review and approve annual
salaries and bonuses for all executive officers, to review, approve and
recommend to the Board of Directors the terms and conditions of all employee
benefit plans or changes thereto and to administer the Company's various stock
option plans. Messrs. Howell (Chair) and Gordon currently serve on the
Compensation Committee. During the 1996 fiscal year, the Compensation Committee
held one meeting and acted by unanimous consent on 2 occasions.
The Strategy Committee was created in September 1995. The function of the
Strategy Committee is to assist the Company in connection with strategic
planning. Messrs. Growney (Chair), Don and Kaplan currently serve on the
Strategy Committee. The Strategy Committee has so far not held any meetings.
The Board of Directors held 4 meetings during the fiscal year ended March
31, 1996 and acted by unanimous consent on one occasion.
The Company does not have a nominating committee. Nominations of individuals
for election to the Board of Directors of the Company must be received by the
Secretary of the Company no later than 60 days prior to a regularly scheduled
annual meeting of shareholders or within ten days after receipt of notice of an
annual meeting which is held at any other time.
DIRECTORS' COMPENSATION
Non-employee directors are paid $1,000 for attendance at each committee or
Board of Directors meeting attended in person, up to an amount not to exceed
$5,000 per director per year. All Directors are reimbursed for travel expenses
incurred in attending meetings of the Board of Directors. Certain Directors are
also entitled to receive grants of stock options. On May 2, 1995, the
Compensation Committee granted options under the Company's 1995 Stock Option
Plan to Mr. Don (40,000 shares) and Mr. Young (16,000 shares). These options
were granted at an exercise price of $3.125 per share, vesting at a rate of 25%
on each yearly anniversary following the date of grant.
5
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth a summary of all compensation paid by the
Company for its fiscal years ended March 31, 1995 and 1996 to the Company's
Chief Executive Officer and all executive officers of the Company whose total
annual salary and bonus for such years exceeded $100,000 during such year.
------------------------
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS (1) COMPENSATION (2)
- ----------------------------------------------------------------- --------- --------- ----------------
<S> <C> <C> <C> <C>
Kenneth B. Kaplan ............................................... 1996 165,000 50,000 5,011
Chairman, President and Chief Executive Officer 1995 145,928 36,000 3,129
Lawrence A. Crane ............................................... 1996 125,000 30,000 2,634
Executive Vice President 1995 105,919 24,000 1,447
George J. Barry ................................................. 1996 110,000 25,000 9,213(3)
Chief Executive Vice President, Treasurer and Chief Financial 1995 25,003 9,000
Officer
Charles R. Ball ................................................. 1996 110,000 45,000 2,138
Executive Vice President 1995 102,437 24,000 1,472
Michael J. Burgher .............................................. 1996 110,000 45,000 2,723
Executive Vice President 1995 102,437 24,000 2,138
</TABLE>
- ------------------------
(1) Includes bonuses earned during the fiscal year but paid in the subsequent
fiscal year.
(2) Other compensation includes 401(k) plan matching contributions along with
personal tax preparation services.
(3) Includes moving reimbursement of $7,690.
STOCK OPTION PLANS
1995 PLAN. The Company's 1995 Stock Option Plan (the "1995 Plan"), is
construed, interpreted and administered by the Compensation Committee. The
Compensation Committee has the discretion to determine the individuals to whom
options are granted, the number of shares subject to the options, the exercise
price of the options (which in the case of Non-Statutory Options (as defined
below) may be below fair market value of the Common Stock on the date of grant),
the period over which the options become exercisable, the term of the options
(including the period after termination of employment during which an option may
be exercised) and certain other provisions relating to the options. Under the
1995 Plan, the Compensation Committee may grant options to purchase up to
1,120,000 shares of the Common Stock to management, employees and directors of
the Company. Shares of Common Stock underlying options that expire unexercised
will be available for future option grants under the 1995 Plan. The number of
shares available for grant of options under the 1995 Plan and the number of
shares included in each outstanding option are subject to adjustment upon
recapitalizations, stock splits or other similar events that cause changes in
the Common Stock. The Company must retain sufficient authorized but unissued
shares of Common Stock to assure itself of its ability to perform its
obligations under the 1995 Plan.
The 1995 Plan provides for the grant of incentive stock options ("Incentive
Options") within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and non-statutory stock options that do not
qualify as incentive stock options under Section 422 of the Code ("Non-Statutory
Options"). The exercise price of each Incentive Option must be at least equal to
the fair market value of the Common Stock on the date the Incentive Option is
granted. The exercise price of Non-Statutory Options may be less than the fair
market value of the Common Stock on the date the
6
<PAGE>
Non-Statutory Option is granted. If an Incentive Option is granted to an
employee who then owns stock possessing 10% of the total combined voting power
of all classes of stock of the Company or any parent or subsidiary corporation
of the Company, the exercise price of the Incentive Option must be at least
equal to 110% of the fair market value of the Common Stock on the date the
Incentive Option is granted.
Generally, for federal income tax purposes, Non-Statutory Options will not
result in any taxable income to the optionee at the time of grant. The optionee
will generally realize ordinary income, however, at the time of exercise of the
option, in an amount measured by the excess of the fair market value of the
optioned shares at the time of exercise over the option price, regardless of
whether the option price is paid in cash or shares. Where ordinary income is
recognized in connection with the exercise of an option, the Company will be
entitled to a deduction in the amount of ordinary income so recognized, provided
among other things, that the Company complied with applicable tax withholding
requirements. No income is recognized for federal income tax purposes when an
Incentive Option is exercised and no deduction is available to the Company.
Incentive Options will be taxed as Non-Statutory Options if shares purchased
upon exercise of the Incentive Option are sold within one year after the
exercise or within two years after the date the Incentive Option is granted.
The maximum term of options granted under the 1995 Plan generally will be 10
years but with respect to an Incentive Option granted to an employee who then
owns stock possessing 10% of the total combined voting power of all classes of
stock of the Company, the maximum term of the option will be five years. Subject
to that limitation, the Committee has discretion to decide the period over which
options may be vested and exercised. In addition, the Committee may specify that
an option will terminate prior to the end of its stated term upon termination of
employment (which includes for this purpose termination of a consulting
relationship in the case of a consultant), disability or death. Options which
contain vesting schedules ordinarily will become fully exercisable in the event
of disability or death. Options are not transferable, except by will or pursuant
to the laws of descent and distribution, and are exercisable only by the option
holder during his lifetime or, in the event of disability or death, by the
option holder's guardian or legal representative. Option agreements issued under
the 1995 Plan may (but need not) provide that the vesting of options will be
accelerated upon a "Change in Control" of the Company. A Change in Control is
deemed to have occurred if (a) a person (as such term is used in Section 13(d)
of the Securities Exchange Act of 1934 (the "Exchange Act")) becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, in one or more transactions, of shares of Common Stock representing
50% or more of the total number of votes that may be cast by all shareholders of
the Company voting as a single class, without the approval or consent of the
Board of Directors, (b) there is a consolidation or merger of the Company in
which the Company is not the surviving corporation or (c) a plan or proposal for
the liquidation or dissolution of the Company is adopted.
1989, 1991 AND 1992 STOCK OPTION PLANS. The Company has established 1989,
1991 and 1992 stock option plans pursuant to which it has granted options to
certain employees to purchase shares of Common Stock. As of July 8, 1996, the
1989, 1991 and 1992 plans had outstanding options for 656,000, 468,000 and
352,000 shares of Common Stock, respectively, at option prices per share of
$.50, $.9375 and $1.3125 per share, respectively. All options granted under
these plans are Non-Statutory Options and the Company's authority to issue
additional options under these plans has terminated. Options granted under the
1989, 1991 and 1992 plans expire 10 years from their date of grant and are
exercisable in accordance with the terms of individual stock option agreements.
7
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning individual
grants of stock options made during the year ended March 31, 1996, to the
persons named in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SHARES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OR OPTION TERM (1)
OPTIONS IN FISCAL BASE PRICE EXPIRATION ----------------------
NAME GRANTED (#) YEAR $ PER SHARE DATE 5% ($) 10% ($)
- --------------------------------------- ----------- ----------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Kenneth B. Kaplan...................... 0 0 0 N/A 0 0
Lawrence A. Crane...................... 0 0 0 N/A 0 0
George J. Barry........................ 80,000 9.94% $ 3.125 5/2/05 662,000 1,202,800
Charles R. Ball........................ 0 0 0 N/A 0 0
Michael J. Burgher..................... 80,000 9.94% $ 3.125 5/2/05 662,000 1,202,800
</TABLE>
OPTION EXERCISES AND FISCAL 1996 YEAR END VALUES
The following table provides certain specified information concerning
unexercised options held under the 1989, 1991 and 1992 and 1995 stock option
plans as of July 8, 1996 by the persons named in the Summary Compensation Table.
No options were exercised by such persons during fiscal 1996.
AGGREGATED OPTION EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
MARCH 31, 1996 (#) MARCH 31, 1996 ($)(1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Kenneth B. Kaplan........................................ 0 0 0 0
Lawrence A. Crane........................................ 0 0 0 0
George J. Barry.......................................... 20,000 60,000 77,500 232,500
Charles R. Ball.......................................... 376,000 0 2,390,000 0
Michael J. Burgher....................................... 100,000 60,000 557,500 232,500
</TABLE>
- ------------------------
(1) Calculated on the basis of the fair market value of the underlying
securities as of March 31, 1996 of $7.00 per share, minus the aggregate
exercise price.
No compensation intended to serve as an incentive for performance to occur
over a period longer than one fiscal year was paid or accrued pursuant to a
long-term incentive plan during the last fiscal year to any of the persons named
in the Summary Compensation Table. The Company does not have employment
contracts with any of the persons named in the Summary Compensation Table, or
any defined benefit or actuarial plan under which benefits are determined
primarily by final compensation or average final compensation and years of
service.
PROFIT SHARING PLANS
Effective April 1, 1994, the Company established a 401(k) contributory
profit sharing plan for substantially all full-time employees. Under the
contributory plan, the Company provides matching cash contributions based on
qualified employee contributions, as well as certain other contributions. The
Company's contribution to the contributory plan for the fiscal year ended March
31, 1996 was $88,000.
8
<PAGE>
The Company has a non-contributory profit sharing plan for employees meeting
certain service requirements, which was established in 1987. Subject to certain
limitations, annual contributions to the non-contributory plan are determined by
the Board of Directors and are made in the form of Common Stock. The Company
made no contributions to the non-contributory plan for the fiscal years ended
March 31, 1994, 1995 and 1996. Substantially all of the assets of the
non-contributory plan consist of shares of Common Stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee was formed in May 1994, and the members currently
are Messrs. Howell (Chairman) and Gordon. Affiliates of Messrs. Howell and
Gordon each hold more than 5% of the Common Stock. See "Certain Transactions."
None of the members of the Compensation Committee are eligible to receive
options under the Company's existing stock option plans.
No member of the Compensation Committee serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of the Company's Board of Directors or Compensation
Committee.
CERTAIN TRANSACTIONS
In connection with the Company's 1994 issuance of Series A Preferred Stock
to a group of investors, including affiliates of directors James A. Gordon and
Daniel P. Howell, the Company, Messrs. Kaplan and Crane, and the 1994 Series A
Preferred Stock holders entered into a shareholders agreement containing various
restrictions. On March 11, 1996, the Company, Messrs. Kaplan and Crane, and the
1994 Series A Preferred Stock holders agreed to terminate all covenants and
agreements under the 1994 agreements effective at the closing of the Company's
initial public offering, except for certain registration rights with respect to
1,360,000 shares of Common Stock and the agreement of Messrs. Kaplan and Crane
to use their best efforts to cause one person designated by the 1994 Series A
Preferred Stock holders to serve on the Company's Board. These agreements
terminate no later than 2001.
On July 31, 1995, the Company entered into an agreement with Motorola (the
"Motorola Agreement") pursuant to which Motorola purchased 1,526,232 shares of
Common Stock at a purchase price of $7.93 per share, for a total consideration
of $12,100,000. Pursuant to the Motorola Agreement, the Company issued Motorola
five warrants exercisable at different times until July 31, 2001, for an
aggregate of 1,803,728 shares of Common Stock at a purchase price of $10.81 per
share. The Motorola Agreement provides that the Company will use its best
efforts to nominate one person selected by Motorola to the Board of Directors
for such time as Motorola holds at least 510,524 shares of Common Stock, and
grants the Company a limited two-year right of first refusal with respect to the
shares purchased by Motorola. Robert L. Growney, an Executive Vice President of
Motorola, was elected to the Board of Directors of the Company under the terms
of the Motorola Agreement. The Company also entered into a software development
and license agreement with Motorola to develop new configurations of OS-9 and
related development tools for the microprocessors Motorola uses or intends to
use in wireless devices. In connection with the Motorola Agreement, the Company
entered into a shareholder agreement among the Company, Kenneth B. Kaplan and
Motorola, pursuant to which, among other things, Mr. Kaplan agreed that so long
as Motorola has the right to nominate a director pursuant to the Motorola
Agreement, Mr. Kaplan will vote such shares in favor of the Motorola nominee. In
addition, Mr. Kaplan granted a reciprocal right of first refusal to Motorola for
a two-year period with respect to one million shares of Common Stock held by Mr.
Kaplan, in the event of a proposed transfer of such shares by Mr. Kaplan to a
competitor of Motorola.
At March 31, 1996, Mr. Kaplan was indebted to the Company in the amount of
$90,119, pursuant to a yearly renewable unsecured promissory note bearing
interest at 11% per annum.
The Company believes that all transactions discussed or disclosed above have
been, and the Company's Board of Directors has adopted a policy stating that any
future transactions with the
9
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Company's officers, directors, affiliates or controlling shareholders will be,
on terms which are considered to be no less favorable to the Company than those
obtainable in arm's length transactions with unaffiliated third parties.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This Report of the Compensation Committee shall not be deemed incorporated
by reference by any general statement incorporating this Proxy Statement into
any filing under the Securities Act of 1933 or under the Securities Exchange Act
of 1934, except to the extent that the Company specifically incorporates the
information contained herein by reference, and shall not otherwise be deemed
filed under those Acts.
The Compensation Committee of the Board of Directors of the Company is
composed of 2 non-employee directors, Daniel P. Howell (Chair) and James A.
Gordon. The Compensation Committee is responsible for setting and administering
the policies that govern the compensation of the Company's executive officers.
These policies are based on the premise that the shareholders' interests are
best served by recruiting and retaining the most talented people in the
industry. The Compensation Committee looks to provide competitive compensation
packages that enable the Company to attract key executives, to integrate
compensation with the Company's business objectives and to tie an individual
executive's compensation with overall Company performance. The Compensation
Committee also approves and recommends to the Board of Directors the terms and
conditions of all employee benefit plans or changes thereto and administers the
Company's stock option plans.
The Company's compensation package consists of three basic components: base
salary, cash bonuses and stock-based incentive compensation.
BASE SALARY
The base salary paid to the Company's executive officers is established to
be in line with other software companies deemed by the Compensation Committee to
be of similar size and prospects (the "peer group"), while taking into account
the experience and contribution of individual members of management. The
Compensation Committees also takes into consideration in setting salaries for
existing management the anticipated salary requirements of prospective members
of the Company's management team. Individual salary increases during the 1996
fiscal year were based on the performance of the Company and of each individual
executive, as observed and recommended by the Company's Chief Executive Officer,
and on observed salary levels within the peer group. Salary adjustments for the
Company's Chief Executive Officer and other executive officers are subject to
the review and approval of the full Board of Directors, based upon the
recommendation of the Compensation Committee.
CASH BONUSES
The Company believes it is important to provide additional cash incentives
to executives who make extraordinary contributions to the Company. In
determining the amount to be paid as bonuses to various executives during the
1996 fiscal year, the Committee considered the performance of the Company in
reaching its revenue and profitability goals, the strategic accomplishments of
respective executives critical to the long-term success of the Company, and the
recommendations of the Chief Executive Officer.
LONG TERM INCENTIVES
The Company provides long-term compensation to its employees through its
stock option plans, which plans have been approved by the Company's
shareholders. The Company adopted formal incentive stock plans in 1989, 1991,
1992 and 1995. Under the existing plans, options granted by the Company have
generally had a life of 10 years. See the discussion of other terms of the stock
option plans in the Company's April 2, 1996 Prospectus prepared in connection
with its initial public offering of securities. In May 1995, the Compensation
Committee granted options of 80,000 shares to each of
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<PAGE>
three executive officers (Messrs. Barry, Burgher and Johnson). All such options
were granted at an exercise price of $3.125 per share, vesting at a rate of 25
percent on each yearly anniversary following the date of grant.
The Compensation Committee makes option grants after consideration of
recommendations made by the Company's Chief Executive Officer. Recommendations
for option amounts are based upon relative positions and responsibilities of
various officers. The Compensation Committee believes that the long-term nature
of the options encourages officers to remain with the Company in order to
realize the options' underlying economic value. Also, the Compensation Committee
feels it is appropriate to grant options to newly hired officers in order to
help them embrace the Company's goal of increasing shareholder value.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The annual salary and bonus of the Company's Chief Executive Officer are
determined in consultation with Mr. Kaplan. Given Mr. Kaplan's large share
ownership in the Company, Mr. Kaplan believes, and the Compensation Committee
agrees, that grants of options for further shares of stock would not be a
meaningful incentive for him at the current time. Therefore, Mr. Kaplan has not
been granted options under any of the Company's stock option plans to date. In
fiscal 1996, Mr. Kaplan received a salary of $165,000 and a cash bonus of
$50,000. These amounts reflect the Committee's philosophy as described above.
The Compensation Committee regularly evaluates its policies with respect to
executive compensation. The Compensation Committee believes that a combination
of salary, bonus, and stock options provides a mix of short- and long-term
rewards necessary to attract, motivate and retain an excellent management team.
COMPLIANCE WITH SECTION 162(M) OF THE INTERNAL REVENUE CODE OF 1986
The Company intends to comply with the requirements of Section 162(m) of the
Internal Revenue Code of 1986 for the 1996 fiscal year. The Company does not
expect cash compensation for the 1996 fiscal year to be in excess of $1,000,000
or consequently affected by the requirements of Section 162(m).
The Compensation Committee
Daniel P. Howell, Chair
James A. Gordon
PROPOSAL TO RATIFY SELECTION OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The firm of KPMG Peat Marwick LLP has audited the books and records of the
Company since 1984 and the Board of Directors desires to continue the services
of this firm for the current fiscal year ending March 31, 1997. Accordingly, the
Board of Directors will recommend at the Meeting that the shareholders ratify
the appointment of the firm of KPMG Peat Marwick LLP to audit the accounts of
the Company for the current fiscal year. Representatives of that firm are
expected to be present at the Meeting with the opportunity to make a statement
if they desire to do so and are expected to be available to respond to
appropriate questions.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF RATIFICATION OF THE
SELECTION OF KPMG PEAT MARWICK LLP.
------------------------
MISCELLANEOUS
The Company's 1996 Annual Report to Shareholders is being mailed to
shareholders contemporaneously with this Proxy Statement.
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<PAGE>
COST OF SOLICITATION
All expenses incurred in the solicitation of proxies will be borne by the
Company. In addition to the use of mails, proxies may be solicited on behalf of
the Company by directors, officers and employees of the Company or by telephone
or telecopy. The Company will reimburse brokers and others holding Common Stock
as nominees for their expenses in sending proxy material to the beneficial
owners of such Common Stock and obtaining their proxies.
PROPOSALS OF SECURITY HOLDERS
Proposals of security holders intended to be presented at the 1997 Annual
Meeting must be received by the Company for inclusion in the Company's Proxy
Statement and form of proxy relating to that meeting no later than April 1,
1997.
By order of the Board of Directors.
LAWRENCE A. CRANE
SECRETARY
Dated: July 29, 1996
12
<PAGE>
MICROWARE SYSTEMS CORPORATION
1900 NW 114TH STREET
DES MOINES, IOWA 50325
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Kenneth B. Kaplan, Lawrence A. Crane and
George J. Barry, and each of them, with full power of substitution, attorneys
and proxies to represent the undersigned at the 1996 Annual Meeting of
Shareholders of Microware Systems Corporation (the "Company") to be held at Glen
Oaks, 1401 Glen Oaks Drive, West Des Moines, Iowa, at 10:00 a.m. local time, on
Tuesday, September 10, 1996, or at any adjournment thereof, with all power which
the undersigned would possess if personally present, and to vote all shares of
stock of the Company which the undersigned may be entitled to vote at said
Meeting as follows:
<TABLE>
<C> <C> <C> <C>
1. ELECTION OF DIRECTORS
/ / FOR both nominees listed below (unless name of nominee / / WITHHOLD AUTHORITY
is crossed out)
Daniel P. Howell Kenneth B. Kaplan
2. PROPOSAL TO RATIFY THE SELECTION OF KPMG PEAT MARWICK LLP AS / / FOR / / AGAINST / / ABSTAIN
INDEPENDENT PUBLIC ACCOUNTANTS
3. IN THEIR DISCRETION, ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING (which the Board of
Directors does not know of prior to July 29, 1996).
Management recommends your vote FOR all proposals.
</TABLE>
THIS PROXY IS CONTINUED ON THE REVERSE SIDE. PLEASE SIGN ON THE REVERSE
SIDE AND RETURN PROMPTLY.
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE ELECTION OF ALL NOMINEES FOR DIRECTORS AND FOR THE RATIFICATION
OF THE SELECTION OF KPMG PEAT MARWICK LLP AS INDEPENDENT AUDITORS, AND WILL
CONFER THE AUTHORITY IN PARAGRAPH 3.
Receipt is hereby acknowledged of the Notice of the Meeting and Proxy
Statement dated July 29, 1996, as well as a copy of the 1996 Annual Report to
Shareholders.
Dated: -------------------------------, 1996
-------------------------------------
-------------------------------------
(Signature(s) of stockholder(s))
When signing as attorney, executor,
administrator, trustee or guardian,
please give title. Each joint owner
is requested to sign. If a
corporation or partnership, please
sign by an authorized officer or
partner. Please sign in the same
manner as your certificate(s) is
(are) registered.
PLEASE COMPLETE, DATE, SIGN AND
RETURN THIS PROXY IN THE ENVELOPE
PROVIDED.
