<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 Section240.14a-11(c) or
Section240.14a-12
MICROWARE SYSTEMS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(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:
-----------------------------------------------------------------------
(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:
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(4) Date Filed:
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<PAGE>
MICROWARE SYSTEMS CORPORATION
------------------
1900 NW 114TH STREET
DES MOINES, IOWA 50325
July 24, 1997
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 the Sheraton Four Points,
11040 Hickman Road, Clive, Iowa, at 10:00 a.m. local time, on Tuesday, September
9, 1997, for the following purposes:
1. To elect three Class II Directors to hold office until the 2000 Annual
Meeting.
2. To consider a proposal to amend the Company's 1995 Stock Option Plan (i)
to authorize the issuance of an additional 600,000 shares under the plan
and (ii) to limit the total grants to any reporting executive officer to
200,000 option shares in any fiscal year.
3. 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, 1998.
4. 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 14, 1997 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
CHRISTOPHER T. BROWN
SECRETARY
<PAGE>
MICROWARE SYSTEMS CORPORATION
1900 NW 114TH STREET
DES MOINES, IOWA 50325
------------------------
1997 ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 9, 1997
---------------------
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
1997 Annual Meeting of Shareholders (the "Meeting") to be held at the Sheraton
Four Points, 11040 Hickman Road, Clive, Iowa, at 10:00 a.m. local time, on
Tuesday, September 9, 1997, 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,
1997, are expected to be mailed to shareholders on or about July 24, 1997.
Shareholders of record at the close of business on July 14, 1997 are
entitled to notice of and to vote at the Meeting. On such date there were
outstanding 14,313,852 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 the three nominees named under the caption "Election of Directors"
as set forth therein as Directors of the Company, FOR the amendment of the 1995
Stock Option Plan and FOR the ratification of the selection of KPMG Peat Marwick
LLP as the Company's 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 14, 1997.
<PAGE>
HOLDINGS OF SHAREHOLDERS, DIRECTORS
AND EXECUTIVE OFFICERS
The following table sets forth, as of July 14, 1997, 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................................................................ 4,691,907 32.8
M. Denis Connaghan............................................................... - -
Lawrence A. Crane................................................................ 1,254,592 8.8
Kent R. Kelderman................................................................ 6,000(3) *
Michael J. Burgher............................................................... 81,200(3) *
Vinay Goel....................................................................... 7,000(3) *
Arthur Don....................................................................... 20,100(3) *
James A. Gordon.................................................................. 748,639(4) 5.2
Daniel P. Howell................................................................. 748,639(5) 5.2
Dennis E. Young.................................................................. 8,000(3) *
Robert L. Growney................................................................ 2,081,224(6)(7) 14.0
All executive officers and directors as a group
(11 persons)(2)(3)(4)(5)(6)(7).................................................. 10,395,480 69.4
OTHER FIVE PERCENT SHAREHOLDERS
Motorola, Inc. (6)(7) ........................................................... 2,081,224 14.0
1303 East Algonquin Road
Schaumburg, Illinois 60196
Trustees of the Microware Systems 401(k) Plan (2) ............................... 748,179 5.2
Norwest Bank Iowa, N.A.
666 Walnut Street
Des Moines, Iowa 50325
Edgewater Private Equity Fund, L.P. (4) ......................................... 748,639 5.2
666 Locust Street
Des Moines, Iowa 50309
Mesirow Capital Partners VI (5) ................................................. 748,639 5.2
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 persons named in this table have sole voting and investment
power with respect to all shares of Common Stock reflected in this table.
(2) Voting of Company securities held by Norwest Bank Iowa N.A. as Trustee of
the Microware 401(k) Plan is directed by the Company through an Advisory
Committee appointed by the Company's Board of Directors. The current members
of the Advisory Committee are Messrs. Kaplan, Young, and Kelderman.
(3) Comprises options deemed currently exercisable and in the case of Mr. Don
also includes 100 shares directly owned, and in the case of Mr. Goel also
includes 2,000 shares directly owned.
2
<PAGE>
(4) Mr. Gordon is President of Gordon Management, Inc., which is General Partner
of Edgewater Private Equity Fund, L.P., the direct beneficial owner of such
shares.
(5) 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.
(6) Mr. Growney is President and Chief Operating Officer of Motorola. Motorola
is the direct beneficial owner of such shares. Mr. Growney disclaims
beneficial ownership of such shares.
(7) Includes 554,992 warrants deemed currently exercisable.
ELECTION OF DIRECTORS
Three Directors are to be elected by a plurality of the shareholder votes
cast at the Meeting, to serve until the 2000 Annual Meeting of Shareholders and
until their successors shall be elected and shall qualify. The Class II
Directors, M. Denis Connaghan, James A. Gordon and Robert L. Growney, are
nominees at this 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. The Class I Directors, Kenneth B. Kaplan and Daniel P. Howell, are
scheduled to serve until the 1999 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>
M. Denis Connaghan 47 Mr. Connaghan joined the Company in May 1997 as Executive Vice 1997
President and Chief Operating Officer, and was appointed as a
Director effective as of the July 14, 1997 meeting of the Board
to fill a vacant Class II seat. Prior to joining the Company,
from 1994 through 1996, Mr. Connaghan was Chief Executive
Officer of Delphi Information Systems, Inc. ("Delphi"), a
provider of information systems to the distribution segment of
property and casualty insurance based in Rolling Meadows,
Illinois. Mr. Connaghan currently serves as a director of
Delphi. From 1991 to 1994, Mr. Connaghan served as a vice
president of IBAX Healthcare Systems of Longwood, Florida, a
joint venture of IBM Corporation and Baxter International
providing computerized solutions for healthcare providers. Prior
to 1991, Mr. Connaghan held various executive positions with
Pansophic Systems, Inc., of Lisle, Illinois. Mr. Connaghan
attended the New South Wales Institute of Technology and holds
an MBA from the University of Chicago.
James A. Gordon 47 Mr. Gordon was elected a Director of the Company as a designee of 1994
the former 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. and Edgewater Private
Equity Fund II, L.P., venture capital partnerships. From 1971 to
1992, Mr. Gordon was the President of Gordon Wholesalers, Inc.,
a grocery and tobacco wholesaler. Mr. Gordon is a director of
IMNET Systems, Inc., Advanced Photonix, Inc. and HealthDesk
Corp.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(S)
DURING THE PAST FIVE YEARS DIRECTOR OF
NAME AGE AND OTHER PUBLIC DIRECTORSHIPS COMPANY SINCE
- ------------------------ --- ----------------------------------------------------------------- -----------------
<S> <C> <C> <C>
Robert L. Growney 54 Mr. Growney was elected a Director as the designee of Motorola, 1995
Inc. ("Motorola"), pursuant to the Stock and Warrant Purchase
Agreement between the Company and Motorola dated July 31, 1995.
Mr. Growney has been President and Chief Operating Officer of
Motorola since January 1997 and a director of Motorola since
February 1997. Mr. Growney formerly served as Executive Vice
President of Motorola and President of its Messaging,
Information and Media Sector from January 1994 to December 1996,
as Executive Vice President and General Manager of Motorola's
Paging and Wireless Data Group from September 1992 to January
1994, and as Senior Vice President and General Manager of
Motorola's Paging and Telepoint Systems Group from January 1991
to September 1992.
</TABLE>
THE ENCLOSED PROXIES CANNOT BE VOTED FOR A GREATER NUMBER OF PERSONS THAN
THREE, THE NUMBER OF NOMINEES NAMED IN THIS PROXY STATEMENT.
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 Directors whose terms of office
will continue after the Annual Meeting is set forth in the following paragraphs:
NOMINEES WHOSE TERMS EXPIRE IN 1999
Kenneth B. Kaplan Director since 1977
Mr. Kaplan has been Chairman of the Board of Directors, President 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 Director since 1994
Mr. Howell is Executive Vice President of Mesirow Private Equity
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 former holders of Series A Preferred Stock.
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 served as Executive Vice President of the Company from
September 1995 to May 1997 and as Secretary of the Company from 1987 to 1996.
Mr. Crane currently serves as Co-Founder and Senior Technologist of the Company,
advising on the design and development of many of the Company's products and
coordinating the Company's advanced research efforts.
Dennis E. Young Director since 1994
Since 1984, Mr. Young has been Senior Vice President, Chief Financial
Officer and Treasurer and a director of Norwest Financial Inc., a financial
services firm headquartered in Des Moines, Iowa.
Arthur Don Director since 1994
Mr. Don has been a partner in the law firm of D'Ancona & Pflaum, Chicago,
Illinois, counsel to the Company, since 1985.
4
<PAGE>
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 full Board of Directors. Messrs. Kaplan (Chair), Crane and
Gordon currently serve on the Executive Committee. During the 1997 fiscal year,
the Executive Committee held two meetings and acted by unanimous consent on two
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 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 1997 fiscal
year, the Audit Committee held two meetings.
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 1997 fiscal year, the Compensation Committee
held two meetings and acted by unanimous consent on one occasion.
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 did not meet during the fiscal year
ended March 31, 1997, and held its first meeting on May 13, 1997.
The Board of Directors held six meetings during the fiscal year ended March
31, 1997. All of the Directors attended at least seventy-five percent of
applicable Board and Committee meetings, with the exception of Mr. Growney.
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 eligible to receive grants of stock options.
5
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth a summary of all compensation awarded, earned
or paid by the Company for its fiscal years ended March 31, 1995, 1996 and 1997
to the Company's Chief Executive Officer and all executive officers of the
Company who were serving as such at March 31, 1997 and 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 COMPENSATION ($)(1)
- ---------------------------------------------------------------- --------- --------- -------------------
<S> <C> <C> <C> <C>
Kenneth B. Kaplan .............................................. 1997 184,615 -- 7,809
Chairman, President and Chief Executive Officer 1996 165,000 50,000 5,011
1995 145,928 36,000 3,129
Lawrence A. Crane .............................................. 1997 139,712 -- 4,367
Executive Vice President 1996 125,000 30,000 2,634
1995 105,919 24,000 1,447
Michael J. Burgher ............................................. 1997 139,423 -- 3,973
Executive Vice President 1996 110,000 45,000 2,723
1995 102,437 24,000 2,138
Vinay Goel (2) ................................................. 1997 110,000 -- 762
Executive Vice President 1996 -- -- --
1995 -- -- --
</TABLE>
- ------------------------
(1) Other compensation includes 401(k) plan matching contributions along with
personal tax preparation services.
(2) Mr. Goel joined the Company effective April 1996 as a Vice President and was
elected an Executive Vice President of the Company in September 1996.
COMPENSATION OF EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER
Effective May 19, 1997, M. Denis Connaghan was appointed Executive Vice
President and Chief Operating Officer of the Company. The terms of Mr.
Connaghan's employment include a base salary of $200,000 and a bonus of up to
$50,000 based on mutually agreed-upon performance targets. They also include a
grant effective May 19, 1997 of 200,000 options under the 1995 Stock Option Plan
at an exercise price of $6.625 per share, vesting 20% a year on each anniversary
of May 19, 1997, or 100% in the event of a change in control of the Company.
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. If the proposal to amend the 1995 Plan at the 1997 Annual Meeting
is approved, that number will increase to 1,720,000 shares. 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
6
<PAGE>
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 Non-Statutory Option is
granted. If an Incentive Option is granted to an employee who then owns stock
possessing more than 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 more than 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.
7
<PAGE>
The following table sets forth the number of stock options granted under the
1995 Plan described above as of July 14, 1997 (net of canceled and expired
options) subject to shareholder approval for plan modification as described
under the proposal to amend the terms of the 1995 Plan. As option grants under
the 1995 Plan are discretionary, except as described, the Company cannot
presently determine the total number of such options to be granted to any
particular executive officer, executive officers as a group, non-employee
Directors, and non-executive employees as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING OPTIONS
NAME AND POSITION GRANTED
- ---------------------------------------------------------------------- ------------------------------------------
<S> <C>
M. Denis Connaghan ................................................... 200,000
Executive Vice President, Chief Operating Officer and Director
Kent R. Kelderman .................................................... 50,000
Executive Vice President, Treasurer, and Chief Financial Officer
Executive Officers as a Group......................................... 250,000
Non-employee Directors as a group (including nominees)................ None
Other recipients of five percent or more of such options.............. None
Non-executive Employees as a group.................................... 282,500
</TABLE>
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 14, 1997, the
1989, 1991 and 1992 plans had outstanding options for 305,500, 230,500 and
261,500 shares of Common Stock, respectively, at exercise prices of $.50, $.9375
and $1.3125 per share, respectively. All options granted under these plans are
Non-Statutory Options and the Company's authority to issue additional options
under these plans has terminated. Options granted under the 1989, 1991 and 1992
plans expire 10 years from their date of grant and are exercisable in accordance
with the terms of individual stock option agreements.
OPTION GRANTS AND EXERCISES IN LAST FISCAL YEAR
The following tables provide certain specified information concerning
options granted to, exercised by and held at March 31, 1997 under the 1989, 1991
and 1992 and 1995 stock option plans to each named executive officer of the
Company.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SHARES GRANTED TO EXERCISE OF PRICE APPRECIATION
UNDERLYING EMPLOYEES BASE PRICE FOR OPTION TERM
OPTIONS IN FISCAL ($ PER EXPIRATION ---------------------
NAME GRANTED (#) YEAR 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
Michael J. Burgher..................... 20,000 5.4% 15.50 10/14/06 195,000 494,000
Vinay Goel............................. 20,000 5.4% 10.00 4/1/06 126,000 319,000
Vinay Goel............................. 30,000 8.0% 15.50 10/14/06 292,000 741,000
</TABLE>
8
<PAGE>
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
VALUE MARCH 31, 1997 (#) MARCH 31, 1997 ($)(*)
SHARES ACQUIRED REALIZED -------------------------- -------------------------
NAME ON EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- --------------- ----------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth B. Kaplan......... 0 0 0 0 0 0
Lawrence A. Crane......... 0 0 0 0 0 0
Michael J. Burgher........ 38,800 606,675 81,200 60,000 342,431 130,200
Vinay Goel................ 0 0 5,000 45,000 0 0
</TABLE>
- ------------------------
(*) Calculated on the basis of the fair market value of the underlying
securities as of March 31, 1997 of $6.38 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.
Subsequent to the end of the fiscal year, the Company offered all recipients
of stock option grants made in October 1996 the right to cancel those
outstanding (and non-vested) options at the original exercise price of $15.50
per share and receive new options dated May 1997 with a new price and revised
vesting. The new exercise prices are $10.00 per share for employees who were
serving as executive officers at the time of the original grant and $6.25 for
all other employees. While the original grants had a vesting schedule of 25% on
each anniversary of October 14, 1996, the new grants have vesting of 10%, 20%,
30%, and 40% on each anniversary of May 2, 1997. Vesting of all grants
accelerates in the event of a change in control of the Company. The new grants
all have an expiration date of May 2, 2007.
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.
Contributions to the contributory plan for the fiscal year ended March 31, 1997
were $131,000.
Prior to January 1, 1997, the Company had 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 were 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. Effective January 1, 1997, the Company merged the
non-contributory plan into the 401(k) contributory plan. Under the terms of the
transfer, the trustee is directed by the Company as to voting of proxies and
various other matters relating to Company securities.
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 "Holdings of
Shareholders, Directors and Executive Officers." Neither of the members of the
Compensation Committee is eligible to receive options under the Company's
existing stock option plans.
9
<PAGE>
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.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's Directors and
executive officers, and persons who own more than 10% of the Company's Common
Stock, to file with the Securities and Exchange Commission (the "SEC") initial
reports of beneficial ownership and reports of changes in beneficial ownership
of Common Stock of the Company. Officers, Directors and greater than 10%
shareholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely upon a review of the copies of such reports furnished to the
Company and written representations from the executive officers and Directors of
the Company, the Company believes all Section 16(a) filing requirements were
complied with during fiscal 1997.
CERTAIN TRANSACTIONS
During the fiscal year ended March 31, 1997, Microware received total
revenues of $2,279,000 under various license and service agreements with
Motorola, which holds 1,526,232 shares of Common Stock of the Company and
warrants to purchase an additional 1,803,728 shares. The Company also routinely
purchases various hardware products from Motorola used in product development.
On December 31, 1996, Mr. Kaplan paid in full the amount of $107,958 then
due pursuant to a yearly renewable unsecured promissory note bearing interest at
11% per annum.
On July 23, 1996, the Company entered into a commercial note in the amount
of $10,000,000 with Norwest Bank Iowa, N.A. ("Norwest Bank"). Norwest Bank is an
affiliate of Norwest Financial, Inc., of which Dennis E. Young, a Director of
the Company, serves as a director and executive officer. The Company does not
believe Mr. Young's interest in this transaction is material.
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 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.
10
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the percentage change in the cumulative total
shareholder return on the Company's Common Stock during the period from the
Company's initial public offering on April 2, 1996 through March 31, 1997, with
the cumulative total return on the Nasdaq Composite Index and the Nasdaq
Computer & Data Processing Index over the same period.
The graph below assumes the investment of $100 in the Company's Common Stock
and in each of the other indexes on April 2, 1996, with reinvestment of all
dividends.
COMPARISON OF TOTAL RETURN AMONG MICROWARE SYSTEMS CORPORATION,
THE NASDAQ COMPOSITE INDEX AND NASDAQ COMPUTER & DATA PROCESSING INDEX
<TABLE>
<CAPTION>
APRIL 2, 1996 MARCH 31, 1997
--------------- ---------------
<S> <C> <C>
Microware Systems Corporation.................................. 100 63.7
Nasdaq Composite Index......................................... 100 111.15
Nasdaq Computer & Data Processing Index........................ 100 109.45
</TABLE>
11
<PAGE>
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 two 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 1997
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
1997 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. In fiscal 1997, the Compensation Committee
granted options of 50,000 shares to Mr. Goel and 20,000 shares to each of
Messrs. Burgher and Kelderman under the 1995 Plan. All such options were granted
at exercise prices ranging from $10.00 to $15.50 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'
12
<PAGE>
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. In fiscal 1997, Mr. Kaplan received
a salary of $184,615 and no cash bonus. 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 1997 fiscal year. The Company does not
expect cash compensation for the 1997 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 AMEND THE 1995 STOCK OPTION PLAN
The Board of Directors recommends that the shareholders approve a proposal
to amend the 1995 Plan (i) to increase the number of shares that can be issued
under the 1995 Plan and (ii) to limit the grants to any reporting executive
officer to 200,000 option shares in any fiscal year. Currently, an aggregate of
1,120,000 shares of Common Stock are authorized for issuance pursuant to the
1995 Plan, as amended, of which 145,050 were available for new grants as of July
14, 1997. The first proposed amendment would increase the total number of shares
authorized for issuance to an aggregate of 1,720,000. The second proposed
amendment is necessary to exempt options granted under the 1995 Plan from the
$1,000,000 corporate income tax deduction limit on compensation paid to the
reporting executives of publicly held corporations and, if approved by the
shareholders, will become effective as of April 1, 1997. The proposed amendments
would not alter the federal income tax consequences of grants under the 1995
Plan, as discussed in the description of the 1995 Plan in the section on
Executive Compensation which appears earlier in this Proxy Statement.
REASONS FOR THE AMENDMENTS
The Board of Directors believes the 1995 Plan has been an effective tool in
attracting and retaining new executive and employee talent, and in further
aligning the interests of executives, employees, and others with the interests
of the Company's shareholders. Since its adoption, a total of 974,950 options
(net of cancellations) have been granted under the 1995 Plan. The Board of
Directors believes that an increase in the aggregate number of authorized shares
is necessary to allow the continued viability of the 1995 Plan.
Prior to the Revenue Reconciliation Act of 1993 (the "Act"), the Internal
Revenue Code allowed corporations a deduction from taxable income for reasonable
compensation paid to employees. Under this rule, the Company was able to deduct
all executive compensation. However, the Act, which became effective for tax
years beginning after December 31, 1993, limits the deductible compensation paid
to the reporting executives ("Executive Officers") of publicly-held corporations
to $1,000,000. Any taxable compensation which is recognized by an Executive
Officer upon (i) the exercise of a non-qualified option or (ii) a disqualifying
disposition of stock acquired under an Incentive Option, is subject to the
limit. However, the limit will not apply if the options are granted under a
stockholder-approved plan document
13
<PAGE>
which specifies the maximum number of option shares that can be granted to any
one reporting Executive Officer during the corporation's fiscal year provided
that each option grant is determined by a director's committee which is
comprised solely of "outside directors".
The Act does not limit the deductibility of stock option compensation paid
to any other employee or to Directors or advisors of the Company.
Because the amount of compensation that would be subject to the Act's
deduction limit depends in part on the fair market value of the Company's Common
Stock at an indeterminable future date, the Company cannot be certain that any
one Executive Officer's compensation will never exceed $1,000,000 in a given
year. Accordingly, in order to protect the Company's deduction for all executive
compensation that is otherwise deductible, the Company is proposing an amendment
to the 1995 Plan for stockholder approval which specifies the number of option
shares which may be granted to an Executive Officer during the fiscal year. The
amendment limits option grants to 200,000 shares per Executive Officer for any
year in which an individual's compensation is required to be disclosed in the
Company's annual proxy statement.
TEXT OF THE PROPOSED AMENDMENTS
The first proposed amendment would amend Section 2 of the 1995 Plan as
amended as follows:
The phrase "1,720,000 (determined as of July 14, 1997)" is substituted
for the phrase "1,120,000" where it appears in Section 2 of the Plan.
The second proposed amendment would amend Section 5 of the 1995 Plan to
include the following as a separate paragraph:
"The number of Shares underlying options granted in a fiscal year to each
executive officer whose compensation is subject to reporting on the
Company's annual proxy statement (an "Executive Officer") shall not
exceed 200,000 shares for any fiscal year during which he or she becomes
or serves as an Executive Officer."
VOTE REQUIRED FOR APPROVAL
The vote required for approval of the amendments to the 1995 Plan is an
affirmative vote by the holders of a majority of the shares of the Company's
Common Stock present, or represented and entitled to vote, at the Meeting at
which the holders of a majority of the outstanding shares of Common Stock of the
Company are present in person or represented by proxy.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF THE PROPOSAL TO
AMEND THE 1995 STOCK OPTION PLAN.
------------------------
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, 1998. 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.
14
<PAGE>
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF RATIFICATION OF THE
SELECTION OF KPMG PEAT MARWICK LLP.
------------------------
MISCELLANEOUS
The Company's 1997 Annual Report to Shareholders is being mailed to
shareholders contemporaneously with this Proxy Statement.
COST OF SOLICITATION
All expenses incurred in the solicitation of proxies will be borne by the
Company. In addition to the use of the 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
Pursuant to the By-laws of the Company, proposals of security holders
intended to be presented at the 1998 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 March 26, 1998.
By order of the Board of Directors.
CHRISTOPHER T. BROWN
SECRETARY
Dated: July 24, 1997
15
<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 and Kent R. Kelderman,
and each of them, with full power of substitution, attorneys and proxies to
represent the undersigned at the 1997 Annual Meeting of Shareholders of
Microware Systems Corporation (the "Company") to be held at Sheraton Four
Points, 11040 Hickman Road, Clive, Iowa, at 10:00 a.m. local time, on Tuesday,
September 9, 1997, 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 THE NOMINEES LISTED BELOW (UNLESS NAME OF NOMINEE / / WITHHOLD AUTHORITY
IS CROSSED OUT)
M. Denis Connaghan James A. Gordon Robert L. Growney
2. PROPOSAL TO AMEND THE COMPANY'S 1995 STOCK OPTION PLAN / / FOR / / AGAINST / / ABSTAIN
3. PROPOSAL TO RATIFY THE SELECTION OF KPMG PEAT MARWICK LLP AS / / FOR / / AGAINST / / ABSTAIN
INDEPENDENT PUBLIC ACCOUNTANTS
4. IN THEIR DISCRETION, ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING (which the Board of
Directors does not know of as of July 24, 1997).
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, FOR THE AMENDMENT OF
THE COMPANY'S 1995 STOCK OPTION PLAN AND FOR THE RATIFICATION OF THE SELECTION
OF KPMG PEAT MARWICK LLP AS INDEPENDENT AUDITORS, AND WILL CONFER THE AUTHORITY
IN PARAGRAPH 4.
Receipt is hereby acknowledged of the Notice of the Meeting and Proxy
Statement dated July 24, 1997, as well as a copy of the 1997 Annual Report to
Shareholders.
Dated: -------------------------------, 1997
-------------------------------------
-------------------------------------
(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.
