<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
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-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:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
MICROWARE SYSTEMS CORPORATION
----------
1500 NW 118TH STREET
DES MOINES, IOWA 50325
July 31, 2000
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 Four Points
Hotel Sheraton, 11040 Hickman Road, Clive, Iowa 50325, at 10:00 a.m. local time,
on Tuesday September 12, 2000, for the following purposes:
1. To Elect two Class II Directors to hold office until the 2003 Annual
Meeting
2. To consider a proposal to amend the Company's 1995 Stock Option Plan
to authorize the issuance of an additional 600,000 shares under the
plan.
3. To consider a proposal to ratify the selection of KPMG LLP as
independent accountants of the Company for the fiscal year ended March
31, 2001.
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 11, 2000 as
the record date for the determination of shareholders entitled to notice of and
to vote at the Annual Meeting.
You are invited to attend the Annual Meeting in person. Whether or not you
expect to be present in person at the Meeting, please mark, date, sign and
return the enclosed proxy in the envelope provided.
By Order of the Board of Directors
GEORGE E. LEONARD
SECRETARY
<PAGE>
MICROWARE SYSTEMS CORPORATION
1500 NW 118TH STREET
DES MOINES, IOWA 50325
----------
2000 ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 12, 2000
----------
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
2000 Annual Meeting of Shareholders (the "Meeting") to be held at the Four
Points Hotel Sheraton, 11040 Hickman Road, Clive, Iowa, at 10:00 a.m. local
time, on Tuesday, September 12, 2000, for the purpose 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, 2000, are expected to be mailed to shareholders on or about July
31, 2000.
Shareholders of record at the close of business on July 11, 2000 are
entitled to notice of and to vote at the Meeting. On such date there were
outstanding 15,861,856 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 at the record date.
Votes cast by proxy or in person at the Meeting will be tabulated by the
election supervisor 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 two 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 ratification of the selection of KPMG 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 at 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 judgement.
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 by each
individual as of July 11, 2000.
<PAGE>
HOLDINGS OF SHAREHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of July 11, 2000, 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(the "Exchange Act")) 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
Nominees for Director, Named Executive Officers (defined herein) and by all
Directors and executive officers of the Company as a group, in each case to the
best of the Company's knowledge.
<TABLE>
<CAPTION>
PERCENT
AMOUNT AND NATURE OF BENEFICIAL OF
NAME OF BENEFICIAL OWNER OWNERSHIP(1) CLASS
------------------------ ------------ -----
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Kenneth B. Kaplan 4,658,107(2) 29.4
George E. Leonard 49,137(3) *
Martin Allen 23,250 *
Shigehiro Ishibashi 0 *
M. Denis Connaghan 0 *
James H. Boswell 24,000 *
Beth E. Law 0 *
Arthur Don 40,100 *
James A. Gordon 0 *
Daniel P. Howell 748,639(4) 4.7
Dennis E. Young 16,000 *
Robert A. Peiser 0 *
All executive officers and directors as a group
(8 persons)(2)(3)(4)(5) 5,560,556 34.7
--------- ----
OTHER FIVE PERCENT SHAREHOLDERS
Motorola, Inc.
1303 East Algonquin Road
Schaumburg, Illinois 60196 2,774,968(6) 16.2
Mesirow Capital Partners VI
350 North Clark Street
Chicago, Illinois 60610 748,639 4.7
Elliott Associates, L.P.
712 Fifth Avenue
New York, New York 10019 1,132,997(7) 6.8
Westgate International, L.P.
c/o Elliott Management Corporation
712 Fifth Avenue
New York, New York 10019 1,132,997(7) 6.8
</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) Includes 7,600 shares held by Mr. Kaplan as custodian. Mr. Kaplan's address
is 1500 NW 118th Street, Des Moines, Iowa.
(3) Comprises options which are currently exercisable or which are deemed
currently exercisable, and in the case of Messrs. Leonard and Don, includes
1,137 and 100 shares, respectively, which are directly owned.
<PAGE>
(4) Mr. Howell is Senior Managing Director 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.
(5) Does not include Messrs. Connaghan, Allen, and Ishibashi who resigned from
the Company before July 11, 2000, nor Mr. Peiser who is a Director Nominee
at the Meeting.
(6) Includes warrants to purchase 1,248,736 shares of Common Stock. Such
warrants are deemed currently exercisable (as of fiscal year-end) at an
exercise price of $10.81 per share.
(7) Pursuant to a Schedule 13G filed with the Securities and Exchange
Commission on June 30, 2000, the following entities beneficially own
certain shares of common stock of the Company: (1) Elliott Associates, L.P.
("Elliott"), (2) Westgate International, L.P. ("Westgate") (address: c/o
HSBC Financial Services (Cayman) Limited, P.O. Box 1109, Mary Street, Grand
Cayman, Cayman Islands, British West Indies) and (3) Elliott International
Capital Advisors, Inc. ("International Advisors"). Paul E. Singer and
Elliott Capital Advisors, L.P. are the general partners of Elliott.
Habledon, Inc. is the sole general partner of Westgate. International
Advisors is the investment manager for Westgate. International Advisors
expressly disclaims equitable ownership of and pecuniary interest in any
common stock of the Company.
On June 16, 2000, 334,278 shares of common stock were issued to each of
Elliott and Westgate pursuant to the conversion of 789 shares of Series I
Preferred Stock held by each of Elliott and Westgate with a liquidation
preference of $1,006.222 and a conversion price of $2.375. Based on a
conversion price of $2.1563 (which is the average of the two lowest closing
bid prices of the common stock, as recorded on Nasdaq, during the fifteen
trading days prior to the conversion date - for purposes of this table, as
of July 26, 2000), 445,671 shares would be issuable to each of Elliott and
Westgate upon conversion of the remaining 961 shares of Series I Preferred
Stock held by each of Elliott and Westgate. In addition, 309,298 shares of
common stock would be issuable to each of Elliott and Westgate upon the
exercise of options at an exercise price of $4.8497 and 43,750 shares of
common stock would be issuable to each of Elliott and Westgate upon the
exercise of warrants at an exercise price of $5.3116. Elliott, Westgate and
International Advisors disclaim beneficial ownership of shares of common
stock of the Company to the extent that the collective beneficial ownership
of the common stock of the Company by such entities exceeds 9.99% of the
then outstanding common stock of the Company. Subject to the foregoing
disclaimer, Elliott has sole power to vote or direct the vote and dispose
or direct the disposition of 1,132,997 shares of common stock of the
Company, and Westgate and International Advisors together have shared power
to vote or direct the vote and dispose or direct the disposition of
1,132,997 shares of common stock of the Company.
<PAGE>
ELECTION OF DIRECTORS
Two Class II Directors are to be elected by a plurality of the shareholder
votes cast at the Meeting, to serve until the 2003 Annual Meeting of
Shareholders and until their successors shall be elected and shall qualify.
George E. Leonard and Robert A. Peiser are nominees at this Meeting. The
Articles of Incorporation provide that three directors will serve in each of the
three classes. In July 1999, M. Denis Connaghan resigned as a Class II director.
Effective November 1999, Mr. Robert Bigony resigned as a Class II director of
the Company. In May 2000, Mr. Leonard filled a vacancy in Class II. James A.
Gordon will not stand for re-election as a Class II Director. Mr. Gordon has
been a Director of the Company since 1994 and the Company thanks him for his
many years of service. The Class III Directors, Arthur Don and Dennis E. Young,
are scheduled to serve until the 2001 Annual Meeting. The Class I Directors,
Kenneth B. Kaplan and Daniel P. Howell are scheduled to serve until the 2002
Annual Meeting. There are presently two directors in Class I, two directors in
Class II, and two directors in Class III. The Board is currently considering
potential nominees for the vacancies.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(S)
DURING THE PAST FIVE YEARS DIRECTOR OF
NAME AGE AND OTHER PUBLIC DIRECTORSHIPS COMPANY SINCE
---- --- ------------------------------ -------------
<S> <C> <C> <C>
George E. Leonard 59 Mr. Leonard has served as Executive Vice President, Chief Financial Officer, 2000
Treasurer and Secretary since 1998,and Chief Operating Officer and a director
since May 16, 2000. Prior to joining the Company, from July 1996 to July
1998, Mr. Leonard was the Vice President and Chief Financial Officer and a
director of Western Pacific Airlines, based in Colorado Springs, Colorado.
Western Pacific Airlines filed for bankruptcy protection under Chapter 11 on
October 4, 1997 and converted its filing to Chapter 7 in July 1998. Mr.
Leonard also served as Chairman and Chief Executive Officer of Consumer
Guaranty Corporation of Phoenix, Arizona, President and CEO of GEL
Management Corporation from 1995 to 1996.
Robert A. Peiser 52 Mr. Peiser has been Chairman and Chief Executive Officer of Vitality Nominee
Beverages, Inc. since June 1999. Prior to that date, Mr. Peiser served as
Chairman of CVSI, Inc. from 1989 to 1999; President and Chief Executive
Officer of Western Pacific Airlines from 1996 to 1998; and Vice Chairman and
Chief Executive Officer of FoxMeyer Drug Company from August 1996
through November 1996. Western Pacific Airlines filed for bankruptcy
protection under Chapter 11 on October 4, 1997 and converted its filing to
Chapter 7 in July 1998. In addition, Mr. Peiser was Executive Vice President -
Finance and Chief Financial Officer of Trans World Airlines, Inc. from August
1994 through August 1996. Mr. Peiser is a member of the Board of Directors
of Ascent Assurance, Inc., a health insurance holding company, and The
Tampa Bay Partnership.
</TABLE>
THE ENCLOSED PROXIES CANNOT BE VOTED FOR A GREATER NUMBER OF PERSONS THAN
TWO, THE NUMBER OF NOMINEES IN THIS PROXY STATEMENT.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF EACH OF THE CLASS II
DIRECTOR NOMINEES.
<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 Directors whose terms of office
will continue after the Annual Meeting is set forth in the following paragraphs:
DIRECTORS WHOSE TERMS EXPIRE IN 2001
ARTHUR DON, AGE 46 DIRECTOR SINCE 1994
Mr. Don has been a member of the law firm of D'Ancona & Pflaum LLC,
Chicago, Illinois, counsel to the Company, since 1985.
DENNIS E. YOUNG, AGE 57 DIRECTOR SINCE 1994
Mr. Young is Executive Vice President and Chief Financial Officer and a
director of Wells Fargo Financial, Inc., formerly Norwest Financial, Inc, a
financial services firm headquartered in Des Moines, Iowa, which he joined in
1965.
DIRECTORS WHOSE TERMS EXPIRE IN 2002
KENNETH B. KAPLAN, AGE 47 DIRECTOR SINCE 1977
Mr. Kaplan has served as President and Chief Executive Officer of the
Company since he co-founded it 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
boards of directors of the Interactive Multimedia Association and is a Trustee
of Drake University and Buena Vista University. Mr. Kaplan attended Drake
University.
DANIEL P. HOWELL, AGE 48 DIRECTOR SINCE 1994
Mr. Howell is Senior Managing Director of Mesirow Private Equity
Investments, Inc., an affiliate of the corporate general partner of Mesirow
Capital Partners VI, a venture capital partnership.
DIRECTOR COMMITTEES
The Board of Directors has established an Audit Committee and a
Compensation Committee.
The Audit Committee's functions are to recommend annually to the Board of
Directors the selection, retention, or termination of the independent auditors
of the Company; to ensure that the auditor submits on a periodic basis to the
Audit Committee a formal written statement delineating all relationships between
the auditor and the Company; to evaluate the independence of the auditors, and
receive the auditors specific representation as to their independence and make
recommendations to the Board of Directors based on such evaluations; to meet
with the independent auditors, including private meetings, as necessary (a) to
review arrangements for and scope of the annual audit and any special audits;
(b) to discuss any matters of concern relating to the financial statement,
including any adjustments to such statements recommended by the auditors; (c) to
consider the auditors' comments with respect to the financial policies,
procedures and internal accounting controls of the Company and management's
responses thereto; (d) to discuss with the auditors the matters to be discussed
by Statement on Accounting Standards No. 61 as modified or supplemented; and (e)
to review the form of opinion the auditors propose to render to the Board of
Directors and shareholders; to review with financial management and the
independent auditors the 10-Q and 10-K prior to their filing or prior to the
release of earnings; to consider the effect upon the Company of any changes in
accounting principles or practices proposed by management or the auditors; to
review the fees charged by the auditors for audit and non-audit services; to
investigate improprieties in Company operations; and to report its activities to
the full Board of Directors on a regular basis and to make such recommendations
with respect to the above and other matters as the Audit Committee may deem
necessary or appropriate, including the preparation of the report required by
the rules of the Securities and Exchange Commistion to be included in the
Company's annual proxy statement. Messrs. Young (Chair), Gordon, and Howell
currently serve on the Audit Committee. During the 2000 fiscal year, the Audit
Committee held one (1) meeting.
<PAGE>
The Compensation Committee's functions are to review and approve annual
salaries and bonuses for all executive officers, to review, approve and
recommend to the Board the terms and conditions of all employee benefit plans or
changes thereto and to administer the Corporation's various stock option plans.
Messrs. Howell (Chair) and Gordon currently serve on the Compensation Committee.
During the 2000 fiscal year, the Compensation Committee held (1) meeting and
acted by unanimous consent on (1) occasion.
The Board of Directors held four (4) meetings during the fiscal year ended
March 31, 2000. M. Denis Connaghan attended one (1) Board meeting prior to his
resignation in July, 1999. Robert W. Bigony attended two (2) Board meetings
prior to his resignation in November, 1999. All other Directors attended at
least seventy-five percent of applicable Board and Committee meetings.
DIRECTORS' COMPENSATION
Non-employee Directors are entitled to be 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 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.
Effective following the Meeting, non-employee Directors will be entitled to
an annual retainer in the amount of $15,000, $2,000 for attendance at each Board
of Directors meeting attended in person, and lesser amounts for certain
telephonic and committee meetings. Additionally, non-employee Directors are
entitled to Stock Options of 25,000 shares each.
EMPLOYMENT AGREEEMENTS
GEORGE E. LEONARD
In September of 1999, the Company entered into an employment agreement with
Mr. Leonard whereby he agreed to serve as Chief Financial Officer of the
Company. This agreement is effective until March 31, 2001, and is automatically
extended for additional one-year periods ending on March 31, unless terminated
by either party in accordance with the agreement. Pursuant to this agreement,
Mr. Leonard earns a base salary of $150,000 per year. Mr. Leonard's employment
agreement provides that, in the event Mr. Leonard's employment is involuntarily
terminated as a result of a change of control of the Company, he will be
entitled to a severance payment equal to one year of his base salary.
<PAGE>
EXECUTIVE COMPENSATION
The following summary compensation table sets forth information concerning
all compensation awarded, earned, or paid by the Company during its fiscal years
ended March 31, 2000, 1999 and 1998 to (a) the Company's Chief Executive
Officer, (b) the three most highly compensated executive officers other than the
CEO who were serving as executive officers as of March 31, 2000, and (c) two
individuals for whom disclosure would have been required but for the fact that
they were not serving as executive officers at March 31, 2000 (the "Named
Executive Officers").
----------
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION($) ALL OTHER
SALARY BONUS(1) COMPENSATION($)(2)
------ -------- ------------------
<S> <C> <C> <C> <C>
KENNETH B. KAPLAN 2000 185,000 4,978(3)(4)
Chairman of the Board of Directors 1999 185,000 4,411(3)(4)
President and Chief Executive Officer 1998 185,000 6,593(3)(4)
M. DENIS CONNAGHAN (5) 2000 83,075 33,030(6)
Former Executive Vice President, 1999 200,000 769(7)
Chief Operating Officer and Secretary 1998 174,000 9,000 90,600(8)
MARTIN ALLEN(9) 2000 161,738 54,528
Managing Director European Operations 1999 132,272 128,142
1998 131,776 32,944
SHIGEHIRO ISHIBASHI (10) 2000 216,039 42,554(11)
Former President and Representative 1999 195,500
Director, Microware Systems Kabushiki Kaisha 1998 54,725
GEORGE E. LEONARD (12) 2000 150,000 75,009(8)(3)
Executive President, Chief 1999 87,500
Operating Officer, and Chief
Financial Officer
JAMES H. BOSWELL (13) 2000 150,000 83,186 5,604(3)
Vice President of Sales 1999 13,269 18,800 32(7)
</TABLE>
(1) Includes bonus and/or sales commission earned in respective fiscal
years.
(2) The aggregate amount of perquisites and other personal benefits,
securities or property, given to each Named Executive Officer
valued on the basis of aggregate incremental cost to the Company,
was less than either $50,000 or 10% of the total annual salary
and bonus for that executive officer during each of these years.
(3) Other compensation includes 401(k) plan-matching contributions and
life insurance premiums.
(4) Includes personal tax preparation services paid by the Company.
(5) Mr. Connaghan resigned from the Company on July 21, 1999.
(6) Represents severance payments paid by the Company.
(7) Represents life insurance premiums paid by the Company.
(8) Represents relocation expenses and related taxes paid by the Company
(9) Mr. Allen resigned from the Company on May 10, 2000.
(10) Mr. Ishibashi resigned from the Company on March 1, 2000.
(11) Represents separation payment paid by the Company.
(12) Mr. Leonard joined the Company on August 31, 1998.
(13) Mr. Boswell joined the Company on February 17, 1999.
<PAGE>
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
2,070,000 shares of the Common Stock to management, employees and directors of
the Company. If the proposal to amend the 1995 Plan at the 2000 Meeting is
approved, that number will increase to 2,670,000 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 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 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 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.
<PAGE>
1989, 1991 AND 1992 STOCK OPTION PLANS. The Company has established 1989,
1991 and 1992 stock options plans pursuant to which it has granted options to
certain employees to purchase shares of Common Stock. As of July 11, 2000, all
of the options granted under the 1989 plan had been exercised or had expired. As
of July 11, 2000, the 1991 and 1992 plans had outstanding options for 30,000 and
93,300 shares of Common Stock, respectively, at exercise prices of $0.9375 and
$1.3125 per share, respectively. All options granted under these plans are
Non-Statutory Options and the Company's authority to issue additional options
under these plans has terminated. Options granted under the 1991 and 1992 plans
expire 10 years from their date of grant and are exercisable in accordance with
the terms of individual stock option agreements.
OPTION GRANTS AND EXERCISES IN LAST FISCAL YEAR
The following tables provide certain information concerning options granted
to, exercised by and held by each Named Executive Officer of the Company at
March 31, 2000 under the Company's 1991, 1992 and 1995 stock option plans.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF % OF OPTIONS POTENTIAL REALIZABLE VALUE
SHARES GRANTED TO OF ASSUMED ANNUAL RATES OF
UNDERLYING EMPLOYEES IN EXERCISE OR BASE STOCK APPRECIATION FOR
OPTIONS FISCAL PRICE EXPIRATION OPTION TERM
NAME GRANTED(#) YEAR ($ PER SHARE) DATE 5%($) 10%($)
---- ---------- ---- ------------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Kenneth B. Kaplan 0 N/A N/A N/A N/A N/A
George E. Leonard 80,000 13.97% 1.56 9/30/2009 78,486 198,899
</TABLE>
<PAGE>
AGGREGATED OPTION EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT MARCH
ACQUIRED ON VALUE($) AT MARCH 31, 2000 31 2000($)(*)
NAME EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth B. Kaplan 0 N/A 0 0 N/A N/A
M. Denis Connaghan 0 N/A 0 0 0 0
Martin Allen 0 N/A 23,250 33,750 187,453 288,038
Shigehiro Ishibashi 15,000 61,110 0 45,000 0 380,175
George E. Leonard 0 N/A 24,000 176,000 176,880 1,442,720
James H. Boswell 0 N/A 24,000 96,000 198,000 792,000
</TABLE>
(*) Calculations based on the fair market value of the underlying
securities as of March 31, 2000 of $10.750 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 any defined benefit
or actuarial plan under which benefits are determined primarily by final
compensation or average final compensation and years of service.
1999 EMPLOYEE STOCK PURCHASE PLAN
The Company established the 1999 Employee Stock Purchase Plan (the "ESP
Plan"), which is administered by a committee of the Board of Directors and is
designed to provide employees of the Company with a means of acquiring shares of
the Company's Common Stock through cash contributions and payroll deductions. A
total of 500,000 shares of the Company's Common Stock are reserved for issuance
under the ESP Plan. All individuals who are employees as of the first day of an
offering period are eligible to participate for the offering period, except
employees who own (or would own as a result of stock purchased under the ESP
Plan) stock possessing five percent (5%) or more of the voting power or value of
the Common Stock of the Company. Offering periods of the ESP Plan (each an
"Offering Period") shall each be of three (3) months duration commencing on
January 1, April 1, July 1, and October 1 of each year. During each Offering
Period, payroll deductions of participants are accumulated under the ESP Plan
and aggregated with their respective cash contributions, if any. The aggregate
cash and payroll deductions cannot exceed $15,000 in any Offering Period or any
fiscal year. The first such Offering Period commenced January 1, 2000. The
purchase price per share at which a share of Common Stock will be sold in any
Offering Period shall be eighty-five percent (85%) of the lesser of: (a) the
fair market value on the first business day of the period; or (b) the fair
market value on the last business day of the period, provided, however that in
no event may the purchase price per share of the Company's Common Stock be below
the par value per share of the Company's Common Stock. The term "fair market
value" shall be the closing price on Nasdaq. This plan shall continue until the
earlier to occur of (a) termination of the ESP Plan by the Board (which
termination may be effected by the Board at any time), (b) issuance of all of
the shares of the Common Stock reserved for issuance under the ESP Plan, or (c)
ten (10) years from the adoption of the ESP Plan by the Board.
<PAGE>
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, 2000
were $99,000.
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 Mr. Howell
hold approximately 5% of the Common Stock. 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.
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.
Bases 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 the fiscal year.
CERTAIN TRANSACTIONS
During the fiscal year ended March 31, 2000, Microware Systems Corporation
received total revenues of $592,000 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 1,248,736 shares. The Company also routinely
purchases various hardware products from Motorola used in product development.
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.
<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, 2000, 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 3, 1996, with reinvestment of
all dividends.
COMPARISON OF TOTAL RETURN AMONG MICROWARE SYSTEMS CORPORATION,
THE NASDAQ COMPOSITE INDEX AND NASDAQ COMPUTER & DATA PROCESSING INDEX
FISCAL YEAR ENDING
<TABLE>
<CAPTION>
4/03/96 3/31/97 3/31/98 3/31/99 3/31/00
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Microware Systems Corporation 100.00 63.75 48.75 18.75 107.50
Nasdaq Computer & Data Processing Index 100.00 108.02 188.99 306.91 557.42
Nasdaq Composite Index 100.00 109.62 166.49 223.87 410.30
</TABLE>
[GRAPH]
<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 Exchange Act, 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 2000
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
2000 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 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.
<PAGE>
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 2000, Mr. Kaplan received
a salary of $185,000 and no cash bonus, due to the financial condition of the
Company. 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 2001 fiscal year. The Company does not
expect cash compensation for the 2000 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
<PAGE>
PROPOSAL TO AMEND THE 1995 STOCK OPTION PLAN
The Board of Directors recommends that the shareholders approve a proposal
to amend the 1995 Plan to increase the number of shares that can be issued under
the 1995 Plan. Currently, an aggregate of 2,070,000 shares of Common Stock are
authorized for issuance pursuant to the 1995 Plan, as amended, of which 165,275
were available for new grants as of July 11, 2000. The proposed amendment would
increase the total number of shares authorized for issuance by 600,000 to an
aggregate of 2,670,000. The proposed amendment 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.
REASON 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 1,904,725 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.
The following table sets forth the number of stock options granted under
the 1995 Plan as of July 11, 2000 (net of cancelled and expired options). As
option grants under the 1995 Plan are discretionary, the Company cannot
presently determine the number of options to be granted to any particular Named
Executive Officer, executive officers as a group, non-employee directors or
employees as a group.
<TABLE>
<CAPTION>
NUMBER OF
UNDERLYING OPTION
NAME POSITION SHARES
---- -------- ------
<S> <C> <C>
Kenneth B. Kaplan President, Chief Executive Officer and Chairman of the Board of 0
Directors
M. Dennis Connaghan Former Chief Operating Officer 0
Martin Allen Former Managing Director European Operations 57,000
Shigihiro Ishibashi Former President and Representative Director Microware Systems 45,000
Kabushiki Kaisha
George E. Leonard Executive Vice President, Chief Financial Officer, Chief Operating 200,000
Officer, Treasurer, Secretary and Director
James H. Boswell Vice President of Sales 120,000
Beth E. Law Chief Accounting Officer, Controller, Assistant Treasurer and Assistant 10,000
Secretary
Executive Group 432,000
Non-Executive 56,000
Director Group
Non-Executive Officer 1,137,567
Employee Group
</TABLE>
<PAGE>
TEXT OF THE PROPOSED AMENDMENT
The proposed amendment would amend Section 2 of the 1995 Plan, as amended,
as follows:
The phrase "2,670,000 (determined as of July 11, 2000)" is substituted
for the phrase "2,070,000 (determined as of July 7, 1998)' where it
appears in Section 2 of the Plan.
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 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, 2001. Accordingly, the Board of
Directors will recommend at the Meeting that the shareholders ratify the
appointment of the firm of KPMG 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.
VOTE REQUIRED FOR APPROVAL
The vote required for approval of the ratification of KPMG LLP as the
independent accountants 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 RATIFICATION OF THE
SELECTION OF KPMG LLP.
MISCELLANEOUS
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
Proposals of shareholders intended to be presented at the 2001 Annual
Meeting of Shareholders, and intended to be included in the Company's Proxy
Statement for that meeting, under SEC Rule 14a-8 must be made in accordance with
the Company's bylaws, and must be received by the Secretary of the Company at
the Company's principal executive offices for inclusion in the Company's Proxy
Statement and form of proxy relating to that meeting no later than March 31,
2001.
<PAGE>
The bylaws, which are available upon request from the Company's Secretary,
also require that shareholder proposals, other than for nominations for
director, be received by the Secretary of the Company by March 31, 2001. For
nominations for director, the bylaws provide that shareholder notice must be
received within 60 days in advance of the annual shareholder meeting if such
meeting is to be held on a day which is within 30 days preceding the anniversary
of the previous year's annual meeting or within 90 days in advance of such
meeting if such meeting is to be held on or after the anniversary of the
previous year's annual meeting.
By order of the Board of Directors
George E. Leonard
Date: July 31, 2000 SECRETARY
<PAGE>
MICROWARE SYSTEMS CORPORATION
1995 STOCK OPTION PLAN
(Amended as Proposed)
1. PURPOSE. The purpose of this Stock Option Plan (the "Plan") is to enable
Microware Systems Corporation (the "Company") to attract and retain people
of initiative and ability as employees, advisors and directors and to
provide additional incentives to these individuals. Reference hereinafter
to "employee" shall also include advisors and non-employee directors.
Reference to "employment" shall also include service as an advisor or
member of the board of directors of the Company.
2. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided below and in
Paragraph 7, the shares to be offered under the Plan shall consist of
Common Stock of the Company ("Shares"). The total number of Shares that may
be issued under the Plan shall not exceed 2,670,000 (determined as of July
11, 2000) Shares. If an option right granted under the Plan expires,
terminates or is canceled, the unissued Shares subject to such option shall
again be available under the Plan.
3. EFFECTIVE DATE AND DURATION OF PLAN.
(a) EFFECTIVE DATE. The Plan shall become effective as of April 1,
1995. However, no option granted under the Plan shall become
exercisable until the Plan is approved by the affirmative vote of
the holders of a majority of the Common Stock of the Company
represented at a shareholders' meeting at which a quorum is
present; any awards under the Plan prior to such approval shall
be conditioned on and subject to such approval. Subject to this
limitation, options may be granted under the Plan at any time
after the Effective Date and before termination of the Plan.
(b) DURATION. The Board of Directors may at any time suspend or
terminate the Plan. Unless previously terminated by the Board,
this Plan shall terminate on March 31, 2005. The rights and
obligations under any option granted while the Plan is in effect
shall not be altered or impaired by suspension or termination of
the Plan, except by the consent of the person to whom the option
was granted.
4. ADMINISTRATION. The Plan shall be administered by the Compensation
Committee of the Board of Directors of the Company (the "Committee"), who,
during the one-year period prior to the time of exercising discretion in
administering the Plan (but only after the Company first registers its
Common Stock under the Exchange Act) and during the one-year period after
exercising such discretion (but only after the Company first registers its
Common Stock under the Exchange Act), have not received awards under the
Plan. The Committee shall determine and designate from time to time the
employees to whom awards shall be made, the amount of the awards and the
other terms and conditions of the awards, except that only the Board of
Directors may amend or terminate the Plan as provided in Paragraphs 3 and
10. Subject to the provisions of the Plan, the Committee may from time to
time adopt and amend rules and regulations relating to administration of
the Plan, advance the lapse of any waiting period, accelerate any exercise
date, waive or modify any restriction applicable to Shares (except those
restrictions imposed by law) and make all other determination in the
judgment of the Committee necessary or desirable for the administration of
the Plan. The interpretation and construction of the provisions of the Plan
and related agreements by the Committee shall be final and conclusive. The
Committee may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any related agreement in the manner and to
the extent it shall deem expedient to carry the Plan into effect, and it
shall be the sole and final judge of such expediency.
1
<PAGE>
5. ELIGIBILITY. Any awards may be made to employees of the Company, including
advisors and directors of the Company; provided, however, no member of the
Committee shall be eligible for selection as a person to whom awards may be
made. The Committee shall select the employees to whom awards shall be
made. The Committee shall specify the action taken with respect to each
employee to whom an award is made under the Plan. At the discretion of the
Committee, an employee may be given an election to surrender an award in
exchange for the grant of a new award.
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.
6. OPTION GRANT.
(a) GRANT. The Committee has the authority and discretion to grant
options under the Plan. With respect to each option grant, the
Committee shall determine the number of Shares subject to the
option, the option price, the period of the option, and the time or
times at which the option may be exercised. In addition, the
Committee may provide for any further restrictions or provisions in
the option agreement which it deems appropriate. Options shall be
either incentive Stock Options or Nonstatutory Stock Options.
Incentive Stock Options shall meet all of the requirements of this
Paragraph 6. Nonstatutory Options shall meet the requirements of
Subparagraphs (c) through (g) of this Paragraph 6.
(b) INCENTIVE STOCK OPTION. Incentive Stock Options ("ISOs") shall be
subject to the following terms and conditions. (For the purposes of
this Subparagraph 6(b), references to "employee" shall not include
advisors or non-employee directors; only common law employees may
receive ISOs.)
(i) ISOs may be granted under the Plan to an employee
possessing more than 10% percent, directly or by attribution,
of the total combined voting power of all classes of stock of
the Company only if the option price is at least 110% of the
fair market value of the Shares subject to the option on the
date it is granted, as described in Subparagraph 6(b)(iii), and
the option by its terms is not exercisable after the expiration
of five years from the date it is granted.
(ii) Subject to Subparagraphs 6(b)(i) and 6(c), ISOs granted
under the Plan shall continue in effect for the period fixed by
the Committee, except that no ISO shall be exercisable after
the expiration of ten years from the date it is granted.
(iii) The option price per shall be determined by the Committee
at the time of grant. Subject to Subparagraph 6(b)(i), the
option price shall not be less than 100% of the fair market
value of the Shares covered by the ISO at the date the option
is granted. The fair market value shall be determined by the
Committee, or procedures established by the Committee.
(iv) No ISO shall be granted on or after the tenth anniversary
of the Effective Date of the Plan.
2
<PAGE>
(c) EXERCISE OF OPTIONS. Except as provided in Subparagraph 6(f), no
option granted under the Plan may be exercised unless at the time
of such exercise the optionee is employed by the Company and shall
have been so employed continuously since the date such option was
granted. Absence on leave or on account of illness or disability
under rules established by the Committee shall not, however, be
deemed an interruption of employment for this purpose. Except as
provided in Subparagraphs 6(f), 6(h) and 6(i), and Paragraphs 7 and
8, options granted under the Plan may be exercised from time to
time over the period stated in each option in such amounts and at
such times as shall be prescribed by the Committee, provided that
options shall not be exercised for fractional shares. Unless
otherwise determined by the Committee, if the optionee does not
exercise an option in any one year with respect to the full number
of Shares to which the optionee is entitled in that year, the
optionee's rights shall be cumulative and the optionee may purchase
those Shares in any subsequent year during the term of the option.
(d) NONTRANSFERABILITY. Each stock option granted under the Plan by its
terms shall be nonassignable and nontransferable by the optionee,
either voluntarily or by operation of law, except by will or by the
laws of descent and distribution of the state or country of the
optionee's domicile at the time of death, and each option by its
terms shall be exercisable during the optionee's lifetime only by
the optionee.
(e) VESTING. Options granted under the Plan shall vest according to
such schedule as the Committee may prescribe at the time of grant,
which may include full and immediate vesting. Reference to "option"
in this Plan means all vested and non-vested options.
(f) TERMINATION OF EMPLOYMENT OR DEATH.
WITH RESPECT TO ISOS.
(i) Subject to Subparagraphs 6(h) and 6(i), if the employment
of an employee is terminated, any then outstanding stock option
held by the employee shall be exercisable, in accordance with
the provision of the stock option agreement, by such employee
at any time prior to the expiration date of such stock option
or within three months after the date of termination of
employment, whichever is the shorter period.
(ii) Subject to Subparagraph 6(i), and notwithstanding the
provisions of (f)(i), if the employee's employment is
terminated because of a disability described in Section
422(c)(6) of the Internal Revenue Code ("Disability"), any then
outstanding stock option held by the employee shall be
exercisable, in accordance with the stock option agreement, by
such employee at any time prior to the expiration of such
option agreement or within one year after the date of
termination of employment, whichever is the shorter period.
Whether an optionee has a Disability shall be determined in
each case, in its discretion, by the Committee, and any such
determination by the Committee shall be final and binding.
(iii) Notwithstanding the provisions of (f)(i), if the employee
dies, any then outstanding stock option held by such employee
on the date of death shall be exercisable, in accordance with
the provisions of the stock option agreement, by the duly
appointed representative of the employee's estate at any time
prior to the expiration of such option agreement or within one
year after the date of death, whichever is the shorter period.
3
<PAGE>
If a termination under (f)(d) or (iii) occurs, any unvested portion
of the option held by the employee shall become vested, provided
that the aggregate value of Shares with respect to which any ISO
first becomes exercisable in the calendar year of the termination
of employment does not exceed $100,000. If the value of Shares that
become fully vested under an ISO exceed $100,000, the excess shall
be treated as stock subject to a Nonstatutory Stock Option. For
purposes of the $100,000 limitation, the fair market value of the
Shares on the date the ISO was granted shall be used in determining
the value of the Shares.
WITH RESPECT TO NONSTATUTORY OPTIONS:
The Committee may specify in the option agreement what
restrictions will apply in the event of termination of
employment.
For all options issued hereunder, to the extent that the option of
any deceased optionee or any optionee whose employment terminates
is not exercised within the applicable period, all further rights
to purchase Shares pursuant to such option shall cease and
terminate.
(g) PURCHASE OF SHARES. Unless the Committee determines otherwise,
Shares may be acquired pursuant to an option granted under the Plan
only upon receipt by the Company of notice in writing from the
optionee of the optionee's intention to exercise, specifying the
number of Shares as to which the optionee desires to exercise the
option and the date on which the optionee desires to complete the
transaction, and if required in order to comply with the Securities
Act of 1933, as amended, containing a representation that it is the
optionee's present intention to acquire the Shares for investment
and not with a view toward distribution. Unless the Committee
determines otherwise, on or before the date specified for
completion of the purchase of Shares pursuant to an option, the
optionee must have paid the Company the full purchase price of such
shares in cash. No Shares shall be issued until full payment
therefor has been made. If the Company is required to withhold on
account of any of any present or future tax imposed as a result of
an exercise, the Company shall so notify the optionee and the
optionee shall be required to pay all such withholding in cash as a
condition to the receipt of shares. The Shares shall contain any
restrictions required by the option agreement unless the Committee
determines otherwise.
(h) TERMINATION FOR CAUSE. For all options issued hereunder, if the
Company terminates the employment of an optionee for cause, all
outstanding stock options held by the optionee at the time of such
termination shall automatically terminate unless the Committee
notifies the optionee that the options will not terminate. A
termination "for cause" shall be defined under each written option
agreement. Whether and when a termination of employment is a
termination "for cause" shall be determined in each case, in its
discretion, by the Committee, and any such determination by the
Committee shall be final and binding.
(i) VIOLATION OF OTHER AGREEMENT. For all options issued hereunder, if
an optionee violates any confidentiality, non-solicitation or
non-competition agreement with the Company, all outstanding stock
options held by the optionee at the time of such violation shall
automatically terminate unless the Committee notifies the optionee
that the options will not terminate. Whether and when any such
agreement is violated shall be determined in each case, in its
discretion, by the Committee, and any such determination by the
Committee shall be final and binding.
4
<PAGE>
7. CHANGES IN CAPITAL STRUCTURE. If the outstanding shares of Common Stock of
the Company are hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of
the Company or of another corporation by reason of any reorganization,
merger, consolidation, plan of exchange, recapitalization,
reclassification, stock split, combination of shares or dividend payable in
shares, appropriate adjustment shall be made by the Committee in the number
and kind of shares available for awards under the Plan, provided that this
Paragraph 7 shall not apply with respect to transactions referred to in
Paragraph 8. In addition, the Committee shall make appropriate adjustment
in the number and kind of shares as to which outstanding options, or
portions thereof then unexercised, shall be exercisable, to the optionee's
proportionate interest is maintained as before the occurrence of such
event. The Committee may also require that any securities issued in respect
of or exchange for Shares issued hereunder that are subject to restrictions
be subject to restrictions. Notwith-standing the foregoing, the Committee
shall have no obligation to effect any adjustment that would or might
result in the issuance of fractional shares, and any fractional shares
resulting from any adjustment may be disregarded or provided for in any
manner determined by the Committee. Any such adjustments made by the
Committee shall be conclusive.
8. SPECIAL ACCELERATION IN CERTAIN EVENTS.
(a) SPECIAL ACCELERATION. Notwithstanding any other provisions of the
Plan, option agreements issued under the Plan may (but need not)
provide for a special acceleration ("Special Acceleration") of
options outstanding under such agreement with the effect set forth
in Subparagraph 8(b) at any time when the shareholders of the
Company approve one of the following ("Approved Transactions"):
(i) Any consolidation, merger, plan of exchange, or
transaction involving the Company ('Merger') in which the
Company is not the continuing or surviving corporation or
pursuant to which the Common Stock of the Company would be
converted into cash, securities or other property, other than a
Merger involving the Company in which the holders of the Common
Stock of the Company immediately prior to the Merger have the
same proportionate ownership of common stock of the giving
corporation after the Merger; or
(ii) Any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all or
substantially all of the assets of the Company or the adoption
of any plan or proposal for the liquidation or dissolution of
the Company.
In addition, option agreements issued under the Plan may (but need
not) provide for a Special Acceleration in the event a "person",
within the meaning of Section 13(d) of 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 of the Company representing 50% or more of
the total number of votes that may be cast by all stockholders of
the Company voting as a single class, without the approval or
consent of the Board of Directors.
(b) EFFECT ON OUTSTANDING OPTIONS. Except as provided below in
this Subparagraph 8(b), upon a Special Acceleration pursuant to
Subparagraph 8(a), all options then outstanding under the Plan and subject
to such acceleration shall immediately become exercisable in full during
the remainder of their terms; provided, the Committee may, in its sole
discretion, provide a 30-day period prior to an Approved Transaction during
which such optionees shall have the right to exercise options, in whole or
in part, without any limitation on exercisability, and upon the expiration
of such 30-day period all such unexercised options shall immediately
terminate.
5
<PAGE>
9. CORPORATE MERGERS, ACQUISITIONS, ETC. The Committee may also grant options
under the Plan having terms, conditions and provisions that vary from those
specified in this Plan, provided that any such awards are granted in
substitution for, or in connection with the assumption of, existing
options, issued by another corporation and assumed or otherwise agreed to
be provided for by the Company pursuant to or by reason of a transaction
involving a corporate merger, consolidation, plan of exchange, acquisition
of property or stock, separation, reorganization or liquidation to which
the Company is a party.
10. AMENDMENT OF PLAN. The Board of Directors may at any time, and from time to
time, modify or amend the Plan in such respects as it shall deem advisable
because of changes in the law while the Plan is in effect or for any other
reason. Except as provided in Subparagraphs 6(f), 6(g), 6(h) or 6(i), or
Paragraphs 7 and 8, however, no change is an award already granted shall be
made without the written consent of the holder of such award.
11. APPROVALS. The obligations of the Company under the Plan are subject to the
approval of state and federal authorities or agencies with jurisdiction in
the matter. The Company will use its best efforts to take steps required by
state and federal law or applicable regulations, including rules and
regulations of the Securities and Exchange Commission and any stock
exchange or trading system on which this Company's shares may then be
listed or admitted for trading, in connection with grants under the Plan.
The foregoing notwithstanding, the Company shall not be obligated to issue
or deliver Common Stock under the Plan if such issuance or delivery would
violate applicable state or federal securities laws.
12. EMPLOYMENT RIGHTS. Nothing in the Plan or any award pursuant to the Plan
shall confer upon any employee any right to continued service with the
Company or shall interfere in any way with the right of the Company to
terminate such employee's service at anytime, for any reason, with or
without cause, or to increase or decrease such employee's compensation or
benefits.
13. RIGHTS AS A SHAREHOLDER. The recipient of any award under the Plan shall
have no rights as a shareholder with respect to any Shares until the date
of issue to the recipient of a stock certificate for such shares. Except as
otherwise provided in the Plan, no adjustment shall be made for dividends
or other rights for which the record date is prior to the date such stock
certificate is issued.
6
<PAGE>
Microware Systems Corporation
ANNUAL MEETING OF STOCKHOLDERS
September 12, 2000
10:00 a.m. CST
Four Points Hotel Sheraton
11040 Hickman Road
Clive, Iowa 50325
[LOGO]
1500 NW 118th Street, Des Moines, IA 50325 PROXY
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THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL
MEETING ON SEPTEMBER 12, 2000.
The shares of stock you hold in your account or in a dividend account will be
voted as you specify below.
IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED FOR ITEMS 1, 2, 3 AND 4.
By signing the proxy, you revoke all prior proxies and appoint Kenneth B.
Kaplan and George E. Leonard, and each of them, with full power of
substitution, to vote your shares on the matters shown on the reverse side
and any other matters which may come before the Annual Meeting and all
adjournments.
SEE REVERSE FOR VOTING INSTRUCTIONS.
<PAGE>
PLEASE DETACH HERE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3, AND 4.
<TABLE>
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS 01 George E. Leonard / / Vote FOR / / Vote WITHHELD
02 Robert A. Peiser all nominees from all nominees
(except as marked)
</TABLE>
(Instructions: To withhold authority to vote for any __________________
indicated nominee, write the number(s) of the nominee(s)
in the box provided to the right.) __________________
<TABLE>
<S> <C> <C> <C>
2. PROPOSAL TO AMEND THE COMPANY'S 1995 STOCK OPTION PLAN / / FOR / / AGAINST / / ABSTAIN
3. PROPOSAL TO RATIFY THE SELECTION OF KPMG LLP AS INDEPENDENT / / FOR / / AGAINST / / ABSTAIN
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 28, 2000).
</TABLE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
Address change? Mark box / /
Indicate changes below: Date ________________________________
________________________________
________________________________
Signature(s) in Box
Please sign exactly as your name(s) appear on Proxy. If held in joint
tenancy, all persons must sign. Trustees, administrators, etc., should
include title and authority. Corporations should provide full name of
corporation and title of authorized officer signing the proxy.
