<PAGE>
SCHEDULE 14A
(Rule 14a-101)
Information Required in Proxy Statement
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 [ ]
<TABLE>
<CAPTION>
Check the appropriate box:
<S> <C> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
</TABLE>
NEOWARE SYSTEMS, INC.
(Name of Registrant as Specified In Its Charter)
Nancy D. Weisberg, Esquire
MCCAUSLAND, KEEN & BUCKMAN
Radnor Court
259 Radnor-Chester Road, Suite 160
Radnor, Pennsylvania 19087-5240
(610) 341-1000
(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
..........................................................................
(2) Aggregate number of securities to which transaction applies:
..........................................................................
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and 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>
NEOWARE SYSTEMS, INC.
400 FEHELEY DRIVE
KING OF PRUSSIA, PENNSYLVANIA 19406
November 10, 1997
TO OUR STOCKHOLDERS:
You are cordially invited to attend the Annual Meeting of Stockholders to
be held on Wednesday, December 10, 1997, at 10:00 a.m., at the offices of the
Company, 400 Feheley Drive, King of Prussia, Pennsylvania 19406.
The accompanying Notice of Meeting and Proxy Statement describe the matters
to be acted upon during the Annual Meeting. You are welcome to present your
views on these items and other subjects related to the Company's operations.
Your participation in the activities of the Company is important, regardless of
the number of shares you hold.
To ensure that your shares are represented at the Annual Meeting, whether
or not you are able to attend, please complete the enclosed proxy and return it
to us in the postage-paid envelope.
I hope you will attend the Annual Meeting.
Sincerely,
Arthur R. Spector
Chairman of the Board
<PAGE>
NEOWARE SYSTEMS, INC.
----------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 10, 1997
-----------------
TO THE STOCKHOLDERS:
The Annual Meeting of the Stockholders of Neoware Systems, Inc. (the
"Company"), a Delaware corporation, will be held on Wednesday, December 10,
1997, at 10:00 a.m., at the offices of the Company, 400 Feheley Drive, King of
Prussia, Pennsylvania, for the following purposes:
1. To elect six Directors of the Company.
2. To consider and act upon a proposal to amend the Company's 1995 Stock
Option Plan.
3. To vote upon a proposal to ratify the selection of Arthur Andersen LLP
as the Company's independent accountants for the fiscal year ending June
30, 1998.
4. To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
Stockholders of record at the close of business on October 24, 1997 are
entitled to notice of, and to vote at, the Annual Meeting and any adjournments
thereof.
All stockholders are cordially invited to attend the Annual Meeting in
person, but whether or not you plan to attend, please promptly sign, date and
mail the enclosed proxy in the return envelope. Returning your proxy does not
deprive you of the right to attend the Annual Meeting and vote your shares in
person.
By Order of the Board of Directors,
Scott Holland
Secretary
King of Prussia, Pennsylvania
November 10, 1997
<PAGE>
NEOWARE SYSTEMS, INC.
-----------------
PROXY STATEMENT
-----------------
This Proxy Statement is furnished in connection with the solicitation of
proxies at the direction of the Board of Directors of Neoware Systems, Inc. (the
"Company") for use at the Annual Meeting of Stockholders to be held on December
10, 1997.
Stockholders of record at the close of business on October 24, 1997 will be
entitled to vote at the Annual Meeting. At the close of business on October 24,
1997, 5,757,437 shares of the Company's $0.001 par value common stock ("Common
Stock") were outstanding. A stockholder is entitled to one vote for each share
of Common Stock held by such stockholder. This Proxy Statement and the enclosed
form of proxy are being mailed to the Company's stockholders on or about
November 10, 1997.
Shares represented by a proxy in the accompanying form, unless previously
revoked, will be voted at the Meeting if the proxy is returned to the Company
properly executed and in sufficient time to permit the necessary examination and
tabulation before a vote is taken. A proxy may be revoked at any time prior to
its exercise by giving written notice to the Secretary of the Company, by giving
a later dated proxy, or by voting in person at the meeting. Mere attendance at
the Annual Meeting will not revoke the proxy. Any specific instructions
indicated on your proxy will be followed. Unless contrary instructions are
given, your proxy will be voted FOR each of the proposals described in this
Proxy Statement and in the discretion of the proxy holders on such other
business as may properly come before the Annual Meeting.
Abstentions are counted as shares present for purposes of determining the
presence or absence of a quorum for the transaction of business. Brokers
holding shares for beneficial owners must vote their shares according to the
specific instructions they receive from the owners. If specific instructions
are not received, brokers may vote these shares in their discretion, except if
they are precluded from exercising their voting discretion on certain proposals
pursuant to the rules of the New York Stock Exchange. In such a case, the
broker may not vote on the proposal absent specific voting instructions. This
results in what is known as a "broker non-vote." A broker non-vote has the
effect of a negative vote when a majority of the shares issued and outstanding
is required for approval of the proposal. A broker non-vote has the effect of
reducing the number of required affirmative votes when a majority of the shares
present and entitled to vote or a majority of the votes cast is required for
approval of the proposal. The election of each nominee for director (Proposal
1) requires a plurality of votes cast. Brokers have discretionary authority to
vote on this proposal. Approval of the proposed amendment to the 1995 Stock
Option Plan (Proposal 2), and the ratification of the selection of the auditors
(Proposal 3) require the approval of a majority of the outstanding shares of
Common Stock represented and entitled to vote at the meeting. For purposes of
Proposals 2 and 3, abstentions will have the same effect as a vote against the
proposal. Broker non-votes will have no effect on the approval of Proposals 2
or 3. The New York Stock Exchange determines whether brokers have discretionary
authority to vote on a given proposal.
<PAGE>
The cost of proxy solicitation, including the cost of reimbursing banks and
brokers for forwarding proxies and proxy statements to beneficial owners of the
Common Stock, will be paid by the Company. Proxies will be solicited without
extra compensation by certain officers and regular employees of the Company by
mail and, if found to be necessary, by telephone and personal interviews. All
shares represented by valid proxies will be voted.
ELECTION OF DIRECTORS
The By-Laws of the Company presently provide that the Board of Directors
shall designate the number of directors constituting the Board of Directors.
Currently, that number has been fixed by the Board of Directors at six for the
election of directors at the 1997 Annual Meeting. All of the directors have been
selected by the Board of Directors to be elected at the meeting to serve for
one-year terms expiring at the 1998 Annual Meeting and until their respective
successors are elected and qualified.
The names and biographical summaries of the six persons who have been
nominated to stand for election at the 1997 Annual Meeting appear below.
All nominees have indicated that they are willing and able to serve as
directors if elected. In the event that any nominee should become unavailable,
the proxy will be voted for the election of any substitute nominee designated by
the Board of Directors or its Nominating and Compensation Committee.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF EACH OF
THE NOMINEES FOR DIRECTOR.
The following biographical information is furnished as to each person
nominated for election as a director.
<TABLE>
<CAPTION>
NAME AGE POSITION
---------------------- --- -----------------------------------------
<S> <C> <C>
Arthur R. Spector 57 Chairman of the Board
Edward C. Callahan 51 President and Chief Executive Officer and
Director
Michael G. Kantrowitz 37 Executive Vice President and Director
Howard L. Morgan /(1)/ 51 Director
John M. Ryan /(1)(2)/ 62 Director
Carl G. Sempier /(2)/ 66 Director
</TABLE>
______________________
/(1)/ Member of the Compensation and Stock Option Committee
/(2)/ Member of the Audit Committee
MR. SPECTOR has been Chairman of the Board of the Company since its
inception. Mr. Spector served as President and Chief Executive Officer from
inception until March 2, 1995, the date of the consummation of the merger (the
"Merger") of the Company with Human Designed Systems, Inc.
2
<PAGE>
("HDS"), and from May 1996 to June 1997. Since August 1996, he has also served
as Chairman of Information Technology Consulting, Inc., a wholly-owned
subsidiary of the Company which was formed for the purpose of acquiring
companies in the network computer services field ("ITC"). Mr. Spector is also
Chairman of the Board of USDATA Corporation, a developer of software tools for
real-time data collection and control, and a Director of DocuCorp, a developer
of document automation software. He was affiliated with Safeguard Scientifics,
Inc. from January 1993 until December 1996. He has served as Managing Director
of TL Ventures, a venture capital firm, since January 1997. From July 1992 until
May 1995, he was Vice Chairman of Casino & Credit Services, Inc., a company
which operated nationwide debt collection and credit database businesses. From
October 1991 until December 1996, Mr. Spector served as Chief Executive Officer
and a director of Perpetual Capital Corporation, a merchant banking
organization.
MR. CALLAHAN has been President and Chief Executive Officer and a Director
of the Company since June 1997. Prior to joining the Company, Mr. Callahan was
President and Chief Operating Officer of Summa Four, Inc. of Manchester, NH, a
provider of telecommunications switches, from June 1995 until November 1996.
Beginning in 1985, Mr. Callahan also held various executive positions during a
ten year tenure at Sun Microsystems Computer Corporation. He was most recently
Vice President of Global Telecom and Cable; previously, he was Vice President of
Strategic Accounts and Vice President of Northeast Area.
MR. KANTROWITZ has been Executive Vice President and a Director of the
Company since March 2, 1995. Prior to that, he was an employee of HDS from
1983, holding the positions of Executive Vice President from 1991 until March
1995 and Vice President of Marketing and Sales from 1987 until 1991. Prior to
joining HDS, Mr. Kantrowitz held positions with Raytheon Company and Adage
Corporation.
MR. MORGAN has served as a director of the Company since March 2, 1995. He
has been the President of The Arca Group, Inc., a Pennsylvania-based consulting
and investment management firm, since July 1989. From April 1982 until March
1990, Mr. Morgan was President of Renaissance Technologies Corp., a venture
capital and consulting firm located in New York. Until 1986, he held the
position of Professor of Decision Sciences at the Wharton School of the
University of Pennsylvania and has served in editorial positions on various
academic and trade publications. Mr. Morgan also serves as a director of
Quarterdeck Corporation, Franklin Electronic Publishers, Inc., Unitronix
Corporation, a manufacturer of manufacturing planning software, Segue Software
Corp., a manufacturer of quality assurance testing software, Cylink Corp., a
manufacturer of encryption software, MetaCreations Corp., a maker of graphics
software, and Kentek Information Systems, Inc., a manufacturer of laser
printers. Mr. Morgan served as a member of HDS's Board of Directors from 1977
until 1983.
MR. RYAN has served as a director of the Company since March 2, 1995. He
is currently the principal in Devon Hill Ventures, a venture investing and
consulting firm which focuses on technology investments, and Chairman and Chief
Executive Officer of DLB Systems, Inc. Mr. Ryan is also a director of
Integrated Systems Consulting Group, Inc. and a number of private companies,
including Control Software, Inc. Mr. Ryan was the founder of SunGard Data
Systems, Inc., a publicly-held computer services company, and served as its
Chairman and Chief Executive Officer from 1976 to 1987. From 1987 to 1989, he
was the President of Devon Hill Company, a merger and acquisition and venture
investing firm. From 1989 to 1991, Mr. Ryan was the Chairman of PC Concepts,
Inc., a computer
3
<PAGE>
training company, and President and Chief Executive Officer of Analytics, Inc.,
a technical services company. From 1992 to 1994, he was an advisory director of
Foley, Mufson & Howe, an investment banking firm.
MR. SEMPIER has served as a director of the Company since March 2, 1995.
He has been associated with Safeguard Scientifics, Inc. since 1990 and currently
serves as Vice Chairman of Safeguard International Group, Inc. Mr. Sempier also
serves as Managing Director of Ditec AG Germany, an information technology
services company. From 1980 until his retirement in 1988, he was the President
and Chief Executive Officer of Mannington Mills, Inc., a manufacturer of
flooring. He is also a director of Premier Solutions Limited, a supplier of
asset management solutions to financial institutions, and Tangram Enterprise
Solutions, Inc., a publicly-traded company providing network and connectivity
software to corporations and government entities.
BOARD OF DIRECTORS AND COMMITTEES
The Company's Board of Directors held 6 meetings during the year ended June
30, 1997. Each of the current directors attended at least 83% of the meetings
of the Board and Committees on which they serve held during the period for
which such persons have been directors or committee members.
The standing committees of the Board of Directors are the Compensation and
Stock Option Committee and the Audit Committee. These committees each held one
meeting during the year ended June 30, 1997.
The responsibilities of the Compensation and Stock Option Committee
include the review of compensation practices, the determination of salaries and
bonus awards of executive officers and the administration of the Company's 1995
Stock Option Plan of the Company.
The duties of the Audit Committee include the selection of independent
accountants subject to the approval of the stockholders, the review of the scope
and results of the audit and the review of the organization and scope of the
Company's internal auditing and financial controls.
COMPENSATION OF DIRECTORS
Directors (other than those who are employees of the Company) receive a
cash payment of $1,000 for each Board meeting attended, and receive a one-time
grant of 10,000 options upon a director's initial election. Thereafter non-
employee directors receive an annual grant of 5,000 options.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation paid during the fiscal years ended June 30, 1997, 1996 and 1995 to
the Company's Chief Executive Officer and each of the Company's four other most
highly compensated executive officers whose total salary and bonus earned during
the 1997 fiscal year exceeded $100,000. Compensation through March 1, 1995
reflects compensation paid by Human Designed Systems, Inc. ("HDS"), which was
acquired by the Company pursuant to a merger consummated on March 2, 1995 (the
"Merger").
4
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------------------------- --------------------------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND PRINCIPAL FISCAL COMPENSATION UNDERLYING COMPENSATION
POSITION YEAR SALARY ($) BONUS($) ($)(1) OPTIONS(#) ($)(1)
- -------------------- ------ ---------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Arthur R. Spector /(2)/ 1997 60,000 --- --- 5,000 ---
President and 1996 --- --- --- 5,000 ---
Chief Executive Officer
Edward C. Callahan /(2)/ 1997 8,077 60,000 --- 385,000 ---
President and
Chief Executive Officer
Michael G. Kantrowitz 1997 150,000 62,999 --- 20,000 3,000 /(4)/
Executive Vice President 1996 125,000 9,431 --- --- 500 /(4)/
1995 173,820 /(3)/ 11,866 --- 200,000 500 /(4)/
Edward M. Parks 1997 130,000 32,570 --- 20,000 2,600 /(4)/
Vice President of 1996 100,000 26,275 --- --- 500 /(4)/
Engineering 1995 100,000 21,261 --- 100,000 500 /(4)/
Scott Holland 1997 115,000 21,714 --- 20,000 2,300 /(4)/
Vice President of Finance 1996 105,000 --- --- --- ---
and Administration 1995 10,090 --- --- 50,000 ---
Steve Ahlbom 1997 111,134 15,875 --- 20,000 2,223 /(4)/
Vice President of 1996 97,500 --- --- --- 500 /(4)/
Operations 1995 85,000 --- --- 70,000 500 /(4)/
- -----------------------------------
</TABLE>
/(1)/ Amount does not exceed the lesser of $50,000 or 10% of total salary
and bonus.
/(2)/ Mr. Spector served as President and Chief Executive Officer from May
17, 1996 until June 16, 1997, the date that Mr. Callahan became
President and Chief Executive Officer.
/(3)/ Includes commission earnings of $79,737 in 1995.
/(4)/ Consists of amounts contributed by the Company under the 401(k) Plan.
5
<PAGE>
OPTION GRANTS DURING 1997 FISCAL YEAR
Except for the automatic grant of options to Mr. Spector as a non-employee
director, no options were granted to any executive officers during the 1996
fiscal year.
<TABLE>
<CAPTION>
POTENTIAL REALIZATION VALUE AT
ASSUMED ANNUAL RATES OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM(1)
- -------------------------------------------------------------------------------- -----------------------------------
NO. OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES EXERCISE EXPIRATION
NAME GRANTED (#) IN FISCAL YEAR PRICE($) DATE 0%($) 5%($) 10%($)
- --------------- --------------- ---------------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Arthur R. Spector 5,000 0.9 7.125 01/02/02 0 9,843 21,750
Edward C. Callahan 385,000 72.0 7.3125 06/16/02 0 767,717 1,696,455
Michael G. Kantrowitz 20,000 3.7 7.625 10/26/02 0 42,133 93,103
Edward M. Parks 20,000 3.7 7.625 10/26/02 0 42,133 93,103
Steven Ahlbom 20,000 3.7 7.625 10/26/02 0 42,133 93,103
Scott Holland 20,000 3.7 7.625 10/26/02 0 42,133 93,103
- --------------------------
</TABLE>
/(1)/ These amounts, based on assumed appreciation rates of 0%, 5% and 10%
prescribed by the Securities and Exchange Commission rules, are not
intended to forecast possible future appreciation, if any, of the
Company's stock price.
AGGREGATED OPTION EXERCISES DURING 1997 FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides information related to options exercised by
the named executive officers during fiscal 1997 and the number of the Company's
options held at fiscal year-end.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END(#) AT FISCAL YEAR END ($)(1)
SHARES ACQUIRED VALUE ----------------------------- ----------------------------
NAME ON EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------ ---------------- -------------- ============================= ============================
<S> <C> <C> <C> <C> <C> <C>
Arthur R. Spector -- -- 15,000 5,000 18,125 -0-
Edward C. Callahan -- -- ---- 385,000 ---- -0-
Michael G. Kantrowitz -- -- 150,000 70,000 18,750 6,250
Edward M. Parks -- -- 75,000 45,000 75,000 25,000
Steven Ahlbom -- -- 52,500 37,500 52,500 17,500
Scott Holland -- -- 25,000 45,000 25,000 25,000
- -----------------------------------------------------------------------
</TABLE>
/ (1)/ Value based on the closing price of $6.50 on June 30, 1997, less
the option exercise price.
6
<PAGE>
AGREEMENTS WITH EXECUTIVE OFFICERS AND CHANGE IN CONTROL ARRANGEMENTS
In connection with the Merger, the Company entered into a three-year
employment contract with Michael Kantrowitz which originally provided for a base
salary of $125,000 per year and an annual bonus which was originally equal to
1.3% of the Company's consolidated operating income, subject to certain
adjustments. The agreement contains confidentiality and non-competition
agreements from Mr. Kantrowitz. The agreement permits the Company to terminate
Mr. Kantrowitz's employment with or without cause; however, in the event of a
termination without cause, Mr. Kantrowitz is entitled to severance benefits
equivalent to the compensation he would have received for the remaining term of
the agreement.
When Mr. Callahan joined the Company, the Company agreed to pay him an
initial annual base salary of $210,000, an annual bonus of 40% of his base
salary based on satisfying certain management objectives and $60,000 to assist
in his relocation, and to grant him non-qualified options to acquire 385,000
shares of Common Stock at an exercise price equal to the fair market value on
the date of grant, vesting at the rate of 25% per year beginning one year after
the commencement of his employment. Mr. Callahan is entitled to severance
benefits in the event of termination without cause equal to his base salary,
benefits and bonus, subject to certain limitations, for one year. The Company
has also agreed that if Mr. Callahan's employment is terminated in the event of
a sale of the Company, he is entitled to payment equal to his base salary,
benefits and bonus, subject to certain limitations, for one year, and to
continue the vesting of 50% of his stock options if the sale occurs in his first
year of employment or 100% of his options if the sale occurs thereafter. The
arrangement also contains a non-competition agreement by Mr. Callahan.
Options granted under the Company's 1995 Stock Option Plan contain
provisions pursuant to which all outstanding options granted under such plan
shall become fully vested and immediately exercisable upon a "change in control"
as defined in such plan.
COMPENSATION AND STOCK OPTION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation and Stock Option Committee (the "Committee") of the Board
of Directors establishes the general compensation policies and specific
compensation levels regarding salaries and the award of stock options under the
Company's 1995 Stock Option Plan. The Committee currently consists of two non-
employee directors.
The Company's compensation program includes annual salary and incentive
compensation, consisting of bonuses and possible long-term incentives, in the
form of stock options, designed to attract, motivate and retain highly qualified
executives who will effectively manage the Company and maximize stockholder
value. In establishing total compensation, the Committee considers individual
and Company performance, as well as compensation levels in comparable companies.
ANNUAL COMPENSATION
- -------------------
Annual salary levels are established based upon an evaluation of individual
performance and comparable compensation levels, although the Committee has not
made formal comparisons with peer
7
<PAGE>
group companies and has not used specific criteria to evaluate individual
performance. For the 1997 fiscal year, the Committee created a cash bonus pool
of $108,568 based upon a percentage of revenues and operating income. The
factors considered by the Committee in determining the amount to be paid to each
individual included the expected contributions to the Company's revenue and
operating income performance, individual performance and the individual's
position and scope of responsibility. The Committee relies on the foregoing
evaluation and exercises subjective judgment and discretion in light of the
Company's general compensation policies and practices described above to
determine salaries and bonuses.
LONG-TERM COMPENSATION
- ----------------------
Long-term incentives are provided through the grant of stock options under
the Company's stock option plan. The Committee reviews and approves the
participation of executive officers of the Company under the Company's stock
option plan. The Committee has the authority to determine the individuals to
whom stock options are awarded, the terms of the options and the number of
shares subject to each option. Options typically vest in four equal annual
installments beginning one year from the date of grant and are exercisable at
an exercise price equal to the fair market value of shares of the Common Stock
on the date of grant. The size of option grants are generally based upon the
executive officer's level of responsibility. Through the grant of stock
options, the objective of aligning executive officers' long-range interests with
those of the stockholders are met by providing the executive officers with the
opportunity to build a meaningful stake in the Company. The Committee evaluates
the individual's and the Company's performance and the data of comparable
companies, although it has not relied on formal comparisons, and exercises
subjective judgment and discretion in view of this information and the Company's
general compensation policies and practices.
CHIEF EXECUTIVE OFFICER COMPENSATION
- ------------------------------------
In June 1997, the Board of Directors appointed Mr. Callahan to serve as
President and Chief Executive Officer. As discussed under "Agreements with
Executive Officers and Change in Control Arrangements" above, Mr. Callahan's
compensation consists of base salary and incentive compensation, consisting of a
short-term bonus and long-term stock options. In establishing Mr. Callahan's
compensation package, the Committee consulted with the Company's executive
search firm and reviewed compensation data for chief executive officers of
companies considered to be the Company's peers in the computer and
communications industry. In light of this information, the Committee exercised
its subjective judgment and discretion in formulating Mr. Callahan's
compensation package.
Arthur R. Spector served as the Company's President and Chief Executive
Officer from May 17, 1996 until June 16, 1997, the date that Mr. Callahan
assumed the position of President and Chief Executive Officer. Mr. Spector
received an annual salary of $40,000, and also received an annual salary of
$20,000 as Chairman of ITC, a wholly-owned subsidiary of the Company.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
- ---------------------------------------
Federal tax laws impose requirements in order for compensation payable to
certain executive officers to be fully deductible. The Company intends, to the
extent practicable, to preserve deductibility under the Internal Revenue Code of
compensation paid to its executive officers while maintaining compensation
programs to attract and retain highly qualified executives in a competitive
environment.
8
<PAGE>
The foregoing report has been furnished by the Compensation and Stock
Option Committee of the Board of Directors. The current membership of the
Committee is as follows:
Howard L. Morgan
John M. Ryan
PERFORMANCE GRAPH
The following graph compares the cumulative total return on the Company's
Common Stock for the period April 2, 1993 (the date of the Company's initial
public offering) to June 30, 1997 with similar returns for the (i) S&P
Technology-500 and the S&P 500 Index.
TOTAL SHAREHOLDER RETURNS
-------------------------
(Dividends Reinvested)
ANNUAL RETURN PERCENTAGE
Years Ending
Company/Index Jun93 Jun94 Jun95 Jun96 Jun97
=============================================================================
NEOWARE SYSTEMS, INC 2.33 (6.82) 0.60 69.71 (25.71)
S&P TECHNOLOGY-500 10.12 8.30 62.70 19.15 52.02
S&P 500 INDEX 5.55 1.41 26.07 26.00 34.70
INDEXED RETURNS
Years Ending
Base
Period
Company/Index 2-Apr-93 Jun93 Jun94 Jun95 Jun96 Jun97
=============================================================================
NEOWARE SYSTEMS, INC 100 102.33 95.35 95.92 162.79 120.93
S&P TECHNOLOGY-500 100 110.12 119.26 194.03 231.19 351.47
S&P 500 INDEX 100 105.55 107.04 134.94 170.02 229.02
CERTAIN TRANSACTIONS
In August 1996, the Company formed ITC, a Delaware Corporation. Its Board
of Directors consists of the same members as the Company's Board. James W.
Dixon, a director of the Company (who is not standing for re-election) is the
President and Chief Executive Officer of ITC and receives an annual salary of
$155,000, and Arthur R. Spector, the Company's Chairman of the Board, is the
Chairman of ITC and receives an annual salary of $20,000. In October 1997, ITC
and Global Consulting Group, a company controlled by TL Ventures, merged into
The Reohr Group, Inc., an information technology staffing and consulting
company. Pursuant to the merger, the Company, as the sole stockholder of ITC,
received stock of the surviving entity representing ownership of approximately
2% of the surviving entity. The Company was also reimbursed for the expenses
in the amount of
9
<PAGE>
$1,000,000 incurred by it and ITC in connection with ITC's efforts to complete
these acquisitions. Of the reimbursement, $300,000 was paid in cash and the
balance by a note.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information regarding beneficial
ownership of the shares of Common Stock of the Company as of June 30, 1997 by
(i) each stockholder known by the Company to be the beneficial owner of more
than 5% of the outstanding Common Stock, (ii) each director of the Company and
(iii) all directors and executive officers as a group. Except as otherwise
indicated, the Company believes that the beneficial owners of the shares of
Common Stock listed below, based on information furnished by such owners, have
sole investment and voting power with respect to such shares, subject to
community property laws where applicable.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
PRINCIPAL STOCKHOLDERS BENEFICIALLY OWNED BENEFICIALLY OWNED
- ------------------------ ------------------ ------------------
<S> <C> <C>
Arthur R. Spector..................... 137,000 /(1)(3)/ 2.3
Edward C. Callahan.................... --- *
Michael G. Kantrowitz................. 303,535 /(1)(3)/ 5.0
Howard L. Morgan...................... 33,146 /(1)(3)/ *
John M. Ryan.......................... 18,500 /(1)/ *
Carl G. Sempier....................... 17,500 /(1)/ *
James Dixon........................... 22,700 /(1)/ *
Warren V. Musser /(4)/................ 500,000 /(3)/ 7.9
Mark A. Gelberg /(2)/................. 696,205 /(1)(3)/ 10.7
Terri N. Gelberg /(5)/................ 642,517 /(3)/ 10.0
All Executive Officers and Directors
as a Group (11 persons)............... 684,881 /(1)(3)/ 10.6
- --------------------------
</TABLE>
* Less than 1%
/(1)/ Includes options exercisable within 60 days of June 30, 1997 to purchase
the Company's Common Stock issued pursuant to the Company's 1995 Stock
Option Plan: Mr. Spector, 17,500 shares; Mr. Kantrowitz, 150,000 shares;
Mr. Morgan, 17,500 shares; Mr. Ryan, 17,500 shares; Mr. Sempier, 17,500
shares and Mr. Dixon, 12,500 shares.
/(2)/ The stockholder's address is RR 1, Box 171-6, Warren, Vermont 05674.
Includes 119,200 shares held by a foundation of which Mr. Gelberg is the
trustee.
/(3)/ Includes Warrants exercisable within 60 days of June 30, 1997 to purchase
the Company's Common Stock; Mr. Spector, 29,500 shares; Mr. Gelberg,
115,863 shares; Mr. Kantrowitz, 31,293 shares; Mr. Morgan, 3,442 shares;
Mr. Musser, 500,000 shares; Ms. Gelberg, 115,863 shares; and Roger and
Ruth Pincus, 63,228 shares.
/(4)/ The stockholder's address is 435 Devon Park Drive, Building 800, Wayne,
Pennsylvania 19087. Mr. Musser is the Chairman, Chief Executive Officer
and President of Safeguard Scientifics, Inc., which beneficially owns
140,000 shares of the Common Stock not included in the shares beneficially
owned by Mr. Musser. Mr. Musser disclaims beneficial ownership of all such
excluded shares. This information is presented in reliance on information
disclosed in a Schedule 13D filed with the Securities and Exchange
Commission (the "SEC") on February 3, 1994.
10
<PAGE>
/(5)/ The stockholder's address is 1909 Panama Street, Philadelphia,
Pennsylvania 19031. The information is presented in reliance on
information disclosed in a Schedule 13D filed with the Securities and
Exchange Commission on February 7, 1996.
PROPOSAL TO AMEND THE 1995
STOCK OPTION PLAN
At the meeting, there will be presented a proposal to approve an amendment to
the Company's 1995 Stock Option Plan (the "1995 Plan"). The full text of the
1995 Plan, as proposed to be amended, is attached as Exhibit A. This amendment
provides for an increase in the aggregate number of shares of Common Stock
reserved for issuance from 1,100,000 shares to 1,500,000 shares. The 1995 Plan
currently provides, and the amendment deletes the provision, that the shares
reserved for issuance would increase to 1,500,000 from 1,100,000 only in the
event that the Company's redeemable common stock purchase warrants (the
"Warrants") were called for redemption by the Company. The Warrants may be
called for redemption by the Company at a price of $.01 per Warrant if the last
sale price of the Company's Common Stock has been at least $10.00 per share for
20 consecutive days.
The Board of Directors believes that the granting of stock options is an
effective method of recruiting and retaining valuable employees of the Company
by providing an incentive to such persons and strengthening the identity of
interests between such key employees and the Company. An increase in the
aggregate number of shares of Common Stock reserved for issuance under the 1995
Plan is necessary to continue the Company's efforts to attract and retain
qualified key executives, directors and other personnel. Accordingly, on
October 21, 1997, the Board of Directors adopted, subject to stockholder
approval, an amendment to increase the number of shares of Common Stock
available under the 1995 Plan as described above.
VOTE REQUIRED FOR APPROVAL
To be adopted, the amendment to the 1995 Plan must be approved by a majority
of the outstanding shares of Common Stock represented and entitled to vote at
the meeting.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE ADOPTION OF THE AMENDMENT TO
THE 1995 PLAN.
DESCRIPTION OF THE PLAN
Eligibility
Those persons who are employees, officers, directors and independent
contractors of particular merit of the Company are eligible to be selected by
the committee (the "Committee") of the Board of Directors that administers the
1995 Plan.
Types of Options
The 1995 Plan authorizes (i) the granting of incentive stock options
("Incentive Options") to purchase shares of the Company's Common Stock and (ii)
the granting of nonqualified stock options
11
<PAGE>
("Nonqualified Options") to purchase shares of the Company's Common Stock.
Unless the context otherwise requires, the term "Option" includes both Incentive
Options and Nonqualified Options.
Administration
The 1995 Plan is administered by the Compensation and Stock Option Committee
(the "Committee") which currently consists of two non-employee members of the
Board of Directors. The Committee in its sole discretion determines the eligible
persons to be awarded Options, the number of shares subject thereto and the
exercise price thereof, subject to certain limitations. In addition, the
determinations and the interpretation and construction of any provision of the
1995 Plan by the Committee is final and conclusive.
Common Stock Subject to the 1995 Plan
A total of 1,100,000 shares of Common Stock (subject to adjustment as
discussed below) have been reserved for sale upon exercise of Options granted
under the 1995 Plan. As of the date hereof, 962,987 Options have been granted
under the 1995 Plan. The proposed amendment would increase the number of shares
to 1,500,000 and would delete the provision that would have increased the number
of shares to 1,500,000 only in the event that the Company called the Warrants
for redemption.
Granting of Options
As of the date hereof, there were 80 employees and five non-employee
directors who were eligible to receive Options under the 1995 Plan. Except as
described below, the Committee grants Options from time to time in its
discretion. No determination has been made as to the number of Options that may
be allocated to the individuals named in the Summary Compensation Table, current
executive officers as a group, current directors who are not executive officers
as a group (except as described below), or all employees (including all current
officers who are not executive officers) as a group, as a result of the
amendment as set forth herein.
The 1995 Plan also provides for automatic grants of Options to non-employee
directors of the Company. Directors receive Options for 10,000 shares of Common
Stock upon becoming directors and Options for 5,000 shares of Common Stock on
each January 1.
Exercise Price of Options
Options may not be granted with an exercise price per share that is less than
the fair market value of a share of Common Stock at the date of grant. The
Options granted to non-employee directors will have an exercise price equal to
the fair market value of a share of Common Stock at the date of grant.
Payment of Exercise Price
The exercise price of an Option may be paid in cash, certified or cashier's
check, by money order, personal check, the delivery of already owned Common
Stock having a fair market value equal to the exercise price, or by the use of
the cashless exercise features of the 1995 Plan, provided, however, that if the
optionee acquired such stock directly or indirectly from the Company, he shall
12
<PAGE>
have owned such stock to be surrendered for six months prior to tendering such
stock for the exercise of an Option.
Special Provisions for Incentive Options
An employee may receive more than one Incentive Option, but the maximum
aggregate fair market value of the Common Stock (determined when the Incentive
Option is granted) with respect to which Incentive Options are first exercisable
by such employee in any calendar year cannot exceed $100,000. In addition, no
Incentive Option may be granted to an employee owning directly or indirectly
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company unless the exercise price is set at not less than 110%
of the fair market value of the shares subject to such Incentive Option on the
date of grant and such Incentive Option expires not later than five years from
the date of grant.
Transferability of Options
No Incentive Option granted under the 1995 Plan is assignable or
transferable, otherwise than by will or by the laws of descent and distribution
or pursuant to a qualified domestic relations order. The Committee may grant
Nonqualified Options that are transferable without consideration, to immediate
family members.
Exercisability of Options
The Committee, in its sole discretion, may limit the optionee's right to
exercise all or any portion of an Option until one or more dates subsequent to
the date of grant. The Committee also has the right, exercisable in its sole
discretion, to accelerate the date on which all or any portion of an Option may
be exercised. The 1995 Plan provides that upon the occurrence of certain
changes in control, mergers or sales of substantially all of the assets of the
Company, each Option shall immediately become exercisable in full.
Expiration of Options
The expiration date of an Option is determined by the Committee at the time
of the grant, but in no event is an Option exercisable after the expiration of
10 years from the date of grant of the Option.
If an optionee's employment is terminated for cause, all rights of such
optionee under the 1995 Plan cease and the Options granted to such optionee
become null and void for all purposes. The 1995 Plan further provides that in
most instances an Option must be exercised by the optionee within 30 days after
the termination of an optionee's employment with the Company (for any reason
other than termination for cause, mental or physical disability or death), if
and to the extent such Option was exercisable on the date of such termination.
If the optionee is a director and is not otherwise employed by the Company, his
Option must be exercised within 30 days of the date he ceases to be a director.
The termination provisions of Options granted to optionees who are independent
contractors are determined at the discretion of the Committee. Generally, if an
optionee's termination of employment is due to mental or physical disability,
the optionee will have the right to exercise the Option (to the extent otherwise
exercisable on the date of termination) for a period of one year from the date
on which the optionee suffers the mental or physical disability. If an optionee
dies while actively employed by
13
<PAGE>
the Company, the Option may be exercised (to the extent otherwise exercisable on
the date of death) within one year of the date of the optionee's death by the
optionee's legal representative or legatee.
As described above, an Option becomes exercisable in full upon the occurrence
of certain corporate transactions.
Expiration of the 1995 Plan
The 1995 Plan will expire on March 2, 2005, and any Option outstanding on
such date will remain outstanding until it has either expired or has been fully
exercised.
Adjustments
The 1995 Plan provides for adjustments to the number of shares under which
Options may be granted, to the number of shares subject to outstanding Options
and to the exercise price of such outstanding Options in the event of a
declaration of a stock dividend or any recapitalization resulting in a stock
split-up, combination or exchange of the Company's Common Stock.
Certain Corporate Transactions
All outstanding Options automatically become immediately exercisable upon a
change in control, as defined in the 1995 Plan. In general, a change in control
is deemed to have occurred if existing members of the Board of Directors
nominated by existing members cease to constitute a majority of the Board, any
person becomes a 50% or more stockholder of the Company (unless the acquisition
is approved by a majority of the existing members of the Board), the Company
becomes a party to a merger in which it will not be the surviving company or the
stockholders approve the disposition of all or substantially all of the assets,
or 50% or more of the capital stock, of the Company.
Amendments
The Board may amend, suspend or terminate the 1995 Plan or any Option at any
time subject to stockholder approval in certain instances, provided that such
action may not, without the consent of the optionee, substantially impair the
rights of an optionee under an outstanding Option. The Committee may not amend
the 1995 Plan without further stockholder approval to increase the number of
shares of Common Stock reserved for issuance, to change the class of employees
eligible to participate in the 1995 Plan, to permit the granting of Options with
more than a 10-year term or to extend the termination date of the 1995 Plan.
FEDERAL INCOME TAX CONSEQUENCES
Grants of Options
Under current tax laws, the grant of an Option will not be a taxable event to
the recipient optionee and the Company will not be entitled to a deduction with
respect to such grant.
14
<PAGE>
Exercise of Nonqualified Options and Subsequent Sale of Stock
Upon the exercise of a Nonqualified Option, an optionee will recognize
ordinary income at the time of exercise equal to the excess of the then fair
market value of the Company's Common Stock received over the exercise price.
The taxable income recognized upon exercise of a Nonqualified Option will be
treated as compensation income subject to withholding and the Company will be
entitled to deduct as a compensation expense an amount equal to the ordinary
income an optionee recognizes with respect to such exercise. When shares of the
Common Stock received upon the exercise of an Nonqualified Option subsequently
are sold or exchanged in a taxable transaction, the holder thereof generally
will recognize capital gain (or loss) equal to the difference between the total
amount realized and the fair market value of the Common Stock on the date of
exercise; the character of such gain or loss as long-term or short-term capital
gain or loss will depend upon the holding period of the shares following
exercise.
Exercise of Incentive Options and Subsequent Sale of Stock
The exercise of an Incentive Option will not be taxable to the optionee, and
the Company will not be entitled to any deduction with respect to such exercise.
However, to qualify for this favorable tax treatment of incentive stock options
under the Code, the optionee may not dispose of the Common Stock acquired upon
the exercise of an Incentive Option until after the later of two years following
the date of grant or one year following the date of exercise. The surrender of
shares of the Company's Common Stock acquired upon the exercise of an Incentive
Option in payment of the exercise price of an Option within the required holding
period for incentive stock options under the Code will be a disqualifying
disposition of the surrendered shares. Upon any subsequent taxable disposition
of the Company's Common Stock received upon exercise of an Incentive Option, the
optionee generally will recognize long-term or short-term capital gain (or loss)
equal to the difference between the total amount realized and the exercise price
of the Option.
If an Option that was intended to be an incentive stock option under the Code
does not qualify for favorable incentive stock option treatment under the Code
due to the failure to satisfy the holding period requirements, the optionee may
recognize ordinary income in the year of the disqualifying disposition. Provided
the amount realized in the disqualifying disposition exceeds the exercise price,
the ordinary income an optionee shall recognize in the year of a disqualifying
disposition shall be the lower of (i) the excess of the amount realized over the
exercise price or (ii) excess of the fair market value of the Company's Common
Stock at the time of the exercise over the exercise price. In addition, the
optionee shall recognize capital gain on the disqualifying disposition in the
amount, if any, by which the amount realized in the disqualifying disposition
exceeds the fair market value on the Company's Common Stock at the time of the
exercise. Such capital gain shall be taxable as long-term or short-term capital
gain, depending on the optionee's holding period for such shares.
Notwithstanding the favorable tax treatment of Incentive Options for regular
tax purposes, as described above, for alternative minimum tax purposes, an
Incentive Option is generally treated in the same manner as a Nonqualified
Option. Accordingly, an optionee must generally include in alternative minimum
taxable income for the year in which an Incentive Option is exercised the excess
of the fair market value of the date of exercise of the Company's Common Stock
received over the exercise price. If, however, an optionee disposes of the
Company's Common Stock acquired upon the exercise of an Incentive Option in the
same calendar year as the exercise, only an amount equal to the optionee's
15
<PAGE>
ordinary income for regular tax purposes with respect to such disqualifying
disposition will be recognized for the optionee's calculation of alternative
minimum taxable income in such calendar year.
PROPOSAL TO RATIFY ACCOUNTANTS
The Board of Directors has selected the firm of Arthur Andersen LLP as the
Company's independent public accountants for the year ending June 30, 1998. The
Board of Directors has proposed that the stockholders ratify the selection of
Arthur Anderson LLP. The Company has requested that a representative of Arthur
Andersen LLP attend the Annual Meeting. Such representative will have an
opportunity to make a statement, if he or she desires, and will be available to
respond to appropriate questions of stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF
ARTHUR ANDERSEN LLP AS INDEPENDENT PUBLIC ACCOUNTANTS.
STOCKHOLDERS PROPOSALS FOR
NEXT ANNUAL MEETING
Any properly submitted proposal which a stockholder intends to present at the
next Annual Meeting of Stockholders must be received by the Company by July 9,
1998 if it is to be included in the Company's proxy statement and form of proxy
relating to the next Annual Meeting.
16
<PAGE>
Exhibit A
1995 STOCK OPTION PLAN
[Adopted by the Board of Directors on November 29, 1994, as amended through
December 10, 1997]
PART I
DEFINITIONS AND ADMINISTRATIVE MATTERS
--------------------------------------
SECTION 1. PURPOSE; DEFINITIONS
The purpose of the Information Systems Acquisition Corporation 1995 Stock
Option Plan (the "Plan") is to enable employees, officers, directors and
independent contractors of Information Systems Acquisition Corporation ("the
Company") to (i) own shares of stock in the Company, (ii) participate in the
stockholder value which has been created, (iii) have a mutuality of interest
with other stockholders and (iv) enable the Company to attract, retain and
motivate employees, officers, directors and independent contractors of
particular merit.
For the purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Code" means the Internal Revenue Code of 1986, as amended from time to
----
time, and any successor thereto.
(c) "Committee" means the Committee designated by the Board to administer
---------
the Plan.
(d) "Company" means Information Systems Acquisition Corporation, its
-------
Subsidiaries or any successor organization.
(e) "Disability" means permanent and total disability within the meaning of
----------
Section 22(e)(3) of the Code.
(f) "Disinterested Person" shall have the meaning set forth in the Rules.
--------------------
(g) "Eligible Independent Contractor" means an independent contractor hired
-------------------------------
by the Company who is neither an Employee of the Company nor a Non-Employee
Director.
(h) "Employee" means any person, including a director, who is employed by
--------
the Company and is compensated for such employment by a regular salary.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
(j) "Fair Market Value" means the per share value of the Stock as of any
-----------------
given date, as determined by reference to the price of the last traded share of
Stock on the over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation ("NASDAQ")
<PAGE>
System for such date or the next preceding date that Stock was traded on such
market, or, in the event the Stock is listed on a stock exchange, the closing
price per share of Stock as reported on such exchange for such date.
(k) "Incentive Stock Option" means any Stock Option intended to be and
----------------------
designated as an "Incentive Stock Option" within the meaning of Section 422 of
the Code.
(l) "Insider" means a Participant who is subject to Section 16 of the
-------
Exchange Act.
(m) "Non-Employee Director" means any member of the Board who is not an
---------------------
Employee of the Company and is not compensated for employment by a regular
salary.
(n) "Non-Qualified Stock Option" means any Stock Option that is not an
--------------------------
Incentive Stock Option.
(o) "Participant" means an Employee, officer, Non-Employee Director or
-----------
Eligible Independent Contractor to whom an award is granted pursuant to the
Plan.
(p) "Plan" means the Information Systems Acquisition Corporation 1995 Stock
----
Option Plan, as hereinafter amended from time to time.
(q) "Rules" means Rule 16(b)(3) and any successor provisions promulgated by
-----
the Securities and Exchange Commission under Section 16 of the Exchange Act.
(r) "Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
(s) "Securities Broker" means the registered securities broker acceptable
-----------------
to the Company who agrees to effect the cashless exercise of an Option pursuant
to Section 5(d) hereof.
(t) "Stock" means the Common Stock of the Company, par value $.01 per
-----
share.
(u) "Stock Option" or "Option" means any option to purchase shares of Stock
------------ ------
(including Restricted Stock, if the Committee so determines) granted pursuant to
Section 5 below.
(v) "Subsidiary" means any corporation owned, in whole or in part, by the
----------
Company.
SECTION 2. ADMINISTRATION
2.1 The portion of the Plan with respect to the grant of Options pursuant
to Part II shall be administered by a Committee of not less than three Directors
who shall be Disinterested Persons appointed by the Board and who shall serve at
the pleasure of the Board; provided further, however, that, notwithstanding the
foregoing, Part II of the Plan shall be administered by such number of
Disinterested Persons as and to the extent required by the Rules.
The Committee shall have the authority to grant pursuant to the terms of
the Plan: Stock Options to Employees (including directors who are Employees)
and officers of the Company, and Eligible Independent Contractors. In
particular, the Committee shall, subject to the limitations and terms of the
Plan, have the authority:
-2-
<PAGE>
(i) to select the officers, directors (who are Employees) and other
Employees of the Company, and the Eligible Independent Contractors to whom Stock
Options may from time to time be granted hereunder;
(ii) to determine whether and to what extent incentive Stock Options
are to be granted hereunder;
(iii) to determine the number of shares to be covered by each such
award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder, including the option or
exercise price and any restrictions or limitations, based upon such factors as
the Committee shall determine, in its sole discretion;
(v) to determine whether and under what circumstances a Stock Option
may be exercised and settled in cash or Stock or without a payment of cash;
(vi) to determine whether, to what extent and under what circumstances
Stock and other amounts payable with respect to an award under this Plan shall
be deferred either automatically or at the election of the Participant; and
(vii) to amend the terms of any outstanding award (with the consent of
the Participant) to reflect terms not otherwise inconsistent with the Plan,
including amendments concerning exercise price changes, vesting acceleration or
forfeiture waiver regarding any award or the extension of a Participant's right
with respect to awards granted under the Plan, as a result of termination of
employment or service or otherwise, based on such factors as the Committee shall
determine, in its sole discretion.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan, provided that the
Committee may delegate to the Chief Executive Officer of the Company, or such
other officer as may be designated by the Committee, the authority, subject to
guidelines prescribed by the Committee, to grant Options to Employees and
Eligible Independent Contractors who are not then subject to the provisions of
Section 16 of the Exchange Act, and to determine the number of shares to be
covered by any such Option, and the Committee may authorize any one or more of
such persons to execute and deliver documents on behalf of the Committee,
provided that no such delegation may be made that would cause grants of Options
to persons subject to Section 16 of the Exchange Act to fail to comply with all
applicable conditions of Rule 16b-3 or its successors under the Exchange Act.
Determinations, interpretations or other actions made or taken by the Committee
pursuant to the provisions of the Plan shall be final and binding and conclusive
for all purposes and upon all persons.
No member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Stock Option
granted under it. Nothing herein shall be deemed to expand the personal
liability of a member of the Board or Committee beyond that which may arise
under any applicable standards set forth in the Company's by-laws and Delaware
law, nor shall anything herein limit any rights to indemnification or
advancement of expenses to which any member of the Board or the
-3-
<PAGE>
Committee may be entitled under any by-law, agreement, vote of the stockholders
or directors, or otherwise.
2.2 The portion of the Plan with respect to the grant of Options pursuant
to Part III shall be administered by the Board. Grants of Stock Options under
Part III of the Plan and the amount, price and timing of the awards to be
granted will be automatic, as described in Part III hereof. All questions of
interpretation of the Plan with respect to the grant of Options pursuant to Part
III will be determined by the Board, and such determination shall, unless
otherwise determined by the Board, be final and conclusive on all persons having
any interest hereunder.
SECTION 3. STOCK SUBJECT TO THE PLAN
3.1 The aggregate number of shares of Stock that may be issued or
transferred under the Plan is 1,500,000, subject to adjustment pursuant to
Section 3.2 below. Such shares may be authorized but unissued shares or
reacquired shares. If the number of shares of Stock issued under the Plan and
the number of shares of Stock subject to outstanding awards (taking into account
the share counting requirements established under the Rules) equals the maximum
number of shares of Stock authorized under the Plan, no further awards shall be
made unless the Plan is amended in accordance with the Rules or additional
shares of Stock become available for further awards under the Plan. If and to
the extent that Options granted under the Plan terminate, expire or are canceled
without having been exercised, such shares shall again be available for
subsequent awards under the Plan.
3.2 If any change is made to the Stock (whether by reason of merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
combination of shares, or exchange of shares or any other change in capital
structure made without receipt of consideration), then unless such event or
change results in the termination of all outstanding awards under the Plan, the
Board or the Committee shall preserve the value of the outstanding awards by
adjusting the maximum number and class of shares issuable under the Plan to
reflect the effect of such event or change in the Company's capital structure,
and by making appropriate adjustments to the number and class of shares subject
to an outstanding award and/or the option price of each outstanding Option,
except that any fractional shares resulting from such adjustments shall be
eliminated by rounding any portion of a share equal to .500 or greater up, and
any portion of a share equal to less than .500 down, in each case to the nearest
whole number.
3.3 In any fiscal year of the Company, the maximum number of shares of
Common Stock with respect to which Options may be granted to any optionee shall
not exceed 5% of the Common Stock outstanding, as adjusted for stock splits,
stock dividends or other similar changes affecting the Common Stock.
SECTION 4. DESIGNATION OF OPTIONEES
4.1 Optionees under Part II of the Plan shall be selected, from time
to time, by the Committee from among those Employees and Eligible Independent
Contractors who, in the opinion of the Committee, occupy responsible positions
and who have the capacity to contribute materially to the continued growth,
development and long-term success of the Company and its Subsidiaries.
4.2 All Non-Employee Directors on the date of grant shall be eligible
to receive Options under Part III of the Plan.
-4-
<PAGE>
PART II
GRANTS TO EMPLOYEES AND ELIGIBLE INDEPENDENT CONTRACTORS
--------------------------------------------------------
SECTION 5. STOCK OPTIONS
Any Stock Option granted under Part II of the Plan shall be in such form as
the Committee may from time to time approve. Stock Options granted under Part
II of the Plan may be of two types: (i) Incentive Stock Options and (ii) Non-
Qualified Stock Options.
The Committee shall have the authority to grant Incentive Stock Options,
Non-Qualified Stock Options or both types of Stock Options. To the extent that
any Stock Option does not qualify as an Incentive Stock Option, it shall
constitute a Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of this Plan
relating to Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be so exercised, so
as to disqualify the Plan under Section 422 of the Code, or, without the consent
of the optionee(s) affected, to disqualify any Incentive Stock Option under
Section 422.
Options granted hereunder shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem
appropriate:
5.1 OPTION PRICE. The option price per share of Stock purchasable under a
------------
Stock Option shall be determined by the Committee at the time of grant;
provided, however, that the option price per share for any Stock Option shall be
not less than 100% of the Fair Market Value of the Stock on the date of grant.
Any Incentive Stock Option granted to any optionee who, at the time
the Option is granted, owns more than 10% of the voting power of all classes of
stock of the Company or of a Parent or Subsidiary corporation (within the
meaning of Section 424 of the Code), shall have an exercise price no less than
110% of Fair Market Value per share on the date of the grant.
5.2 OPTION TERM. The term of each Stock Option shall be fixed by the
-----------
Committee, but no Stock Option shall be exercisable more than ten years after
the date the Stock Option is granted. However, any Incentive Stock Option
granted to any optionee who, at the time the Option is granted, owns more than
10% of the voting power of all classes of stock of the Company or of a Parent or
Subsidiary corporation may not have a term of more than five years. No Option
may be exercised by any person after expiration of the term of the Option.
5.3 EXERCISABILITY. Stock Options shall be exercisable at such time or
--------------
times and subject to such terms and conditions as shall be determined by the
Committee at or after grant. If the Committee provides, in its discretion, that
any Stock Option is exercisable only in installments, the Committee may waive
such installment exercise provisions at any time at or after grant in whole or
in part, based on such factors as the Committee shall determine, in its sole
discretion.
5.4 METHOD OF EXERCISE. Subject to whatever installment exercise
------------------
provisions apply under Section 53, Stock Options may be exercised in whole or in
part at any time and from time to time during the Option period, by giving
written notice of exercise to the Company specifying the number of shares
-5-
<PAGE>
to be purchased. Such notice shall be accompanied by payment in full of the
purchase price, either by cash, check, or such other instrument as the Committee
may accept. As determined by the Committee, in its sole discretion, at or after
grant, payment in full or in part may also be made in the form of unrestricted
Stock already owned by the optionee (based upon the Fair Market Value of a share
of Stock on the business date preceding tender if received prior to the close of
the stock market and at the Fair Market Value on the date of tender if received
after the stock market closes); provided, however, that, (i) in the case of an
Incentive Stock Option, the right to make a payment in the form of unrestricted
Stock already owned by the optionee may be authorized only at the time the
Option is granted and (ii) the Company may require that the Stock has been owned
by the Participant for a minimum period of time specified by the Committee. In
addition, if such unrestricted Stock was acquired through exercise of an
Incentive Stock Option, such Stock shall have been held by the optionee for a
period of not less than the holding period described in Section 422(a)(1) of the
Code on the date of exercise, or if such Stock was acquired through exercise of
a Non-Qualified Stock Option or of an option under a similar plan of the
Company, such Stock shall have been held by the optionee for a period of more
than one year on the date of exercise, and further provided that the optionee
shall not have tendered Stock in payment of the exercise price of any other
Option under the Plan or any other stock option plan of the Company within six
calendar months of the date of exercise.
To the extent permitted under the applicable laws and regulations, at
the request of the Participant, and with the consent of the Committee, the
Company shall permit payment to be made by means of a "cashless exercise" of an
Option. Payment by means of a cashless exercise shall be effected by the
Participant delivering to the Securities Broker irrevocable instructions to sell
a sufficient number of shares of Stock to cover the cost and expenses associated
therewith and to deliver such amount to the Company.
No shares of Stock shall be issued until full payment therefor has
been made. An optionee shall not have any right to dividends or other rights of
a stockholder with respect to shares subject to the Option until such time as
Stock is issued in the name of the optionee following exercise of the Option in
accordance with the Plan.
5.5 STOCK OPTION AGREEMENT. Each Option granted under this Plan shall be
----------------------
evidenced by an appropriate Stock Option agreement, which agreement shall
expressly specify whether such Option is an Incentive Stock Option or a Non-
Qualified Stock Option and shall be executed by the Company and the optionee.
The agreement shall contain such terms and provisions, not inconsistent with the
Plan, as shall be determined by the Committee. Such terms and provisions may
vary between optionees or as to the same optionee to whom more than one Option
may be granted.
5.6 REPLACEMENT OPTIONS. If an Option granted pursuant to the Plan may be
-------------------
exercised by an optionee by means of a stock-for-stock swap method of exercise
as provided in 54 above, then the Committee may, in its sole discretion and at
the time of the original Option grant, authorize the Participant to
automatically receive a replacement Option pursuant to this part of the Plan.
This replacement Option shall cover a number of shares determined by the
Committee, but in no event more than the number of shares equal to the
difference between the number of shares of the original Option exercised and the
net shares received by the Participant from such exercise. The per share
exercise price of the replacement Option shall equal the then current Fair
Market Value of a share of Stock, and shall have a term extending to the
expiration date of the original Option.
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<PAGE>
The Committee shall have the right, in its sole discretion and at any
time, to discontinue the automatic grant of replacement Options if it determines
the continuance of such grants to no longer be in the best interest of the
Company.
5.7 NON-TRANSFERABILITY OF OPTIONS. No Stock Option shall be transferable
------------------------------
by the optionee other than by will, by the laws of descent and distribution,
pursuant to a qualified domestic relations order, or as permitted under the
Rules, and all Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee. Notwithstanding the foregoing, the Committee
may grant non-qualified Options that are transferable, without payment of
consideration, to immediate family members (i.e., spouses, children and
grandchildren) of the Optionee or to trusts for, or partnerships whose only
partners are, such family members. The Committee may also amend outstanding
non-qualified Options to provide for such transferability.
5.8 TERMINATION OF EMPLOYMENT BY REASON OF DEATH. Unless otherwise
--------------------------------------------
determined by the Committee at or after grant, if any optionee dies during the
optionee's period of employment by the Company, or during the periods referred
to in Sections 5.9, 5.10 or 5.11, any Stock Option held by such optionee may
thereafter be exercised, to the extent then exercisable or on such accelerated
basis as the Committee may determine at or after grant, by the legal
representative of the estate or by the legatee of the optionee under the will of
the optionee, for a period of one year (or such shorter period as the Committee
may specify at grant) from the date of such death or until the expiration of the
stated term of such Stock Option, whichever period is shorter.
5.9 TERMINATION OF EMPLOYMENT BY REASON OF DISABILITY. Unless otherwise
-------------------------------------------------
determined by the Committee at or after grant, if an optionee's employment by
the Company terminates by reason of Disability, any Stock Option held by such
optionee may thereafter be exercised by the optionee, to the extent it was
exercisable at the time of termination, or on such accelerated basis as the
Committee may determine at or after grant, for a period of one year (or such
shorter period as the Committee may specify at grant) from the date of such
termination of employment or until the expiration of the stated term of such
Stock Option, whichever period is shorter. In the event of termination of
employment by reason of Disability, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for purposes of Section
422 of the Code, such Stock Option will thereafter be treated as a Non-Qualified
Stock Option.
5.10 TERMINATION OF EMPLOYMENT UPON RETIREMENT. Unless otherwise
-----------------------------------------
determined by the Committee at or after grant, if an optionee's employment
terminates due to retirement (as hereinafter defined), any Stock Option held by
such optionee may thereafter be exercised by the optionee, to the extent it was
exercisable at the date of retirement, or on such accelerated basis as the
Committee may specify at grant, for a period of one-year (or such shorter period
as the Committee may specify at grant) from the date of such retirement or until
the expiration of the stated term of such Stock Option, whichever period is
shorter. For purposes of this Section 5.10, "Retirement" shall mean any
Employee retirement under the Company's retirement policy.
5.11 OTHER TERMINATION OF EMPLOYMENT. Unless otherwise determined by the
-------------------------------
Committee at or after grant, in the event of termination of employment
(voluntary or involuntary) for any reason other than death, Disability or
retirement, or if an Employee is terminated for cause, any Stock Option held by
such optionee may thereafter be exercised by the optionee, to the extent it was
exercisable at the time of such termination or on such accelerated basis as the
Committee may determine at or after grant, for a period of three months (or such
shorter period as the Committee may specify at grant) from the date of
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<PAGE>
such termination of employment or the expiration of the stated term of such
Stock Option, whichever period is shorter. If an Employee is terminated for
cause, any Stock Option held by such Optionee shall terminate immediately.
5.12 INCENTIVE STOCK OPTION LIMITATION. The aggregate Fair Market Value
---------------------------------
(determined as of the time of grant) of the Stock with respect to which
Incentive Stock Options are exercisable for the first time by the optionee
during any calendar year under the Plan and/or any other stock option plan of
the Company shall not exceed $100,000.
5.13 TERMINATION OF ELIGIBLE INDEPENDENT CONTRACTORS OPTIONS. The
-------------------------------------------------------
termination provisions of Options granted to Eligible Independent Contractors
shall be determined by the Committee in its sole discretion.
5.14 WITHHOLDING AND USE OF SHARES TO SATISFY TAX OBLIGATIONS. The
--------------------------------------------------------
obligation of the Company to deliver Stock upon the exercise of any Option shall
be subject to applicable federal, state and local tax withholding requirements.
If the exercise of any Option is subject to the withholding
requirements of applicable federal tax laws, the Committee, in its discretion
(and subject to such withholding rules ("Withholding Rules") as shall be adopted
by the Committee), may permit the optionee to satisfy the federal withholding
tax, in whole or in part, by electing to have the Company withhold (or by
delivering to the Company) shares of Stock, which Stock shall be valued, for
this purpose, at their Fair Market Value on the date the amount of tax required
to be withheld is determined (the "Determination Date"). Such election must be
made in compliance with and subject to the Withholding Rules, and the Committee
may not withhold shares of Stock in excess of the number necessary to satisfy
the minimum federal income tax withholding requirements. If Stock acquired
under the exercise of an Incentive Stock Option is used to satisfy such
withholding requirement, such Stock must have been held by the optionee for a
period of not less than the holding period described in Section 422(a)(1) of the
Code on the Determination Date. If Stock acquired through the exercise of a
Non-Qualified Stock Option or of an option under a similar plan is delivered by
the optionee to the Company to satisfy such withholding requirement, such Stock
must have been held by the optionee for a period of more than one year on the
Determination Date. For Optionees subject to Section 16 of the Exchange Act, to
the extent required by Section 16, the election to have Stock withheld by the
Corporation hereunder must be either (a) an irrevocable election made six months
before the Determination Date; or (b) an irrevocable election where both the
election and the Determination Date occur during one of the ten-day periods
beginning on the third business day following the date of release of the
Company's quarterly or annual summary financial data and ending on the twelfth
business day following such release.
5.15 ISSUANCE OF SHARES AND COMPLIANCE WITH SECURITIES ACTS. Within a
------------------------------------------------------
reasonable time after exercise of an Option, the Company shall cause to be
delivered to the optionee a certificate for the Stock purchased pursuant to the
exercise of the Option. At the time of any exercise of any Option, the Company
may, if it shall deem it necessary and desirable for any reason connected with
any law or regulation of any governmental authority relative to the regulation
of securities, require the optionee to represent in writing to the Company that
it is his or her then intention to acquire the Stock for investment and not with
a view to distribution thereof and that such optionee will not dispose of such
Stock in any manner that would involve a violation of applicable securities
laws. In such event, no Stock shall be issued to such holder unless and until
the Company is satisfied with such representation. Certificates for shares of
Stock issued pursuant to the exercise of Options may bear an appropriate
securities law legend.
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<PAGE>
PART III
GRANTS TO NON-EMPLOYEE DIRECTORS
--------------------------------
SECTION 6. GRANT OF OPTIONS
Options to purchase 10,000 shares of Common Stock, subject to adjustment as
provided in Section 3.2 (the "Initial Options") and options to purchase 5,000
shares, subject to adjustments as provided in Section 3.2, (the "Annual
Options"), shall be granted to Non-Employee Directors as follows:
(a) Each Non-Employee Director on the 30th day after the stockholders
of the Company have approved the Plan shall be granted an Initial Option.
(b) Each Non-Employee Director who is not granted an Initial Option
pursuant to Section 6(a), shall be granted an Initial Option on the first
business day immediately following the date that such person is first elected or
appointed to serve as a Non-Employee Director.
(c) Each year on January 1, each Non-Employee Director on such date
shall be granted an Annual Option.
SECTION 7. TYPES OF OPTIONS
All options granted under Part III of the Plan shall be non-qualified Stock
Options for purposes of the Code.
SECTION 8. OPTION PRICE
The purchase price of each share of Stock issuable upon exercise of an
Option will be equal to the Fair Market Value of the Stock on the date of grant.
SECTION 9. OPTION TERM AND RIGHTS TO EXERCISE
9.1 PERIOD OF OPTION AND RIGHTS TO EXERCISE. Except as set forth herein,
---------------------------------------
each Non-Employee Director who receives options under this Plan must continue to
hold office as a Non-Employee Director of the Company for six months from the
date that the Initial Option is granted and six months from the date each Annual
Option is granted before he can exercise any part thereof. Thereafter, subject
to the provisions of the Plan, options will vest and be exercisable as follows:
(a) Initial Options.
---------------
(i) Each Initial Option will vest and be exercisable in full six
months from the date of grant.
(ii) The right to exercise an Initial Option will expire on the
fifth anniversary of the date on which the option was granted.
(iii) Once an Initial Option has become exercisable, such option
may be exercised in whole at any time or in part from time to time until
the expiration of the
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<PAGE>
option, whether or not any option granted previously to the optionee
remains outstanding at the time of such exercise.
(b) Annual Options.
--------------
(i) Each Annual Option will vest and be exercisable on a
cumulative basis as to 2,500 shares beginning six months from the date of
grant and 2,500 additional shares beginning on the first anniversary of the
date of grant.
(ii) The right to exercise an Annual Option will expire on the
fifth anniversary of the date on which the option was granted.
(iii) Once each installment of an Annual Option has become
exercisable, it may be exercised in whole at any time or in part from time
to time until the expiration of the option, whether or not an option
granted previously to the optionee remains outstanding at the time of such
exercise.
SECTION 10. PAYMENT OF OPTION PRICE
Payment or provision for payment of the purchase price shall be made as
follows: (i) in cash or check; (ii by exchange of Stock valued at its Fair
Market Value on the date of exercise; (ii by means of a cashless exercise
procedure by the delivery to the Company of an exercise notice and irrevocable
instructions to the Securities Broker to sell a sufficient number of shares of
Stock to pay the purchase price of the shares of Common Stock as to which such
exercise relates and to deliver promptly such amount to the Company; or (iv by
any combination of the foregoing.
Where payment of the purchase price is to be made with shares of Stock acquired
through exercise of a non-qualified Stock Option or of an option under a similar
plan of the Company, such Stock shall have been held by the optionee for a
period of more than one year on the date of exercise, and further provided that
the optionee shall not have tendered Stock in payment of the exercise price of
any other Option under the Plan or any other stock option plan of the Company
within six calendar months of the date of exercise.
SECTION 11. TERMINATION OF SERVICE
Upon cessation of service as a Non-Employee Director (for reasons other
than retirement or death), including cessation of service due to physical or
mental disability that prevents such person from rendering further services as a
Non-Employee Director, only those options exercisable at the date of cessation
of service shall be exercisable by the Non-Employee Director. Such options
shall be exercisable for a period of three months from cessation of service of
the Non-Employee Director or the expiration of the Option, whichever period is
shorter.
Upon the retirement or death of a Non-Employee Director, options shall be
exercisable as follows:
(a) Retirement. Upon retirement as a Non-Employee Director after the
----------
Non-Employee Director has served for at least six consecutive years as a
director, all Options shall continue to be exercisable during their terms as if
such person had remained a Non-Employee Director.
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<PAGE>
(b) Death. In the event of the death of a Non-Employee Director while
-----
a member of the Board, or within the period after termination of service
referred to in the first paragraph of Section 11, the Options granted to him
shall be exercisable, to the extent then exercisable, for a period of one year
from the date of the Non-Employee Director's death, or until the expiration of
the Option, whichever period is shorter.
SECTION 12. NO GUARANTEED TERM OF OFFICE
Nothing in this Plan or any modification thereof, and no grant of an
option, or any term thereof, shall be deemed an agreement or condition
guaranteeing to any Non-Employee Director any particular term of office or
limiting the right of the Company, the Board or the stockholders to terminate
the term of office of any Non-Employee Director under the circumstances set
forth in the Company's Certificate of Incorporation or Bylaws, or as otherwise
provided by law.
SECTION 13. OTHER RESTRICTIONS
Sections 5.5, 5.7 and 5.15 of the Plan shall apply to options granted
pursuant to Part III of the Plan.
PART IV
MISCELLANEOUS
-------------
SECTION 14. CHANGE IN CONTROL
A "Change in Control" for purposes of this Plan shall mean any one of the
events described below:
14.1 at any time during a period of two (2) consecutive years, at
least a majority of the Board shall not consist of Continuing Directors.
"Continuing Directors" shall mean directors of the Company at the beginning of
such two-year period and directors who subsequently became such and whose
selection or nomination for election by the Company's shareholders was approved
by a majority of the then Continuing Directors; or
14.2 any person or "group" (as determined for purposes of Regulation
13D-G promulgated by the Commission under the Exchange Act or under any
successor regulation), but excluding any majority-owned subsidiary or any
employee benefit plan sponsored by the Company or any subsidiary or any trust or
investment manager for the account of such a plan, shall have acquired
"beneficial ownership" (as determined for purposes of such regulation) of the
Company's securities representing fifty percent (50%) or more of the combined
voting power of the Company's then outstanding securities unless such
acquisition is approved in advance by a majority of the directors of the Company
who were in office immediately preceding such acquisition and any individual
selected to fill any vacancy created by reason of the death or disability of any
such director; or
14.3 the Company becomes a party to a merger, consolidation or share
exchange in which either (i) the Company will not be the surviving corporation
or (ii) the Company will be the surviving corporation and any outstanding shares
of Common Stock will be converted into shares of any other company (other than a
reincorporation or the establishment of a holding company involving no change in
ownership of the Company or other securities or cash or other property
(excluding payments made solely for fractional shares); or
-11-
<PAGE>
14.4 the Company's shareholders (i) approve any plan or proposal for
the disposition or other transfer of all, or substantially all, of the assets of
the Company, whether by means of a merger, reorganization, liquidation or
dissolution or otherwise or (ii) dispose of, or become obligated to dispose of,
50% or more of the outstanding capital stock of the Company by tender offer or
otherwise.
If a Change in Control has occurred, all outstanding options granted
under the Plan shall be immediately exercisable by the holder of the option for
the total remaining number of Shares covered by the option and shall survive any
such event.
SECTION 15. AMENDMENTS AND TERMINATION
The Board may amend, alter or discontinue the Plan at any time and from
time to time, but no amendment, alteration or discontinuation shall be made
which would impair the rights of an optionee or Participant under a Stock Option
award theretofore granted, without the optionee's or Participant's consent, or
which, without the approval of the Company's stockholders, would require
stockholder approval under the Rules.
Except for awards made pursuant to Part III, the Committee may amend the
terms of any Stock Option theretofore granted, prospectively or retroactively,
but no such amendment shall impair the rights of any holder without the holder's
consent. Except for awards made to Non-Employee Directors pursuant to Part III,
the Committee may also substitute new Stock Options for previously granted Stock
Options, including previously granted Stock Options having higher option prices.
Subject to the above provisions, the Board shall have broad authority to amend
the Plan to take into account changes in applicable tax laws, securities laws
and accounting rules, as well as other developments.
SECTION 16. UNFUNDED STATUS OF PLAN
The Plan is intended to constitute an "unfunded" plan of incentive and
deferred compensation. With respect to any payments not yet made to a
Participant or optionee by the Company, nothing contained herein shall give any
such Participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize
the creation of trusts or other arrangements to meet the obligations created
under the Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder; provided, however, that, unless the Committee otherwise determines
with the consent of the affected Participant, the existence of such trusts or
other arrangements is consistent with the "unfunded" status of the Plan.
SECTION 17. GENERAL PROVISIONS
17.1 All certificates for shares of Stock or other securities delivered
under the Plan shall be subject to such stock-transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations
and other requirements of the Securities Act, the Exchange Act, any stock
exchange or over-the-counter market upon which the Stock is then listed, and any
applicable federal or state securities law, and the Committee or the Board may
cause a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
17.2 Nothing contained in this Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to stockholder approval
if such approval is required, and such arrangements may be either generally
applicable or applicable only in specific cases.
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<PAGE>
17.3 The adoption of the Plan shall not confer upon any Participant any
right to continued employment with the Company nor shall it interfere in any way
with the right of the Company to terminate its relationship with any of its
Employees, directors or Independent Contractors at any time.
17.4 No later than the date as of which an amount first becomes includable
in the gross income of the Participant for federal income tax purposes with
respect to any award under the Plan, the Participant who is an Employee of the
Company shall pay to the Company, or make arrangements satisfactory to the
Committee regarding the payment of, any federal, state, or local taxes of any
kind required by law to be withheld with respect to such amount. To the extent
permitted by the Committee, in its sole discretion, the minimum required
withholding obligations may be settled with Stock, including Stock that is part
of the award that gives rise to the withholding requirement. The obligations of
the Company under the Plan shall be conditional on such payment or arrangements
and the Company shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due to the Participant.
17.5 The Committee shall establish such procedures as it deems appropriate
for a Participant to designate a beneficiary to whom any amounts payable in the
event of the Participant's death are to be paid.
17.6 The Plan shall be governed by and subject to all applicable laws and
to the approvals by any governmental or regulatory agency as may be required.
SECTION 18. EFFECTIVE DATE AND TERM OF PLAN
The Plan shall be effective as of the effective date of the merger of Human
Designed Systems, Inc. with and into ISAC Acquisition Co., a wholly-owned
subsidiary of the Company (the "Effective Date"), subject to the consent or
approval of the Company's stockholders as provided below. No Stock Option award
shall be granted pursuant to the Plan on or after ten years from the Effective
Date, but Stock Options granted prior to such tenth anniversary may be exercised
after such date. If the Plan is not approved by a majority of the votes cast at
a duly held meeting at which a quorum representing a majority of all outstanding
voting stock of the Company is, either in person or by proxy, present and voting
on the Plan, within 12 months after such effective date, any Incentive Stock
Options that have been granted shall automatically become Non-Qualified Stock
Options.
SECTION 19. INTERPRETATION
A determination of the Committee as to any question which may arise with
respect to the interpretation of the provisions of this Plan or any Options
shall be final and conclusive, and nothing in this Plan, or in any regulation
hereunder, shall be deemed to give any Participant, his legal representatives,
assigns or any other person any right to participate herein except to such
extent, if any, as the Committee may have determined or approved pursuant to
this Plan. The Committee may consult with legal counsel who may be counsel to
the Company and shall not incur any liability for any action taken in good faith
in reliance upon the advice of such counsel.
SECTION 20. GOVERNING LAW
With respect to any Incentive Stock Options granted pursuant to the Plan
and the agreements thereunder, the Plan, such agreements and any Incentive Stock
Options granted pursuant thereto shall be governed by the applicable Code
provisions to the maximum extent possible. Otherwise, the laws of the
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<PAGE>
State of Delaware shall govern the operation of, and the rights of Participants
under, the Plan, the agreements and any Options granted thereunder.
SECTION 21. COMPLIANCE WITH THE RULES
21.1 Unless an Insider could otherwise transfer shares of Stock issued
hereunder without incurring liability under Section 16(b) of the Exchange Act,
at least six months must elapse from the date of grant of an Option to the date
of disposition of the Stock issued upon exercise of such Option.
21.2 It is the intent of the Company that this Plan comply in all respects
with the Rules in connection with any grant of Options to, or other transaction
by, an Insider. Accordingly, if any provision of this Plan or any agreement
relating to an Option does not comply with the Rules as then applicable to any
such Insider, such provision will be construed or deemed amended to the extent
necessary to conform to such requirements with respect to such person. In
addition, the Committee shall have no authority to make any amendment,
alteration, suspension, discontinuation, or termination of the Plan or any
agreement hereunder, or take other action if such authority would cause an
Insider's transactions under the Plan not to be exempt under the Rules.
21.3 Certain restrictive provisions of the Plan have been implemented to
facilitate the Company's and Insiders' compliance with the Rules. The
Committee, in its discretion, may waive certain of these restrictions, provided
the waiver does not relate in any way to an Insider and, provided further, such
waiver or amendment is carried out in accordance with Section 6 hereof.
SECTION 22. SUBSTITUTION OF OPTIONS IN A MERGER, CONSOLIDATION OR SHARE
EXCHANGE
In the event that the Company becomes a party to a merger, consolidation or
share exchange (a "Business Combination") and in connection therewith
substitutes options under the Plan for options of another party to such Business
Combination, notwithstanding the provisions of the Plan, the terms of such
substituted options may have the same terms and conditions (provided that the
number of shares issuable and the exercise prices are adjusted in accordance
with the terms of the Business Combination) as the former options of such other
party to the Business Combination, provided, however, that the exercise price of
the Options to be granted under the Plan shall be lawful consideration as
determined by the Committee.
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<PAGE>
NEOWARE SYSTEMS, INC.
PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY
FOR THE ANNUAL MEETING OF STOCKHOLDERS, DECEMBER 10, 1997
The undersigned holder of Common Stock of Neoware Systems, Inc. hereby
appoints Edward C. Callahan and Michael G. Kantrowitz, and each of them,
proxies, with powers of substitution in each, to vote on behalf of the
undersigned at the Annual Meeting of Stockholders to be held at 10:00 a.m. on
Wednesday, December 10, 1997, at the Company's offices at 400 Feheley Drive,
King of Prussia, Pennsylvania, and at all adjournments thereof, according to the
number of shares which the undersigned would be entitled to vote if then
personally present, and in their discretion upon such other business as may come
before the Meeting.
SHARES WILL BE VOTED AS INSTRUCTED, BUT IF NO INSTRUCTION IS GIVEN, SHARES
WILL BE VOTED FOR ALL THE NOMINEES FOR DIRECTOR NAMED IN THE PROXY STATEMENT,
FOR THE PROPOSALS DESCRIBED IN THE PROXY STATEMENT AND WITH DISCRETIONARY
AUTHORITY ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.
The undersigned acknowledges receipt of this proxy with a copy of the
Notice of Annual Meeting of Stockholders and the Proxy Statement of the Board of
Directors. (Continued, and to be signed, on the other side)
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS [ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
to vote for all nominees listed below
</TABLE>
NOMINEES: ARTHUR R. SPECTOR, EDWARD C. CALLAHAN, MICHAEL G. KANTROWITZ, HOWARD
L. MORGAN, JOHN M. RYAN AND CARL G. SEMPIER
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
- --------------------------------------------------------------------------------
2. AMEND THE COMPANY'S 1995 STOCK OPTION PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. RATIFY THE SELECTION OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. IN THEIR DISCRETION, UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING.
Change of Address or [ ]
Comments Mark Here
NOTE: Please sign exactly as name(s)
appears hereon. Executors,
administrators, trustees, etc. should
give full title as such.
DATE:__________________________________
_______________________________________
Signature
_______________________________________
Signature
VOTES MUST BE INDICATED [](black box) OR [X] IN BLACK OR BLUE INK.
PLEASE SIGN AND RETURN PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
