<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. _)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Under Rule 14a-12
NEOWARE SYSTEMS, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/ / 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:
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2) Form, Schedule or Registration Statement No.:
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4) Date Filed:
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<PAGE>
Neoware Systems, Inc.
400 Feheley Drive
King of Prussia, Pennsylvania 19406
November 8, 2000
TO OUR STOCKHOLDERS:
You are cordially invited to attend the Annual Meeting of Stockholders
to be held on Thursday, December 7, 2000, 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 7, 2000
-----------------
TO THE STOCKHOLDERS:
The Annual Meeting of the Stockholders of Neoware Systems, Inc. (the
"Company"), a Delaware corporation, will be held on December 7, 2000, 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 five Directors of the Company.
2. To vote upon a proposal to ratify the selection of Arthur Andersen
LLP as the Company's independent public accountants for the fiscal
year ending June 30, 2001.
3. 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 26, 2000 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,
Vincent T. Dolan
Secretary
King of Prussia, Pennsylvania
November 8, 2000
<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 7, 2000.
Stockholders of record at the close of business on October 26, 2000
will be entitled to vote at the Annual Meeting. At the close of business on
October 26, 2000, 10,275,413 shares of the Company's $0.001 par value common
stock ("Common Stock") were outstanding. The presence at the meeting, in person
or by proxy, of a majority of the outstanding shares is necessary to constitute
a quorum for the meeting. A stockholder is entitled to one vote for each share
of Common Stock held by such stockholder. For purposes of the quorum and the
discussion below regarding the vote necessary to take stockholder action,
stockholders of record who are present at the meeting in person or by proxy and
who abstain, including brokers holding customers' shares of record who cause
abstentions to be recorded at the meeting, are considered stockholders who are
present and entitled to vote and they count toward the quorum. This Proxy
Statement and the enclosed form of proxy are being mailed to the Company's
stockholders on or about November 8, 2000.
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.
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. Abstentions and broker
<PAGE>
non-votes will not be taken into account in determining the outcome of the
election. Ratification of the selection of the independent public accountants
(Proposal 2) requires the approval of a majority of the outstanding shares of
Common Stock represented and entitled to vote at the meeting. Brokers are not
precluded from voting uninstructed shares on Proposal 2, and therefore
abstentions and broker non-votes have the effect of negative votes. The New York
Stock Exchange determines whether brokers have discretionary authority to vote
on a given proposal.
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
five for the election of directors at the 2000 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 next Annual Meeting and
until their respective successors are elected and qualified.
The names and biographical summaries of the five persons who have been
nominated to stand for election at the 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.
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 (1) 60 Chairman of the Board
Michael G. Kantrowitz 40 President and Chief Executive Officer and Director
John M. Ryan (1)(2) 65 Director
Carl G. Sempier (2) 69 Director
Christopher G. McCann 40 Director
</TABLE>
-------------------
(1) Member of the Compensation and Stock Option Committee
(2) Member of the Audit Committee
2
<PAGE>
Mr. Spector has been Chairman of the Board of the Company since its
inception. He has been a Managing Director and a general partner of the
management company of Safeguard International Fund, L.P. since March 1998. Mr.
Spector served as Managing Director of TL Ventures, a venture capital firm, from
January 1997 until March 1998. Mr. Spector also served as President and Chief
Executive Officer of the Company from inception until March 2, 1995, the date of
the consummation of the merger (the "Merger") of the Company with Human Designed
Systems, Inc. ("HDS"), and from May 1996 to June 1997. He was affiliated with
Safeguard Scientifics, Inc. from January 1993 until December 1996. 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. Spector is also a Director of USDATA Corporation, a
developer of software tools for real-time data collection and control, DocuCorp
International, Inc., a developer of document automation software, and Broadreach
Consulting, Inc. (formerly The Reohr Group, Inc.), as well as various portfolio
companies of Safeguard International Fund.
Mr. Kantrowitz has been President and Chief Executive Officer of the
Company since February 14, 2000, and a Director of the Company since March 2,
1995. He served as Executive Vice President of the Company from March 2, 1995
until February 14, 2000. Prior to that, Mr. Kantrowitz 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. Ryan has served as a director of the Company since March 2, 1995.
He has been the principal in Devon Hill Ventures, a venture investing and
consulting firm focusing on technology investments, since 1987. Mr. Ryan is also
a director of Premier Research Worldwide, Ltd., and its subsidiary eResearch
Technology, Inc., which provide Internet-based clinical development solutions to
the pharmaceutical and medical device industries; and of a number of private
companies, including Thermacore International, Inc. and two Internet commerce
companies. From 1995 to 1997, he was Chairman and acting CEO of DLB Systems,
Inc., which was sold to Premier Research Worldwide in 1997. 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.
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.
3
<PAGE>
Mr. McCann has been President of 1-800-FLOWERS.COM, a florist company
which operates nationwide through franchised retail stores, telecenters and the
Internet, since September 2000. From 1988 to September 2000, he served as Senior
Vice President. Mr. McCann is responsible for overseeing operations of
1-800-FLOWERS.COM's telecenters and franchised stores and for its Interactive
Services Division. Prior to his association with 1-800-FLOWERS.COM, he was
President of Flora Plenty, a floral retail chain located in the New York
metropolitan area. See "Certain Transactions."
Board of Directors and Committees
The Company's Board of Directors held six meetings during the year
ended June 30, 2000. Each of the current directors attended at least 75% 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. The Compensation and Stock
Option Committee held four meetings and the Audit Committee held two meetings
during the year ended June 30, 2000.
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.
The duties of the Audit Committee include the selection of independent
public accountants subject to the approval of the stockholders, the review of
the audit and the review of the organization and scope of the Company's internal
accounting and financial controls. In addition, the Company monitors the
independence of the Company's independent public accountants. The Audit
Committee has adopted a Charter pursuant to the listing standards of the Nasdaq
Stock Market.
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.
During fiscal year 2000, the Board, with Mr. Spector and Mr. Ryan
abstaining, unanimously approved the grant of options to purchase 65,000 shares
of the Company's Common Stock to each of Mr. Spector and Mr. Ryan for providing
Board-related services outside of the scope of their regular director duties.
The exercise price of the options is $2.94 per share, the fair market value of
the Common Stock on the date of grant. The options have a term of five years and
vest in four equal semi-annual installments commencing six months after the date
of grant.
4
<PAGE>
Compensation Committee Interlocks and Insider Participation
Arthur R. Spector, Chairman of the Board of Directors, became a member
of the Compensation and Stock Option Committee in February 2000. Mr. Spector
served as the President and Chief Executive Officer of the Company from
inception until March 2, 1995, the date of the consummation of the Merger, and
from May 1996 to June 1997.
5
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation paid during the fiscal years ended June 30, 2000, 1999 and 1998 to
the Company's Chief Executive Officer and each of the Company's three other most
highly compensated executive officers whose total salary and bonus earned during
the 2000 fiscal year exceeded $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
---------------------------------------------------- -------------------------------------
Other Annual Securities
Name and Fiscal Compensation Underlying All Other Compensation
Principal Position Year Salary($) Bonus($) $(1) Options(#) ($)
------------------ ------ -------- -------- ------------ ---------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Michael G. Kantrowitz (2) 2000 200,471 -- -- 230,000 500 (4)
President and Chief 1999 151,099 -- -- 270,000 (3) 500 (4)
Executive Officer 1998 168,210 -- -- 220,000 (3) 1,081 (4)
Edward C. Callahan, Jr.(2) 2000 152,250 -- -- -- 500 (4)
Former President and 1999 189,000 -- -- 385,000 (3) 500 (4)
Chief Executive Officer 1998 210,000 42,000 -- 385,000 (3) --
Edward M. Parks 2000 150,500 -- -- 5,500 500 (4)
Vice President of 1999 129,338 -- -- 200,000 (3) 500 (4)
Engineering 1998 134,231 -- -- 170,000 (3) 1,450 (4)
Steven Ahlbom 2000 128,851 -- -- 5,000 500 (4)
Vice President of 1999 109,417 -- -- 125,000 (3) 500 (4)
Operations 1998 114,171 -- -- 110,000 (3) 1,573 (4)
Vincent T. Dolan(5) 2000 120,000 -- -- 50,000 --
Vice President - Finance 1999 51,300 -- -- 50,000 --
And Administration
</TABLE>
-------------------
(1) Amount does not exceed the lesser of $50,000 or 10% of total salary and
bonus.
(2) Mr. Callahan served as President and Chief Executive Officer until February
14, 2000, the date that Mr. Kantrowitz became President and Chief Executive
Officer.
(3) Includes options reissued as replacements for prior options which were
canceled as a result of a repricing program as follows: Mr. Callahan,
385,000 options; Mr. Kantrowitz, 220,000 options; Mr. Parks, 170,000
options; and Mr. Ahlbom, 110,000 options.
(4) Consists of amounts contributed by the Company under the 401(k) Plan.
(5) Mr. Dolan became an employee and Vice President - Finance and Administration
of the Company on January 27, 1999.
6
<PAGE>
Option Grants During 2000 Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term(1)
------------------------------------------------------------------------------------------------- -----------------------------
No. of % of Total
Securities Options Granted
Underlying Options to Employees Exercise Expiration
Name Granted (#) in Fiscal Year Price($) Date 0%($) 5%($) 10%($)
----------------------- ------------------ --------------- -------- ---------- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael G. Kantrowitz 130,000 18.04 4.125 2/13/05 -- 148,156 327,386
100,000 13.88 2.938 5/15/05 -- 81,172 179,368
Edward C. Callahan, Jr. -- -- -- -- -- -- --
Edward M. Parks 5,550 .76 3.00 4/16/05 -- 4,559 10,073
Steven Ahlbom 5,000 .69 3.00 4/16/05 -- 4,144 9,158
Vincent T. Dolan 50,000 6.94 3.00 4/16/05 -- 41,442 91,577
</TABLE>
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(1) These amounts, based on assumed appreciation rates of 0%, 5% and 10%
(compounded annually) prescribed by the Securities and Exchange Commission
rules, are not intended to forecast possible future appreciation, if any, of
the Company's stock price.
7
<PAGE>
Aggregated Option Exercises During 2000 Fiscal Year
and Fiscal Year-End Option Values
The following table provides information related to options exercised by
the named executive officers during fiscal 2000 and the number of the Company's
options held at fiscal year-end.
<TABLE>
<CAPTION> Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options
Fiscal Year-End (#) at Fiscal Year End ($)(1)
Shares Acquired Value ------------------- -------------------------
Name on Exercise(#) Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable
--------------------------- --------------- -------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Michael G. Kantrowitz -- -- 210,000 290,000 433,650 142,600
Edward C. Callahan, Jr. (2) -- -- -- -- -- --
Edward M. Parks -- -- 165,000 40,500 340,725 72,963
Steven Ahlbom -- -- 97,500 32,500 201,338 57,413
Vincent T. Dolan -- -- 12,500 87,500 18,750 62,500
</TABLE>
-------------------
(1) Value based on the closing price of $3.13 on June 30, 2000, less the option
exercise price.
(2) Mr. Callahan resigned as President and Chief Executive Officer on February
14, 2000.
8
<PAGE>
Agreements with Executive Officers and Change in Control Arrangements
In connection with the appointment of Mr. Kantrowitz to the position of
President and Chief Executive Officer, the Company entered into an agreement
with Mr. Kantrowitz, effective on February 14, 2000, which provides for an
annual salary of $210,000 and an annual bonus of up to 50% of his base salary as
determined by the Board of Directors. The Company also granted to Mr. Kantrowitz
options to acquire 130,000 shares at the fair market value on the date of grant.
Mr. Kantrowitz is also provided with an automobile, at the Company's expense.
Mr. Kantrowitz is entitled to severance benefits equal to his salary and health
benefits, his annual bonus (pro rated for the portion of the year prior to his
termination) if agreed-upon goals have been met at the time of termination and
use of his Company-provided automobile for one year in the event of his
involuntary termination for reasons other than cause or upon a substantial
reduction in his responsibilities or any change in his position as Chief
Executive Officer. The Company has also agreed that in the event of a sale of
the Company, if Mr. Kantrowitz is not offered employment by the new owners in a
similar capacity heading a business unit reporting directly to the Chief
Executive Officer or the Board of Directors or if he does not accept any other
position that he is offered immediately following such transaction, he is
entitled to payment equal to his base salary and health benefits, his annual
bonus (pro rated for the portion of the year prior to his termination) if agreed
upon goals have been met at the time of termination and use of his
Company-provided automobile for one year, and to the acceleration of vesting of
50% of his stock options if the sale takes place in his first year of employment
as Chief Executive Officer or 100% of his options if the sale occurs thereafter.
The agreement also contains a non-competition and non-solicitation agreement by
Mr. Kantrowitz for the period during which payments are made by the Company and
for a period of six months thereafter.
Mr. Callahan resigned as President and Chief Executive Officer in
February 2000 and in connection with his resignation entered into an agreement
with the Company in which he agreed to release the Company from any claims he
might have against the Company and to not compete with the Company until April
30, 2001. In return, the Company agreed to employ Mr. Callahan as a non-officer
employee or, if he resigned prior to April 30, 2000, as a consultant, until
April 30, 2000, and to compensate him for his services based upon an annual rate
equal to his current annual base salary of $210,000 plus benefits until April
30, 2000.
In June 1999, the Company entered into an employment agreement with
Edward Parks which provides for an annual base salary of $140,000. Mr. Parks is
entitled to participate in the Company's employee bonus and stock option plans
at the discretion of the Compensation and Stock Option Committee of the Board of
Directors. The agreement contains confidentiality and non-competition agreements
and permits either party to terminate the agreement with or without cause. If
the Company terminates the agreement without cause during the first two years of
its term, Mr. Parks is entitled to severance benefits equal to his then current
annual base salary for a period of one year.
Mr. Parks, Mr. Ahlbom and Mr. Dolan are also entitled to severance
benefits in the event that they are not offered continued employment in the
event of a change in control of the Company. Mr. Parks is entitled to a
continuation of salary and benefits for a one-year period, Mr. Dolan is entitled
to nine months salary and benefits and Mr. Ahlbom is entitled to six months of
such benefits.
9
<PAGE>
Edward F. Golderer, Vice President of North American Sales and
Marketing, is entitled to severance benefits equal to his base salary for a
period of six months in the event that his employment is terminated as a result
of a change in control of the Company after November 22, 2000.
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. The Committee also informally reviews compensation
levels of companies that are known to the Committee members and published
compensation data of other technology companies, although the Committee does not
make formal comparisons with peer group companies. In making its determinations
as to all executive officers other than the Chief Executive Officer, the
Committee considers the recommendations of the Chief Executive Officer.
Annual Compensation
Annual salary levels are established based upon an evaluation of
individual and company performance. The Committee's policy is to review the
Company's performance, including the Company's revenues and profitability, as
compared to goals, and the introduction of new products, and an individual's
contribution to the Company's performance. An individual's performance is
evaluated based upon the subjective judgment of his or her contributions to the
achievement by the Company of its goals. As discussed above, the Committee also
informally reviews compensation levels of other companies. The Committee does
not assign relative weights to these factors and does not use specific criteria
to evaluate individual performance, but instead makes a determination based upon
all of the factors and the progress that the Company has made with respect to
its goals and strategies. For fiscal 2000, the Committee decided to reinstate
the reductions to the annual salaries of the executive officers that had been
made during fiscal 1999. The Committee believed that this action was in the best
interests of the Company in light of the improvement of the Company's cash
position and its desire to retain and motivate these key executives. The
payments were made in four equal quarterly installments during fiscal 2000.
During fiscal 2000, the executive officers of the Company were eligible
for incentive compensation, consisting of bonuses, based on the Company
achieving revenue and income targets. At the beginning of the fiscal year, the
10
<PAGE>
Committee set a threshold level of revenues and income, which was based on
annual performance objectives and the prior year's performance, that was
required to be attained before any bonuses could be awarded. The bonus pool was
calculated based on percentages, ranging from 80% to 150%, of the revenue
target. The Committee set specific percentages to calculate the actual incentive
payments that would be paid to each of the executive officers based on their
relative levels of responsibility and contribution to the Company. In setting
the individual percentages, the Committee considered the recommendations of the
Chief Executive Officer and exercised subjective judgment and discretion. During
fiscal 2000, the Company did not achieve the revenue and income targets. As a
result, no bonuses were paid to the Company's executives for fiscal 2000. The
Committee relies on the foregoing objective measures and exercises subjective
judgment and discretion in light of these measures and the Company's general
compensation policies and practices described above to determine 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 or greater than the fair market value of shares of the
Common Stock on the date of grant. Stock options typically have been granted to
executive officers when the executive first joins the Company and thereafter in
connection with changes in the executive's level of responsibilities, in
connection with the executive's past and anticipated future contributions to the
Company and for other reasons at the Committee's discretion. The size of option
grants are generally based upon the executive officer's level of responsibility,
long-term growth in responsibility, contribution to the achievement of the
Company's goals and the number of options held by the individual at the time of
the new grant. 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 performance and stock data of other similar technology
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.
11
<PAGE>
Chief Executive Officer Compensation
Mr. Kantrowitz became President and Chief Executive Officer on
February 14, 2000. In connection with his appointment, he entered into an
agreement with the Company which provides for an annual salary of $210,000 and
an annual bonus of up to 50% of his base salary as determined by the Board of
Directors. Mr. Kantrowitz's compensation package reflects his appointment as
President and Chief Executive Officer and the Company's launch of its new
business strategy. The Committee's goal was to offer a package which was
competitive with those of chief executive officers of other similar technology
companies. The Committee's analysis was based on data of such other companies
available to the Committee.
Mr. Callahan served as President and Chief Executive Officer until
February 14, 2000. In fiscal year 2000, he received an annual base salary of
$210,000, which was established under his original employment arrangement.
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.
The foregoing report has been furnished by the Compensation and Stock
Option Committee of the Board of Directors. The membership of the Committee for
fiscal 2000 was, and the current membership is, as follows:
John M. Ryan, Chairman
Christopher G. McCann (Resigned effective February 14, 2000)
Arthur R. Spector (Appointed effective February 14, 2000)
12
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total return on the
Company's Common Stock for the period July 1, 1995 to June 30, 2000 with similar
returns for the (i) S&P Technology-500 and the S&P 500 Index.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG NEOWARE SYSTEMS, INC., THE S & P 500 INDEX
AND THE S & P TECHNOLOGY SECTOR INDEX
<TABLE>
<CAPTION>
Cumulative Total Return
----------------------------------------------------------------------
6/95 6/96 6/97 6/98 6/99 6/00
<S> <C> <C> <C> <C> <C> <C>
NEOWARE SYSTEMS, INC. 100 170 126 56 27 61
S & P 500 100 126 170 221 271 291
S & P TECHNOLOGY SECTOR 100 119 181 243 402 580
</TABLE>
* $100 INVESTED ON 6/30/95 IN STOCK OR INDEX-
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING JUNE 30.
13
<PAGE>
CERTAIN TRANSACTIONS
Since July 1, 1999, The Plow & Hearth, Inc., a subsidiary of
1-800-FLOWERS of which Mr. McCann is the President, director and a principal
shareholder, purchased $75,133 of products and services from the Company.
In April 2000, the Company made loans of $57,349 to Mr. Kantrowitz and
$46,939 to Mr. Parks to assist in the payment of the exercise price of warrants
to acquire shares of the Company's Common Stock by Mr. Kantrowitz and Mr. Parks.
The loans are evidenced by four-year notes which bear interest at 8% payable in
annual installments beginning on April 14, 2001 and are secured by a pledge of
shares of Common Stock acquired upon the exercise of the warrants. The principal
balances of the notes are payable in equal quarterly installments beginning on
April 14, 2001, and from bonus payments made to such persons.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's Common Stock, to file with the Securities and Exchange
Commission reports about their beneficial ownership of the Company's Common
Stock. All such persons are required by the Commission to furnish the Company
with copies of all reports that they file.
Based solely upon a review of the copies of such reports furnished to
the Company, or written representations from certain reporting persons that no
other reports were required, the Company believes that during the fiscal year
ended June 30, 2000, all of its officers, directors and persons who own more
than ten percent of the Company's Common Stock complied with all filing
requirements applicable to them.
14
<PAGE>
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, 2000 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 and nominee for
director of the Company, (iii) each named executive officer and (iv) 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 ............................ 152,000(1) 1.5%
Michael G. Kantrowitz ........................ 365,630(1) 3.5%
Christopher G. McCann ........................ 17,500(1) *
John M. Ryan ................................. 38,500(1) *
Carl G. Sempier .............................. 33,500(1) *
Steven B. Ahlbom ............................. 128,397(1) *
Edward M. Parks .............................. 234,414(1) 2.2%
Vincent T. Dolan ............................. 12,500(1) *
All Executive Officers and Directors
As a Group (9 persons) ....................... 982,441(1) 9.0%
</TABLE>
-------------------
* Less than 1%
(1) Includes options exercisable within 60 days of June 30, 2000 to purchase the
Company's Common Stock issued pursuant to the Company's 1995 Stock Option
Plan: Mr. Spector, 32,500 shares; Mr. Kantrowitz, 210,000 shares; Mr. Ryan,
22,500 shares; Mr. Sempier, 32,500 shares; Mr. Ahlbom, 97,500 shares; Mr.
Parks, 165,000 shares; Mr. McCann, 17,500 shares; Mr. Dolan, 12,500 shares;
all officers and directors as a group, 590,000 shares.
15
<PAGE>
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 fiscal year ending June 30,
2001. The Board of Directors has proposed that the stockholders ratify the
selection of Arthur Andersen 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.
STOCKHOLDER 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
11, 2001 if it is to be included in the Company's proxy statement and form of
proxy relating to the next Annual Meeting.
Stockholders who wish to submit a proposal for consideration at the
Company's next Annual Meeting of Stockholders, but who do not wish to submit the
proposal for inclusion in the Company's proxy statement, must deliver a written
copy of such proposal in accordance with the Company's bylaws no later than
September 24, 2001.
16
<PAGE>
--------------------------------------------------------------------------------
NEOWARE SYSTEMS, INC.
Proxy
This Proxy is Solicited by the Board of Directors of the Company for
the Annual Meeting of Stockholders, December 7, 2000
The undersigned holder of Common Stock of Neoware Systems, Inc. hereby
appoints Vincent T. Dolan 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 Thursday,
December 7, 2000, 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 proposal 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)
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
1. Election of Directors
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
to vote for all nominees listed below
Nominees: Arthur R. Spector, Michael G. Kantrowitz, John M. Ryan,
Carl G. Sempier and Christopher G. McCann
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
________________________________________________________________________________
2. Ratify the selection of Arthur Andersen LLP as independent public
accountants.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, upon such other matters as may properly come before the
meeting.
Votes must be indicated [II] or [X] in Black or Blue ink.
Please sign and return promptly in the enclosed postage paid envelope.
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
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