0000950116-01-501029.txt : 20011031
0000950116-01-501029.hdr.sgml : 20011031
ACCESSION NUMBER: 0000950116-01-501029
CONFORMED SUBMISSION TYPE: DEF 14A
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 20011207
FILED AS OF DATE: 20011029
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: NEOWARE SYSTEMS INC
CENTRAL INDEX KEY: 0000894743
STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571]
IRS NUMBER: 232705700
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: DEF 14A
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-21240
FILM NUMBER: 1768662
BUSINESS ADDRESS:
STREET 1: 400 FEHELEY DR
CITY: KING OF PRUSSIA
STATE: PA
ZIP: 19406
BUSINESS PHONE: 6102778300
MAIL ADDRESS:
STREET 1: 400 FEHELEY DR
CITY: KING OF PRUSSIA
STATE: PA
ZIP: 19406
FORMER COMPANY:
FORMER CONFORMED NAME: HDS NETWORK SYSTEMS INC
DATE OF NAME CHANGE: 19950313
FORMER COMPANY:
FORMER CONFORMED NAME: INFORMATION SYSTEMS ACQUISITION CORP
DATE OF NAME CHANGE: 19930108
DEF 14A
1
def14a.txt
DEF 14A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE l4A 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 l4a-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):
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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
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Neoware Systems, Inc.
400 Feheley Drive
King of Prussia, Pennsylvania 19406
November 8, 2001
TO OUR STOCKHOLDERS:
You are cordially invited to attend the Annual Meeting of Stockholders
to be held on Friday, December 7, 2001, 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 vote as soon as possible. Most
stockholders have three options for submitting their vote: (1) via the Internet
at www.proxyvote.com, (2) by phone, as indicated on your proxy card or (3) by
mail, using the paper proxy card.
I hope you will attend the Annual Meeting.
Sincerely,
Arthur R. Spector
Chairman of the Board
NEOWARE SYSTEMS, INC.
-----------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
December 7, 2001
-----------------
TO THE STOCKHOLDERS:
The Annual Meeting of the Stockholders of Neoware Systems, Inc. (the
"Company"), a Delaware corporation, will be held on December 7, 2001, 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, 2002.
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 30, 2001 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 vote as soon as possible.
Most stockholders have three options for submitting their vote: (1) via the
Internet at www.proxyvote.com, (2) by phone, as indicated on your proxy card or
(3) by mail, by using the paper proxy card. Voting by Internet, phone or proxy
card 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, 2001
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, 2001.
Stockholders of record at the close of business on October 30, 2001
will be entitled to vote at the Annual Meeting. At the close of business on
October 30, 2001, 10,199,663 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, but they are not
counted as shares voted and therefore have the effect of a vote against Proposal
2. This Proxy Statement and the enclosed form of proxy are being mailed to the
Company's stockholders on or about November 8, 2001.
Most stockholders have three options for submitting their vote: (1) via
the Internet at www.proxyvote.com, (2) by phone (please see your proxy card for
instructions) and (3) by mail, using the paper proxy card. When you vote via the
Internet or by phone, your vote is recorded immediately. The Company encourages
stockholders to vote using these methods whenever possible. If you vote via the
Internet, you can also register to receive all future stockholder communications
electronically, instead of in print. This means that the annual report, proxy
statement and other correspondence will be delivered to you electronically via
e-mail.
Shares represented by a valid proxy in the accompanying form returned
to the Company in sufficient time to permit the necessary examination and
tabulation before a vote is taken, or voted via the Internet or by phone, unless
previously revoked, will be voted at the Meeting. A proxy may be revoked at any
time prior to its exercise (1) by giving written notice to the Secretary of the
Company, (2) by submitting a later dated vote via the Internet, by telephone or
by mail, or (3) 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 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. 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 broker
non-votes will have the same effect as a vote against the proposal. 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 2001 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.
3
Name Age Position
------------------------ ----- -----------------------------
Arthur R. Spector (1)(2) 61 Chairman of the Board
Michael G. Kantrowitz 41 President and Chief Executive
Officer and Director
John M. Ryan (1)(2) 66 Director
Carl G. Sempier (2) 70 Director
Christopher G. McCann 41 Director
------------
(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. He has been a Managing Director 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 of the Company
with Human Designed Systems, Inc. ("HDS"), and from May 1996 to June 1997. He
served as Director of Acquisitions for Safeguard Scientifics, Inc. from January
1993 until December 1996. 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
DocuCorp International, Inc., a developer of document automation software, as
well as various portfolio companies of Safeguard International Fund.
Mr. Kantrowitz has been President and Chief Executive Officer of the
Company since February 2000. Prior to his appointment as President and CEO, Mr.
Kantrowitz served as Executive Vice President of the Company responsible for
Marketing, Sales and Business Development and as a Director of the Company since
March 2, 1995. Prior to that, Mr. Kantrowitz was a senior executive of HDS from
1983, holding the positions of Executive Vice President from 1991 until
March1995 and Vice President of Marketing and Sales from 1987 until 1991. Prior
to joining HDS, Mr. Kantrowitz held engineering and technical positions with
Raytheon Company and Adage Corporation. Mr. Kantrowitz holds a BSEE in
Electrical Engineering from the University of Lowell.
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 eResearch Technology, Inc., which provides Internet-based clinical
development solutions to the pharmaceutical and medical device industries; and
of a number of private technology and Internet companies. From 1995 to 1997, he
was Chairman and acting CEO of DLB Systems, Inc., which was sold to eResearch
Technology 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 1988 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
4
President and Chief Executive Officer of Mannington Mills, Inc., a manufacturer
of flooring. Mr. Sempier was also the founder, Chairman and Chief Executive
Officer of National Information Systems. He is also a director of Premier
Solutions Limited, a supplier of asset management solutions to financial
institutions, Tangram Enterprise Solutions, Inc., a publicly-traded company
providing network and connectivity software to corporations and government
entities, and ALD Vacuum Technologies LLC, of Frankfurt, Germany.
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 five meetings during the year
ended June 30, 2001. 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 three meetings and the Audit Committee held two meetings
during the year ended June 30, 2001.
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 purpose of the Audit Committee is to assist the Board of Directors
in fulfilling its responsibilities by reviewing the Company's financial reports
and the Company's internal financial and accounting controls. The Committee's
primary duties are to review the adequacy of its charter, review with
representatives of management and the independent accountants the Company's
annual financial statements, review the adequacy of the Company's internal
financial and accounting controls and evaluate the performance of the
independent accountants. In addition, the Company monitors the independence of
the Company's independent public accountants. The Audit Committee operates under
a written Charter adopted by the Board, a copy of which is attached hereto as
Exhibit A.
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.
5
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 of the
Company with HDS, and from May 1996 to June 1997.
6
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation paid for the fiscal years ended June 30, 2001, 2000, and 1999 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 2001 fiscal year exceeded $100,000.
Summary Compensation Table
Annual Compensation Long Term Compensation
----------------------------------------------------------------------------------- ---------------------------------
Other Annual Securities
Name and Fiscal Compensation Underlying All Other
Principal Position Year Salary($) Bonus($) $(1) Options(#) Compensation($)
------------------ ---- --------- -------- ---- ---------- ---------------
Michael G. Kantrowitz 2001 210,000 105,000 -- -- 1,000(3)
President and Chief 2000 200,471 -- -- 230,000 500(3)
Executive Officer 1999 151,099 -- -- 270,000(2) 500(3)
Edward M. Parks 2001 153,731 68,000 -- -- 1,184(3)
Vice President of 2000 150,500 -- -- 5,500 500(3)
Engineering 1999 129,338 -- -- 200,000(2) 500(3)
Steven Ahlbom 2001 120,000 45,000 -- -- 1,500(3)
Vice President of 2000 128,851 -- -- 5,000 500(3)
Operations 1999 109,417 -- -- 125,000(2) 500(3)
Vincent T. Dolan(4) 2001 120,000 45,000 -- -- 2,000(3)
Vice President of Finance 2000 120,000 -- -- 50,000 --
And Administration 1999 51,300 -- -- 50,000 --
Edward F. Golderer(5) 2001 120,000 37,041 -- -- 2,000(3)
Vice President of North 2000 11,538 5,000 -- 75,000 --
American Sales and
Marketing
---------------
(1) Amount does not exceed the lesser of $50,000 or 10% of total salary
and bonus.
(2) Includes options reissued as replacements for prior options which were
canceled as a result of a repricing program as follows: Mr.
Kantrowitz, 220,000 options; Mr. Parks, 170,000 options; and Mr.
Ahlbom, 110,000 options.
(3) Consists of amounts contributed by the Company under the 401(k) Plan.
(4) Mr. Dolan became an employee and Vice President of Finance and
Administration of the Company on January 27, 1999.
(5) Mr. Golderer became an employee and Vice President of North American
Sales and Marketing on May 22, 2000.
7
Option Grants In 2001 Fiscal Year
There were no grants of options to the named executive officers in the
Company's 2001 fiscal year.
Aggregated Option Exercises During 2001 Fiscal Year
and Fiscal Year-End Option Values
The following table provides information related to options exercised by
the named executive officers during fiscal 2001 and the number of the Company's
options held at fiscal year-end.
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options
Fiscal Year-End (#) at Fiscal Year End ($)(1)
Shares Acquired Value ------------------------------ ------------------------------
Name on Exercise(#) Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable
---------------------- ---------------- -------------- ----------- ------------- ----------- -------------
Michael G. Kantrowitz -- -- 322,500 177,500 407,305 7,685
Edward M. Parks -- -- 196,375 9,125 299,715 7,685
Steven Ahlbom -- -- 121,250 8,750 184,440 7,685
Vincent T. Dolan -- -- 37,500 62,500 24,375 24,375
Edward F. Golderer -- -- 18,750 56,250 694 2,081
-------------------
(1) Value based on the closing price of $2.60 on June 30, 2001, less the option
exercise price.
8
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
100% of his options. 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.
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.
Effective July 1, 2000, Mr. Parks' base salary was increased to $154,000.
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.
Mr. Golderer 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.
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.
9
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 technology companies, including
principal competitors of the Company, if available. 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.
During fiscal 2001, 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
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 95% to 110%, of the revenue
target. The Committee set specific 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 amounts, the Committee
considered the recommendations of the Chief Executive Officer and exercised
subjective judgment and discretion. During fiscal 2001, the Company achieved the
revenue and income targets. As a result, bonuses were paid to the Company's
executives for fiscal 2001. In addition, based on the recommendations of the
Chief Executive Officer relating to individual performance and a comparison of
10
the compensation of the Company's executives to those of its competitors, the
Company's executives were awarded additional bonus payments. 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.
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 or greater at the option of, and 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. For 2001, Mr. Kantrowitz was paid his base salary
under his agreement and was awarded a bonus of 50% of his salary. The Committee
determined the amount of the bonus after considering the Company's performance,
Mr. Kantrowitz's contributions to the growth and performance of the Company and
the compensation level of chief executive officers at competitors and other
comparable technology companies.
11
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 is
as follows:
John M. Ryan, Chairman
Arthur R. Spector
AUDIT COMMITTEE REPORT
The Audit Committee has reviewed and discussed with the Company's
management and Arthur Andersen LLP the audited financial statements of the
Company contained in the Company's Annual Report on Form 10-K for the Company's
2001 fiscal year. The Audit Committee has also discussed with Arthur Andersen
LLP the matters required to be discussed pursuant to SAS No. 61, "Communication
with Audit Committees," which includes, among other items, matters related to
the conduct of the audit of the Company's financial statements.
The Audit Committee has received and reviewed the written disclosures
and the letter from Arthur Andersen LLP required by Independence Standards Board
Standard No. 1, "Independence Discussions with Audit Committees," and has
discussed with Arthur Andersen LLP its independence from the Company.
Based on the review and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited consolidated
financial statements be included in the Company's Annual Report on Form 10-K for
its 2001 fiscal year for filing with the Securities and Exchange Committee.
Audit Committee of the Board or Directors
John M. Ryan, Chairman
Carl G. Sempier
Arthur Spector
12
PERFORMANCE GRAPH
The following graph compares the cumulative total return on the
Company's Common Stock for the period July 1, 1996 to June 30, 2001 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
Cumulative Total Return
-------------------------------------------------------
6/96 6/97 6/98 6/99 6/00 6/01
NEOWARE SYSTEMS, INC. 100.00 74.29 32.86 15.71 35.71 29.71
S&P 500 100.00 134.70 175.33 215.22 230.83 196.59
S&P TECHNOLOGY SECTOR 100.00 152.02 204.25 337.00 487.03 239.65
$100 INVESTED ON 6/30/96 IN STOCK OR INDEX-
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING JUNE 30.
13
CERTAIN TRANSACTIONS
Since July 1, 2000, The Plow & Hearth, Inc., a subsidiary of
1-800-FLOWERS of which Mr. McCann is the President, director and a principal
shareholder, purchased $174,726 of products and services from the Company.
In April 2000, the Company made loans to Mr. Kantrowitz and Mr. Parks
to assist in the payment of the exercise price of warrants to acquire shares of
the Company's Common Stock. The loans were evidenced by four-year notes bearing
interest at 8% payable in annual installments beginning on April 14, 2001 and
were secured by a pledge of shares of Common Stock acquired upon the exercise of
the warrants. The notes provided for the payment of the principal balances in
equal quarterly installments beginning on April 14, 2001, and from bonus
payments made to such persons. On August 2, 2001, the pledges were terminated
and the notes were amended to provide for interest at the rate of 6% and the
payment of the outstanding principal balances and all accrued interest on April
14, 2004, and from 50% of the net amount of bonus payments (other than bonuses
paid in August 2001) made to such persons. As of October 29, 2001, the
outstanding principal balances were $28,015, reduced from the original balance
of $57,349, under Mr. Kantrowitz's note and $19,605, reduced from $46,939, under
Mr. Parks' note.
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, 2001, 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
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, 2001 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.
Number of Shares Percentage
Principal Stockholders Beneficially Owned Beneficially Owned
---------------------- ------------------ ------------------
Arthur R. Spector ........................... 217,833(1) 2.1
Michael G. Kantrowitz ....................... 478,130(1) 4.6
Christopher G. McCann ....................... 22,500(1) *
John M. Ryan ................................ 96,000(1) *
Carl G. Sempier ............................. 58,500(1) *
Steven B. Ahlbom ............................ 152,147(1) 1.5
Edward M. Parks ............................. 265,789(1) 2.6
Vincent T. Dolan ............................ 37,500(1) *
Edward F. Golderer .......................... 19,750(1) *
All Executive Officers and Directors
As a Group (9 persons) .................... 1,348,149(1) 12.2
-------------------
* Less than 1%
(1) Includes options exercisable within 60 days of June 30, 2001 to purchase
the Company's Common Stock issued pursuant to the Company's 1995 Stock
Option Plan: Mr. Spector, 65,000 shares; Mr. Kantrowitz, 322,500 shares;
Mr. Ryan, 55,000 shares; Mr. Sempier, 32,500 shares; Mr. Ahlbom, 121,250
shares; Mr. Parks, 196,375 shares; Mr. McCann, 22,500 shares; Mr. Dolan,
37,500 shares; Mr. Golderer, 18,750 shares; and all officers and directors
as a group, 871,375 shares.
15
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,
2002. 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.
Audit Fees
Arthur Andersen LLP billed the Company $65,000 for the audit of the
Company's annual financial statements for the Company's 2001 fiscal year and the
reviews of the interim financial statements included in the Company's Quarterly
Reports on Form 10-Q for the Company's 2001 fiscal year.
Financial Information Systems Design and Implementation Fees
There were no fees paid to Arthur Andersen LLP in fiscal 2001 for
services related to financial information systems design and implementation.
All Other Fees
Arthur Andersen LLP billed the Company $88,250 for services rendered to
the Company for all services other than those services covered in the sections
captioned "Audit Fees" and "Financial Information Systems Design and
Implementation Fees" for the Company's 2001 fiscal year. These other services
included tax services fees and fees for transaction advisory services.
The Audit Committee considered whether the non-audit services provided by
Arthur Andersen LLP are compatible with maintaining the independence of Arthur
Andersen LLP.
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, 2002 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, 2002.
16
APPENDIX A
Neoware Systems, Inc.
Audit Committee Charter
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A. PURPOSE AND SCOPE
The primary function of the Audit Committee (the "Committee") is to assist the
Board of Directors in fulfilling its responsibilities by reviewing: (i) the
financial reports provided by the Corporation to the Securities and Exchange
Commission ("SEC"), the Corporation's shareholders or to the general public, and
(ii) the Corporation's internal financial and accounting controls.
B. COMPOSITION
The Committee shall be comprised of a minimum of three directors as appointed by
the Board of Directors, who shall meet the independence and audit committee
composition requirements under any rules or regulations of The NASDAQ Stock
Market, as in effect from time to time, and shall be free from any relationship
that, in the opinion of the Board of Directors, would interfere with the
exercise of his or her independent judgment as a member of the Committee.
All members of the Committee shall either (i) be able to read and understand
fundamental financial statements, including a balance sheet, cash flow statement
and income statement, or (ii) be able to do so within a reasonable period of
time after appointment to the Committee. At least one member of the Committee
shall have employment experience in finance or accounting, requisite
professional certification in accounting, or other comparable experience or
background which results in the individual's financial sophistication, including
being or having been a chief executive officer, chief financial officer or other
senior officer with financial oversight responsibilities.
The Board may appoint one member who does not meet the independence requirements
set forth above and who is not a current employee of the Corporation or an
immediate family member of such employee if the Board, under exceptional and
limited circumstances, determines that membership on the Committee by the
individual is required in the best interests of the Corporation and its
shareholders. The Board shall disclose in the next proxy statement after such
determination the nature of the relationship and the reasons for the
determination.
The members of the Committee shall be elected by the Board of Directors at the
meeting of the Board of Directors following each annual meeting of stockholders
and shall serve until their successors shall be duly elected and qualified or
until their earlier resignation or removal. Unless a Chair is elected by the
full Board of Directors, the members of the Committee may designate a Chair by
majority vote of the full Committee membership.
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C. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Committee shall:
Document Review
Review and assess the adequacy of this Charter periodically as conditions
dictate, but at least annually (and update this Charter if and when
appropriate).
Review with representatives of management and representatives of the independent
accounting firm the Corporation's audited annual financial statements prior to
their filing as part of the Annual Report on Form 10-K. After such review and
discussion, the Committee shall recommend to the Board of Directors whether such
audited financial statements should be published in the Corporation's annual
report on Form 10-K. The Committee shall also review the Corporation's quarterly
financial statements prior to their inclusion in the Corporation's quarterly SEC
filings on Form 10-Q.
Take steps designed to insure that the independent accounting firm reviews the
Corporation's interim financial statements prior to their inclusion in the
Corporation's quarterly reports on Form 10-Q.
Independent Accounting Firm
Recommend to the Board of Directors the selection of the independent accounting
firm, and approve the fees and other compensation to be paid to the independent
accounting firm. The Committee shall have the ultimate authority and
responsibility to select, evaluate and, when warranted, replace such independent
accounting firm (or to recommend such replacement for shareholder approval in
any proxy statement).
On an annual basis, receive from the independent accounting firm a formal
written statement identifying all relationships between the independent
accounting firm and the Corporation consistent with Independence Standards Board
("ISB") Standard 1. The Committee shall actively engage in a dialogue with the
independent accounting firm as to any disclosed relationships or services that
may impact its independence. The Committee shall take, or recommend that the
Board of Directors take, appropriate action to oversee the independence of the
independent accounting firm.
On an annual basis, discuss with representatives of the independent accounting
firm the matters required to be discussed by Statement on Auditing Standards
("SAS") 61, as it may be modified or supplemented.
Meet with the independent accounting firm prior to the audit to review the
planning and staffing of the audit.
--------------------------------------------------------------------------------
Evaluate the performance of the independent accounting firm and recommend to the
Board of Directors any proposed discharge of the independent accounting firm
when circumstances warrant. The independent accounting firm shall be ultimately
accountable to the Board of Directors and the Committee.
Financial Reporting Processes
In consultation with the independent accounting firm and management, review
annually the adequacy of the Corporation's internal financial and accounting
controls. Compliance
To the extent deemed necessary by the Committee, it shall have the authority to
engage outside counsel and/or independent accounting consultants to review any
matter under its responsibility.
Reporting
Prepare, in accordance with the rules of the SEC as modified or supplemented
from time to time, a written report of the audit committee to be included in the
Corporation's annual proxy statement for each annual meeting of stockholders
occurring after December 14, 2000.
While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Audit Committee to plan or conduct audits or
to determine that the Corporation's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
NEOWARE SYSTEMS, INC.
Proxy
This Proxy is Solicited by the Board of Directors of the Company
for the Annual Meeting of Stockholders, December 7, 2001
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 Friday, December 7,
2001, 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)
/ / FOR all nominees listed / / WITHHOLD AUTHORITY
1. Election of Directors below 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.)
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2. Ratify the selection of Arthur Andersen LLP as Independent Auditors.
/ / FOR / / AGAINST / / ABSTAIN
3. In their discretion, upon such other matters as may properly come before the
meeting.
Votes must be indicated /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