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.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i) (1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
___________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
___________________________________________________________________
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
___________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
___________________________________________________________________
(5) Total fee paid:
___________________________________________________________________
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------
NEOWARE SYSTEMS, INC.
400 FEHELEY DRIVE
KING OF PRUSSIA, PENNSYLVANIA 19406
October 25, 2004
TO OUR STOCKHOLDERS:
You are cordially invited to attend the Annual Meeting of Stockholders
to be held on Wednesday, December 1, 2004, 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 enclosed with the Proxy Statement.
I hope you will attend the Annual Meeting.
Sincerely,
/s/ Michael Kantrowitz
Michael Kantrowitz
Chairman, President and
Chief Executive Officer
NEOWARE SYSTEMS, INC.
_______________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 1, 2004
_________________
TO THE STOCKHOLDERS:
The Annual Meeting of the Stockholders of Neoware Systems, Inc. (the
"Company"), a Delaware corporation, will be held on December 1, 2004, 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 approve the 2004 Equity Incentive Plan.
3. To vote upon a proposal to ratify the selection of KPMG LLP as the
Company's independent registered public accounting firm for the
fiscal year ending June 30, 2005.
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 15, 2004 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 enclosed with this notice. 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,
/s/ Keith D. Schneck
Keith D. Schneck
Chief Financial Officer and Secretary
King of Prussia, Pennsylvania
October 25, 2004
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 1, 2004.
Stockholders of record at the close of business on October 15, 2004
will be entitled to vote at the Annual Meeting. At the close of business on
October 15, 2004, 15,818,161 shares of the Company's $0.001 par value 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 Proposals 2 and 3. This Proxy
Statement and the enclosed form of proxy are being mailed to the Company's
stockholders on or about October 25, 2004.
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 enclosed with this
Proxy Statement. 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 Annual 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 Annual 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 on routine matters
in their discretion, except as set forth below, but not on non-routine matters,
pursuant to the rules of the New York Stock Exchange. On non-routine matters,
the broker may not vote on the proposal absent specific voting instructions.
This results in what is known as a "broker non-vote." Broker non-votes will be
counted for the purpose of determining the presence or absence of a quorum but
will not be counted for determining the number of votes cast for or against a
proposal. Accordingly, 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, and has the effect of reducing the number of required affirmative
votes (and therefore will not affect the outcome of the voting) when a majority
of the shares present in person or represented by proxy 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. Approval of the 2004 Equity Incentive Plan
(Proposal 2) and the ratification of the selection of the independent public
accountants (Proposal 3) require the approval of a majority of the outstanding
shares of Common Stock present in person or represented by proxy and entitled to
vote at the meeting. In addition, under the rules of the Nasdaq Stock Market,
the proposal to approve the 2004 Equity Incentive Plan must be approved by a
majority of the total votes cast on the proposal in person or by proxy. The New
York Stock Exchange prohibits brokers or other nominees that are New York Stock
Exchange member organizations from voting on proposals relating to any equity
compensation plans (whether considered routine or non-routine under NYSE rules)
unless they receive instructions from the beneficial owner of the shares.
Therefore, shares held through a broker or other nominee who is a New York Stock
Exchange member organization will only be voted in favor of Proposal 2 if the
beneficial owner has provided specific voting instructions to his or her broker
or other nominee to vote in favor of the proposal. Brokers are not precluded
from voting uninstructed shares on Proposal 3, and, therefore, there will be no
broker non-votes on that 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. The
Company has also retained Georgeson Shareholder Communications to assist in the
solicitation of proxies at an anticipated fee of $9,000 plus reasonable
out-of-pocket expenses. All shares represented by valid proxies will be voted.
HOUSEHOLDING OF PROXY MATERIALS
Certain stockholders who share the same address may receive only one
copy of this Proxy Statement and the Company's Annual Report in accordance with
a notice delivered earlier this year by the stockholders' bank, broker or other
holder of record, unless the bank, broker or other holder of record received
contrary instructions. This practice, known as "householding," is designed to
reduce printing and postage costs. If you own your shares through a bank, broker
or other holder of record and wish either to stop or begin householding, you may
request or stop householding, or you may request a separate copy of the Proxy
Statement or the Annual Report, either by contacting your bank, broker or other
holder of record or by contacting us by telephone at (610) 277-8300, Extension
1072, or in writing to Investor Relations at Neoware Systems, Inc., 400 Feheley
Drive, King of Prussia, Pennsylvania 19046, Attention: Secretary.
2
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, the Board of Directors has fixed that number at five for
the election of directors at the 2004 Annual Meeting. All of the directors
selected by the Board of Directors, upon the recommendation of the Governance
and Nominating Committee, to be elected at the Annual Meeting will 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,
upon the recommendation of the Governance and Nominating Committee.
THE BOARD OF DIRECTORS UNANIMOUSLY 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.
Name Age Position
- --------------------- ---- -----------------------------
Michael G. Kantrowitz 44 Chairman, President and Chief
Executive Officer
David D. Gathman(2) 57 Director
John P. Kirwin, III(1)(2)(3) 48 Director
Christopher G. McCann(3) 43 Director
John M. Ryan (1)(2)(3) 69 Director
-----------------
(1) Member of the Compensation and Stock Option Committee
(2) Member of the Audit Committee
(3) Member of the Governance and Nominating Committee
MR. KANTROWITZ has served as a director of the Company since March
1995. He has been President and Chief Executive Officer of the Company since
February 2000, and Chairman of the Board since September 30, 2002. 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 Human Designed Systems, Inc. ("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 engineering and technical positions with
Raytheon Company and Adage Corporation. Mr. Kantrowitz holds a BSEE in
Electrical Engineering from the University of Lowell.
3
MR. GATHMAN has served as a director of the Company since December
2002. He has been the Senior Vice President and Chief Financial Officer of
Sungard SCT, Inc., a wholly-owned subsidiary of Sungard Data Systems, Inc. and
leading provider of technology solutions for colleges and universities of all
sizes and levels of complexity, since April 5, 2004. Prior to his position at
Sungard SCT, Inc., Mr. Gathman had been Vice President and Chief Financial
Officer of Targeted Diagnostics & Therapeutics, Inc., which develops
molecular-based technologies for the detection, diagnosis and treatment of
colorectal cancer, gastrointestinal cancers and certain infectious diseases,
since May 2002. From February 2001 until May 2002, Mr. Gathman served as the
Senior Vice President and Chief Financial Officer of the Federal Reserve Bank of
Philadelphia. Prior to that, Mr. Gathman was Chief Financial Officer of Internet
Capital Group, Inc., an internet company actively engaged in
business-to-business e-commerce through a network of partner companies, from
January 1999 until September 2000, and Executive Vice President and Chief
Financial Officer and a member of the Board of Directors of Integrated Systems
Consulting Group, Inc., an information services consulting firm, from March 1994
until December 1998. Mr. Gathman is a director of eResearch Technology, Inc., a
provider of technology-based products and services that enable the
pharmaceutical, biotechnological, medical device, and contract resource
companies to efficiently collect, interpret, and distribute cardiac safety and
clinical data.
MR. KIRWIN has served as a director of the Company since December 2002.
He has been a principal in Argosy Partners, a manager of private investment
funds, since 1989. Argosy Partners manages private investment funds with
approximately $180 million of capital, including Argosy Investment Partners,
L.P. and Argosy Investment Partners II, L.P., which are small business
investment companies with an aggregate of approximately $120 million under
management. Mr. Kirwin joined Argosy Partners on a full-time basis in January
1996 and prior to that was a corporate and securities attorney for 14 years. Mr.
Kirwin holds a Juris Doctor, Order of the Coif, from the National Law Center of
George Washington University and a Bachelor of Arts from Dickinson College.
MR. MCCANN has served as a director of the Company since December 1998.
He is a director of 1-800-FLOWERS.COM, a florist company that operates
nationwide through franchised retail stores, telecenters and the internet, and
has been its President since September 2000. From 1988 to September 2000, he
served as Senior Vice President of 1-800-FLOWERS.COM. 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.
MR. RYAN has served as a director of the Company since March 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., a provider of technology-based
products and services that enable the pharmaceutical, biotechnological, medical
device, and contract resource companies to efficiently collect, interpret, and
distribute cardiac safety and clinical data. 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.
4
BOARD OF DIRECTORS AND COMMITTEES
The Company's Board of Directors is comprised solely of outside
independent directors, with the exception of the Chief Executive Officer. The
Board of Directors held seven meetings during the year ended June 30, 2004. The
Board holds executive sessions of its independent directors following each
regularly scheduled meeting of the Board. Directors are expected to attend all
meetings of the Board and Committees on which they serve and annual stockholder
meetings. 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. All of the directors
attended the 2003 Annual Meeting.
The standing committees of the Board of Directors are the Compensation
and Stock Option Committee, the Audit Committee and the Governance and
Nominating Committee. The Compensation and Stock Option Committee held two
meetings and the Audit Committee held eight meetings during the year ended June
30, 2004. The Governance and Nominating Committee was formed in December 2003,
but did not hold any meetings during the 2004 fiscal year. Each of the current
members of the Compensation and Stock Option Committee, the Audit Committee and
the Governance and Nominating Committee are "independent" as defined in Rule
4200 of the Marketplace Rules of the National Association of Securities Dealers,
Inc. and, with respect to the Audit Committee, the Sarbanes-Oxley Act of 2002.
Compensation and Stock Option Committee
The members of the Compensation and Stock Option Committee are John P.
Kirwin, III, Chairman, and John M. Ryan. Each member of the Committee is
independent from the Company and its management.
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, 2002 Non-Qualified Stock Option Plan and 2004 Equity
Incentive Stock Plan.
Audit Committee
The members of the Audit Committee are David D. Gathman, Chairman, John
M. Ryan and John P. Kirwin, III. Each member of the Committee is independent
from the Company and its management. In addition, the Board of Directors has
determined that Mr. Gathman is an "audit committee financial expert." The
Committee acts pursuant to a written charter adopted by the Board of Directors.
The purpose of the Committee is to assist the Board of Directors in fulfilling
its oversight responsibilities regarding accounting and reporting practices,
internal controls, and compliance with laws and regulations. The Committee's
responsibilities under the terms of its charter include:
5
o Meeting at least quarterly with management and the independent registered
public accounting firm in separate executive sessions;
o Assessing the integrity of the Company's financial reporting process and
system of internal controls through discussions with management and the
independent registered public accounting firm;
o Selecting and appointing, and recommending for ratification by the
stockholders, an independent firm of certified public accountants to serve as
independent registered public accounting firm for the Company;
o Setting the fees to be paid to the independent registered public accounting
firm and pre-approving all audit and non-audit services to be provided by the
independent registered public accounting firm;
o Assessing the performance (effectiveness, objectivity and independence) of
the independent registered public accounting firm;
o Reviewing an annual report from the independent registered public accounting
firm describing their internal quality control procedures and any material
issues raised by the most recent internal or peer review of the independent
registered public accounting firm;
o Providing an avenue of communication among the independent registered public
accounting firm, management and the Board of Directors;
o Reviewing with management and the independent registered public accounting
firm the annual and quarterly financial statements of the Company, including
the Company's disclosures under "Management's Discussion and Analysis of
Financial Condition and Results of Operations";
o Reviewing the Company's earnings releases;
o Discussing with management and the independent registered public accounting
firm major issues regarding accounting principles and financial statement
presentations;
o Establishing procedures for the confidential and anonymous receipt, retention
and treatment of complaints regarding the Company's accounting, internal
controls and auditing matters;
o Retaining independent counsel and other advisors as necessary to fulfill its
responsibilities;
o Conducting an annual evaluation of its performance and its charter;
o Recommending to the Board of Directors that the audited financial statements
be included in the Company's annual report to stockholders; and
o Preparing the Report of the Audit Committee included in the annual proxy
statement pursuant to Item 306 of Regulation S-K.
The Report of the Audit Committee for the 2004 fiscal year appears on
page 17 of this Proxy Statement. The Audit Committee Charter is available on the
Company's website at www.neoware.com/company.html.
Governance and Nominating Committee
The members of the Governance and Nominating Committee are Christopher
G. McCann, Chairman, John M. Ryan and John P. Kirwin, III. Each member of the
Committee is independent from the Company and its management. The Committee's
primary responsibilities under the terms of its charter include:
6
o Establishing qualifications for Board membership;
o Developing procedures for reviewing candidates recommended by stockholders
for positions on the Board;
o Receiving recommendations for candidates for election to the Board;
o Recommending the slate of nominees to be proposed for election by the
stockholders;
o Advising on and recommending to the Board corporate governance policies;
o Annually reviewing, reassessing and recommending proposed changes to the
Committee's charter, the Corporate Governance Guidelines, the Code of Ethics
and other corporate governance policies;
o Conducting an annual evaluation of its performance;
o Reviewing, annually, and presenting to the Board an evaluation of, the
effectiveness of the Board and its committees;
o Making reports and recommendations for consideration by the Board; and
o Developing procedures for security holders to communicate with the Board.
The Committee may, in its sole discretion, engage outside accountants,
legal counsel and other advisors in carrying out its duties to the Company.
The Governance and Nominating Committee Charter, approved by the Board
of Directors in August 2004, is available on the Company's website at
www.neoware.com/company.html.
CODE OF ETHICS
The Board sponsors the Company's Code of Ethics, which ensures that the
Company's business is conducted in a consistently legal and ethical manner. The
Company's Chief Financial Officer oversees compliance with the Code of Ethics.
The Company's Code of Ethics is available on the Company's website at
www.neoware.com/company.html. All of the Company's employees, officers and
directors are required to comply with the Code of Ethics. The Code of Ethics
covers all areas of professional conduct, including compliance with laws,
conflicts of interest, confidentiality, corporate opportunities, use of Company
assets and reporting illegal or unethical behavior. The Code of Ethics describes
the Company's procedures to receive, retain and address complaints regarding
accounting, internal accounting controls and auditing matters, and other illegal
or unethical behavior.
COMPENSATION OF DIRECTORS
Directors (other than those who are employees of the Company) receive a
one-time automatic grant of options to purchase 10,000 shares of common stock
upon a director's initial election. Thereafter, under the Company's 1995 Stock
Option Plan, non-employee directors received an automatic annual grant of
options to purchase 5,000 shares of common stock. Non-employee directors were
also eligible to receive stock option grants at the discretion of the Board of
Directors. In January 2004, the Board of Directors authorized the discretionary
grant of options to purchase 2,500 shares of common stock to each of the
non-employee directors in addition to the then automatic grant of options to
purchase 5,000 shares of common stock. Commencing on the date of the Annual
Meeting, under the 2004 Equity Incentive Plan, subject to the approval of the
Company's stockholders, automatic grants under the Company's 1995 Stock Option
Plan will be replaced with automatic grants of options to purchase 7,500 shares
of common stock. In addition, all non-employee members of the Board receive an
annual fee of $6,000 for services as a member of the Board, $1,500 for each
regular or special Board meeting attended in person, $750 for each such meeting
attended by telephone and $500 for each committee meeting attended. The chairmen
of the Audit Committee and the Stock Option and Compensation Committee receive
annual fees of $2,500 and $1,000, respectively, for their services as chairmen
in addition to the applicable meeting fees.
7
DIRECTOR NOMINATION PROCESS
The Governance and Nominating Committee reviews possible candidates for
the Board of Directors and recommends the nominees for directors to the Board of
Directors for approval. The Board of Directors has adopted criteria for the
selection of nominees to the Board of Directors, which are a part of the
Company's Corporate Governance Guidelines, which can also be found on the
Company's website at www.neoware.com/company.html. These criteria describe
specific traits, abilities and experience that the Governance and Nominating
Committee and the Board look for in determining candidates for election to the
Board. The Governance and Nominating Committee considers suggestions from many
sources, including stockholders, regarding possible candidates for directors.
Such suggestions, together with a complete description of the nominee's
qualifications, experience and background, and a statement signed by the nominee
in which he or she consents to such nomination and which includes the name of
the stockholder making the suggestion and evidence of that person's ownership of
the Company's stock, including the number of shares held and the length of time
of ownership, should be submitted to the Secretary of the Company at 400 Feheley
Drive, King of Prussia, Pennsylvania 19406 not less than 120 days prior to the
anniversary date of the most recent annual meeting of stockholders, or if the
meeting has been changed by more than 30 days from the date of the previous
year's meeting, not less than 60 days before the date of the meeting. Possible
candidates who are suggested by stockholders are evaluated by the Governance and
Nominating Committee in the same manner as are other possible candidates.
In addition to making suggestions to the Governance and Nominating
Committee for the selection of nominees as described above, under the By-laws,
stockholders are also entitled to nominate persons for election as directors
only if, among other things, written notice has been given, in the case of an
annual meeting, no later than the date that is 45 days before the date on which
the Company first mailed its proxy materials for the prior year's annual meeting
of stockholders, or, if such annual meeting was not held or was changed by more
than 30 days from the date of the previous year's annual meeting, a reasonable
time before the Company mails its proxy materials for the current year. The
notice must set forth information about the proposed nominee and the consent of
the nominee, among other things.
8
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation paid for the fiscal years ended June 30, 2004, 2003 and 2002 to the
Company's named executive officers, who are comprised of (1) the Company's Chief
Executive Officer and (2) three of the Company's other most highly compensated
executive officers whose total salary and bonus earned during the 2004 fiscal
year exceeded $100,000.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------- -------------------------------------
OTHER ANNUAL SECURITIES
NAME AND FISCAL COMPENSATION UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) $(1) OPTIONS(#) COMPENSATION ($)
------------------ ------ --------- -------- ------------ ---------- ----------------
Michael G. Kantrowitz 2004 323,861 81,250 (1) 50,000 1,330 (2)
Chairman, President and 2003 275,630 137,815 100,000 1,000 (3)
Chief Executive Officer 2002 262,500 250,000 10,000 1,000 (3)
Eric N. Rubino 2004 240,385 62,500 (1) 30,000 1,360 (4)
Chief Operating Officer 2003 107,692 58,333 165,000 1,000 (3)
Matthew D. Wrabley 2004 192,308 45,000 (1) 30,000 1,180 (5)
Executive Vice President 2003 151,379 60,000 50,000 1,000 (3)
of Sales 2002 125,500 46,867 50,000 1,000 (3)
Keith D. Schneck(6) 2004 185,000 46,250 (1) --- 1,182 (7)
Executive Vice President 2003 28,462 15,417 75,000 ---
and Chief Financial
Officer
__________________
(1) Amount does not exceed the lesser of $50,000 or 10% of total salary
and bonus.
(2) Consists of amounts contributed by the Company under its 401(k) Plan
and the value of life insurance premiums of $330 paid for the benefit
of Mr. Kantrowitz.
(3) Consists of amounts contributed by the Company under its 401(k) Plan.
(4) Consists of amounts contributed by the Company under its 401(k) Plan
and the value of life insurance premiums of $360 paid for the benefit
of Mr. Rubino.
(5) Consists of amounts contributed by the Company under its 401(k) Plan
and the value of life insurance premiums of $180 paid for the benefit
of Mr. Wrabley.
(6) Mr. Schneck became Executive Vice President and Chief Financial
Officer on April 28, 2003.
(7) Consists of amounts contributed by the Company under its 401(k) Plan
and the value of life insurance premiums of $182 paid for the benefit
of Mr. Kantrowitz.
9
OPTION GRANTS IN 2004 FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (1)
- ------------------------------------------------------------------------------------------ ---------------------
% OF TOTAL
NO. OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED (#)(2) YEAR ($/SH) DATE 5%($) 10%($)
- --------------------- -------------- --------- -------- ---------- ------- ---------
Michael G. Kantrowitz 50,000 9% 16.41 08/13/2013 516,008 1,307,666
Eric N. Rubino 30,000 5% 16.41 08/13/2013 309,605 784,599
Matthew D. Wrabley 30,000 5% 16.41 08/13/2013 309,605 784,599
Keith D. Schneck (3) -0- 0% --- --- --- ---
__________________
(1) These amounts, based on assumed appreciation rates of 5% and 10% prescribed
by Securities and Exchange Commission rules, are not intended to forecast
possible future appreciation, if any, of the Company's stock price.
(2) Represents options to acquire shares of Common Stock, which become
exercisable in four equal annual installments beginning one year after the
date of their grant.
(3) Mr. Schneck became Executive Vice President and Chief Financial Officer on
April 28, 2003.
10
AGGREGATED OPTION EXERCISES DURING 2004 FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides information related to options exercised
by the named executive officers during fiscal year 2004 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
SHARES ACQUIRED VALUE FISCAL YEAR-END (#) AT FISCAL YEAR END ($)(2)
NAME ON EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- --------------- -------------- ----------- ------------ ----------- -------------
Michael G. Kantrowitz -0- -0- 260,000 130,000 945,000 29,950
Eric N. Rubino -0- -0- 41,250 153,750 -0- -0-
Matthew D. Wrabley 12,500 204,375 12,500 92,500 -0- -0-
Keith D. Schneck (3) -0- -0- 18,750 56,250 -0- -0-
__________________
(1) Represents the difference between the option exercise price and the market
value on the date of exercise.
(2) Value based on the closing price of $8.27 per share on June 30, 2004, less
the option exercise price.
(3) Mr. Schneck became Executive Vice President and Chief Financial Officer on
April 28, 2003.
11
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information about the shares of the
Company's Common Stock that may be issued as of June 30, 2004 upon the exercise
of options under the 1995 Stock Option Plan, which was approved by the
stockholders, and shares that may be issued under the 2002 Stock Option Plan and
under warrants that were issued to Emerging Growth Equities, Ltd., which were
not approved by the stockholders.
(A) (B) (C)
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE EXERCISE FUTURE ISSUANCE UNDER
BE ISSUED UPON EXERCISE PRICE OF OUTSTANDING EQUITY COMPENSATION PLANS
OF OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS RIGHTS REFLECTED IN COLUMN (A))
- -------------------------- ----------------------- ------------------------- --------------------------
Equity compensation plans
approved by security
holders(1) 1,219,031 $ 9.83 107,635 (2)
Equity compensation plans not
approved by security
holders(3) (4) 555,544 $14.28 109,511
--------- -------
Total 1,774,575 $11.22 217,146
========= =======
___________________
(1) The 1995 Stock Option Plan, designed to provide equity compensation to
certain employees, officers, directors and independent contractors of the
Company, authorizes the granting of incentive and non-qualified stock
options.
(2) Does not include the 1,500,000 shares that would be available for issuance
under the 2004 Equity Incentive Stock Plan if Proposal 2 is approved at the
Annual Meeting.
(3) The 2002 Non-Qualified Stock Option Plan, designed to provide equity
compensation to certain employees, officers, directors and independent
contractors of the Company, authorizes the granting of non-qualified stock
options. A total of 700,000 shares are reserved for issuance under the 2002
Non-Qualified Stock Option Plan and no stock options may be granted under
the 2002 Non-Qualified Stock Option Plan after January 4, 2012. The option
price per share for any stock option granted under the 2002 Non-Qualified
Stock Option Plan shall not be less than the last reported trade of the
Company's common stock on the National Association of Securities Dealers,
Inc. Automated Quotation ("NASDAQ") System on the date of grant or the day
immediately preceding the date of grant. Upon the occurrence of a change in
control, as defined under the 2002 Non-Qualified Stock Option Plan, the
Board of Directors or committee appointed by the Board to administer the
plan may, on a case-by-case basis, provide for the individual vesting of any
unvested stock options held by a plan participant. The 2002 Non-Qualified
Stock Option Plan does not permit the granting of incentive stock options or
provide for automatic grants of options to non-employee directors. The 2002
Non-Qualified Stock Option Plan was not approved by the Company's
stockholders. As of June 30, 2004, there were 109,511 options available for
grant under the 2002 Non-Qualified Stock Option Plan.
12
(4) In May 2002, in connection with a private placement of the Company's Common
Stock, the Company issued warrants to Emerging Growth Equities, Ltd. for the
purchase of 48,000 shares of Common Stock at an exercise price of $9.375 per
share exercisable immediately until May 2005. Warrants to purchase 35,000
shares were exercised in September 2002.
AGREEMENTS WITH EXECUTIVE OFFICERS AND CHANGE IN CONTROL ARRANGEMENTS
Employment Agreements
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
initial 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. The Company also granted to Mr. Kantrowitz options to acquire 130,000
shares of Common Stock 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.
Change of Control and Separation Arrangements
Under their offers of employment with the Company, Mr. Rubino, Mr.
Wrabley and Mr. Schneck are 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. Rubino and Mr. Schneck are entitled to a continuation of salary
and benefits for a period of nine months and Mr. Wrabley is entitled to six
months of such benefits.
Options granted under the Company's 1995 Stock Option Plan, 2002
Non-Qualified Stock Option Plan and, subject to stockholder approval, the 2004
Equity Incentive Plan contain provisions pursuant to which outstanding options
granted under such plans may become fully vested and immediately exercisable
upon a "change in control" as defined in such plans, subject to the discretion
of the Compensation and Stock Option Committee.
13
COMPENSATION AND STOCK OPTION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation and Stock Option Committee (the "Committee") of the
Board of Directors, among other responsibilities, establishes the general
compensation policies of the Company, determines specific compensation levels
regarding salaries and incentive compensation of executive officers and approves
the award of stock options and other equity compensation under the Company's
1995 Stock Option Plan and 2002 Non-Qualified Stock Option Plan and, subject to
stockholder approval, the 2004 Equity Incentive Plan. The Committee currently
consists of two non-employee and independent 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 and other equity compensation, designed to attract,
motivate and retain highly qualified executives who will effectively manage the
Company and maximize stockholder value. In establishing total compensation each
year, the Committee considers both 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 also considers
the recommendations of the Chief Executive Officer.
ANNUAL COMPENSATION
Annual salary levels are established based upon job responsibility and
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, compared to goals, and the achievement of other operational
goals, such as the introduction of new products and gains in market share. In
addition, the Committee considers an individual's contribution to the Company's
performance. An individual's performance is evaluated based upon the achievement
of his or her specific goals and the Committee's 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 the 2004 fiscal year, the executive officers of the Company were
eligible for incentive compensation, consisting of bonuses, based principally 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 for bonuses to be awarded. The Committee set
specific target 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. In January 2004, the Committee adjusted the Company's goals with
respect to the granting of bonuses to executive officers. During the 2004 fiscal
year, the Company attained its adjusted revenue and income targets and other
operating goals. As a result, based on its subjective judgment and on the
recommendations of the Chief Executive Officer, the Company's executives were
awarded 50% of their target bonus payments relating to the Company's performance
for fiscal year 2004 and to individual performance. 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.
14
LONG-TERM COMPENSATION
Long-term incentives are provided through the grant of stock options
under the Company's stock option plans. The Committee reviews and approves the
participation of executive officers of the Company under the Company's stock
option plans. 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 the shares of
Common Stock on the date of grant (which is generally the date of a regularly
scheduled Committee meeting or the date of commencement of employment). 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,
and contribution to the achievement of the Company's goals, considering both the
number of options held by the individual and the individual's position 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
is met by providing the executive officers with the opportunity to build a
meaningful ownership interest in the Company. The Committee evaluates the
individual's and the Company's performance and performance and stock data of
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 has been President and Chief Executive Officer since
February 14, 2000. In connection with his appointment, he entered into an
agreement with the Company which provided for an initial 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. For the 2004 fiscal
year, Mr. Kantrowitz's base salary was increased to $323,861. At the end of the
2004 fiscal year, Mr. Kantrowitz was awarded a bonus of $81,250, equal to 25% of
his base salary, based on the Company's fiscal 2004 financial and operating
performance. The Committee determined the amount of the base salary increase and
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 businesses of similar size, including
comparable technology companies. In addition, at the beginning of the 2004
fiscal year, Mr. Kantrowitz was granted options to acquire 50,000 shares of
common stock at the fair market value of the shares on the date of grant based
on the Company's performance in its 2003 fiscal year.
15
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 1986, as amended (the "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 P. Kirwin, III, Chairman
John M. Ryan
CERTAIN TRANSACTIONS
During the 2004 fiscal year, the Company provided goods and services to
1-800-FLOWERS.COM, a public company of which Mr. McCann, a director of the
Company, is President and a director and shareholder. The Company entered into
this arrangement in the ordinary course of business and provided such goods and
services to 1-800-FLOWERS.COM on a non-exclusive basis at arms-length negotiated
rates. In addition, Mr. McCann was not directly involved with the negotiation or
consummation of such arrangement. While any revenue, profits or other aspects of
a business relationship with the Company may, of course, affect Mr. McCann's
overall compensation or value of his investment in 1-800-FLOWERS.COM, the
Company does not believe that Mr. McCann receives or has received any
compensation from 1-800-FLOWERS.COM that is directly linked to the
Company-related business arrangement. The business relationship between the
companies is not material to the Company or 1-800-FLOWERS.COM, and the Company
does not believe that any indirect interest that Mr. McCann may have with
respect to such arrangement is material.
16
AUDIT COMMITTEE REPORT
The Audit Committee has reviewed and discussed with the Company's
management and its independent registered public accounting firm the audited
financial statements of the Company contained in the Company's Annual Report on
Form 10-K for the Company's 2004 fiscal year. The Audit Committee has also
discussed with the independent registered public accounting firm 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 Committee discussed with both the Company's finance department and
independent registered public accounting firm the overall scope and plans for
their respective audits. The Committee periodically met with the finance
department and the independent registered public accounting firm, with and
without management present, to discuss the results of their examinations,
evaluations of internal controls and overall quality of the Company's financial
reporting.
The Audit Committee has received and reviewed the written disclosures
and the letter from the independent registered public accounting firm required
by Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees," as amended, and has discussed with the independent registered
public accounting firm its independence from the Company and its management.
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 2004 fiscal year for filing with the Securities and Exchange Commission. The
Audit Committee also appointed, and the Board of Directors is proposing in this
Proxy Statement that the stockholders of the Company ratify the appointment of,
KPMG LLP as the Company's independent registered public accounting firm for the
2005 fiscal year.
Audit Committee of the Board or Directors
David D. Gathman, Chairman
John M. Ryan
John P. Kirwin, III
17
PERFORMANCE GRAPH
The following graph compares the cumulative total return on the
Company's Common Stock for the period July 1, 1999 to June 30, 2004 with similar
returns for the (i) S&P Information Technology-500 and (ii) S&P 500 Index.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG NEOWARE SYSTEMS, INC., THE S & P 500 INDEX
AND THE S & P INFORMATION TECHNOLOGY INDEX
[GRAPHIC OMITTED]
Cumulative Total Return
----------------------------------------------------
6/99 6/00 6/01 6/02 6/03 6/04
NEOWARE SYSTEMS, INC. 100.00 227.27 189.09 824.73 1115.64 601.45
S & P 500 100.00 107.25 91.34 74.91 75.10 89.45
S & P INFORMATION TECHNOLOGY 100.00 147.00 70.21 42.80 46.01 57.71
*$100 invested on 6/30/99 in stock or index-including reinvestment
of dividends. Fiscal year ending June 30.
Copyright (C) 2002, Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. All rights reserved www.researchdatagroup.com/S&P.htm
18
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, 2004, 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, with the exception of Michael G. Kantrowitz,
Eric N. Rubino and Matthew D. Wrabley who each failed to file one Form 4
regarding the grant of stock options on a timely basis. Each of the executive
officers filed a Form 4 to correct the failure to report the referenced
transaction.
19
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 October 15, 2004 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
- ---------------------- ------------------ ------------------
Discovery Equity Partners, L.P
233 South Wacker Drive, Suite 3620
Chicago, Illinois 60606........................ 819,700(1) 5.2%
Michael G. Kantrowitz........................... 375,010(2) 2.3%
Christopher G. McCann .......................... 13,333(2) *
John M. Ryan ................................... 98,333(2) *
John P. Kirwin, III ............................ 20,333(2) *
David D. Gathman ............................... 20,933(2)(3) *
Eric N. Rubino ................................. 48,750(2) *
Matthew D. Wrabley ............................. 45,000(2) *
Keith D. Schneck ............................... 18,750(2) *
All executive officers and directors
as a group (8 persons) ......................... 640,442(2) 3.9%
___________________
* Less than 1%
(1) Discovery Equity Partners, L.P. filed a Schedule 13G on August 20, 2004,
upon which the Company has relied in making this disclosure. Discovery
Equity Partners, L.P. has shared voting power and shared dispositive
power as to all 819,700 shares with Discovery Group I, LLC, its general
partner, and Daniel J. Donoghue and Michael R. Murphy, managing members
of Discovery Group I, LLC.
20
(2) Includes options exercisable within 60 days of June 30, 2004 to purchase
the Company's Common Stock issued pursuant to the Company's 1995 Stock
Option Plan and/or the 2002 Non-Qualified Stock Option Plan: Mr.
Kantrowitz, 300,000 shares; Mr. McCann, 13,333 shares; Mr. Ryan, 68,333
shares; Mr. Kirwin, 18,333 shares; Mr. Gathman, 18,333 shares; Mr.
Rubino, 48,750 shares; Mr. Wrabley, 45,000 shares; Mr. Schneck, 18,750
shares; and all executive officers and directors as a group, 530,832
shares.
(3) Mr. Gathman beneficially owns 2,600 shares of Common Stock jointly with
his wife.
PROPOSAL TO APPROVE THE 2004 EQUITY INCENTIVE PLAN
At the Meeting, a proposal will be presented to approve the Company's
2004 Equity Incentive Plan (the "2004 Plan"). The full text of the Plan is
attached as Appendix A. The following summary is subject to and qualified in its
entirety by reference to Appendix A. If this proposal is approved by the
stockholders, 1,500,000 shares of common stock will be available for grant under
the 2004 Plan, in addition to up to 1,750,000 shares subject to outstanding
options under the existing 1995 Stock Option Plan ("1995 Plan") and the 2002
Non-Qualified Stock Option Plan (the "2002 Plan") if such options terminate or
expire or are canceled without having been exercised on or after December 1,
2004, as described in the next paragraph.
The Plan will replace the Company's 1995 Plan and the 2002 Plan. As of
October 20, 2004, options to purchase 1,280,406 shares of common stock were
outstanding and 19,510 shares remained available for future option grants under
the 1995 Plan, and options to purchase 332,108 shares of common stock were
outstanding (not including options that were inducement grants to new hires) and
119,947 shares remained available for future option grants under the 2002 Plan.
If the stockholders approve the 2004 Plan, the 1995 Plan and the 2002 Plan will
be terminated as to any shares then available for future grant. The number of
shares available for grant under the 2004 Plan will include up to an aggregate
maximum of 1,750,000 shares subject to outstanding grants under the 1995 Plan
and 2002 Plan that, on or after August 1, 2004, cease to be subject to grants
under such plans because the grants have been terminated, have expired or have
been canceled without having been exercised.
On October 19, 2004, the Board of Directors adopted the 2004 Plan,
subject to stockholder approval. The Board of Directors believes that an
equity-based compensation program, under which the Company may grant
equity-based awards to its directors, executives and a broad-based category of
employees, is an integral component of its compensation program and success, and
allows the Company to support its strategy of growth by recruiting and retaining
valuable employees of the Company and by strengthening the identity of interests
between employees and the Company. In particular, the Company's equity-based
compensation program can be critical in retaining employees upon the
consummation of acquisitions, in attracting committed directors and in
recruiting employees and executives from companies with higher salary
structures. The Board of Directors believes the 2004 Plan is appropriate for a
company of the Company's size in the computer industry, and with its growth
strategy, and is in the best interests of the Company and its stockholders.
Accordingly, the Board of Directors believes that the approval of the 2004 Plan
is necessary to meet these objectives.
21
Proposed new accounting regulations are expected to require companies
to record a charge to earnings for employee stock option grants, including
options granted under the Company's plans. The extent to which the Company will
make grants of awards other than stock options under the 2004 Plan will depend
on the developments in these accounting regulations as well as other factors,
including the Company's assessment of the impact of the final rules on its
earnings and on investors' views and positions and the Company's determination
of how best to compensate its executive officers, other employees and directors
and continue to align their interests with the interests of the Company's
stockholders. The 2004 Plan will allow the Company to grant a wider range of
awards than is permitted under its current plans, including stock appreciation
rights, restricted stock and restricted stock units. This broader range of
awards will give the Company greater flexibility in structuring performance
measures and goals into its equity compensation.
VOTE REQUIRED FOR APPROVAL
To be adopted, the 2004 Plan must be approved by a majority of the
outstanding shares of common stock present or represented and entitled to vote
at the meeting and, under the rules of the Nasdaq Stock Market, by a majority of
the total votes cast on the proposal in person or by proxy. Under the rules of
the New York Stock Exchange, brokers will not be permitted to vote in favor of
this matter unless the beneficial owner has provided specific voting
instructions. THEREFORE, IT IS IMPORTANT THAT ALL STOCKHOLDERS CONSIDER AND VOTE
ON THIS MATTER.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE ADOPTION OF THE 2004
PLAN.
DESCRIPTION OF THE 2004 PLAN
The 2004 Plan authorizes the granting of incentive stock options,
non-qualified stock options, stock appreciation rights, restricted shares and
restricted share units. A total of 1,500,000 shares of common stock (subject to
adjustment as discussed below) have been reserved for issuance under awards to
be granted under the 2004 Plan, plus up to 1,750,000 shares subject to options
outstanding under the 1995 Plan and the 2002 Plan that terminate, expire or are
canceled without having been exercised, will also be available for the grant of
awards. Any of those shares may be subject to incentive stock options,
non-qualified stock options, stock appreciation rights, restricted shares,
restricted shares units or any combination of any of them. On October 20, 2004,
the last sale price of the common stock on the NASDAQ National Market was $8.22
per share.
22
Eligibility
Those persons who are employees, officers, directors and consultants of
the Company are eligible to be selected by the committee of independent members
of the Board of Directors that administers the 2004 Plan. In addition to being
eligible to receive awards under the 2004 Plan generally, non-employee directors
are eligible to receive automatic grants of options upon the occurrence of each
Annual Meeting at which they serve as a director, including the first Annual
Meeting at which they are first elected to the Board of Directors. The committee
makes the selections with respect to non-automatic grants of awards to
non-employee directors, subject to ratification by the Board. As of June 30,
2004, there were approximately 120 employees and four non-employee directors who
would be eligible to participate in the 2004 Plan. In any given year, no person
may be granted stock options or stock appreciation rights with respect to more
than 500,000 shares of common stock and restricted share and restricted share
units with respect to more than 250,000 shares of common stock under the 2004
Plan. In addition, no non-employee director may receive awards under the 2004
Plan in any given year (not including automatic grants of options under the 2004
Plan) with respect to more than 100,000 shares of common stock.
The number of shares that will be considered issued under the 2004 Plan
will equal the number of shares issued upon exercise or settlement of an award
and will not include the number of shares returned to the Company upon
cancellation, expiration, forfeiture, surrender or repurchase of an award, and
the number of shares delivered to the Company in payment or satisfaction of the
purchase price, exercise price or tax withholding obligation resulting from an
award.
Administration
The 2004 Plan will be administered by the Compensation and Stock Option
Committee (the "Committee"), which currently is comprised of two non-employee,
independent members of the Board of Directors. Discretionary grants of options
to non-employee directors must be ratified by the Board of Directors. The
Committee in its sole discretion determines the eligible persons to be granted
awards and the number of shares subject thereto, subject to certain limitations
in the Plan. In addition, the determinations and the interpretation and
construction of any provision of the 2004 Plan by the Committee is final and
conclusive.
Stock Options and Stock Appreciation Rights
The Committee has complete discretion to determine:
o Which eligible individuals are to receive option grants or stock
appreciation rights;
o The time or times when option and stock appreciation rights grants
are to be made;
o Subject to the plan limitations, the number of shares subject to,
and the vesting schedule for, each option grant and stock
appreciation right;
o The designation of each stock option as either an incentive or a
non-qualified stock option;
o The maximum term for which each option grant and stock appreciation
right is to remain outstanding, which term may not exceed ten
years, and for an incentive stock option granted to a person who
owns more than 10% of the voting power of the Company may not
exceed five years; and
23
o The exercise price for each option and stock appreciation right,
which may not be less than 100% of the fair market value of the
stock on the date of grant. If the recipient of an incentive stock
option owns more than 10% of the voting power of the Company, the
exercise price must be at least 110% of the fair market value on
the date of grant.
The Internal Revenue Code (the "Code") allows an optionee to receive
incentive stock options only to the extent that the aggregate amount of
incentive stock options exercisable for the first time by an optionee during any
calendar year does not exceed $100,000. Any stock option that is granted to an
optionee who fails to meet the criteria for an incentive stock option must be
treated as a non-qualified stock option.
Under the terms of the 2004 Plan, the Committee may not cancel
outstanding options under the 2004 Plan in return for the grant of new options
for the same or different number of option shares unless such repricing is
approved by the stockholders.
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 2004 Plan, provided, however, that
if the optionee acquired such stock directly or indirectly from the Company, he
or she shall have owned such stock to be surrendered for six months prior to
tendering such stock for the exercise of an option.
No incentive stock option granted under the 2004 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 stock options that are transferable without consideration, to
immediate family members.
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.
If the employment of a holder of stock appreciation rights or
outstanding options under the 2004 Plan is terminated for cause, all rights of
such employee under the 2004 Plan cease and the options or stock appreciation
rights granted to such person become null and void for all purposes. The 2004
Plan further provides that in most instances an option or stock appreciation
right must be exercised by the holder within 90 days after the termination of
such holder'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 or stock appreciation right was exercisable on the date of such
termination. Generally, if a holder's termination of employment is due to mental
or physical disability, the holder will have the right to exercise the option or
stock appreciation right (to the extent otherwise exercisable on the date of
termination) for a period of one year from the date on which the holder suffers
the mental or physical disability. If a holder dies while actively employed by
the Company, the option or stock appreciation right may be exercised (to the
extent otherwise exercisable on the date of death) within one year of the date
of the holder's death by the holder's legal representative or persons to whom
the option or stock appreciation right is transferred. In the event of a
holder's death or termination, other than for cause, in its sole discretion, the
Committee may provide on a case-by-case basis that options or stock appreciation
rights may be immediately exercisable for the total remaining number of shares
covered by the options or stock appreciation rights and may extend (up to the
specified expiration date of the option or stock appreciation right) the period
of time for which the option or stock appreciation right is exercisable.
24
Each stock appreciation right issued under the 2004 Plan will entitle
the holder to surrender the stock appreciation right for a distribution from the
Company equal to the fair market value of a share of common stock less the
exercise price of the stock appreciation right. The distribution may be made in
cash or in shares of common stock, as determined by the Committee.
Qualifying Performance Criteria
Qualifying Performance Criteria means any one of more of the
performance criteria listed below, either individually, alternatively or in
combination, applied to either the Company as a whole or to a business unit,
affiliate or business segment, either individually, alternatively or in any
combination, and measured either annually or cumulatively over a period of
years, on an absolute basis, or relative to a pre-established target, to
previous years' results or to a designated comparison group, in each case as
specified by the Committee in the award agreement. The performance criteria may
be (1) cash flow, (2) earnings (including gross margin, earnings before interest
and taxes, earnings before taxes, and net earnings), (3) earnings per share, (4)
growth in earnings or earnings per share, (5) stock price, (6) return on equity
or average stockholders' equity, (7) total stockholder return, (8) return on
capital, (9) return on assets or net assets, (10) return on investment, (11)
revenue, (12) income or net income, (13) operating income or net operating
income, (14) operating profit or net operating profit, (15) operating margin,
(16) return on operating revenue, (17) market share, (18) contract awards or
backlog, (19) overhead or other expense reduction, (20) growth in stockholder
value relative to the moving average of a peer group index, (21) credit rating,
(22) strategic plan development and implementation, (23) improvement in
workforce diversity, and (24) such other similar criteria as may be determined
by the Committee.
Automatic Non-Employee Director Option Grants
Under the 2004 Plan, each non-employee director, on the date he or she
is first elected or appointed to the Board of Directors, will automatically be
granted an option to purchase 10,000 shares of common stock. In addition, upon
each annual re-election to the Board, each non-employee director with at least
six months of Board service will automatically be granted an option to purchase
an additional 7,500 shares of common stock.
The Committee does not exercise any administrative discretion with
respect to these automatic option grants. Each initial automatic grant will vest
and be exercisable upon the director's completion of six months of service on
the Board of Directors. The shares subject to each additional automatic option
grant will vest and become exercisable in two successive equal, semi-annual
installments over the director's initial one-year period of Board service. Each
option will have a term of 10 years, subject to earlier termination following
the director's cessation of service on the Board.
25
Restricted Shares and Restricted Share Units
The Committee may grant restricted shares and restricted share units to
eligible employees and directors under the 2004 Plan. A restricted share is a
share of the Company's common stock that is subject to restrictions as
determined by the Committee. A restricted share unit entitles the holder to a
distribution from the Company equal to the fair market value of a share of the
Company's common stock subject to restrictions as determined by the Committee.
The Committee also has complete discretion to determine:
o Which eligible individuals are to receive restricted shares and
restricted share units;
o The time or times when grants of restricted shares and
restricted share units are to be made;
o The consideration, if any, to be paid for the restricted
shares; and
o The number of shares subject to restricted shares and
restricted share units.
The restrictions applicable to restricted shares and restricted share
units may lapse in one or more installments over a period of service, may lapse
upon the attainment by the Company and or the holder of certain performance
milestones determined by the Committee or upon some combination of the holder's
serving for some period and the attainment of established performance goals.
Restricted shares and restricted share units will not vest in less than three
years unless vesting is based on the achievement of performance criteria, in
which case, such awards will not vest in less than one year, other than as
determined by the committee upon a change in control or upon the Participant's
death or termination of service, other than for cause.
Corporate Transactions
If the Company is a party to certain corporate transactions, including
certain mergers or asset sales, the Board may, in its sole and absolute
discretion and without the need for the consent of any optionee or other award
holder, take one or more of the following actions contingent upon the occurrence
of the transaction:
o cause any or all outstanding stock options and stock
appreciation rights held by plan participants affected by the
transaction to become fully vested and immediately exercisable;
o cause the restrictions on any or all outstanding restricted
shares and restricted share units held by participants affected
by the transaction to lapse and for the restricted shares and
restricted share units to become non-forfeitable;
o cancel any award held by a participant affected by the
transaction in exchange for a similar award related to the
common stock of any successor corporation; and
o cancel or redeem any or all awards held by participants
affected by the transaction for cash and/or other substitute
consideration.
26
Options granted prior to December 5, 2001 currently outstanding under
the 1995 Plan contain different provisions for acceleration of vesting in
connection with a change in control of the Company. Such options will, under
certain circumstances, automatically vest in full upon certain corporate
transactions. For options granted after December 5, 2001 under the 1995 Plan,
and under the 2002 Plan, the Committee has the discretion to accelerate vesting
and exercisability of stock options in the event of a change in control.
Amendment and Termination of the 2004 Plan
Except as discussed below, the Board has complete and exclusive power
and authority to amend or modify the 2004 Plan in any, or all, respects. No
amendment, however, may adversely affect the rights and obligations of awards
outstanding under the plan at the time, without the consent of the award holder.
In addition, the Board may not, without stockholder approval, amend the 2004
Plan to:
o Increase the maximum number of shares issuable under the plan,
or the maximum amount of shares for which any one individual
participating in the plan may be granted stock options, stock
appreciation rights, restricted shares or restricted share
units for any given year;
o Materially modify the eligibility requirements for
participation; or
o Otherwise materially increase the benefits accruing to
participants.
The 2004 Plan will terminate on the date that is 10 years after
stockholder approval or earlier at such time that all shares available for
issuance under the 2004 Plan have been issued.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the principal federal income tax
consequences of the stock option plan based on the Code and its regulations, and
administrative and judicial interpretations. The summary does not address any
foreign, state, or local income tax consequences of participation in the stock
option plan.
Grants of Options
Under current tax laws, the grant of a stock 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.
Exercise of Nonqualified Options and Subsequent Sale of Stock
Upon the exercise of a nonqualified stock 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 stock
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 stock
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.
27
Exercise of Incentive Stock Options and Subsequent Sale of Stock
The exercise of an incentive stock 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 stock 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 stock option in payment of the exercise price of an
option before the expiration of the required holding period for incentive stock
options under the Code will be a disqualifying disposition of the surrendered
shares. Upon any subsequent sale of the shares of the Company's common stock
received upon exercise of an incentive stock option, the optionee generally will
recognize long-term 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 stock options
for regular tax purposes, as described above, for alternative minimum tax
purposes, an incentive stock option is generally treated in the same manner as a
nonqualified stock option. Accordingly, an optionee must generally include in
alternative minimum taxable income for the year in which an incentive stock
option is exercised an amount equal to the excess of the fair market value of
the Company's common stock received as of the date of exercise over the exercise
price. If, however, an optionee disposes of the Company's common stock acquired
upon the exercise of an incentive stock option in the same calendar year as the
exercise in a disqualifying disposition, in which a loss, if sustained, would
otherwise be recognizable under the Code, only an amount equal to the optionee's
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.
28
Stock Appreciation Rights
A recipient of a stock appreciation right will not recognize any income
upon the grant of a stock appreciation right. Upon the exercise of a stock
appreciation right, the recipient will recognize ordinary compensation income in
the amount of both the cash and the fair market value of the shares of common
stock received upon such exercise, and the Company generally will be entitled to
a corresponding federal income tax deduction. When the recipient sells shares
acquired upon the exercise of a stock appreciation right, he or she will
recognize a capital gain or loss. The amount of the capital gain or loss will be
equal to the difference between the amount realized on the sale and the amount
of ordinary income recognized at the time of exercise of the stock appreciation
right.
Restricted Shares
A recipient of restricted shares normally will not recognize taxable
income upon the grant of the shares, and the Company will not be entitled to a
corresponding federal income tax deduction. When the shares either are
transferable or are no longer subject to a substantial risk of forfeiture, the
recipient will recognize ordinary compensation income, and the Company generally
will be entitled to a corresponding federal income tax deduction. The amount of
the ordinary compensation income will be equal to the difference between (i) the
fair market value of the common stock as of the earlier of the lapse of
restriction on transfer or risk of forfeiture and (ii) any amount paid by the
recipient for the shares. Upon the recipient's sale of shares of common stock
that were issued as restricted shares, the recipient will recognize a capital
gain or loss. The amount of the capital gain or loss will be equal to the
difference between the amount realized upon the sale of the shares and the
recipient's adjusted tax basis in the shares of common stock. The recipient's
adjusted tax basis in the shares of common stock is equal to the amount, if any,
paid by the recipient for the shares, plus the amount of ordinary income
recognized by the recipient upon the lapse of the restrictions applicable to the
shares. Short term or long term capital gain treatment will depend upon the
length of time the recipient of the stock holds the shares following the earlier
of the lapse of restriction on transfer or risk of forfeiture.
A recipient may elect to recognize ordinary compensation income in the
year the restricted shares are awarded to him or her, despite the restrictions
on the shares, and, if such an election is made, the Company generally will be
entitled to a corresponding federal income tax deduction at that time. The
amount of ordinary compensation income recognized in connection with such an
election will be equal to the difference between the fair market value of the
common stock at the time of grant and any amount paid for the shares. If an
election is made to accelerate recognition of compensation income, the holding
period of the restricted shares for capital gains purposes will begin on the day
immediately following the date on which the Company transferred the restricted
shares to the recipient. If such an election is made, there generally are no
federal income tax consequences to the restricted share recipient or to the
Company upon the lapse of restrictions on the restricted shares.
29
Restricted Share Units
A recipient of a restricted share unit will not recognize any income
upon the grant of a restricted share unit. When payment in respect of a
restricted share unit is made, the recipient will recognize ordinary
compensation income in the amount of both the cash and the fair market value of
the shares of common stock received, and the Company generally will be entitled
to a corresponding federal income tax deduction. When the recipient sells any
shares acquired as payment in respect of restricted share units, he or she will
recognize a capital gain or loss. The amount of the capital gain or loss will be
equal to the difference between the amount realized on the sale and the amount
of ordinary income recognized in connection with the initial receipt of the
shares.
Payment of Withholding Taxes
The Company's obligation to deliver shares of common stock on account
of exercise of any stock option or stock appreciation right or any restricted
share or restricted share unit grant, and the Company's obligation to pay any
other amounts under the 2004 Plan, is subject to the satisfaction of all
applicable income and employment tax withholding requirements.
PLAN BENEFITS
Except as described below, no determination has been made as to the
number of options or other awards that may be allocated to the individuals named
in the Summary Compensation Table, nominees for election as directors, current
executive officers as a group, current directors who are not executive officers
as a group, or all employees (including all current officers who are not
executive officers) as a group, as a result of the adoption of the 2004 Plan.
The 2004 Plan provides for automatic grants of options to non-employee
directors of the Company. Directors automatically receive options for 10,000
shares of common stock upon becoming directors and options for 7,500 shares of
common stock upon the occurrence of each Annual Meeting thereafter.
The following table summarizes option grants made under the 1995 Plan
and the 2002 Plan during fiscal year 2004 to:
o the executive officers named in the Summary Compensation Table;
o all current executive officers as a group;
o all current directors who are not executive officers as a
group;
o each Board nominee;
o all other employees as a group; and
o each other person who received five percent (5%) of such
options.
30
SECURITIES WEIGHTED AVERAGE
UNDERLYING EXERCISE PRICE
NAME AND POSITION OF INDIVIDUAL OPTIONS GRANTED (#) PER SHARE ($/SH)
- ------------------------------- ------------------- ----------------
Michael G. Kantrowitz .................................... 50,000 16.41
Chief Executive Officer, Chairman and President
Matthew D. Wrabley........................................ 30,000 16.41
Executive Vice President of Sales
Eric N. Rubino............................................ 30,000 16.41
Chief Operating Officer
Keith D. Schneck ......................................... --- ---
Executive Vice President
and Chief Operating Officer
Christopher G. McCann .................................... 7,500 13.74
Director
John M. Ryan ............................................. 7,500 13.74
Director
John P. Kirwin, III....................................... 7,500 13.74
Director
David D. Gathman ......................................... 7,500 13.74
Director
All current executive officers as a group ................ 110,000 16.41
All current directors who are not executive
officers as a group ............................. 30,000 13.74
All other employees (including all current
officers who are not executive
officers) as a group............................. 439,500 15.93
31
PROPOSAL TO RATIFY ACCOUNTANTS
The Audit Committee has selected the firm of KPMG LLP as the Company's
independent registered public accounting for the fiscal year ending June 30,
2005. The Board of Directors has proposed that the stockholders ratify the
selection of KPMG LLP. The Company has requested that a representative of KPMG
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 AND NON-AUDIT FEES
The following table shows the fees billed to the Company by its
independent registered public accounting firm for services provided to the
Company during the 2004 and 2003 fiscal years:
2004 2003
-------- --------
Audit Fees ....................................................... $240,960 $162,000
Audit-Related Fees ............................................... $ 8,260 $ --
Tax Fees ......................................................... $155,300 $ 51,400
All Other Fees ................................................... $259,545 $ 8,500
o Audit Fees consist of fees billed for professional services rendered for
the audit of the Company's annual financial statements, reviews of the
financial statements included in the Company's quarterly report on Forms
10-Q and the issuance of consents in connection with registration
statements filed by the Company.
o Audit-Related Fees consist of services that are reasonably related to the
performance of the audit of the Company's financial statements and are not
reported under "Audit Fees." In FY2004, these fees consisted of services
performed to assist the Company in planning the processes and procedures
related to its internal accounting controls. There were no fees paid to the
independent registered public accounting firm in fiscal year 2003 for
audit-related fees.
o Tax Fees consist of professional services rendered by the independent
registered public accounting firm for tax compliance and tax advice. The
services for the fees disclosed under this category include tax return
preparation and tax advice.
o All Other Fees in the 2004 and 2003 fiscal years paid to the independent
registered public accounting firm primarily consist of pre-acquisition
financial due diligence investigations.
The Audit Committee considered whether the services provided above are
compatible with maintaining the independence of the independent registered
public accounting firm.
32
AUDIT COMMITTEE PRE-APPROVAL OF SERVICES AND FEES
The Audit Committee's procedure is to review all proposed audit and
non-audit services to be provided by the independent registered public
accounting firm and, before engaging the independent registered public
accounting firm, pre-approve the performance of such services and related fees.
Any fee amounts pre-approved for the audit and audit-related services are
updated to the extent necessary at the regularly scheduled meetings of the Audit
Committee during the year. The independent registered public accounting firm and
management must report to the Audit Committee actual fees versus those
pre-approved periodically throughout the fiscal year.
The Audit Committee has considered the above non-audit services and has
determined that the provision of such services is compatible with maintaining
the independence of the independent registered public accounting firm. All
services rendered by KPMG LLP were permissible under applicable laws and
regulations, and were pre-approved by the Audit Committee for the 2004 fiscal
year.
In the 2004 fiscal year, there were no fees paid to KPMG LLP under a de
minimis exception to the rules that waives pre-approval for certain non-audit
services.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
RATIFICATION OF KPMG 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
June 27, 2005 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 9, 2005.
33
APPENDIX A
----------
NEOWARE SYSTEMS, INC.
2004 EQUITY INCENTIVE PLAN
--------------------------
SECTION 1. PURPOSE OF THE PLAN; EFFECTIVE DATE.
1.1. PURPOSE. This 2004 Equity Incentive Plan (the "Plan") is intended
to promote the interests of Neoware Systems, Inc., a Delaware corporation (the
"Company"), by: (a) enabling the Company and its subsidiaries to recruit and
retain highly qualified employees, directors and consultants; (b) providing
those employees, directors and consultants with an incentive for productivity;
and (c) providing those employees, directors and consultants with an opportunity
to share in the growth and value of the Company.
1.2 EFFECTIVE DATE. The Plan was approved by the Board on October 19,
2004 and will become effective immediately upon its adoption by the stockholders
of the Company. The date of its approval by the stockholders is hereby
designated the "Plan Effective Date."
SECTION 2. DEFINITIONS. For the purposes of the Plan, the following
definitions shall be in effect:
2.1. AWARD: a grant of Options, SARs, Restricted Shares or Restricted
Share Units pursuant to the provisions of the Plan.
2.2. AWARD AGREEMENT: with respect to any particular Award, the written
document that sets forth the terms of that Award.
2.3. BOARD: the Company's Board of Directors.
2.4. CHANGE IN CONTROL: a change in ownership or control of the Company
effected through any of the following transactions:
2.4.1. the direct or indirect acquisition by any person or related
group of persons (other than the Company or any majority-owned subsidiary or any
employee benefit plan sponsored by the Company or any trust or investment
manager for the account of such a plan) of beneficial ownership (within the
meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than
50% of the total combined voting power of the Company's outstanding securities;
2.4.2. a change in the composition of the Board over a period of
24 months or less such that a majority of the Board members ceases, by reason of
one or more contested elections for Board membership, to be comprised of
individuals who either (a) have been Board members continuously since the
beginning of such period, or (b) have been elected or nominated for election as
Board members during such period by at least a majority of the Board members
described in clause (a) who were still in office at the time such election or
nomination was approved by the Board;
A-1
2.4.3. the consummation of any consolidation, share exchange or
merger of the Company (a) in which the stockholders of the Company immediately
prior to such transaction do not own at least a majority of the voting power of
the entity which survives/results from that transaction, or (b) in which a
stockholder of the Company who does not own a majority of the voting stock of
the Company immediately prior to such transaction, owns a majority of the
Company's voting stock immediately after such transaction; or
2.4.4. the liquidation or dissolution of the Company or any sale,
lease, exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all the assets of the Company, including
stock held in subsidiary corporations or interests held in subsidiary ventures.
2.5. CODE: the Internal Revenue Code of 1986, as amended.
2.6 COMMITTEE: the committee appointed by the Board to administer and
interpret the Plan in accordance with Section 3.1.
2.7. COMMON STOCK: shares of the Company's common stock.
2.8 EMPLOYEE: an individual who performs services while in the employ
of the Company or any of its Subsidiaries, subject to the control and direction
of the employer entity not only as to the work to be performed but also as to
the manner and method of performance.
2.9. EXCHANGE ACT: the Securities Exchange Act of 1934, as amended.
2.10 EXERCISE DATE: the date on which all conditions for exercise,
including without limitation the giving of written notice to the Company and
payment of the exercise price, have been satisfied.
2.11 FAIR MARKET VALUE: the Fair Market Value per share of Common Stock
determined in accordance with the following provisions:
2.11.1. NASDAQ. If the Common Stock is at the time traded on the
Nasdaq National Market, the Fair Market Value shall be the closing selling price
per share on the date in question, as such price is reported by the National
Association of Securities Dealers on the Nasdaq National Market or any successor
system. If there is no reported closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
A-2
2.11.2 OTHER NATIONAL SECURITIES EXCHANGE. If the Common Stock is
at the time listed or admitted to trading on any national securities exchange,
then the Fair Market Value shall be the closing selling price per share on the
date in question on the exchange determined by the Committee to be the primary
market for the Common Stock, as such price is officially quoted in the composite
tape of transactions on such exchange. If there is no reported sale of Common
Stock on such exchange on the date in question, then the Fair Market Value shall
be the closing selling price on the exchange on the last preceding date for
which such quotation exists.
2.11.3 NOT PUBLICLY TRADED. If the Common Stock is on the date in
question neither listed nor admitted to trading on any national securities
exchange nor traded on the Nasdaq National Market, then the Fair Market Value of
the Common Stock on such date shall be determined by the Committee in its sole
and absolute discretion.
2.12. INCENTIVE STOCK OPTION: an Option intended to be and designated
as an "Incentive Stock Option" within the meaning of Section 422 of the Code.
2.13. MISCONDUCT: (a) the commission of any act of fraud, embezzlement
or dishonesty by the Participant, (b) any unauthorized use or disclosure by such
individual of confidential information or trade secrets of the Company or of any
Subsidiary, (c) any failure to perform any specific lawful direction of the
Company's Board or officers of the Company, (d) any refusal or neglect to
perform such individual's duties in connection with his or her employment, (e)
any conviction of, or entering of a plea of nolo contendere to, a crime which
constitutes a felony, or (f) any other misconduct by such individual adversely
affecting the business or affairs of the Company, each as determined by the
Committee in its sole and absolute discretion; provided, however that if a
Participant and the Company or any of its Subsidiaries have entered into an
employment agreement, consulting agreement or other similar agreement that
specifically defines "misconduct," "cause" or another similar term, then with
respect to that Participant, "Misconduct" shall have the meaning ascribed to
such term in that agreement. The foregoing definition shall not be deemed to be
inclusive of all the acts or omissions which the Company or any Subsidiary may
consider as grounds for the dismissal or discharge of any Participant or other
individual in the Service of the Company.
2.14. NON-QUALIFIED OPTION: an Option that is not an Incentive Stock
Option.
2.15. OPTION: an option to purchase shares of Common Stock (including
Restricted Shares, if the Committee so determines) granted pursuant to Section
6, 7 or 8 hereof.
2.16. OPTIONEE: a person to whom an Option is granted under the Plan.
2.17. PARTICIPANT: a person who is issued an Award under the Plan.
2.18. PERMANENT DISABILITY: a permanent and total disability as defined
in Section 22(e)(3) of the Code.
A-3
2.19 QUALIFYING PERFORMANCE CRITERIA: the performance criteria set
forth in Section 13.3.2.
2.20. RESTRICTED SHARES: shares that are granted under and subject to
restrictions pursuant to Section 10 of the Plan.
2.21. RESTRICTED SHARE UNIT: a right granted under and subject to
restrictions pursuant to Section 11 of the Plan.
2.22. SAR: a stock appreciation right granted under and described in
Section 9 of the Plan.
2.23. SERVICE: the performance of services on a periodic basis for the
Company (or any Subsidiary) in the capacity of an Employee, a non-employee
member of the Board or an independent consultant, except to the extent otherwise
specifically provided in the applicable Award Agreement.
2.24. SUBSIDIARY: each corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, provided each such
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
2.25 TEN PERCENT STOCKHOLDER: a stockholder owning 10% or more of the
total combined voting power of all classes of stock of the Company or any
related corporation of the Company.
SECTION 3. ADMINISTRATION OF THE PLAN.
3.1. THE COMMITTEE. The Board shall appoint a Committee to administer
and interpret the Plan. The Committee shall consist of two or more Board
members, each of whom is "independent" as defined in the rules of the Nasdaq
Stock Market, is an "outside director" as defined under Code Section 162(m) and
related Treasury Regulations and may be a "non-employee director" as defined
under Rule 16b-3 of the Exchange Act. Members of the Committee shall serve for
such period as the Board may decide. The Committee shall have full power and
authority (subject to the express provisions of the Plan, including without
limitation Sections 3.2, 3.3 and 3.4 below) to establish rules and regulations
for the proper administration of the Plan and to make such determinations under,
and issue such interpretations of, the provisions of the Plan and any
outstanding Award thereunder as it may deem necessary or advisable. Decisions of
the Committee shall be final and binding on all parties. No member of the Board,
or delegate thereof, will be liable for any good faith determination or act in
connection with the Plan or any Award.
A-4
3.2. DELEGATION OF AUTHORITY. The Board may appoint one or more
officers of the Company, Board members, or a committee of officers and/or Board
members to act individually or jointly, as set forth in the delegating
resolution. To the extent permitted in accordance with Section 157 of the
Delaware General Corporation Law and within the limits established by the Board
at the time of the delegation, each such person shall have the authority to
grant Awards to Participants who are not subject, as a result of their
relationship to the Company or ownership of the Company's securities, to Section
16 of the Exchange Act, and solely with respect to any Awards so granted,
references in the Plan to the Committee will be deemed also to refer to such
persons to whom authority has been granted.
3.3. APPROVAL OF DISCRETIONARY DIRECTOR GRANTS. The Board must ratify
any grants of Awards under the Plan (other than those made pursuant to Section
7) to any non-employee Board member.
3.4. ADMINISTRATION OF NON-EMPLOYEE DIRECTOR GRANTS. Administration of
the grants made pursuant to Section 7 of the Plan shall be self-executing, and
the Committee shall exercise no discretionary functions with respect to such
option grants. Administration of discretionary grants made to non-employee Board
members under Section 8 shall be administered by the Committee, subject to
Section 3.3.
SECTION 4. ELIGIBILITY.
4.1. ELIGIBLE PERSONS. Subject to the terms of the Plan, the persons
eligible to participate in the Plan shall be limited to the following:
4.1.1 officers and other Employees of the Company (or any
Subsidiary);
4.1.2. non-employee members of the Board and the non-employee
members of the board of directors of any Subsidiary; and
4.1.3. consultants who provide Services to the Company (or any
Subsidiary), provided such Services are not in connection with the offer or sale
of securities in a capital-raising transaction.
4.2. DETERMINATION OF ELIGIBILITY. Subject to the terms of the Plan,
the Committee and, to the extent consistent with the Plan and the Board's
delegation, the persons to whom authority has been delegated under Section 3.2,
shall have full authority to determine which eligible individuals are to receive
Awards.
SECTION 5. STOCK SUBJECT TO THE PLAN
5.1. NUMBER OF SHARES AVAILABLE FOR GRANT. The maximum number of shares
of Common Stock which may be issued under the Plan shall not exceed 1,500,000
shares, plus up to an aggregate maximum of 1,750,000 shares subject to options
outstanding as of December 1, 2004 under the Company's 1995 Stock Option Plan
and 2002 Non-Qualified Stock Option Plan that terminate, expire or are canceled
without having been exercised on or after December 1, 2004, subject to
adjustment from time to time in accordance with the provisions of Section 5.4
A-5
5.2. ANNUAL PER-PARTICIPANT LIMIT. The aggregate number of shares of
Common Stock subject to Options or SARs granted under the Plan in any fiscal
year of the Company to any one Participant in the Plan shall not exceed 500,000
shares. The aggregate number of shares subject to Restricted Share or Restricted
Share Units granted under the Plan during any fiscal year of the Company to any
one Participant shall not exceed 250,000. Notwithstanding the foregoing
limitations, no non-employee Board member may receive Awards in any given fiscal
year of the Company (not including automatic grants of Options under Section 7)
with respect to more than 100,000 shares. Notwithstanding anything to the
contrary in the Plan, the foregoing limitations shall be subject to adjustment
under Section 5.4.
5.3. FORFEITED AWARDS AND OTHER SHARES AGAIN AVAILABLE FOR GRANT. If
and to the extent that an Option, SAR or Restricted Share Unit expires,
terminates or is canceled, surrendered or forfeited for any reason without
having been exercised or settled in full, the shares of Common Stock associated
with that Option, SAR or Restricted Share Unit will again become available for
grant under the Plan. Similarly, if and to the extent any Restricted Share is
canceled, forfeited or repurchased for any reason, that share will again be
available for grant under the Plan. Further, if any share that would otherwise
be issued to a Participant in connection with (a) his or her exercise of an
Option or (b) settlement of an SAR or Restricted Share Unit is instead withheld
or surrendered by the Company pursuant to Section 13.2 in settlement of a tax
withholding obligation associated with an Option, SAR or Restricted Share Unit
or is withheld by the Company in satisfaction of the exercise price payable upon
exercise of an Option or SAR, that share will again become available for grant
under the Plan. The number of shares that will be considered issued under the
Plan shall equal the number of shares issued upon exercise or settlement of an
Award and shall not include the number of shares returned to the Company upon
cancellation, expiration, forfeiture, surrender or repurchase of an Award, or
the number of shares delivered to the Company in payment or satisfaction of the
purchase price, exercise price or tax withholding obligation resulting from an
Award.
5.4. ADJUSTMENT. Should any change be made to the Common Stock issuable
under the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Company's receipt of
consideration, then appropriate adjustments shall be made to (a) the maximum
number and/or class of securities issuable under the Plan, (b) the maximum
amount and/or class of securities for which any one individual participating in
the Plan may be granted Options, separately exercisable SARs, Restricted Shares
and Restricted Share Units for any given year under the Plan, (c) the number
and/or class of securities for which automatic Option grants are to be
subsequently made per eligible non-employee Board member under Section 7 of the
Plan, (d) the number and/or class of securities and price per share in effect
under each Option and SAR outstanding under the Plan, and (e) the number of
Restricted Share Units outstanding under the Plan and/or the class of securities
referenced for determining payment in respect thereof. Such adjustments to
outstanding Awards are to be effected in a manner intended to avoid the
enlargement or dilution of rights and benefits under such Awards. The
adjustments determined by the Committee shall be final, binding and conclusive.
A-6
SECTION 6. STOCK OPTIONS; IN GENERAL
6.1. OPTION GRANT AND AWARD AGREEMENT. Subject to the terms of the
Plan, the Committee and, subject further to the delegating resolution, the
persons who are delegated authority under Section 3.2, are authorized to grant
Incentive Stock Options and Non-Qualified Options (including Options to purchase
Restricted Shares) to eligible individuals. Each granted Option shall be
evidenced by an Award Agreement in the form that is approved by the Committee
and that is not inconsistent with the terms and conditions of the Plan.
6.1.1. NO ISOS FOR NON-EMPLOYEES. Individuals who are not
Employees may only be granted Non-Qualified Options.
6.1.2. $100,000 ISO LIMIT. The aggregate Fair Market Value
(determined as of the respective date or dates of grant) of the Common Stock for
which one or more Incentive Stock Options granted to any Employee under the Plan
(or any other option plan of the Company or any Parent or Subsidiary) may for
the first time become exercisable during any one calendar year shall not exceed
the sum of $100,000. To the extent the Employee holds two or more such Options
which become exercisable for the first time in the same calendar year, the
foregoing limitation on the exercisability of such options as Incentive Stock
Options shall be applied on the basis of the order in which such Options are
granted. Should the number of shares of Common Stock for which any Incentive
Stock Option first becomes exercisable in any calendar year exceed the
applicable $100,000 limitation, then that Option may nevertheless be exercised
in that calendar year (or thereafter in accordance with its terms) for the
excess number of shares as a Non-Qualified Option.
6.2. EXERCISE PRICE. The exercise price per share of each option
granted under the Plan shall be fixed by the Committee, in accordance with the
following provisions: The exercise price per share of Common Stock subject to an
Option shall in no event be less than 100% of the Fair Market Value of such
Common Stock on the grant date; provided that, if the individual to whom an
Incentive Stock Option is granted is a Ten Percent Stockholder, then the
exercise price per share shall not be less than 110% of the Fair Market Value
per share of Common Stock on the grant date.
6.3 EXERCISABILITY AND TERM OF OPTIONS. Each option granted under the
Plan shall be exercisable at such time or times and during such period as is
determined by the Committee and set forth in the Award Agreement evidencing the
grant. No such option, however, shall have a maximum term in excess of ten years
measured from the grant date (five years if the option is an Incentive Stock
Option granted to a Ten Percent Stockholder).
A-7
6.4. PAYMENT OF THE EXERCISE PRICE. The exercise price shall become
immediately due upon exercise of the Option and shall be payable in one or more
of the forms specified below as permitted by the Committee:
6.4.1 by cash or check made payable to the Company;
6.4.2. in shares of Common Stock held by the Optionee;
6.4.3. pursuant to a broker assisted exercise; or
6.4.4 by such other forms of consideration as determined by the
Committee.
6.5. TRANSFER OF AN OPTION.
6.5.1 IN GENERAL; NO TRANSFERS. During the lifetime of the
Optionee, the Option, together with any related SAR, shall be exercisable only
by the Optionee and shall not be assignable or transferable by the Optionee,
except for a transfer of the Option by will or by the laws of descent and
distribution following the Optionee's death or, with respect to Options other
than Incentive Stock Options, if permitted in any specific case by the
Committee, pursuant to a domestic relations order (as defined under the Code or
Treasury Regulations).
6.5.2. COMMITTEE MAY PERMIT TRANSFER OF NON-QUALIFIED OPTIONS.
Notwithstanding the foregoing provisions of this Section 6.5, the Committee may
provide that an Optionee may transfer Non-Qualified Options to family members or
other persons or entities according to such terms as the Committee may
determine, provided that the Optionee receives no consideration for the transfer
of an Option and the transferred Option shall continue to be subject to the same
terms and conditions as were applicable to the Option immediately before the
transfer.
6.6. NO STOCKHOLDER RIGHTS. An Optionee shall have no stockholder
rights with respect to any shares covered by the Option until such individual
shall have exercised the Option and paid the exercise price for the purchased
shares.
6.7. EXERCISE AND FORFEITURE FOLLOWING TERMINATION OF SERVICE.
6.7.1. IN GENERAL. Upon a Participant's death or termination of
Service, all Options and SARs held by the Participant that are not exercisable
immediately prior to the death or termination of Service shall terminate
immediately.
6.7.2. EXERCISE PERIOD FOLLOWING TERMINATION. In the event of a
Participant's death or termination of Service, the following provisions shall
govern the exercise period applicable to the portion of Options and SARs held by
the Participant that is exercisable immediately prior to the Participant's death
or termination of Service:
A-8
(a) Other than Death, Permanent Disability or Misconduct.
If a Participant terminates Service for any reason other than death, Permanent
Disability or Misconduct, then each outstanding Option and SAR held by such
Participant shall remain exercisable during the three-month period following the
date of such termination of Service.
(b) Disability. If a Participant terminates Service by
reason of his or her Permanent Disability, then each outstanding Option and SAR
held by the Participant shall remain exercisable during the 12-month period
following the date of such termination of Service.
(c) Death. If a Participant dies while holding one or more
outstanding Options or SARs, then each such Option and SAR shall remain
exercisable during the 12-month period following the date of the Participant's
death. During such limited period, the Options and SARs may be exercised by the
personal representative of the Participant's estate or by the person or persons
to whom the Options and SARs are transferred pursuant to the Participant's will
or in accordance with the laws of descent and distribution.
(d) Misconduct. Upon termination of the Participant's
Service for Misconduct, all outstanding Options and SARs held by the Participant
shall terminate immediately and cease to be outstanding.
(e) Expiration. Subject to the discretion of the Committee
under Section 6.7.4, upon the expiration of the applicable exercise period
provided for in this Section 6.7.2 or (if earlier) upon the expiration of the
term of the Option or SAR, the Option or SAR shall terminate and cease to be
exercisable for any shares for which the Option or SAR has not been exercised.
(f) Change of Control Agreements. Notwithstanding any other
provision of this Section 6.7, with respect to a particular Participant, if
there is any conflict between this Section 6.7 and any employment agreement or
change of control agreement between the Participant and the Company, such
agreement will control.
6.7.3. NO EXERCISE AFTER EXPIRATION OF TERM. Notwithstanding the
foregoing or any other provision of this Plan, under no circumstances shall any
Option or SAR be exercisable after the specified expiration date of the Option's
term.
6.7.4. COMMITTEE DISCRETION. The Committee shall have complete
discretion, exercisable either at the time the Option is granted or at any time
while the Option remains outstanding:
(a) to extend the period of time for which the Option
(other than Options granted pursuant to Section 7) or SAR is to remain
exercisable following the Participant's death or cessation of Service other than
for Misconduct from the limited period in effect under Section 6.7.2 to such
greater period of time as the Committee shall deem appropriate; provided that in
no event shall such option be exercisable after the specified expiration date of
the Option or SAR term; and/or
A-9
(b) to permit one or more Options or SARs held by the
Participant (other than Options granted pursuant to Section 7) to be exercised,
during the limited post-Service exercise period applicable under this Section
6.7, not only with respect to the number of vested shares of Common Stock for
which each such Option or SAR is exercisable at the time of the Participant's
cessation of Service but also with respect to any other shares subject to that
Option or SAR.
6.8 NO REPRICING. Other than in connection with a change in the
Company's capitalization (as described in Section 5.4), the exercise price of an
Option may not be reduced without stockholder approval (including canceling
previously awarded Options and regranting them with a lower exercise price).
SECTION 7. STOCK OPTIONS; AUTOMATIC GRANTS FOR NON-EMPLOYEE DIRECTORS.
7.1. ELIGIBILITY. The individuals eligible to receive automatic option
grants pursuant to the provisions of this Section 7 shall be limited to (a)
those individuals who are serving as non-employee Board members on the Plan
Effective Date, (b) those individuals who are first elected or appointed as
non-employee Board members on or after the Plan Effective Date, whether through
appointment by the Board or election by the Company's stockholders, and (c)
those individuals who are re-elected to serve as non-employee Board members at
one or more annual meeting of the Company's stockholders (each an "Annual
Stockholders Meeting") held on or after the Plan Effective Date. Each
non-employee Board member eligible to receive one or more automatic option
grants pursuant to the foregoing criteria shall be designated an "Eligible
Director" for purposes of the Plan.
7.2. GRANT DATES. Option grants shall be made under this Section 7 on
the dates specified below:
7.2.1. INITIAL GRANT. Each Eligible Director who is first elected
or appointed as a non-employee Board member on or after the Plan Effective Date
shall automatically be granted, on the date of such initial election or
appointment (as the case may be), a Non-Qualified Option to purchase 10,000
shares of Common Stock upon terms and conditions of this Section 7.
7.2.2. ANNUAL GRANT. On the date of each Annual Stockholders
Meeting, beginning with the first Annual Stockholders Meeting held on the Plan
Effective Date, each individual who will continue to serve after such meeting as
an Eligible Director shall automatically be granted a Non-Qualified Option to
purchase an additional 7,500 shares of Common Stock upon the terms and
conditions of this Section 7, provided he or she has served as a non-employee
Board member for at least six months prior to the date of such Annual
Stockholders Meeting.
A-10
7.3. NO LIMITATION. There shall be no limit on the number of shares of
Common Stock for which any one Eligible Director may be granted Options under
this Section 7 over his or her period of Board service.
7.4. EXERCISE PRICE. The exercise price per share of Common Stock
subject to each Option grant made under this Section 7 shall be equal to 100% of
the Fair Market Value per share of Common Stock, on the automatic grant date.
7.5. OPTION TERM. Each Option grant under this Section 7 shall have a
term of ten years measured from the automatic grant date, subject to earlier
termination in accordance with Section 7.7 below.
7.6. EXERCISABILITY AND VESTING. Each Option grant under this Section 7
shall vest and be exercisable for any or all of the shares subject thereto, as
follows.
7.6.1. INITIAL GRANT. The shares of Common Stock subject to each
Option granted pursuant to Section 7.2.1 shall vest and be exercisable in full
six months from the date of grant. The right to exercise such Options will
expire on the tenth anniversary of the date on which the Options were granted.
7.6.2. ANNUAL GRANT. The shares subject to each Option granted
pursuant to Section 7.2.2 shall vest and be exercisable on a cumulative basis as
to 3,750 shares beginning six months from the date of grant and 3,750 additional
shares of Common Stock beginning on the first anniversary of the date of grant.
The right to exercise such Options will expire on the tenth anniversary of the
date on which the Options were granted.
7.7. EFFECT OF TERMINATION OF BOARD SERVICE. Upon cessation of Service
as a non-employee Board member (for reasons other than retirement or death),
only those Options exercisable at the date of cessation of service shall be
exercisable by the non-employee Board member. Such Options shall be exercisable
for a period of three months from cessation of Service of the non-employee Board
member or the expiration of the Option, whichever period is shorter.
Upon the retirement or death of a non-employee Board member, Options
shall be exercisable as follows:
7.7.1 RETIREMENT. Upon retirement as a non-employee Board member
after the non-employee Board member 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 Board member.
7.7.2 DEATH. In the event of the death of a non-employee Board
member while a member of the Board, the Options granted to him or her shall be
exercisable, to the extent then exercisable, for a period of one year from the
date of the non-employee Board member's death, or until the expiration of the
Option, whichever period is shorter.
A-11
7.8. OTHER OPTION TERMS APPLY. Except to the extent inconsistent with
the terms of this Section 7, all Options granted pursuant to this Section 7
shall be subject to the terms and conditions of Sections 1 through 6 and
Sections 12 and 13 of the Plan.
SECTION 8. DISCRETIONARY OPTION GRANTS TO NON-EMPLOYEE DIRECTORS
8.1. OPTION GRANTS. The Committee, upon ratification by the Board,
shall have the authority to grant discretionary Non-Qualified Options to
non-employee Board members under this Section 8. Participants granted Options
under this Section 8 may be selected from among those non-employee Board members
who, in the opinion of the Committee and the Board, have the capacity to devote
themselves to the Company's success.
8.2. OPTION TERMS. Except to the extent inconsistent with the terms of
this Section 8, each Option granted pursuant to this Section 8 shall be a
Non-Qualified Option governed by the terms and conditions specified under
Sections 1 through 6 and 12 and 13 of the Plan.
8.2.1. EFFECT OF TERMINATION OF SERVICE. Subject to the
discretion of the Committee under Section 6.7.4, Section 7.7 of the Plan shall
apply to the termination of Options granted to non-employee Board members under
this Section 8, except that upon termination of the non-employee Board member's
Service for Misconduct, all outstanding Options held by the non-employee Board
member shall terminate immediately and cease to be outstanding.
SECTION 9. STOCK APPRECIATION RIGHTS
9.1. IN GENERAL. Subject to the terms of the Plan, the Committee and,
subject further to the delegating resolution, the persons authorized under
Section 3.2, are authorized to grant SARs to eligible individuals. Each granted
SAR shall be evidenced by an Award Agreement in the form that is approved by the
Committee and that is not inconsistent with the terms and conditions of the
Plan. The grant of an SAR provides the holder the right to receive the
appreciation in value of shares of Common Stock between the date of grant and
the date of exercise. SARs may be granted alone ("Stand-Alone SARs") or in
conjunction with all or part of any Option ("Tandem SARs"). In the case of a
Non-Qualified Option, a Tandem SAR may be granted either at or after the time of
the grant of such Option. In the case of an Incentive Stock Option, a Tandem SAR
may be granted only at the time of the grant of such Option.
9.2. EXERCISE. An SAR may be exercised by a Participant by giving
notice of intent to exercise to the Company to the extent that the SAR is then,
by its terms, exercisable. Upon the exercise of a Stand-Alone SAR, a Participant
will be entitled to receive, in either cash and/or shares of Common Stock, as
specified in the Award Agreement or determined by the Committee, an amount equal
to the excess, if any, of (a) the Fair Market Value, as of the date the SAR (or
portion thereof) is exercised, of the shares covered by the SAR (or portion
thereof) over (b) the Fair Market Value of the shares covered by the SAR (or a
portion thereof) as of the date the SAR was granted.
A-12
9.2.1. OTHER TERMS.
(a) Term of SAR. Unless otherwise provided in the
applicable Award Agreement at the time of grant, the term of an SAR will be ten
years, and in any event shall not exceed ten years.
(b) Exercisability. SARs will vest and become exercisable
at such time or times and subject to such terms and conditions as will be
determined by the Committee at the time of grant.
(c) Termination of Service. Unless otherwise provided by
the Committee at the time of grant, SARs will be subject to the terms of Section
6.7 with respect to exercise following termination of Service.
SECTION 10. RESTRICTED SHARES.
10.1. IN GENERAL. Subject to the other terms of the Plan, the Committee
and, subject further to the delegating resolution, the persons authorized under
Section 3.2 may grant Restricted Shares to eligible individuals and may impose
conditions, including continued employment or performance conditions, on such
shares as it deems appropriate. Each issued Restricted Share shall be evidenced
by an Award Agreement in the form that is approved by the Committee and that is
not inconsistent with the terms and conditions of the Plan. The terms and
conditions applicable to a Restricted Share issuance, including the vesting
periods and conditions, the form of consideration payable, if any, and the
Company's right to repurchase unvested Restricted Shares upon a Participant's
termination of employment shall be determined by the Committee; provided,
however, that in no event shall the grant, issuance, retention, vesting and/or
settlement of Restricted Shares that are based on performance criteria and level
of achievement versus such criteria be subject to a performance period of less
than one year and no condition that is based upon continued employment or the
passage of time shall provide for vesting or settlement in full of a Restricted
Share Award over a period of less than three years from the date the Award is
made, other than as determined by the Committee in its sole discretion upon a
Change in Control or upon the Participant's death or cessation of Service other
than for Misconduct.
10.2. STOCKHOLDER RIGHTS. The Participant shall have full stockholder
rights with respect to any shares of Common Stock issued to him or her as
Restricted Shares under the Plan, whether or not his or her interest in those
shares is vested. Accordingly, the Participant shall have the right to vote such
shares and to receive any regular cash dividends paid on such shares. Any new,
additional or different shares of stock or other property (including money paid
other than as a regular cash dividend) which the Participant may have the right
to receive with respect to his or her unvested shares by reason of any stock
dividend, stock split, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Company's receipt of consideration or by reason of any Change in Control,
shall be issued subject to (i) the same vesting requirements applicable to his
or her unvested shares and (ii) such escrow arrangements as the Committee shall
deem appropriate.
A-13
10.3. UNVESTED SHARES MAY BE ESCROWED. Unvested Restricted Shares,
including any unvested Restricted Shares purchased pursuant to the exercise of
an Option, may, in the Committee's discretion, be held in escrow by the Company
until the Participant's interest in such Restricted Shares vests or may be
issued directly to the Participant with restrictive legends on the certificates
evidencing such unvested shares.
10.4. TRANSFERABILITY OF SHARES. The Participant shall have no right to
transfer any unvested shares of Common Stock issued to him or her under this
Section 10. For purposes of this restriction, the term "transfer" shall include
(without limitation) any sale, pledge, assignment, encumbrance, gift or other
disposition of such shares, whether voluntary or involuntary. However, the
Participant shall have the right to make a gift of unvested shares issued to him
or her under this Section 10 to his or her spouse or issue, including adopted
children, or to a trust established for such spouse or issue, provided the
transferee of such shares delivers to the Company a written agreement to be
bound by all the provisions of the Plan, including without limitation this
Section 10, and the Award Agreement applicable to the gifted shares.
SECTION 11. RESTRICTED SHARE UNITS. Subject to the other terms of the Plan, the
Committee and, subject further to the delegating resolution, the persons
authorized under Section 3.2, may grant Restricted Share Units to eligible
individuals and may impose conditions, including continued employment or
performance conditions, on such units as it may deem appropriate. Each granted
Restricted Share Unit shall be evidenced by an Award Agreement in the form that
is approved by the Committee and that is not inconsistent with the terms and
conditions of the Plan. Each granted Restricted Share Unit shall entitle the
Participant to whom it is granted to a distribution from the Company in an
amount equal to the Fair Market Value (at the time of the distribution) of one
share of Common Stock. Distributions may be made in cash and/or shares of Common
Stock. All other terms governing Restricted Share Units, such as number of units
granted, vesting, performance criteria, if any, time and form of payment and
termination of units shall be set forth in the Award Agreement; provided,
however, that in no event shall the grant, issuance, retention, vesting and/or
settlement of Restricted Share Units that is based on performance criteria and
level of achievement versus such criteria be subject to a performance period of
less than one year and no condition that is based upon continued employment or
the passage of time shall provide for vesting or settlement in full of a
Restricted Share Award over a period of less than three years from the date the
Award is made, other than as determined by the Committee upon a Change in
Control or upon the Participant's death or cessation of Service other than for
Misconduct.
SECTION 12. CHANGE IN CONTROL. Notwithstanding anything to the contrary set
forth in this Plan, upon or in anticipation of any Change in Control, the Board
may (but shall not be required to), in its sole and absolute discretion and
without the need for the consent of any Optionee or Participant, take one or
more of the following actions contingent upon the occurrence of that Change in
Control:
A-14
12.1. cause any or all outstanding Options and SARs held by
Participants affected by the Change in Control to become fully vested and
immediately exercisable, in whole or in part;
12.2. cause any or all outstanding Restricted Shares and Restricted
Share Units held by Participants affected by the Change in Control to become
non-forfeitable, in whole or in part;
12.3. cancel any Option held by a Participant affected by the Change in
Control in exchange for an option to purchase common stock of any successor
corporation;
12.4. cancel any or all Restricted Shares or Restricted Share Units
held by Participants affected by the Change in Control in exchange for
restricted shares of or restricted share units in respect of the common stock of
any successor corporation;
12.5. redeem any or all Restricted Shares held by Participants affected
by the Change in Control for cash and/or other substitute consideration with a
value equal to the (a) the number of Restricted Shares to be redeemed multiplied
by (b) the Fair Market Value of an unrestricted share of Common Stock on the
date of the Change in Control;
12.6. cancel any Option or SAR held by a Participant affected by the
Change in Control in exchange for cash and/or other substitute consideration
with a value equal to (a) the number of shares subject to that Option or SAR,
multiplied by (b) the difference between the Fair Market Value per share of
Common Stock on the date of the Change in Control and the exercise price of that
Option or SAR; and
12.7. cancel any Restricted Share Unit held by a Participant affected
by the Change in Control in exchange for cash and/or other substitute
consideration with a value equal to (a) the number of Restricted Share Units,
multiplied by (b) the Fair Market Value per share of Common Stock on the date of
the Change in Control.
SECTION 13. MISCELLANEOUS PROVISIONS.
13.1. AMENDMENT AND TERMINATION OF THE PLAN AND AWARDS. Except as
provided herein, the Board has complete and exclusive power and authority to
amend, modify or terminate the Plan (or any component thereof) in any or all
respects whatsoever at any time. No such amendment, modification or termination
shall adversely affect the material economic rights with respect to Awards then
outstanding under the Plan, unless the Participant consents to such amendment,
modification or termination. In addition, the Board may not, without the
approval of the Company's stockholders, amend the Plan to (a) increase the total
number of shares reserved for the purposes of the Plan and the maximum number of
shares for which any one individual may be granted Awards for any given year
A-15
under the Plan, except for permitted adjustments under Section 5.4 of the Plan,
(b) change the persons or class of persons eligible to receive Awards, (c) other
than in connection with an adjustment under Section 5.4, reduce the exercise
price of outstanding Options (including canceling previously awarded Options and
regranting them with a lower exercise price), or (d) otherwise amend the Plan in
any manner requiring stockholder approval by law or under the listing
requirements of the NASDAQ National Market or other market or exchange on which
the Common Stock is at the time listed or admitted to trading.
13.2. TAX WITHHOLDING. No later than the date as of which an amount
first becomes includible in the gross income of the Participant for federal
income tax purposes with respect to any Award under the Plan, the Participant
will pay to the Company, or make arrangements satisfactory to the Board
regarding the payment of any federal, state or local taxes of any kind required
by law to be withheld with respect to such amount. If determined by the Board,
the minimum required withholding obligations may be settled with shares of
Common Stock, including shares of Common Stock that are part of the Award that
gives rise to the withholding requirement. The obligations of the Company under
the Plan will be conditioned on such payment or arrangements, and the Company
will, 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.
13.3. QUALIFYING PERFORMANCE-BASED COMPENSATION.
13.3.1 GENERAL. The Committee may establish performance criteria
and level of achievement versus such criteria that shall determine the number of
shares of Common Stock to be granted, retained, vested, issued or issuable under
or in settlement of or the amount payable pursuant to an Award, which criteria
may be based on Qualifying Performance Criteria or other standards of financial
performance and/or personal performance evaluations. In addition, the Committee
may specify a percentage of an Award that is intended to satisfy the
requirements for "performance-based compensation" under Section 162(m) of the
Code, provided that the performance criteria for any portion of an Award that is
intended by the Committee to satisfy the requirements for "performance-based
compensation" under Section 162(m) of the Code shall be a measure based on one
or more Qualifying Performance Criteria selected by the Committee and specified
in writing at the time the Award is granted not later than ninety (90) days
after the commencement of the period of service to which the performance goals
relates, provided that the outcome is substantially uncertain at that time. The
Committee shall certify the extent to which any Qualifying Performance Criteria
has been satisfied, and the amount payable as a result thereof, prior to
payment, settlement or vesting of any Award that is intended to satisfy the
requirements for "performance-based compensation" under Section 162(m) of the
Code. Notwithstanding satisfaction of any performance goals, the number of
shares of Common Stock issued under or the amount paid under an Award may, to
the extent specified in the Award Agreement, be reduced by the Committee on the
basis of such further considerations as the Committee in its sole discretion
shall determine.
A-16
13.3.2 QUALIFYING PERFORMANCE CRITERIA. For purposes of this
Plan, the term "Qualifying Performance Criteria" shall mean any one or more of
the following performance criteria, either individually, alternatively or in any
combination, applied to either the Company as a whole or to a business unit,
Subsidiary or business segment, either individually, alternatively or in any
combination, and measured either annually or cumulatively over a period of
years, on an absolute basis or relative to a pre-established target, to previous
years' results or to a designated comparison group, in each case as specified by
the Committee in the Award: (i) cash flow; (ii) earnings (including gross
margin, earnings before interest and taxes, earnings before taxes, and net
earnings); (iii) earnings per share; (iv) growth in earnings or earnings per
share; (v) stock price; (vi) return on equity or average stockholder's equity;
(vii) total stockholder return; (viii) return on capital; (ix) return on assets
or net assets; (x) return on investment; (xi) revenue; (xii) income or net
income; (xiii) operating income or net operating income; (xiv) operating profit
or net operating profit; (xv) operating margin; (xvi) return on operating
revenue; (xvii) market share; (xviii) contract awards or backlog; (xix) overhead
or other expense reduction; (xx) growth in stockholder value relative to the
moving average of a peer group index; (xxi) credit rating; (xxii) strategic plan
development and implementation; (xxiii) improvement in workforce diversity, and
(xxiv) any other similar criteria. The Committee may appropriately adjust any
evaluation of performance under a Qualifying Performance Criteria to exclude any
of the following events that occurs during a performance period: (A) asset
write-downs; (B) litigation or claim judgments or settlements; (C) the effect of
changes in tax law, accounting principles or other such laws or provisions
affecting reported results; (D) accruals for reorganization and restructuring
programs; and (E) any extraordinary non-recurring items as described in
Accounting Principles Board Opinion No. 30 and/or in management's discussion and
analysis of financial condition and results of operations appearing in the
Company's annual report to stockholders for the applicable year.
13.4. EFFECTIVE DATE AND TERM OF PLAN.
13.4.1. EFFECTIVE DATE. The Plan will become effective on the
Plan Effective Date (as defined in Section 1.2).
13.4.2. TERM OF THE PLAN. The Plan will continue in effect until
the 10th anniversary of the Plan Effective Date; provided that any Option that
is granted prior to such 10th anniversary may extend beyond that date.
13.5. NO EMPLOYMENT OR SERVICE RIGHTS. Neither the action of the
Company in establishing the Plan, nor any action taken by the Committee
hereunder, nor any provision of the Plan shall be construed so as to grant any
individual the right to remain in the employ or service of the Company (or any
Subsidiary) for any period of specific duration, and the Company (or any
Subsidiary retaining the services of such individual) may terminate such
individual's employment or service at any time and for any reason, with or
without Misconduct. Nothing in the Plan will 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.
A-17
13.6 UNFUNDED STATUS OF PLAN. The Plan is intended to be "unfunded."
With respect to any payments not yet made to a Participant by the Company,
nothing contained herein will give any such Participant 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 grantor trusts or other arrangements
to meet the obligations created under the Plan with respect to Awards.
13.7. REPRESENTATIONS; LEGENDS. The Board may require each Participant
to represent to and agree with the Company in writing that the Participant is
acquiring securities of the Company for investment purposes and without a view
to distribution thereof and as to such other matters as the Board believes are
appropriate. The certificate evidencing any Award and any securities issued
pursuant thereto may include any legend which the Board deems appropriate to
reflect any restrictions on transfer and compliance with securities laws.
13.8. REGULATORY MATTERS. The implementation of the Plan, the granting
of any Award under the Plan and the issuance of any shares under the Plan shall
be subject to the Company's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the Awards granted
under it, and the Common Stock issued pursuant to it. All certificates for
Common Stock or other securities delivered under the Plan shall be subject to
such share-transfer orders and other restrictions as the Board may deem
advisable under the rules, regulations, and other requirements of the Securities
Act of 1933, as amended, the Exchange Act, any stock exchange or automated
quotation system upon which the Common Stock is then listed or quoted, and any
other applicable federal or state securities laws.
13.9. INVALID PROVISIONS. In the event that any provision of the Plan
is found to be invalid or otherwise enforceable under any applicable law, such
invalidity or unenforceability shall not be construed as rendering any other
provision contained herein as invalid or unenforceable, and all such other
provisions shall be given full force and effect to the same extent as though the
invalid or unenforceable provision was not contained in the Plan.
13.10. BOARD ACTION. Notwithstanding anything to the contrary set forth
in the Plan, any and all actions of the Committee, taken under or in connection
with the Plan and any agreements, instruments, documents, certificates or other
writings entered into, executed, granted, issued and/or delivered pursuant to
the terms hereof, will be subject to and limited by any and all votes, consents,
approvals, waivers or other actions of all or certain stockholders of the
Company or other persons required by:
13.10.1. the Company's Certificate of Incorporation (as the same
may be amended and/or restated from time to time);
A-18
13.10.2. the Company's Bylaws (as the same may be amended and/or
restated from time to time); and
13.10.3. any other agreement, instrument, document or writing now
or hereafter existing, between or among the Company and its stockholders or
other persons (as the same may be amended from time to time).
13.11. GOVERNING LAW. The Plan and all Awards granted hereunder shall
be governed by and construed in accordance with the laws of the Commonwealth of
Pennsylvania without regard to the application of the principles of conflicts of
laws.
13.12. SUCCESSORS AND ASSIGNS. The provisions of the Plan shall inure
to the benefit of, and be binding upon, the Company and its successors or
assigns and the Participants and Optionees, the legal representatives of their
respective estates, their respective heirs or legatees and their permitted
assignees.
13.13. NOTICES. Any notice to be given to the Company pursuant to the
provisions of the Plan shall be addressed to the Company in care of its
Secretary (or such other person as the Company may designate from time to time)
at its principal executive office, and any notice to be given to a Participant
will be delivered personally or addressed to him or her at the address given
beneath his or her signature on his or her Award Agreement, or at such other
address as such Participant may hereafter designate in writing to the Company.
Any such notice will be deemed duly given on the date and at the time delivered
via personal, courier or recognized overnight delivery service or, if sent via
facsimile, on the date and at the time faxed with confirmation of delivery or,
if mailed, on the date five days after the date of the mailing (which will be by
regular, registered or certified mail). Delivery of a notice by telecopy (with
confirmation) will be permitted and will be considered delivery of a notice
notwithstanding that it is not an original that is received.
A-19
- --------------------------------------------------------------------------------
NEOWARE SYSTEMS, INC.
PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY
FOR THE ANNUAL MEETING OF STOCKHOLDERS, DECEMBER 1, 2004
The undersigned holder of Common Stock of Neoware Systems, Inc.
hereby appoints Keith D. Schneck 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 1, 2004, 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 Annual 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 EACH OF THE COMPANY'S PROPOSALS 2 AND 3,
ALL AS MORE PARTICULARLY DESCRIBED IN THE PROXY STATEMENT, AND WITH
DISCRETIONARY AUTHORITY ON SUCH OTHER MATTERS AS MAY COME BEFORE THE
ANNUAL MEETING. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
YOU VOTE TO APPROVE EACH OF THE COMPANY'S PROPOSALS 1, 2 AND 3.
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)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Board of Directors recommends voting FOR Proposals 1, 2 and 3
1. Election of Directors |_| FOR all nominees listed below |_| WITHHOLD
AUTHORITY to vote for all nominees listed below
Nominees: Michael G. Kantrowitz, John M. Ryan, Christopher G. McCann,
John P. Kirwin, III and David D. Gathman
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
2. Approve the 2004 Equity Incentive Plan.
|_|FOR |_| AGAINST |_| ABSTAIN
3. Ratify the selection of KPMG LLP as the Company's independent
registered public accounting firm.
|_|FOR |_| AGAINST |_| ABSTAIN
4. In their discretion, upon such other matters as may properly come
before the meeting.
VOTES MUST BE INDICATED [solid box]
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
- --------------------------------------------------------------------------------