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 / /

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/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only
(as permitted by Rule l4a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material under Rule 14a-12

NEOWARE SYSTEMS, INC.
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(Name of Registrant as Specified in Its Charter)

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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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NEOWARE SYSTEMS, INC.
400 FEHELEY DRIVE
KING OF PRUSSIA, PENNSYLVANIA 19406

October 28, 2005

TO OUR STOCKHOLDERS:

You are cordially invited to attend the Annual Meeting of Stockholders
to be held on Thursday, December 1, 2005, at 10:00 a.m., at the new offices of
the Company, 3200 Horizon 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.

Sincerely,

/s/ Michael Kantrowitz
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Michael Kantrowitz
Chairman, President and
Chief Executive Officer

NEOWARE SYSTEMS, INC.

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

DECEMBER 1, 2005

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TO THE STOCKHOLDERS:

The Annual Meeting of the Stockholders of Neoware Systems, Inc. (the
"Company"), a Delaware corporation, will be held on December 1, 2005, at 10:00
a.m., at the new offices of the Company, 3200 Horizon Drive, King of Prussia,
Pennsylvania, for the following purposes:

1. To elect seven directors of the Company.

2. To amend the Company's Certificate of Incorporation to change
the name of the Company from "Neoware Systems, Inc." to
"Neoware, Inc."

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, 2006.

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 25, 2005 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
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Keith D. Schneck
Chief Financial Officer and Secretary

King of Prussia, Pennsylvania
October 28, 2005

NEOWARE SYSTEMS, INC.

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PROXY STATEMENT

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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, 2005.

Stockholders of record at the close of business on October 25, 2005
will be entitled to vote at the Annual Meeting. At the close of business on
October 25, 2005, 16,303,546 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 31, 2005.

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. The amendment of the Company's Certificate
of Incorporation to change the Company's corporate name (Proposal 2) requires
the approval of a majority of the outstanding shares of Common Stock entitled to
vote at the meeting. The ratification of the selection of the independent public
accountants (Proposal 3) requires 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. Brokers are not precluded from voting uninstructed shares
on Proposals 2 and 3, and, therefore, there will be no broker non-votes on those
proposals. The New York Stock Exchange determines whether brokers have
discretionary authority to vote on a given proposal.

The cost of proxy solicitation, including the cost of reimbursing banks
and brokers for forwarding proxies and proxy statements to beneficial owners of
the Common Stock, will be paid by the Company. Proxies will be solicited without
extra compensation by certain officers and regular employees of the Company by
mail and, if found to be necessary, by telephone and personal interviews. All
shares represented by valid proxies will be voted.

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., 3200 Horizon
Drive (or if before November 7, 2005, 400 Feheley Drive), King of Prussia,
Pennsylvania 19046, Attention: Secretary.

PROPOSAL NO. 1
ELECTION OF DIRECTORS

The bylaws of the Company currently 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 seven for
the election of directors at the 2005 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. All of the nominees are currently serving
as directors except for Dennis Flanagan and Klaus P. Besier, who have been
nominated to fill two newly-created seats on the Board of Directors.

The names and biographical summaries of the seven 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 45 Chairman, President and Chief Executive
Officer
Klaus P. Besier 54 Nominee for Director
Dennis Flanagan 57 Nominee for Director
David D. Gathman(2) 58 Director
John P. Kirwin, III(1)(2)(3) 49 Director
Christopher G. McCann(3) 44 Director
John M. Ryan (1)(2)(3) 70 Director

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(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.

MR. BESIER served as President and Chief Executive Officer of FirePond,
Inc., a global provider of e-business solutions for managing multi-channel
selling, from 1997 until his retirement in December 2003 after the sale of the
company. Prior to joining FirePond, he served as President and Chief Executive
Officer of SAP America, Inc., the largest subsidiary of SAP AG, a provider of
business application software, from 1991 to 1996. Before joining SAP America,
Inc., Mr. Besier was General Manager and Corporate Vice President of a
subsidiary of Hoechst Celanese, a global chemicals and fiber conglomerate. He
holds a bachelor's degree in business management and finance from the University
of Economics in Berlin.

MR. FLANAGAN has been the Chief Operating Officer of The Ayers Group,
Inc., a provider of human resources services to Fortune 500 and financial
services companies, since January, 2004. Before joining The Ayers Group, Inc.,
Mr. Flanagan was President and Chief Executive Officer of Sengen, a custom
software development company, until its sale in 2003. From 1986 to 2001, Mr.
Flanagan served in numerous capacities within the sales, marketing and
operations enterprises, including his position as President of Oki Data America,
a subsidiary of Oki Data Corporation of Japan and a leading provider of
innovative products, services and solutions for the digital imaging and print
management needs of commercial entities. Mr. Flanagan is a trustee of Quinnipiac
University and the Samaritan Hospice and is a member if the CEO Council for
Growth in the Philadelphia region.

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 $300 million of capital, including Argosy Investment Partners,
L.P., Argosy Investment Partners II, L.P. and Argosy Investment Partners III,
L.P., which are small business investment companies with an aggregate of
approximately $200 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 a principal in Devon Hill Ventures, a venture investing and consulting
firm focusing on technology investments, since 1987, and is a director of
several privately-held information technology companies in which Devon Hill
Ventures has invested. 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., formerly a publicly-held computer services
company that has recently been taken private, and served as its Chairman and
Chief Executive Officer from 1976 to 1987.

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 12 meetings during the year ended June 30, 2005. 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 2004 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 six
meetings and the Audit Committee held eight meetings during the year ended June
30, 2005. The Governance and Nominating Committee held one meeting during the
2005 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 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:

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 At least annually, reviewing a report from the independent registered public
accounting firm describing their system of quality controls, which includes
the results of the most recent internal and external reviews 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 2005 fiscal year appears on
page 18 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:

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
under the Company's 2004 Equity Incentive Plan (the "Plan") upon a director's
initial election. Thereafter, under the Plan, non-employee directors receive an
automatic annual grant of options to purchase 7,500 shares of common stock.
Non-employee directors are also eligible to receive stock option grants at the
discretion of the Board of Directors. In addition, all non-employee members of
the Board received an annual fee of $6,000 for services as a member of the Board
during the 2005 fiscal year, $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 chairman of the Audit Committee
received an annual fee of $2,500, and the chairmen of the Compensation and Stock
Option Committee and the Governance and Nominating Committee each received an
annual fee of $1,000, for their services during the 2005 fiscal year as chairmen
in addition to the applicable meeting fees.

In October 2005, to reflect the increase in the workload and
responsibilities of directors as a result of recent legislation and to offer
competitive compensation in order to attract qualified directors, the
Compensation and Stock Option Committee approved the following changes effective
as of January 1, 2006 with respect to the cash compensation of non-employee
directors: all non-employee members of the Board will receive an annual fee of
$7,500 for services as a member of the Board, the chairman of the Audit
Committee will receive an annual fee of $5,000, and the chairmen of the
Compensation and Stock Option Committee and the Governance and Nominating
Committee each will receive an annual fee of $1,500, for his services during the
2005 fiscal year as chairman in addition to the applicable meeting fees.

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 3200
Horizon 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 bylaws,
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.

PROPOSAL NO. 2
AMENDMENT OF CERTIFICATE OF INCORPORATION
TO CHANGE THE NAME OF THE COMPANY

The Board of Directors is proposing to amend the Company's Certificate
of Incorporation, as amended, in order to change the Company's corporate name
from "Neoware Systems, Inc." to "Neoware, Inc." The Board believes that the
change in corporate name to "Neoware, Inc." will better reflect the present
scope of the business and operations of the Company and its evolution from a
hardware oriented provider of thin client systems to a supplier of enterprise
software, thin client appliances and related services, while allowing the
Company to maintain its name recognition among customers and the general public.

The affirmative vote of a majority of outstanding shares of the
Company's Common Stock entitled to vote is required to approve the proposed
amendment to the Company's Certificate of Incorporation. If approved by the
stockholders, the amendment to change the corporate name to "Neoware, Inc." will
be effected by the filing of an amendment to the Company's Certificate of
Incorporation with the Secretary of the State of Delaware at the earliest
appropriate time consistent with an orderly transition to the new name. The
change of corporate name will be accomplished by amending Article First of the
Company's Certificate of Incorporation to read as follows:

"First: The name of the Corporation is Neoware, Inc."

If the proposed name change is approved and effected, it will not be
necessary for stockholders of the Company to exchange outstanding stock
certificates. The Company's common stock is traded on The NASDAQ National Market
and if the proposal is approved and effected, the symbol under which the
Company's common stock is traded will remain "NWRE."

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION TO CHANGE THE CORPORATE
NAME OF THE COMPANY.

EXECUTIVE COMPENSATION

The following table sets forth certain information concerning the
compensation paid for the fiscal years ended June 30, 2005, 2004 and 2003 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 and one additional individual who was an executive officer of
the Company for a portion of the 2005 fiscal year (but not as of the fiscal 2005
year end) whose total salary and bonus earned during the 2005 fiscal year
exceeded $100,000.

SUMMARY COMPENSATION TABLE

LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------ ---------------------------------------
SECURITIES
NAME AND FISCAL OTHER ANNUAL UNDERLYING ALL OTHER COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) ($)
------------------ ------ --------- -------- --------------- ---------- ----------------------

Michael G. Kantrowitz 2005 338,000 253,500 (1) 100,000 1,330 (2)
Chairman, President and 2004 323,861 81,250 50,000 1,330 (2)
Chief Executive Officer 2003 275,630 137,815 100,000 1,000 (3)

Eric N. Rubino 2005 260,000 195,000 (1) 90,000 1,360 (4)
Chief Operating Officer 2004 240,385 62,500 30,000 1,360 (4)
2003 107,692 58,333 165,000 1,000 (3)

Matthew D. Wrabley 2005 208,000 104,000 (1) 25,000 1,180 (5)
Executive Vice President 2004 192,308 45,000 30,000 1,180 (5)
of Business Development 2003 151,379 60,000 50,000 1,000 (3)

Keith D. Schneck(6) 2005 192,400 144,300 (1) 40,000 1,373 (7)
Executive Vice President 2004 185,000 46,250 -- 1,182 (8)
and Chief Financial 2003 28,462 15,417 75,000 --
Officer

Peter Bolton 2005 328,669(11) 30,000(11) (1) 25,000 18,067 (10) (11)
Executive Vice President 2004 309,591(11) -- 30,000 16,317 (10) (11)
of EMEA(9) 2003 264,304(11) -- 20,000 9,287 (10) (11)

- ------------------
(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 $373 paid for the benefit of Mr.
Schneck.

(8) 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.
Schneck.

(9) Mr. Bolton became an executive officer on August 4, 2004.

(10) Consists of amounts contributed by the Company under its U.K. defined
contribution plan.

(11) Mr. Bolton's compensation is paid in British pounds sterling and is
reported in this table in U.S. dollars based on the average daily exchange
rate in effect during the applicable fiscal year.

OPTION GRANTS IN 2005 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 IN EXERCISE
OPTIONS FISCAL PRICE EXPIRATION
NAME GRANTED (#)(2) YEAR ($/SH) DATE 5%($) 10%($)
- ---------------------------- -------------- ------------ --------- ------------- ----- ------

Michael G. Kantrowitz 100,000 10.1 9.26 12/01/2014 582,356 1,475,805

Eric N. Rubino 20,000 2.0 6.48 08/04/2014 81,505 206,549
70,000 7.0 9.26 12/01/2014 407,649 1,033,063

Matthew D. Wrabley 25,000 2.5 9.26 12/01/2014 145,589 368,952

Keith D. Schneck 15,000 1.5 6.48 08/04/2014 61,128 154,912
25,000 2.5 9.26 12/01/2014 145,589 368,952

Peter Bolton (3) 25,000 2.5 9.26 12/01/2014 145,589 368,952

- ------------------

(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. Bolton became an executive officer on August 4, 2004.

AGGREGATED OPTION EXERCISES DURING 2005 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 2005 and the number of the
Company's options held at fiscal year-end.

NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END (#) AT FISCAL YEAR END ($)(3)
SHARES ACQUIRED VALUE ------------------------------ ------------------------------
NAME ON EXERCISE(#) REALIZED($)(1) EXERCISABLE(2) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------- --------------- -------------- -------------- ------------- ----------- -------------

Michael G. Kantrowitz 230,000 1,448,767 157,500 102,500 59,700 117,900

Eric N. Rubino -0- -0- 182,500 102,500 -0- 143,800

Matthew D. Wrabley 12,500 113,125 80,000 37,500 -0- 121,875

Keith D. Schneck -0- -0- 37,499 77,501 -0- 80,900

Peter Bolton (4) 18,750 231,900 50,000 25,000 -0- 24,500

- ------------------

(1) Represents the difference between the option exercise price and the market
value on the date of exercise.

(2) On May 13, 2005, the Board of Directors of the Company, upon recommendation
of the Compensation and Stock Option Committee, approved the acceleration of
the vesting of "underwater" unvested stock options held by certain
employees, including executive officers. A stock option was considered
"underwater" if the option exercise price was greater than $14.00 per share.
The closing price per share of the Common Stock ranged from approximately
$8.26 to $12.23 during the six-month period prior to May 13, 2005. The
following amounts of "underwater" options included in the column above were
subject to acceleration and became exercisable on May 13, 2005 with respect
to these named executive officers: Mr. Kantrowitz, 87,500; Mr. Rubino,
92,500; Mr. Wrabley, 47,500; and Mr. Bolton, 32,500.

(3) Value based on the closing price of $10.24 per share on June 30, 2005, less
the option exercise price.

(4) Mr. Bolton became an executive officer on August 4, 2004.

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 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. 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.

In October 2005, the Company entered into a new employment agreement
with Mr. Kantrowitz, which provides for an initial annual salary of $351,520 and
an annual bonus of up to 75% of his base salary or greater at the option of, and
as determined by, the Board of Directors. Mr. Kantrowitz will continue to be
provided with an automobile, at the Company's expense. Under the agreement, Mr.
Kantrowitz is entitled to severance benefits equal to his salary and health
benefits and use of his Company-provided automobile for a period of 18 months,
and one and one-half times his average annual bonus earned over the prior three
fiscal years in the event of his involuntary termination for reasons other than
cause or upon any change in his position as Chief Executive Officer. The Company
has also agreed that in the event of a change of control in the Company, if Mr.
Kantrowitz is not offered employment by the Company or the acquirer 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, continuation of his health
benefits (or cash in lieu thereof) and use of his Company-provided automobile
for 18 months, and to one and one-half times his average annual bonus earned
over the prior three fiscal years and 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 or, if Mr. Kantrowitz is not entitled under the agreement to the
payments described above for such 18-month period, for a period on six months
after termination of his employment with the Company.

Change of Control and Separation Arrangements

Under their offers of employment with the Company, Mr. Rubino, Mr.
Wrabley, Mr. Schneck and Mr. Bolton are entitled to a continuation of salary and
benefits for a period of one year and the payment of the average amount of their
respective annual bonuses over the prior three-year period if they are not
offered continued employment in the event of a change in control of the Company.

Options granted under the Company's the 2004 Equity Incentive Plan,
1995 Stock Option Plan and 2002 Non-Qualified Stock Option 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.

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
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, gains in market share, and
strategic objectives such as entering geographic markets or acquisition of
businesses or technologies. 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 2005 fiscal year, the executive officers of the Company were
eligible for incentive compensation under the Company's 2005 Executive Bonus
Plan, consisting of bonuses, based principally on the Company achieving revenue
and income targets. At the beginning of the fiscal year, the Committee set
threshold levels of revenues and income based on annual performance objectives
and the prior year's performance, which were required to be attained for bonuses
to be awarded. Under the 2005 Executive Bonus Plan, each executive officer's
eligible bonus percentage to be awarded if the Company meets its revenue and
income goals for the fiscal year, which was initially set at 50% of each
executive officer's base salary, was determined by the Committee after
considering both the Company's financial performance and the executive officer's
individual performance. The eligible bonus percentage may be adjusted upward or
downward by the Committee if the Company's revenue and net income results for
the fiscal year are higher or lower, as the case may be, than the previously
established targets or based on the individual's performance. During the 2005
fiscal year, the Company attained its revenue and income targets and other
operating goals. As a result, the Committee approved cash bonuses under the 2005
Executive Bonus Plan for each of the executive officers, as follows: Roy
Zatcoff, who joined the Company as Executive Vice President in March 2005, Mr.
Bolton and Mr. Wrabley were awarded their full eligible bonus percentages (in
the case of Mr. Zatcoff, pro rated based upon the number of days during the
fiscal year in which he was eligible to receive awards under the 2005 Executive
Bonus Plan); and Mr. Kantrowitz, Mr. Rubino, and Mr. Schneck were awarded
bonuses equal to 150% of their full eligible bonus percentages. The Committee
increased the bonus percentages for Messrs. Kantrowitz, Rubino and Schneck in
the exercise of its sole discretion based upon the executives' individual
performance relating to the completion and integration of four acquisitions
during the fiscal year.

LONG-TERM COMPENSATION

During the 2005 fiscal year, long-term incentives were provided through
the grant of stock options under the Company's 2004 Equity Incentive Plan, 2002
Non-Qualified Stock Option Plan and 1995 Stock Option Plan. The Committee
reviewed and approved the participation of executive officers of the Company
under the Company's plans. The Committee has the authority to determine the
individuals to whom stock options or other equity-based compensation are
awarded, the terms of the awards and the number of shares subject to each award.
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
periodically 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.

On May 13, 2005, the Board of Directors, upon recommendation of the
Compensation and Stock Option Committee, approved the acceleration of the
vesting of "underwater" unvested stock options held by certain employees of the
Company, including executive officers. A stock option was considered
"underwater" at the time if the option exercise price of the stock option was
greater than $14.00 per share. The closing price per share of the Common Stock
ranged from approximately $8.26 to $12.23 during the six-month period prior to
May 13, 2005. Options to purchase approximately 532,376 shares became
exercisable on May 13, 2005, representing approximately 23% of the total options
outstanding, as a result of the vesting acceleration. Of those 532,376 options,
approximately 70% were scheduled to vest over the next 18 months.

The decision to accelerate vesting of these underwater stock options
was made by the Board primarily to preclude recognizing compensation cost in the
Consolidated Statement of Income in the future upon the Company's adoption of
Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based
Payment" ("SFAS 123R"), which was adopted by the Company as of July 1, 2005.
SFAS 123R requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the Company's financial statements
based on their fair values over the applicable vesting periods. Additionally,
the Company believed that underwater stock options did not offer affected
employees sufficient incentive when compared to the potential future
compensation expense that would have been attributable to these stock options.
The Board of Directors has reviewed the newly adopted requirements to expense
stock options and has determined that it will continue to grant stock options as
a form of long term compensation for employees because the Board believes stock
options provide the most effective incentive to employees to remain with the
Company and contribute to the continued improvement and growth of its
operations.

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. In October 2005, the
Company entered into a new employment agreement with Mr. Kantrowitz, which
provides for an initial annual salary of $351,520 and an annual bonus of up to
75% of his base salary or greater at the option of, and as determined by, the
Board of Directors.

For the 2005 fiscal year, Mr. Kantrowitz's base salary was increased to
$338,000. The Committee determined the amount of his base salary increase after
considering the Company's revenue growth and profitability relative to 2005
fiscal year goals, gains in market share and unit volume growth with respect to
sales of the Company's products and services, the Company's success in acquiring
technologies and businesses and integrating these into existing operations, the
Company's success in expanding international sales, marketing and development
capabilities and the Company's performance relative to an increase in spending
on information technology. The Company also considered Mr. Kantrowitz's
contributions to the growth and performance of the Company in the areas
described above, his ability to attract, motivate and retain qualified
management level personnel and to develop a strategic vision for the future
operations and direction of the Company, and the compensation level of chief
executive officers at businesses of similar size, including comparable
technology companies. At the end of the 2005 fiscal year, Mr. Kantrowitz was
awarded a bonus of $253,500, equal to 75% of his base salary, based on the
Company's 2005 fiscal year revenue and income goals and Mr. Kantrowitz's
individual performance and contributions with respect to such goals in
accordance with the Company's 2005 Executive Bonus Plan. In addition, at the
beginning of the 2005 fiscal year, Mr. Kantrowitz was granted options to acquire
100,000 shares of common stock at the fair market value of the shares on the
date of grant under the Company's 2004 Equity Incentive Plan, based on the
Company's performance in its 2004 fiscal year.

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 2005 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.

AUDIT COMMITTEE REPORT

The Audit Committee has reviewed and discussed with the Company's
management and its independent registered public accounting firm the audited
consolidated financial statements of the Company contained in the Company's
Annual Report on Form 10-K for the Company's 2005 fiscal year. The Audit
Committee has also discussed and reviewed with the independent registered public
accounting firm its judgment as to the quality of the Company's application of,
and the matters required to be discussed pursuant to, SAS No. 61, "Communication
with Audit Committees," which matters include, among other items, the conduct of
the audit of the Company's consolidated financial statements.

The Committee discussed with both the Company's management and
independent registered public accounting firm the overall scope and plans for
their respective audits. The Audit Committee periodically met with management
and the independent registered public accounting firm, with and without
management present, to discuss the results of their audits, evaluations of the
Company's internal control over financial reporting and the 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 reviews 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 2005 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
2006 fiscal year.

Audit Committee of the Board or Directors

David D. Gathman, Chairman
John M. Ryan
John P. Kirwin, III

PERFORMANCE GRAPH

The following graph compares the cumulative total return on the
Company's Common Stock for the period July 1, 2000 to June 30, 2005 with similar
returns for the (i) S&P Information Technology Index 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
------------------------------------------------------------------
6/00 6/01 6/02 6/03 6/04 6/05

NEOWARE SYSTEMS, INC. 100.00 83.20 362.88 490.88 264.64 327.68
S & P 500 100.00 85.17 69.85 70.03 83.41 88.68
S & P INFORMATION TECHNOLOGY 100.00 47.76 29.12 31.30 39.26 37.88

*$100 invested on 6/30/00 in stock or index-including reinvestment of dividends.
Fiscal year ending June 30.

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, 2005, 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.

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 September 30, 2005
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
- ---------------------- ------------------ ------------------

Royce & Associates, LLC
1414 Avenue of the Americas
New York, NY 10019.............................. 1,580,923 (1) 9.8

Putnam, LLC
One Post Office Square
Boston, MA 02109................................ 1,208,495 (2) 7.5

Discovery Equity Partners, L.P
71 South Wacker Drive, 24th Floor
Chicago, IL 60606.............................. 1,181,300 (3) 7.3

FMR Corp.
82 Devonshire Street
Boston, MA 02109................................ 976,300 (4) 6.0

Michael G. Kantrowitz........................... 341,507 (5) 2.1

Klaus P. Besier (6)............................. -0- *

Dennis Flanagan (7)............................. -0- *

Christopher G. McCann .......................... 21,249 (5) *

John M. Ryan ................................... 71,249 (5) *

John P. Kirwin, III ............................ 28,249 (5) *

David D. Gathman ............................... 28,849 (5)(8) *

NUMBER OF SHARES PERCENTAGE
PRINCIPAL STOCKHOLDERS BENEFICIALLY OWNED BENEFICIALLY OWNED
- ---------------------- ------------------ ------------------

Eric N. Rubino ................................. 187,500 (5) 1.1

Matthew D. Wrabley ............................. 92,500 (5) *

Keith D. Schneck ............................... 43,248 (5) *

Peter Bolton.................................... 50,000 (5) *

All executive officers and directors
as a group (12 persons)......................... 863,751 (5) 5.1

- -------------------
* Less than 1%

(1) Royce & Associates, LLC filed a Schedule 13G on February 1, 2005, upon
which the Company has relied in making this disclosure. Royce &
Associates, LLC has sole voting power and sole dispositive power as to
all 1,580,923 shares.

(2) Putnam, LLC filed a Schedule 13G on February 11, 2005, upon which the
Company has relied in making this disclosure. Putnam, LLC wholly owns two
registered investments advisors - Putnam Investments Management, LLC and
The Putnam Advisory Company, LLC. Putnam, LLC has shared voting power
with The Putnam Advisory Company, LLC as to 597,895 shares and shared
dispositive power with The Putnam Advisory Company, LLC (706,495 shares)
and Putnam Investments Management, LLC (502,000 shares) as to all
1,208,495 shares.

(3) Discovery Equity Partners, L.P. filed a Schedule 13G on April 13, 2005,
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 1,007,644 shares with Discovery Group I, LLC, its general
partner, and Daniel J. Donoghue and Michael R. Murphy, managing members
of Discovery Group I, LLC. Discovery Group I, LLC, Mr. Donoghue and Mr.
Murphy have shared voting power and shared dispositive power as to all
1,181,300 shares.

(4) FMR Corp. filed a Schedule 13G on February 14, 2005, upon which the
Company has relied in making this disclosure. FMR Corp. wholly owns
Fidelity Management & Research Company, an investment advisor to various
investment companies that comprise the Fidelity Funds that own the shares
of the Company's Common Stock. Edward C. Johnson III, Chairman of FMR
Corp., and Abigail P. Johnson, a director of FMR Corp., together own
36.5% of the outstanding voting common stock of FMR Corp., and along with
other members of their family, collectively own 49% of the voting power
of FMR Corp. The power to vote or direct the voting of the shares of
Common Stock held by the Fidelity Funds resides with the board of
trustees of the Fidelity Funds. FMR Corp has shared dispositive power
with Mr. Johnson and Ms. Johnson as to all 976,300 shares.

(5) Includes options exercisable within 60 days of September 30, 2005 to
purchase the Company's Common Stock issued pursuant to the Company's 1995

Stock Option Plan, 2002 Non-Qualified Stock Option Plan or 2004 Equity
Incentive Plan: Mr. Kantrowitz, 160,000 shares; Mr. McCann, 21,249
shares; Mr. Ryan, 21,249 shares; Mr. Kirwin, 26,249 shares; Mr. Gathman,
26,249 shares; Mr. Rubino, 187,500 shares; Mr. Wrabley, 92,500 shares;
Mr. Schneck, 41,248 shares; Mr. Bolton, 50,000 and all executive officers
and directors as a group, 626,244 shares.

(6) Mr. Besier is a nominee for director.

(7) Mr. Flanagan is a nominee for director.

(8) Mr. Gathman beneficially owns 2,600 shares of Common Stock jointly with
his wife.

PROPOSAL NO. 3
RATIFICATION OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee has selected the firm of KPMG LLP as the Company's
independent registered public accounting firm for the fiscal year ending June
30, 2006. 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 2005 and 2004 fiscal years:

2005 2004
------------ --------

Audit Fees ............................. $545,730 $249,220
Audit-Related Fees ..................... $ -- $ --
Tax Fees................................ $ 37,000 $155,300
All Other Fees ......................... $ 43,243 $259,545

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 work associated with issuing the independent registered accounting
firm's audit report on the Company's internal controls over financial
reporting.

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 the 2005 and 2004 fiscal years there were
no Audit-Related Fees paid to the Company's independent registered public
accounting firm.

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 2005 and 2004 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.

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 2005 fiscal
year.

In the 2005 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 THE COMPANY'S INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM.

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 29, 2006 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 11, 2006.

NEOWARE SYSTEMS, INC.
PROXY

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY
FOR THE ANNUAL MEETING OF STOCKHOLDERS, DECEMBER 1, 2005

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 Thursday, December 1,
2005, at the Company's offices at 3200 Horizon 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

WITHHOLD AUTHORITY
1. Election of Directors [ ] FOR all nominees [ ] to vote for all nominees
listed below listed below

Nominees: Michael G. Kantrowitz, Klaus P. Besier, Dennis Flanagan,
David D. Gathman, John P. Kirwin, III, Christopher G. McCann
and John M. Ryan.

(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)

- --------------------------------------------------------------------------------

2. Approve the amendment to the Company's Certificate of Incorporation to change
the Company's corporate name.

[ ] 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 [X] 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