<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
AMENDMENT NO. 1
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-27988
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MICROWARE SYSTEMS CORPORATION
(Exact name of Registrant as specified in its charter)
---------------------------------
IOWA 42-1073916
------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
1500 N.W. 118th St. 50325
DES MOINES, IOWA ----------
------------------------------- (Zip Code)
(Address of principal executive
offices)
(515) 223-8000
-----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or in any amendment to
this Form 10-K. /X/
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PURPOSE OF AMENDMENT
The registrant has determined to furnish the information required in Part III of
its Annual Report on Form 10-K for the fiscal year ended March 31, 2000 rather
than to incorporate it by reference to information to be contained in the
registrant's definitive proxy statement. The registrant hereby amends Part III
of the Annual Report on Form 10-K as follows to include the information required
by Part III.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Kenneth B. Kaplan 47 President, Chief Executive Officer and
Chairman of the Board of Directors
George E. Leonard 59 Executive Vice President, Chief Financial
Officer, Chief Operating Officer,
Treasurer, Secretary and Director
Arthur Don 47 Director
James A. Gordon 50 Director
Daniel P. Howell 47 Director
Dennis E. Young 57 Director
James H. Boswell 50 Vice President of Sales
Beth E. Law 36 Chief Accounting Officer, Controller,
Assistant Treasurer and Assistant Secretary
</TABLE>
Mr. Kaplan has served as President and Chief Executive Officer of the
Company since he co-founded it in 1977. Mr. Kaplan was one of the principal
designers of the OS-9 real-time operating system. Mr. Kaplan is a member of the
boards of directors of the Interactive Multimedia Association and is a Trustee
of Drake University and Buena Vista University. Mr. Kaplan attended Drake
University.
Mr. Leonard joined the Company in August 1998 as Executive Vice
President, Chief Financial Officer, Treasurer and Secretary. Mr. Leonard was
appointed Chief Operating Officer and a director on May 16, 2000. Prior to
joining the Company, from July 1996 to July 1998, Mr. Leonard was the Vice
President and Chief Financial Officer and a director of Western Pacific
Airlines, based in Colorado Springs, Colorado. Western Pacific Airlines filed
for bankruptcy protection under Chapter 11 on October 4, 1997 and converted its
filing to Chapter 7 in July 1998. Mr. Leonard also served as Chairman and Chief
Executive Officer of Consumer Guaranty Corporation of Phoenix, Arizona,
President and CEO of GEL Management Corporation, Chairman and Chief Executive
Officer of AmBank Holding Company, and Executive Vice President, Chief Financial
Officer, Chief Lending Officer and Chief Banking Officer, and a Director of
MeraBank from 1975 to 1996. Mr. Leonard holds a B.S. degree from the United
States Naval Academy and an M.B.A from the University of Chicago.
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Mr. Don has been a member of the law firm of D'Ancona & Pflaum LLC,
Chicago, Illinois, counsel to the Company, since 1985.
Mr. Gordon currently is President of Gordon Management, Inc., an
investment management company based in Chicago, Illinois, which was founded in
1992. Gordon Management, Inc. serves as the General of Partner of Edgewater
Private Equity Fund II, L.P., and Edgewater Private Equity Fund III, L.P.,
venture capital partnerships. From 1971 to 1992, Mr. Gordon was the President of
Gordon Wholesalers, Inc., a grocery and tobacco wholesaler.
Mr. Howell is Senior Managing Director of Mesirow Private Equity
Investments, Inc., an affiliate of the corporate general partner of Mesirow
Capital Partners VI, a venture capital partnership. Mr. Howell also is currently
a director of IMNET Systems, Inc.
Mr. Young is Executive Vice President and Chief Financial Officer and a
director of Wells Fargo Financial, Inc., formerly Norwest Financial, Inc, a
financial services firm headquartered in Des Moines, Iowa, which he joined in
1984.
Mr. Boswell joined the Company in February 1999 as Vice President of
Sales. From November 1995 until joining the Company, Mr. Boswell served with
Paradigm Technology, Inc. of Milpitas, California, where he was successively
Director of Marketing and Vice President of Sales and Marketing. From April 1994
to November 1995, Mr. Boswell was a Strategic Sales Manager with Sharp
Microelectronics of San Jose, California. From 1989 to 1994 Mr. Boswell held
various positions with Hitachi America, Ltd., including Regional Sales Manager.
Mr. Boswell has held other electronics sales, marketing, and operations
positions with LSI Logic, Advanced Micro Devices, and Hewlett Packard. Mr.
Boswell holds a B.S. degree from the University of New Mexico and an M.B.A. from
the University of Arizona.
Mrs. Law has served as Chief Accounting Officer, Controller and
Assistant Treasurer of the Company since February 2000. Prior to joining the
Company, Mrs. Law worked for Network Six, Inc., a systems integrator based in
Warwick, Rhode Island. Mrs. Law is a Certified Public Accountant, and holds a
B.S. degree from the University of Rhode Island.
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ITEM 11. EXECUTIVE COMPENSATION
The following summary compensation table sets forth information
concerning all compensation awarded, earned, or paid by the Company during its
fiscal years ended March 31, 2000, 1999 and 1998 to (a) the Company's Chief
Executive Officer, (b) the two most highly compensated executive officers other
than the CEO who were serving as executive officers as of March 31, 2000, and
(c) individuals for whom disclosure would have been required but for the fact
that they were not serving as executive officers at March 31, 2000 (the "Named
Executives").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL
COMPENSATION ($) ALL OTHER
SALARY BONUS (1) COMPENSATION ($)
------ --------- ----------------
<S> <C> <C> <C>
KENNETH B. KAPLAN 2000 185,000 4,978 (2)(3)
Chairman of the Board of 1999 185,000 4,411 (2)(3)
Directors
President and Chief 1998 185,000 6,593 (2)(3)
Executive Officer
M. DENIS CONNAGHAN (4) 2000 83,075 33,030 (5)
Former Executive Vice 1999 200,000 769 (6)
President,
Chief Operating Officer and 1998 174,000 9,000 90,600 (7)
Secretary
MARTIN ALLEN(8) 2000 161,738 54,528
Former Managing Director 1999 132,272 128,142
European Operations 1998 131,776 32,944
SHIGEHIRO ISHIBASHI (9) 2000 216,039 42,554 (10)
Former President and 1999 195,500
Representative
Director, Microware Systems 1998 54,725
Kabushiki Kaisha
GEORGE E. LEONARD (11) 2000 150,000 75,009 (7)(2)
Executive President, Chief 1999 87,500
Operating Officer, and Chief
Financial Officer
JAMES H. BOSWELL (12) 2000 150,000 83,186 5,604 (2)
Vice President of Sales 1999 13,269 18,800 32 (6)
</TABLE>
(1) Includes bonus and/or sales commission earned in respective fiscal years.
(2) Other compensation includes 401(k) plan-matching contributions, life
insurance premiums.
(3) Includes personal tax preparation services paid by the Company.
(4) Mr. Connaghan resigned from the Company on July 21, 1999.
(5) Represents severance payments paid by the Company.
(6) Represents life insurance premiums paid by the Company.
(7) Represents relocation expenses and related taxes paid by the Company
(8) Mr. Allen resigned from the Company on May 10, 2000.
(9) Mr. Ishibashi resigned from the Company on March 1, 2000.
(10) Represents separation payment paid by the Company.
(11) Mr. Leonard joined the Company on August 31, 1998.
(12) Mr. Boswell joined the Company on February 17, 1999.
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BOARD OF DIRECTORS
TERMS
The Board of Directors of the Company is divided into three classes of
directors serving staggered three-year terms.
Class I Directors. The following persons serve as Class I directors
with their term expiring at the annual meeting to be held following March 31,
2002: Kenneth B. Kaplan and Daniel P. Howell. Martin Allen resigned his position
with the Company and as a director, effective May 10, 2000. George E. Leonard
has been appointed to fill the vacancy left by Mr. Allen's resignation, and will
serve in this capacity until he stands for election at the next annual meeting
of the shareholders.
Class II Directors. The following person serves as a Class II director
with his term expiring at the annual meeting to be held following March 31,
2000: James A. Gordon. Robert W. Bigony resigned his seat on the Company's board
effective November 11, 1999. This vacancy remains unfilled.
Class III Directors. The following persons serve as a Class III
director with their term expiring at the annual meeting to be held following
March 31, 2001: Arthur Don and Dennis E. Young.
DIRECTOR COMMITTEES
The Board of Directors has established an Executive Committee, an Audit
Committee and a Compensation Committee.
The Executive committee is empowered to act with all authority granted
to the Board of Directors between meetings, except with respect to those matters
required by Iowa law or by the Company's By-Laws to be subject to the power and
authority of the full Board of Directors. Messrs. Kaplan(Chair) and Gordon
currently serve on the Executive Committee.
The Audit Committee's functions are to recommend annually to the Board
of Directors the appointment of the independent public accountants of the
Company, to discuss and review the scope and the fees of the prospective annual
audit and to review the results therof with the Company's independent public
accountants, to review and approve non-audit services of the independent public
accountants, to review compliance with existing major accounting and financial
policies of the Company, to review the adequacy of the financial organization of
the Company, and to review management's procedures and policies relative to the
adequacy of the Company's internal accounting controls. Messrs Young(Chair),
Gordon, and Howell currently serve on the Audit Committee.
The Compensation Committee's functions are to review and approve annual
salaries and bonuses for all executive officers, to review, approve and
recommend to the Board the terms and conditions of all employee benefit plans or
changes thereto and to administer the Corporation's various stock option plans.
Messrs. Howell(Chair) and Gordon currently serve on the Compensation Committee.
DIRECTORS' COMPENSATION
Non-employee Directors are entitled to be paid $1,000 for attendance at
each committee or Board of Directors meeting attended in person, up to an amount
not to exceed $5,000 per year. All Directors are reimbursed for travel expenses
incurred in attending meetings of the Board of Directors. Certain Directors are
also eligible to receive grants of stock options.
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EMPLOYMENT AGREEMENTS
GEORGE E. LEONARD
In September of 1999, the Company entered into an employment agreement
with Mr. Leonard whereby he agreed to serve as Chief Financial Officer of the
Company. This agreement is effective until March 31, 2001, and is automatically
extended for additional one-year periods ending on March 31, unless terminated
by either party in accordance with the agreement. Pursuant to this agreement,
Mr. Leonard earns a base salary of $150,000 per year. Mr. Leonard's employment
agreement provides that, in the event Mr. Leonard's employment is involuntarily
terminated as a result of a change of control of the Company, he will be
entitled to a severance payment equal to one year of his base salary.
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OPTIONS
The following tables provide certain information concerning options
granted to, exercised by and held by each Named Executive Officer of the Company
at March 31, 2000 under the Company's 1991, 1992 and 1995 stock option plans.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF % OF OPTIONS POTENTIAL REALIZABLE VALUE
SHARES GRANTED TO OF ASSUMED ANNUAL RATES OF
UNDERLYING EMPLOYEES IN EXERCISE OR BASE STOCK APPRECIATION FOR
OPTIONS FISCAL PRICE EXPIRATION OPTION TERM
NAME GRANTED(#) YEAR ($ PER SHARE) DATE 5%($) 10%($)
---- ---------- ---- ------------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Kenneth B. Kaplan 0 N/A N/A N/A N/A N/A
George E. Leonard 80,000 13.97% 1.56 9/30/2009 78,486 198,899
</TABLE>
AGGREGATED OPTION EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE($) AT MARCH 31, 2000 MARCH 31, 2000($)(*)
NAME EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth B. Kaplan 0 N/A 0 0 N/A N/A
M. Denis Connaghan 0 N/A 0 0 0 0
Martin Allen 0 N/A 23,250 33,750 187,453 288,038
Shigehiro Ishibashi 15,000 61,110 0 45,000 0 380,175
George E. Leonard 0 N/A 24,000 176,000 176,880 1,442,720
James H. Boswell 0 N/A 24,000 96,000 198,000 792,000
</TABLE>
(*) Calculations based on the fair market value of the underlying
securities as of March 31, 2000 of $10.750 per share, minus the aggregate
exercise price.
No compensation intended to serve as an incentive for performance to
occur over a period longer than one fiscal year was paid or accrued pursuant to
a long-term incentive plan during the last fiscal year to any of the persons
named in the Summary Compensation Table. The Company does not have any defined
benefit or actuarial plan under which benefits are determined primarily by final
compensation or average final compensation and years of service.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of July 11, 2000, the name, address
and holdings of each person (including any "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934) known by the Company to be the
beneficial owner of more than five percent of the Company's Common Stock, and
the amount of Common Stock beneficially owned by each of the Directors, Named
Executive Officers (defined herein) and executive officers of the Company and
by all Directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENT
AMOUNT AND NATURE OF OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS
------------------------ ----------------------- -----
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Kenneth B. Kaplan 4,658,107 (2) 29.4
George E. Leonard 49,137 (3) *
Martin Allen 23,250 *
Shigehiro Ishibashi 0 *
James H. Boswell 24,000 *
Beth E. Law 0 *
Arthur Don 40,100 *
James A. Gordon 0 *
Daniel P. Howell 748,639 (4) 4.7
Dennis E. Young 16,000 *
All executive officers and directors as a group
(10 persons) 5,560,556 34.7
--------- ----
OTHER FIVE PERCENT SHAREHOLDERS
Motorola, Inc.(6)
1303 East Algonquin Road
Schaumurg, Illinois 60196 2,774,968 (5) 16.2
Mesirow Capital Partners VI
350 North Clark Street
Chicago, Illinois 60610 748,639 4.7
Elliott Associates, L.P.
712 Fifth Avenue
New York, New York 10019 1,070,096 (6) 6.8
Westgate International, L.P.
712 Fifth Avenue
New York, New York 10019 1,070,096 (6) 6.8
</TABLE>
-----------------------------------------
* Less than 1% of the outstanding Common Stock.
(1) Unless otherwise indicated in the footnotes to this table, the Company
believes the persons named in this table have sole voting and investment power
with respect to all shares of Common Stock reflected in this table.
(2) Includes 7,600 shares held by Mr. Kaplan as custodian.
(3) Comprises options which are currently exercisable or which are deemed
currently exercisable, and in the case of Messrs. Leonard and Don, includes
1,137 and 100 shares, respectively, which are directly owned.
(4) Mr. Howell is Senior managing Director of Mesirow Private Equity
Investments, Inc., an affiliate of the corporate general partner of Mesirow
Capital Partners VI, which is the direct beneficial owner of such shares.
8
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(5) Includes 1,248,736 warrants deemed currently exercisable at an exercise
price of $10.81 per share.
(6) Share and ownership information related to Elliott Associates, L.P. and
Westgate International, L.P. as reported are from Form SC 13G filed by said
owners with the SEC on June 30, 2000.
ITEM 13. CERTAIN RELATED TRANSACTIONS
During the fiscal year ended March 31, 2000, Microware Systems
Corporation received total revenues of $592,000 under various license and
service agreements with Motorola, which holds 1,526,232 shares of Common Stock
of the Company and warrants to purchase an additional 1,248,736 shares. The
Company also routinely purchases various hardware products from Motorola used in
product development.
The Company believes that all transactions discussed or disclosed above
have been, and the Company's Board of Directors has adopted a policy stating
that any future transactions with the Company's officers, Directors, affiliates,
or controlling shareholders will be, on terms which are considered to be no less
favorable to the Company than those obtainable in arm's length transactions with
unaffiliated third parties.
9
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 to its
Annual Report on Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized.
MICROWARE SYSTEMS CORPORATION,
an Iowa Corporation
By:
/s/ George E. Leonard
------------------------------
George E. Leonard
A duly authorized representative
Dated: July 18, 2000
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