<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to _____
Commission File Number: 1-10768
MEDIWARE INFORMATION SYSTEMS, INC.
(Exact name of the registrant as specified in its charter)
New York 11-2209324
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11711 West 79th Street, Lenexa, KS 66214
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (913) 307-1000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
Common Stock, par value $.10 per share NASDAQ Small Cap Market
The Pacific Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) 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 filing requirements
for the past 90 days. [ X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Registration 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 any amendment to this
Form 10-K. [ ]
<PAGE> 2
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sales price of common stock on September 25,
2000 as reported on the NASDAQ Small Cap Market, was approximately $26,430,000.
The number of shares outstanding of the registrant's common stock, as of
September 25, 2000 was 7,133,000 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
The directors of the Company are as follows:
CLASS I DIRECTORS
(Term Expires at the Annual Meeting Following
the 2001 Fiscal Year)
Roger Clark, age 66, has been a director since 1983. In June 1997 he acquired a
half-ownership in a recruitment advertising agency named Talcott and Clark
Recruitment Advertising, Inc. From 1980 to 1987, he held a series of managerial
positions in the computer products area with Xerox Corporation. Mr. Clark is a
director of The Kaufmann Fund, Inc.
Hans Utsch, age 64, has been a director since 1985. He has been independently
engaged in money management and investment banking for over 20 years. Since
1986, he has been President and, together with Mr. Lawrence Auriana, Portfolio
Co-Manager of The Kaufmann Fund, Inc. Mr. Utsch is also a director of The
Kaufmann Fund, Inc.
Les N. Dace, age 54, has been a director since 1995. Mr. Dace was appointed Vice
Chairman of the Board in charge of strategic planning and business development
in October 1998. Mr. Dace joined the Company in 1992, as Vice President and
General Manager for the Digimedics and Surgiware Product Centers. He was
appointed President and C.E.O. of the Company in 1995 and held this post until
October 1998.
CLASS II DIRECTORS
(Term Expires at the Annual Meeting Following
the 2002 Fiscal Year)
Joseph Delario, age 67, has been a director since 1992. Mr. Delario was
President and Chief Executive Officer of Quadrocom, Inc., a business consulting
firm, until December 1992, and since then has been a business consultant and
private investor in and active in the management of several computer service
companies. Mr. Delario renders management and financial services to the Company.
Walter Kowsh, Jr, age 51, has been a director since 1990. He is a consultant
programmer specializing in Client/Server database systems. He was a Senior
Programmer Analyst with Brown Bros. Harriman & Co. from 1989 to 1992. From 1986
to 1989, he was a computer consultant with Howard Systems International.
John C. Frieberg, age 70, has been a director since 1993. From 1992 to 1995, Mr.
Frieberg was President, C.E.O. and Chief Financial Officer of the Company. Mr.
Frieberg joined Digimedics Corporation as President in October 1989.
Michael Montgomery, 52, has been President, Chief Executive Officer and Director
since March 2000. Mr. Montgomery served as President of Alltel Healthcare
Information Systems Division from 1990 until his retirement in 1998. Mr.
Montgomery served as Executive Vice President of Sales and Marketing of
Systematics, Inc. from 1980 until 1990 when it was acquired by Alltel
Corporation. He studied mechanical engineering at the University of Utah.
CLASS III DIRECTORS
(Term Expires at the Annual Meeting Following
the 2000 Fiscal Year)
Lawrence Auriana, age 56, has been Chairman of the Board of the Company since
1986 and a director since 1983. He has been a Wall Street analyst, money manager
and venture capitalist for over 20 years. Since 1986, he has been
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Chairman, a director and, together with Hans Utsch, also a director of the
Company, Portfolio Co-Manager and a director of The Kaufmann Fund, Inc.
Jonathan H. Churchill, age 68, has been a director of the Company since 1992.
Mr. Churchill has been a practicing attorney in New York City since 1958 and
since May 1996 has been Counsel at Winthrop, Stimson, Putnam & Roberts. Mr.
Churchill was a partner of Boulanger, Hicks, & Churchill, P.C., from January
1990 to May 1996. Winthrop, Stimson, Putnam & Roberts rendered legal services to
the Company during the last fiscal year, and the Company has retained and
proposes to retain Winthrop, Stimson, Putnam & Roberts during the current year.
Clinton G. Weiman, M.D., age 75, has been a director since June 1996. In 1998
Dr. Weiman became associated with Executive Health Examiners as a physician.
Since 1994, Dr. Weiman has been independently engaged as a consultant with the
Federal Reserve. His appointments have included Clinical Associate Attending
Physician at New York Hospital and Associate Professor, Clinical Medicine at
Cornell University Medical College.
John Gorman, M.D., age 69, was appointed a director in November 1999. Dr. Gorman
is currently Clinical Professor of Pathology at New York University School of
Medicine. Dr. Gorman served as a Director of the Blood Bank of Presbyterian
Hospital, NY until 1981 and as Director of the Tisch Hospital Blood Bank at New
York University Medical Center until his retirement in 1999. Dr. Gorman is a
consultant to Mediware for new product development in the area of blood bank
information systems. Dr. Gorman graduated from the University of Melbourne
Medical School in 1953 and completed his residency in Anatomic and Clinical
Pathology at Columbia Presbyterian Medical Center in 1960.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
Lawrence Auriana, 56, Chairman of the Board and Secretary. See above for
biographical information for Mr. Auriana.
Les N. Dace, 54, Vice Chairman of the Board in charge of strategic planning and
business development. See above for biographical information for Mr. Dace.
Michael Montgomery, 52, has been President, Chief Executive Officer and Director
since March 2000. See above for biographical information for Mr. Montgomery.
Barbara Conner, BS, MT(ASCP), RT(ARRT), 58, has been with the Company since 1992
and responsible for sales of the Hemocare Blood Bank System. In fiscal year
2000, Ms. Connor's was appointed Vice President, Sales & Marketing for the Blood
Bank Division. Prior to joining the Company, Ms. Conner had her own Company
consulting primarily to Hospitals in the area of Laboratory Interfacing and CLIA
'88 Regulations effecting Physicians. Ms. Conner's background includes Clinical
Laboratory Registration and Radiologic Technology Registration with experience
as Manager of both departments and a history of 25 years of successful sales
experience.
Bill Macdonald, 54 joined the Company in 2000 as Vice President of Marketing and
Business Development. Prior to joining the Company, Bill was most recently
Senior Vice President of Marketing for ALLTEL Information Services, a $1.2
billion division of ALLTEL, a fortune 500 company. Bill has over 24 years of
sales and marketing experience in healthcare information systems. He was Senior
Vice President of Marketing for ALLTEL Healthcare from 1993 to 1997. From 1985
to 1993, Bill held various Director and Vice President positions with TDS
Healthcare Systems.
Creighton Miller, 48, joined Digimedics Corporation in 1980 as a software
development engineer. Mr. Miller has served as Vice President and General
Manager of the Operating Room Division since 1998. Mr. Miller also served as
Vice President and General Manager of the Blood Bank Division from July 1999
until July 2000. In 1983 Mr. Miller was appointed Vice President of Engineering.
Kerry D. Robison, 36, has been with the Company as a Consultant to the Finance
Department since November 1998. In June 1999, Ms. Robison was appointed Chief
Financial Officer. From October 1994 to October 1998 she served as Corporate
Controller with Vanguard Airlines. From 1989 to 1994 she served as a project
accountant and as a project controller with Zeckendorf Company, a real estate
development firm in New York City. Ms. Robison is a Certified Public Accountant.
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Rodger P. Wilson, R.Ph., 47, joined the Company in 1996 as Vice
President/General Manager of the Pharmacy Division. Mr. Wilson was President of
The Pawnee Group from 1994 to 1996 and Vice President of Operations and Chief
Information Officer of Concepts Direct, Inc., from 1992 to 1994. Mr. Wilson
resigned from the Company effective October 13, 2000.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Other than Mr. Churchill, none of the directors and executive officers of the
Company have filed Forms 5 for the fiscal year ended June 30, 2000, though the
Company believes that Forms 5 were not required to be filed by Messrs. Auriana,
Dace, Delario, Kowsh, Utsch and Wilson, and Dr. Weiman. Mr. Auriana filed a Form
4 relating to four transactions during fiscal year 2000 late. Messrs. Churchill
and Delario each filed a Form 4 relating to four transactions during the 2000
fiscal year, for which the Form 4 was late in reporting three of the four
transactions. Mr. Dace filed two Forms 4 late, one of which related to two
transactions and the other related to six transactions during the 2000 fiscal
year. Messrs. Frieberg, Kowsh and Utsch, and Dr. Weiman each filed a Form 4
relating to two transactions during the 2000 fiscal year, for which the Form 4
was late in reporting one of the two transactions. Mr. Wilson filed a Form 4
relating to six transactions during the 2000 fiscal year late. Messrs. Clark,
Frieberg and Miller and Dr. Gorman have each engaged in a transaction during the
2000 fiscal year that the Company is aware of that have not been reported on a
Form 4 or Form 5. John Esposito, the Company's former Chief Executive Officer,
has engaged in three transactions that the Company is aware of that have not
been reported on a Form 4 or Form 5. Dr. Gorman has not filed a Form 3.
ITEM 11. EXECUTIVE COMPENSATION
The following tables sets forth all compensation paid by the Company to, or
earned by each person who served as Chief Executive Officer in the fiscal year
ended June 30, 2000 and the five other most highly compensated executive
officers, who were serving as executive officers as of June 30, 2000, in the
last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------------------
Annual Compensation Awards Payouts
-----------------------------------------------------------------------------
Restricted Securities
Other Stock Underlying LTIP All Other
Name and Fiscal Salary Bonus Compensation Awards Options Payouts Compensation
Principal Position Year ($) ($) ($) (#) (#) ($) ($)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael Montgomery (1) 2000 80,000 50,000 -- -- 350,000 -- 41
President and Chief 1999 -- -- -- -- -- -- --
Executive Officer 1998 -- -- -- -- -- -- --
John Esposito (2) 2000 103,846 -- 64,394 -- -- -- 204
President and Chief 1999 127,400 95,000 6,000 -- 30,000 -- 400
Executive Officer 1998 80,000 69,300 6,000 -- -- -- 300
Les N. Dace 2000 120,000 182,500 8,653 -- -- -- 245
Vice Chairman & Director 1999 113,000 75,000 6,000 -- -- -- 400
1998 110,000 136,650 6,000 -- 30,193 -- 400
Barbara Conner 2000 80,000 149,783 -- -- -- -- 163
Vice President, Sales & 1999 68,750 114,475 -- -- 40,000 -- --
Marketing, BloodBank 1998 65,000 57,861 -- -- 12,077 -- --
Division
Creighton Miller 2000 120,000 15,000 12,000 -- 20,000 -- 245
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vice President and General 1999 101,600 26,400 -- -- 20,000 -- 400
Manager Operating Room 1998 80,000 14,318 -- -- -- -- --
& Blood Bank Divisions
Kerry D. Robison 2000 120,000 15,000 6,346 -- -- -- 245
Chief Financial Officer 1999 6,923 4,997 -- -- 40,000 -- --
1998 -- -- -- -- -- -- --
Rodger Wilson (3) 2000 120,000 0 10,538 -- -- -- 245
Vice President and General 1999 127,300 15,600 6,000 -- -- 400
Manager Pharmacy Division 1998 80,000 73,100 6,000 -- -- 300
</TABLE>
(1) Mr. Montgomery joined the Company as President and Chief Executive Officer
in March 2000.
(2) Mr. Esposito resigned as President and Chief Executive Officer in March
2000.
(3) Mr. Wilson resigned from the Company effective October 13, 2000.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning options to
purchase Common Stock of the Company granted to the individuals named in the
"Summary Compensation Table" above during fiscal 2000. No stock appreciation
rights were granted in fiscal 2000.
<TABLE>
<CAPTION>
Grant Date
Individual Grants Value
----------------------------------------------------------------------------------- -------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees in Exercise Expiration Grant Date
Name Granted Fiscal Year Base Price Date Present Value
(#) ($) ($)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Michael Montgomery (1) 350,000 (2) 74% 6.4375 March 5, 2005 864,500 (3)
John Esposito (4) -- -- -- -- --
Les N. Dace -- -- -- -- --
Barbara Conner -- -- -- -- --
Creighton Miller 20,000 (5) 4% 7.625 July 13, 2009 127,800 (6)
Kerry D. Robison -- -- -- -- --
Rodger Wilson (7) -- -- -- -- --
</TABLE>
-----------
(1) Mr. Montgomery joined the Company as President and Chief Executive Officer
in March 2000.
(2) These options are exercisable 116,666 on the 1st anniversary date, 116,667
on the 2nd anniversary, and 116,667 on the 3rd anniversary from the grant date
of March 6, 2000. These options remain exercisable until March 5, 2005.
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(3) The grant date present value was calculated using the Black-Scholes option
pricing model with the following weighted average assumptions: expected dividend
yield of zero percent; expected stock volatility of 49.8%; risk-free interest
rate of 6.62%, and expected years until exercise of 3 years.
(4) Mr. Esposito resigned as President and Chief Executive Officer in March
2000.
(5) These options are exercisable 25%, 50%, 75% & 100% on the 1st, 2nd, 3rd &
4th anniversaries from the grant date of July 14, 1999. These options remain
exercisable until July 13, 2009.
(6) The grant date present value was calculated using the Black-Scholes option
pricing model with the following weighted average assumptions: expected dividend
yield of zero percent; expected stock volatility of 78.9%; risk free interest
rate of 5.89%, and expected years until exercise of 8 years.
(7) Mr. Wilson resigned from the Company effective October 13, 2000.
AGGREGATED OPTIONS/SAR EXERCISE IN LAST FISCAL YEAR AND VALUE
OF OUTSTANDING OPTION/SAR VALUES AT END OF LAST FISCAL YEAR
The following table sets forth options exercised by the individuals named in the
"Summary Compensation Table" above during fiscal 2000 and the number and value
of options held by them at June 30, 2000. No stock appreciation rights were
granted and there were no outstanding stock appreciation rights at June 30,
2000. The fair market value on such date was $6.50 per share.
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised
Acquired Value Underlying Unexercised In-the-Money
Name On Realized Options at End of Fiscal Options End of Fiscal Year
Exercise ($) Year ($)
-------------------------------------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael Montgomery (1) -- -- -- 350,000 -- --
John Esposito (2) 52,500 -- -- -- -- --
Les N. Dace 60,600 326,125 34,497 15,096 19,400 --
Barbara Conner -- -- 18,038 36,039 63,250 183,750
Creighton Miller 2,000 11,250 6,000 35,000 3,000 --
Kerry Robison -- -- 10,000 30,000 -- --
Rodger Wilson (3) 12,500 41,931 12,500 -- 12,188 24,500
</TABLE>
(1) Mr. Montgomery joined the Company as President and Chief Executive Officer
in March 2000.
(2) Mr. Esposito resigned as President and Chief Executive Officer in March
2000.
(3) Mr. Wilson resigned from the Company effective October 13, 2000.
COMPENSATION OF DIRECTORS
It has been the Company's practice, starting in 1987, to conserve cash by
compensating directors for their services primarily through the grant of stock
options and shares of Common Stock. In 1991 a Stock Option Plan for Non-
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Employee Directors (the "1991 Plan") was adopted. The 1991 Plan expired in 1997
and was replaced by the 1997 Stock Option Plan for Non-Employee Directors (the
"1997 Plan"). A summary description of the 1997 Plan is set forth below under
the heading "1997 Stock Option Plan for Non-Employee Directors."
Under the 1997 Plan each director in office on July 1, 1999 received 3,600
options (10,800 in the case of the Chairman) for services as a director,
exercisable at $7.13, the fair market value of the Company's Common Stock on
July 1, 1999, the date of grant. These options shall expire on July 1, 2007.
Each director in office on July 1, 1999 also became entitled to receive for his
services during fiscal 2000 shares of Common Stock valued at $10,000 ($30,000 in
the case of the Chairman) based on the average of the high and low market prices
per share on the first day of each quarter in fiscal year 2000, which was $7.13.
Therefore, each such director received 1,402 shares (4,206 shares in the case of
the Chairman) for fiscal 2000.
The 3,600 options (10,800 in the case of the Chairman) granted on July 3, 2000
under the 1997 Plan to each director in office on such date are exercisable at
$6.31, the fair market value of the Company's Common Stock on July 3, 2000.
These options shall expire on July 1, 2008.
Each director in office on July 1, 2000 is entitled to receive for his services
during fiscal 2001 shares of Common Stock valued at $10,000 ($30,000 in the case
of the Chairman) based on the average of the high and low market prices per
share on the first day of each quarter in fiscal year 2001.
The members of the Compensation Committee and Audit Committee receive $1,500 for
each meeting attended.
1997 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The 1997 Stock Option Plan for Non-Employee Directors (the "1997 Plan") was
adopted by the Board of Directors in June 1997 and subsequently approved by the
Company's shareholders at the January 1998 Annual Meeting. Under the plan, 3,600
options are granted annually to each non-employee director in office on July 1st
(10,800 shares in the case of the Chairman) for their service in the upcoming
fiscal year. Options granted under this plan are exercisable at 100% of the fair
market value on the date of grant and are for terms of eight years. Options
issued under the 1997 Plan vest in two equal installments, on the first day of
the seventh month of the fiscal year in which issued and the first day of the
following fiscal year, provided that the director is then in office or has
retired or is out of office by reason of ill health or death. Newly elected
directors receive options for 1,800 shares for each six-month period remaining
in the fiscal year in which they are elected.
EMPLOYMENT AGREEMENTS
Mr. Montgomery, the Chief Executive Officer and President of the Company since
March 2000, has entered into an agreement with the Company providing for Mr.
Montgomery's employment for a three-year period ending on March 6, 2003, subject
to automatic one year renewal terms if neither party cancels the agreement. Mr.
Montgomery's base annual salary will be $260,000, with a bonus entitlement of up
to 50% of base salary for achieving the annual budget plan objectives; up to
100% of base salary for achieving 125% of plan objectives; 25% of base salary
for achieving 85% of plan objectives; and no bonus for achievement below 85%.
Mr. Montgomery has been granted options to purchase 350,000 shares of Common
Stock at a price of $6.44 per share. The options become exercisable in three
annual installments of 116,666, 116,667 and 116,667 shares, respectively,
starting on March 6, 2001.
Mr. Montgomery and the Company have the right to terminate Mr. Montgomery's
employment without cause on 90 days notice. If employment is terminated by the
Company without cause, Mr. Montgomery is entitled to receive an amount equal to
24 months salary at the highest rate in effect during his employment. If the
Company is acquired by another company or a change of control should occur, and
Mr. Montgomery's employment is terminated, he will receive an amount equal to 24
months salary at the rate in effect on the date of termination. Mr. Montgomery
also has the right to terminate his employment for "good reason," which means a
significant diminution of his duties and responsibilities without his consent, a
significant reduction in his compensation or an acquisition or sale of the
Company to or by a third party. If Mr. Montgomery terminates his employment for
"good reason" he will be entitled to receive an amount equal to 24 months salary
at the highest rate in effect during his employment. If Mr. Montgomery's
employment is terminated for "cause" the Company will continue to pay his base
annual salary through the date of his termination, after which the Company shall
have no further obligation to Mr. Montgomery. "Cause" is defined as (i) the
willful failure by Mr. Montgomery to follow directions communicated to him by
the Chairman of the Board of Directors; (ii) the willful engaging in conduct by
Mr. Montgomery which is materially injurious to the Company, monetarily or
otherwise; (iii) a conviction of, a plea of nolo contendere, a guilty plea or
confession by Mr. Montgomery
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to an act of fraud, misappropriation or embezzlement or to a felony; (iv) Mr.
Montgomery's habitual drunkenness or use of illegal substances; (v) a material
breach of Mr. Montgomery's employment agreement; or (vi) an act of gross
negligence or gross misconduct which the Company deems to be good and sufficient
cause.
Mr. Dace has an employment agreement with the Company under which he received an
annual base salary of $120,000 and a bonus based on the completion of designated
projects and the attainment of targeted corporate earnings per share in fiscal
1999. His bonus in fiscal 2000 was based on the number of hospitals that went
live on Worx during fiscal 2000, $5,000 for completion or substantial progress
on each of four designated projects, and the same measures of achievement for
corporate earnings per share as in fiscal 1999.
1982 EMPLOYEE STOCK OPTION PLAN AND 1992 EQUITY INCENTIVE PLAN
In 1982, the Company adopted an employee stock option plan (the "1982 Plan") for
officers and other key employees, not including directors. No options may
currently be granted under this Plan. Options previously granted and currently
outstanding under the 1982 Plan generally vest and become exercisable in monthly
installments over a two or three-year period, with each installment remaining
exercisable for a five-year period after it vests. No options intended to be
incentive stock options under the Internal Revenue Code of 1986 are currently
outstanding.
Awards granted under the 1992 Equity Incentive Plan (the "Equity Incentive
Plan") may include a wide range of Common Stock-based awards. Officers and other
employees of the Company are eligible to participate in the Equity Incentive
Plan. The maximum number of shares of Common Stock which may be issued under the
Equity Incentive Plan at any time was increased, as a result of the approval by
the Company's stockholders at the Company's Annual Meeting held on June 14, 2000
of an amendment to the Equity Incentive Plan adopted on March 3, 2000 by the
Company's Board of Directors, from 20% to 30% of the outstanding shares of the
Company's Common Stock. The number of incentive stock options that may be
granted under the Equity Incentive Plan was also increased, as a result of the
approval by the Company's stockholders of the same amendment at the Company's
June 14, 2000 Annual Meeting, from 500,000 to 700,000 shares. No awards may be
granted after the year 2002. The term of each stock option may not exceed ten
years from the date of grant. The option price of each stock option is payable
in cash, at the discretion of the option committee in shares of the Company's
Common Stock, or by a combination thereof. Certain options under the Equity
Incentive Plan held by former key employees of Informedics, Inc. ("Informedics")
and issued to replace options to purchase shares of Informedics are incentive
stock options. Otherwise no options intended to be incentive stock options under
the Internal Revenue Code of 1986 are currently outstanding.
All options under the Equity Incentive Plan have provisions which, generally
speaking, accelerate vesting in the event of a change of control of the Company.
Options granted under the Equity Incentive Plan which accelerate vesting upon a
change in control could be an "anti-takeover defense" because, as a result of
these provisions, a change in control of the Company could be more difficult or
costly. This however, was not the Company's intention in adopting the Equity
Incentive Plan.
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Compensation Committee") makes recommendations
relating to the compensation of senior executives of the Company, including the
Chief Executive Officer, and administers the Company's policies and plans
governing annual and long-term compensation. Although during fiscal year 2000
the Company did not have a formal Compensation Committee, Messrs. Delario and
Clark and Dr. Weiman effectively served in that capacity with a subset of Dr.
Weiman and Mr. Clark reviewing stock-based issues.
COMPENSATION PHILOSOPHY
The Company has a "pay for performance" philosophy, implemented by attempting to
establish base salaries at levels competitive for its industry coupled with cash
bonuses for superior performance and stock-based compensation permitting
executives to earn above industry averages if the value of the Company's stock
increases.
Base Salaries. The Company generally attempts to establish annual base salaries
for executives, including the Chief Executive Officer, competitive with base
salaries for executives of similarly situated companies within the industry. The
Company also attempts to develop programs under which key executives can earn
bonus cash compensation, dependent upon performance.
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Stock Options and Stock-Based Awards. Stock option grants and stock-based awards
are designed to create continued and long-term incentives for executives and
employees to attempt to increase equity values consistent with the expectations
and interests of public shareholders and to align executives' and shareholders'
interests both in the near and longer terms.
Chief Executive Officer Compensation. Mr. John Esposito held the position of
Chief Executive Officer until March 2000, when Mr. Michael Montgomery became the
Chief Executive Officer and President of the Company.
Mr. Montgomery's compensation is governed by an agreement with the Company which
is described more fully in the section entitled "Employment Agreements" above.
Some of the salient features of that agreement is that his annual base salary of
$260,000 is competitive with that of Chief Executive Officer compensation of
other companies in the same industry and that Mr. Montgomery can earn more money
if the Company performs well. He can earn a bonus of up to 50% of base salary
for achieving the annual budget plan objectives; up to 100% of base salary for
achieving 125% of plan objectives; 25% of base salary for achieving 85% of plan
objectives; and no bonus for achievement below 85%. In addition, to align Mr.
Montgomery's interests with those of the stockholders, he has been granted
options to purchase 350,000 shares of Common Stock at a price of $6.44 per
share. The options become exercisable in three annual installments of 116,666
shares, 116,667 shares and 116,667 shares starting on March 6, 2001 but become
immediately exercisable upon a change in control.
Mr. Esposito's base annual salary in fiscal year 2000 was $150,000, without any
set formula by which Mr. Esposito could earn incentive compensation based upon
performance.
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to public companies for compensation over $1,000,000
paid to its chief executive officer and its four other most highly compensated
executives. It is unlikely, at this point in the Company's history, that the
Company will pay executive compensation that might not be deductible under that
Section. In addition, the limit on the number of shares with respect to which
options or rights may be granted to any one individual during the ten years
following the effective date under the 1992 Plan is intended to retain favorable
treatment under section 162(m) for stock options. Under the provisions of the
1992 Plan, stock options should not be subject to the limitations on
deductibility under Section 162(m) of the Code.
Roger Clark
Joseph Delario
Clinton G. Weiman
STOCK PERFORMANCE
The following chart compares the cumulative total shareholder return on the
Company's Common Stock based on the closing bid price of the Company's Common
Stock for the last five years ("Mediware"), with the cumulative total returns
for the Russell 2000 index ("Russell 2000") and the NASDAQ Computer and Data
Processing Services Stocks Index ("Nasdaq Computer Index") over the same period.
The comparison assumes $100 invested in the Company's Common Stock and in each
of the foregoing indices and assumes reinvestment of dividends, if any. The
stock price performance shown on the chart is not necessarily indicative of
future performance.
[LINE GRAPH]
<TABLE>
<CAPTION>
Date Mediware Russell 2000 Nasdaq Computer Index
<S> <C> <C> <C>
6/30/95 $ 100 $ 100 $ 100
6/30/96 $ 333 $ 120 $ 128
6/30/97 $ 467 $ 140 $ 177
6/30/98 $ 667 $ 161 $ 253
6/30/99 $ 672 $ 161 $ 412
6/30/00 $ 578 $ 182 $ 697
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's Common
Stock as of September 25, 2000 by (i) each person who is known by the Company to
own beneficially more than 5% of the Company's Common Stock, (ii) each of the
individuals named in the "Summary Compensation Table" above, (iii) each current
director of the Company, and (iv) all directors and named executive officers as
a group.
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<TABLE>
<CAPTION>
AMOUNT OF COMMON STOCK
BENEFICIALLY OWNED
---------------------------------------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES (1) PERCENTAGE OWNERSHIP (1)
----------------------------------------- -------------------- ------------------------
<S> <C> <C>
5% SHAREHOLDER
Oracle Partners, L.P., 1,110,436 (2) 15.6%
Oracle Institutional Partners, L.P.
SAM Oracle Investments Inc.
Oracle Offshore Limited
Oracle Management Company Employee
Retirement Account
Lawrence Auriana (See below)
DIRECTORS AND EXECUTIVE OFFICERS
Lawrence Auriana 1,064,900 (3) 14.8%
Jonathan H. Churchill 44,822 (4) *
Roger Clark 31,642 (5) *
Les N. Dace 42,045 (6) *
Joseph Delario 276,607 (7) 3.8%
John C. Frieberg 23,826 (8) *
Dr. John Gorman 43,948 (9) *
Walter Kowsh, Jr. 57,289 (10) *
Michael Montgomery 0 (11) *
Hans Utsch 124,492 (12) 1.7%
Dr. Clinton G. Weiman 18,874 (13) *
Barbara Conner 19,058 (14) *
John Esposito 2,100 (15) *
Creighton Miller 16,000 (16) *
Kerry D. Robison 10,000 (17) *
Rodger Wilson 0 (18) *
All directors and executive officers as a
group (16) 1,775,603 (19) 23.8%
</TABLE>
* Less than one percent
(1) Based on the number of shares outstanding at September 25, 2000, plus, for
each person or group, shares which may be acquired by the shareholders upon
exercise of options within 60 days of September 25, 2000.
(2) Based on information contained in a Form 5 filed by Mr. Larry N. Feinberg on
March 9, 2000 with a statement date of December 1999. Mr. Feinberg disclaims any
beneficial ownership of the securities to which the Form 5 relates for purposes
of Section 16 of the Securities and Exchange Act of 1934, as amended, except as
to such securities representing his pro rata interest in, and interest in the
profits of, the listed entities. The address for the Oracle shareholders is 712
Fifth Avenue, 45th Floor, New York, New York 10019.
(3) Includes 52,400 options exercisable within 60 days. The address for Mr.
Auriana is 140 East 45th Street, 43rd Floor, New York, NY 10017.
(4) Includes options for 17,468 shares which are exercisable within 60 days. The
address for Mr. Churchill is One Battery Park Plaza, New York, NY 10004.
(5) Includes options for 17,468 shares which are exercisable within 60 days. The
address for Mr. Clark is 330 Elm Street, Unit # 1, New Canaan, CT 06840.
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(6) Represents options for 42,045 shares which are exercisable within 60 days.
The address for Mr. Dace is 11211 Quivas Loop, Westminster, CO 80234.
(7) Includes options for 92,468 shares which are exercisable within 60 days. The
address for Mr. Delario is 405 Crocus Hill, Norwood, N.J. 07648.
(8) Includes options for 4,134 shares which are exercisable within 60 days. The
address for Mr. Frieberg is 4402 South St. Andrew's Lane, Spokane, WA 99223.
(9) Includes options for 3,745 shares which are exercisable within 60 days. The
address for Dr. Gorman is 145 4th Street, Del Mar, CA 92014.
(10) Includes options for 19,968 shares which are exercisable within 60 days.
The address for Mr. Kowsh is 64-08 136th Street, Flushing, NY 11367.
(11) The address for Mr. Montgomery is 11711 West 79th Street, Lenexa, KS 66214.
(12) Includes options for 19,968 shares which are exercisable within 60 days.
The address for Mr. Utsch is 140 East 45th Street, 43rd Floor, New York, NY
10017.
(13) Includes options for 12,467 shares which are exercisable within 60 days.
The address for Dr. Weiman is 2 Roberta Lane, Greenwich, CT 06830.
(14) Includes options for 19,058 shares which are exercisable within 60 days.
The address for Ms. Conner is 25 Melville Park Rd., Melville, NY 11747.
(15) The address for Mr. Esposito is 106 Willow Avenue, Huntington, NY 11743.
(16) Includes options for 16,000 shares which are exercisable within 60 days.
The address for Mr. Miller is 1600 Green Hills Rd. #105, Scotts Valley, CA
95066.
(17) Includes options for 10,000 shares which are exercisable within 60 days.
The address for Ms. Robison is 11711 West 79th Street, Lenexa, KS 66214.
(18) The address for Mr. Wilson is 4655 Pawnee Place, Boulder, CO 80303.
(19) Includes options for 327,189 shares which are exercisable within 60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has an outstanding note payable to the Chairman of its Board of
Directors, Mr. Auriana. The note totals $704,000 and accrues interest at 9%.
In October 2000, Fratelli Auriana, an entity controlled by Mr. Auriana, the
Chairman of the Board of the Company, committed to loan the Company up to
$2,000,000, to be drawn in multiples of $250,000, as needed by the Company,
subject to the terms described as follows. Mr. Auriana has agreed to provide
funds to Fratelli Auriana should any be necessary to ensure Fratelli Auriana
meets this obligation to the Company. Interest at the rate of prime plus 1/4%
will be charged on any outstanding balance and must be paid quarterly. Any
principal and interest outstanding must be paid by September 30, 2002. Any money
borrowed may be prepaid without penalty on three days notice. Any principal and
interest outstanding will become immediately due and payable upon a "change of
control" of the Company, which is to be defined in final agreements between
Fratelli Auriana and the Company. The loan will be secured by all of the assets
of the Company. The Company will pay Fratelli Auriana an origination fee equal
to the reasonably incurred expenses of Fratelli Auriana, including legal fees,
up to a maximum of 3/8% of $2,000,000. There will be no facility fee. In
connection with the loan from Fratelli Auriana, Mr. Auriana has agreed to defer
payment of
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principal and accrued interest on an existing demand loan extended by Mr.
Auriana to the Company of approximately $704,000, referenced above, which with
accrued interest totals approximately $1.2 million until the same time as the
loan from Fratelli Auriana to the Company becomes due. This earlier loan by Mr.
Auriana to the Company shall maintain a secured position. Final terms
and conditions will be documented in a loan agreement and related documentation
currently being negotiated among Fratelli Auriana, Mr. Auriana and the Company.
Mr. Churchill is Counsel at Winthrop, Stimson, Putnam & Roberts. Winthrop,
Stimson, Putnam & Roberts rendered legal services to the Company during the last
fiscal year, and the Company has retained and proposes to retain Winthrop,
Stimson, Putnam & Roberts during the current year.
The Company pays $8,000 per month to Glace, Inc., a New York corporation
("Glace"), of which Dr. Gorman owns a 20% interest, the remaining 80% being
owned by family members of Dr. Gorman, and to which Dr. Gorman is a consultant,
to provide consulting services to the Company relating to new product
development in the area of blood bank information systems pursuant to a contract
dated August 6, 1998 (the "Glace Consulting Agreement"). The Glace Consulting
Agreement also provides for Glace to be reimbursed for all expenses up to a
maximum of $5,000 upon submission of invoices and for Glace to be reimbursed for
expenses exceeding $5,000, if they have been approved in advance by the Company
in writing. Mediware has paid Glace a milestone payment due under the Glace
Consulting Agreement of $50,000 and a $250,000 milestone payment will be due
upon FDA approval of the product being developed under the Glace Consulting
Agreement. Also, under an agreement dated June 30, 1999, for a one time payment
of $200,000 from an entity controlled by Dr. Gorman, members of his family and
Mr. Auriana, the Company sold the exclusive right to use, improve, enhance,
license, sublicense and otherwise exploit the concepts developed by Dr. Gorman
inherent in the generic tracker engine software being developed by the Company
for use in all fields of information management, other than the healthcare
field, in perpetuity.
[/R]
FINANCIAL ADVISORY SERVICES
In 1991, the Company agreed with Bowling Green Securities, Inc., an investment
banking firm owned by Mr. Utsch, a director, and in which Messrs. Auriana, also
a director, and Utsch are principals, that such firm would render investment
banking advice to the Company and that, if any merger, acquisition, divestiture
or analogous transaction is successfully consummated as a result of its efforts,
the Company would pay a total fee related to the value of the company acquired
or divested on the basis of 5% of the first $2 million, 4% of the second $2
million, 3% of the third $2 million, 2% of the fourth $2 million and 1% of any
additional amounts.
Mr. Delario, a director of the Company, holds an option to purchase 75,000
shares of the Company's Common Stock granted as payment for managerial and
financial advisory services to be rendered in connection with mergers and
acquisitions.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DATED: October 27, 2000 MEDIWARE INFORMATION SYSTEMS, INC.
BY: /s/ Michael Montgomery
---------------------------
Michael Montgomery
President and
Chief Executive Officer
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