SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KA
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1996
/ / 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 0-22922
THE WESTERN SYSTEMS CORP.
(FORMERLY THE WESTERN TRANSMEDIA COMPANY, INC.)
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(Exact Name of Registrant as Specified in its Charter)
Delaware 06-0995978
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(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
c/o Janney Montgomery Scott Inc., 26 Broadway, New York New York 10004
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 510-0688
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.60 par value
Common Stock Purchase Warrants entitling holders to purchase one
share of Common Stock per Warrant prior to December 31, 1997.
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
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(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 90
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 the 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. /X/
The aggregate market value of voting stock (Common Stock, $.60 par
value) held by non-affiliates of the Registrant as of March 14, 1997 was
approximately $12,419,923 (based on the mean between the closing bid and asked
prices of the Common Stock on such date), which value, solely for the purpose of
this calculation, excludes shares held by the Registrant's executive officers
and directors. Such exclusion should not be deemed a determination by the
Registrant that all such individuals are, in fact, affiliates of the Registrant.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: At March 14, 1997,
there were outstanding 7,903,421 shares of the Registrant's Common Stock, $.60
par value.
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
MANAGEMENT
As of April 15, 1997, the executive officers and directors of The Western
Systems Corp. (the "Company") were as follows:
<TABLE>
<CAPTION>
Term of Office
Present Position Director Class of as Director
Name Age with the Company Since Director Expires
- ---- --- ---------------- ----- -------- -------
<S> <C> <C> <C> <C> <C>
William J. Barrett 57 Chief Executive January III 1998
Officer and Director 1992
Stuart M. Pellman 55 Director January III 1998
1992
Herbert M. Gardner 57 Director January II 1997
1992
C. Scott Bartlett, Jr.64 Director August I 1999
1991
Richard O. Starbird 72 Director July 1992 I 1999
Howard Grafman 68 Director July 1992 I 1999
Paulette Grafman 50 Director September II 1997
1993
</TABLE>
The following information concerning the directors and executive officers
of the Company has been furnished by each of them.
WILLIAM J. BARRETT was elected Chief Executive Officer of the Company in
January 1997. He has served as a director of the Company since January 1992 and
as Secretary and Assistant Treasurer of the Company since August 1992. Mr.
Barrett has been principally employed as a Senior Vice President of Janney
Montgomery Scott Inc., an investment banking firm, for more than five years. Mr.
Barrett is a director of the following publicly-held corporations: Supreme
Industries, Inc., a company that manufactures specialized truck bodies,
Fredericks of Hollywood, Inc., an apparel marketing company, Shelter Components
Corporation, a distributor to the manufactured housing and recreation vehicle
industries and manufacturer of carpet and bathroom products, TGC Industries,
Inc., which provides geophysical services to the oil and gas industries and
manufactures and distributes specialty packaging products, and Chase Packaging
Corporation, a specialty packaging supplier.
STUART M. PELLMAN served as President and Chief Executive Officer of the
Company from January 1992 until the Company's sale of its Transmedia Network
Franchise (the "Asset Sale") to its former franchisor, Transmedia Network, Inc.
("Network") in January 1997. Since the Asset Sale, Mr. Pellman has been
principally employed as an executive officer of Network. He continued to serve
as the Company's Chief Financial Officer and Chief Accounting Officer until
April 1997. He has been a director
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of the Company since January 1992. From May 1989 until September 1991, Mr.
Pellman was a corporate securities attorney with, and a member of, the San
Francisco, California law firm of Steefel, Levitt & Weiss. Prior thereto and
since 1965, he was engaged in the private practice of law in New York City. In
1979, he co-founded the law firm of Slade & Pellman in New York City and was a
member of that firm until December 1988. Commencing in 1986, Mr. Pellman
supervised Slade & Pellman's representation as general counsel to Network.
HERBERT M. GARDNER has served as a director of the Company since January
1992. Mr. Gardner has been principally employed as a Senior Vice President of
Janney Montgomery Scott Inc. for more than five years. Mr. Gardner is a director
of Network and also is a director of other publicly-held corporations as
follows: Shelter Components Corporation, Nu Horizons Electronics, Corp., an
electronics components distributor, TGC Industries, Inc., Hirsch International
Corp., a distributor of computerized embroidery machines and a developer of
related software, and Chase Packaging Corporation. Mr. Gardner also is Chairman
of the Board of Supreme Industries, Inc., a manufacturer of specialized truck
bodies and shuttle buses.
C. SCOTT BARTLETT has served as a director of the Company since August
1991. Since November 1990, he has been principally engaged as a consultant to
the banking industry and in conjunction with such activities served as Senior
Vice President and Chief Credit Officer of MTB Bank from 1992 to 1994. From
April 1984 to November 1990, he was an Executive Vice President and Chairman of
the Credit Policy Committee of National Westminster Bank USA. He is also a
director of Harvard Industries, Inc., an automotive supplier, NVR, Inc., a
homebuilding company, Darling International, Inc., a recycler of animal
by-products, Bucyrus-Erie Company, a manufacturer of surface mining equipment,
Janus Industries, Inc., a holding company, and The Bibb Company, a manufacturer
of bedding, napery and industrial fabrics.
RICHARD O. STARBIRD has served as a director of the Company since July
1992. Mr. Starbird has been Emeritus Professor at Western Washington University
in Bellingham, Washington since 1983, where he is currently engaged as a
graduate school advisor, researcher and writer. Mr. Starbird also is a director
of Fredericks of Hollywood, Inc.
HOWARD GRAFMAN has served as a director of the Company since July 1992.
Since February 1996, Mr. Grafman has been principally engaged as Chairman of the
Board of KRUZ-FM, a radio station based in Santa Barbara, California, and a
private investor. Mr. Grafman founded Century Broadcasting Corporation, an
independent operator of FM radio stations, in 1964 and served as its President
until 1987 and as one of its directors until 1992. Prior to founding Century
Broadcasting Corporation, Mr. Grafman was actively involved in the
communications and broadcasting industries.
PAULETTE W. GRAFMAN has served as a director of the Company since
September 1993 and served as Executive Vice President of the Company from
September 1993 until January 1996. Since February 1996, Ms. Grafman has been
principally engaged as President and General Manager of KRUZ-FM. Ms. Grafman was
Vice President and General Manager of KMEL, an FM radio station in San
Francisco, California from November 1985 to November 1992, when the station was
sold by Century Broadcasting Corporation. During the prior 10 years, she held
executive and sales positions with several radio stations in Los Angeles. She
served on the Board of Directors of the Northern California Broadcasters
Association in 1987 and 1988, and as an officer of the Association since 1989,
including the office of President in 1991 and 1992. She was principally engaged
as a private investor from November 1992 to September 1993. Howard Grafman and
Paulette Grafman are spouses.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "Commission"). Officers, directors and greater than 10% shareholders are
required by the Commission's regulations to furnish the Company with copies of
all Section 16(a) forms they file.
Based solely on review of copies of such forms furnished to the Company,
or written representations that no Form 5s were required to be filed by such
persons, the Company believes that during the year ended December 31, 1996,
there was compliance with all Section 16(a) filing requirements applicable to
its officers, directors and greater than 10% beneficial owners.
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth, for the fiscal years indicated, all
compensation awarded to, earned by or paid to the chief executive officer
("CEO") of the Company. There was no executive officer of the Company, other
than the CEO, whose salary and bonus exceeded $100,000 with respect to the
fiscal year ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
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Other Annual All Other
Compensation Number of Compensation
Name and Principal Posit Year Salary ($) Bonus ($) ($)(1)(2) Options ($)
- --------------------- ---- -------- --------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Stuart M. Pellman, 1996 200,000 -- 4,680 -- --
President and Chief 1995 175,000 25,580 4,680 150,000 --
Executive Officer 1994 145,000 -- 4,680 -- --
</TABLE>
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(1) Perquisites and other personal benefits, securities or property received
by Mr. Pellman did not exceed the lesser of $50,000 or 10% of his annual
salary and bonus.
(2) Mr. Pellman's employment agreement required the Company to pay the
premiums (not exceeding $4,800 per annum) on term life insurance in the
face amount of $1,000,000 on the life of Mr. Pellman under policies owned
by Mr. Pellman. See "--Employment Agreements."
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OPTION GRANTS
No options were granted to Mr. Pellman during 1996.
AGGREGATED FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth certain information concerning
unexercised options held as of December 31, 1996 by Mr. Pellman. No stock
options were exercised by Mr. Pellman during the fiscal year ended on such date.
AGGREGATED FISCAL YEAR-END OPTION VALUES
Number of Unexercised Value of Unexercised in-the-,
Options at December 31, Money Options at December 31
1996(#) 1996 ($)(1)
Name Exercisable/ Unexercisable Exercisable/ Unexercisable
- ---- -------------------------- --------------------------
Stuart M. Pellman 287,500/0 $251,562/0
____________________
(1) Based on the closing price of a share of Common Stock ($.875 as reported
by the National Association of Securities Dealers Automated Quotation
System on December 31, 1996).
DIRECTOR COMPENSATION
Directors who are not officers or employees of the Company receive
such compensation for their services as the Board of Directors may from time to
time determine. Currently, directors who are not employees of the Company
receive a fee of $100 for each Board of Directors or committee meeting attended,
plus reasonable out-of-pocket expenses. Directors who are officers or employees
of the Company are not entitled to any compensation for their service as a
director.
LONG-TERM INCENTIVE AND PENSION PLANS
The Company does not have any long-term incentive or defined benefit
pension plans.
EMPLOYMENT AGREEMENTS
Mr. Pellman served as President and Chief Executive Officer of the
Company pursuant to an employment agreement that commenced as of January 1, 1995
and terminated on December 31, 1996. Mr. Pellman received a base annual salary
of $200,000 during 1996. Pursuant to the terms of the employment agreement, the
Company paid Mr. Pellman an annual bonus equal to 5% of the Company's pre-tax
income up to $2,000,000 plus 6-1/2% of the Company's pre-tax income, if any,
over $2,000,000. Mr. Pellman did not receive a bonus pursuant to this clause at
the end of December 31, 1996. He also was not entitled to receive any bonus
payment as a result of the consummation of the Asset Sale. In
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addition, Mr. Pellman received the sum of $25,000 in consideration of his
agreement to enter into the employment agreement. Mr. Pellman's employment
agreement required the Company to pay the premium (not exceeding $4,800 per
annum) on term life insurance in the face amount of $1,000,000 on the life of
Mr. Pellman under policies owned by Mr. Pellman.
COMPENSATION AND STOCK OPTION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
GENERAL
The Compensation and Stock Option Committee was established by the
Board of Directors in September 1993 to make recommendations to the Board of
Directors regarding compensation of executive officers and administration of the
Company's 1992 Stock Option Plan. It acted one time by unanimous written consent
during 1996. Messrs. Barrett, Bartlett and Starbird currently serve as members
of the Compensation and Stock Option Committee. Following the Asset Sale, Mr.
Barrett was elected Chief Executive Officer of the Company.
COMPENSATION PHILOSOPHY
The Compensation and Stock Option Committee's executive compensation
philosophy is (and the Board of Directors was) to base management's pay, in
part, on the achievement of the Company's annual and long-term performance
goals, to provide competitive levels of compensation, to recognize individual
initiative, achievement and length of service to the Company, and to assist the
Company in attracting and retaining qualified management. The Compensation
Committee also believes that the potential for equity ownership by management is
beneficial in aligning management's and stockholders' interests in the
enhancement of stockholder value.
SALARIES
Base salaries for the Company's executive officers are determined
initially by evaluating the responsibilities of the position held and the
experience of the individual and by reference to the competitive marketplace for
management talent, including a comparison of base salaries for comparable
positions at comparable companies. Annual salary adjustments are determined by
evaluating the competitive marketplace, the performance of the Company, the
performance of the executive particularly with respect to the ability to manage
growth of the Company, the length of the executive's service to the Company and
any increased responsibilities assumed by the executive.
BONUSES
The Company from time to time will consider the payment of bonuses
to its executive officers, although no formal plan currently exists, except as
provided in individual employment agreements. Bonuses would be determined based,
first, upon the level of achievement by the Company of its strategic and
operating goals and, second, upon the level of personal achievement by
participants. The achievement of goals by the Company includes, among other
things, the performance of the Company as measured by return on assets. The
achievement of personal goals includes the actual performance of the Company for
which the executive officer has responsibility as compared to the planned
performance thereof, the level of cost savings achieved by such executive
officer, other individual contributions, the ability to manage and motivate
reporting employees and the achievement of assigned projects. Mr. Pellman did
not receive a bonus for the year ended December 31, 1996.
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COMPENSATION OF CHIEF EXECUTIVE OFFICER
Mr. Pellman's base salary of $200,000 was based upon the factors
described in the "Salaries" paragraph above.
STOCK OPTION PLAN
It is the philosophy of the Compensation Committee that stock
options should be awarded only to key employees of the Company to promote
long-term interests between such employees and the Company's stockholders and to
assist in the retention of such employees. The Stock Option Committee did not
award any stock options to Mr. Pellman during the year ended December 31, 1996.
COMPENSATION AND STOCK OPTION COMMITTEE: William J. Barrett,
C. Scott Bartlett, Jr.
Richard O. Starbird
COMMON STOCK PERFORMANCE
The following graph compares, for the periods indicated, the
percentage change in the cumulative total stockholder return on the Common Stock
of the Company (the "Common Stock") with the cumulative total return of (a) the
Nasdaq Market Index, a broad equity market index (the "Broad Market"), and (b)
an index consisting of the following publicly traded Miscellaneous Business
Credit Institutions with the same Standard Industrial Classification Code (6159)
as the Company: Allied Capital Lending Corp., Banca Quadrum S.A. de C.V. (ADR),
Financing Federal Corp., First Enterprise Financial Group, Inc., HPSC Inc.,
Metris Companies Inc., MLC Holdings Inc., PDS Financial Corp., Rockford
Industries Inc., Source Capital Corp., Southern Pacific Fund Corp., Student Loan
Marketing Association, Walnut Financial Service Inc. and Winfield Capital Corp.
(the "Industry Index").
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG THE WESTERN
SYSTEMS CORP., INDUSTRY INDEX AND BROAD MARKET INDEX
<TABLE>
<CAPTION>
Fiscal Year Ending
------------------------------------------------
1992 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
The Western Systems Corp. 100 700.00 1,400.00 1,652.00 652.00 350.00
Industry Index 100 101.06 73.73 56.71 109.99 154.82
Broad Market 100 108.21 129.80 136.28 176.76 219.66
</TABLE>
[GRAPH OMITTED]
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of April 15, 1997
with respect to the beneficial ownership of Common Stock by (i) each person
known to the Company to be the beneficial owner of five percent or more thereof,
(ii) each director of the Company, (iii) the Chief Executive Officer and (iv)
all executive officers and directors as a group. All persons identified below as
holding options and/or Common Stock purchase warrants (the "Warrants") are
deemed to be beneficial owners of shares of Common Stock subject to such options
or purchasable upon exercise of such Warrants by reason of their right to
acquire such shares within 60 days after April 15, 1997, through the exercise of
such options and/or the Warrants. Unless otherwise indicated, the address for
each person or entity listed below is the Company's principal executive office.
Name and Address Shares Percentage
of Beneficial Owner(1) Beneficially Owned of Class
- ---------------------- ------------------ --------
Stuart M. Pellman 538,480(2) 6.2%
c/o Transmedia Network Inc.
475 Sansome Street
San Francisco, California 94111
Herbert M. Gardner 447,254(3) 5.2%
William J. Barrett 691,008(4) 8.0%
MassMutual Corporate Investors 698,707(5) 8.1%
1295 State Street
Springfield, MA 01111
C. Scott Bartlett, Jr. 56,281(6) *
Howard Grafman 144,762(7) 1.7%
Richard O. Starbird 110,997(8) 1.3%
Paulette W. Grafman 29,705(9) *
All Directors and Executive Officers
as a Group (7 persons) 2,018,487(10) 23.4%
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* Less than 1%
(1) All of such persons and entities have sole investment and voting power
over the shares listed as being beneficially owned by them.
(2) Includes (i) 287,500 shares subject to options and (ii) 132,646 shares
owned by an individual retirement account as to which Mr. Pellman is the
beneficiary (including 8,823 shares underlying Warrants).
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(3) Includes (i) 6,000 shares underlying Warrants, (ii) 42,321 shares
beneficially owned by Mr. Gardner's spouse (including 7,352 shares
underlying Warrants), (iii) 8,333 shares owned by an individual retirement
account as to which Mr. Gardner is the beneficiary, and (iv) 256,298
shares owned by Mr. Gardner's qualified plan (including 22,058 shares
underlying Warrants). Mr. Gardner disclaims beneficial ownership of the
shares beneficially owned by the members of his family.
(4) Includes (i) 38,705 shares underlying Warrants, (ii) 137,860 shares
beneficially owned by Mr. Barrett's spouse (including 17,646 shares
underlying Warrants), and (iii) 405,597 shares owned by Mr. Barrett's
qualified plan (including 44,117 shares underlying Warrants). Mr. Barrett
disclaims beneficial ownership of the shares beneficially owned by the
members of his family.
(5) Based upon Amendment No. 1 dated June 5, 1995 to a Statement on Schedule
13G filed with the Commission by MassMutual Corporate Investors,
MassMutual Participation Partners and MassMutual Corporate Value Partners
in which the three entities indicate that they may be regarded as a group.
MassMutual Corporate Investors, MassMutual Participation Partners and
MassMutual Corporate Value Partners beneficially own 405,590, 54,000 and
56,000 shares of Common Stock respectively. MassMutual Corporate Investors
also holds Warrants to purchase 183,117 shares of Common Stock, of which
it may be deemed the beneficial owner. The Boards of Directors of each of
MassMutual Corporate Investors, MassMutual Participation Partners and
MassMutual Corporate Value Partners have sole investment and voting power
over the respective securities of the Company held by each such entity.
MassMutual Corporate Investors and MassMutual Participation Partners are
each closed-end mutual funds whose shares are traded on the New York Stock
Exchange.
(6) Includes (i) 8,399 shares held jointly with Mr. Bartlett's spouse, (ii)
36,000 shares subject to options and (iii) 5,882 shares underlying
Warrants held jointly with Mr. Bartlett's spouse.
(7) Includes (i) 6,000 shares subject to options, (ii) 17,205 shares
underlying Warrants and (iii) 5,000 shares held by Radio First
International, Inc., of which Mr. Grafman is a principal stockholder. Does
not include shares reported as beneficially owned by Paulette W. Grafman.
(8) Includes (i) 16,000 shares subject to options, and (ii) 14,705 shares
underlying Warrants.
(9) Includes 4,705 shares underlying Warrants. Does not include shares
reported as beneficially owned by Howard Grafman.
(10) Includes an aggregate of 345,500 shares subject to options and 370,315
shares underlying Warrants.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
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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 report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE WESTERN SYSTEMS CORP.
Date: April 29, 1997 /s/ William J. Barrett
------------------------------------
William J. Barrett
Chief Executive Officer and Director
(Principal Executive Officer)
