FILED: July 29, 1997
FORM 10-K/A
AMENDMENT NO. 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1997
Commission file number: 0-19381
WESTWOOD CORPORATION
(Exact name of Registrant as specified in its charter)
Nevada 87-0430944
------ ----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
5314 South Yale, Suite 1100, Tulsa, Oklahoma 74135
- -------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 918/524-0002
<PAGE>
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.003
(Title of Class)
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 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 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 approximate aggregate market value of the Registrant's common
stock (based upon the June 26, 1997, closing sale price of the
common stock as reported by NASDAQ) held by non-affiliates was
approximately $10,109,512.
The number of outstanding shares of the Registrant's common stock
as of June 27, 1997, was 6,264,933 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Part I (Items 1, 2, 3 and 4), Part II (Items 5, 6, 7, 8 and 9)
and Part IV (Item 14) are incorporated by reference from the
Form 10-K filed by the Registrant on June 30, 1997.
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ---------------------------------------------------------------
As of March 31, 1997, the Board of Directors consisted of
Ernest H. McKee, Paul R. Carolus, Richard E. Minshall and Anthony
Pantaleoni, who have all served since March of 1988. Each of
these Directors are nominated for re-election as Directors until
the next Annual Meeting of Stockholders or until their successors
are duly elected and qualified.
Executive Officers and Directors
Name Age Position
---- --- --------
Ernest H. McKee 59 President and Chairman
of the Board
Paul R. Carolus 64 Secretary-Treasurer,
Chief Financial
Officer and Director
Richard E. Minshall 59 Director
Anthony Pantaleoni 58 Director
Ernest H. McKee, age 59, has served as President, Chief
Executive Officer, and Chairman of the Board of Directors of both
Westwood Corporation and NMP Corp. since 1988.
Paul R. Carolus, age 64, has served as Secretary-Treasurer,
Chief Financial Officer, and a Director of both Westwood
Corporation and NMP Corp. since 1988. Mr. Carolus is a Certified
Public Accountant, and a member of the American Institute of
Certified Public Accountants.
Richard E. Minshall, age 59, has served as a Director of
both Westwood Corporation and NMP Corp. since 1988. Mr. Minshall
is President and Chairman of the Board of Directors of Capital
Advisors, Inc. of Tulsa, Oklahoma. Mr. Minshall is a Director of
AAON, Inc. Mr. Minshall is a member of the Oklahoma Society of
Financial Analysts and the Oklahoma Bar Association.
Anthony Pantaleoni, age 58, has served as a Director of both
Westwood Corporation and NMP Corp. since 1988. Mr. Pantaleoni is
a member of the law firm of Fulbright & Jaworski L.L.P., New
York, New York. Mr. Pantaleoni is a Director of Universal Health
Services, Inc., AAON, Inc., and Faircom, Inc.
<PAGE>
The Board of Directors presently has no standing committees.
During the fiscal year ended March 31, 1996, the Board had four
meetings. Each Director attended all meetings.
ITEM 11. EXECUTIVE COMPENSATION
- -----------------------------------
The following Tables I through III present information
concerning the cash compensation and stock options provided to
Messrs. McKee and Carolus. The notes to these tables provide
more specific information regarding compensation. Ernest H.
McKee and Paul R. Carolus are the only Executive Officers of the
Company. No other persons are considered to be executive
officers or received compensation in excess of $100,000 for the
fiscal year ended March 31, 1997.
<TABLE>
TABLE I
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation (a) Long-Term Compensation
----------------------------- ------------------------
Other
Annual Securities All Other
Name and Compen- Underlying Compen-
Principal Position Year Salary Bonus sation(b) Options sation(c)
- ------------------ ---- ------ ----- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ernest H. McKee 1997 $150,000 $150,000 -- 55,000 (d) $4,500
Chief Executive 1996 150,000 125,000 -- 14,641 (e) 4,500
Officer 1995 150,000 125,000 -- 14,641 (e) 4,500
Paul R. Carolus 1997 $ 90,000 $ 90,000 -- 55,000 (d) $4,500
Chief Financial 1996 90,000 75,000 -- 14,641 (e) 4,500
Officer 1995 90,000 75,000 -- 14,641 (e) 2,700
</TABLE>
(a) Amounts shown include cash compensation earned by
Executive Officers.
(b) The value of other benefits to any Officer during
fiscal year 1997 did not exceed the lesser of $50,000 or 10% of
the Officer's total annual salary and bonus or fall within any
other category requiring inclusion.
(c) Amounts contributed to the Company's 401K Plan on
behalf of the named Executive Officer.
(d) Represents the issuance of a one-time grant of an
Option on September 3, 1996, as automatically adjusted by the
stock dividend occurring on December 22, 1996, which Option shall
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<PAGE>
vest at twenty percent (20%) per year on the anniversary date of
such grant.
(e) Represents the issuance of Options on March 20,
1995, and March 20, 1996, as adjusted by 10% stock dividends
occurring on December 22, 1995, and December 22, 1996.
<TABLE> TABLE II
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
Gains based on Assumed Rates
of Stock Price Appreciation
for Option Term(a)
----------------------------
Number of Percent of
Securities Total Options Exercise/
Underlying Granted to Base Price Assumed Assumed
Options Employees in per share Exp. Rate Rate
Name Granted(b) Fiscal Year 09/03/96 Date 5% (d) 10% (d)
- ------------------ ---------- ------------- ---------- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Ernest H. McKee 55,000 25% $2.125 (c) $-0- $-0-
Paul R. Carolus 55,000 25% $2.125 (c) $-0- $-0-
All Stockholders:
6,264,933 shares
outstanding at
March 31, 1997 N/A N/A N/A N/A N/A N/A
</TABLE>
(a) The potential gain is calculated from the closing
price of Common Stock on September 3, 1996, the date of the one-
time grant to Executive Officers. These amounts represent
certain assumed rates of appreciation only. Actual gains, if
any, on stock option exercises and Common Stock holdings are
dependent on the future performance of the Common Stock and
overall market conditions. There can be no assurance that the
amounts reflected in this table will be achieved.
(b) On September 3, 1996, each of the Executive Officers
received a one-time grant of an Option to acquire 55,000 shares
(as automatically adjusted for the stock dividend occurring on
December 22, 1996) of the Company's Common Stock at an exercise
price of $2.125 per share, which was the NASDAQ closing share
price on the date of the grant ($1.93 per share, as automatically
adjusted for the stock dividend occurring on December 22, 1996).
Each Executive Officer will automatically vest in the Option at
the rate of 20% per year, on the anniversary date of the Option
grant.
(c) The one-time grant of an option vests at 20% per
year on the anniversary date of the grant; accordingly, each
grant shall vest 20% on each of September 3, 1997, 1998, 1999,
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<PAGE>
2000 and 2001. The grants are not exercisable prior to six (6)
months from the vesting date of any 20% increment thereof, and
expire ten (10) years from such vesting date.
(d) As set forth in Note (c) above, none of the Options
have vested as of March 31, 1997, or the date of this report.
<TABLE>
TABLE III
AGGREGATED OPTION EXERCISES
IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<CAPTION>
Number of Value of Unexercised
Unexercised Options In-the-Money Options
at March 31, 1997 at March 31, 1997
-------------------- --------------------
Exer- Unexer- Exer- Unexer-
Acquired on Value cisable cisable cisable cisable
Name Exercise Realized (a) (b) (a) (b)
- ---------------- ----------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Ernest H. McKee $0 $0 73,205 55,000 $0 $0
Paul R. Carolus 0 $0 73,205 55,000 $0 $0
</TABLE>
(a) Represents grants of Options to acquire 14,641
shares on March 20, 1992, March 30, 1993, March 20, 1994,
March 20, 1995, and March 20, 1996, to Messrs. McKee and Carolus
pursuant to the 1992 Directors' Stock Option Plan, as amended on
October 28, 1993 (the "Directors' Plan"). The shares issued
under these Options have been automatically adjusted as a result
of 10% stock dividends occurring on December 22, 1993,
December 22, 1994, December 22, 1995, and December 20, 1996.
The exercise prices of the 1992, 1993, 1994, 1995 and 1996 Option
grants were $3.00, $3.125, $3.50, $2.25 and $1.75 per share,
respectively, which were the NASDAQ closing prices on the date
of the grants ($2.05, $2.13, $2.63, $1.86 and $1.59 per share,
respectively, after automatic adjustment for the 10% stock
dividends occurring on December 22, 1993, 1994, 1995 and 1996).
The Options became exercisable six (6) months after the date
of the grants, and will expire ten (10) years from the date of
grant.
(b) On September 3, 1996, an additional one-time grant
of an Option to acquire 55,000 shares (as adjusted for the 10%
stock dividend occurring on December 22, 1996) was made to each
of Messrs. McKee and Carolus pursuant to the Directors' Plan.
The exercise price of these Option grants was $2.125 per share,
which was the NASDAQ closing price on September 3, 1996. These
Options will vest at the rate of 20% (11,000 shares) per year on
each of September 3, 1997, 1998, 1999, 2000 and 2001.
4
<PAGE>
The Company maintains a 401K Plan which was effective
January 1, 1989, and is available for participation by all NMP
Corp. employees without minimum age or service requirements.
Each participating employee can defer up to 17% of his annual
compensation to a specified limit. The Company matches 100% of
the employee's deferrals, with such matching contributions not to
exceed 3% of the employee's annual compensation. The Company's
total contributions to the Plan for fiscal year 1997 were
$122,000.
Directors' fees are payable to each Director for attendance
at all regular and special board meetings for the Company and NMP
Corp. Messrs. McKee and Carolus, although Directors of each
company, are not paid Directors' fees. Richard E. Minshall and
Anthony Pantaleoni, the Company's outside Directors, have each
been paid the sum of $6,000 for attendance at board meetings
during the fiscal year ended March 31, 1997. Compensation of
$1,500 per meeting to the outside Directors was originally
determined as part of the Company's acquisition of NMP Corp. in
March of 1988, and has continued thereafter to provide some
compensation for the efforts and time expended by Messrs.
Minshall and Pantaleoni. While there are only four to six
scheduled meetings of the Board of Directors in Tulsa, Oklahoma,
on a yearly basis, there generally is a substantial number of
communications by and between the Directors throughout the course
of the year which are not in any way compensated.
Stock Performance Graph
The following graph compares the Company's five-year
cumulative total return to the NASDAQ U.S. Stock Index and the
S&P Electronic Defense Index over a period beginning on March 31,
1992, and ending on March 31, 1997. The total stockholder return
assumes $100 invested on March 31, 1992, in the Company and each
of the Indexes shown. It also assumes reinvestment of all
dividends.
The Company is in a unique industry which has few
competitors manufacturing electrical switching panel boards,
switchboards, and electronic components used primarily on naval
combat vessels. The Company's two primary competitors are not
publicly traded on any U.S. Stock Market and therefore, no
financial data is offered for comparative purposes.
With the acquisition of E. Systems, Inc. in mid-1995 and
Loral Corp. in January of 1996, the S&P Electronic Defense Index
5
<PAGE>
is now composed solely of one company, EG&G, Inc. The public
acquisitions of E. Systems, Inc. and Loral Corp., at substantial
premiums over the then trading prices of these companies, has, in
the Company's opinion, resulted in a substantial inflation of the
performance of the S&P Electronic Defense Index for the period
March 31, 1995 through March 31, 1996. Moreover, since the
Defense Index contains only one company, it is not actually
representative of an industry group or segment. The Company has
explored other possible indexes for purposes of future reporting,
but does not believe that any existing industry segment index
provides meaningful comparisons as of this date.
Price performance of the Company's Common Stock may be
affected by many factors other than earnings, including the small
capitalization of the Company, limited availability of public
float, and the relatively small number of market makers in the
Company stock. Past financial performance should not be
considered to be a reliable indicator of future performance, and
investors should not use historical trends to anticipate results
or trends in future periods.
<TABLE>
TABLE IV
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
AMONG WESTWOOD CORPORATION, NASDAQ U.S. STOCK INDEX
AND S&P ELECTRONIC DEFENSE INDEX**
<CAPTION>
Measurement Period Westwood NASDAQ U.S. S&P Electronic
Fiscal Year Covered) Corporation Stock Index Defense Index
- -------------------- ----------- ----------- --------------
<S> <C> <C> <C>
March 31, 1992 $100 $100 $100
FYE 03/31/93 101 112 111
FY3 03/31/94 111 127 136
FYE 03/31/95 79 129 132
FYE 03/31/96 81 170 250
FYE 03/31/97 72 194 316
<FN>
Assumes $100 invested on March 31, 1992, in Westwood Common
Stock, NASDAQ U.S. Stock Index and S&P Electronic Defense Index.
* Total Returns assumes reinvestment of dividends.
** Fiscal Year ended March 31, 1997
</TABLE>
6
<PAGE>
Compensation Report
The Board of Directors is responsible for setting the
policies that govern the Company's compensation programs,
administering the Company's stock option plans, and establishing
the cash compensation of Executive Officers. Due to its small
size, the Board has determined that a Compensation Committee is
not needed and all matters of compensation for Executive Officers
is determined by the Board as a whole. Generally, compensation
matters are considered by the Board in March of each year when
sufficient financial information is available for the Board to
review projected year-end results. As discussed below, the two
primary compensation issues determined by the Board are: (i) the
annual renewal of the existing employment agreements with
Messrs. McKee and Carolus, and (ii) the award of bonus
compensation.
While the Board reviews the financial performance of the
Company on an annual basis in connection with its compensation
review, such policies of the Board are informal and are, to a
large part, subjective. Based on the particular nature of the
Company's primary business, the manufacture of electrical
switchboards for the United States Navy, the Company is, in
reality, a niche manufacturer with very few competitors or
comparable companies located in the industry. The Company has
only two primary competitors, neither of which have publicly
available financial information regarding assets, earnings, or
compensation arrangements for their Executive Officers.
Moreover, the Company's peer group, for purposes of the
Performance Chart, offers little assistance in the comparison of
executive compensation. When the Company selected the S&P
Electronic Defense Index, five corporations made up the Index, of
which only one remains, EG&G, Inc. EG&G, Inc. is a much larger
corporation in regard to asset size, sales, employee size, and
other quantifiable factors.
The Board's determination of executive compensation is
centered on six factors, including:
1. Earnings per share;
2. Enhancement of net worth;
3. Backlog/development of defense contracts;
4. Reputation for quality;
7
<PAGE>
5. Expansion of product base and services, including
development of new generation electronic devices, within the
defense industry; and,
6. Diversification into commercial, non-defense related,
products.
The Board has no quantifiable compensation formulas or
policies based on the six factors set forth above. For example,
the annual salaries of Messrs. McKee and Carolus were increased
only once during the fiscal year 1988 through fiscal year 1994
even though the Company's net worth and earnings per share
continued to grow annually during that period. The salaries of
Messrs. McKee and Carolus have remained the same for the last
four fiscal years of the Company. The bonus compensation of
Messrs. McKee and Carolus for fiscal years ending 1995 and 1996
was reduced from prior levels in recognition of slightly
decreased net earnings during those time periods. The decreases
in bonus compensation were in recognition of the tightening
economic conditions in the defense industry. The amount of the
reduction in bonus compensation was not based on a formula, nor
was it based on an equivalent percentage determined by the
smaller earnings of fiscal year 1996 as compared to fiscal year
1995. For the fiscal year ended March 31, 1997, Messrs. McKee
and Carolus were awarded bonus compensation of $150,000 and
$90,000 respectively, which was the same bonus amounts awarded
for fiscal years 1988 through 1994, which represents a 20%
increase over the two prior fiscal years. Reasons for the
increases in bonus compensation included improvements in net
earnings, the continued growth of the asset base of the Company
and recognition of the substantial efforts Messrs. McKee and
Carolus in dealing with the business and economic effects of the
loss of the Destroyer program and continued efforts in
diversification into commercial and related defense segments.
The employment contracts for Messrs. McKee and Carolus were
negotiated in March of 1988, upon the acquisition of NMP Corp.
The initial salary structures were determined in accordance with
general salary levels in the Tulsa area at such time, and were
based primarily upon the individual expertise, management and
technological skills, experience and industry relationships of
each of Messrs. McKee and Carolus.
The Board believes that a significant method of providing
additional incentive compensation to its Officers is through the
9
<PAGE>
annual bonus. As stated above, the salaries of Messrs. McKee and
Carolus have been increased only once, and these salaries have
remained the same since 1991. Messrs. McKee and Carolus, as
Directors of the Company, also participate in options granted
pursuant to the Directors' Plan, along with each of the other two
Directors. However, as set forth in Tables II and III hereof,
participation in the Directors' Plan cannot be said to provide an
adequate incentive or award for the services of the Company's
Officers.
The Directors' Plan, which was adopted by the Shareholders
of the Company in 1992, provided for the issuance of options to
acquire 14,641 shares of the Company's common stock to Directors
of the Company annually for a five-year period at an exercise
price which is equal to the reported closing price of NASDAQ on
the date of grant. In 1996, the Directors' Plan was amended to
provide for the one-time grant of an option to acquire 55,000
shares (as adjusted for the 10% stock dividend occurring on
December 20, 1996) of the Company's Common Stock at an exercise
price which is equal to the reported closing price of NASDAQ on
September 3, 1996. The option vests 20% of the 55,000 shares on
each of September 3, 1997, 1998, 1999, 2000 and 2001. The
Directors' Plan is automatic in that the amount of the grants and
the computation of the exercise price are fixed by the Plan
previously adopted by the Shareholders and no action by the Board
of Directors is required to perfect the award. It was originally
designed as an incentive to maintain appropriate members on the
Board and to induce others to become members of the Board should
that be in the best interest of the Company's shareholders.
Stock Option Plans
Incentive and Non-Qualified Stock
Option Plan of Westwood Corporation
- -----------------------------------
On March 20, 1992, the Board of Directors of the Company
adopted the Incentive and Non-Qualified Stock Option Plan (the
"Incentive Stock Option Plan"), which was approved by the
Stockholders of the Company at the Annual Meeting held
September 24, 1992. The Incentive Stock Option Plan is intended
to assist the Company in securing and retaining key employees by
allowing them to participate in the ownership and growth of the
Company through the grant of incentive and non-qualified options
to full-time employees of the Company and its subsidiaries.
Incentive stock options granted under the Incentive Stock Option
9
<PAGE>
Plan are intended to be "Incentive Stock Options" as defined by
Section 422 of the Internal Revenue Code.
The Incentive Stock Option Plan originally provided that
300,000 shares of Common Stock were reserved for issuance upon
exercise of options to be granted under the Incentive Stock
Option Plan. The Incentive Stock Option Plan was automatically
adjusted as a result of the 10% stock dividends occurring on
December 22, 1993, December 22, 1994, December 22, 1995, and
December 22, 1996. A total of 439,230 shares are now reserved
for issuance under its terms. The Incentive Stock Option Plan is
administered by the Board of Directors, which determines who
shall receive options, the number of shares of Common Stock that
may be purchased under options, the time and manner of exercise
of options and option prices. The term of options granted under
the Incentive Stock Option Plan may not exceed ten years (five
years in the case of an incentive stock option granted to an
optionee owning more than 10% of the voting stock of the Company
(a "10% Holder")). The price for incentive stock options shall
not be less than 100% of the "fair market value" of the shares of
Common Stock at the time the Option is granted; provided,
however, that with respect to an incentive stock option, in the
case of a 10% Holder, the purchase price per share shall be at
least 110% of such fair market value. The price for non-
qualified options shall not be less than 75% of the "fair market
value" of the shares of Common Stock at the time the option is
granted. The aggregate fair market value of the shares of Common
Stock as to which an optionee may exercise incentive stock
options may not exceed $100,000 in any calendar year. Payment
for shares of Common Stock purchased upon exercise of options is
to be made in cash, check or other instrument, but in the
discretion of the Board of Directors, may be made by delivery of
other shares of Common Stock of the Company.
Under certain circumstances involving a change in the number
of outstanding shares of Common Stock without the receipt by the
Company of any consideration therefor, such as a stock split,
stock consolidation or payment of a stock dividend, the class and
aggregate number of shares of Common Stock in respect of which
options may be granted under the Incentive Stock Option Plan, the
class and number of shares subject to each outstanding option and
the option price per share will be proportionately adjusted. In
addition, if the Company is involved in a merger or
consolidation, the options granted under the 1992 Stock Option
Plan will be adjusted proportionately.
10
<PAGE>
An option may not be transferred other than by will or by
the laws of descent and distribution or pursuant to a qualified
domestic relations order and, during the lifetime of the option
holder, may be exercised only by such holder.
The Incentive Stock Option Plan will terminate on
September 24, 2002, and may be terminated at any time prior to
that date by the Board of Directors.
On November 17, 1994, the Board of Directors approved the
total issuance of options entitling key employees to obtain, in
the aggregate, 133,100 shares of the Company's Common Stock (as
adjusted by the 10% stock dividends occurring on each of
December 22, 1994, December 22, 1995, and December 22, 1996),
with said amount being issued to nine (9) employees as determined
by the Board of Directors. For purposes of determining
distributions and provisions of the stock option issuances to
employees, Messrs. McKee and Carolus noted that they did not plan
to participate in any way in the Incentive Stock Option Plan and
therefore all Directors served to determine those individuals
entitled to stock options. The issuance of the options to
employees on November 17, 1994, contained an exercise price of
$2.25 per share, which was the NASDAQ closing share price as of
that date ($1.69 per share after automatic adjustment for the 10%
stock dividends occurring on December 22, 1994, December 22,
1995, and December 22, 1996). Options granted to employees on
November 17, 1994, are exercisable for a period of five (5) years
except that no option may be exercised during the first six
months following the date of the grant. In the event of any of
the employees' termination, for any reason, the options held on
the date of termination may be exercised in whole or in part at
any time within one (1) year after the date of termination.
Eight (8) employees received options to acquire 13,310 shares
with the Director of Engineering receiving options for 26,610
shares. Two of the employees receiving options, Michael A. and
Matthew E. McKee, are sons of Ernest H. McKee. The Options
issued were adjusted as a result of the 10% stock dividends
occurring on December 22, 1994, December 22, 1995, and
December 22, 1996, as set forth in the Incentive Stock Option
Plan. There have been no additional issuances of options under
the Incentive Stock Option Plan since November 17, 1994.
11
<PAGE>
Directors' Stock Option Plan
- ----------------------------
On March 20, 1992, the Board of Directors of the Company
adopted the Directors' Stock Option Plan (the "Directors' Plan")
which was approved by Stockholders of the Company at the Annual
Meeting held September 24, 1992. The Directors' Plan originally
provided for the issuance of up to 100,000 shares of Common
Stock. An additional 100,000 shares were authorized for issuance
under the Directors' Plan by the Stockholders on October 28,
1993. On March 20, 1996, grants of options to acquire 14,641
shares of the Company's Common Stock were issued to each of the
Directors of the Company pursuant to the terms of the Directors'
Plan, which represented the final options reserved under the
October 28, 1993 authorization.
In 1996, the Directors' Plan was amended (the "1996
Amendment"), as approved by the Shareholders of the Company at
the Annual Meeting, to provide for the one-time grant of an
option to acquire 50,000 shares of the Company's Common Stock at
$2.125 per share. The 1996 Amendment imposed a vesting schedule
which vests 20% of the 50,000 shares on each of September 3,
1997, 1998, 1999, 2000 and 2001. Additionally, the 1996
Amendment increased the term of the Options granted pursuant to
the Directors' Plan to ten (10) years from the grant date of each
Option and, with respect to the one-time grant of an Option to
purchase 50,000 shares, ten years from the vesting date of any
20% increment thereof. Finally, the 1996 Amendment increased the
number of shares available under the Directors' Plan by an
additional 200,000 shares from 266,200 to 466,200.
The Directors' Plan was automatically adjusted as a result
of the 10% stock dividends occurring on December 22, 1993,
December 22, 1994, December 22, 1995, and December 22, 1996. A
total of 512,820 shares are now reserved for issuance under its
terms.
All members of the Board of Directors received the grant of
an Option to acquire 50,000 shares of the Company's common stock
at an exercise price of $2.125 per share, which was the NASDAQ
closing share price as of September 3, 1996. Each Director will
automatically vest in the Option at the rate of 20% per year, on
the anniversary date of the Option grant, based upon specific
criteria set forth in the Directors' Plan. Prior to the 1996
Amendment, each Director received an initial grant of an Option
to purchase 14,641 shares of Common Stock, and was granted
12
<PAGE>
additional Options to purchase 14,641 shares of Common Stock on
March 30, 1993, March 20, 1994, March 20, 1995, and March 20,
1996. The annual vesting in 20% of the one-time grant is an
automatic provision of the Plan previously approved and does not
require the vote of the Directors. Moreover, the exercise price
is also an automatic provision previously approved by the
shareholders which sets the price equal to the closing share
price as determined on NASDAQ on the date of grant.
All options granted are exercisable six months after the
grant date, and shall expire ten years after the grant date,
except in the case of a Director's death or permanent disability,
upon which event the options immediately vest and are exercisable
for a period of one year thereafter and then would terminate. If
a Director's membership on the Board of Directors terminates for
any reason, any option held on such date may be exercised any
time within one year after the date of termination, unless the
option terminates sooner by its terms.
The Directors' Stock Option Plan was originally adopted to
provide additional incentive to Directors of the Company, the
benefits of which would be tied directly to stock performance of
the Company. Moreover, it is hoped that the Plan could partially
compensate the two outside Directors, Messrs. Minshall and
Pantaleoni, both of whom are professionals, for the considerable
amount of consulting and communication time spent by them outside
of any Board meeting. While compensated at the rate of $1,500
per Board meeting, this compensation only applies when they are
actually in attendance at a Board meeting in Tulsa, Oklahoma.
They are not otherwise compensated for their additional efforts
during the year. Additionally, Ernest H. McKee and Paul R.
Carolus, do not participate in the Company's Incentive and Non-
Qualified Stock Option Plan. The only Options received by
Messrs. McKee and Carolus are as part of the Directors' Stock
Option Plan.
When originally instituted in 1992, an average trading price
for Common Stock of the Company was approximately $3.00 per share
and it was hoped that the price per share of the Common Stock
would grow by approximately 10% per year, which would result in a
potential gain to each Director of approximately $3,000 on an
annual basis. However, as of the date hereof, none of the
Options issued to Directors over the last five years have
resulted in any gain and none have been exercised.
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<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
- ----------------------------------------------------------------
The following table sets forth information regarding the
ownership of the Company's Common Stock by (i) each beneficial
owner of more than 5% of the outstanding Common Stock, (ii) each
Director, (iii) the Chief Executive Officer and the Chief
Financial Officer, and (iv) the Executive Officers and Directors
as a group. The information is given as of March 31, 1997.
Unless otherwise indicated, each of the Stockholders has sole
voting and investment power with respect to the shares
beneficially owned.
<TABLE>
<CAPTION>
Name of Owner or Number of Shares Percent of
Identity of Group Options(a) Total Outstanding
- ----------------- ---------- ----- -----------
<S> <C> <C> <C>
Ernest H. McKee 128,205 1,447,582 25.0%
2902 E. 74th Street
Tulsa, Oklahoma 74136
Paul R. Carolus 128,205 346,019 5.6%
8511 South Canton Avenue
Tulsa, Oklahoma 74137
Robert E. Lorton -- 316,810 5.0%
1440 South Owasso Avenue
Tulsa, Oklahoma 74120-5609
William J. Preston -- 598,598 9.6%
1717 Woodstead Court
The Woodlands, Texas 77380
Richard E. Minshall 128,205 213,719(b) 3.4%
320 South Boston Avenue
Suite 1300
Tulsa, Oklahoma 74103
Anthony Pantaleoni 128,205 103,612(c) 1.7%
666 Fifth Avenue
New York, New York 10103
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<PAGE>
Kennedy Capital
Management, Inc. -- 522,769(d) 8.3%
Gerald T. Kennedy, President
425 N. New Ballas Road
Suite 181
St. Louis, Missouri 63141
All Executive Officers
and Directors
as a Group (4 persons) 512,820 2,110,932 33.6%
</TABLE>
(a) Includes Company stock options that vest on
September 3, 1997, but are not exercisable until March 3, 1998.
(b) Includes 103,603 shares of Common Stock owned
beneficially by Mr. Minshall individually; 4,882 shares owned
beneficially by Mr. Minshall's wife; 91,394 shares held
beneficially by Capital Advisors, Inc., and 10,840 shares owned
by Minshall & Company, Inc. Mr. Minshall is the Chief Executive
Officer and controlling shareholder of Capital Advisors, Inc.,
and Minshall & Company, Inc.
(c) Includes 51,550 shares of Common Stock owned
beneficially by Mr. Pantaleoni, and an aggregate of 52,062 shares
held equally in two trusts for the benefit of Mr. Pantaleoni's
children (Mr. Pantaleoni disclaims beneficial ownership of these
shares).
(d) Represents Common Stock held in Discretionary
Investment Advisory Accounts in a fiduciary capacity for
investment purposes. Mr. Gerald T. Kennedy serves as President
of Kennedy Capital Management, Inc., and is responsible for its
investment decisions.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -----------------------------------------------------------
Messrs. McKee and Carolus have employment contracts with NMP
Corp. through March 2000. These contracts, as amended in March
1997, provide for a base salary of $150,000 for Mr. McKee and
$90,000 for Mr. Carolus. Bonus provisions are subject to the
discretion of the Board of Directors of NMP Corp. Both contracts
provide for other benefits to these individuals, including
Company owned automobiles, club memberships, and reimbursement of
15
<PAGE>
business expenses. Although both contracts can be terminated by
the Board of Directors of NMP Corp., at its discretion, each
contract provides for continued salary payments through March of
2000.
On February 1, 1991, after approval by the Board of
Directors, NMP Corp. loaned Ernest McKee the sum of $315,000
pursuant to a secured promissory note and related pledge
agreement. At the time the loan was made, the 333,334 shares of
common stock owned by Mr. McKee, and pledged as collateral for
the repayment of this loan, had a value approximately three times
greater than the loan amount made available to him. Mr. McKee
has made annual interest and principal payments on this
indebtedness as agreed. The remaining principal balance, due
March 31, 1998, is $50,000. Interest accrues on the principal
balance at a rate equal to the Company's borrowing rate,
currently New York Prime plus 1/4%. As of March 31, 1997, the
333,334 shares pledged by Mr. McKee had a value in excess of
eleven times the principal amount of his indebtedness. The Board
believes that the loan was made on a fair basis to Mr. McKee and
the Company.
Minshall & Company, Inc., provides services to the Company
and its wholly-owned subsidiary, NMP Corp., in regard to public
news releases and public relations matters. A fee of $1,500 per
month is paid to Minshall & Company, Inc., for these services.
For the fiscal year ended March 31, 1997, the total sum of
$18,000 was paid to Minshall & Company, Inc., in connection with
these services.
Michael A. McKee, the son of Ernest H. McKee, has served as
the Company's Program Manager for RoxSystem products and
applications, and was named President of RoxCorp. upon its
formation in February of 1997. For the Company's fiscal year
ending March 31, 1997, Michael A. McKee received salary of
$71,600 and bonus compensation of $25,000. Three other family
members of Ernest H. McKee, including a son, daughter, and
son-in-law, are also employed at NMP at salaries commensurate with
their duties and at comparable rates with other employees of the
Company.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
WESTWOOD CORPORATION
By: /s/ Ernest H. McKee
----------------------------
Ernest H. McKee, President
DATE: July 28, 1997
