<PAGE>
FILED: July 29, 1998
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, 1998
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
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 29, 1998, closing sale price of the common stock as reported by
NASDAQ) held by non-affiliates was approximately $5,045,427.00.
The number of outstanding shares of the Registrant's common stock as of June 29,
1998, was 6,891,647 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 29, 1998.
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
As of March 31, 1998, the Board of Directors consisted of Ernest H. McKee,
Paul R. Carolus, Richard E. Minshall, Anthony Pantaleoni, and John H. Williams,
Sr.
EXECUTIVE OFFICERS AND DIRECTORS
NAME AGE POSITION
---- --- --------
Ernest H. McKee 60 President and Chairman of
the Board
Paul R. Carolus 65 Secretary-Treasurer, Chief
Financial Officer and
Director
Richard E. Minshall 60 Director
Anthony Pantaleoni 59 Director
John H. Williams, Sr. 80 Director
ERNEST H. MCKEE has served as President, Chief Executive Officer, and
Chairman of the Board of Directors of Westwood Corporation since 1988.
PAUL R. CAROLUS has served as Secretary-Treasurer, Chief Financial Officer,
and a Director of Westwood Corporation since 1988. Mr. Carolus is a Certified
Public Accountant, and a member of the American Institute of Certified Public
Accountants.
RICHARD E. MINSHALL has served as a Director of Westwood Corporation 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., American Gilsonite, and First National Bank & Trust Company of Broken
Arrow. Mr. Minshall is a member of the Oklahoma Society of Financial Analysts
and the Oklahoma Bar Association.
ANTHONY PANTALEONI has served as a Director of Westwood Corporation 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.
JOHN H. WILLIAMS, SR. was elected to the Company's Board of Directors on
June 10, 1997. Mr. Williams is an honorary Director of The Williams Companies,
Inc. (NYSE: WMB), of Tulsa, Oklahoma, having resigned as Chairman of the Board
and Chief Executive Officer in late 1978. Mr.
<PAGE>
Williams joined the Williams Brothers Company in 1946, and was elected President
and Chief Executive Officer in 1950. In 1971, the name of the company was
changed to The Williams Companies, Inc. Mr. Williams received his civil
engineering degree from Yale University in 1940. Mr. Williams presently serves
on the Board of Directors of Apco Argentina Inc., Unit Corporation (NYSE: UNT)
and Willbros Group, Inc. (NYSE: WG).
During the fiscal year ended March 31, 1998, the Board had four meetings.
Each Director attended all meetings. In March, 1998, the Board of Directors
created an Audit Committee composed of Richard E. Minshall, Anthony Pantaleoni
and John H. Williams, Sr. Other than the Audit Committee, the Board of
Directors presently has no other standing committees.
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, 1998.
TABLE I
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION(a) 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 1998 $150,000 $ 75,000 -- ---- $4,500
Chief Executive 1997 150,000 150,000 -- 55,000 (d) 4,500
Officer 1996 150,000 125,000 -- 14,641 (e) 4,500
Paul R. Carolus 1998 $ 90,000 $ 40,000 -- ---- $4,500
Chief Financial 1997 90,000 90,000 -- 55,000 (d) 4,500
Officer 1996 90,000 75,000 -- 14,641 (e) 4,500
</TABLE>
2
<PAGE>
(a) Amounts shown include cash compensation earned by Executive Officers.
(b) The value of other benefits to any Officer during fiscal year 1998 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 and 1997, which Option shall vest at twenty percent (20%) per year on
the anniversary date of such grant.
(e) Represents the issuance of Options on March 20, 1996, as adjusted by a
10% stock dividend occurring on December 22, 1997.
TABLE II
OPTION GRANTS IN LAST FISCAL YEAR
No Option grants were made to Executive Officers during the last fiscal
year.
TABLE III
AGGREGATED OPTION EXERCISES
IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT MARCH 31, 1998 AT MARCH 31, 1998
------------------- --------------------
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 92,630 48,400 $0 $0
Paul R. Carolus 0 $0 92,630 48,400 $0 $0
</TABLE>
(a) Represents grants of Options to acquire 16,106 shares annually on
March 20, 1992 through 1997 to Messrs. McKee and Carolus pursuant to the 1992
Directors' Stock Option Plan, as
3
<PAGE>
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 annually on December 22, 1993 through 1997. 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 ($1.86, $1.94, $2.39, $1.69, $1.45 and $1.76
per share, respectively, after automatic adjustment for the 10% stock dividends
occurring annually on December 22, 1993 through 1997). 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 60,500 shares (as adjusted for the 10% stock dividend occurring on
December 22, 1997) 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% (12,100 shares) per year on September 3, 1997
through 2001.
The Company maintains a 401K Plan which was effective January 1, 1989, and
is available for participation by all 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 1998 were $135,000.
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, 1998. 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, Pantaleoni
and Williams. While there are only four to six scheduled meetings of the Board
of Directors in Tulsa, Oklahoma, on a yearly basis, there 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, 1993, and ending on March 31, 1998. The total
stockholder return assumes $100 invested on March 31, 1993, in the Company and
each of the Indexes shown. It also assumes reinvestment of all dividends.
4
<PAGE>
The Company is in a unique industry and has few competitors manufacturing
electrical generation and control equipment, primarily for military application,
switching panel boards, switchboards, and electronic components. The Company's
primary competitors are not publicly traded on any U.S. Stock Market and
therefore, no financial data is obtainable 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 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, 1998. 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.
5
<PAGE>
TABLE IV
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
AMONG WESTWOOD CORPORATION, NASDAQ U.S. STOCK INDEX
AND S&P ELECTRONIC DEFENSE INDEX**
[PERFORMANCE GRAPH APPEARS HERE]
TABULAR DESCRIPTION OF PERFORMANCE GRAPH
MEASUREMENT PERIOD WESTWOOD NASDAQ S&P ELECTRONIC
(FISCAL YEAR COVERED) CORPORATION U.S. STOCK INDEX DEFENSE INDEX
- --------------------- ----------- ---------------- --------------
March 31, 1993 $100 $100 $100
FYE 03/31/94 112 108 112
FYE 03/31/95 80 119 123
FYE 03/31/96 84 161 288
FYE 03/31/97 75 189 285
FYE 03/31/98 78 270 407
- --------------------
Assumes $100 invested on March 31, 1993, 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, 1998
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.
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.
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;
5. Expansion of product base and services, including development of new
electrical generation and control 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 five fiscal years of the
Company. The bonus compensation of Messrs. McKee and Carolus for the fiscal
year ending 1998 was reduced from the fiscal year March 31, 1997 in recognition
of decreased net earnings and 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 1998 as compared to
fiscal year 1997. For the fiscal year ended March 31, 1998, Messrs. McKee and
Carolus were awarded bonus compensation of $75,000 and $40,000 respectively,
which represents a 50% decrease over the prior fiscal year.
7
<PAGE>
The decrease is not intended to reflect negatively on the performance of
the Company's Executive Officers. Since approximately 1992, general economic
conditions of corporations in the Tulsa, Oklahoma area as well as other
corporations in the defense industry generally, indicated that the salary
structures of Messrs. McKee and Carolus, were low. The level of bonus
compensation was based in part on an effort to maintain the overall compensation
packages of its Executive Officers in a competitive position with equivalent
companies. However, rather than continue this practice, the Directors have
determined to raise the base salary compensation of Messrs. McKee and Carolus
and accordingly reduce bonus compensation.
As amended effective March 31, 1998, Ernest H. McKee's salary was raised
from $150,000 to $225,000 and the annual salary of Paul R. Carolus was raised
from $90,000 to $130,000. The Board believes the new salary structure is
competitive with equivalent corporations in the same or similar business sectors
as the Company and is particularly appropriate given the efforts of the
Executive Officers in transitioning the Company from a primarily engineered
switchgear company to electrical generation and control products.
The Board believes that a significant method of providing additional
incentive compensation to its Officers is through the annual bonus. 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 three
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 16,106 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 60,500 shares (as
adjusted for the 10% stock dividend occurring on December 20, 1996 and 1997) 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
60,500 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.
8
<PAGE>
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 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 annually
on December 22, 1993 through 1997. A total of 483,153 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.
9
<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, 146,410 shares of
the Company's Common Stock (as adjusted by the 10% stock dividends occurring
annually on December 22, 1994 through 1997), 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 ($1.54 per
share after automatic adjustment for the 10% stock dividends occurring annually
on December 22, 1994 through 1997). 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. There have been no
additional issuances of options under the Incentive Stock Option Plan since
November 17, 1994.
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 through 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
10
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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 annually on December 22, 1993 through 1997. The Directors'
Plan was also increased as a result of an amendment approved by the Shareholders
at the 1997 Annual Meeting of Shareholders ("1997 Amendment") which authorized
the additional authorization of Options representing 55,000 shares of the
Company's Common Stock to John H. Williams, Sr. as a result of his appointment
to the Board of Directors. As a result of the 1997 Amendment and the 10% stock
dividend occurring on December 22, 1997, a total of 512,820 shares are now
reserved for issuance under its terms.
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 was hoped that
the Plan could partially compensate the three outside Directors, Messrs.
Minshall, Pantaleoni and Williams, for the considerable amount of consulting and
communication time spent by them outside of Board meetings. 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.
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
11
<PAGE>
Executive Officers and Directors as a group. The information is given as of
March 31, 1998. Unless otherwise indicated, each of the Stockholders has sole
voting and investment power with respect to the shares beneficially owned.
NAME OF OWNER OR NUMBER OF SHARES PERCENT OF
IDENTITY OF GROUP OPTIONS(a) TOTAL OUTSTANDING
- ----------------- ---------- --------- -----------
Ernest H. McKee 92,630 1,533,670 22.3%
2902 E. 74th Street
Tulsa, Oklahoma 74136
Paul R. Carolus 92,630 473,251 6.9%
8511 South Canton Avenue
Tulsa, Oklahoma 74137
Robert E. Lorton ---- 348,491 5.1%
1440 South Owasso Avenue
Tulsa, Oklahoma 74120-5609
William J. Preston ---- 658,458 9.6%
1717 Woodstead Court
The Woodlands, Texas 77380
Richard E. Minshall 92,630 313,586(b) 4.6%
320 South Boston Avenue, Suite 1300
Tulsa, Oklahoma 74103
Anthony Pantaleoni 92,630 206,605(c) 3.0%
666 Fifth Avenue
New York, New York 10103
Kennedy Capital Management, Inc. ---- 575,046(d) 8.3%
Gerald T. Kennedy, President
425 N. New Ballas Road, Suite 181
St. Louis, Missouri 63141
All Executive Officers and Directors 370,520 2,527,112 37.3%
as a Group (4 persons)
(a) Includes Company stock options that vest on September 3, 1998, but are
not exercisable until March 3, 1999.
(b) Includes 206,597 shares of Common Stock owned beneficially by Mr.
Minshall individually; 5,371 shares owned beneficially by Mr. Minshall's wife;
100,534 shares held beneficially by Capital Advisors, Inc., and 1,084 shares
owned by Minshall & Company, Inc. Mr. Minshall is the Chief Executive Officer
and controlling shareholder of Capital Advisors, Inc., and Minshall & Company,
Inc.
12
<PAGE>
(c) Includes 56,705 shares of Common Stock owned beneficially by Mr.
Pantaleoni, and an aggregate of 57,270 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 effective March 31, 1998, provide for a
base salary of $225,000 for Mr. McKee and $130,000 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 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 of
$50,000 is to be paid from Mr. McKee's bonus compensation awarded to him on
March 31, 1998, when paid by the Company. 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, 1998, the 333,334 shares pledged by Mr. McKee
had a value in excess of twelve 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 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.
On September 30, 1997, the Company sold 100% of the issued and outstanding
common shares of its wholly owned subsidiary, RoxCorp. to Roxtec Holding AB, a
Swedish limited liability company. Michael A. McKee, a son of Ernest H. McKee,
served as President of RoxCorp. prior to its sale and, in conjunction with the
sale, continued to serve as President of RoxCorp. pursuant to an Employment
Agreement entered into with Roxtec AB on the date of Closing. Michael A.
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McKee's compensation and benefits with RoxCorp. were negotiated independently
between himself and Roxtec AB in conjunction with the acquisition.
In conjunction with the acquisition, NMP Corp., the Company's subsidiary
located in Tulsa, Oklahoma, entered into an Administrative Services Agreement
with RoxCorp. to provide transition services and facilities to RoxCorp. on a
month-to-month basis including office and warehouse space, telephone, computer,
human resources and engineering services. In consideration of these services,
RoxCorp. agreed to pay a monthly fee of $11,023 per month. Either party can
terminate the Administrative Services Agreement upon sixty (60) days' notice.
The services provided, and the consideration to be received, were essentially
identical to those previously provided based on the then inter-corporate expense
allocation determined by NMP Corp. and RoxCorp. During the fiscal year ended
March 31, 1998, NMP Corp. received the sum of $58,218 from RoxCorp. pursuant to
the Administrative Services Agreement. Since March 31, 1998, RoxCorp. has
acquired its own computer and information system and additional personnel in
regard to engineering and human resources. Accordingly, it is anticipated that
continued monthly payments from RoxCorp. to NMP Corp. will be reduced to
approximately $8,300.
Matthew E. McKee, a son of Ernest H. McKee, serves as Program Manager of
NMP Corp.'s Hardware Line. For the Company's fiscal year ending March 31, 1998,
Matthew E. McKee received salary of $53,385 and bonus compensation of $7,153.
Matthew E. McKee's current salary is $58,000 per year with a car allowance of
$500 per month. Mr. McKee obtained a B.B.A. degree from the University of
Texas, College of Business in 1992 and has been employed in various management
capacities at NMP Corp. since 1992.
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:
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Ernest H. McKee, President
DATE: July 28, 1998
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