<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: COMMISSION FILE NUMBER:
JANUARY 31, 1994 0-3713
------------------------
NATIONAL COMPUTER SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0850527
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11000 PRAIRIE LAKES DRIVE
EDEN PRAIRIE, MINNESOTA 55344
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: 612/829-3000
------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Shares--par value $.03 a share
(Title of Class)
Rights to Purchase Series A Participating Preferred Stock
(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 such shorter periods 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 amendments to
this Form 10-K. _X_
State the aggregate market value of the voting shares held by non-affiliates
of the registrant as of March 31, 1994.
Common Shares, $.03 par value -- $147,344,000
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of March 31, 1994.
Common Shares, $.03 par value -- 15,014,617 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended January 31,
1994 are incorporated by reference into Parts I, II and IV.
Portions of the definitive proxy statement dated April 20, 1994 are
incorporated by reference into Part III.
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<PAGE>
PART I
ITEM 1. BUSINESS
National Computer Systems, Inc. ("NCS" or the "Company") provides integrated
information management products and services, designed to collect and interpret
data, to four primary markets:
EDUCATION -- NCS develops and markets systems and services which include
optical scanning systems, related proprietary software, hardware and software
maintenance, scannable documents, proprietary student and financial
administrative systems, assessment test processing and other data gathering and
processing services.
BUSINESS -- The Company develops and markets optical scanning hardware,
image-based data collection systems, related work stations, proprietary software
and forms for applications within the commercial marketplace. Using forms-based
data entry scanning technology, customers are able to automate labor-intensive
data collection and information processes with significantly increased
efficiency and accuracy.
ASSESSMENTS -- The Company publishes and markets psychological assessment
instruments, scoring systems and scanning products to clinical professionals in
the behavioral and mental health markets. Organizational survey and assessment
testing and services and vocational counseling tests are marketed to the
corporate human resources market.
FINANCIAL SERVICES -- NCS develops and markets computer-based systems with
proprietary software and services for automating asset management in the
financial services industry, primarily banking.
Applications for NCS' products and services within the education market
include administrative applications such as attendance, scheduling, grade
reporting and registration/enrollment; library and inventory management;
financial management and payroll; and testing applications including test
generation, teacher-created tests and norm-referenced and criterion-referenced
testing. NCS also provides scanning and computer processing services for the
large volume, complex processing needs of major test publishers, state education
agencies, the federal government and local school districts.
In the business marketplace, the Company's products and services are
directed to sales/marketing applications including sales/order entry and
customer satisfaction surveys; operations applications including quality
measurement and inventory analysis; administrative applications including
billing, collections and payroll; health care administration including the
gathering of individual patient information; human resource applications
including applicant tracking, benefits enrollment and employee evaluation;
aptitude, vocational interest and organizational assessment testing; and surveys
or ballots.
The Company provides the financial services marketplace with computer-based
systems including proprietary software products and services for automated asset
management systems for trust asset management in personal trust, corporate
trust, private banking and employee benefits accounting.
NCS operates two business segments: (1) Optical Scanning Products, Services
and Related Software and (2) Financial Systems. See Note 10 -- Business Segment
Data of Notes to Consolidated Financial Statements included in the Annual Report
to Stockholders for the year ended January 31, 1994, incorporated herein by
reference.
The Company's headquarters are located at 11000 Prairie Lakes Drive, Eden
Prairie, Minnesota 55344, telephone 612/829-3000.
1
<PAGE>
OPTICAL SCANNING PRODUCTS, SERVICES AND RELATED SOFTWARE
SCANNING SYSTEMS
NCS manufactures optical mark reading (OMR) scanners which can read data
from specially designed forms printed by the Company with specifically
formulated inks. Computing capability is built into most scanners. Scanners
usually incorporate or interface directly with software developed by the
Company.
Optical scanning equipment is most effective for applications where highest
accuracy, precise response definition and cost effective data capture is
required. Such applications include multiple choice tests; employee and benefits
administration; quality measurement and customer satisfaction surveys; customer
order entry; market research and field sales reporting; and personality
assessment or psychological diagnostic information.
The Company's major lines of scanning hardware include scanners marketed as
Sentry-R- and OpScan-R- products. Recently, new low-cost scanners were
introduced to expand the Company's line of scanning products. These lines of
scanners provide a wide range of capabilities to meet the needs of all
customers. The optical scanning systems utilize a proprietary mark
discrimination system to distinguish valid marks, thus providing a very high
degree of accuracy in processing responses. To enhance the usefulness of the
OpScan line, optional features offered include bar code reading capability, a
transport printer to print alphanumeric messages on scanned documents, optional
read formats and upgraded computer capability options.
NCS markets the Precept-R- image-based data collection system which
represents an extension of the Company's optical mark reading technology. When
attached to a workstation computer and using sophisticated software, these
scanners allow customers to efficiently and accurately collect and interpret the
widest possible range of information from a printed form including printed and
handwritten data.
SCANNING AND APPLICATION SOFTWARE
NCS offers a number of standard software programs for use with NCS systems.
Application software is an important component in the Company's marketing of its
scanning products and services. A principal strategy of the Company in servicing
the education marketplace is to concentrate on those systems that facilitate
accountability in school administration and in the measurement of student
progress. The Company offers standard integrated software systems in lieu of
custom design and programming work performed by the customers. This has resulted
in the introduction and marketing of new and enhanced software products. The
MicroCIMS-TM- product, an advanced student management software system, is in the
initial distribution stage following product release.
Software products include software to assist educators in student management
including such applications as grade reporting, attendance gathering and
scheduling, as well as financial management; software for obtaining information
about student performance and for analyzing and reporting test results and
student progress; software to enable users to easily develop new scanning
applications; software to assist scanner users with data entry to statistical
analysis or data base management systems and other software applications
packages; software packages to statistically analyze survey or assessment data
and produce a wide range of reports designed to meet a variety of reporting
requirements; and software for healthcare administration.
SCANNABLE FORMS
The design, manufacture and sale of scannable forms, including multiple-page
booklets, represents an important contribution to the Company's revenues and
operating income. A variety of custom forms are produced that are tailored to
meet specific customer needs. In addition, standardized forms are increasingly
used, especially with microcomputer-based scanners, in such standard
applications as testing, attendance, scheduling and student evaluation at the
classroom level or customer surveys or market research in the business setting.
2
<PAGE>
The Company believes that the use of a properly designed and printed form is
an essential element in assuring that a scanning system performs with greatest
accuracy and optimum capability. In order to assure a high degree of
consistency, reliability and accuracy, NCS has emphasized the use of its forms
with its equipment.
The Company prints its forms to exacting specifications. TransOptic-R- paper
is used to permit Sentry scanners to read both sides of the form at the same
time. Special inks are used in printing all forms.
MEASUREMENT AND DATA SERVICES
NCS markets scanning and computer processing services to major test
publishers, state education agencies, the federal government and local school
districts. For these customers, NCS develops and executes projects including
planning, document design, distribution logistics, data collection, editing,
analysis and final reporting.
Examples of high volume processing services include test scoring for major
test publishers, educational assessment testing for states and information
processing for the federal government such as processing student financial aid
information for the U.S. Department of Education.
ASSESSMENT AND SURVEY SERVICES
The Company publishes and distributes tests and provides scoring services
and equipment for the professional counseling market; for industrial and
clinical psychologists, psychiatrists and human resource professionals; and
educators. These tests and services include personality assessment and
psychological diagnostic testing, career development, guidance counseling and
human resource organizational assessments.
NCS provides specialized survey and scannable information processing
services to selected industries in the commercial marketplace. In addition to
scoring, analyzing and reporting survey results, the Company assists customers
in designing survey instruments, conducting surveys and interpreting survey
results.
FINANCIAL SYSTEMS
NCS develops, sells and supports systems for asset and investment management
reporting and record keeping for bank trust departments and other organizations
with trust powers. Applications include personal trust, corporate trust and
employee benefits. These systems utilize proprietary software developed by NCS
and licensed for periods of five years or more as well as hardware manufactured
by others. Each system is designed to address the unique needs of customers. NCS
supports these installations with customer response centers, trust consultants,
system conversion specialists and training staffs.
For corporate trust customers and personal trust departments of smaller
banks the Company offers outsourcing and computer processing services from its
service bureau facility. For the personal trust market, the Company provides
trust accounting systems to small to medium sized banks through its Trustware-R-
Series 7 product line and to larger banks through the Trustware Series 11
product line. Management of debt securities is provided by the Company's
BondMaster-R- software system or CertMaster-R- software for complex debt
instruments. These offerings are enhanced with the addition of an optical
disk-based system for data storage.
The ULTRUST-R- system, an advanced trust accounting system for money center,
super-regional and large international banks, was discontinued during the fourth
quarter of fiscal 1993. See Note 2 -- Restructuring Charge of Notes to
Consolidated Financial Statements included in the Annual Report to Stockholders
for the year ended January 31, 1994, incorporated herein by reference.
NCS provides software support service by periodically issuing software
program revisions to improve systems performance and to accommodate changes in
the tax law and other regulatory changes. The Company also periodically releases
new software applications which it licenses to its customers.
3
<PAGE>
MARKETING
NCS markets its information systems hardware and software and scanning and
computer processing services directly through sales employees located throughout
the United States, who direct their efforts to either the education or business
marketplace. Outside the United States, the Company's systems and associated
products and services are sold through sales employees, distributors or
independent sales agents. NCS markets its financial systems through a separate
staff of sales employees. The Company's published tests and test scoring
services are marketed principally in the United States through telemarketing,
direct mail, professional journal advertising and professional trade convention
attendance and elsewhere through distributors. Each of the Company's sales
organizations is supported by marketing and sales support personnel.
SOFTWARE SUPPORT, TECHNICAL SUPPORT AND MAINTENANCE
Software support is provided on a contractual basis to customers licensing
application software systems. NCS assists customers with installation, training,
hardware or software upgrades and development of specific customer application
software on a fee for service basis.
The Company offers technical support and hardware maintenance to customers
purchasing or leasing its equipment either on a contractual basis or through its
national network of field engineers. NCS emphasizes prompt, reliable service and
close customer relationships. Technical and maintenance support may include
labor, parts, operational training and, where applicable, programming of the
equipment and design of forms. Substantially all customer leased or purchased
equipment manufactured by NCS is maintained by Company personnel.
DEVELOPMENT OF PRODUCTS AND SERVICES
The Company's development efforts are directed toward new product
development and enhancements to existing products. During the fiscal years ended
January 31, 1994, 1993 and 1992, the Company spent, including certain
capitalized software development costs, approximately $22.0 million, $17.3
million and $17.7 million, respectively, principally on software product
development (primarily focused on application software) and scanning software
and equipment development.
MANUFACTURING
The Company assembles its scanning equipment from electronic components,
metal stampings, molded plastic parts and mechanical sub-assemblies. These parts
are generally available from multiple sources. The Company assembles most of the
scanning systems equipment at its Eagan, Minnesota facility. Computer hardware,
other than scanning equipment, is purchased from other manufacturers.
Scannable forms are produced at NCS' printing plants in Columbia,
Pennsylvania; Owatonna, Minnesota; and Rotherham, South Yorkshire, England. The
ink and paper used in forms production are produced to the Company's
specifications by a limited number of suppliers. Although the Company has no
long-term supply contracts with either its paper or ink suppliers, the Company
has had long-term relationships with such suppliers and believes that these
relationships are good.
COMPETITION
Competition in the information management industry is intense. Optical
scanning is only one of numerous data input methods. The Company has attempted
to develop education, business and assessment markets where scanning technology
has advantages over other data entry technologies. NCS scanning systems
incorporate optical scanning equipment, computer hardware and proprietary
software which are marketed and sold as turn-key systems.
In addition to the functional competition provided by alternative methods of
data capture, including on-line terminal keyboards and optical character
readers, other scanning vendors supply products that compete with those of the
Company.
The Company's scannable forms compete with those produced by commercial and
specialized forms printers in various localities throughout the United States.
Principal competitive factors in the scannable forms printing industry are
product quality, service and price.
4
<PAGE>
NCS' data processing, test publishing and computer processing services
compete with several test publishers and data processing service bureaus. The
Company's customer support maintenance organization competes with service
provided by manufacturers, other national service companies and local providers
of maintenance services.
NCS' financial systems compete with systems developed by users, service
bureaus and other direct competitors offering asset management accounting
systems. The Company believes that it is one of the leading suppliers of systems
to bank trust departments.
PATENTS, TRADEMARKS AND LICENSES
The Company holds certain patents, registered and unregistered trademarks,
and copyrights. The Company also has license rights to a number of patents,
trademarks, copyrights and manufacturing processes and materials. Included among
these licenses are agreements with publishers of various copyrighted
psychological, aptitude and achievement tests to distribute these tests, to
print and sell answer sheets for such tests, and to score such tests. Payment of
royalties is usually based upon the volume of tests distributed, answer sheets
sold, and tests scored. NCS believes that its business is not dependent upon any
one individual patent, trademark, copyright or license right or group thereof.
"Trans-Optic", "Sentry", "Trustware", "ULTRUST", "BondMaster", "CertMaster",
"OpScan" and "Precept" appearing herein are registered trademarks of National
Computer Systems, Inc.
EMPLOYEES
As of February 28, 1994, the Company employed approximately 2,700 full-time
employees. None of the Company's employees are subject to a collective
bargaining agreement, and the Company believes that its employee relations are
excellent.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of all of the executive officers of the
Company as of February 28, 1994 are listed below along with their business
experience during the past five years.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- --- ---------------------------------------
<S> <C> <C>
Charles W. Oswald 66 Chairman of the Board and Chief
Executive Officer
David C. Malmberg 51 Vice Chairman of the Board
Robert C. Bowen 52 Senior Vice President
Norman A. Cocke 48 Senior Vice President and Chief
Financial Officer
John W. Fenton, Jr. 53 Secretary-Treasurer
Donald J. Gibson 63 Senior Vice President
Richard L. Poss 48 Vice President
David W. Smith 49 Vice President
Jeffrey W. Taylor 40 Vice President and Corporate Controller
Adrienne T. Tietz 47 Vice President
Arthur E. Weisberg 68 Senior Staff Officer
</TABLE>
Mr. Oswald has been Chairman of the Board and Chief Executive Officer of NCS
for more than five years.
Mr. Malmberg has been Vice Chairman of the Board since August, 1992 and
prior to that was President and Chief Operating Officer of NCS for more than
five years.
5
<PAGE>
Mr. Bowen has been a Senior Vice President of NCS since November 1989 and a
Vice President of NCS since August 1989. From June 1988 to July 1989 he was
President of Science Research Associates, Inc. (publishing/communications).
Mr. Cocke has been Senior Vice President and Chief Financial Officer of NCS
since March 1992. From March 1987 to November 1991 he was Vice President,
Finance and Administration of the United States Group of AT&T Global Information
Solutions (formerly NCR Corporation) (information processing systems).
Mr. Fenton has been Secretary-Treasurer of NCS for more than five years.
Mr. Gibson has been a Senior Vice President of NCS since November 1989 and
prior to that was a Vice President for more than five years.
Mr. Poss has been a Vice President of NCS for more than five years.
Mr. Smith has been a Vice President of NCS for more than five years.
Mr. Taylor has been Vice President and Corporate Controller of NCS for more
than five years.
Ms. Tietz has been a Vice President of NCS since November 1989. From March
1989 to October 1989 she was Director of Strategic Planning for NCS.
Mr. Weisberg has been a Senior Staff Officer of NCS since May 1989 and prior
to that was a lawyer with the law firm of Dorsey & Whitney for more than five
years.
Officers are elected annually by the Board of Directors. There are no family
relationships among these officers, nor any arrangement or understanding between
any officer and any other person pursuant to which the officer was selected.
6
<PAGE>
ITEM 2. PROPERTIES
The Company's principal facilities are as follows:
<TABLE>
<CAPTION>
SQUARE
LOCATION FOOTAGE GENERAL PURPOSE
- ---------------------------- --------- ------------------------------------------------------------------------
<S> <C> <C>
Eden Prairie, MN 76,000 Executive general offices; education and international general offices,
sales and marketing
Mesa, AZ 22,000 Education software product development and support
Iowa City, IA (1) 168,000 Assessment test processing and data processing services general offices
and operations
Minnetonka, MN (1) 54,000 Test publishing and scoring general offices and operations
Eagan, MN (1) 109,000 Scanner hardware development and manufacturing; customer support
services general offices and operations; and forms general offices
Edina, MN (1) 101,000 Business systems and services general offices, sales and marketing;
scanner software development
Owatonna, MN (1) 128,000 Forms design and production
Columbia, PA (1) 121,000 Forms design and production
Rotherham, South Yorkshire, 34,000 Forms design and production
England (1)
Huntsville, AL 15,000 Financial systems software development
Atlanta, GA 16,000 Financial systems sales offices with support and training
Cambridge, MA 33,000 Financial systems software development, sales, support and training
offices
Wayne, PA 27,000 Corporate trust general offices and operations
<FN>
- ------------------------
(1) Denotes NCS owned facility.
</TABLE>
The Company believes that its facilities are adequate to meet its current
needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to nor is its property subject to any material
pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of the year ended
January 31, 1994 to a vote of security holders through the solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
"Quarterly Market Data" included in the Annual Report to Stockholders for
the year ended January 31, 1994 is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
"Five-Year Financial Data" included in the Annual Report to Stockholders for
the year ended January 31, 1994 is incorporated herein by reference.
7
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" included in the Annual Report to Stockholders for the year ended
January 31, 1994 is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements and supplementary data of
the registrant and its subsidiaries, included in the Annual Report to
Stockholders for the year ended January 31, 1994, are incorporated herein by
reference:
Consolidated Balance Sheets -- January 31, 1994 and 1993
Consolidated Statements of Income -- Years ended January 31, 1994, 1993 and
1992
Consolidated Statements of Changes in Stockholders' Equity --Years ended
January 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows -- Years ended January 31, 1994, 1993
and 1992
Notes to Consolidated Financial Statements -- January 31, 1994
Report of Independent Auditors dated March 16, 1994
"Quarterly Results of Operations (Unaudited)"
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
"Election of Directors" included in the Company's definitive proxy statement
dated April 20, 1994 and "Executive Officers of the Registrant" in Part I of
this report are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
"Summary Compensation Table" and "Stock Options" included in the Company's
definitive proxy statement dated April 20, 1994 are incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
"Election of Directors" and "Ownership of NCS Common Stock by Certain
Beneficial Owners and Executive Officers" included in the Company's definitive
proxy statement dated April 20, 1994 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in footnote 7 to the "Summary Compensation Table"
included under the caption "Executive Compensation" in the Company's definitive
proxy statement dated April 20, 1994 is incorporated herein by reference.
The information contained in the third and sixth paragraphs which follow the
footnotes to the table set forth under the caption "Election of Directors" in
the Company's definitive proxy statement dated April 20, 1994 is incorporated
herein by reference.
8
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) List of Financial Statements and Financial Statement Schedules
(1) The following consolidated financial statements of National Computer
Systems, Inc. and subsidiaries, included in the annual report of the registrant
to its stockholders for the year ended January 31, 1994, are incorporated by
reference in Item 8:
Consolidated Balance Sheets -- January 31, 1994 and 1993
Consolidated Statements of Income -- Years ended January 31, 1994, 1993
and 1992
Consolidated Statements of Changes in Stockholders' Equity -- Years
ended January 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows -- Years ended January 31, 1994,
1993 and 1992
Notes to Consolidated Financial Statements -- January 31, 1994
Report of Independent Auditors dated March 16, 1994.
(2) The following consolidated financial statement schedules of National
Computer Systems, Inc. and subsidiaries are included in Item 14(d):
Schedule II -- Amounts receivable from related parties and underwriters,
promoters, and employees other than related parties
Schedule V -- Property, plant and equipment
Schedule VI -- Accumulated depreciation, depletion and amortization of
property, plant and equipment
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore
have been omitted.
(3) -- Listing of Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
- ---------
<C> <C> <S>
3A -- Restated Articles of Incorporation, as amended, are incorporated herein by reference to Exhibit 3
to the NCS Form 10-Q for the quarter ended April 30, 1987.
3B -- By-Laws, as amended, are incorporated herein by reference to Exhibit 3(b) to the NCS Form 10-Q for
the quarter ended July 31, 1985.
4A -- Instruments with respect to long-term debt where the total debt authorized thereunder does not
exceed 10% of the consolidated total assets of the registrant are not being filed; the registrant
will furnish a copy of any such instrument to the Commission upon request.
4B -- Rights Agreement dated as of June 23, 1987 between NCS and Norwest Bank Minnesota, N.A. (including
the form of Right Certificate attached as Exhibit B thereto) is incorporated herein by reference
to Exhibit 4.1 to the NCS Form 8-K -- reporting date: June 23, 1987.
4C -- Amended and Restated Credit Agreement dated as of July 31, 1991 between NCS and First Bank National
Association, as agent, and as further amended by the First Amendment thereto dated as of January
25, 1994.
*10A -- NCS 1982 Employee Stock Option Plan is incorporated herein by reference to Exhibit 28 to Form S-8
Registration Statement and Exhibit 28 to Post Effective Amendment No. 1 to Form S-8 Registration
Statement No. 2-80386.
*10B -- NCS 1984 Employee Stock Option Plan is incorporated herein by reference to Exhibit 10 to the
Company's Form 10-Q for the quarter ended July 31, 1984.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
- ---------
<C> <C> <S>
*10C -- NCS 1986 Employee Stock Option Plan is incorporated herein by reference to Exhibit 10D to the
Company's Form 10-K for the fiscal year ended January 31, 1986.
*10D -- NCS Non-Employee Director Stock Option Plan is incorporated herein by reference to Exhibit 10F to
the Company's Form 10-K for the fiscal year ended January 31, 1989.
*10E -- NCS 1990 Employee Stock Option Plan, as amended, is incorporated herein by reference to Exhibit 10F
to the Company's Form 10-K for the fiscal year ended January 31, 1993.
*10F -- NCS 1990 Long-Term Incentive Plan is incorporated herein by reference to Exhibit 10H to the
Company's Form 10-K for the fiscal year ended January 31, 1990.
*10G -- NCS 1992 Employee Stock Purchase Plan is incorporated herein by reference to Exhibit 10I to the
Company's Form 10-K for the fiscal year ended January 31, 1992.
*10H -- Description of Retirement Arrangements with David C. Malmberg is incorporated herein by reference
to Exhibit 19 to the Company's Form 10-Q for the fiscal quarter ended October 31, 1992.
*10I -- NCS Corporate Management Incentive Plan -- 1993 is incorporated herein by reference to Exhibit 10J
to the Company's Form 10-K for the fiscal year ended January 31, 1993.
*10J -- NCS Corporate Management Incentive Plan -- 1994.
*10K -- Agreement dated December 3, 1993 between NCS and Philip W. Arneson and Delores A. Arneson.
11 -- Statement Re: Computation of Earnings Per Share.
13 -- Portions of NCS' Annual Report to Stockholders for the fiscal year ended January 31, 1994.
21 -- Significant Subsidiaries.
23 -- Consent of Independent Auditors.
24 -- Power of attorney authorizing J. W. Fenton, Jr. to sign the NCS Form 10-K for the year ended
January 31, 1994 on behalf of other officers and directors.
<FN>
- ------------------------
* Indicates management contract or compensatory plan or arrangement required
to be filed as an exhibit to this report.
</TABLE>
(b) Reports on Form 8-K
In a report filed on Form 8-K dated January 5, 1994, the Company reported a
fourth quarter fiscal 1993 charge for product discontinuance and
restructuring. See Note 2 -- Restructuring Charge of Notes to Consolidated
Financial Statements included in the Annual Report to Stockholders for the
year ended January 31, 1994, incorporated herein by reference.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate section
of this report.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate section
of this report.
10
<PAGE>
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.
NATIONAL COMPUTER SYSTEMS, INC.
Dated: April 26, 1994 By /s/ J. W. FENTON, JR.
-----------------------------------
J. W. Fenton, Jr.
SECRETARY-TREASURER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By CHARLES W. OSWALD* Chairman of the Board of
------------------------------ Directors
Charles W. Oswald (principal executive
officer)
By DAVID C. MALMBERG*
------------------------------ Director
David C. Malmberg
By DR. DAVID P. CAMPBELL*
------------------------------ Director
Dr. David P. Campbell
By WILLIAM W. CHORSKE*
------------------------------ Director
William W. Chorske
By DAVID C. COX*
------------------------------ Director
David C. Cox
By JEAN B. KEFFELER*
------------------------------ Director
Jean B. Keffeler
By STEPHEN G. SHANK*
------------------------------ Director
Stephen G. Shank
By JOHN E. STEURI*
------------------------------ Director
John E. Steuri
By JEFFREY E. STIEFLER*
------------------------------ Director
Jeffrey E. Stiefler
By JOHN W. VESSEY*
------------------------------ Director
John W. Vessey
11
<PAGE>
By ROBERT F. ZICARELLI*
------------------------------ Director
Robert F. Zicarelli
By NORMAN A. COCKE* Senior Vice President and
------------------------------ Chief Financial Officer
Norman A. Cocke (principal financial
officer)
By JEFFREY W. TAYLOR* Vice President and
------------------------------ Controller (principal
Jeffrey W. Taylor accounting officer)
* Executed on behalf of the indicated officers and directors of the registrant
by J. W. Fenton, Jr., Secretary-Treasurer, duly appointed attorney-in-fact.
/s/ J. W. FENTON, JR.
- ----------------------------------- Dated: April 26, 1994
(ATTORNEY-IN-FACT)
12
<PAGE>
FORM 10-K
NATIONAL COMPUTER SYSTEMS, INC.
FOR THE FISCAL YEAR ENDED JANUARY 31, 1994
INDEX TO
CONSOLIDATED FINANCIAL SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE
NUMBER
- ---------
<C> <S>
II -- Amounts receivable from related parties and underwriters, promoters, and employees other than related
parties
V -- Property, plant and equipment
VI -- Accumulated depreciation, depletion and amortization of property, plant and equipment
</TABLE>
All other schedules have been omitted because they are not required or are
inapplicable.
13
<PAGE>
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
NATIONAL COMPUTER SYSTEMS, INC.
<TABLE>
<CAPTION>
COL. D
COL. E
COL. B DEDUCTIONS
BALANCE -------------------- BALANCE AT END OF
AT AMOUNTS PERIOD
COL. A BEGINNING COL. C AMOUNTS WRITTEN ----------------------
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED OFF CURRENT NOT CURRENT
- ------------------------------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Year Ended January 31, 1994:
Philip W. Arneson (A)........ $ 373,646 $ 121,354 $ -0- $ 295,000 $ 200,000 $ -0-
Year Ended January 31, 1993:
Philip W. Arneson............ $ 173,646 $ 200,000 $ -0- $ -0- $ 373,646 $ -0-
Year Ended January 31, 1992:
Philip W. Arneson............ $ -0- $ 225,000 $ 51,354 $ -0- $ 173,646 $ -0-
<FN>
- ------------------------
(A) Mr. Arneson ceased being a Senior Vice President and President, NCS
Financial on August 4, 1993. On June 29, 1992, Mr. Arneson filed a
petition under Chapter 7 of the Federal Bankruptcy Code and, on October
14, 1992, a notice of discharge was issued. On October 7, 1992, Mr.
Arneson entered into an agreement with NCS reaffirming his obligation to
repay the loans obtained from NCS. The loans have been restructured and
collection of a portion of the loans has been permanently forgiven. All
after-tax amounts from gains realized on the sale of NCS Common Stock plus
certain other contractual amounts from NCS, if payable, will be applied to
the loan balance or forgiven amounts. The loans bear an interest rate of
1% over the prime rate and are secured by mortgages on Mr. Arneson's home
and an assignment of life insurance proceeds.
</TABLE>
14
<PAGE>
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
NATIONAL COMPUTER SYSTEMS, INC.
<TABLE>
<CAPTION>
COL. B COL. E
BALANCE OTHER COL. F
AT COL. C CHANGES-ADD BALANCE
COL. A BEGINNING ADDITIONS COL. D (DEDUCT)- AT END OF
CLASSIFICATION OF PERIOD AT COST RETIREMENTS DESCRIBE (A) PERIOD
- ----------------------------------- --------- --------- -------------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year Ended January 31, 1994:
Land............................. $ 3,270 $ 1,026 $ -- $ 2 $ 4,298
Building and improvements........ 28,165 4,901 209 99 32,956
Machinery and equipment.......... 82,443 14,832 7,878 (447 ) 88,950
Equipment held for lease......... 9,012 1,176 1,950 (33 ) 8,205
Rotable service parts............ 12,667 1,917 4,663 1,164 11,085
--------- --------- -------------- ------------- ---------
$ 135,557 $ 23,852 $ 14,700 $ 785 $ 145,494
--------- --------- -------------- ------------- ---------
--------- --------- -------------- ------------- ---------
Year Ended January 31, 1993:
Land............................. $ 3,565 $ -- $ 295 $ -- $ 3,270
Building and improvements........ 28,513 482 889 59 28,165
Machinery and equipment.......... 72,755 11,643 3,481 1,526 82,443
Equipment held for lease......... 9,869 769 1,777 151 9,012
Rotable service parts............ 15,218 1,490 4,917 876 12,667
--------- --------- -------------- ------------- ---------
$ 129,920 $ 14,384 $ 11,359 $ 2,612 $ 135,557
--------- --------- -------------- ------------- ---------
--------- --------- -------------- ------------- ---------
Year Ended January 31, 1992:
Land............................. $ 3,551 $ -- $ -- $ 14 $ 3,565
Building and improvements........ 29,127 1,216 399 (1,431 ) 28,513
Machinery and equipment.......... 70,809 6,666 6,873 2,153 72,755
Equipment held for lease......... 11,035 1,422 2,581 (7 ) 9,869
Rotable service parts............ 19,461 2,153 6,396 -- 15,218
--------- --------- -------------- ------------- ---------
$ 133,983 $ 11,457 $ 16,249 $ 729 $ 129,920
--------- --------- -------------- ------------- ---------
--------- --------- -------------- ------------- ---------
<FN>
- ------------------------
(A) Includes equipment and rotable service parts obtained through acquisition,
translation adjustment of property, plant and equipment held by NCS
foreign subsidiaries and transfers from other balance sheet captions.
</TABLE>
15
<PAGE>
SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
NATIONAL COMPUTER SYSTEMS, INC.
<TABLE>
<CAPTION>
COL. C COL. E
COL. B ADDITIONS OTHER COL. F
BALANCE AT CHARGED TO CHANGES-ADD BALANCE AT
COL. A BEGINNING COSTS AND COL. D (DEDUCT)- END OF
DESCRIPTION OF PERIOD EXPENSES (A) RETIREMENTS DESCRIBE (B) PERIOD
- --------------------------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended January 31, 1994:
Building and improvements...... $ 6,736 $ 1,113 $ 118 $ -- $ 7,731
Machinery and equipment........ 54,484 9,655 7,676 (20) 56,443
Equipment held for lease....... 7,141 1,040 1,265 (7) 6,909
Rotable service parts.......... 5,063 4,481 4,629 (10) 4,905
----------- ------------- ----------- ------------- -----------
$ 73,424 $ 16,289 $ 13,688 $ (37) $ 75,988
----------- ------------- ----------- ------------- -----------
----------- ------------- ----------- ------------- -----------
Year Ended January 31, 1993:
Building and improvements...... $ 6,625 $ 967 $ 856 $ -- $ 6,736
Machinery and equipment........ 46,028 10,190 3,306 1,572 54,484
Equipment held for lease....... 6,927 1,020 950 144 7,141
Rotable service parts.......... 3,431 6,249 4,917 300 5,063
----------- ------------- ----------- ------------- -----------
$ 63,011 $ 18,426 $ 10,029 $ 2,016 $ 73,424
----------- ------------- ----------- ------------- -----------
----------- ------------- ----------- ------------- -----------
Year Ended January 31, 1992:
Building and improvements...... $ 5,897 $ 1,002 $ 274 $ -- $ 6,625
Machinery and equipment........ 42,169 9,232 5,373 -- 46,028
Equipment held for lease....... 7,516 1,395 1,984 -- 6,927
Rotable service parts.......... 3,598 6,229 6,396 -- 3,431
----------- ------------- ----------- ------------- -----------
$ 59,180 $ 17,858 $ 14,027 $ -0- $ 63,011
----------- ------------- ----------- ------------- -----------
----------- ------------- ----------- ------------- -----------
<FN>
- ------------------------
(A) Depreciation has been computed based on estimated useful lives of the
assets as follows:
</TABLE>
<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Plant and equipment:
Building and improvements........................ 5 to 40
Machinery and equipment.......................... 3 to 20
Equipment held for lease......................... 2 to 5
Rotable service parts............................ 1 to 7
<FN>
(B) Includes translation adjustment of accumulated depreciation of property,
plant and equipment held by NCS foreign subsidiaries and transfers from
other balance sheet captions.
</TABLE>
16
<PAGE>
FORM 10-K
NATIONAL COMPUTER SYSTEMS, INC.
FOR THE FISCAL YEAR ENDED JANUARY 31, 1994
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
- ---------
<C> <S>
4C Amended and Restated Credit Agreement dated as of July 31, 1991 between NCS and First Bank National
Association, as agent, and as further amended by the First Amendment dated as of January 25, 1994.
10J NCS Corporate Management Incentive Plan -- 1994.
10K Agreement dated December 3, 1993 between NCS and Philip W. Arneson and Delores A. Arneson.
11 Statement Re: Computation of Earnings per Share.
13 Portions of the Annual Report to Stockholders for the fiscal year ended January 31, 1994.
21 Significant Subsidiaries.
23 Consent of Independent Auditors.
24 Power of attorney authorizing a certain person to sign the NCS Form 10-K for the year ended January 31,
1994 on behalf of other officers and directors.
</TABLE>
17
<PAGE>
EXHIBIT 4C
FIRST AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT, dated as of January 25, 1994, by and among NATIONAL
COMPUTER SYSTEMS, INC., a Minnesota corporation (the "Company"), the BANKS
signatories hereto (each a "Bank" and, collectively, the "Banks") and FIRST BANK
NATIONAL ASSOCIATION as administrative agent for the Banks (in such capacity,
the "Agent").
WHEREAS, the Company, the Banks and the Agent entered into an Amended and
Restated Credit Agreement dated as of July 31, 1991 (the "Credit Agreement");
and
WHEREAS, the parties desire to amend the Credit Agreement as hereinafter
provided.
NOW, THEREFORE, in consideration of the premises, the sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. CERTAIN DEFINED TERMS. Each capitalized term used herein without being
defined but which is defined in the Credit Agreement shall have the respective
meaning ascribed to such term in the Credit Agreement.
2. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is hereby amended
as follows:
(a) Section 1.2 is amended by deleting "August 1, 1994" from the
definition of "Termination Date" and inserting in lieu thereof: "August 1,
1996".
(b) Section 2.17(a)(ii) is amended by inserting immediately after
"Amount" and prior to the final period thereof:
"; PROVIDED, that from and after the Determination Date, as
defined below, through the Termination Date, the Commitment Fee
shall be .25 of 1% per annum (computed as described above); (for
purposes of this Section, the -- "Determination Date" shall be
that Business Day (if any) after January 20, 1994 when the Agent
shall have determined, based upon evidence in form and substance
satisfactory to the Agent, that (A) no Default or Event of Default
exists and (B) the Consolidated Net Income of the Company for its
four immediately preceding fiscal quarters shall have been more
than $0)".
(c) Section 6.2 is amended in its entirety to provide:
"Permit, at the end of (a) any fiscal quarter ending prior to
January 1, 1994, its Consolidated Tangible Net Worth to be less
than the sum of $90,000,000 plus 50% of the sum of Consolidated
Net Income for each fiscal quarter after January 31, 1991 through
the date of determination; and (b) any fiscal quarter ending after
January 1, 1994, its Consolidated Tangible Net Worth to be less
than $90,000,000 plus 50% of the sum of Consolidated Net Income
for each fiscal quarter after January 31, 1993 through the date of
determination."
3. AFFIRMATIONS. The parties hereto acknowledge and confirm that (a) the
Credit Agreement, as hereby amended, is and remains in full force and effect in
accordance with its terms and (b) the three Notes executed by the Company in
connection with the Credit Agreement and dated November 12, 1991 remain the
Notes under the Credit Agreement, as hereby amended, and are in full force and
effect in accordance with their terms.
4. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
Amended and Restated Credit Agreement to be executed as of the day and year
first above written.
NATIONAL COMPUTER SYSTEMS, INC.
By: _____/S/_CHARLES W. OSWALD________
Name: ________Charles W. Oswald_______
Title: ________Chairman and CEO_______
By: ______/S/_J.W. FENTON, JR.________
Name: ________J. W. Fenton, Jr._______
Title: _____Secretary -- Treasurer____
FIRST BANK NATIONAL ASSOCIATION,
in its individual capacity and as
Agent
By: _______/S/_JOEL C. KOZLAK_________
Title: _________Vice President________
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By: _________/S/_MARY FALCK___________
Title: _________Vice President________
THE FIRST NATIONAL BANK OF CHICAGO
By: ___/S/_ARMUND J. SCHOEN, JR.______
Title: _________Vice President________
19
<PAGE>
AMENDED AND RESTATED
CREDIT AGREEMENT
AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement"), dated as of July
31, 1991, among NATIONAL COMPUTER SYSTEMS, INC. (the "Company"), a Minnesota
corporation, the BANKS signatories hereto (each a "Bank" and, collectively, the
"Banks") and FIRST BANK NATIONAL ASSOCIATION as administrative agent for the
Banks (in such capacity, the "Agent").
Recitals:
A. The Company, the Banks and the Agent entered into a Credit Agreement
dated as of March 29, 1989 (the "Original Credit Agreement").
B. The Original Credit Agreement was amended by a First Amendment
thereto (the "First Amendment"), dated as of December 31, 1990.
C. The Company, the Banks and the Agent wish to amend and restate the
Original Credit Agreement as amended by the First Amendment on the terms and
subject to the conditions of this Agreement.
NOW THEREFORE, in consideration of the mutual premises herein set forth, the
parties hereto agree as follows:
SECTION 1. DEFINITIONS AND ACCOUNTING TERMS.
1.1. ACCOUNTING TERMS AND DETERMINATIONS. All accounting terms not
otherwise specifically defined herein shall be construed, all accounting
determinations hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared, in accordance with Generally Accepted
Accounting Principles. When used herein, the term "financial statements" shall
include the notes and schedules thereto.
1.2. OTHER DEFINED TERMS. Unless the context otherwise requires, as used
herein and in the exhibits hereto, the following terms shall have the following
respective meanings (such terms to be equally applicable to both the singular
and plural forms of the terms defined):
"ACCOUNTANTS" shall mean Ernst & Young or such other firm of independent
certified public accountants of recognized national standing selected by the
Company.
"AFFILIATE" shall mean, with respect to any Person, a Person (other than, in
the case of the Company, a Consolidated Subsidiary) which directly or indirectly
controls, is controlled by, or is under common control with, such other Person.
For purposes of this definition, "control" (including with correlative meanings,
the terms "controlling," "controlled by" and "under common control with"), as
applied to any Person, means the possession, directly or indirectly of the power
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
"AGGREGATE COMMITMENT AMOUNT" shall mean the sum of all the Commitments,
$40,000,000, or as reduced pursuant to Section 2.3.
"AGGREGATE OUTSTANDINGS" shall mean at the time of any determination, the
aggregate unpaid principal balance of all Loans.
"APPLICABLE CD RATE" shall mean with respect to any CD Loan for the
applicable Interest Period, the Reserve Adjusted CD Rate plus the applicable CD
Spread.
"APPLICABLE FEDERAL FUNDS RATE" shall mean on any day, the Federal Funds
Rate plus the applicable Federal Funds Spread.
"APPLICABLE LIBO RATE" shall mean with respect to any LIBOR Loan for the
applicable Interest Period, the Reserve Adjusted LIBO Rate plus the applicable
LIBOR Spread.
20
<PAGE>
"APPLICABLE REFERENCE RATE" shall mean (a) on any day during the period
August 1, 1991 through July 31, 1992, the Reference Rate on such Day; and (b) on
any day after July 31, 1992, the Reference Rate MINUS the applicable Reference
Spread and Leverage Adjustment (if any), but in no case shall such Applicable
Reference Rate be less than the Minimum Rate.
"ASSESSMENT RATE" shall mean for the Interest Period for a CD Loan, the rate
per annum (expressed as a percentage) determined by the Agent to be the sum of
the net annual assessment rate in effect on the first day of such Interest
Period for a CD Loan for calculating the assessment payable by the Agent to the
Federal Deposit Insurance Corporation or any successor ("FDIC") for FDIC's
insuring time deposits at offices of the Agent in the United States and all
other rates assessed in connection with the making of a CD Loan.
"AVERAGE UNUSED COMMITMENT AMOUNT" shall mean for any period for which
Commitment Fees are being determined, an amount determined by dividing (a) the
sum of the Unused Commitment Amounts for the days in said period by (b) the
number of days in said period.
"BORROWING DATE" shall mean a Business Day or Eurodollar Business Day on
which the making of a Loan occurs or is proposed to occur.
"BORROWING REQUEST" shall mean a written request signed by the Company in
the form of Exhibit E hereto.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or any other
day on which commercial banks in Minneapolis, Minnesota or Chicago, Illinois are
authorized or required by law or other governmental action to close.
"CASH AVAILABLE FOR DEBT SERVICE" shall mean for any period of
determination, (a) the sum of (i) Consolidated Income Before Taxes and before
the effect of any extraordinary items for said period, and (ii) Fixed Interest
Charges for said period, less (b) income taxes provided for during said period,
except income taxes provided for with respect to extraordinary items, all
determined for the Company and its Consolidated Subsidiaries on a consolidated
basis in accordance with Generally Accepted Accounting Principles consistently
applied.
"CD LOANS" shall mean all Loans bearing interest at a rate based upon the
Reserve Adjusted CD Rate.
"CD RATE" shall mean with respect to the Banks, on any calculation date and
for any Interest Period: (a) the rate per annum for negotiable certificates of
deposit having a maturity comparable to the Interest Period for the related CD
Loan as such rate is released by the Federal Reserve Board as reported on page
120 (or other applicable page) of Telerate Data Service under the heading "Certs
of Deposit"; but if by 2:00 p.m. (Minneapolis time) no such rate is reported,
then (b) the rate per annum (rounded upward, if necessary, to the next higher
1/100th of 1%) determined by the Agent (which determination shall be conclusive
in the absence of manifest error) to be the average of the secondary market bid
rates at approximately 2:30 p.m. (Minneapolis time) for the purchase of
certificates of deposit issued by the Agent in the dollar amount comparable to
the requested CD Loan and having a maturity comparable to the Interest Period
for such CD Loan; and PROVIDED, FURTHER, that if the Agent does not at the time
of determination issue certificates of deposit with the same maturity as the
related CD Loan, then certificates of deposit with the maturities closest to the
maturity of such CD Loan shall be used to determine the CD Rate for such CD
Loan.
"CD RESERVE PERCENTAGE" shall mean the percentage, expressed as a decimal,
which is in effect on the first day of the relevant Interest Period for a CD
Loan, as specified by the Federal Reserve Board (or any successor) for
determining the applicable reserve requirement (including, without limitation,
any basic, supplemental or emergency reserves) for the Agent in respect of new
non-personal time deposits in Dollars having a maturity comparable to the
requested CD Loan and in an amount equal to or exceeding $100,000.
21
<PAGE>
"CD SPREAD" shall mean with respect to CD Loans: (a) for the period August
1, 1991 through July 31, 1992, 0.625%; and (b) for the period August 1, 1992
through the Termination Date, one of the following: (i) if the Leverage Ratio is
less than .35:1, then 0.75%, (ii) if the Leverage Ratio is greater than or equal
to .35:1 but less than .50:1, then 1.05% or (iii) if the Leverage Ratio is
greater than or equal to .50:1, then 1.35%.
"CLC" shall mean CLC Financial Services, Inc., a Minnesota corporation.
"CLC GUARANTIES" shall mean as of the date of determination, the total
principal amount of all guaranties of indebtedness of CLC issued by the Company
or any Consolidated Subsidiary less the amount by which the Present Value of
Firm Term Revenues as of the date of determination exceeds the total principal
amount of all indebtedness of CLC for money borrowed (other than the principal
amount of indebtedness of CLC guaranteed by the Company or any Consolidated
Subsidiary) as of the date of determination.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, as from
time to time in effect.
"COMMITMENTS" shall mean the Banks' undertakings to make Loans to the
Company, subject to the terms and conditions hereof, in the Aggregate Commitment
Amount.
"COMMITMENT AMOUNT" shall mean in respect of any Bank, the amount set forth
next to the name of such Bank on the signature pages hereof, or as such amount
may be changed by assignment or as decreased pursuant to Section 2.3 hereof.
"COMMITMENT FEE" shall have the meaning set forth in Section 2.17 hereof.
"COMPLIANCE CERTIFICATE" shall mean the certificate of the Company in the
form of Exhibit F hereto required to be delivered under this Agreement.
"CONSOLIDATED DEBT SERVICE" shall mean, for any period, the sum of (a) Fixed
Interest Charges for said period, (b) dividends paid during said period and (c)
Mandatory Principal Payments, all determined for the Company and its
Consolidated Subsidiaries on a consolidated basis in accordance with Generally
Accepted Accounting Principles consistently applied.
"CONSOLIDATED INCOME BEFORE TAXES" shall mean, for any period, income before
income taxes of the Company and its Consolidated Subsidiaries determined in
accordance with Generally Accepted Accounting Principles consistently applied.
"CONSOLIDATED INTEREST BEARING DEBT" shall mean with respect to the Company
and its Consolidated Subsidiaries, all items of debt for money borrowed and all
obligations under capital leases, all determined on a consolidated basis in
accordance with Generally Accepted Accounting Principles consistently applied,
but excluding the ESOP Debt.
"CONSOLIDATED NET INCOME" shall mean, for any period, the balance remaining
after deducting from the gross revenues of the Company and its Consolidated
Subsidiaries all expenses and other proper charges (including taxes on income),
all determined on a consolidated basis in accordance with Generally Accepted
Accounting Principles consistently applied.
"CONSOLIDATED SUBSIDIARY" shall mean, as of the date of any determination,
any Subsidiary of the Company included in the financial statements of the
Company and its Subsidiaries prepared on a consolidated basis in accordance with
Generally Accepted Accounting Principles.
"CONSOLIDATED TANGIBLE NET WORTH" shall mean, as of the date of any
determination, (i) the sum of the amounts set forth on the consolidated balance
sheet of the Company and its Consolidated Subsidiaries as (a) the par or stated
value of all outstanding capital stock and (b) capital surplus, retained
earnings and premium on capital stock LESS (ii) the net book value of Goodwill
of the Company and its Consolidated Subsidiaries; PROVIDED, THAT any effect that
the ESOP Debt has on capital stock, capital surplus or retained earnings of the
Company shall be disregarded in determining Consolidated Tangible Net Worth.
22
<PAGE>
"CONTINGENT LIABILITIES" shall mean with respect to the Company and its
Consolidated Subsidiaries and as of the date of determination, the sum of the
CLC Guaranties and the total amount of all letters of credit, guarantees of
indebtedness of any other Person (other than CLC) and other agreements to pay
the obligations of any other Person (other than CLC).
"DEFAULT" shall mean an event, act or occurrence which, with the giving of
notice or the lapse of time (or both), would become an Event of Default.
"DISCLOSURE SCHEDULE" shall mean the schedule which is attached hereto as
Exhibit B.
"DOLLARS" or "$" shall mean lawful currency of the United States of America.
"EFFECTIVE DATE" shall mean the date of this Agreement.
"EFFECTIVE PERIOD" shall mean the period from the Effective Date to the
earlier of the day on which the Commitments terminate or the Business Day
preceding the Termination Date.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, as from time to time in effect.
"ESOP" shall mean the National Computer Systems, Inc. Employee Stock
Ownership Plan, dated as of February 1, 1989, an employee stock ownership plan
created by the Company under Section 4975(e)(7) of the Code.
"ESOP DEBT" shall mean the debt obligation of the ESOP dated May 4, 1989 in
the original principal amount of $9,999,631.25, the proceeds of which were used
by the ESOP to purchase shares of the Company.
"EURODOLLAR BUSINESS DAY" shall mean a Business Day upon which commercial
banks in London, England are open for domestic and international business.
"EVENT OF DEFAULT" shall mean any event set forth in Section 7 hereof.
"EXCESS PAYMENT" shall mean any payment or prepayment received by a Bank,
whether voluntary or involuntary, through the exercise of the right of setoff or
otherwise, in excess of its Pro Rata Share.
"FEDERAL FUNDS LOAN" shall mean all Loans bearing interest at a rate based
upon the Federal Funds Rate.
"FEDERAL FUNDS RATE" shall mean, for any day, the weighted average of the
rates on overnight Federal funds transactions with member banks of the Federal
Reserve System arranged by Federal funds brokers as published by the Federal
Reserve Bank of New York for such day or, if such day is not a Business Day, for
the next preceding Business Day (or, if such rate is not so published for any
day, the average rate charged to the Bank on such day on such transactions as
determined by the Agent).
"FEDERAL FUNDS SPREAD" shall mean with respect to Federal Funds Loans,
0.75%.
"FEDERAL RESERVE BOARD" shall mean the Board of Governors of the Federal
Reserve System or any governmental authority succeeding to its functions.
"FINANCIAL STATEMENTS" shall have the meaning set forth in Section 3.7
hereof.
"FIXED INTEREST CHARGES" shall mean for any period of determination, the
total interest expenses on Consolidated Interest Bearing Debt, except interest
expenses on the ESOP Debt.
"FIXED RATE LOAN" shall mean a CD Loan or a LIBOR Loan.
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" shall mean generally accepted
accounting principles as in effect from time to time, including, without
limitation, applicable statements, bulletins and interpretations by the
Financial Accounting Standards Board and applicable bulletins, opinions and
interpretations issued by the American Institute of Certified Public Accountants
or its committees.
23
<PAGE>
"GOODWILL" shall mean the excess of the cost of an acquired enterprise over
the book value of the acquired net assets, all determined in accordance with
Generally Accepted Accounting Principles consistently applied.
"GOVERNMENTAL BODY" shall mean any court or any federal, state or municipal
department, commission, board, bureau, agency, public authority or
instrumentality.
"GOVERNMENTAL YIELD" shall mean as of the date of determination, the yield
on U.S. Treasury Securities (as published by the Federal Reserve Bank of New
York) having a maturity closest to the last day of the Interest Period
applicable to the Fixed Rate Loan being prepaid, if determining the Prepayment
Penalty, and having a maturity of one year, if determining the Present Value of
Firm Term Revenues.
"IMMEDIATELY AVAILABLE FUNDS" shall mean funds with good value on the day
and in the city in which payment is received.
"INTEREST PERIOD" shall mean, with respect to any Fixed Rate Loan, a period
from the Borrowing Date with respect to such Loan (or the date of the expiration
of the then current Interest Period with respect to such Loan) to (i) with
respect to a LIBOR Loan, a date 1, 2, 3, or 6 months thereafter as selected by
the Company in its Borrowing Request for such Loan (but only to the extent
Dollar deposits of such duration are generally available to each of the Banks in
the inter-bank Eurodollar market) and (ii) with respect to a CD Loan, a date 1,
2, 3 or 6 months thereafter as selected by the Company in its Borrowing Request
for such Loan, subject in all cases to the following:
(a) (i)if any Interest Period with respect to a CD Loan would otherwise
end on a day which is not a Business Day, that Interest Period shall be
extended to the next succeeding Business Day; and (ii) if any Interest
Period with respect to a LIBOR Loan would otherwise end on a day which is
not a Eurodollar Business Day, that Interest Period shall be extended to the
next succeeding Eurodollar Business Day, unless the result of such extension
would be to extend such Interest Period into another calendar month, in
which event such Interest Period shall end on the immediately preceding
Eurodollar Business Day;
(b) subject to the provisions of Section 2.10 hereof, a Borrowing
Request selecting a particular Interest Period once received by the Agent is
irrevocable and binding on the Company;
(c) no Interest Period shall extend beyond the Termination Date;
(d) each Interest Period with respect to a CD Loan may vary in regard to
the length of period, in accordance with the practices and customs of
banking institutions in connection with certificates of deposit purchased in
New York, New York by dealers in certificates of deposit as from time to
time in effect;
(e) each Interest Period with respect to a LIBOR Loan may vary in regard
to the length of period, in accordance with the customs and practices of the
international inter-bank markets; and
(f) the first Interest Period for any Fixed Rate Loan shall commence on
the date of such Loan, and each succeeding Interest Period (if any) for such
Loan shall commence on the last day of the preceding Interest Period.
"INVOKED EVENT OF DEFAULT" shall mean an Event of Default which either (a)
has resulted in the automatic termination of the Commitments and the automatic
acceleration of the maturity of the Notes pursuant to Section 7.1 hereof or (b)
on account of which the Agent, at the direction of the Majority Banks, has
declared the Commitments terminated and has declared the obligations of the
Company under the Notes immediately due and payable.
"LEVERAGE RATIO" shall mean the ratio (calculated pursuant to Section 6.4
below) for the most recently ended fiscal quarter of the Company. For purposes
of determining the applicable CD Spread, LIBOR Spread, Minimum Rate or Reference
Spread and Leverage Adjustment, the Agent shall apply the ratio for the most
recently ended fiscal quarter of the Company using the data supplied by the
24
<PAGE>
Company pursuant to Section 5.6(a) hereof from the day received by the Agent,
but if not received within the time period required under Section 5.6(a), then
from the day 45 days after the end of the most recently ended fiscal quarter.
"LIBO RATE" shall mean with respect to the Agent, the rate per annum
(rounded upward, if necessary, to the nearest whole 1/100th of 1%) equal to the
rate per annum at which the Agent is offered Dollar deposits in the inter-bank
Eurodollar market at approximately 11:00 a.m. (London time) two Eurodollar
Business Days prior to the first day of the proposed Interest Period for a LIBOR
Loan, for delivery on the first day of such Interest Period in the dollar amount
comparable to the amount of, and having a maturity comparable to, the LIBOR Loan
to be made by the Banks.
"LIBOR LOANS" shall mean all Loans bearing interest at a rate based upon
Reserve Adjusted LIBO Rate.
"LIBOR RESERVE PERCENTAGE" shall mean the percentage, expressed as a
decimal, which is in effect on the first day of the relevant Interest Period for
a LIBOR Loan, as specified by the Federal Reserve Board (or any successor) for
determining the applicable reserve requirement (including, without limitation,
any basic, supplemental or emergency reserves) for the Agent in respect of
Eurocurrency liabilities in an amount and with a maturity corresponding to such
LIBOR Loan.
"LIBOR SPREAD" shall mean with respect to LIBOR Loans: (a) for the period
August 1, 1991 through July 31, 1992, 0.625%; and (b) for the period August 1,
1992 through the Termination Date, one of the following: (i) if the Leverage
Ratio is less than .35:1, then 0.75%, (ii) if the Leverage Ratio is greater than
or equal to .35:1 but less than .50:1, then 1.05% or (iii) if the Leverage Ratio
is greater than or equal to .50:1, then 1.35%.
"LIEN" shall mean any mortgage, pledge, lien, security interest, conditional
sale or other title retention agreement or other similar encumbrance.
"LOANS" shall have the meaning set forth in Section 2.1.
"MAJORITY BANKS" shall mean Banks having Commitment Amounts equal to at
least 60.00% of the Aggregate Commitment Amount.
"MANDATORY PRINCIPAL PAYMENTS" shall mean, for any period, the sum of all
mandatory principal payments made on indebtedness for borrowed money of the
Company or any Consolidated Subsidiary (excluding principal payments made under
this Agreement and principal payments made on the ESOP Debt).
"MATERIAL SUBSIDIARY" shall mean any Subsidiary which owns, as of the date
of the Company's most recent available quarterly consolidated balance sheet, at
least 10% of the total of all assets of the Company and its Consolidated
Subsidiaries.
"MEASUREMENT PERIOD" shall mean, with respect to the determination of
Consolidated Net Income and the ratio of Cash Available for Debt Service to
Consolidated Debt Service, the fiscal quarter then ended on such determination
date and the immediately preceding three fiscal quarters.
"MINIMUM RATE" shall mean as calculated on any day, the CD Rate for an
Interest Period of 1 month PLUS one of the following: (i) if the Leverage Ratio
is less than .35:1, then 0.75%, (ii) if the Leverage Ratio is greater than or
equal to .35:1 but less than .50:1, then 1.05% or (iii) if the Leverage Ratio is
greater than or equal to .50:1, then 1.35%.
"NOTES" shall have the meaning set forth in Section 2.4 hereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation created by
Section 4002(a) of ERISA, or any Governmental Body succeeding to the functions
thereof.
25
<PAGE>
"PERMITTED LIENS" shall mean:
(a) Liens given by the Company or a Consolidated Subsidiary to secure
the payment of the purchase price of fixed assets (all such Liens being
called "Purchase Money Liens") acquired, constructed or improved by the
Company or such Consolidated Subsidiary after the Effective Date, PROVIDED
that:
(i) such Purchase Money Liens shall have been created within nine
months of the acquisition, construction or improvement of the fixed
assets subject thereto, and
(ii) no such Purchase Money Liens shall extend to or cover any other
Property of the Company or such Consolidated Subsidiary, as the case may
be, and
(iii) the aggregate amount of the indebtedness secured by any such
Purchase Money Liens in respect of any such Property (whether or not the
Company or such Consolidated Subsidiary assumes or otherwise becomes
liable for such Indebtedness) shall not exceed 100% of the lesser of the
cost or fair market value of such Property at the time of acquisition,
construction or improvement thereof;
(b) Liens in respect of Property acquired by the Company or a
Consolidated Subsidiary which were created prior to, and are in existence on
the date of, the acquisition of such Property (whether or not the Company or
such Consolidated Subsidiary assumes or otherwise becomes liable for any
indebtedness secured thereby) and, in the case of any Person which becomes a
Consolidated Subsidiary after the Effective Date, Liens on its Property or
on the outstanding shares of its capital stock created prior to, and
existing on, the date such Person becomes a Consolidated Subsidiary,
PROVIDED that no such Lien shall extend to or cover any other Property of
the Company or such Consolidated Subsidiary, as the case may be;
(c) Liens and priority claims incidental to the conduct of business or
the ownership of Property and assets (including warehousemen's, attorneys'
and statutory landlords' liens) and Liens, pledges or deposits in connection
with workers' compensation, unemployment insurance, old age benefit or
social security obligations, taxes and duties, governmental charges or
levies, assessments, performance bonds, statutory obligations or other
similar charges, Liens of carriers, contractors, mechanics, repairmen and
materialmen, good faith deposits in connection with tenders, bids, contracts
or leases to which the Company or any Consolidated Subsidiary is a party or
other deposits required to be made in the ordinary course of business and
not in connection with the borrowing of money; PROVIDED in each case the
obligation secured is not overdue or, if overdue, is being contested in good
faith by appropriate proceedings;
(d) Easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the Property subject thereto or
interfere with the ordinary conduct of the business of the Company and its
Subsidiaries taken as a whole; and
(e) Liens on Property or assets of the Company or a Consolidated
Subsidiary existing as of the date of this Agreement and securing
indebtedness of the Company or such Consolidated Subsidiary, as the case may
be.
"PERSON" shall mean a corporation, an association, a partnership, an
organization, a business, an individual, a government or a political subdivision
thereof or a governmental agency.
"PLAN" shall mean (a) with respect to the Company and any Subsidiary, any
plan described in Section 4021(a) of ERISA and not excluded pursuant to Section
4021(b) thereof, under which the Company or any Related Person to the Company or
any Subsidiary has contributed, and (b) with respect to any other Person, any
employee benefit plan or other plan established or maintained by such Person for
the benefit of such Person's employees and to which Title IV of ERISA applies.
26
<PAGE>
"PREPAYMENT PENALTY" shall mean with respect to each prepayment of a Fixed
Rate Loan made prior to the last day of the Interest Period applicable thereto,
the present value on the date of such prepayment (determined in accordance with
generally accepted financial practice using the Government Yield as the discount
factor and discounted monthly) of a hypothetical payment made on the last day of
the Interest Period applicable to such Fixed Rate Loan equal to the amount, if
any, by which (a) the amount of interest that would accrue (using the rate of
interest applicable to such Fixed Rate Loan) on the amount prepaid between the
date of such prepayment and the last day of such Interest Period exceeds (b) the
amount of interest that would accrue (using the Government Yield) on the amount
prepaid between the date of such prepayment and the last day of such Interest
Period.
"PRESENT VALUE OF FIRM TERM REVENUES" shall mean as of the date of
determination, the present value (determined in accordance with generally
accepted financial practice using the Government Yield as the discount factor
and discounted quarterly) of finance receivables and rents to be received by CLC
under notes receivable and leases with noncancellable terms.
"PRO RATA SHARE" shall mean with respect to a Bank and at the time of any
determination, the proportion, expressed as a percentage, which the principal
amount outstanding on the Note held by it bears to the Aggregate Outstandings,
and if at the time of determination the Aggregate Outstandings is zero, then the
proportion, expressed as a percentage, which the Bank's Commitment Amount bears
to the Aggregate Commitment Amount.
"PROPERTY" shall mean all types of real, personal, tangible, intangible or
mixed property.
"RATE NOTICE" shall have the meaning assigned to the term in Section 2.9
hereof.
"REFERENCE BANK" shall mean First Bank National Association.
"REFERENCE SPREAD AND LEVERAGE ADJUSTMENT" shall mean on any day the rate
per annum calculated as follows:
(a) if the difference between the Reserve Adjusted CD Rate for an
Interest Period of one month and the Reference Rate is less than or equal to
1.75% and the Leverage Ratio is (i) less than .35:1, then the adjustment is
0.50%, (ii) greater than or equal to .35:1 but less than .50:1, then the
adjustment is 0.25% or (iii) greater than or equal to .50:1 but less than or
equal to .60:1, then the adjustment is 0%;
(b) if the difference between the Reserve Adjusted CD Rate for an
Interest Period of one month and the Reference Rate is greater than 1.75%
but less than or equal to 2.25% and the Leverage Ratio is (i) less than
.35:1, then the adjustment is 0.75%, (ii) greater than or equal to .35:1 but
less than .50:1, then the adjustment is 0.50% or (iii) greater than or equal
to .50:1 but less than or equal to .60:1, then the adjustment is 0.25%;
(c) if the difference between the Reserve Adjusted CD Rate for an
Interest Period of one month and the Reference Rate is greater than 2.25%
but less than or equal to 2.75% and the Leverage Ratio is (i) less than
.35:1, then the adjustment is 1.00%, (ii) greater than or equal to .35:1 but
less than .50:1, then the adjustment is 0.75% or (iii) greater than or equal
to .50:1 but less than or equal to .60:1, then the adjustment is 0.50%; and
(d) if the difference between the Reserve Adjusted CD Rate for an
Interest Period of one month and the Reference Rate is greater than 2.75%
and the Leverage Ratio is (i) less than .35:1, then the adjustment is 1.25%,
(ii) greater than or equal to .35:1 but less than .50:1, then the adjustment
is 1.00% or (iii) greater than or equal to .50:1 but less than or equal to
.60:1, then the adjustment is .75%.
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<PAGE>
The foregoing with the Minimum Rate are summarized for convenience only in
the following table:
<TABLE>
<CAPTION>
GREATER-THAN OR EQUAL TO .35 GREATER-THAN OR EQUAL TO .50
RR-CD LESS-THAN .35 AND GREATER-THAN .5 AND LESS-THAN OR EQUAL TO .60
- ------------------------------ ------------- --------------- ---------------
<S> <C> <C> <C>
greater than 2.75%............ RR-1.25% RR-1.00% RR-.75%
2.26% to 2.75%................ RR-1.00% RR-.75% RR-.50%
1.76% to 2.25%................ RR-.75% RR-.50% RR-.25%
less than or equal to 1.75%... RR-.50% RR-.25% RR
Minimum Rate.................. CD+.75% CD+1.05% CD+1.35%
</TABLE>
"REFERENCE LOANS" shall mean all Loans bearing interest at a rate based upon
the Reference Rate.
"REFERENCE RATE" shall mean, with respect to the Agent, for any day, the per
annum rate of interest most recently publicly announced from time to time by the
Agent as its "reference rate," which may be a rate at, above or below which the
Agent lends to other Persons. Each change in any interest rate provided for
herein based upon the Reference Rate resulting from a change in the Reference
Rate shall take effect at the time of such change in the Reference Rate.
"RELATED PERSON" shall mean, with respect to any Person, any trade or
business (whether or not incorporated) which, together with such Person, is
under common control as described in Section 414(c) of the Code.
"REPORTABLE EVENT" shall mean a "reportable event" described in Section
4043(b) of ERISA as to which the 30 day notice period has not been waived.
"RESERVE ADJUSTED CD RATE" shall mean with respect to the Agent, the rate
per annum (rounded upward, if necessary, to the next higher 1/100th of 1%)
calculated in accordance with the following formula:
<TABLE>
<S> <C> <C>
CD+ AR
Reserve Adjusted CD Rate = 1-CRP
</TABLE>
where
CD = CD Rate
CRP = CD Reserve Percentage
AR = Assessment Rate
"RESERVE ADJUSTED LIBO RATE" shall mean, with respect to the Agent, the rate
per annum (rounded upward, if necessary, to the next higher 1/100th of 1%)
calculated in accordance with the following formula:
Reserve Adjusted LIBO Rate = LIBO RATE
1-LRP
where
LRP = LIBOR Reserve Percentage
"SPECIAL COUNSEL" shall mean Dorsey & Whitney, special counsel to the Banks.
"SUBSIDIARY" shall mean any corporation, association, partnership, joint
venture or other business entity of which the Company and/or any subsidiary of
the Company either (a) in respect of a corporation, owns more than 50% of the
outstanding stock having ordinary voting power to elect a majority of the board
of directors or similar managing body, irrespective of whether or not at the
time the stock of any class or classes shall or might have voting power by
reason of the happening of any contingency, or (b) in respect of an association,
partnership, joint venture or other business entity, is the sole general partner
or is entitled to share in more than 50% of the profits, however determined.
28
<PAGE>
"TERMINATION DATE" shall mean August 1, 1994.
"UNUSED COMMITMENT AMOUNT" shall mean at the date of any determination, the
amount by which the Aggregate Commitment Amount on said date exceeds the
Aggregate Outstandings on said date.
"U.S. TREASURY SECURITIES" shall mean actively traded U.S. Treasury bonds,
bills and notes.
SECTION 2. THE REVOLVING CREDIT FACILITY.
2.1. REVOLVING CREDIT COMMITMENTS. Upon the terms and subject to the
conditions hereof, each Bank severally agrees to make loans (each a "Loan" and,
collectively, the "Loans") to the Company pursuant to this Section 2 on a
revolving basis at any time and from time to time during the Effective Period.
During the Effective Period the Company may borrow, repay and reborrow in
accordance with the provisions hereof; PROVIDED, that the Aggregate Outstandings
at any time shall not exceed the Aggregate Commitment Amount; and PROVIDED
FURTHER, that the aggregate principal amount of all Federal Funds Loans shall
not exceed $10,000,000 through July 31, 1992 (except as may be permitted
pursuant to Section 2.9 hereof), and shall not exceed $0 thereafter. The
principal amount of each Bank's Loan made on a Borrowing Date shall be in an
amount equal to its Pro Rata Share of all such Loans. The Loans may be
maintained, at the election of the Company made from time to time as permitted
herein, as Reference Loans, CD Loans, Federal Funds Loans, or LIBOR Loans or any
combination thereof.
2.2. BORROWING PROCEDURE.
(a) The Company shall give to the Agent prior notice, in writing (by
facsimile, hand delivery or by mail) in the form of a Borrowing Request, of
its intention to borrow under Section 2.1 hereof. The Company shall specify
in each such notice: (i) the proposed Borrowing Date, which date shall be a
Business Day in the case of Reference Loans, Federal Funds Loans and CD
Loans or a Eurodollar Business Day in the case of LIBOR Loans, (ii) the
aggregate principal amount of the Loans to be made on such date, which shall
be in the minimum amount of $500,000 or an integral multiple of $500,000 in
excess thereof, (iii) whether such Loans are to be funded as CD, LIBOR,
Federal Funds or Reference Loans, and (iv) in the case of Fixed Rate Loans,
the initial Interest Period therefor.
(b) Each notice of a request to borrow under Section 2.2(a) hereof shall
be given by 11:00 a.m. (Minneapolis time) not less than two Eurodollar
Business Days prior to the proposed Borrowing Date if such Loan is to be a
LIBOR Loan, and on the Borrowing Date if such Loan is to be a CD Loan, a
Federal Funds Loan or a Reference Loan. Subject to Section 2.10 hereof, each
request to borrow made by the Company pursuant to Section 2.2(a) hereof
shall be irrevocable.
(c) On the date of receipt of a request to borrow by the Agent, the
Agent shall give prompt notice by telephone or telecopier to each Bank of
the contents thereof and its Pro Rata Share of such borrowing. Unless the
Agent determines that any applicable condition specified in Article IV has
not been satisfied, each Bank shall make Immediately Available Funds equal
to its Pro Rata Share of the requested Loan available to the Company not
later than 2:00 p.m. (Minneapolis time), on each such Borrowing Date.
2.3. DECREASING COMMITMENTS. Upon at least five days irrevocable prior
written notice to the Agent (which shall advise each Bank thereof as soon as
practicable thereafter), the Company may decrease the Aggregate Commitment
Amount; PROVIDED, that (i) each decrease of the Aggregate Commitment Amount
shall be in an amount equal to at least $1,000,000, or an integral multiple of
$1,000,000 in excess thereof, and (ii) the Aggregate Outstandings, after giving
effect to the decreased amount, shall not exceed the Aggregate Commitment
Amount. Reductions of the Aggregate Commitment Amount shall be in each Bank's
Pro Rata Share and the accompanying prepayments, if any, shall be made to each
Bank in the amount of its Pro Rata Share thereof.
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<PAGE>
2.4 THE NOTES AND MATURITY DATE. On or before the date of the initial
Loans hereunder, the Company shall duly issue and deliver to the Agent a series
of promissory notes substantially in the form of Exhibits A-1, A-2 and A-3
hereto dated the day of delivery thereof, and the Company shall from time to
time at the request of any of the Banks issue in the Commitment Amounts
replacement promissory notes for such notes or for any replacement promissory
notes (each, original or replacement, a "Note" and, collectively, the "Notes").
Each Bank's records regarding the amount of each Loan made by it hereunder and
each payment thereon shall be presumed to be accurate until the contrary shall
have been established. Each Note shall evidence that the principal amount of
each Loan shall be due and payable no later than the Termination Date or upon
acceleration under Section 7.1 hereof.
2.5 INTEREST ON LOANS; COMPUTATION. The Loans shall bear interest on the
unpaid principal amount thereof as follows: (i) for Reference Loans, at a
fluctuating rate per annum equal to the Applicable Reference Rate, (ii) for
Federal Funds Loans, at a fluctuating rate per annum equal to the Applicable
Federal Funds Rate, (iii) for CD Loans, at a fixed rate per annum equal to the
Applicable CD Rate, and (iv) for LIBOR Loans, at a fixed rate per annum equal to
the Applicable LIBO Rate. All interest payable on Loans shall be computed on the
basis of actual days elapsed and a year of 360 days. Interest does not accrue on
a Loan on the day on which the principal of such Loan is paid in full or
converted or refunded pursuant to Section 2.8 hereof.
2.6. PAYMENT OF PRINCIPAL OF LOANS; VOLUNTARY PREPAYMENT. The principal
amount of all Loans shall be payable in full on or before the Termination Date.
The Company shall have the right to prepay the Loans, in whole at any time or in
part from time to time in aggregate principal amounts equal to at least
$500,000, or integral multiples thereof, with accrued interest on the amount
being prepaid to the date of such prepayment; PROVIDED, HOWEVER, that the
outstanding principal balance of all Federal Funds Loans shall not be less than
$1,000,000 and any prepayment of a Fixed Rate Loan shall be accompanied by the
applicable Prepayment Penalty. Each repayment under this Section 2.6 shall be
made to the Agent in accordance with Section 2.11.
2.7 INTEREST PAYMENTS. Interest on the Federal Funds Loans shall be
payable in arrears on the last Business Day of each week, on the date on which
the Federal Funds Loan is paid or converted to another type of Loan and on the
Termination Date. Interest on the Reference Loans shall be payable monthly, in
arrears, on the last Business Day of each month and on the Termination Date.
Interest on the Fixed Rate Loans shall be payable in arrears on the last day of
the applicable Interest Period or such other date as such Loans are paid in
full; PROVIDED, HOWEVER, that accrued interest on CD Loans or LIBOR Loans with
an Interest Period exceeding approximately 30 days or one month, respectively,
shall also be payable on the last Business Day of each month during such
Interest Period.
2.8. CONVERSIONS AND REFUNDING. Subject to the terms and conditions of
this Agreement, the Company shall also have the option at any time to convert
any Loan or part thereof (in integral multiples of $500,000) into a Reference
Loan, Federal Funds Loan, CD Loan or LIBOR Loan, or refund any CD Loan or LIBOR
Loan or part thereof (in integral multiples of $500,000) as a Reference Loan,
Federal Funds Loan, CD Loan or LIBOR Loan; PROVIDED, however, that (i) any
conversion or refinancing of a Fixed Rate Loan before the last day of its
applicable Interest Period shall be accompanied by the applicable Prepayment
Penalty, (ii) any partial conversion from CD Loans or LIBOR Loans may not be
made if the amount of CD Loans or LIBOR Loans having the same Interest Period,
as applicable, remaining outstanding principal balance, after giving effect to
such proposed conversion, would be less than $500,000, (iii) any partial
conversion from Federal Funds Loans may not be made if the remaining outstanding
principal balance after giving effect to such proposed conversion would be less
than $1,000,000, and (iv) no Reference Loan, Federal Funds Loan or CD Loan may
be converted into a LIBOR Loan and no Reference Loan, Federal Funds Loan or
LIBOR Loan may be converted into a CD Loan, if a Default or Event of Default has
occurred and is continuing on the proposed date of conversion. The Company shall
notify the Agent (which shall advise each Bank thereof as soon as practicable
thereafter) in writing of each proposed conversion or refunding, the proposed
date therefor (which shall be a Business Day in the case of a CD Loan, Federal
Funds Loan or a Reference Loan and a Eurodollar Business Day in the case of a
LIBOR Loan) and the duration of the Interest Period
30
<PAGE>
therefor, in the case of CD Loans or LIBOR Loans, in accordance with the notice
provisions of Section 2.2. Subject to Sections 2.10 hereof, any notice given by
the Company under this Section 2.8 shall be irrevocable. Subject to the terms
and conditions of this Agreement, if the Company shall fail to notify the Agent
in the manner provided in this Section 2.8 of a conversion or refunding of a CD
Loan or LIBOR Loan prior to the last day of the then applicable Interest Period
and has not repaid it and has the right to convert or refund it, such Loan shall
automatically be refunded on such day as a Reference Loan of equal principal
amount.
2.9. INABILITY TO DETERMINE CD RATE OR LIBO RATE. If the Agent determines
(which determination shall be made in good faith and shall be conclusive and
binding upon the Company in the absence of manifest error) that (i) by reason of
circumstances then affecting the secondary market for the purchase of
certificates of deposit or inter-bank Eurodollar markets, adequate and
reasonable means do not or will not exist for ascertaining the CD Rate or the
LIBO Rate applicable to any CD Loan or LIBOR Loan, (ii) secondary market bid
rates are not available to any Bank for certificates of deposit of relevant
amounts and for the relevant Interest Period of a CD Loan, or (iii) Dollar
deposits in the relevant amounts and for the relevant Interest Period of a LIBOR
Loan are not available to any Bank in the inter-bank Eurodollar markets, or any
Bank determines (which determination shall be made in good faith and shall be
conclusive and binding upon the Company in the absence of manifest error), and
notifies the Agent of such determination, that the CD Rate or LIBO Rate will not
adequately and fairly reflect the cost to such Bank of maintaining or funding
its CD Loans or LIBOR Loans for such Interest Period, then the Agent shall
forthwith give notice (a "Rate Notice") of such determination to the Company,
whereupon, until the Agent shall notify the Company that the circumstances
giving rise to such suspension no longer exist, (1) the obligations of each Bank
to make CD Loans or LIBOR Loans, as appropriate, shall be suspended and (2) the
Company shall repay in full, without the Prepayment Penalty, the then
outstanding principal amount of the CD Loans or LIBOR Loans affected, together
with accrued interest thereon, on the last day of the then current Interest
Period for such CD Loans or LIBOR Loans. Unless the Company notifies the Agent
to the contrary within two (2) Business Days after receiving a Rate Notice from
the Agent pursuant to this Section 2.9, the Company shall, concurrently with
repaying the CD Loans or LIBOR Loans pursuant to this subsection, be deemed to
have requested and received, in an equal principal amount from each Bank, (A)
for any date prior to and including July 31, 1992, Federal Funds Loans for an
Interest Period of the lesser of 1 month or the remaining time period through
July 31, 1992 and (B) for any date after July 31, 1992, Reference Loans.
2.10. ILLEGALITY. Notwithstanding any other provisions herein, if, after
the Effective Date, the introduction of or any change in any applicable law,
rule or regulation or in the interpretation or administration thereof by any
Governmental Body charged with the interpretation or administration thereof or
compliance by any Bank with any request or directive (whether or not having the
force of law) of any such authority shall make it unlawful or impracticable, in
the reasonable judgment of any Bank, for such Bank to make, maintain or fund CD
Loans or LIBOR Loans as contemplated by this Agreement, (i) the obligations of
the Banks hereunder to make CD Loans or LIBOR Loans shall forthwith be
cancelled, (ii) Loans which would otherwise be made by the Banks as CD Loans or
LIBOR Loans shall be made instead as Reference Loans, and (iii) the Company
shall pay in full, without the Prepayment Penalty, the then outstanding
principal amount of all CD Loans or LIBOR Loans made by the Banks together with
accrued interest, on either (A) the last day of the then current Interest Period
if such Bank may lawfully continue to fund and maintain such CD Loans or LIBOR
Loans to such day or (B) immediately if such Bank may not lawfully continue to
fund and maintain such CD Loans or LIBOR Loans to such day. Unless the Company
notifies the Agent to the contrary within two (2) Business Days after receiving
a notice from such Bank pursuant to this subsection, the Company shall,
concurrently with repaying the CD Loans or LIBOR Loans pursuant to this
subsection, be deemed to have requested and received Reference Loans in an equal
principal amount from the Banks. If circumstances subsequently change so that
such Bank is not further affected, such Bank shall so notify the Company of such
change and the Banks' obligations to make and continue CD Loans or LIBOR Loans
shall be reinstated upon written request of the Company.
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<PAGE>
2.11. PAYMENTS; REMISSION OF FUNDS. Each payment (including any prepayment
and all fees due hereunder) to be made hereunder by the Company to any Bank or
the Agent shall be made by either wire transfer to First Bank National
Association, ABA Number 091000022, Minneapolis, Minnesota, Attn: Commercial Loan
Operations; Referencing Loan Account Number 6451701000 or by charging the
Company's Account Number 602-3347-898 maintained with the Agent. The Company
hereby irrevocably authorizes the Agent to make such charges against its
account. On the same Business Day on which the Agent has received any such
payment, the Agent shall remit to each Bank entitled to receive such payment
such Bank's ratable share thereof in accordance with the payment instructions
set forth in Exhibit C hereto, as such instructions may from time to time be
changed by written notice from a Bank to the Agent. Each remission of funds to
be made by the Agent or any Bank hereunder to the Company shall be made, in the
absence of instructions from the Company to the contrary, to the Company in
Immediately Available Funds, in the case of the Agent, by depositing such funds
in Account Number 602-3347-898 maintained by the Company with the Agent and, in
the case of each Bank, by wire transfer to First Bank National Association ABA
Number 091000022, Minneapolis, Minnesota, Attn: Commercial Loan Operations;
Referencing Loan Account Number 6451701000 (for credit of the Company's Account
Number 602-3347-898). If any payment of principal of or interest on any Note
becomes due and payable on a day which is not a Business Day, such payment shall
be made on the next succeeding Business Day and such extension of time shall in
such case be included in the computation on such principal amount.
2.12. INTEREST ON OVERDUE PAYMENTS. If all or any portion of the principal
of any Loan shall not be paid when due, such past due amount, to the extent
permitted by applicable law, shall bear interest from the due date thereof until
paid at a floating rate 2% above the Applicable Reference Rate from time to time
in effect. Such interest shall be payable upon demand.
2.13. MANDATORY PREPAYMENTS. If at any time Aggregate Outstandings owed
all of the Banks exceed the Aggregate Commitment Amount, the Company shall
promptly make a prepayment of amounts outstanding hereunder in an amount equal
to such excess, which amounts shall be applied by the Agent in a manner to
minimize the prepayment of any Fixed Rate Loan, but all such prepayments of
Fixed Rate Loans shall be accompanied by the applicable Prepayment Penalty.
2.14. CAPITAL ADEQUACY. In the event that any Bank shall have determined
that the adoption of any law, treaty, governmental (or quasi-govern-mental)
rule, regulation, guideline or order regarding capital adequacy, or any change
therein or in the interpretation or application thereof, or compliance by such
Bank or its parent corporation with any request or directive regarding capital
adequacy (whether or not having the force of law and whether or not failure to
comply therewith would be unlawful) from any central bank or governmental agency
or body having jurisdiction, does or shall have the effect of reducing the rate
of return (by an amount such Bank deems material) on such Bank's capital or the
capital of its parent corporation as a consequence of the Commitment and/or the
Loans to a level below that which such Bank or its parent corporation could have
achieved but for such adoption, change or compliance, then the Company shall,
within 10 days after written notice and demand from such Bank, pay to the Agent
for the account of such Bank additional amounts sufficient to compensate such
Bank or its parent corporation for such reduction. A certificate shall accompany
such demand as to the amount of any such reduction (including calculations in
reasonable detail showing how such Bank computed such reduction and a statement
that such Bank has not allocated a proportionately greater amount of such
reduction than is attributable to each of its other commitments to lend or
extensions of credit that are affected similarly by such compliance by such
Bank, whether or not such Bank allocates any portion of such reduction to such
other commitments or credit extensions). Any determination by a Bank under this
Section and any certificate as to the amount of such reduction given to the
Company by such Bank shall be final, conclusive and binding for all purposes,
absent error.
2.15. CHANGE IN LAWS. In the event that any Bank shall have determined
(which determination shall be presumed to be correct until the contrary shall
have been established) that a change (including a change in governmental or
judicial interpretation or applicability) in any application of
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law or governmental regulation or order (except as described in Section 2.14
above) has increased the cost to such Bank of maintaining any Loan or has
reduced any amount receivable by such Bank in respect of any Loan, then, upon
demand by such Bank, the Company agrees to pay to such Bank such additional
amount or amounts as would compensate such Bank for such increased cost or
reduction. If any such change in any applicable law or governmental regulation
or order has increased the cost to such Bank of maintaining any CD Loan or LIBOR
Loan, then the Company may prepay in full, without the Prepayment Penalty, the
then outstanding principal amount of the Fixed Rate Loan or Loans affected by
such change.
2.16. FUNDING LOSSES. The Company shall compensate any Bank, upon its
written request, for all losses, expenses and liabilities (including, without
limitation, any interest paid by such Bank to lenders of funds borrowed by it to
make or carry CD Loans or LIBOR Loans to the extent not recovered by such Bank
in connection with the re-employment of such funds) which such Bank may sustain:
(a) if for any reason, other than a default by such Bank, a borrowing of a CD
Rate Loan or LIBOR Loan does not occur on the date specified therefor in the
Company's request or notice as to such Loan under Section 2.2 or 2.8, or (b) if,
for whatever reason (including, but not limited to, acceleration of the maturity
of Loans following an Event of Default), any repayment of a CD Rate Loan or
LIBOR Loan, or a conversion pursuant to Section 2.10, occurs on any day other
than the last day of the Interest Period applicable thereto. Such Bank's request
for compensation shall set forth the basis for the amount requested and shall be
final, conclusive and binding, absent error.
2.17. FEES.
(a) The Company agrees to pay to the Agent for the account of each Bank
a commitment fee ("Commitment Fee") for the period from the Effective Date
to and including the earlier of the day on which the Banks' Commitments are
terminated or the Termination Date, payable quarterly in arrears on the last
Business Day of each of the Company's fiscal quarters, commencing on October
31, 1991 in an amount equal to:
(i) for the period from July 31, 1991 through July 31, 1992, .25 of
1% per annum (computed on the basis of actual days in the fiscal quarter
of determination and a year of 360 days) of the Average Unused Commitment
Amount, and
(ii) for the period from August 1, 1992 through the Termination Date,
.35 of 1% per annum (computed on the basis of actual days in the fiscal
quarter of determination and a year of 360 days) of the Average Unused
Commitment Amount.
(b) The Company agrees to pay to the Agent an Agent's fee of $5,000 per
annum, in advance. The fee shall be paid no later than the day the Company
delivers the Notes to the Agent pursuant to Section 4.1(a) hereof, July 31,
1992, and each subsequent July 31 that is more than one day prior to the
Termination Date.
(c) The Company agrees to reimburse the Agent for all of its
out-of-pocket expenses (including, without limitation, all telephone,
telecopier, telex and copying charges) incurred in connection with the
making and administering of the Loans and incurred in its capacity as Agent.
The Company shall make such reimbursement within ten Business Days of the
Company's receipt from the Agent of a statement therefor.
2.18. NATURE OF EACH BANK'S OBLIGATIONS. The failure, refusal or inability
of any Bank to make a Loan or to be made by it on the relevant Borrowing Date
shall not relieve any other Bank of its obligation to make such Loan to be made
by it on such Date, but no Bank shall be responsible for the failure of any
other Bank to make any Loan to be made by such other Bank.
2.19. TELEPHONIC NOTICES. The Company and each Bank acknowledges that the
agreement of the Agent herein to receive and give certain notices specified
herein by telephone or facsimile is for the convenience of the Company. The
Agent shall be entitled to rely on the authority of the person purporting to be
the person authorized by the Company or any Bank to give any notice hereunder,
and
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the Agent shall have no liability to the Company or any Bank on account of any
action reasonably taken by the Agent in reliance upon such telephonic or
facsimile notice. Each Bank shall be entitled to rely on the authority of the
person purporting to be the person authorized by the Agent or the Company to
give any notice hereunder, and no Bank shall have any liability to the Agent or
the Company on account of any action reasonably taken by such Bank in reliance
upon such telephonic or facsimile notice.
2.20. SHARING OF EXCESS PAYMENTS. If any Bank shall receive and retain any
Excess Payment, then such Bank shall purchase from the other Banks for cash and
at face value and without recourse such participation in the Notes and other
indebtedness under this Agreement held by such other Banks as shall be necessary
to cause such Excess Payment to be shared ratably such that no Bank shall retain
any Excess Payment; PROVIDED, that if such Excess Payment or part thereof is
thereafter recovered from such purchasing Bank, such purchase from the selling
Banks shall be rescinded ratably and each such selling Bank shall repay to such
purchasing Bank the purchase price to the extent of such recovery together with
an amount equal to such selling Bank's ratable share (according to the
proportion of (i) the amount of such selling Bank's required repayment to (ii)
the total amount so recovered from the purchasing Bank) of any interest or other
amount payable by such purchasing Bank in respect of the total amount so
recovered. The Company agrees that any Bank so purchasing a participation from
the other Bank pursuant to this Section 2.20 may, to the fullest extent
permitted by law, exercise all its right of payment (including, to the extent
permitted by applicable law, the right of setoff) with respect to such
participation as fully as if such Bank were the direct creditor of the Company
in the amount of such participation.
2.21. DISCRETION OF BANK AS TO MANNER OF FUNDING. Each Bank shall be
entitled to fund and maintain its funding of CD Loans and LIBOR Loans in any
manner it may elect, it being understood, however, that for the purposes of this
Agreement all determinations hereunder (including, but not limited to,
determinations under Section 2.16) shall be made as if such Bank had actually
funded and maintained each CD Loan and LIBOR Loan during the Interest Period for
such Loan through the issuance of its certificates of deposit, or the purchase
of deposits, having a maturity corresponding to the last day of the Interest
Period and bearing an interest rate equal to the Applicable CD Rate or the
Applicable LIBO Rate, as the case may be, for such Interest Period.
2.22. SETOFF. The Company hereby affirms and agrees that each Bank shall
be entitled to exercise all rights of setoff if an Event of Default shall have
occurred.
SECTION 3. REPRESENTATIONS AND WARRANTIES. In order to induce the Agent
and the Banks to enter into this Agreement and to make the Loans contemplated in
Section 2 hereof, the Company hereby makes the following representations and
warranties to the Agent and to each Bank:
3.1. EXISTENCE AND POWER. The Company and each Material Subsidiary is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, has all requisite power and
authority to own its Property and to carry on its business as now conducted, and
is in good standing and authorized to do business in each jurisdiction in which
the character of the Property owned and leased by it therein or the transaction
of its business makes such qualification necessary except for such jurisdictions
where the failure to be in such standing and so authorized will not materially
adversely affect the financial condition, business or operations of the Company
and its Consolidated Subsidiaries, taken as a whole, or prevent the enforcement
of contracts entered into. All subsidiaries are properly described in Exhibit G
hereto.
3.2. AUTHORITY. The Company has full power and authority to enter into,
execute, deliver and carry out the terms of this Agreement, to make the
borrowings contemplated hereby, to execute, deliver and carry out the terms of
the Notes, and to incur the obligations provided for herein and therein, and the
execution, delivery and performance of this Agreement and the Notes have been
duly authorized by all necessary corporate action of the Company; and no consent
or approval of, or exemption by, any Governmental Body is required to authorize,
or is required in connection with the
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execution and delivery of, and performance by the Company of its obligations
under, this Agreement or the Notes or is required as a condition to the validity
or enforceability of this Agreement or the Notes.
3.3. BINDING AGREEMENT. This Agreement constitutes, and each of the Notes
when issued and delivered pursuant hereto for value received, will constitute,
the valid and legally binding obligations of the Company enforceable against the
Company in accordance with their respective terms.
3.4. LITIGATION. There are no actions, suits or arbitration proceedings
(whether or not purportedly on behalf of the Company or any Material Subsidiary)
pending or, to the knowledge of the Company, threatened against the Company or
any Material Subsidiary, or maintained by the Company or any Material
Subsidiary, in law or in equity before any Governmental Body which (i) relate to
applicable environmental or occupational safety and health standards or alleged
violations thereof or (ii) individually or in the aggregate are likely (to the
extent not covered by insurance) to result in a material adverse change in the
consolidated financial condition of the Company and its Consolidated
Subsidiaries, except as disclosed in the Company's annual report on Form 10-K
for the year ending January 31, 1991, or its quarterly reports on Form 10-Q for
the fiscal quarters ending April 30, 1991 and July 31, 1991, to the Securities
and Exchange Commission, Exhibit I hereto or as otherwise disclosed in writing
to the Banks prior to the Effective Date. There are no proceedings pending or,
to the knowledge of the Company, threatened against the Company or any Material
Subsidiary which call into question the validity or enforceability of this
Agreement or any of the Notes or any document delivered in connection herewith
or therewith, or any action to be taken in connection with the transactions
contemplated hereby or thereby.
3.5. NO CONFLICTING AGREEMENTS. Neither the Company nor any Material
Subsidiary is in default under any agreement to which it is a party or by which
it or any of its Property is bound, the effect of which could reasonably be
expected to have a material adverse effect on the business or operations of the
Company and its Consolidated Subsidiaries taken as a whole, except as disclosed
in the Disclosure Schedule or as otherwise disclosed in writing to the Banks. No
provision of (i) the articles of incorporation or bylaws of the Company or any
Material Subsidiary, (ii) any existing mortgage or indenture, (iii) any other
contract or agreement, (iv) any statute, rule or regulation, or (v) any
judgment, decree or order, in any case binding on the Company or any Material
Subsidiary or affecting the Property of the Company or any Material Subsidiary,
(A) conflicts with, (B) requires any consent under, or (C) would in any way
prevent the execution, delivery or carrying out of the terms of, this Agreement
or the Notes. The execution and delivery of this Agreement and the Notes and
borrowing of money thereunder will not constitute a default under, or result in
the creation or imposition of any Lien upon the Property of the Company or any
Material Subsidiary pursuant to the terms of any mortgage, indenture, contract,
or agreement binding on the Company or any Material Subsidiary or affecting the
Property of the Company or any Material Subsidiary.
3.6. TAXES. The Company and each Consolidated Subsidiary has filed or
caused to be filed all tax returns required to be filed, and has paid, or has
made adequate provision for the payment of, all taxes shown to be due and
payable on said returns or in any assessments made against it, and no tax liens
have been filed and no claims are being asserted with respect to such taxes
which are required by Generally Accepted Accounting Principles to be reflected
in the Financial Statements and are not so reflected therein. The last audit of
the Company by the Internal Revenue Service has been completed through the
period ending January 31, 1987. The charges, accruals and reserves on the books
of the Company and each Consolidated Subsidiary with respect to all federal,
state, local and other taxes are considered by the management of the Company to
be adequate, and the Company knows of no unpaid assessment which is due and
payable against the Company or any Consolidated Subsidiary, except (a) those not
yet delinquent, (b) those not substantial in aggregate amount, or (c) those
involving taxes and assessments which are involved in a good faith dispute with
respect to tax or other matters.
3.7. FINANCIAL STATEMENTS. The Company has heretofore delivered to each
Bank (a) copies of the consolidated balance sheet of the Company as of January
31, 1991, and the related consolidated
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statements of income, changes in stockholders' equity and cash flows for the
year then ended, and (b) copies of the consolidated balance sheet of the Company
as of July 31, 1991, and the related consolidated statements of income and cash
flows for the six months ending on said date (the statements in (a) and (b)
above being sometimes referred to herein as the "Financial Statements"). The
Financial Statements set forth in clause (a) above were audited and reported on
by the Accountants. The Financial Statements fairly present the consolidated
financial condition and the consolidated results of operations of the Company as
of the dates and for the periods indicated therein, and the Financial Statements
have been prepared in conformity with Generally Accepted Accounting Principles
(except as disclosed in the notes thereto). As of the Effective Date, except (i)
as reflected in the Financial Statements specified in (a) above or in the
footnotes thereto or (ii) as disclosed in the Disclosure Schedule or as
otherwise disclosed in writing to the Banks prior to the Effective Date, neither
the Company nor any Material Subsidiary has any obligation or liability of any
kind (whether fixed, accrued, contingent, unmatured or otherwise) which is
material to the Company and the Consolidated Subsidiaries on a consolidated
basis and which, in accordance with Generally Accepted Accounting Principles
consistently applied, should have been recorded or disclosed in such Financial
Statements and were not, other than those incurred in the ordinary course of
their respective businesses since the date of such Financial Statements. Since
January 31, 1991 to the Effective Date (i) the Company and each Material
Subsidiary has conducted its business only in the ordinary course, and (ii)
there has been no adverse change in the financial condition of the Company and
its Consolidated Subsidiaries taken as a whole which is material to the Company
and its Consolidated Subsidiaries on a consolidated basis, except as set forth
in the Company's annual report on Form 10-K for year ending January 31, 1991, or
its quarterly reports on Form 10-Q for the fiscal quarters ending April 30, 1991
and July 31, 1991, to the Securities and Exchange Commission or as disclosed in
writing to the Banks prior to the Effective Date; and there has been no material
adverse change in their consolidated financial condition from the most recent
consolidated financial statements of the Company and its Consolidated
Subsidiaries which have been furnished to the Banks pursuant to this Agreement,
except as disclosed in writing to the Banks.
3.8. COMPLIANCE WITH APPLICABLE LAWS. Neither the Company nor any Material
Subsidiary is in default with respect to any judgment, order, writ, injunction,
decree or decision of any Governmental Body which default would have a material
adverse effect on the financial condition, operations or Property of the Company
and its Consolidated Subsidiaries on a consolidated basis except as disclosed in
the Disclosure Schedule or as otherwise disclosed in writing to the Banks. The
Company and each Material Subsidiary is complying in all material respects with
all applicable statutes and regulations, including ERISA and applicable
environmental, occupational, safety and health and other labor laws, of all
Governmental Bodies, a violation of which could reasonably be expected to have a
material adverse effect on the financial condition, operations or Property of
the Company and its Consolidated Subsidiaries on a consolidated basis except as
disclosed in the Disclosure Schedule or as otherwise disclosed in writing to the
Banks.
3.9. GOVERNMENTAL REGULATIONS. Neither the Company nor any Material
Subsidiary is subject to any statute or regulation which regulates the incurring
by the Company of indebtedness for borrowed money.
3.10. PROPERTY. The Company and each Material Subsidiary has good and
valid title to, or good and valid leasehold interests in, all of its Property,
which is material to the Company and its Consolidated Subsidiaries taken as a
whole and such Property is subject to no Liens, except the Permitted Liens. All
existing Permitted Liens are accurately listed on Exhibit H hereto.
3.11. FEDERAL RESERVE REGULATIONS. The Company is not engaged principally,
or as one of its important activities, in the business of extending credit for
the purpose of purchasing or carrying any margin stock within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System, as
amended. No part of the proceeds of the Loans will be used to purchase or carry
margin
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stock. No part of the proceeds of the Loans will be used, directly or
indirectly, for a purpose which violates any law, rule or regulation of any
Governmental Body, including, without limitation, the provisions of Regulations
G, T, U, or X of said Board, as amended.
3.12. NO MISREPRESENTATION. No representation or warranty contained herein
or in any document to be executed and delivered in connection herewith and no
certificate or report furnished or to be furnished by the Company or any
Material Subsidiary in connection with the transactions contemplated hereby,
contains or will contain a misstatement of material fact, or omits or will omit
to state a material fact required to be stated in order to make the statements
herein or therein contained (taken as a whole) not misleading in the light of
the circumstances under which made.
3.13. PLANS. Each Plan established, maintained or participated in by the
Company and each Material Subsidiary is in material compliance with the
applicable provisions of ERISA and the Code, and the Company and each Material
Subsidiary has filed all material reports required to be filed by ERISA and the
Code with respect to any Plan. The Company and each Material Subsidiary
currently meets all material requirements imposed by ERISA and the Code with
respect to the funding of all Plans. Since the effective date of ERISA, there
have not been, nor are there now existing, any events or conditions which would
permit any Plan to be terminated by the PBGC under circumstances which would
cause the Company to incur a material liability under Title IV of ERISA. Since
the effective date of ERISA, no Reportable Event has occurred with respect to
any Plan and no Plan has been terminated in whole or in part. No withdrawals
from any Plans have occurred which could subject the Company or any of its
Material Subsidiaries to any material liability.
3.14. ENVIRONMENTAL, HEALTH AND SAFETY LAWS. There does not exist any
violation by the Company or any Subsidiary of any applicable local law, rule or
regulation or order of any government, governmental department, board, agency or
other instrumentality relating to environmental, pollution, health or safety
matters which will or threatens to impose a material liability on the Company or
a Subsidiary or which would require a material expenditure by the Company or
such Subsidiary to cure. Neither the Company nor any Subsidiary has received any
notice to the effect that any of its operations or properties are not in
material compliance with any such law, rule, regulation or order or notice that
it or its property is the subject of any governmental investigation evaluating
whether any remedial action is needed to respond to any release of any toxic or
hazardous waste or substance into the environment, which non-compliance or
remedial action could reasonably be expected to have a material adverse effect
on the business, operations, properties, assets or condition (financial or
otherwise) of the Company and its Subsidiaries taken as a whole.
3.15. RETIREMENT BENEFITS. Under the accounting rules proposed as of the
date of this Agreement by the Financial Accounting Standards Board with respect
thereto, the present value of the expected cost to the Company and the Material
Subsidiaries of post-retirement medical and insurance benefits with respect to
employees, as estimated by the Company in accordance with procedures and
assumptions deemed reasonable by the Agent does not exceed $1,000,000.
SECTION 4. CONDITIONS PRECEDENT.
4.1. INITIAL LOANS. In addition to the applicable requirements set forth
in Section 4.2 hereof, the obligation of each Bank to make its initial Loan
hereunder shall be subject to the fulfillment of the following conditions
precedent:
(a) The Company shall have executed and delivered to the Agent for the
account of each Bank the Notes.
(b) The Agent shall have received a (with a photocopy for each Bank)
certificate of good standing for the Company from the Secretary of State of
Minnesota.
(c) The Agent shall have received (with a signed copy for each Bank) the
signed certificate of the President or a Vice President and the Secretary or
an Assistant Secretary of the Company, dated the date of the initial Loan
hereunder, certifying as to (i) a true and correct copy of
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resolutions adopted by the Board of Directors (or the duly empowered
Executive Committee of the Board of Directors) of the Company authorizing
the execution, delivery and performance by the Company of this Agreement and
the Notes and authorizing the issuance by the Company of such Notes in the
manner and for the purpose contemplated by this Agreement, (ii) a true and
correct copy of the articles of incorporation and the by-laws of the Company
as in effect on such date, and (iii) the incumbency and specimen signatures
of officers of the Company executing or authorized to execute this
Agreement, the Notes and any other documents delivered to the Agent in
connection with this Section 4.
(d) The Agent shall have received (with a signed copy for each Bank) the
signed opinion of counsel for the Company, dated the date of the Notes, in
the form of Exhibit D hereto, with such changes (if any) therein as shall be
acceptable to the Agent and Special Counsel, and as to such other matters as
the Agent may reasonably request.
(e) The Agent shall have received the following schedules: Disclosure
(including conflicting agreements, compliance with applicable laws),
Subsidiaries, Permitted Liens and Litigation (respectively, Exhibits B, G, H
and I hereto).
(f) The representations and warranties contained in this Agreement shall
be true, correct and complete in all material respects as of the date of the
initial Loan.
(g) The Company shall have delivered to the Agent copies of the
certificates of insurance evidencing the insurance coverage of the Company.
4.2. ALL LOANS. The obligation of each Bank to make any Loan is subject to
the fulfillment of the following conditions precedent:
(a) On each Borrowing Date, and after giving effect to the Loans to be
made on any such Date; (i) there shall exist no Default or Event of Default;
(ii) the representations and warranties contained in this Agreement shall be
true, correct and complete in all material respects on and as of such date
to the extent as though made on and as of such date, except with respect to
any representation or warranty which specifically refers to an earlier date;
and (iii) there has been no adverse change in the financial condition of the
Company and its Consolidated Subsidiaries taken as a whole since the last
fiscal quarter reported on to the Agent pursuant to Section 5.6 which is
material to the Company and its Consolidated Subsidiaries on a consolidated
basis.
(b) All documents required by the provisions of this Agreement to be
executed or delivered to the Agent on or before the applicable Borrowing
Date, shall have been executed and shall have been delivered to the Agent at
its Minneapolis office, or at such other place designated by the Agent from
time to time, on or before such Date.
(c) The requested Loan does not exceed the Unused Commitment Amount.
SECTION 5. AFFIRMATIVE COVENANTS. The Company covenants and agrees that,
on and after the Effective Date, and until the later of the termination of the
Commitments or the payment in full of all of its obligations under each Note and
performance of all other obligations of the Company hereunder and subject to the
conditions stated herein, the Company will:
5.1. PRESERVATION OF CORPORATE EXISTENCE, ETC. Do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and the rights (charter and statutory) of the Company and each
Material Subsidiary; PROVIDED, HOWEVER, that the Company shall not be required
to preserve any such right if the Company shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company or
any Material Subsidiary and that the loss thereof will not have a material
adverse effect on the business, operations, properties, assets or condition
(financial or otherwise) of the Company and its Consolidated Subsidiaries taken
as a whole.
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5.2. TAXES. Pay, or provide adequate reserves or obtain adequate indemnity
for the payment of, and will cause each Consolidated Subsidiary to pay or
provide adequate reserves or obtain adequate indemnity for the payment of, all
taxes and assessments payable by it which become due, other than those not yet
delinquent and other than those not substantial in aggregate amount or being
contested in good faith and other than those involving foreign taxes and
assessments which are involved in a good faith dispute with respect to tax or
other matters.
5.3. INSURANCE. (i) Maintain, and cause each Consolidated Subsidiary to
maintain, insurance (to the extent insurance is available on a commercially
reasonable basis with reputable insurance carriers) on such of its Property,
against such risks, and in such amounts as is customarily maintained by similar
businesses of similar size with respect to Properties of similar character; or
(ii) in lieu thereof, in the case of itself or of any one or more Material
Subsidiaries, maintain or cause to be maintained a system or systems of
self-insurance which will accord with the practices of companies owning or
operating Properties of a similar character.
5.4. MAINTENANCE OF PROPERTIES. Cause all Properties used or useful in the
conduct of its business or the business of a Consolidated Subsidiary to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment, and cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Company may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
PROVIDED, HOWEVER, that nothing in this Section 5.4 shall prevent the Company
from discontinuing the operation or maintenance, or both the operation and
maintenance, of any of such Properties if such discontinuance is, in the
judgment of the Company, desirable in the conduct of its business or the
business of any Consolidated Subsidiary and would not result in a material
adverse effect on the business, properties, assets, operations or condition
(financial or otherwise) of the Company and its Consolidated Subsidiaries taken
as a whole.
5.5. COMPLIANCE WITH LAWS, ETC. Not violate any laws, rules, regulations,
or governmental orders, including, without limitation, those relating to
environmental and occupational safety and health standards, to which it is
subject, which violation could reasonably be expected to have a material and
adverse affect on the business, properties, assets, operations, condition
(financial or otherwise) of the Company and its Consolidated Subsidiaries taken
as a whole; and not permit any Material Subsidiary to violate any laws, rules,
regulations, or governmental orders which violation could reasonably be expected
to have a material and adverse affect on the consolidated financial condition of
the Company and its Consolidated Subsidiaries.
5.6. FINANCIAL STATEMENTS AND OTHER INFORMATION. Furnish to each Bank:
(a) INTERIM REPORTS. Within 45 days after the end of each of the first
three quarterly fiscal periods in each fiscal year of the Company, its Form
10-Q for said period, certified, subject to changes resulting from year-end
audit adjustments, by a financial officer of the Company and within 45 days
after the end of each of its fiscal quarters, a completed Compliance
Certificate signed by a financial officer of the Company;
(b) ANNUAL REPORTS. Within 120 days after the end of each fiscal year
of the Company, a consolidated balance sheet of the Company and its
Consolidated Subsidiaries as at the end of such year, and the related
consolidated statements of operations, stockholders' equity and cash flows
for such year, setting forth in each case in comparative form the
consolidated figures set forth by the Company for comparative purposes in
its Form 10-K for said period, accompanied by, the opinion (which is not
qualified as a result of a limitation on the scope of the audit or
nonconformity with Generally Accepted Accounting Principles), thereon of the
Accountants, which opinion shall be prepared in accordance with generally
accepted auditing standards relating to reporting and shall be based upon an
examination by such Accountants of the relevant accounts;
(c) REPORTS TO SEC AND TO STOCKHOLDERS. Promptly upon their becoming
available, copies of all financial statements, reports, notices and proxy
statements sent by the Company to its
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stockholders, and of all regular and periodic reports filed by the Company
or any of its Material Subsidiaries with any securities exchange or with the
Securities and Exchange Commission or any governmental authority succeeding
to any of its functions;
(d) NOTICE OF DEFAULT. Forthwith upon any principal officer of the
Company obtaining knowledge of the occurrence of a Default or an Event of
Default, an Officer's Certificate specifying the nature and period of
existence thereof and what action the Company has taken or is taking or
proposes to take with respect thereto;
(e) NOTICE OF LITIGATION. Forthwith upon any principal officer of the
Company obtaining knowledge, notice of the commencement of or the threatened
commencement of any litigation, investigation or proceeding by any Person
against the Company or any Consolidated Subsidiary in which the amount in
controversy exceeds $5,000,000 or the aggregate of all amounts in
controversy exceeds $7,000,000; and
(f) OTHER INFORMATION. With reasonable promptness, such other
information and data with respect to the Company or any of its Consolidated
Subsidiaries as from time to time may be reasonably requested by any Bank.
5.7. INSPECTIONS; DISCUSSIONS. Permit any authorized representatives
designated by the Agent (on behalf of Majority Banks) or any Bank, at the Banks'
or such Bank's expense, to make reasonable inspections of any of the Properties
of the Company or any of its Consolidated Subsidiaries, including its and their
books of account, and to discuss its and their affairs, finances and accounts
with its and their officers all at such reasonable times and as often as may be
reasonably requested by such Bank; PROVIDED, that, if required by the Company,
the Agent or any such Bank, as applicable, shall, as a condition to being
permitted to make any such inspection, state to the Company in writing that the
same is being made solely in order to assist the Agent or such Bank in
evaluating its interest in the Notes or its rights and obligations hereunder.
5.8. BOOKS AND RECORDS. Maintain, and cause each of its Consolidated
Subsidiaries to maintain, a system of accounting established and administered in
accordance with Generally Accepted Accounting Principles applied on a consistent
basis, and set aside, and cause each of its Subsidiaries to set aside, on its
books all such proper reserves as shall be required by Generally Accepted
Accounting Principles.
5.9. USE OF PROCEEDS. Use the proceeds of the Loans hereunder for working
capital and general corporate purposes not otherwise inconsistent with the
provisions of this Agreement.
5.10. MERGERS AND ACQUISITIONS. In the event that the Company or any
Subsidiary merges or consolidates with, or acquires another Person, the Company
or such Subsidiary shall be the surviving corporation. The Company shall
promptly notify the Agent of any proposed consolidations with or merger into any
other Person and any proposed acquisition of any other Person if the purchase
price of the assets of such Person being acquired, consolidated with or merged
into is in excess of $15,000,000. Before such proposed merger, consolidation or
acquisition is completed, the Company shall provide to the Agent such reasonably
detailed information which shows, to the best of its knowledge, that such
transaction, when completed, will not cause a Default or an Event of Default and
shall provide the Agent with any additional information reasonably requested by
the Agent.
5.11. ERISA. The Company will maintain, and cause each Material Subsidiary
to maintain, each Plan in compliance with all material applicable requirements
of ERISA and the Code and with all material applicable rulings and regulations
issued under the provisions of ERISA and of the Code.
5.12. ENVIRONMENTAL MATTERS; REPORTING. The Company will observe and
comply with, and cause each Subsidiary to observe and comply with, all laws,
rules, regulations and orders of any government or government agency relating to
health, safety, pollution, hazardous materials or other environmental matters to
the extent non-compliance could result in a material liability or otherwise have
a material adverse effect on the Company and the Subsidiaries as a consolidated
enterprise. The
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Company will give the Agent prompt written notice of any violation as to any
environmental matter by the Company or any Subsidiary and of the commencement of
any judicial or administrative proceeding relating to health, safety or
environmental matters (a) in which an adverse determination or result which
could result in the revocation of or have a material adverse effect on any
operating permits, air emission permits, water discharge permits, hazardous
waste permits or other permits held by the Company or any Subsidiary which are
material to the operations of the Company or such Subsidiary, or (b) which will
or threatens to impose a material liability on the Company or such Subsidiary to
any Person or which will require a material expenditure by the Company or such
Subsidiary to cure any alleged problem or violation.
SECTION 6. NEGATIVE COVENANTS. The Company covenants and agrees that, on
and after the Effective Date and until the later of the termination of the
Commitments or the payment in full of all of its obligations under each Note and
the performance of all other obligations of the Company hereunder, and subject
to the conditions stated herein, the Company will not:
6.1. CONSOLIDATED NET INCOME. Permit, at the end of any Measurement
Period, Consolidated Net Income for such Measurement Period to be zero or less
than zero.
6.2. MINIMUM CONSOLIDATED TANGIBLE NET WORTH. Permit, at the end of any
fiscal quarter, its Consolidated Tangible Net Worth to be less than the sum of
$90,000,000 plus 50% of the sum of Consolidated Net Income for each fiscal
quarter after January 31, 1991 through the date of determination.
6.3. CASH FLOW. Permit, as of the last day of any Measurement Period, the
ratio of (a) Cash Available for Debt Service to (b) Consolidated Debt Service,
to be less than 1.75 to 1.00.
6.4. DEBT TO NET WORTH. Permit, as of the last day of any fiscal quarter,
the ratio of (a) the sum of (i) Consolidated Interest Bearing Debt plus (ii)
Contingent Liabilities to (b) Consolidated Tangible Net Worth to exceed .60 to
1.00.
6.5. NATURE OF BUSINESS. Engage, or permit any of its Consolidated
Subsidiaries to engage, in any business that would substantially change the
general nature of the business conducted by the Company and its Consolidated
Subsidiaries, taken on a consolidated basis, on the Effective Date.
6.6. LIENS. Except for Permitted Liens, create, incur, assume or suffer to
exist any Lien against or in any of the Property now owned or hereafter acquired
by the Company or any Consolidated Subsidiary, or permit any Consolidated
Subsidiary so to do.
6.7. PLANS. The Company will not permit, and will not allow any Material
Subsidiary to permit, any event to occur or condition to exist which would
permit any Plan to terminate under any circumstances which would cause the Lien
provided for in Section 4068 of ERISA to attach to any assets of the Company or
a Material Subsidiary; and the Company will not permit the underfunded amount of
Plan benefits guaranteed under Title IV of ERISA to exceed $1,000,000.
SECTION 7. DEFAULT.
7.1. EVENTS OF DEFAULT. The following shall each constitute an "Event of
Default" hereunder:
(a) Default in the payment when due of any amount owing by the Company:
(i) under any of the Notes in respect of the principal thereof or interest
thereon; (ii) of any Commitment Fee; or (iii) any other amount due under
this Agreement; or
(b) Default shall be made in the due observance or performance by the
Company of any term, covenant or agreement in Section 6.1, 6.2, 6.3 or 6.4
hereof and such Default shall have continued unremedied for a period of five
days after the Agent (upon instruction of Majority Banks) notifies the
Company in writing of such Default; or
(c) Default shall be made in the due observance or performance by the
Company of any other term, covenant, or agreement on its part to be
performed or observed under this Agreement
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(and not constituting an Event of Default under any other clause of this
Section 7.1) and, such Default shall have continued unremedied for a period
of 30 days after the Agent (upon instruction of Majority Banks) notifies the
Company in writing of such Default; or
(d) Any representation or warranty made by the Company herein, or in any
certificate, report, opinion, or notice delivered or to be delivered
pursuant hereto shall prove to have been incorrect or misleading (whether
because of misstatement or omission) in any material respect when made; or
(e) The Company, any Consolidated Subsidiary, or CLC shall default
(subject to applicable notice or grace periods) in the payment when due of
any principal of or interest on any indebtedness for borrowed money whether
such indebtedness now exists or shall hereafter be created, or any event of
default (with respect to the Company, any Consolidated Subsidiary, or CLC)
as defined in any mortgage, indenture or instrument under which there may be
issued, or by which there may be secured or evidenced, any indebtedness for
borrowed money of, or guaranteed by, the Company, any Consolidated
Subsidiary, or CLC shall occur and shall permit such indebtedness to be
accelerated; or
(f) The Company or any Material Subsidiary shall: (i) suspend or
discontinue its business, or (ii) make an assignment for the benefit of
creditors, or (iii) generally fail to pay, or admit in writing its inability
to pay, its debts as they become due, or (iv) file a voluntary petition in
bankruptcy, or (v) file any petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment of debt, liquidation
or dissolution or similar relief under any present or future statute, law or
regulation of any jurisdiction, or (vi) petition or apply to any tribunal
for any receiver, custodian or any trustee for any substantial part of its
Property, or (vii) have commenced against it any such proceeding which
remains undismissed for a period of 60 days, or (viii) file any answer
admitting or not contesting the material allegations of any such petition
filed against it, or of any order, judgment or decree approving such
petition in any such proceeding, or (ix) seek, approve, consent to, or
acquiesce in any such proceeding, or in the appointment of any trustee,
receiver, custodian, liquidator, or fiscal agent for it, or any substantial
part of its Property, or an order is entered appointing any such trustee,
receiver, custodian, liquidator or fiscal agent and such order remains in
effect for 60 days, or (x) take any formal action for the purpose of
effecting any of the foregoing or looking to the liquidation or dissolution
of the Company; or
(g) Any bankruptcy reorganization, debt arrangement or other proceedings
under any bankruptcy or insolvency law shall be instituted by or against the
Company or any Material Subsidiary, and, if instituted against the Company
or a Material Subsidiary, shall have been consented to or acquiesced in by
the Company or such Material Subsidiary, or shall remain undismissed for 60
days, or an order for relief shall have been entered against the Company or
such Material Subsidiary and remain unstayed on appeal for 60 days; or
(h) There shall be entered against the Company or any Consolidated
Subsidiary one or more judgments or decrees in an aggregate amount at any
one time outstanding in excess of $5,000,000, excluding those judgments or
decrees that shall have been satisfied, vacated, discharged, or stayed or
bonded pending appeal, which stay or bond shall have been effective on or
before the date on which the time for appeal from the judgment or order has
expired; or
(i) With respect to any Plan (other than a multiemployer Plan) as to
which the Company or any Related Person to the Company may have any
liability, there shall exist, for a period of 30 days, a deficiency which is
material to the consolidated financial condition of the Company and its
Consolidated Subsidiaries in the Plan assets available to satisfy the
benefits guaranteeable under ERISA with respect to such Plan, and (x) steps
are undertaken to terminate such Plan or (y) such Plan is terminated or (z)
any Reportable Event which presents a material risk of termination with
respect to such Plan shall occur.
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Upon the occurrence of an Event of Default described in Sections 7.1(f) or
7.1(g), the Commitments shall terminate and the obligations of the Company under
this Agreement and all of the Notes shall become immediately due and payable
without declaration or notice to the Company. During the existence of any other
Event of Default, the Agent, at the direction of the Majority Banks, shall
notify the Company that the Commitments have been terminated and/or that the
obligations of the Company under all of the Notes have been declared immediately
due and payable in which event the Commitments shall be terminated and/or the
obligations of the Company under all of the Notes shall be immediately due and
payable. Except for the notice provided for in the preceding sentence, the
Company hereby expressly waives any presentment, demand, protest, notice of
protest or other notice of any kind. The Company hereby further expressly waives
and covenants not to assert any appraisement, valuation, stay, extension,
redemption or similar laws, now or at any time hereafter in force which might
delay, prevent or otherwise impede the performance or enforcement of this
Agreement or the Notes.
If the Commitments shall have been terminated or the obligations of the
Company under this Agreement and all of the Notes shall have been declared due
and payable pursuant to the provisions of this Section 7.1, the Banks agree, by
and among themselves, that any funds received after such termination from or on
behalf of the Company by the Agent or any of the Banks (except funds received by
any Bank as a result of a purchase pursuant to the provisions of Section 2.19
hereof) shall be remitted to the Agent if received by any Bank and applied by
the Agent in the following manner and order:
(a) first, to reimburse the Agent and the Banks for any expenses due
from the Company pursuant to the provisions of Section 12 hereof;
(b) second, to the payment to each Bank of its Pro Rata Share of accrued
and unpaid interest on the outstanding Loans;
(c) third, to the payment to each Bank of its Pro Rata Share of the
outstanding unpaid principal balance of the Loans, in such order as the
Agent in its sole discretion may determine; and
(d) fourth, to the payment to each Bank and the Agent of any other
amount owing under this Agreement or any of the Notes.
If the obligations of the Company under all of the Notes shall have become,
or been declared to be, due and payable pursuant to the provisions of this
Section 7.1, the Agent may, and, upon the direction of the Majority Banks shall,
proceed to enforce the rights of the holders of the Notes, by suit in equity,
action at law and/or other appropriate proceedings, whether for payment or the
specific performance of any covenant or agreement contained in this Agreement or
the Notes. The Agent shall be justified in failing or refusing to take any
action hereunder.
7.2. WAIVER OF DEFAULTS. Except as otherwise specifically provided by the
provisions hereof, the Agent may, by written notice to the Company (if
authorized by the Majority Banks, or in the event of a default in the payment of
principal of or interest on any Note if authorized by all of the Banks) on
behalf of the Banks, at any time and from time to time, waive in whole or in
part, and absolutely or conditionally, any Event of Default which shall have
occurred hereunder or under the Notes. Any such waiver shall be for such period
and subject to such conditions or limitations as shall be specified in any such
notice. In the case of any such waiver, the rights of the Company, the Banks and
the Agent under this Agreement and the Notes shall be otherwise unaffected, and
any Event of Default so waived shall be deemed to be cured and not continuing to
the extent and on the conditions or limitations set forth in such waiver, but no
such waiver shall extend to any subsequent or other Event of Default, or impair
any right, remedy or power consequent thereupon. The Company may take any action
prohibited, or omit to perform any act required to be performed, under this
Agreement and the Notes if it shall have
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obtained the written waiver with respect thereto signed by the Agent and
containing a representation therein that such waiver has been authorized in
accordance with the provisions of this Section 7.2 and Section 10 hereof.
SECTION 8. THE AGENT. The Banks and the Agent agree by and among
themselves that:
8.1. APPOINTMENT. First Bank National Association is hereby designated the
Agent by each of the other Banks to perform such duties on behalf of the other
Banks and itself, and to have such powers, as are set forth herein and as are
reasonably incidental thereto.
8.2. DELEGATION OF DUTIES, ETC. The Agent may execute any of its duties
and perform any of its powers hereunder by or through agents or employees, and
shall be entitled to consult with legal counsel and any accountant selected by
it. Any action taken or omitted to be taken or suffered in good faith by the
Agent in accordance with the opinion of such counsel or accountant shall be full
justification and protection to it.
8.3. INDEMNIFICATION. Each Bank hereby indemnifies the Agent in its
capacity as such, to the extent not reimbursed by the Company, in its Pro Rata
Share, from and against any and all claims, liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by, or
asserted against the Agent in any way relating to or arising out of this
Agreement or the Notes or any action taken or omitted to be taken or suffered in
good faith by the Agent hereunder, provided that no Bank shall be liable for any
portion of any of the foregoing items resulting from the gross negligence or
willful misconduct of the Agent.
8.4. EXCULPATORY PROVISIONS. Neither the Agent nor any of its officers,
directors, employees or agents shall be liable for any action taken or omitted
to be taken or suffered by it or them hereunder or in connection herewith,
except that the Agent shall be liable for its own gross negligence or willful
misconduct. The Agent shall not be liable in any manner for the effectiveness,
enforceability, collectibility, genuineness, validity or the due execution of
this Agreement or any Note, or for the due authorization, authenticity or
accuracy of the representations and warranties herein and therein or in any
other certificate, report, notice, consent, opinion, statement, or other
document furnished or to be furnished hereunder or thereunder, and shall be
entitled to rely upon any of the foregoing believed by it to be genuine and
correct and to have been signed and sent or made by the proper Person. The Agent
shall be under no duty or responsibility to any Bank to ascertain or to inquire
into the performance or observance by the Company or any Subsidiary of any of
the provisions hereof or thereof. Each other Bank expressly acknowledges that
the Agent has not made any representations or warranties to it and that no act
taken by the Agent shall be deemed to constitute any representation or warranty
by the Agent to any other Bank. Each Bank acknowledges that it has taken and
will continue to take such action and to make such investigation as it deems
necessary to inform itself of the affairs of the Company and each Subsidiary,
and each Bank acknowledges that it has made and will continue to make its own
independent investigation of the creditworthiness and the business and
operations of the Company and each Subsidiary, and that, in entering into this
Agreement, and in making its Loans hereunder, it has not relied and will not
rely upon any information or representations furnished or given by the Agent or
any other Bank.
8.5. AGENT IN ITS INDIVIDUAL CAPACITY. With respect to all Loans made by
it hereunder and any renewals, extensions or deferrals of the payment thereof
and any Note issued to or held by it, the Agent shall have the same rights and
powers hereunder as any Bank, and may exercise the same as though it were not
the Agent, and the term "Bank" or "Banks" shall, unless the context otherwise
requires, include the Agent in its individual capacity.
8.6. KNOWLEDGE OF DEFAULT. The Agent shall be entitled to assume that no
Event of Default exists, unless the officers of the Agent immediately
responsible for matters concerning this Agreement shall have actual knowledge of
such occurrence or shall have been notified in writing by a Bank that such Bank
considers that an Event of Default exists and specifying the nature thereof.
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8.7. RESIGNATION OR REMOVAL OF AGENT. The Agent may at any time and, upon
receipt of a written request from Banks having Commitment Amounts equal to at
least 60% of the Aggregate Commitment Amount, will, by written notice to the
Banks and the Company, resign its agency under this Agreement. No such
resignation shall become effective unless and until a successor Agent under this
Agreement is appointed, such successor to be appointed by the Majority Banks
with the prior written consent of the Company; PROVIDED, that if such successor
Agent is one of the Banks, then no such consent is required; and PROVIDED,
FURTHER, that if no successor Agent shall have been so appointed and shall have
accepted such appointment within 30 days after the retiring Agent's giving of
notice of resignation, then the retiring Agent may appoint any Bank a successor
Agent which successor Agent shall be deemed to be acceptable to the Majority
Banks and the Company. Upon the acceptance of any appointment as Agent hereunder
by a successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent
and the retiring Agent shall be discharged from its duties and obligations,
under this Agreement. After the retiring Agent's resignation hereunder as Agent,
(a) each reference herein to a place for giving of notice or deliveries to the
Agent shall be deemed to refer to the principal office of the successor Agent or
such other office of the successor Agent as it may specify to each party hereto,
and (b) the provisions of this Section 8 shall inure to the benefit of the
retiring Agent as to any actions taken or omitted to be taken by such retiring
Agent while it was Agent under this Agreement.
8.8. REQUESTS TO THE AGENT. Except as otherwise expressly provided herein,
whenever the Agent is authorized and empowered hereunder on behalf of the Banks
to give any approval or consent, or to make any request, or to take any other
action on behalf of the Banks, the Agent shall be required to give such approval
or consent, or to make such request or to take such other action only when so
requested in writing by the Majority Banks.
8.9. OTHER DEALINGS. The Agent (as a Bank) and any Bank, subject to the
provisions of Section 2.19 hereof may, without liability to account, accept
deposits from, lend money to and generally engage in any kind of banking or
other business with the Company or any other Person.
8.10. CALCULATIONS. The Agent shall not be liable for any error in
computing the amount payable to any Bank whether in respect of the Notes
hereunder, fees or any other amounts due to the Banks under this Agreement,
absent gross negligence or willful misconduct. In the event an error in
computing any amount payable to any Bank is made, the Agent, the Company and
each affected Bank shall, forthwith upon discovery of such error, make such
adjustments as shall be required to correct such error.
8.11. AVAILABILITY OF FUNDS. Unless the Agent shall have been notified by
a Bank prior to any date proposed for a Loan hereunder that such Bank does not
intend to make available to the Agent such Bank's Pro Rata Share of any Loan to
be made on such date or any other sum required to be made available to the Agent
by such Bank hereunder, the Agent may assume that such Bank has made such
proceeds available to the Agent on such date, and the Agent may in reliance upon
such assumption (but shall not be required to) make available to the Company a
corresponding amount. If such corresponding amount is not in fact made available
to the Agent by such Bank, the Agent shall be entitled to recover such amount on
demand from such Bank (or, if such Bank fails to pay such amount forthwith upon
such demand, from the Company) together with interest thereon in respect of each
day during the period commencing on the date such amount was made available to
the Company and ending on (but excluding) the date the Agent recovers such
amount at a rate per annum equal to the applicable interest rate in respect of
such Note.
SECTION 9. NOTICES.
9.1. NOTICES, ETC. Except where telephonic instructions or notices are
authorized herein to be given, all notices, demands, instructions and other
communications required or permitted to be given to or made upon any party
hereto shall be in writing and shall be personally delivered or sent by
certified mail, postage prepaid, return receipt requested, or by prepaid telex
or telegram (with messenger delivery specified in the case of a telegram), or by
telecopier, and shall be deemed to be given for
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purposes of this Agreement on the day that such writing is delivered or sent to
the intended recipient thereof in accordance with the provisions of this Section
9.1. Unless otherwise specified in a notice sent or delivered in accordance with
the foregoing provisions of this Section 9.1, notices, demands, instructions and
other communications in writing shall be given to or made upon the respective
parties hereto at their respective addresses (or to their respective telex or
telecopier numbers) indicated on Exhibit C hereto, and in the case of telephonic
instructions or notices, by calling the telephone number or numbers indicated
for such party on such Exhibit C.
9.2. NOTICES BY AGENT OR A BANK. In the event that the Agent or any Bank
takes any action or gives any consent or notice provided for by this Agreement,
notice of such action, consent or notice shall be given forthwith to all the
Banks by the Agent or the Bank taking such action or giving such consent or
notice, provided, that the failure to give any such notice shall not invalidate
any such action, consent or notice in respect of the Company.
SECTION 10. AMENDMENTS AND WAIVERS. With the written consent of the
Majority Banks, the Agent and the Company may, subject to the provisions of this
Section 10, from time to time enter into agreements amendatory or supplemental
hereto for the purpose of changing any provisions of this Agreement or the
Notes, or changing in any manner the rights of the Banks, the Agent or the
Company hereunder and thereunder, or waiving compliance with any provision
hereof or thereof. No such amendatory or supplemental agreement or waiver shall,
directly or indirectly, without the written consent of all of the Banks, (a)
change the Aggregate Commitment Amount or the Commitment Amount of any Bank, (b)
change the maturity of any Note or extend the Termination Date, or reduce the
rate of interest of, change the time or manner of payment of, or the principal
amount of, any Note, (c) change the amount of any fee or the time of payment
thereof, (d) change the definition of "Majority Banks," (e) modify the
provisions of Sections 6 hereof or (f) modify the provisions of this Section 10
or Section 7.2. Any such amendatory or supplemental agreement or waiver shall
apply equally to each of the Banks and shall be binding on the Company and all
of the Banks and the Agent. No provision hereof relating to the Agent shall be
amended, modified, or waived without the written consent of the Agent. The
Company shall be entitled to rely upon the provisions of any such amendatory or
supplemental agreement or waiver if it shall have obtained any of the same in
writing from the Agent who therein shall have represented that such agreement or
waiver has been authorized in accordance with the provisions of this Section 10.
SECTION 11. OTHER PROVISIONS.
11.1. SALE OF PARTICIPATIONS; ASSIGNMENTS. Each Bank shall have the right
at any time to (a) sell undivided participation interests in all or any part of
the Commitment and the Notes held by it or the obligations of the Company owing
to such Bank under any of such Notes to one or more commercial banks, merchant
banks, savings and loan associations or any other financial institutions and (b)
transfer a portion or all of its Commitment or assign its interest in Notes held
by it and the obligations of the Company under any such Notes to one or more
parties that are not parties to this Agreement; PROVIDED, that (i) such Bank
shall remain bound as set forth in any confidentiality agreement signed by it
and such transferee or prospective transferee or assignee shall enter into a
similar confidentiality agreement with the Company; (ii) such sale or assignment
(unless, in the case of assignment, the Company and the Agent shall otherwise
consent in writing, which consent shall not be unreasonably withheld) shall not
relieve such Bank of any obligation or liability under this Agreement; (iii)
such sale or assignment will not result in any increased cost to the Agent or
the Company (unless, in the case of assignment, the Company and the Agent shall
otherwise consent in writing, which consent shall not be unreasonably withheld);
(iv) such Bank shall (unless, in the case of assignment, otherwise consented to
in writing by the Company and the Agent, which consent shall not be unreasonably
withheld) make and receive all payments for account of its participants or
assignees and shall retain exclusively, and shall continue to exercise
exclusively, all rights of approval, administration, waiver and amendment
available under the Agreement and with respect to such Bank's Loans made
pursuant to this Agreement and such Bank's Notes, even after giving effect to
any such sale or assignment, and such Bank shall not, except with respect only
to those items set forth in clauses (a),
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(b) and (c) of Section 10 hereof, enter into any agreement with its participants
or assignees that would require such Bank to obtain the consent or approval of
any of its participants or assignees with respect to such rights, and make such
arrangements with its participants or assignees as may be necessary to
accomplish the foregoing; and (v) no such disposition shall, without the consent
of the Company, which consent shall not be unreasonably withheld, require the
Company to file a registration statement with the Securities and Exchange
Commission or apply to qualify the Notes under the blue sky law of any state.
11.2. NO WAIVER OF RIGHTS BY THE BANKS. No failure on the part of the
Agent or of any Bank to exercise, and no delay in exercising, any right or
remedy hereunder or under the Notes shall operate as a waiver thereof, except as
provided in Section 10 hereof, nor shall any single or partial exercise by the
Agent or any Bank of any right, remedy or power hereunder or thereunder preclude
any other or future exercise thereof, or the exercise of any other right, remedy
or power. The rights, remedies and powers provided herein and in the Notes are
cumulative and not exclusive of any other rights, remedies or powers which the
Agent or the Banks or any holder of any Note would otherwise have. Notice to or
demand on the Company in any circumstance in which the terms of this Agreement
or the Notes do not require notice or demand to be given shall not entitle the
Company to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the Agent or any Bank or
the holder of any Note to take any other or further action in any circumstances
without notice or demand.
11.3. HEADINGS; PLURALS. Section headings have been inserted herein for
convenience only and shall not be construed to be a part hereof or thereof.
Unless the context otherwise requires, words in the singular number include the
plural, and words in the plural include the singular.
11.4. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original and all of which shall
constitute one agreement. It shall not be necessary in making proof of this
Agreement or of any document required to be executed and delivered in connection
herewith or therewith to produce or account for more than one counterpart if
signed by the party against whom the Agreement is being enforced.
11.5. SEVERABILITY. Every provision of this Agreement and each Note is
intended to be severable, and if any term or provision hereof or thereof shall
be invalid, illegal or unenforceable for any reason, the validity, legality and
enforceability of the remaining provisions hereof or thereof shall not be
affected or impaired thereby, and any invalidity, illegality or unenforceability
in any jurisdiction shall not affect the validity, legality or enforceability of
any such term or provision in any other jurisdiction.
11.6. INTEGRATION. All exhibits to this Agreement shall be deemed to be a
part of this Agreement. This Agreement, the exhibits hereto and the Notes embody
the entire agreement and understanding between the Company, the Agent and the
Banks with respect to the subject matter hereof and thereof and supersede all
prior agreements and understandings between the Company and the Agent and the
Banks with respect to the subject matter hereof and thereof.
11.7. SUCCESSORS AND ASSIGNS; SURVIVAL OF REPRESENTATIONS AND
WARRANTIES. This Agreement shall be binding upon and inure to the benefit of
the Banks, the Agent and the Company and their respective successors and
assigns; PROVIDED, HOWEVER, that the Company may not assign or otherwise dispose
of any of its rights hereunder. The Agent may assign its agency to another
institution wholly owned by or under common ownership with Agent upon notice to
all parties hereto. All covenants, agreements, warranties and representations
made herein and in all certificates or other documents delivered in connection
with this Agreement by or on behalf of the Company shall survive the execution
and delivery hereof and thereof, and all such covenants, agreements,
representations and warranties shall inure to the respective successors and
assigns of the Banks and the Agent whether or not so expressed.
47
<PAGE>
11.8. APPLICABLE LAW. This Agreement and the Notes shall be construed and
enforceable in accordance with, and be governed by, the internal laws of the
State of Minnesota, without regard to principles of conflict of laws. THE
COMPANY, THE AGENT AND THE BANKS WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW,
TRIAL BY JURY.
11.9. INTEREST. At no time shall the interest rate payable on the Notes,
together with the Commitment Fees to the extent such Fees are construed to
constitute interest, exceed the maximum rate of interest permitted by applicable
law.
11.10. CHANGE IN ACCOUNTING PRINCIPLES. If any changes in accounting
principles from those used in the preparation of the Financial Statements
hereafter occasioned by the promulgation of rules, regulations, pronouncements
and opinions by or required by the Financial Accounting Standards Board or the
American Institute of Certified Public Accountants (or successors thereto or
agencies with similar functions) result in a change in the method of calculation
of financial covenants, standards or terms found herein the parties hereto agree
to enter into negotiations in order to amend such provisions so as to equitably
reflect such changes with the desired result that the criteria for evaluating
the financial condition of the Company and its Subsidiaries shall be the same as
if such changes had not been made.
11.11. TRANSFER OF NOTES. In the event that the holder of any Note
(including any Bank) shall transfer such Note pursuant to the provisions of
Section 11.1 hereof, it shall immediately advise the Agent and the Company of
such transfer; PROVIDED, HOWEVER, that the Company shall not be liable for any
material increase in the amount which would have been payable by the Company
under this Agreement and the Notes in the absence of such transfer; and
PROVIDED, FURTHER, that the Agent and the Company shall be entitled conclusively
to assume that no transfer of any Note has been made by any holder (including
any Bank), unless and until the Agent and the Company shall have received
written notice to the contrary. Subject to the provisions of Section 11.1
hereof, no Bank shall, by reason of the transfer of any Note or otherwise, be
relieved of any of its obligations hereunder. Each transferee of any Note shall
take such Note subject to the provisions of this Agreement and to any request
made, waiver or consent given or other action taken hereunder, prior to the
receipt by the Agent and the Company of written notice of such transfer, by each
previous holder of such Note; and, except as expressly otherwise provided in
such notice, the Agent and the Company shall be entitled conclusively to assume
that the transferee named in such notice shall thereafter be vested with all
rights and powers under this Agreement of the Bank named as the Person entitled
to payment of the Note which is the subject of such transfer.
11.12. CONSENT TO JURISDICTION. All actions or proceedings with respect to
this Agreement may be instituted in any state or federal court of competent
jurisdiction in the State of Minnesota, and by execution and delivery of this
Agreement, the Company irrevocably and unconditionally submits to the
nonexclusive jurisdiction of each such court, and irrevocably and
unconditionally waives (a) any objection the Company may now or hereafter have
to the laying of venue in any of such courts, and (b) any claim that any action
or proceeding brought in any of such courts has been brought in an inconvenient
forum. The Company agrees that so long as the Company shall be obligated to the
Banks under this Agreement, the Company shall maintain duly appointed agents
reasonably satisfactory to the Agent for the service of process in the State of
Minnesota, and shall keep the Agent advised in writing of the identity and
location of such agents. The failure of such agents to give notice to the
Company of any such service shall not impair or affect the validity of such
service or of any judgment rendered in any action or proceeding based thereon.
11.13. CONFIDENTIALITY. Each Bank shall maintain in confidence and not
publish, disseminate or disclose in any manner or to any Person and shall not
use (x) any material nonpublic information relating to the Company and its
Subsidiaries or (y) any technical, nonfinancial information, data or know-how
which is identified as confidential by the Company, in either case which may be
furnished pursuant to this Agreement, (hereinafter collectively called
"Confidential Information"), subject to each Bank's (a) obligation to disclose
any such Confidential Information pursuant to a request or
48
<PAGE>
order under applicable laws and regulations or pursuant to a subpoena or other
legal process, (b) right to disclose any such nontechnical or financial
Confidential Information to bank examiners, its affiliates, auditors, counsel,
other professional advisors and other Banks, (c) right to use any such
Confidential Information in connection with the transactions set forth herein
including, but not limited to, the sale or proposed sale of participations as
provided in Section 11.1 hereof and (d) right to disclose any such Confidential
Information in connection with the transactions set forth herein or in
connection with any litigation or dispute involving the Banks and the Company or
any of its Subsidiaries or any transfer or other disposition made or proposed to
be made by such Bank of any of its Notes or other extensions of credit to the
Company or any of its Subsidiaries. Notwithstanding the foregoing provisions of
this Section 11.13, (i) the foregoing obligation of confidentiality shall not
apply to any such Confidential Information that was known to such Bank or any of
its affiliates prior to the time it received such Confidential Information from
the Company or its Subsidiaries pursuant to this Agreement, other than as a
result of the disclosure thereof by a Person who, to the knowledge of such Bank,
was prohibited from disclosing it by any duty of confidentiality arising (under
this Agreement or otherwise) by contract or law; and (ii) the foregoing
obligation of confidentiality shall not apply to any such Confidential
Information that becomes part of the public domain independently of any act of
such Bank not permitted hereunder (through publication, the issuance of a patent
disclosing such information or otherwise) or when identical or substantially
similar information is received by such Bank without restriction as to its
disclosure or use, from a Person who, to the knowledge or reasonable belief of
such Bank, was not prohibited from disclosing it by any duty of confidentiality
arising (under this Agreement or otherwise) by contract or law.
SECTION 12. COSTS.
12.1. COSTS OF ENFORCEMENT. The Company agrees to pay to the Agent, for
the account of the Agent or the Banks upon receipt of an invoice therefor,
whether or not any Loan is made under this Agreement, (i) the reasonable fees
and expenses of Special Counsel in connection with the negotiation, preparation,
execution and delivery of this Agreement, (ii) the reasonable fees and expenses
of other counsel to the Banks in connection with the negotiation, preparation,
execution and delivery of this Agreement up to but not exceeding $2,500 in the
aggregate, (iii) the reasonable fees and expenses of counsel for the Agent and
the Banks in connection with any amendment, modification or waiver of any of the
terms of this Agreement or any Note, and (iv) the costs and other expenses
(including, without limitation, reasonable legal fees (including the reasonable
allocable cost of inside counsel) and disbursements) incurred by the Agent or
any Bank (as a direct or indirect result of action taken or omitted to be taken
by or on behalf of the Company) in enforcing or seeking to enforce any of the
rights of the Agent, the Banks or any of them under this Agreement.
12.2. TAXES. The Company agrees to pay all stamp, transfer and other taxes
payable or determined to be payable in connection with the execution and
delivery of this Agreement. The Company shall pay all such taxes payable or
determined to be payable in connection with issuance of its Notes and the making
of any Loan, and the Company agrees to save and hold the Agent and each Bank
harmless from and against any and all liabilities with respect to or resulting
from any delay in paying or omission to pay such taxes.
12.3. DEFENSE OF PROCEEDINGS. If any action, suit or proceeding arising
from any of the foregoing is brought against the Agent, any Bank, or any other
Person indemnified or intended to be indemnified pursuant to this Section 12,
the Company, to the extent and in the manner directed by the Person or Persons
indemnified or intended to be indemnified, will resist and defend such action,
suit or proceeding or cause the same to be resisted and defended by counsel
designated by the Company (which counsel shall be acceptable to the Person or
Persons indemnified or intended to be indemnified). If the Company shall fail to
do any act or thing which it has covenanted to do hereunder or any
representation or warranty on the part of the Company contained herein shall be
breached, the Agent may (but shall not be obligated to) do the same or cause it
to be done or remedy any such breach, and may expend its funds for such purpose.
Any and all amounts so expended by the Agent shall be repayable to
49
<PAGE>
it by the Company immediately upon the Agent's demand therefor, with interest at
a rate per annum (computed on the basis of a year consisting of 360 days) equal
to the Applicable Reference Rate from time to time in effect plus 1/4 of one
percent.
12.4. SURVIVAL. The obligations of the Company under this Section 12 shall
survive the repayment of the Notes and the payment of all other sums due under
this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
NATIONAL COMPUTER SYSTEMS, INC.
By: _______/s/_CHARLES W. OSWALD______
Name: Charles W. Oswald
Its: Chairman and Chief Executive
Officer
By: _______/s/_J. W. FENTON, JR.______
Name: J.W. Fenton, Jr.
Its: Secretary-Treasurer
<TABLE>
<CAPTION>
COMMITMENT AMOUNT
- ---------------------------------------------
<C> <S>
$16,000,000 FIRST BANK NATIONAL ASSOCIATION,
in its individual corporate capacity and as Agent
By /s/ANNE H. FERRELL
Title Vice President
$12,000,000 NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By /s/EDWARD J. MEYER, JR.
Title Vice President
$12,000,000 THE FIRST NATIONAL BANK OF CHICAGO
By /s/ARMUND J. SCHOEN, JR.
Title Vice President
<CAPTION>
AGGREGATE COMMITMENT AMOUNTS
- ---------------------------------------------
<C> <S>
$40,000,000
</TABLE>
50
<PAGE>
EXHIBIT 10J
NATIONAL COMPUTER SYSTEMS
CORPORATE
MANAGEMENT INCENTIVE PLAN
1994
It is NCS' intent to compensate its senior management employees in a manner
which permits the Corporation to attract, retain, and motivate outstanding
people.
The NCS Corporate Management Incentive Plan (MIP) is designed to reward key
senior managers for achieving specific annual NCS financial goals and for
individual performance in accomplishing these goals. It aligns the interests of
NCS senior management with NCS business and financial plans.
PLAN ELIGIBILITY
Participation in the plan is determined by position. Eligible positions and
target bonus amounts are determined each year and may change from year to year.
Participants must be full-time NCS employees. Eligibility is limited and
includes those positions which significantly impact the corporate/ NCS
Business/Division financial results.
The eligible positions and participants will be reviewed annually and
approved by the CEO.
Positions and participants in the plan will be selected from the following:
- CEO,
- Corporate staff officers,
- NCS Business presidents and, on a selected basis, their direct management
reports,
- Division general managers.
Any position or participant exceptions, exclusions and inclusions, to the
above must be documented and approved by the CEO.
TARGET BONUS
Each approved position will be eligible for a specific target bonus award
percentage level. This target bonus opportunity will be a percentage of the May
31, 1994, annual base salary for the participant. The target bonus is tied
directly to the participant's unit financial performance and an overall
evaluation of each individual's performance. Potential earned payouts range from
0% at threshold minimum, to 100% at target bonus, to a pre-defined
overachievement percentage for each executive at maximum.
INCENTIVE COMPONENTS
Participants will have 70% of their potential target bonus based on
financial goals and objectives (20% Revenue and 50% Contribution). The remaining
30% of their potential target bonus will be based upon an overall evaluation of
the participant's performance during the fiscal year. This overall evaluation
will include performance against defined individual objectives and an overall
evaluation of performance relative to:
1) What you have done to improve shareholder value.
2) How you have improved customer satisfaction and NCS' ability to serve
the customer.
3) What you have done to make NCS more productive. (Re-engineering,
continuous improvements, cost reduction programs)
4) What you have done to develop the strength of your organization.
5) How well you deal with issues/problems.
51
<PAGE>
6) How you demonstrate personal, quality leadership to the Corporation.
7) What you have done to make NCS a better place to work.
No bonus award payouts will be made to participants for achievement of the
70% financial performance if the individual's operating unit (Corporate or NCS
Business or Division) does not accomplish its minimum profit contribution
objective(s). (i.e., a division participant requires that the division achieve
its minimum profit contribution threshold.) Additionally, total earned bonus
payouts will be increased or decreased up to 20% based on actual achievement of
the NCS Corporate net income financial goal.
- If NCS overachieves its 1994 net income goal by 1% to 20%, earned MIP
payouts will be INCREASED, prorated, by 1% to 20% of the earned bonus
award.
- If NCS underachieves its 1994 net income goal, earned MIP bonus awards
will be DECREASED, prorated, by the same % amount as the net income
shortfall, up to 20%.
OVERALL EVALUATION
Each participant will have 30% of their target bonus award based upon an
overall evaluation of the participant's performance. These will be completed for
all MIP participants in accordance with the BASIS OF OVERALL EVALUATION IN 1994
(attached).
DETERMINATION OF MIP AWARDS
Generally speaking, actual financial results WILL NOT include extraordinary
gains or losses. In any such matters, including acquisitions, the CEO will make
the appropriate approval decisions where needed.
PAYOUTS AND PRO-RATA
Earned award payouts will be made no later than April 15, following the end
of the plan fiscal year. Any participant must be a full-time employee and be
actively employed by NCS on the last day of the fiscal year to be eligible to
receive a payout. In coming into or out of an MIP eligible position,
participants will be given pro-rata earned award payouts based upon the length
of time in such position, however, participants must be in the plan at least SIX
(6) FULL MONTHS during the fiscal year to be eligible to receive any pro-rata
award. Pro-rata payouts will be subject to review and approval by the CEO.
DISABILITY, DEATH, OR SPECIAL CIRCUMSTANCES
In the case of disability, death or other special circumstances impacting a
participant in the plan, the CEO may approve pro-rata award payouts.
PLAN EXCEPTIONS AND ADMINISTRATION
Exceptions and/or modifications to the plan must be approved by the CEO. All
decisions made are final.
DISCLAIMER
Participation in this plan is not to be construed as an employment contract
or agreement by the participant.
52
<PAGE>
3/94
1994 CORPORATE MIP
BASIS OF OVERALL EVALUATION IN 1994
Thirty percent (30%) of each participant's 1994 target bonus award is based
on an overall evaluation of the individual's performance during the fiscal year.
Consideration should be given to the individual's performance against the seven
(7) factors listed below as well as how effectively the individual accomplished
all aspects of responsibilities and expectations in achieving the approved
business and financial plan.
This adds an element of subjectivity and judgement into the MIP process and
is useful because it allows for flexibility in determining earned bonus awards
instead of making awards based solely on defined objectives or based only "on
the numbers." The rating is to be made independent of financial performance
results achieved for the 70% portion.
It is recommended that prior to making a final determination, the MIP
participant should be given an opportunity to complete a self-appraisal rating
and comments on himself/herself for consideration by the evaluating manager.
<TABLE>
<CAPTION>
BONUS
WEIGHTING BASIS OF OVERALL EVALUATION IN 1994
- -----------
<S> <C> <C>
1. What have you done to improve shareholder value?
2. How have you improved customer satisfaction and NCS' ability to serve the customer?
30% 3. What have you done to help NCS be more productive? (Re-engineering, continuous improvements, cost
reduction programs)?
4. What have you done to develop the strength of your organization?
5. How well did you deal with issues/problems?
6. How did you demonstrate personal, quality leadership to the Corporation?
7. What have you done to make NCS a better place to work?
</TABLE>
53
<PAGE>
EXHIBIT 10K
AGREEMENT
This Agreement entered into this 3RD day of December, 1993 between NATIONAL
COMPUTER SYSTEMS, INC. ("NCS"), and PHILIP W. ARNESON ("P. Arneson"), and, to
the extent her individual interest appears herein, DELORES A. ARNESON ("D.
Arneson") (P. Arneson and D. Arneson collectively hereinafter referred to as
"Arneson") relative to NCS loans to Arneson and the employment termination
package between NCS and P. Arneson.
WHEREAS, P. Arneson's duties as Senior Vice President of NCS and President,
NCS Financial ceased effective August 4, 1993; and
WHEREAS, on April 30, 1993 the parties entered into a written agreement
clarifying and confirming the rights and obligations of the parties respective
to certain loans made by NCS to Arneson and the rights and obligations of each
of the parties thereto, which agreement by reference is made a part hereof; and
WHEREAS, NCS has guaranteed a first mortgage on the Spicer, Minnesota
homestead of Arneson, which mortgage is in the principal sum of Two Hundred
Seventy Five Thousand Dollars ($275,000); and
WHEREAS, the parties have reached an understanding respective to the
treatment of various rights, benefits and obligations of the parties relating to
P. Arneson's termination of employment.
NOW THEREFORE, in consideration of the mutual promises contained herein, NCS
and Arneson agree as follows:
1. P. Arneson represents, understands and agrees that his duties as
Senior Vice President of NCS and President, NCS Financial ceased upon the
close of business August 4, 1993.
2. The agreement entered into by and between the parties dated April
30, 1993 is incorporated herein by reference and affirmed by the parties and
remains in full force and effect, except insofar as the same is modified by
the contents hereof.
3. Since August 4, 1993, NCS has paid to P. Arneson his regular salary
of Two Hundred Thousand Dollars ($200,000) per annum, and NCS will continue
the semi-monthly installments thereof to P. Arneson or his heirs until
January 31, 1994, the close of NCS's fiscal year.
4. Beginning February 1, 1994, NCS will pay to P. Arneson or his heirs
the sum of One Hundred Thousand Dollars ($100,000) to be paid at the rate of
Sixteen Thousand Six Hundred Sixty-Six and 66/100 Dollars ($16,666.66) per
month, in semi-monthly installments, for the months of February through
July, 1994 (6 months).
For purposes of eligibility for medical, dental, and life insurance
coverage and stock option grants only, P. Arneson will be an NCS employee
during the elected payment periods.
5. Beginning February 1, 1994, NCS will deduct interest from any
amounts paid as set forth in Paragraph 4 above in accordance with the
following: calculated at a rate per annum equal to one percent (1%) in
excess of the rate of interest from time to time publicly announced by
Norwest Bank Minnesota, N.A.
The current withholding amount for interest of $1,300 per payment, or
$2,600 per month will be continued through January 31, 1994.
6. Since August 4, 1993, NCS has maintained intact all of P. Arneson's
employment benefits, and those elected by him, and will continue to maintain
the same through January 31, 1994. Commencing on February 1, 1994, NCS will
maintain the employee medical, dental and life insurance benefits as
provided to other employees until July 31, 1994, or until P. Arneson becomes
54
<PAGE>
completely covered by another plan, whichever occurs earlier. Currently
outstanding employee stock options will continue to vest until July 31,
1994. Except for the PC Quote bonus, all other employee benefits, including
but not limited to, bonuses, the outstanding Long-Term Incentive Plan award,
sick or vacation time will cease as of January 31, 1994. P. Arneson may
choose to continue the medical, dental and life coverage as personal
coverage at P. Arneson's expense for eighteen (18) months after the end of
the 1994 semi-monthly payment periods, or until covered by another plan.
7. NCS and P. Arneson agree that no allowance will be made by NCS to P.
Arneson as and for office space, secretarial services, or expense
reimbursement.
8. The present indebtedness owing by Arneson to NCS is Four Hundred
Forty Five Thousand Dollars ($445,000) which is secured by a mortgage to NCS
on the homestead of Arneson located at Spicer, Minnesota, said mortgage is
subordinated to a mortgage on said property in favor of Norwest Bank
Minnesota, N.A. in an original principal amount of Two Hundred Seventy Five
Thousand Dollars ($275,000). With respect to the Four Hundred Forty Five
Thousand Dollars ($445,000) of indebtedness, NCS will credit the avails of
any and all existing stock options to which P. Arneson would be entitled to
exercise through the end of the 1994 semi-monthly payments.
a. To the extent P. Arneson exercises any stock options pursuant to
present stock option agreements between Arneson and NCS, he will enter
into an open market sale of the subject shares of NCS stock. NCS will
then receive from and apply to Arneson's outstanding balance the
difference between the market price recognized through the open market
sale, after commissions, and the option price specified in the applicable
stock option agreement, less an amount to be reasonably determined by NCS
to cover P. Arneson's income taxes on the gain, which amount shall be
retained by P. Arneson.
b. Because of Arneson's bankruptcy and the inability to repay the
indebtedness owing by Arneson to NCS, NCS agrees that it will on January
15, 1994, forgive Two Hundred Forty-Five Thousand Dollars ($245,000) of
indebtedness of Arneson. Subsequently, in the event that the amounts or
credits realized by P. Arneson pursuant to this Agreement exceed the
remaining loan balance, NCS has the right to recover any amount so
forgiven before any remaining amounts are paid to Arneson. At all times,
the determination of the amount to be forgiven will be solely that of P.
Arneson. NCS shall neither be responsible nor liable for the payment of
any taxes incurred as the result of such debt forgiveness.
The NCS guaranty to Norwest Bank Minnesota, N.A. of the loan secured by
a first mortgage on the Arneson homestead in Spicer, Minnesota is not
modified by this Agreement.
NCS will maintain an assignment of the NCS Group Term Life Insurance
equal to the portion provided by NCS (at no cost to P. Arneson) and release
any assignment of amounts in excess thereof.
9. NCS has an investment in the publicly traded common stock of PC
Quote, Inc. NCS does hereby reaffirm an agreement heretofore made with P.
Arneson for the payment of a special bonus of Two Hundred Thousand Dollars
($200,000) if the NASDAQ quoted stock price of PC Quote, Inc. common shares
remains above Four Dollars ($4.00) per share for ninety (90) consecutive
days or is acquired by another entity for Four Dollars ($4.00) or more per
share prior to January 31, 1995; accordingly, if such event occurs, NCS will
credit Arneson's indebtedness by the amount of $200,000. Any liability for
income taxes shall be Arneson's responsibility.
10. It is understood that P. Arneson is not an agent or representative
of NCS. It is further understood that his membership on the Board of
Directors of PC Quote is in his personal and individual capacity, however,
it is his intent to cooperate fully with the designated NCS officer
responsible for this investment.
55
<PAGE>
11. In consideration of this agreement, P. Arneson, with the advice of
counsel, hereby releases and discharges NCS, its employees, directors,
officers, agents, successors, and assigns from any and all liability for
damages or claims of any kind and agrees not to institute any claim for
damages or otherwise, by charge or otherwise, nor authorize any other party,
governmental or otherwise, to institute any claim via administrative or
legal proceedings against NCS for any such claims including, but not limited
to, any claims arising under or based upon the Minnesota Human Rights Act,
Minn. Stat. SectionSection 363.01 et seq.; Title VII of the Civil Rights
Act, 42 U.S.C. SectionSection 2000e et seq.; the Age Discrimination in
Employment Act, 29 U.S.C.SectionSection 621 et seq.; or the Americans With
Disabilities Act, 42 U.S.C. SectionSection 12101 et seq.; and any contract,
quasi contract, or tort claims, whether developed or undeveloped, arising
from or related to P. Arneson's employment with NCS, and/or the cessation of
P. Arneson's employment with NCS. P. Arneson and NCS agree that, by signing
this Agreement, P. Arneson does not waive any claims arising after the
execution of this Agreement.
12. NCS does hereby release and discharge P. Arneson from any and all
liability for damages or claims arising from or related to P. Arneson's
employment with NCS except as provided in this Agreement and to the extent
of modification of the Agreement between the parties dated April 30, 1993.
13. P. Arneson agrees that he was not entitled to the payments and
benefits outlined in paragraphs 3, 4, and 6 as a result of his employment
with NCS, but that the payments and benefits are being provided as
consideration for his acceptance and execution of this Agreement.
14. P. Arneson has been informed of his right to rescind this Agreement
as far as it extends to potential claims under Minn. Stat. SectionSection
363.01 et SEQ. (prohibiting discrimination in employment) by written notice
to NCS within fifteen (15) calendar days following his execution of this
Agreement. To be effective, such written notice must either be delivered by
hand or sent by certified mail, return receipt requested, addressed to Mr.
J.W. Fenton, Jr., Secretary-Treasurer, National Computer Systems, Inc.,
11000 Prairie Lakes Drive, P.O. Box 9365, Minneapolis, MN 55440, delivered
or post-marked within such fifteen (15) day period. P. Arneson understands
that NCS will have no obligations under this Agreement in the event such
notice is timely delivered and any payments made as of that date by NCS
pursuant to paragraph 3 and 4, above, shall be immediately repaid by P.
Arneson to NCS.
15. P. Arneson has been informed of his right to revoke this Agreement
as far as it extends to potential claims under the Age Discrimination in
Employment Act, 29 U.S.C. SectionSection 621 et SEQ. by informing NCS of his
intent to revoke this Agreement within seven (7) calendar days following his
execution of this Agreement. To be effective, such written notice must
either be delivered by hand or sent by certified mail, return receipt
requested, addressed to Mr. J.W. Fenton, Jr., Secretary-Treasurer, National
Computer Systems, Inc., 11000 Prairie Lakes Drive, P.O. Box 9365,
Minneapolis, MN 55440, delivered or postmarked within such seven (7) day
period. This Agreement shall not become effective or enforceable until the
seven (7) day period has expired.
16. P. Arneson has also been informed that the terms of this Agreement
shall be open for acceptance by him for a period of twenty-one (21) days
during which time he may consider whether to accept this Agreement.
17. This Agreement constitutes a contract enforceable against either
party and shall be construed and enforced in accordance with the laws of the
State of Minnesota. Nothing contained in this Agreement is intended to
violate any applicable law. If any part of this Agreement is construed to be
in violation of a state and/or federal law, then that part shall be null and
void, but the balance of the provisions of this Agreement shall remain in
full force and effect.
18. This Agreement shall not in any way be construed as an admission by
NCS that it has acted wrongfully with respect to P. Arneson or any other
person, or that P. Arneson has any rights
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<PAGE>
whatsoever against NCS. NCS specifically disclaims any liability to, or
wrongful acts against, P. Arneson or any other person, on the part of
itself, its directors, its employees, its representatives or its agents.
19. The terms of this Agreement shall remain strictly confidential
between the parties hereto, and shall not be disclosed to third persons
unless required by law.
20. P. Arneson hereby affirms and acknowledges that he has read the
foregoing Agreement and that he has been advised to consult with an attorney
prior to signing this Agreement. P. Arneson agrees that the provisions set
forth in this Agreement are written in language understandable to him and
further affirms that he understands the meaning of the terms of this
Agreement and their effect. P. Arneson represents that he enters into this
Agreement freely and voluntarily.
21. This Agreement may be executed by facsimile signatures which shall
be valid and enforceable as original signature.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of this 3rd day of December, 1993.
NATIONAL COMPUTER SYSTEMS, INC.
By /s/ CHARLES W. OSWALD
-----------------------------------
Its Chairman
-----------------------------------
/s/ PHILLIP W. ARNESON
-----------------------------------
Philip W. Arneson
/s/ DELORES A. ARNESON
-----------------------------------
Delores A. Arneson
57
<PAGE>
EXHIBIT 11 -- STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
NATIONAL COMPUTER SYSTEMS, INC.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
-----------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
PRIMARY
Average shares outstanding................ 15,438 15,915 16,002 15,891 16,003
Dilutive stock options -- based on the
treasury stock method using average
market price............................. 97 151 136 -- 20
--------- --------- --------- --------- ---------
TOTAL................................... 15,535 16,066 16,138 15,891 16,023
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss)........................... $ (2,509) $ 16,508 $ 15,474 $ 13,022 $ 7,317
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per share................. $ (.16) $ 1.03 $ .96 $ .82 $ .46
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
FULLY DILUTED
Average shares outstanding................ 15,438 15,915 16,002 15,891 16,003
Dilutive stock options -- based on the
treasury stock method using the higher of
year-end market price or average market
price.................................... 99 164 199 78 47
Assumed conversion of convertible
subordinated debenture................... -- -- 361 1,937 2,250
--------- --------- --------- --------- ---------
TOTAL................................... 15,537 16,079 16,562 17,906 18,300
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss)........................... $ (2,509) $ 16,508 $ 15,474 $ 13,022 $ 7,317
Add interest on convertible subordinated
debenture, net of the income tax effect.... -- -- 363 1,795 1,999
--------- --------- --------- --------- ---------
$ (2,509) $ 16,508 $ 15,837 $ 14,817 $ 9,316
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per share................. $ (.16) $ 1.03 $ .96 $ .83 $ .51
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
58
<PAGE>
EXHIBIT 13
PORTIONS OF THE
ANNUAL REPORT TO STOCKHOLDERS
FOR THE FISCAL YEAR ENDED JANUARY 31, 1994
FIVE-YEAR FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
---------------------------------------------------------------
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Financial Results
Revenues...................................... $ 305,453 $ 300,067 $ 302,506 $ 315,283 $ 284,203
Income (loss) from operations................. (2,301 (1) 27,258 28,704 28,064 17,472
Income (loss) before income taxes............. (2,859) 26,608 24,174 20,972 11,517
Income taxes.................................. (350) 10,100 8,700 7,950 4,200
Net income (loss)............................. (2,509) 16,508 15,474 13,022 7,317
Net income (loss) per share................... $ (.16) $ 1.03 $ .96 $ .82 $ .46
Average number of shares outstanding.......... 15,535 16,066 16,138 15,891 16,023
Cash dividends per share...................... $ .36 $ .33 $ .29 $ .28 $ .28
Financial Position
Current ratio................................. 1.5 1.6 1.7 2.0 1.8
Working capital............................... $ 36,217 $ 38,792 $ 39,836 $ 51,351 $ 50,574
Total assets.................................. 220,173 214,739 217,578 225,159 250,395
Long-term debt, less current maturities....... 44,674 23,869 37,214 56,034 82,337
Stockholders' equity.......................... $ 100,147 $ 121,317 $ 112,316 $ 100,646 $ 90,192
<FN>
- ------------------------
(1) Includes a $25,000 pre-tax restructuring charge. See Note 2 of Notes to
Consolidated Financial Statements.
</TABLE>
59
<PAGE>
QUARTERLY MARKET DATA (UNAUDITED)
The Company stock is traded on the NASDAQ National Market System under the
symbol "NLCS." As of January 31, 1994, there were approximately 2,200
stockholders of record.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1994
------------------------------------------
QUARTER 1ST 2ND 3RD 4TH
- ------------------------------------------ --------- --------- --------- ---------
Sales prices per share
<S> <C> <C> <C> <C>
High.................................... $ 16.00 $ 18.00 $ 17.75 $ 13.25
Low..................................... 13.25 14.87 11.50 10.25
Dividends paid per share.................. $ .09 $ .09 $ .09 $ .09
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1993
------------------------------------------
QUARTER 1ST 2ND 3RD 4TH
- ------------------------------------------ --------- --------- --------- ---------
Sales prices per share
<S> <C> <C> <C> <C>
High.................................... $ 16.75 $ 15.75 $ 19.25 $ 18.75
Low..................................... 13.50 12.50 14.25 14.25
Dividends paid per share.................. $ .08 $ .08 $ .08 $ .09
</TABLE>
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------
APRIL 30 JULY 31 OCTOBER 31 JANUARY 31
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Year Ended January 31, 1994
Revenues................................... $ 68,514 $ 75,669 $ 77,645 $ 83,625
Gross profit............................... 26,789 30,996 27,870 33,266
Net income (loss).......................... 1,732 4,233 1,505 (9,979)(1)
Net income (loss) per share................ $ 0.11 $ 0.27 $ 0.10 $ (0.66 )
Year Ended January 31, 1993
Revenues................................... $ 65,543 $ 74,792 $ 73,719 $ 86,013
Gross profit............................... 23,905 30,901 27,331 32,266
Net income................................. 1,574 4,803 3,753 6,378
Net income per share....................... $ 0.10 $ 0.30 $ 0.23 $ 0.40
<FN>
- ------------------------
(1) Includes a $25,000 pre-tax restructuring charge. See Note 2 of Notes to
Consolidated Financial Statements.
</TABLE>
60
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
INCOME AND EXPENSE ITEMS AS A PERCENTAGE OF REVENUES
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------
1993 1992 1991
----------- ---------- ----------
Revenues
<S> <C> <C> <C>
Net sales..................................................... 77.5% 77.1% 76.1%
Maintenance and support....................................... 22.5 22.9 23.9
----- ----- -----
Total revenues.............................................. 100.0 100.0 100.0
Costs and expenses
Cost of sales (1)............................................. 57.4 57.7 58.0
Cost of maintenance and support (2)........................... 73.6 76.1 72.4
----- ----- -----
Total gross margin.......................................... 38.9 38.1 38.5
Sales and marketing............................................. 15.7 13.2 11.9
Research and development........................................ 3.1 3.0 2.7
General and administrative...................................... 12.7 12.9 14.4
Restructuring charge............................................ 8.2 -- --
----- ----- -----
Income (loss) from operations................................... (0.8 ) 9.1 9.5
Income (loss) before taxes...................................... (0.9 ) 8.9 8.0
Net income (loss)............................................... (0.8 )% 5.5 % 5.1 %
----- ----- -----
----- ----- -----
<FN>
- ------------------------
(1) As a percentage of sales revenue.
(2) As a percentage of maintenance and support revenue.
</TABLE>
Note: The fiscal years referenced herein are as follows: fiscal 1993 -- year
ended January 31, 1994; fiscal 1992 -- year ended January 31, 1993; fiscal 1991
- -- year ended January 31, 1992.
The Company operates two business segments. The financial systems segment
(NCS Financial) designs, develops and markets asset management software,
primarily for bank trust departments. This includes systems for personal trust
asset management for individuals and corporate trust applications such as stock
and bond transfer systems. The remainder of the Company's business is centered
around its proprietary optical scanning hardware and forms technology. This
segment markets those products and services and related application software to
education, business, and professional markets through the NCS Education, NCS
Technology and NCS Assessment businesses.
In order to provide improved financial reporting, additional expense detail
is being reported in the accompanying fiscal 1993 consolidated statements of
income. Specifically, the sales and marketing and the research and development
lines have been added.
Certain reclassifications, particularly related to isolating research and
development expenses, have been made to the prior years statements to conform to
the current year classification.
RECAP OF 1993 RESULTS
Total revenues in fiscal 1993 were up 1.8% to $305.5 million. Results fell
short of expectations as, despite a sizeable increase in sales and marketing
efforts, significant revenue gains were not achieved. The Company's overall
gross margin percentage on revenues was also slightly improved in fiscal 1993.
However, the increase in sales and marketing costs more than offset the sales
and gross margin improvements. These expenses were increased to spur revenue
growth, but those efforts were not as successful as intended. Research and
development expense was up slightly in 1993 and general and administrative
expenses were essentially flat. Interest and other non-operating items were also
comparable on a net basis. In summary, before the effects of the restructuring
charge discussed below, pre-tax income was down 16.8% to $22.1 million
principally due to the higher sales and marketing expenses. The restructuring
charge of $25 million caused a net pre-tax loss of $2.9 million for fiscal 1993.
A more detailed discussion follows.
61
<PAGE>
RESTRUCTURING CHARGE
In January, 1994, the Company announced it would incur a $25 million
restructuring charge, principally to terminate the Ultrust product and the
related Cambridge, Massachusetts operations dedicated to the product. Ultrust
was a sophisticated asset management system for the largest trust banks in the
market and included full multi-currency accounting and other features designed
to facilitate global asset management. While Ultrust was intended to be marketed
as packaged software, it became apparent that the Ultrust product could not meet
the level of customized, individualized functionality, on an economically viable
basis, that customers in this market segment demanded. Also, rapid changes in
technology since the commencement of development, while not fatal to its
viability, limited the potential for the product. Further investment in the
product could not be justified and the product was terminated. The related
charge of $22.8 million includes the non-cash write off of the investment in
software of $17.8 million. The remainder of the Ultrust charge consists of $2.7
million for severance and out-placement costs for approximately 80 people, and
$2.3 million in facility costs, customer accommodations and other items. The
restructuring charge also included the restructuring of the administrative
software division of the NCS Education business, principally the closing of the
Company's Salt Lake City software development facility and the consolidation of
product development activities into facilities in Mesa, Arizona. Substantially
all of this $2.2 million charge was related to severance, relocation and other
employee costs.
It is expected that substantially all of the above restructuring actions and
related cash payments will be completed by June, 1994. The elimination of the
Ultrust operating losses will have an immediate positive effect on future
operating results of NCS Financial. The benefits of the NCS Education software
restructuring will be realized more gradually as the operating efficiencies of a
single location are instituted, since the Company is not anticipating a
significant net reduction in its NCS Education business workforce.
REVENUES
FISCAL 1993 VERSUS FISCAL 1992. Total revenues for fiscal 1993 were up 1.8%
to $305.5 million from $300.1 million in fiscal 1992. Total revenue results for
fiscal 1993 as compared to fiscal 1992 by the four major NCS businesses were as
follows:
<TABLE>
<S> <C>
NCS Technology.................................... +3.3 %
NCS Education..................................... +6.1 %
NCS Assessments................................... +4.4 %
NCS Financial..................................... -12.4 %
</TABLE>
Significantly higher volumes of educational assessments and student
financial aid processing at the Company's Iowa City service center resulted in
an overall increase in NCS Education revenues, notwithstanding the loss of
approximately $8 million of Guaranteed Student Loan (GSL) contract revenue. NCS
Financial revenues were down due to the absence of any Ultrust sales in 1993,
versus $5.8 million of such revenues in fiscal 1992. Ultrust has been
discontinued as described above. The results of NCS Financial, and NCS as a
whole, were significantly impacted by the operating losses in the Ultrust
product line, which will not recur in the future.
By revenue category, net sales were up 2.3% in fiscal 1993 over fiscal 1992
due to the higher assessment and processing revenues mentioned above, as well as
increased scannable forms sales. Maintenance and support revenues were up very
slightly from year to year as both software support and hardware maintenance
were up only marginally.
FISCAL 1992 VERSUS FISCAL 1991. Total revenues for fiscal 1992 versus
fiscal 1991 were essentially flat year to year (down less than 1%). Variations
by the four major business units were as follows:
<TABLE>
<S> <C>
NCS Technology..................................... -8.1 %
NCS Education...................................... +1.0 %
NCS Assessments.................................... +5.1 %
NCS Financial...................................... +6.2 %
</TABLE>
62
<PAGE>
NCS Technology revenues declined year to year principally due to the
mid-1991 divestiture of certain European operations. NCS Financial showed an
increase in fiscal 1992 over the prior year due to increases in corporate trust
products and Ultrust sales.
By revenue category, net sales were up in 1992 by less than 1% with major
factors being as noted in the previous paragraph. Maintenance and support
revenues were down $3.9 million or 5.3% in fiscal 1992 from the prior year. This
was due to the decline in third party, non-proprietary hardware maintenance and
the European divestiture referred to above. Software support revenues rose
modestly year to year.
COST OF REVENUES AND GROSS MARGINS
FISCAL 1993 VERSUS FISCAL 1992. The Company's overall gross margin
percentage improved to 38.9% in fiscal 1993 from 38.1% in fiscal 1992. The gross
margin on net sales improved 0.3 percentage points year to year as a percentage
of net sales due principally to improved margins on non-GSL student financial
aid processing. Maintenance and support margins improved by 2.5 percentage
points year to year as a percentage of related revenues due to lower parts costs
related to hardware maintenance.
FISCAL 1992 VERSUS FISCAL 1991. The Company's overall gross margin
percentage declined by 0.4 percentage points as a percentage of total revenues
in fiscal 1992 from fiscal 1991. The gross margin percentage on sales improved
slightly as a percentage of sales in fiscal 1992 from fiscal 1991; however, this
was offset by a decline in the gross margin percentage on maintenance and
support year to year as both hardware maintenance and software support margins
declined.
OPERATING EXPENSES
FISCAL 1993 VERSUS FISCAL 1992. Sales and marketing expenses increased by
$8.4 million in fiscal 1993 over fiscal 1992. This was a 21% increase year to
year and was incurred predominantly in NCS Technology, though all the four major
businesses contributed to the increase. The increase in this area was to
increase sales momentum, and while sales did increase slightly in fiscal 1993,
they did not increase as much as anticipated. The Company is currently
evaluating its expenditures in this area to control them to fully productive
levels in fiscal 1994.
Research and development expenses were up slightly in fiscal 1993 from the
prior year. This increase was spread among the four major NCS businesses, with
the largest increase coming in scanning hardware and software engineering.
General and administrative expenses were essentially unchanged overall from
fiscal 1992 to fiscal 1993.
FISCAL 1992 VERSUS FISCAL 1991. Sales and marketing expenses increased $3.6
million or 10.1% in fiscal 1992 over fiscal 1991. The majority of this increase
came in NCS Education as that business took on the responsibility for sales of
its CIMS-R- product from IBM.
Research and development increased year to year by $.8 million or 10.0%.
This increase came almost evenly from NCS Assessments and NCS Financial due to
product development initiatives.
General and administrative expenses declined $5.1 million or 11.7% due to
the divestiture of certain European operations in 1991 and through concerted
efforts to control these expenses Company wide.
INTEREST EXPENSE
Interest expense increased by $0.3 million in fiscal 1993 from fiscal 1992.
The increase was due to an increase in the average borrowings outstanding, as
interest rates did not vary significantly. See Capital Resources and Liquidity
below for further discussion of cash flow and debt. Interest expense had
declined $1.5 million in fiscal 1992 from fiscal 1991 due to significantly lower
outstanding borrowing balances during fiscal 1992 when compared to the prior
year. Lower rates also contributed to the year to year decrease.
63
<PAGE>
OTHER INCOME AND EXPENSE
Other Income in fiscal 1993 includes a $1.6 million gain from the sale of
assets of the Company's Catalog Card Division. This division's net assets and
results of operations were not material to NCS.
During fiscal 1992, the Company concluded certain litigation with a
resulting net gain of approximately $1.0 million which is included in other
income and expense. This gain predominantly includes the favorable resolution of
certain claims relating to the original procurement of the GSL processing
contract in 1987.
During fiscal 1991, a provision for loss of $750,000 was recorded for the
divestiture of certain European operations and is included in other expense.
INCOME TAXES
The effective income tax benefit rate for fiscal 1993 is 12.2%, which is
significantly lower than the statutory rate and NCS' historical effective rate.
The magnified rate impact of permanent book/tax differences is due to the low
absolute dollar amount of the pre-tax loss. Refer also to Note 6 of the Notes to
Consolidated Financial Statements. The recent U.S. federal income tax law
changes will have only a slight upward impact, if any, on the Company's
effective tax rate in the future, as the Company is anticipating that its
effective tax rate will return to a level commensurate with prior periods.
The effective income tax rates for fiscal 1992 and 1991 were 38.0% and
36.0%, respectively, with the increase in 1992 being due to lower research and
development credits in 1992.
CAPITAL RESOURCES AND LIQUIDITY
During fiscal 1993, the Company generated $26.0 million of cash from
operating activities. This was significantly below the prior year's generation
of $54.3 million due to lower levels of income, lower non-cash expenses, and
growth in receivables. The significant receivables growth was due to heavy
billing activity in the last quarter of the fiscal year as the Company's days of
billings outstanding remained virtually constant with the prior year. The
accrued expense increase in fiscal 1993 includes the residual of the
restructuring charges, which will require cash outlay in the first half of
fiscal 1994. Cash was used for capital expenditures and other investing
activities totalling $38.3 million. This investment level is higher than the
fiscal 1992 amount of $24.5 million due to higher plant and equipment
expenditures, including an additional forms plant in the United Kingdom, and
investments in software development prior to the discontinuation of Ultrust. The
Company also repurchased over one million common shares during fiscal 1993,
using $15.9 million of cash. All these activities described above were financed
with $9.0 million cash on hand and increased borrowings of $23.0 million during
fiscal 1993.
During fiscal 1992, $54.3 million of cash was generated from operating
activities. Cash was used for capital expenditures and other investing
activities totalling $24.5 million, debt reduction of $13.4 million, dividends
of $5.3 million and stock repurchases, net of issuances, of $2.7 million. Since
revolving debt balances were reduced to zero and only term debt remained at
January 31, 1993, the Company's cash and cash equivalents balance increased $8.4
million to $10.8 million.
The Company had long-term debt balances, including current maturities of
$47.4 million, $25.4 million, and $39.8 million at January 31, 1994, 1993, and
1992, respectively. The items causing the changes in debt balances are explained
above. At January 31, 1994, the Company's total debt to equity ratio was .47 to
1, up from .21 to 1 a year earlier and .35 to 1 two years prior. The Company
believes that the current debt to equity ratio is within its acceptable
operating range.
Looking toward fiscal 1994, the Company maintains a $30 million revolving
credit facility, $11.5 million of which was unused at January 31, 1994. The
Company expects cash flow from operations to return to more traditional levels
in fiscal 1994 and will use such cash to fund capital expenditures and reduce
debt to the extent possible. In fiscal 1994, capital expenditures are likely to
increase, principally for plant and office construction projects in Iowa City,
Iowa and Mesa, Arizona, with software development decreasing from 1993 levels.
Remaining Board of Directors' authorization for stock repurchases total 308,000
shares. The Company considers the $30 million credit facility and funds from
operations to be adequate to meet foreseeable cash requirements.
64
<PAGE>
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Current Assets
Cash and cash equivalents............................................ $ 1,724 $ 10,767
--------- ---------
Receivables
Trade.............................................................. 70,100 63,016
Other.............................................................. 5,328 2,354
--------- ---------
75,428 65,370
--------- ---------
Inventories.......................................................... 17,370 14,006
Prepaid expenses and other........................................... 9,198 8,644
--------- ---------
Total Current Assets............................................... 103,720 98,787
--------- ---------
Property, Plant & Equipment
Land, buildings and improvements..................................... 37,254 31,435
Machinery and equipment.............................................. 88,950 82,443
Rotable service parts................................................ 11,085 12,667
Equipment held for lease............................................. 8,205 9,012
Accumulated depreciation............................................. (75,988) (73,424)
--------- ---------
69,506 62,133
--------- ---------
Other Assets, net
Acquired and internally developed software products.................. 20,092 30,166
Non-current receivables, investments and other assets................ 21,896 17,452
Goodwill............................................................. 4,959 6,201
--------- ---------
46,947 53,819
--------- ---------
Total Assets....................................................... $ 220,173 $ 214,739
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt................................. $ 2,677 $ 1,481
Accounts payable..................................................... 18,777 18,006
Accrued expenses..................................................... 27,093 21,403
Deferred income...................................................... 18,956 16,808
Income taxes......................................................... -- 2,297
--------- ---------
Total Current Liabilities.......................................... 67,503 59,995
--------- ---------
Deferred Income Taxes.................................................. 7,849 9,558
Long-Term Debt -- less current maturities.............................. 44,674 23,869
Commitments............................................................ -- --
Stockholders' Equity
Preferred stock...................................................... -- --
Common stock -- issued and outstanding -- 14,983 and 15,899 shares,
respectively........................................................ 449 477
Paid-in capital...................................................... -- 13,390
Retained earnings.................................................... 106,771 115,716
Deferred compensation................................................ (7,073) (8,266)
--------- ---------
Total Stockholders' Equity......................................... 100,147 121,317
--------- ---------
Total Liabilities and Stockholders' Equity......................... $ 220,173 $ 214,739
--------- ---------
--------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
65
<PAGE>
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
Revenues
<S> <C> <C> <C>
Net sales................................................. $ 236,737 $ 231,483 $ 230,060
Maintenance and support................................... 68,716 68,584 72,446
--------- --------- ---------
Total revenues.......................................... 305,453 300,067 302,506
Costs And Expenses
Cost of sales............................................. 135,943 133,457 133,532
Cost of maintenance and support........................... 50,589 52,207 52,438
--------- --------- ---------
Gross margin............................................ 118,921 114,403 116,536
Sales and marketing....................................... 48,104 39,695 36,065
Research and development.................................. 9,364 8,865 8,057
General and administrative................................ 38,754 38,585 43,710
Restructuring charge...................................... 25,000 -- --
--------- --------- ---------
Income (Loss) From Operations............................... (2,301) 27,258 28,704
Interest expense.......................................... 2,200 1,889 3,361
Other (income) expense, net............................... (1,642) (1,239) 1,169
--------- --------- ---------
Income (Loss) Before Income Taxes........................... (2,859) 26,608 24,174
Income tax provision (benefit)............................ (350) 10,100 8,700
--------- --------- ---------
Net Income (Loss)........................................... $ (2,509) $ 16,508 $ 15,474
--------- --------- ---------
--------- --------- ---------
Net Income (Loss) Per Share................................. $ (0.16) $ 1.03 $ 0.96
Average Shares Outstanding.................................. 15,535 16,066 16,138
--------- --------- ---------
--------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
66
<PAGE>
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- PAID-IN RETAINED DEFERRED
SHARES AMOUNT CAPITAL EARNINGS COMPENSATION TOTAL
--------- ----------- --------- --------- ----------- ---------
Balance January 31, 1991................ 15,934 $ 478 $ 15,198 $ 95,142 $ (10,172) $ 100,646
<S> <C> <C> <C> <C> <C> <C>
Shares issued for employee stock
purchase and option plans............ 165 5 1,567 1,572
Repurchase of common stock............ (78) (2) (1,049) (1,051)
Restricted stock awards............... 6 130 (130) --
ESOP debt payment..................... 1,000 1,000
Restricted stock compensation
accrual.............................. 139 139
Net income............................ 15,474 15,474
Cash dividends paid -- $.29 per
share................................ (4,641) (4,641)
Foreign currency translation
adjustment........................... (823) (823)
--------- ----- --------- --------- ----------- ---------
Balance January 31, 1992................ 16,027 481 15,846 105,152 (9,163) 112,316
Shares issued for employee stock
purchase and option plans............ 194 6 2,222 2,228
Repurchase of common stock............ (338) (10) (4,931) (4,941)
Restricted stock awards............... 16 253 (253) --
ESOP debt payment..................... 1,000 1,000
Restricted stock compensation
accrual.............................. 150 150
Net income............................ 16,508 16,508
Cash dividends paid -- $.33 per
share................................ (5,261) (5,261)
Foreign currency translation
adjustment........................... (683) (683)
--------- ----- --------- --------- ----------- ---------
Balance January 31, 1993................ 15,899 477 13,390 115,716 (8,266) 121,317
Shares issued for employee stock
purchase and option plans............ 135 4 1,741 1,745
Repurchase of common stock............ (1,053) (32) (15,317) (566) (15,915)
Restricted stock awards............... 2 186 (33) 153
ESOP debt payment..................... 1,000 1,000
Restricted stock compensation
accrual.............................. 226 226
Net loss.............................. (2,509) (2,509)
Cash dividends paid -- $.36 per
share................................ (5,581) (5,581)
Foreign currency translation
adjustment........................... (289) (289)
--------- ----- --------- --------- ----------- ---------
Balance January 31, 1994................ 14,983 $ 449 $ -- $ 106,771 $ (7,073) $ 100,147
--------- ----- --------- --------- ----------- ---------
--------- ----- --------- --------- ----------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
67
<PAGE>
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Operating Activities
Net income (loss).......................................... $ (2,509) $ 16,508 $ 15,474
Adjustments to reconcile to net cash provided by operating
activities:
Depreciation............................................. 16,289 18,426 17,858
Amortization............................................. 8,388 10,131 7,359
Deferred income taxes and other.......................... (2,434) (501) (978)
Non-cash restructuring charge............................ 17,805 -- --
Changes in operating assets and liabilities (net of
acquired amounts):
Decrease (increase) in accounts receivable............. (12,346) 1,830 (6,685)
Decrease (increase) in inventory and other current
assets................................................ (3,765) 3,100 7,525
Increase in accounts payable and accrued expenses...... 3,879 552 1,797
Increase in deferred income............................ 652 4,278 2,622
--------- --------- ---------
Net Cash Provided By Operating Activities.............. 25,959 54,324 44,972
--------- --------- ---------
Investing Activities
Divestitures (acquisitions)................................ (1,198) 154 (1,527)
Purchases of property, plant and equipment................. (21,935) (12,894) (9,304)
Purchases of rotable service parts......................... (1,917) (1,490) (2,153)
Capitalized software products.............................. (11,474) (8,409) (9,658)
Other -- net............................................... (1,728) (1,906) (1,866)
--------- --------- ---------
Net Cash Used In Investing Activities.................. (38,252) (24,545) (24,508)
--------- --------- ---------
Financing Activities
Net increase (decrease) in revolving credit borrowing...... 18,500 (15,000) 5,000
Repayment of subordinated debenture........................ -- -- (22,497)
Net proceeds of other borrowings........................... 4,501 1,599 257
Issuance (repurchase) of common stock, net................. (14,170) (2,713) 521
Dividends paid............................................. (5,581) (5,261) (4,641)
--------- --------- ---------
Net Cash Provided By (Used In) Financing Activities.... 3,250 (21,375) (21,360)
--------- --------- ---------
Increase (Decrease) In Cash and Cash Equivalents............. (9,043) 8,404 (896)
Cash and Cash Equivalents -- Beginning of Year............... 10,767 2,363 3,259
--------- --------- ---------
Cash and Cash Equivalents -- End of Year..................... $ 1,724 $ 10,767 $ 2,363
--------- --------- ---------
--------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
68
<PAGE>
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 -- ACCOUNTING POLICIES
FISCAL YEARS: The fiscal years referenced herein are as follows: fiscal
1993 -- year ended January 31, 1994; fiscal 1992 -- year ended January 31, 1993;
fiscal 1991 -- year ended January 31, 1992.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All intercompany
accounts and transactions between consolidated entities have been eliminated.
In order to provide improved financial reporting, additional expense lines
are being reported in the accompanying fiscal 1993 consolidated statement of
income. Specifically, the sales and marketing line and the research and
development line have been added. The prior years statements of income have been
reclassified also, to conform to the current year's presentation.
CASH EQUIVALENTS: The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents. Cash equivalents consist of investments in money market funds,
subject to daily withdrawal without limitation.
INVENTORIES: Inventories are stated at the lower of cost (first-in,
first-out method) or market. Components of inventory are summarized as follows:
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Finished products................................................................ $ 6,094 $ 5,629
Scoring services and work in process............................................. 6,117 4,017
Raw materials and purchased parts................................................ 5,159 4,360
--------- ---------
$ 17,370 $ 14,006
--------- ---------
--------- ---------
</TABLE>
ROTABLE SERVICE PARTS: Rotable service parts (parts continually repaired
and reused) are carried at cost and depreciated over their useful lives, which
range up to seven years, with a weighted average of approximately five years.
Such amounts are reflected as a separate category of property, plant and
equipment.
PROPERTY, PLANT AND EQUIPMENT: Assets are stated at cost. Major
improvements are capitalized while maintenance and repairs are expensed
currently. Rental income from equipment held for lease is recognized as earned
using the operating method of accounting for such leases. Depreciation is
computed using the straight-line method based on the assets' estimated useful
lives.
GOODWILL: The excess of cost over the underlying fair value of net assets
at dates of acquisition is amortized on a straight-line basis over periods
ranging from five to 20 years. Accumulated amortization was $6,253 and $5,212 at
January 31, 1994 and 1993, respectively.
ACQUIRED AND INTERNALLY DEVELOPED SOFTWARE PRODUCTS: Acquired software
product amounts originate from the allocation of purchase prices of acquired
companies. These products (principally BondMaster-R- and CIMS) are large,
complex, mission-critical application software packages with substantial,
well-established market positions. Products in this category have been assigned
lives of five to 10 years. Internally developed software products represent
costs capitalized in accordance with Statement of Financial Accounting Standards
No. 86. Accordingly, software production costs incurred subsequent to the
establishment of technological feasibility, as defined, are capitalized.
Amortization begins once the respective product becomes generally available for
sale. These products are amortized on a product by product basis ratably as a
percentage of expected revenue, subject to minimum straight-line amortization,
over two to five years. The Company's Ultrust software product was discontinued
in fiscal 1993. Refer to Note 2 for further discussion.
69
<PAGE>
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)
A summary of software activity is as follows:
<TABLE>
<CAPTION>
INTERNALLY ACCUMULATED
ACQUIRED DEVELOPED AMORTIZATION TOTAL
--------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Balance,
January 31, 1991.............................................. $ 16,684 $ 10,998 $ (6,227) $ 21,455
Additions................................................... -- 9,658 -- 9,658
Amortization................................................ -- -- (3,202) (3,202)
--------- ----------- ------------ ---------
Balance,
January 31, 1992.............................................. 16,684 20,656 (9,429) 27,911
Additions................................................... -- 8,409 -- 8,409
Amortization................................................ -- -- (6,154) (6,154)
--------- ----------- ------------ ---------
Balance,
January 31, 1993.............................................. 16,684 29,065 (15,583) 30,166
Additions................................................... 1,165 11,474 -- 12,639
Product discontinuation..................................... (4,522) (18,495) 5,212 (17,805)
Dispositions................................................ -- (1,558) 1,057 (501)
Amortization................................................ -- -- (4,407) (4,407)
--------- ----------- ------------ ---------
Balance,
January 31, 1994.............................................. $ 13,327 $ 20,486 $ (13,721) $ 20,092
--------- ----------- ------------ ---------
--------- ----------- ------------ ---------
</TABLE>
ACCRUED EXPENSES: Major components of accrued expenses are summarized as
follows:
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Employee compensation and benefits......................................................... $ 10,168 $ 8,069
Restructuring accrual...................................................................... 5,328 --
Scoring.................................................................................... 2,355 2,272
Taxes other than income.................................................................... 3,383 3,728
Royalties.................................................................................. 2,196 2,259
Other...................................................................................... 3,663 5,075
--------- ---------
$ 27,093 $ 21,403
--------- ---------
--------- ---------
</TABLE>
REVENUE RECOGNITION: Revenue from product sales and software licensing is
recognized at the time of shipment, except in instances where material
fulfillment obligations exist beyond shipment. In such cases, revenue is not
recognized until such obligations are fulfilled or is recognized in accordance
with specific contract terms. Hardware maintenance and software support revenues
are recognized ratably over the contractual period. Revenue from other services
is recognized when such service is performed.
OTHER (INCOME) EXPENSE: Other income for the year ended January 31, 1994
includes a $1,556 gain on the sale of the assets of the Company's Catalog Card
Division to an entity controlled by the Company's Chairman. The sale was for
cash and notes totalling $2,350, including interest. The disinterested directors
of the Company determined that the terms of the sale were fair and reasonable to
the Company. Notes receivable of $1,525, net, from the acquiring entity are
carried in non-current receivables on the Company's balance sheet. Other income
for the year ended January 31, 1993 includes $1,027, net, related to the
conclusion of certain litigation in the Company's favor. Other expense for the
year ended January 31, 1992 includes $750 representing a provision for loss on
the disposition of certain European operations.
70
<PAGE>
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES: As of the beginning of fiscal year 1993, the Company adopted
the provisions of Statement of Financial Accounting Standards No. 109 (SFAS 109)
"Accounting for Income Taxes". As was previously disclosed, the cumulative
effect of the change in accounting principle was not material and, accordingly,
no cumulative effect of the change is shown in the accompanying financial
statements. Refer to Note 6 also.
PER SHARE DATA: Net income (loss) per share is based on the weighted
average number of shares of Common Stock and common stock equivalents
outstanding during the year.
NOTE 2 -- RESTRUCTURING CHARGE
In the fourth quarter of fiscal 1993, the Company recorded a $25 million
pre-tax restructuring charge. This amount consisted of a $22.8 million charge to
terminate the Ultrust product and related operations, including a non-cash
write-off of $17.8 million of software investment, $2.7 million of severance
costs, and $2.3 million of facility costs, customer accommodations and other
items.
The balance of the charge was for the closing of an NCS Education software
development facility in Salt Lake City and consolidation of those functions into
the Company's Mesa, Arizona facility. Substantially all of this $2.2 million
charge related to severance, relocation, and other employee-related costs.
This charge reduced after-tax earnings by $15.5 million or $1.00 per share.
NOTE 3 -- SIGNIFICANT TRANSACTIONS
During the year ended January 31, 1994 the Company reached an agreement with
Dimensional Medicine Inc. (DMI) to convert notes and accounts receivable from
DMI into 27.5 million shares of DMI common stock (representing 85% of the
outstanding common shares) and a new long-term note in the amount of $1,105. The
NCS carrying value of the DMI shares at January 31, 1994 represents their
estimated fair value. NCS recorded no loss on this conversion since carrying
values had been adequately reserved. NCS has not consolidated the financial
results of DMI since the December, 1993 completion of the transaction, because
it is the Company's intention to divest of the DMI shares, and its control is,
therefore, temporary. DMI's results of operations are immaterial to NCS.
For the years ended January 31, 1994, 1993 and 1992, NCS fees charged to DMI
for installation and servicing of DMI systems were $999, $1,354, and $1,588,
respectively. Rates and prices charged for these services are believed to
generally approximate those which would prevail between unrelated parties. The
Company had a note receivable from DMI included in other assets in the amount of
$3,675 at January 31, 1993. The Company's net receivables from DMI of $68 and
$589 are included in trade receivables at January 31, 1994 and 1993,
respectively.
NOTE 4 -- LEASES
The Company leases office facilities under noncancelable operating leases
which expire in various years through 2001. Rental expense for all operating
leases was as follows: fiscal 1993 -- $11,242; fiscal 1992 -- $10,029; fiscal
1991 -- $10,883. Future minimum rental expense as of January 31, 1994, for
noncancelable operating leases with initial or remaining terms in excess of one
year is $26,455 and is payable as follows: fiscal 1994 -- $7,516; fiscal 1995 --
$5,261; fiscal 1996 -- $4,784; fiscal 1997 -- $4,472; fiscal 1998 -- $3,297 and
$1,125 beyond.
71
<PAGE>
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt at January 31, 1994 and 1993 consisted of the following:
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Revolving credit borrowings...................................................... $ 18,500 $ --
Secured notes.................................................................... 15,000 15,000
Unsecured note................................................................... 6,175 --
ESOP borrowing................................................................... 6,000 7,000
Other notes and mortgages........................................................ 1,676 3,350
--------- ---------
47,351 25,350
Less current maturities.......................................................... (2,677) (1,481)
--------- ---------
Long-term debt................................................................... $ 44,674 $ 23,869
--------- ---------
--------- ---------
</TABLE>
REVOLVING CREDIT BORROWINGS: The Company has a $30,000 unsecured revolving
credit facility which terminates August 1, 1996. Interest on debt outstanding
under this facility is computed, at the Company's discretion, based on the prime
or the London interbank offered rates (LIBOR). During the year ended January 31,
1994, the interest rate approximated 1.5% below the prime rate. The Company pays
a fee at an annual rate of .35% on the unused facility amount. The credit
agreement contains covenants with which the Company is in compliance.
SECURED NOTES: In July, 1990 the Company issued $15,000 of 9.88% Secured
Notes due in 1997. Interest only is paid monthly during the term. The notes are
secured by certain Company-owned real estate. The credit agreement contains
covenants requiring compliance on a continuing basis. The Company is in
compliance with all covenants.
UNSECURED NOTE: During fiscal 1993, the Company opened a Sterling-based
credit facility with a bank to finance plant construction in the United Kingdom.
At January 31, 1994, the outstanding balance under that facility was L4,100 or
$6,175. Subsequently, a commitment was received to convert the balance to an
unsecured term note with five principal payments of L850 per year beginning in
April, 1997, and bearing interest at .95% over the Sterling LIBOR rate.
ESOP BORROWING: The loan, secured by unallocated shares of Common Stock and
guaranteed by the Company, is payable over seven years with annual payments of
$1,000 with the balance at maturity. Interest is payable quarterly at rates
which approximate 3.25% under the prime rate.
SCHEDULED MATURITIES: The aggregate principal amounts of long-term debt
scheduled for repayment in each of the five fiscal years 1994 through 1998 are
$2,677, $1,000, $22,500, $16,280, and $1,280, respectively. In all fiscal years
interest paid approximates interest expense plus interest capitalized of $338 in
1993, $209 in 1992, and $681 in 1991.
NOTE 6 -- INCOME TAXES
Effective February 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by SFAS
109. As permitted under the standard, prior years' financial statements have not
been restated. The cumulative effect of adopting SFAS 109 was not material.
72
<PAGE>
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- INCOME TAXES (CONTINUED)
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
--------------------------------- --------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 31, FEDERAL STATE FOREIGN
- ------------------------------------------------- --------- --------- -----------
1994 (Liability method).......................... $ 1,566 $ 398 $ 40 $ (2,354) $ (350)
1993 (Deferred method)........................... 8,535 1,088 426 51 10,100
1992 (Deferred method)........................... 11,597 990 174 (4,061) 8,700
</TABLE>
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
1994
---------------
<S> <C>
Deferred tax assets:
Rotable service parts amortization................................................... $ 1,787
Accrued vacation pay................................................................. 1,515
Reserves for uncollectibles.......................................................... 1,470
Foreign operating loss carryforwards................................................. 1,966
Intangible amortization.............................................................. 767
Restructuring costs.................................................................. 534
Other................................................................................ 742
Valuation allowance.................................................................. (1,966)
-------
Total deferred tax assets............................................................ 6,815
-------
Deferred tax liabilities:
Net capitalized software............................................................. 6,300
Accelerated depreciation............................................................. 4,951
Purchased software amortization...................................................... 1,617
Installment sales.................................................................... 987
Benefit plan expense................................................................. 546
Other................................................................................ 263
-------
Total deferred tax liabilities....................................................... 14,664
-------
Net deferred tax liabilities......................................................... $ 7,849
-------
-------
</TABLE>
The components of the provision for deferred income taxes for the years
ended January 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
------------------------
1993 1992
----------- -----------
<S> <C> <C>
Accelerated depreciation...................................................... $ (352) $ (253)
Installment sales............................................................. 665 (29)
Rotable service parts amortization............................................ (262) (6,749)
Software expense.............................................................. 1,291 3,524
Alternative minimum tax....................................................... (1,162) --
Other......................................................................... (129) (554)
----------- -----------
$ 51 $ (4,061)
----------- -----------
----------- -----------
</TABLE>
73
<PAGE>
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- INCOME TAXES (CONTINUED)
A reconciliation of the Company's statutory and effective tax rate is
presented below:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Statutory rate................................................................. (35.0)% 34.0% 34.0%
State income taxes net of federal benefit...................................... 9.2 2.7 2.7
Intangible amortization........................................................ 12.9 2.0 2.2
Foreign sales corporation...................................................... (4.7) (0.2) (0.3)
Research and development credits............................................... (24.2) (1.0) (2.6)
Foreign operating losses....................................................... 27.1 0.6 0.8
Federal rate adjustment........................................................ 9.8 -- --
Other.......................................................................... (7.3) (0.1) (0.8)
--------- --------- ---------
Effective rate................................................................. (12.2)% 38.0% 36.0%
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Federal rate adjustment item above is due to the SFAS 109 requirement to
increase deferred tax liabilities to reflect current statutory income tax rates.
During fiscal 1993, after the Company's adoption of this standard, the U.S.
Federal statutory rate increased from 34% to 35%. This adjustment reflects the
resulting increase in the deferred tax liability of $280. The Company also
incurred foreign operating losses of approximately $2.7 million for the year
ended January 31, 1994, which could not currently be tax benefitted, and
therefore unfavorably impacted the effective tax benefit rate. None of the
remaining items in the current year's rate reconciliation above were unusual in
nature or amount in comparison to prior years.
The Company made income tax payments of $7,132, $7,638, and $12,053 in the
fiscal years ended January 31, 1994, 1993 and 1992, respectively.
NOTE 7 -- STOCKHOLDERS' EQUITY
The Company has 10,000,000 shares of $.01 par value Preferred Stock
authorized and issuable in one or more series as the Board of Directors may
determine; none is outstanding. 50,000,000 shares of $.03 par value Common Stock
are authorized. There are no restrictions on retained earnings.
The Company has four Employee Stock Option Plans (1982, 1984, 1986, and
1990). Options to purchase Common Stock of the Company are granted to employees
at 100% of fair market value on the date of grant and are exercisable over a
five-year period. Outstanding options under all Plans are summarized as follows:
<TABLE>
<CAPTION>
SHARES PRICE PER SHARE
---------- --------------------
<S> <C> <C>
Balance, January 31, 1992....................................................... 736,350 $7.75 to $15.68
Granted....................................................................... 239,500 15.00 to 16.50
Cancelled..................................................................... (45,500) 7.75 to 15.00
Exercised..................................................................... (130,500) 7.75 to 14.25
---------- --------------------
Balance, January 31, 1993....................................................... 799,850 7.75 to 16.50
Granted....................................................................... 230,500 12.00 to 17.60
Cancelled..................................................................... (50,870) 8.00 to 16.25
Exercised..................................................................... (70,130) 7.75 to 15.00
---------- --------------------
Balance, January 31, 1994....................................................... 909,350 $7.75 to $17.60
---------- --------------------
---------- --------------------
</TABLE>
74
<PAGE>
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- STOCKHOLDERS' EQUITY (CONTINUED)
Options for 194,050 and 157,550 shares became exercisable during fiscal 1993
and 1992, respectively, and options for 275,800 and 176,000 shares were
exercisable at the end of the respective years. Shares available for grant under
the Plans totalled 260,552 and 101,852 at January 31, 1994 and 1993,
respectively.
At January 31, 1994, non-qualified options not covered by the Plans to
purchase 13,000 shares at $12.88 to $16.00 per share were outstanding. At
January 31, 1993, non-qualified options not covered by the Plans to purchase
11,000 shares at $12.88 to $15.00 per share were outstanding.
At January 31, 1994, there were 30,000 outstanding options under the
Non-Employee Director Stock Option Plan with per share prices from $8.25 to
$16.00. At January 31, 1993, there were 24,000 outstanding options under the
Plan with per share prices from $8.25 to $15.00.
The Company has an Employee Stock Purchase Plan. There were 274,333 shares
available for purchase under the Plan at January 31, 1994.
NOTE 8 -- EMPLOYEE BENEFIT PLANS
Employee Savings Plan: The Company has a qualified 401k Employee Savings
Plan covering substantially all employees. Company contributions are
discretionary. The Company's contributions to the plan, representing 401k
matching contributions only, were $1,674, $1,438 and $1,253 in fiscal years
1993, 1992, and 1991, respectively.
Employee Stock Ownership Plan: The Company has an Employee Stock Ownership
Plan (ESOP) covering substantially all employees. Benefits, to the extent
vested, become available on retirement or termination of employment. During
fiscal 1989, the ESOP Trust borrowed $10,000 to purchase 792,000 shares of
Common Stock. Each year, the Company makes contributions to the ESOP which are
then used to make loan interest and principal payments. With each principal
payment, which is charged to compensation expense, a portion of the Common Stock
is allocated to participating employees. In fiscal 1993, the Company's
contribution to the Plan was $1,000, and interest was totally offset by
dividends of $168 on unallocated shares. In fiscal 1992, the Company's
contribution to the Plan was $1,000 plus interest of $20, which is net of
dividends on unallocated shares of $220. The Company's contribution to the Plan
in fiscal 1991 was $1,000 plus interest of $269, which is net of dividends on
unallocated shares of $194.
The ESOP Trust borrowing, which is guaranteed by the Company, is reflected
in long-term debt and the Company's obligation to make future contributions to
the ESOP for debt repayment is reflected as a reduction of Stockholders' Equity
in the consolidated financial statements.
Long-Term Incentive Plan: During fiscal 1990, pursuant to a Long-term
Incentive Plan approved by the stockholders, 171,400 shares of Common Stock were
issued to participants on a restricted basis. The shares will be earned by, and
released to, the participants at the end of 10 years, but release can be
accelerated by attainment of 20% return on equity in a fiscal year, as defined
in the Plan. The cost of the Plan is being accrued over the 10-year earning
period and will be accelerated if so earned. The Plan also contains a cash award
element which is earned only upon attainment of the 20% return on equity.
NOTE 9 -- FAIR VALUES OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, "Disclosures about Fair Value of Financial
Instruments," requires disclosure of fair value information about financial
instruments, for which it is practicable to estimate that value. In cases where
quoted market prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and estimates of
future cash flows.
75
<PAGE>
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
At January 31, 1994 and 1993, the Company had non-current investments and
notes receivable (non-trade) with carrying values of $8,608 and $7,042,
respectively, which approximate fair value at those respective dates.
At January 31, 1994 and 1993, the Company's $15,000, 9.88% Secured Notes had
a fair value of approximately $16,100 and $16,700, respectively, due to lower
interest rates currently prevailing. The Company's ESOP and other long-term debt
approximates market due to the variable interest rate features of the
obligations.
NOTE 10 -- BUSINESS SEGMENT DATA
The Company operates two business segments. The financial systems segment
(NCS Financial) designs, develops and markets asset management software,
primarily for bank trust departments. This includes systems for personal trust
asset management for individuals and corporate trust applications such as stock
and bond transfer systems. The remainder of the Company's business consists of
several interdependent business units, centered around its proprietary optical
scanning hardware and forms technology. This segment markets those products and
services and related application software to education, business and
professional markets through the NCS Education, NCS Technology, and NCS
Assessments businesses. Below is a summary of certain financial information
related to the two segments for fiscal years ended January 31.
76
<PAGE>
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- BUSINESS SEGMENT DATA (CONTINUED)
<TABLE>
<CAPTION>
OPTICAL SCANNING PRODUCTS,
SERVICES AND RELATED SOFTWARE FINANCIAL SYSTEMS TOTAL
---------------------------------------- ------------------------------------ ---------------
1994 1993 1992 1994 1993 1992 1994
-------------- ----------- ----------- -------------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ $ 257,813 $ 245,709 $ 251,317 $ 47,640 $ 54,358 $ 51,189 $ 305,453
-------------- ----------- ----------- -------------- --------- --------- ---------------
-------------- ----------- ----------- -------------- --------- --------- ---------------
Operating income (loss)......... 25,447(1) 28,802 32,691 (19,621 )(2) 6,564 5,149 5,826(3)
Corporate expense............... 8,127
Interest and other expense,
net............................ 558
---------------
Total income (loss) before
income taxes................. (2,859)
---------------
---------------
Identifiable assets............. 177,664 151,252 169,667 25,340 40,787 31,914 203,004
Corporate assets................ 17,169
---------------
Total assets.................. 220,173
---------------
---------------
Depreciation and amortization... 20,263 22,920 20,974 3,507 5,002 3,604 23,770
Corporate depreciation and
amortization................... 907
---------------
Total depreciation and
amortization................. 24,677
---------------
---------------
Capital expenditures............ 24,425 17,286 13,111 9,391 5,089 7,519 33,816
Corporate capital
expenditures................... 1,510
---------------
Total capital expenditures.... $ 35,326
---------------
---------------
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Revenues........................ $ 300,067 $ 302,506
----------- -----------
----------- -----------
Operating income (loss)......... 35,366 37,840
Corporate expense............... 8,108 9,136
Interest and other expense,
net............................ 650 4,530
----------- -----------
Total income (loss) before
income taxes................. 26,608 24,174
----------- -----------
----------- -----------
Identifiable assets............. 192,039 201,581
Corporate assets................ 22,700 15,997
----------- -----------
Total assets.................. 214,739 217,578
----------- -----------
----------- -----------
Depreciation and amortization... 27,922 24,578
Corporate depreciation and
amortization................... 635 639
----------- -----------
Total depreciation and
amortization................. 28,557 25,217
----------- -----------
----------- -----------
Capital expenditures............ 22,375 20,630
Corporate capital
expenditures................... 418 485
----------- -----------
Total capital expenditures.... $ 22,793 $ 21,115
----------- -----------
----------- -----------
<FN>
- ------------------------
(1) Includes restructuring charge of $2,200.
(2) Includes restructuring charge of $22,800.
(3) Includes restructuring charge of $25,000.
</TABLE>
77
<PAGE>
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- BUSINESS SEGMENT DATA (CONTINUED)
Capital expenditures include property, plant and equipment additions as well
as rotable service parts and capitalized software. The Company's foreign
operations and export sales are less than 10% of total revenues. Sales to all
government agencies for the fiscal years ended January 31, 1994, 1993 and 1992
were $97,198, $95,232 and $96,498 of which $23,001, $26,134 and $31,172,
respectively, were to U.S. government agencies, principally the U.S. Department
of Education, with the remainder to state and local government agencies,
predominantly school districts and state departments of education.
78
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
National Computer Systems, Inc.
We have audited the accompanying consolidated balance sheets of National
Computer Systems, Inc. and Subsidiaries as of January 31, 1994 and 1993, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended January 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of National
Computer Systems, Inc. and Subsidiaries at January 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 31, 1994, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG
Minneapolis, Minnesota
March 16, 1994
79
<PAGE>
EXHIBIT 21
SIGNIFICANT SUBSIDIARIES
NATIONAL COMPUTER SYSTEMS, INC.
<TABLE>
<CAPTION>
STATE OR
OTHER
JURISDICTION
OF NAME UNDER WHICH SUBSIDIARY DOES
NAME OF SUBSIDIARY INCORPORATION BUSINESS
- -------------------------------- ----------- ---------------------------------
<S> <C> <C>
NCS Holdings, Inc. Minnesota NCS Holdings, Inc.
NCS Financial Systems, Inc. Minnesota NCS Financial Services
Financial Systems Division of
National Computer Systems, Inc.
NCS Data Forms, Inc. Minnesota Data Forms Division of National
Computer Systems, Inc.
Interpretive Scoring Systems, Minnesota NCS Assessments
Inc.
Professional Assessment Services
Division of National Computer
Systems, Inc.
</TABLE>
Note: All other subsidiaries of National Computer Systems, Inc. are not
significant subsidiaries taken as a whole.
80
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of National Computer Systems, Inc. of our report dated March 16, 1994,
included in the 1993 Annual Report to Stockholders of National Computer Systems,
Inc.
Our audits also included the consolidated financial statement schedules
listed in Item 14(a). These schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the consolidated financial statement schedules, referred to above,
when considered in relation to the basic consolidated financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in Post Effective
Amendment Number 2 to Registration Statement Number 2-80386 on Form S-8 (1982
Employee Stock Option Plan), Post Effective Amendment Number 1 to Registration
Statement Number 2-96965 on Form S-8 (1984 Employee Stock Option Plan),
Registration Statement Number 33-9830 on Form S-3 (Selling Shareholder),
Registration Statement Number 33-21511 on Form S-8 (1986 Employee Stock Option
Plan), Registration Statement Number 33-48509 on Form S-8 (1990 Employee Stock
Option Plan), Registration Statement Number 33-48510 on Form S-8 (1992 Employee
Stock Purchase Plan) and Registration Statement Number 33-68854 on Form S-8
(option held by former director) of our report dated March 16, 1994 with respect
to the consolidated financial statements incorporated herein by reference, and
our report included in the preceding paragraph with respect to the consolidated
financial statement schedules included in this Annual Report (Form 10-K) of
National Computer Systems, Inc.
/s/ ERNST & YOUNG
Minneapolis, Minnesota
April 26, 1994
81
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
FORM 10-K FOR YEAR ENDED JANUARY 31, 1994
The undersigned directors and officers of NATIONAL COMPUTER SYSTEMS, INC.
hereby constitute and appoint J. W. Fenton, Jr., their true and lawful
attorney-in-fact and agent, for each of them and in their name, place and stead,
in any and all capacities (including without limitation, as Director and/or
principal Executive Officer, principal Financial Officer, principal Accounting
Officer or any other officer of the Company), to sign its Annual Report on Form
10-K for the year ended January 31, 1994, which is to be filed with the
Securities and Exchange Commission, with all exhibits thereto, and any and all
documents in connection therewith, hereby granting unto said attorney-in-fact
and agent full power and authority to do and perform any and all acts and things
requisite and necessary to be done, and hereby ratifying and confirming all that
said attorney-in-fact and agent may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands this 7th
day of March, 1994.
/s/ CHARLES W. OSWALD
--------------------------------------------
Charles W. Oswald
/s/ DAVID C. MALMBERG
--------------------------------------------
David C. Malmberg
/s/ DAVID P. CAMPBELL
--------------------------------------------
David P. Campbell
/s/ WILLIAM W. CHORSKE
--------------------------------------------
William W. Chorske
/s/ DAVID C. COX
--------------------------------------------
David C. Cox
/s/ ROBERT F. ZICARELLI
--------------------------------------------
Robert F. Zicarelli
/s/ NORMAN A. COCKE
--------------------------------------------
Norman A. Cocke
/s/ JEAN B. KEFFELER
--------------------------------------------
Jean B. Keffeler
/s/ STEPHEN G. SHANK
--------------------------------------------
Stephen G. Shank
/s/ JOHN E. STEURI
--------------------------------------------
John E. Steuri
/s/ JEFFREY E. STIEFLER
--------------------------------------------
Jeffrey E. Stiefler
/s/ JOHN W. VESSEY
--------------------------------------------
John W. Vessey
/s/ JEFFREY W. TAYLOR
--------------------------------------------
Jeffrey W. Taylor
82
