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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 APRIL 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-8141
NORSTAN, INC.
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(Exact name of registrant as specified in its charter)
MINNESOTA 41-0835746
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
605 NORTH HIGHWAY 169, TWELFTH FLOOR, PLYMOUTH, MINNESOTA 55441
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(Address of principal executive offices) (Zip Code)
The Company's telephone number, including area code: 612-513-4500
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Shares of Common Stock (par value $.10 per share)
Common Stock Purchase Rights
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes X No
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As of June 28, 1996, the aggregate market value of the voting stock held by non-
affiliates of the registrant, computed by reference to the average high and low
prices on such date as reported by the NASDAQ National Market System was
$92,354,129.
As of June 28, 1996, there were outstanding 4,435,697 shares of the registrant's
common stock, par value $.10 per share, its only class of equity securities.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement to be filed within 120
days after the end of the fiscal year covered by this report are incorporated by
reference into Part III hereof.
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TABLE OF CONTENTS
Page
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PART I
Item 1. Business . . . . . . . . . . . . . . .. . . . . . . . . . . 1
Market Trends . . . . . . . . . . . . . . . . . . . . . . 2
Competitive Strengths . . . . . . . . . . . . . . . . . . 3
Growth Strategy . . . . . . . . . . . . . . . . . . . . . 3
Products and Services . . . . . . . . . . . . . . . . . . 4
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . 7
Marketing and Sales . . . . . . . . . . . . . . . . . . . 7
Customers and Customer Service . . . . . . . . . . . . . . 7
Suppliers: Relationship with ROLM . . . . . . . . . . . . 8
Backlog . . . . . . . . . . . . . . . . . . . . . . . . . 8
Competition . . . . . . . . .. . . . . . . . . . . . . . . 8
Canadian Operations . . . . . . . . . . . . . . . . . . . 9
Government Regulation . . . . . . . . . . . . . . . . . . 9
Employees . . . . . . . . . . . . . . . . . . . . . . . . 9
General . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 11
Item 4. Submission of Matters to a Vote of Security Holders . . . . . 11
PART II
Item 5. Market for the Company's Common Equity
and Related Stockholder Matters . . . . . . . . . . . . . 12
Item 6. Selected Consolidated Financial Data . . . . . . . . . . . . 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations for the Fiscal Years
1996, 1995, and 1994 . . . . . . . . . . . . . . . . . . . 14
Item 8. Financial Statements and Supplementary Data . . . . . . . . . 19
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . 39
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . 39
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . 39
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . 39
Item 13. Certain Relationships and Related Transactions . . . . . . . 39
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K . . . . . . . . . . . . . . . . . 40
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
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PART I
Item 1. BUSINESS.
Norstan, Inc. (the Company) is a single-source technology provider
creating integrated voice, video, and data solutions to customers primarily in
18 states and throughout Canada. The Company was incorporated in 1960 as a
Minnesota corporation. Norstan Communications, Inc. (NCI) (formerly Norstan
Communications Systems, Inc.) was incorporated in 1974. Norstan Financial
Services, Inc. (NFS) (formerly Norstan Financial Corporation) was incorporated
in 1979. Norstan/Electronic Engineering Company was incorporated in 1985 and
merged into NCI in December 1988. Norstan/Communication Consultants, Inc.
(N/CCI) was incorporated in 1988 and merged into NCI in May of 1990. Norstan
Network Services, Inc. (NNS) was incorporated in 1991. Norstan Network
Services, Inc. of New Hampshire and Norstan Canada Inc. (NCDA) were incorporated
in 1992. Connect Computer Company was merged into an acquisition subsidiary and
as the surviving corporation became a wholly owned subsidiary of the Company in
June, 1996.
Norstan entered the communications business in 1973, has been a
distributor of Siemens ROLM Communications, Inc. (ROLM) communications equipment
since 1976 and has historically derived a substantial majority of its revenues
from the sale of telephone systems, communications maintenance services and
moves, adds and changes, which are modifications to customers' communications
systems. In recent years, the Company has expanded the array of products and
services it provides to include those of Aspect Telecommunications Corporation
("Aspect"), Compression Labs, Incorporated ("Compression Labs"), Sprint
Communications Company L.P. ("Sprint"), Octel Communications Corporation
("Octel") and others.
In addition to providing the equipment and related support required
for a specific installation, Norstan offers a variety of services, including
communications maintenance services, moves, adds and changes, leasing, long
distance service, management of customers' communications needs through
outsourcing agreements and data communications integration. These services,
which provide the Company with an important source of recurring revenue, were
approximately 45% of the Company's total revenues for fiscal 1996.
Norstan's marketing strategy is to increase sales to its existing
customer base by capturing a larger portion of each customer's communications
requirements. Generally, the first product sold to a customer is a telephone
system. Upon selling a system, Norstan's representatives typically sign the
customer to a service contract. Norstan believes the high quality of its
customer service supports ongoing marketing efforts, as satisfied customers are
more likely to choose Norstan to supply additional communications products and
services. In order to focus marketing efforts effectively, Norstan's sales
representatives strive to understand each customer's business, enabling them to
recommend communications solutions that improve the flow of information and
productivity. For example, a sales representative may recommend voice messaging
and videoconferencing equipment to expand communications channels, reduce
dependence on support personnel and reduce the need for costly travel. For
customers with a high volume of calls, Norstan may recommend interactive voice
response products, which allow customers to access information via a touch tone
telephone, or sophisticated call centers which interface with the customer's
computer system and direct calls automatically to available personnel. For
those customers who wish to avoid the complexity and training required to
operate and maintain their own communications system and the technology risk
associated with owning communications equipment, Norstan provides complete
communications outsourcing services.
The Company focuses its sales efforts on customer locations with 100
or more users and those customers with complex communications requirements. The
Company's wide array of products and services enables it to offer single-source
solutions to customers' communications needs. Current customers of the Company
include BP America Inc., Best Buy Co., Inc., Blue Cross/Blue Shield of
Minnesota, Iowa and Arizona, First Bank System, Inc., Manulife Financial, 3M
Company, Harley-Davidson, Inc., The Limited Stores, as well as many hospitals
and a number of government agencies in Minnesota, Iowa, Wisconsin, Ohio, Arizona
and other states and provinces.
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MARKET TRENDS
Norstan believes that as markets become more global, information driven and
competitive, businesses are placing an increasing emphasis on rapid and
comprehensive communications technology to improve employee productivity and
customer service. As a result, businesses are looking to a variety of new
technologies to enhance the performance of their communications systems and to
increase the speed, accuracy and availability of information. Norstan believes
that several trends contribute to a favorable market outlook for communications
systems integrators offering a broad range of products and services such as
those offered by the Company:
- CONTINUED MODEST GROWTH IN MARKET FOR PBX TELEPHONE SYSTEMS.
According to MultiMedia Telecommunications Association (MTA),
a national trade association, the United States market for
private branch exchange ("PBX") telephone systems grew from
$2.0 billion in 1993 to a projected $2.3 billion in 1995.
Over this same period, the average price per telephone line
increased from an estimated $544 to $567, while the number of
lines shipped increased from 3.6 million to 4.0 million. MTA
states that "the market is being driven by three trends:
movement toward more open architecture to support customer
demand for more and more sophisticated applications; greater
interoperability with PCs, LAN servers, and emerging
broadband network technologies; increase in distribution
channels and cross-industry alliances allowing PBX vendors
and manufacturers to leverage their tradition of reliability
and support to capture multimedia solution markets." MTA also
projects the market for PBX telephone systems to grow at a
compound annual rate of 5.6% to approximately $2.7 billion in
1998, representing an increase in the number of lines shipped
to over 4.4 million and an increase in the average price per
line to $607.
- GROWTH OF NEW COMMUNICATIONS PRODUCTS AND MARKETS. Over the past
several years, a variety of new communications technologies
has emerged which enhance the capabilities of traditional
telephone systems. Manufacturers, such as Aspect, Computer
Communications Systems, Compression Labs and Octel have
introduced products, including call centers, voice response
units, videoconferencing systems and voice messaging
products, that improve the performance and efficiency of
communications systems. Industry sources expect the number
of communications technologies to continue to grow. The
United States market for call processing equipment, including
call centers, voice messaging and interactive voice
response products, was estimated at $5.4 billion in 1996 and
is projected to grow at a compound annual rate of 12.0%
between 1996 and 1998. Further, the MTA estimates that the
market for videoconferencing products in which the Company
competes wasapproximately $3.6 billion in 1996 and is
projected to grow at a compound annual rate of 47.3% between
1996 and 1997.
- CONVERGENCE OF VOICE, VIDEO AND DATA MARKETS. Since the
introduction of local and wide area computer networks, the
market for data communications has grown rapidly and
comprises a growing portion of the overall communications
market. The data communications market was estimated at$30.1
billion in 1996 and is projected to grow at a compound annual
rate of 24.1% between 1996 and 1998. As the prevalence of
computer networks continues to increase and voice, video,
data andimages are increasingly transmitted in a digital
format using the same networks, Norstan believesthat demand
for services related to the integration of voice, video and
data networks will increase.
- INCREASING COMPLEXITY OF MANAGING COMMUNICATIONS SYSTEMS.
Management believes businesses are increasingly turning to
communications systems integrators who are capable of
providing a single point of contact for communications needs.
As the number and complexity of communications technologies
grow, United States businesses have increasingly sought to
narrow their vendor base to those who offer a broad range of
communications products and services, which has led to
consolidation among such vendors.
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COMPETITIVE STRENGTHS
The Company believes it possesses and is developing a number of
competitive strengths that will help it achieve its goal of becoming one of
the premier providers of integrated communications systems solutions in the
United States and Canada. These strengths include:
- ACCESS TO LEADING VOICE, VIDEO AND DATA PRODUCTS AND SERVICES.
Norstan maintains relationships with leading communications
technology manufacturers and service providers, including
ROLM, Aspect, Compression Labs, Sprint and Octel. In
addition, through its data communications business, the
Company has access to products and services offered by
Novell, Inc. ("Novell"), Cisco Systems, Inc. ("Cisco"),
Network Equipment Technologies, Inc. ("NET"), Microsoft
Corporation ("Microsoft"), Intel Corporation ("Intel"),
Adtran, Inc. ("Adtran"), Compaq Computer Corporation
("Compaq") and Lotus Development Corporation ("Lotus").
Norstan's knowledge of these technologies and ability to
remarket, support and integrate them into communications
solutions meeting diverse customer requirements, enable the
Company to provide its customers with integrated approaches
to solving communications issues. Further, Norstan's strong
distribution network enhances its access to leading
technologies by offering a low cost distribution alternative
for established manufacturers, as well as for manufacturers
that lack the critical mass necessary to establish a direct
sales force in specific markets.
- INDEPENDENT SINGLE SOURCE SUPPLIER. Unlike companies that
manufacture communications equipment, Norstan's independence
permits it to select products on the basis of merit and to
distribute a wide range of products from a number of
manufacturers. This independence also enables Norstan to
respond quickly to changing customer needs by taking
advantage of new technologies as they become available,
without incurring product development risk.
- CUSTOMER SERVICE. Norstan is committed to providing a high level
of customer service by exceeding its customers' expectations.
Customer satisfaction surveys, conducted by an outside firm
contracted by Norstan, indicate that 93% of Norstan's
customers are satisfied with the overall service and support
they receive. This level of satisfaction has increased,
rising from 86% in 1988 to the current level. The Company
coordinates its customer service response through three
remote diagnostic and dispatch centers which handle over
225,000 service calls per year.
- DISTRIBUTION AND INTEGRATION EXPERTISE. Norstan believes it has
access to a wide array of leading communications products and
is continuing to develop the internal expertise necessary to
provide communications products and services on an integrated
basis. The availability of distribution rights for many
communications products, such as PBX systems and call
centers, is limited, making it difficult for many
communications systems integration companies to offer the
range of products and services that Norstan offers. In
addition, the capital and training requirements necessary to
offer such products and services on an integrated basis are
substantial. Norstan believes that its access to leading
products, established distribution network and large customer
base, together with its continuing development of
communications systems integration expertise, have positioned
the Company to expand the portion of its revenues derived
from the integration of communications products and services.
The June 1996 acquisition of Connect Computer Company
accelerated the Company's growth as a communications
integrator. See "Acquisitions".
GROWTH STRATEGY
Norstan has formulated a growth strategy intended to capitalize on its
competitive strengths. This growth strategy is focused on the following
elements:
- INCREASE SALES TO EXISTING CUSTOMERS. Norstan has a large
installed customer base, including approximately six thousand
customer locations covered by service contracts. This base
provides Norstan with the opportunity to capture an
increasing portion of each customer's communications
requirements. Most customers currently purchase only a
portion of the products and services offered by the Company.
The cost of selling to existing customers is generally lower
than selling to new customers because Norstan already
understands the customer's business and communications
requirements. Additionally, Norstan's reputation is already
established with the
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customer, thereby enabling Norstan to leverage its high
level of customer service and more easily sell new products
and services.
- EXPANSION OF THE INSTALLED BASE BY ATTRACTING NEW CUSTOMERS.
Norstan continually works to attract new customers and
employs a specialized sales team focused on selling to
non-Norstan customers. Norstan believes its portfolio of
products and services, expertise in providing turnkey
solutions to customers' communications systems requirements
and reputation for high quality service enhance the Company's
ability to attract new customers.
- STRATEGIC PARTNERSHIPS. Norstan continues to establish strategic
partnerships with both hardware and software manufacturers.
These partnerships enable Norstan to expand its range of
products and services and help to ensure continued access to
new products and technologies. In certain instances,
strategic partnerships also enhance Norstan's ability to
expand geographically by providing access to customers
outside of the markets historically served by Norstan.
- ACQUISITION STRATEGY. Norstan is actively seeking to acquire
complementary businesses that will contribute to the success
of Norstan's communications systems integration strategy.
Norstan targets communications companies that will provide
either new skills, products and services and/or permit
expansion of the geographic areas which Norstan serves.
These acquisitions will also expand Norstan's customer base,
providing additional points of entry for Norstan's
communications products and services. See "Acquisitions."
PRODUCTS AND SERVICES
The Company's core business has historically been the sale of telephone
systems, communications maintenance services and moves, adds and changes. From
this core business, the Company has expanded its operations and shifted its
product mix to incorporate new products and services, including call processing
products, long distance services, videoconferencing products, refurbished
equipment, cabling, leasing, outsourcing and data integration products and
services. This array of products and services allows the Company to provide
single source solutions to customers' communications needs.
TELEPHONE SYSTEMS. Norstan offers a wide variety of private telephone
systems. These systems are typically comprised of a telephone switch and
individual telephones located at the customer site. A telephone switch is a
device that provides the connection between the customer's internal telephone
lines and the outside telephone network. The telephone switch, typically owned
by the customer, is available in three primary types: PBX, key system and hybrid
key system. PBX switches are generally used for installations of more than 100
lines and can accommodate up to several thousand telephone lines. A PBX
condenses the number of internal phone lines to a significantly smaller number
of outside trunk lines which connect to the telephone network. When an incoming
call is received, the PBX switches the call to the appropriate internal
telephone extension. When a call is made from within the business, the PBX
determines whether the call is an internal call, in which case the PBX switches
the call to the appropriate internal telephone extension, or an outgoing call,
in which case the PBX directs the call to an open outside line. The PBX also
provides a base platform from which the customer's telephone system can be
upgraded with features such as voice messaging and caller identification. In
contrast to PBX systems, key systems are relatively inexpensive and appropriate
for small installations which generally require fewer than 50 lines. Each
telephone in a key system displays all outside lines allowing the user to
directly select which telephone line to use when making a call. Hybrid key
systems share attributes of both PBX systems and key systems and are typically
appropriate for installations requiring approximately 50 to 100 lines. Norstan
markets approximately 20 models of PBX systems, key systems and hybrid key
systems. The Company also offers a number of different telephone models with a
variety of features. Telephone systems range in price from approximately
$15,000 for a key system with relatively few lines and features to over $1.0
million for the largest, most complex PBX systems. Telephone systems
contributed approximately 27% and 31% of total revenues in fiscal 1996 and 1995,
respectively.
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COMMUNICATIONS MAINTENANCE SERVICES. Norstan provides service to its
customers for products it sells on a contract or time and material basis.
Telephone systems generally require a higher level of ongoing communications
maintenance than other products sold by the Company and generate the majority of
communications maintenance revenue. The Company coordinates service through
three remote diagnostic and dispatch centers located in Cleveland, Minneapolis
and Toronto. The Company offers a variety of service contracts intended to meet
the differing needs of customers. List prices for Norstan's communications
maintenance services range from approximately $25 to $65 per line annually and
are based primarily on the capacity and features of the customer's
communications system. Communications maintenance services contributed
approximately 22% and 21% of total revenues in fiscal 1996 and 1995,
respectively.
MOVES, ADDS AND CHANGES. Norstan performs moves, adds and changes related
to its customers' telephone systems. Moves, adds and changes consist of moving
telephones to new user locations, adding telephones or expansion cards in a
telephone system and changing system and user features. Moves, adds and changes
are typically scheduled in advance by customers as compared to communications
maintenance service calls which require prompt response. Moves, adds and
changes contributed approximately 12% and 11% of total revenues in fiscal 1996
and 1995, respectively.
CALL PROCESSING. Call processing is comprised of three primary areas: call
centers, voice messaging and interactive voice response products. Call centers
are complex systems that can process a large number of incoming calls per hour
and are used by businesses in applications such as reservation centers, customer
support centers and catalog order centers. Call centers utilize a variety of
call processing technologies such as interactive voice response products, voice
messaging and computer interaction, to maximize the efficiency of a large
call-receiving operation. A call center utilizing an interactive voice response
product can obtain information from a caller via a touch tone telephone,
permitting more detailed information on the caller to be retrieved from a
computer database and be available to an agent when answering the call. Norstan
offers a variety of call center products manufactured by Aspect, ROLM and
Executone which can service from two call-receiving agents to over eight hundred
call-receiving agents. Call centers range in price from less than $40,000 to
over $1.0 million. Call centers contributed approximately 6% of total revenues
in both fiscal 1996 and 1995.
Voice messaging enables verbal communications to be sent, stored and
retrieved at a later time and from a remote location or forwarded to other
parties by using a touch tone telephone. Norstan offers integrated voice
messaging products from ROLM and stand alone voice messaging products that are
compatible with all major PBX systems from Octel and Applied Voice Technology.
Voice messaging products range in price from approximately $5,000 to $500,000.
Voice messaging products contributed approximately 6% of total revenues in both
fiscal 1996 and 1995.
Interactive voice response products allow a caller to access a computer
data base to retrieve or input data by using a touch tone telephone.
Interactive voice response products can be utilized in a stand alone
application, such as when a caller uses a touch tone telephone to obtain account
information from a bank or flight schedules from an airline's automated
retrieval system. Interactive voice response products can also be utilized in a
call center application to route calls and provide data on the caller based on
information input by the caller via a touch tone telephone. Norstan began
marketing interactive voice response products in 1991 and currently markets
models manufactured by Computer Communication Systems and Intervoice which range
in price from approximately $20,000 to $150,000. Interactive voice response
products contributed less than 1% of total revenues in both fiscal 1996 and
1995.
LONG DISTANCE SERVICE. Norstan has provided long distance service since
May 1990. The Company entered into a three-year direct resale agreement with
Sprint in May 1993, whereby Norstan offers customers a full range of long
distance and network services under the Company's private label. In
August 1994, the Company and Sprint negotiated a new agreement which runs
through July 1997. Long distance service contributed approximately 6% and 5% of
total revenues in fiscal 1996 and 1995, respectively.
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VIDEOCONFERENCING. Videoconferencing allows persons at separate locations
to communicate using cameras, video screens, microphones and speakers linked
over digital networks. Norstan has distributed videoconferencing equipment
manufactured by Compression Labs since July 1991. In addition to distributing
Compression Labs' products within a defined geographic region, the Company
provides installation and service support nationally for those products. In
December 1995, the Company began to distribute videoconferencing equipment from
PictureTel, Inc., ranging from desktop video to boardroom systems.
Videoconferencing products range in price from approximately $18,000 to over
$100,000. Videoconferencing equipment contributed approximately 5% and 4% of
total revenues in fiscal 1996 and 1995, respectively.
REFURBISHED EQUIPMENT. Since 1988, Norstan has engaged in the
refurbishment and resale of previously owned ROLM products. In July 1990, the
Company and ROLM entered into an agreement to refurbish and resell previously
owned ROLM equipment in the United States. This agreement was renewed for an
additional three-year period in October 1993. Under the agreement, ROLM pays
the Company a fee for refurbishing the equipment and remarketing separate ROLM
components, and the Company shares in the profit generated by this program,
which includes the profit on sales of refurbished systems by ROLM direct sales
offices. All refurbished equipment is certified by ROLM and covered by warranty
for up to one year, depending on the type and quantity of equipment purchased.
The Company and ROLM are currently negotiating a new agreement. In April 1993,
Norstan expanded its refurbished equipment operations to include the purchase,
refurbishment and resale of previously owned Northern Telecom equipment.
Refurbished equipment operations contributed approximately 5% and 4% of total
revenues in fiscal 1996 and 1995, respectively.
CABLING. Cabling is the infrastructure that provides the pathway for
telephone systems, local area networks, wide area networks and other
communications systems to function. Cabling can be provided on a stand alone
basis or in conjunction with other products and services offered by the Company.
Cabling operations contributed approximately 5% and 6% of total revenues in
fiscal 1996 and 1995, respectively.
LEASING. Norstan provides leasing services to enable its customers to
finance purchases of communications systems. Lease financing supports the sales
process by permitting customized lease structures to meet the needs of customers
and eliminating the need for third party financing. By acting as lessor, the
Company can typically provide lease terms with greater flexibility than third
party financing sources. Norstan also generally provides communications
maintenance services for leased equipment. The Company currently has
approximately 1,200 leases. At the time of inception, the average lease
transaction is approximately $40,000 and has a term of approximately 48 months.
The Company financed over $17.6 million in customer equipment purchases for
fiscal 1996. Leasing contributed approximately 2% to the Company's total
revenues in both fiscal 1996 and 1995.
OUTSOURCING. The Company believes that many businesses do not want to
dedicate internal resources to manage their communications systems and are
therefore contracting with companies who will manage their communications
systems through outsourcing agreements. Norstan provides communications
equipment and trained personnel to act as a customer's communications systems
department, thereby permitting the customer to focus on its primary business.
Outsourcing contributed approximately 2% and less than 1% of total revenues in
fiscal 1996 and 1995, respectively.
DATA COMMUNICATIONS. In November 1993, Norstan formed a strategic business
unit to provide data communications services to customers. Data communications
services consist of consulting, design, integration and implementation of local
area networks, wide area networks, client/server environments and other data and
image communications applications. To support these efforts, Norstan provides
products and services offered by Novell, Cisco, NET, Microsoft, Intel, Adtran,
Compaq and Lotus. In October 1994, Norstan expanded its data communications
efforts to include computer telephony integration, which consists of integrating
a database or other data system with a telephone system. For example, a call
center could be integrated with a database so that when a customer calls a
catalog merchant to place an order, that customer's name, address and order
history would automatically be retrieved from the database and displayed on the
call-receiving agent's computer screen. In November 1994, the Company expanded
its data communication services into Canada and in June 1996, the Company
increased its data communication capabilities in the Midwest. See
"Acquisitions" below. Norstan has approximately 280 employees focusing on data
communications and is actively recruiting additional employees to continue its
expansion into this area. Data communications contributed less than 2% of total
revenues in both fiscal 1996 and 1995.
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ACQUISITIONS
Norstan is actively seeking to acquire complementary businesses that will
contribute to the success of Norstan's communications systems integration
strategy.
On June 4, 1996, the Company acquired Connect Computer Company (Connect), a
provider of consulting, design and implementation services based in Minneapolis
with offices in Milwaukee and Des Moines. The purchase price of this
acquisition was approximately $15 million plus certain incentive payments
contingent upon future operating performance of Connect.
On November 30, 1994, the Company acquired substantially all of the assets
of Renaissance Investments, Ltd., a technology planning and integration services
company based in Toronto, Ontario, specializing in local area networks, wide
area networks and graphical user interfaces. The purchase price of this
acquisition was approximately $726,000.
MARKETING AND SALES
Norstan has approximately 409 sales and marketing personnel within the
United States and Canada including 203 sales representatives who focus on either
new prospects or selling additional products and services to Norstan's customer
base. Included in the sales force are specialists in the areas of
videoconferencing, call centers, leasing, long distance service and training.
These specialists partner with the sales representatives to provide integrated
communications systems solutions for Norstan's customers.
Norstan's sales representatives and specialists use a comprehensive
approach to evaluating each customer's communications needs and implementing
solutions. The sales representative begins with a detailed needs analysis of
the customer's current and future communications requirements. After determining
the customer's needs, Norstan proposes solutions to satisfy current and
anticipated requirements. Norstan's operations teams then work with the
customer to plan the installation of purchased technologies and identify
required training. By planning the precise requirements of each installation,
Norstan's specialists are able to install, test and bring new equipment on-line
with minimal service interruption. Finally, Norstan provides an ongoing support
program tailored to meet the customer's specific application requirements
incorporating remote diagnostics, in-field service and support, additional
training and help desk support from Norstan's customer support representatives.
Norstan uses a variety of methods to communicate with customers and
prospect for new customers. The Company publishes quarterly newsletters
describing available products and services, organizational changes and other
company news. Customers also receive product and service updates from Norstan's
sales representatives, field technicians and customer support representatives.
The Company pursues new customer opportunities through in-person sales calls,
telemarketing and advertising. Norstan also regularly receives referrals from
equipment manufacturers and customers, as well as unsolicited requests for
proposals for products and services.
CUSTOMERS AND CUSTOMER SERVICE
Norstan focuses its marketing initiatives on customers with 100 or more
users and those customers with complex communications requirements. The Company
believes that providing service exceeding customers' expectations, or
"legendary" customer service, is an important element of its ability to compete
effectively in the communications market. Norstan maintains a highly trained
force of service technicians, design engineers and customer support
representatives who provide on-site and remote service and support. Customer
satisfaction surveys, conducted by an outside firm contracted by Norstan,
indicate that 93% of Norstan's customers are satisfied with the overall service
and support they receive. This level of satisfaction has increased, rising from
86% in 1988 to the current level. Norstan coordinates its customer service
response through three remote diagnostics and dispatch centers located in
Cleveland, Minneapolis and Toronto. These centers handle over 225,000 service
calls per year, approximately 41% of which are addressed remotely. For calls
requiring immediate on-site service and support, Norstan promptly dispatches
7
<PAGE>
a service technician. Overall, Norstan has over 135 employees devoted primarily
to providing customer service out of the service centers.
The Company sells products and services across many industry segments,
including banking, government, insurance, health care, manufacturing,
publishing, public utilities, transportation and retail. Current customers of
the Company include BP America Inc., Best Buy Co., Inc., Blue Cross/Blue Shield
of Minnesota, Iowa and Arizona, First Bank System, Inc., Manulife Financial,
3M Company, Harley-Davidson, Inc., The Limited Stores, as well as many hospitals
and a number of government agencies in Minnesota, Iowa, Wisconsin, Ohio, Arizona
and other states and provinces. In addition, through an agreement entered into
in August 1993 with the Midwest Higher Education Consortium, the Company has
agreed to provide certain videoconferencing equipment at specified terms to all
state agencies of the states of Illinois, Kansas, Michigan, Minnesota, Missouri,
Nebraska, Ohio and Wisconsin. This agreement designates Norstan as a
recommended vendor, but does not require any purchases by state agencies. No
single customer accounted for more than 5% of the Company's total revenue for
fiscal years 1996 and 1995.
SUPPLIERS: RELATIONSHIP WITH ROLM
Norstan's principal suppliers include ROLM, Aspect, Compression Labs,
Sprint and Octel. In addition, the Company distributes complementary
communications products that fit specific segments in the marketplace such as
hybrid key systems and personal computer-based voice processing and
videoconferencing systems, as well as data communications products from Novell,
Newbridge, Bay Networks, Compaq, Lotus and others. In addition, the Company has
distribution arrangements with several manufacturers of other products and
services, as well as business partnerships that provide technical support to
complement Norstan's expertise.
Norstan has been a distributor of ROLM communications equipment since 1976
and is ROLM's largest independent distributor. ROLM is the third largest
manufacturer of PBX systems in the United States, accounting for an estimated
14% of United States sales of PBX systems in 1995, behind Lucent Technologies
(formerly AT&T) and Northern Telecom, which accounted for an estimated 30% and
27%, respectively. In July 1993, the Company executed a new distributor
agreement with ROLM, which has a term extending through July 1998 and
automatically renews for additional one-year periods, unless terminated upon
90 days' notice prior to each renewal date. Pursuant to this agreement, Norstan
is the exclusive distributor of ROLM communications equipment in Minnesota,
Wisconsin, Iowa, North Dakota, South Dakota, Ohio, Kentucky, Arizona, New
Mexico, Oklahoma, Louisiana, Nevada and parts of Nebraska, Texas, Arkansas,
Mississippi, Florida and Alabama, as well as all of Canada. In the event this
agreement expires without renewal, Norstan is entitled to receive parts, certain
software upgrades and technical support for ten years to enable Norstan to
continue providing service to its customers with ROLM products. In addition,
Norstan and ROLM have an agreement under which Norstan is an authorized agent
for the refurbishment and sale of previously owned ROLM equipment in the United
States. This agreement runs through September 1996 and may be terminated upon
six months' notice. The Company and ROLM are currently negotiating a new
agreement. The Company believes that any interruption of its business
relationship with ROLM would have a material adverse effect on its business.
BACKLOG
As of April 30, 1996, the Company had signed contracts for products and
services aggregating approximately $46.9 million, substantially all of which are
expected to be fulfilled by the end of fiscal 1997. As of April 30, 1995, the
Company had signed contracts aggregating approximately $36.1 million,
substantially all of which were fulfilled by the end of fiscal 1996. The usual
time period between the execution of a contract and the completion of the
installation is one to six months, depending on the size and complexity of the
system.
COMPETITION
The communications industry is intensely competitive and rapidly changing.
In general, the Company competes on the basis of breadth of product offering,
system capability and reliability, service, support and price. Many of the
Company's competitors, including AT&T, the seven Regional Bell Holding Companies
("RHCs") and Northern Telecom, have longer operating histories and significantly
greater financial, technical, sales, marketing and other resources, as well as
greater name recognition and larger distribution networks,
8
<PAGE>
than the Company. The passage of the Telecommunications Act of February 1996
is enabling a number of entities with greater resources to enter and compete
in industries from which they were previously precluded. Also, as a result of
this legislation, many business reorganizations are occurring. These changes
in the regulatory environment could potentially affect the Company's ability
to compete successfully.
The Company also competes with a number of companies offering data systems
integration services, many of which have greater financial and other resources
than the Company. These companies could also attempt to increase their presence
in other segments of the communications market in which the Company competes by
introducing additional products or services targeted for these market segments.
There can be no assurance that the Company will be able to compete successfully
or that competition will not have a material adverse effect on the Company's
business, operating results and financial condition.
CANADIAN OPERATIONS
In April 1992, Norstan acquired substantially all of the assets of the ROLM
communications business of IBM Canada Limited. In fiscal 1996, Norstan's
Canadian operations continued to improve their profitability after incurring
significant losses in fiscal years 1994 and 1993. Approximately 11% and 10% of
the Company's revenues were generated by its Canadian operations for fiscal 1996
and 1995, respectively. On November 30, 1994, the Company acquired
substantially all of the assets of Renaissance Investments, Ltd. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Canadian Operations" and Note 10 of Notes to Consolidated Financial
Statements.
GOVERNMENT REGULATION
Except for the sale of long distance service, the Company is not subject to
any government regulations which have a material impact on its operations.
Effective May 1, 1992, the Company became a direct reseller of long distance
network services and accordingly became subject to certain state tariff
regulations throughout the United States. The Company is currently registered
and certified to provide interstate services in all 50 states and intrastate
services in 45 states, and is currently pursuing certification for intrastate
services in three additional states. The Company is also subject to FCC
regulations which require the filing of federal tariffs.
EMPLOYEES
The Company's U.S. operations had a total of 1,802 employees as of April
30, 1996, consisting of 360 sales and marketing personnel, 1,086 operations,
service and installation employees, and 356 administrative employees. Of these
employees, approximately 140 are covered by collective bargaining agreements.
The Company considers relations with its employees to be good and has not
experienced any work stoppages.
The Company's Canadian operations had a total of 214 employees as of
April 30, 1996, consisting of 49 sales and marketing personnel, 128 operations,
service and installation employees, and 37 administrative personnel. The
Company considers relations with the Canadian employees to be good and has not
experienced any work stoppages.
9
<PAGE>
GENERAL
RAW MATERIALS
The Company purchases all the equipment that it markets and installs and
does not engage in any manufacturing operations. The most important components
utilized by the Company are the telecommunication systems and electronic
telephone sets supplied by ROLM. Purchases of such equipment from ROLM account
for the major portion of total equipment purchases. The other parts and
components utilized, such as telephones, electrical components, wire and
speakers, substantially all of which are purchased in conjunction with ROLM
telecommunications systems, are purchased from a number of suppliers. It is
anticipated that such other parts and components, which are purchased pursuant
to purchase orders rather than long term contracts, will be readily available
from present suppliers or, if necessary, from alternate qualified manufacturers.
NFS is a financial service organization and uses no raw materials.
PATENTS
The Company and its subsidiaries have no patents, trademarks, licenses,
franchises or concessions that are of material importance to their business with
the exception of distributor agreements between the Company and ROLM, and
between the Company and other suppliers.
SEASONAL NATURE OF BUSINESS
Historically, operating results indicate that both revenues and earnings
generally increase in each quarter as each fiscal year progresses. This results
from seasonal performance of the Company and its employees as well as from
seasonal demands of the Company's customers.
WORKING CAPITAL PRACTICES
The Company and its subsidiaries have no special practices relating to
working capital items.
RESEARCH AND DEVELOPMENT
The Company and its subsidiaries do not engage in any material research or
development activities.
EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL PROTECTION REGULATION
Not applicable.
EFFECTS OF INFLATION
Market conditions have generally permitted the Company to adjust its
pricing to reflect increases in labor and product costs due to inflation.
Inflation has not had a significant impact on operating results during the past
three years.
10
<PAGE>
Item 2. PROPERTIES.
The executive offices of the Company and its subsidiaries are located in
Plymouth, Minnesota, where the Company leases approximately 53,400 square feet
of office space. The Company also has corporate offices in Maple Grove,
Minnesota, Brecksville, Ohio, and Phoenix, Arizona, where the Company leases
approximately 64,000, 61,250 and 34,400 square feet of office space,
respectively. In addition to the space above, the Company leases sales and
service offices in 38 other cities within the United States. In Canada, the
Company leases approximately 30,400 square feet of office space in North York,
Ontario, which serves as its Canadian headquarters. In addition, the Company
also leases sales and service offices in eight other cities within the Canadian
provinces of Alberta, Ontario, Quebec and British Columbia. The Company
believes that the above mentioned facilities are adequate and suitable for its
current needs.
Item 3. LEGAL PROCEEDINGS.
The Company is involved in legal actions in the ordinary course of its
business. Although the outcomes of any such legal actions cannot be predicted,
in the opinion of management there is no legal proceeding pending against or
involving the Company for which the outcome is likely to have a material adverse
effect upon the business, operating results and financial condition of the
Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matters to a vote of security holders during
the last quarter of the fiscal year covered by this report.
11
<PAGE>
PART II
Item 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
PRICE RANGE OF COMMON STOCK
The Company's common stock is traded on the National Over-the-Counter
market and is listed on the national market system of the National
Association of Securities Dealers' Automated Quotations System ("NASDAQ")
under the symbol "NRRD". The following table sets forth the high and low
quotations for the Company's common stock as reported by NASDAQ for each
quarterly period during the two most recent fiscal years(1):
FISCAL YEAR ENDED APRIL 30, 1996: HIGH LOW
First Quarter 12 5/8 10 7/8
Second Quarter 13 12 1/8
Third Quarter 13 11 1/2
Fourth Quarter 13 7/8 12 1/4
HIGH LOW
FISCAL YEAR ENDED APRIL 30, 1995:
First Quarter 9 1/2 7 7/8
Second Quarter 10 1/4 8 5/8
Third Quarter 10 8 1/2
Fourth Quarter 12 1/4 9 1/4
(1) On June 20, 1996, the Company's Board of Directors approved a two-for-one
stock split effected in the form of a stock dividend. The stock split has
been retroactively reflected in the high and low quotations presented
above.
The quotations reflect prices between dealers and do not include retail
mark-ups, mark-downs or commissions, and do not necessarily represent actual
transactions.
As of June 28, 1996, there were approximately 1,300 holders of record of
the Company's common stock.
RESTRICTIONS ON THE PAYMENT OF DIVIDENDS
The Company has not recently declared or paid any cash dividends on the
common stock and does not intend to pay cash dividends on the common stock in
the foreseeable future. The Company currently expects to retain earnings to
finance expansion of its business. In addition, the Company's current
revolving long-term credit agreement prohibits the payment of cash dividends
without the prior written consent of the lenders thereunder.
12
<PAGE>
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The selected consolidated financial data set forth below as of and for
each of the fiscal years in the five-year period ended April 30, 1996 have
been derived from the Company's consolidated financial statements, which have
been audited by Arthur Andersen LLP, independent public accountants. The
selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and the notes thereto
included elsewhere in this Report.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED APRIL 30,
------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues...................................................... $321,364 $290,245 $231,899 $195,856 $142,426
Cost of sales................................................. 229,980 202,107 155,676 128,228 90,823
------- -------- -------- -------- --------
Gross margin.................................................. 91,384 88,138 76,223 67,626 51,603
Selling, general and administrative expenses.................. 75,973 74,725 65,137 58,609 44,790
------- -------- -------- -------- --------
Operating income.............................................. 15,411 13,413 11,086 9,019 6,813
Interest expense.............................................. (1,351) (1,587) (832) (841) (1,050)
Interest and other income (expense), net ..................... 89 (54) (106) 323 130
------- -------- -------- -------- --------
Income before cumulative effect of accounting change
and provision for income taxes............................... 14,149 11,772 10,148 8,501 5,893
Provision for income taxes.................................... 5,660 4,709 4,461 3,401 2,298
------- -------- -------- -------- --------
Income before cumulative effect of accounting
change....................................................... 8,489 7,063 5,987 5,100 3,595
Cumulative effect of change in accounting for
income taxes (1).............................................. - - (375) - -
------- -------- -------- -------- --------
Net income.................................................... $8,489 $ 7,063 $ 5,612 $5,100 $ 3,595
------- -------- -------- -------- --------
------- -------- -------- -------- --------
Net income per common and common equivalent share:
Income before cumulative effect of accounting change......... $ .94 $ .81 $ .70 $ .62 $ .47
Cumulative effect of change in accounting for income taxes(1) - - (.04) - -
------- -------- -------- -------- --------
Net income per share (2)...................................... $ .94 $ .81 $ .66 $ .62 $ .47
------- -------- -------- -------- --------
------- -------- -------- -------- --------
Weighted average number of common and common equivalent
shares outstanding (2)...................................... 9,028 8,750 8,504 8,166 7,686
------- -------- -------- -------- --------
------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
AS OF APRIL 30,
-------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................ $ 24,899 $ 32,183 $ 32,961 $ 19,160 $ 18,333
Total assets............................... 160,988 161,709 149,662 120,731 108,079
Long-term debt, net of current
maturities............................... - 16,465 18,218 11,555 12,873
Discounted lease rentals, net of
current maturities....................... 15,961 16,313 18,845 12,785 9,438
Shareholders' equity....................... 67,517 56,984 47,658 40,594 33,163
Cash dividends declared and paid........... - - - - -
</TABLE>
___________
(1) On May 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." As a result, the
Company recorded a one-time charge of $375,000, or $.04 per share, in
fiscal 1994 for the cumulative effect of the change in method of
accounting for income taxes.
(2) On June 20, 1996, the Company's Board of Directors approved a two-for-one
stock split effected in the form of a stock dividend. The stock split
has been retroactively reflected in the selected consolidated financial
data presented above.
13
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
Norstan is a full service communications systems provider creating
integrated voice, video, and data solutions to customers primarily in 18
states and throughout Canada. Norstan entered the communications business in
1973 and has historically derived a substantial majority of its revenues from
the sale of telephone systems, communications maintenance services and moves,
adds and changes. Norstan's growth has resulted from acquisitions and
geographic expansion as well as from offering a broadening range of products
and services.
Norstan commenced distribution of ROLM communications products in
Minnesota and the Milwaukee metropolitan area in 1976 and by 1985 had
expanded its sales activity into the remainder of Wisconsin, as well as Iowa,
Nebraska, North Dakota and South Dakota. In 1985, the Company expanded its
ROLM distribution business into Ohio and portions of Kentucky by acquiring
the assets of Solsound Industries, Inc. In 1988, Norstan expanded its ROLM
distribution business into Arizona and New Mexico by acquiring the assets of
Communications Consultants, Inc. In July 1991, ROLM awarded the Company the
right to sell and service ROLM products in all or portions of Oklahoma,
Louisiana, Nevada, Texas, Arkansas, Mississippi, Florida and Alabama.
In July 1990, the Company and ROLM entered into an agreement to
refurbish and resell previously owned ROLM equipment in the United States.
Under this agreement, ROLM pays the Company a fee for refurbishing the
equipment and remarketing separate ROLM components, and the Company shares in
the profit generated by this program, which includes the profit on sales of
refurbished systems by ROLM direct sales offices. The agreement was renewed
in October 1993 for an additional three-year period. The Company and ROLM
are currently negotiating a new agreement.
In April 1992, the Company acquired substantially all of the assets of
the ROLM communications business owned by IBM Canada Limited, for a purchase
price of approximately $4.4 million. This acquisition, which represented
annual revenues of approximately $18 million, formed the basis of the
Company's Canadian operations. The Company's Canadian operations generated
net after-tax income of $546,000 and $446,000 in fiscal 1996 and 1995 after
having incurred net after-tax losses of $651,000 and $541,000 in fiscal 1994
and 1993, respectively. See "Canadian Operations."
Over the past several years, Norstan has expanded its offering of
products and services to include refurbished equipment, call processing
products, videoconferencing equipment, long distance service and cabling.
Recently, the Company has further expanded its products and services to
include data communications applications, network integration and complete
management of customers' communications systems through outsourcing
agreements.
Norstan offers leasing services to its customers through a wholly owned
subsidiary. Norstan believes its ability to provide lease financing to
customers supports the sales process by permitting customized lease
structures to meet the needs of customers and by eliminating the need for
third party financing.
Approximately 45% of fiscal 1996 revenues were derived from the sale of
services, including communications maintenance services, moves, adds and
changes, long distance service, network integration services, and leasing.
Management believes that services provide the Company with an important
source of recurring revenue.
RESULTS OF OPERATIONS
The Company's revenues consist of the sales of products and systems,
telecommunications services and financial services. Products and systems
revenues result from the sale of new products and upgrades, as well as
refurbished equipment. Revenues from telecommunications services result
primarily from communications maintenance services, moves, adds and changes,
network integration services, and long distance service. Financial services
revenues result primarily from leasing activities.
14
<PAGE>
The following table sets forth, for the periods indicated, certain items from
the Company's consolidated statements of operations expressed as a percentage
of total revenues.
FISCAL YEARS ENDED APRIL 30,
----------------------------
1996 1995 1994
--------- --------- --------
Revenues:
Sales of products and systems . . . . . . . 55.0% 57.4% 55.0%
Telecommunications services . . . . . . . . 43.2 40.9 43.2
Financial services . . . . .. . . . . . . . 1.8 1.7 1.8
--------- --------- --------
Total revenues. . . . . . . . . . . . . . 100.0 100.0 100.0
Cost of sales . . . . . . . . . . . . . . . . 71.6 69.6 67.1
--------- --------- --------
Gross margin. . . . . . . . . . . . . . . . . 28.4 30.4 32.9
Selling, general and administrative expenses. 23.6 25.8 28.1
--------- --------- --------
Operating income. . . . . . . . . . . . . . . 4.8% 4.6% 4.8%
--------- --------- --------
--------- --------- --------
Net income. . . . . . . . . . . . . . . . . . 2.6% 2.4% 2.4%
--------- --------- --------
--------- --------- --------
The following table sets forth, for the periods indicated, the gross margin
percentages for sales of products and systems, telecommunications services
and financial services.
FISCAL YEARS ENDED APRIL 30,
----------------------------
1996 1995 1994
--------- --------- --------
Gross margin percentage:
Sales of products and systems . . . . . . . 26.3% 26.1% 27.4%
Telecommunications services . . . . . . . . 29.8 35.4 38.8
Financial services. . . . . . . . . . . . . 60.6 53.8 59.0
FISCAL YEARS ENDED APRIL 30, 1996, 1995 AND 1994
REVENUES. Total revenues were $321.4 million, $290.2 million and $231.9
million for the fiscal years ended April 30, 1996, 1995 and 1994,
respectively, representing an increase of 10.7% for fiscal 1996 as compared
to fiscal 1995 and an increase of 25.2% for fiscal 1995 as compared to fiscal
1994.
Sales of products and systems increased $10.3 million, or 6.2%, for
fiscal 1996 as compared to fiscal 1995, and $39.2 million, or 30.7%, for
fiscal 1995 as compared to fiscal 1994. The increases for fiscal 1996 and
1995 as compared to prior years, result primarily from increased sales volume
in each of the Company's largest product categories - telephone systems, call
processing products, cabling and videoconferencing products.
Revenues from telecommunications services increased $20.2 million, or
17.0% for fiscal 1996 as compared to fiscal 1995, and $18.5 million, or
18.5%, for fiscal 1995 as compared to fiscal 1994. The increases in fiscal
1996 and 1995 as compared to prior years result primarily from the growth in
the Company's installed base of customers and expanded array of products and
services. This growth in customer base has led to increased communication
maintenance services, moves, adds, and changes activity, network integration
services, and long distance services.
Revenues from financial services increased $634,000, or 12.7%, for fiscal
1996 as compared to fiscal 1995, and $696,000, or 16.2%, for fiscal 1995 as
compared to fiscal 1994. The increase in revenues from financial services in
both years is attributable to the increased size of the Company's leasing
base.
15
<PAGE>
GROSS MARGIN. The Company's gross margin was $91.4 million, $88.1
million, and $76.2 million, for the fiscal years ended April 30, 1996, 1995
and 1994, respectively. As a percent of total revenues, gross margin was
28.4% for fiscal 1996 compared to 30.4% for fiscal 1995 and 32.9% for fiscal
1994. Gross margin as a percent of revenues for the sale of products and
systems was 26.3% for fiscal 1996 as compared to 26.1% for fiscal 1995 and
27.4% for fiscal 1994. These changes in the gross margin percentages from the
sale of products and systems are primarily the result of shifts in the
product mix and competitive market conditions.
Gross margin as a percent of revenues for telecommunications services was
29.8% for fiscal 1996 as compared to 35.4% for fiscal 1995 and 38.8% for
fiscal 1994. These decreases result from changes in the mix of services,
increased service support costs, additional training and development costs
required to support the Company's expanded line of product offerings, as well
as from decreased margin percentages attributable to moves, adds and changes.
Gross margin as a percent of revenues for financial services was 60.6%
for fiscal 1996 as compared to 53.9% for fiscal 1995 and 59.0% for fiscal
1994. The respective increase and decrease in gross margin percentage for
fiscal 1996 as compared to fiscal 1995 and fiscal 1995 as compared to fiscal
1994, are the result of changing borrowing costs in a dynamic interest rate
environment.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $76.0 million, $74.7 million and $65.1 million
for the fiscal years ended April 30, 1996, 1995 and 1994, respectively,
representing an increase of 1.7% for fiscal 1996 as compared to fiscal 1995
and 14.7% for fiscal 1995 as compared to fiscal 1994. As a percent of
revenues, selling, general and administrative expenses declined to 23.6% for
fiscal 1996 as compared to 25.7% for fiscal 1995 and 28.1% for fiscal 1994.
These decreases as a percentage of revenues resulted from continued efforts
to contain costs and volume related efficiencies, as sales volume increased
without proportional increases in expenses. Additionally, in fiscal 1996,
the Company shifted certain administrative resources to an operational and
product line support function; the related costs were included in cost of
sales for fiscal 1996.
OTHER COSTS AND EXPENSES. Interest expense was $1.4 million for fiscal
1996 as compared to $1.6 million for fiscal 1995 and $.8 million for fiscal
1994. Weighted average interest rates under the Company's revolving
long-term credit agreements were 8.2% for fiscal 1996 as compared to 7.8% for
fiscal 1995 and 5.7% for fiscal 1994. Average month end borrowings
outstanding under the Company's revolving long-term credit agreements
(excluding amounts borrowed to finance leasing activities) were $15.8 million
for fiscal 1996, $20.9 million for fiscal 1995 and $15.2 million for fiscal
1994.
The Company's effective income tax rate was 40% for fiscal 1996 and
fiscal 1995 and 41% for fiscal 1994. The Company's effective tax rate
differs from the federal statutory rate primarily due to state income taxes.
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE. Income before
cumulative effect of the change in accounting for income taxes was $8.5
million or $.94 per share in 1996, $7.1 million or $.81 per share in 1995,
and $6.0 million or $.70 per share in 1994.
ACCOUNTING CHANGE
In the first quarter of fiscal 1994, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
As a result, the Company recorded a one-time charge of $375,000, or $.04 per
share, in fiscal 1994 for the cumulative effect of the change in method of
accounting for income taxes.
16
<PAGE>
CANADIAN OPERATIONS
In April 1992, the Company acquired substantially all of the assets of
the ROLM communications business owned by IBM Canada Limited. The Company
experienced difficulties in the first two years of operations in Canada as
aggressive price competition and the loss of service customers resulted in
reduced service revenues. The Company's Canadian operations incurred a net
after-tax loss of $651,000 in fiscal 1994. Operations in Canada improved in
fiscal 1995, resulting in an after-tax profit of $446,000. Further
improvements were made in fiscal 1996, resulting in an after-tax profit of
$546,000. In fiscal 1995, the Company acquired substantially all of the
assets of Renaissance Investments, Ltd., a technology planning and
integration services company. Results of the Canadian operations in future
periods continue to be dependent on the Company's ability to better position
itself in the Canadian marketplace as a full service communications systems
integrator as well as its ability to expand the installed customer base.
Furthermore, the Company's Canadian operations' long-term profitability is
dependent on the economic viability of the Canadian economy.
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased to $24.9 million at April 30, 1996 from $32.2
million at April 30, 1995. Net cash provided by operating activities was
$28.0 million for the fiscal year ended April 30, 1996 as compared to $20.2
million for fiscal year 1995. For the fiscal year ended April 30, 1996, net
income of $8.5 million, depreciation and amortization of $12.5 million,
decreased costs and estimated earnings in excess of billings of $5.7 million,
increased deferred revenue of $2.8 million and increased billings in excess
of costs and estimated earnings of $2.4 million were only partially offset
by increased accounts receivable of $4.0 million.
Capital expenditures for fiscal 1996 were $14.4 million as compared to
$17.3 million in fiscal 1995 and $9.1 million in fiscal 1994. These
expenditures were primarily for telecommunications equipment used as spare
parts, computer equipment and facility expansion. The Company expects
capital expenditures in fiscal 1997 to be approximately $15 to $20 million.
The Company has also made a significant investment in lease contracts
with its customers. The additional investment made in lease contracts in
fiscal 1996 totaled $17.6 million. Net lease receivables decreased to $39.9
million at April 30, 1996 from $40.5 million at April 30, 1995. The Company
expects to make an additional investment in lease contracts in fiscal 1997 of
approximately $15 million. The Company utilizes its lease receivables and
corresponding underlying equipment to borrow funds from financial
institutions on a nonrecourse or recourse basis by discounting the stream of
future lease payments. Proceeds from discounting are presented on the
consolidated balance sheet as discounted lease rentals. Discounted lease
rentals, including recourse borrowings of $1.7 million, totaled $28.2 million
at April 30, 1996. Interest rates on these credit agreements at April 30,
1996 ranged from 6.0% to 10.0%, while payments are due in varying monthly
installments through July 2001. Payments due to financial institutions are
made from monthly collections of lease receivables from customers.
In June 1996, the Company acquired all of the common stock of Connect
Computer Company (Connect), a provider of consulting, design and
implementation services. The acquisition consideration totaled approximately
$15 million, consisting of $8.2 million cash and $2 million of Norstan common
stock, as well as $2.7 million paid in exchange for all outstanding Connect
stock options, $1.1 million in bonuses paid to Connect management and
employees, and $1 million payable to certain members of Connect management
under non-compete agreements. In addition, the Company has agreed to pay up
to $4 million in contingent consideration over a three year period ending
April 30, 1999, if certain operating income levels are achieved.
The Company has a $35.0 million unsecured revolving long-term credit
agreement with certain banks. Up to $15.0 million of borrowings under this
agreement may be in the form of commercial paper and up to $8.0 million may
be used to support the Company's domestic leasing activities. Under this
agreement, the total credit facility of $35.0 million will be reduced by
$750,000 per fiscal quarter effective January 31, 1995. As of April 30,
1996, the total capacity of the credit facility was $30,500,000. Borrowings
under this agreement are due May 2, 1998 and bear interest at a bank's
reference rate (8.25% and 9.00% at April 30, 1996 and April 30, 1995,
respectively), except for LIBOR, CD and commercial paper based options which
17
<PAGE>
generally bear interest at a rate lower than the bank's reference rate.
There were no borrowings under this agreement at April 30, 1996, and total
consolidated borrowings were $16,465,000 at April 30, 1995 (of which $322,000
was borrowed on the account of NFS).
Management of the Company believes that a combination of cash generated
from operations, existing bank facilities and additional borrowing capacity,
in aggregate, are adequate to meet the anticipated liquidity and capital
resource requirements of its business. Sources of additional financing, if
needed, may include further debt financing or the sale of equity or other
securities.
RECENTLY ISSUED ACCOUNTING STANDARD
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of ("SFAS No. 121"), issued in March 1995
and effective for fiscal years beginning after December 15, 1995, establishes
accounting standards for the recognition and measurement of impairment of
long-lived assets, certain identifiable intangibles, and goodwill either to
be held or disposed of. Management believes the adoption of SFAS No. 121
will not have a material impact on the Company's financial position or
results of operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS
There are a number of factors that could affect the Company's future
operating results, including national and regional economic conditions;
pending and future legislation affecting the telecommunications industry; the
Company's operations in Canada; market acceptance of the Company's products
and services; the Company's continued ability to provide integrated
communications solutions for customers in a dynamic industry, as well as
other competitive factors. Statements regarding the Company's operations,
performance and results for fiscal 1997 discussed in this report are
forward-looking and therefore are subject to certain risks and uncertainties.
Because these and other factors could affect the Company's operating
results, past financial performance should not necessarily be considered as a
reliable indicator of future performance, and investors should not use
historical trends to anticipate future period results.
18
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS: PAGE
----
Report of Independent Public Accountants . . . . . . . . . . . . . . 20
Consolidated Statements of Operations for the years ended
April 30, 1996, 1995 and 1994. . . . . . . . . . . . . . . . . . . 21
Consolidated Balance Sheets as of April 30, 1996 and 1995. . . . . . 22
Consolidated Statements of Shareholders' Equity for the years ended
April 30, 1996, 1995 and 1994. . . . . . . . . . . . . . . . . . . 24
Consolidated Statements of Cash Flows for the years ended
April 30, 1996, 1995 and 1994. . . . . . . . . . . . . . . . . . . 25
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 26
Selected Quarterly Financial Data (unaudited). . . . . . . . . . . . 38
FINANCIAL STATEMENT SCHEDULES:
All schedules have been omitted as not required, not applicable or because
the information to be presented is included in the consolidated financial
statements and related notes.
19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Norstan, Inc.:
We have audited the accompanying consolidated balance sheets of Norstan, Inc.
(a Minnesota corporation) and Subsidiaries as of April 30, 1996 and 1995, and
the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended April 30, 1996.
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 financial position of Norstan, Inc. and
Subsidiaries as of April 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended April 30, 1996 in conformity with generally accepted accounting
principles.
As explained in Note 7 to the financial statements, effective May 1, 1993,
the Company changed its method of accounting for income taxes.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
June 20, 1996
20
<PAGE>
NORSTAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED APRIL 30,
--------------------------------
1996 1995 1994
-------- -------- --------
REVENUES:
Sale of products and systems . . . . . . . . $176,992 $166,675 $127,514
Telecommunications services. . . . . . . . . 138,737 118,569 100,080
Financial services . . . . . . . . . . . . . 5,635 5,001 4,305
-------- -------- --------
Total revenues . . . . . . . . . . . . . . 321,364 290,245 231,899
-------- -------- --------
COST OF SALES:
Products and systems . . . . . . . . . . . . 130,363 123,158 92,621
Telecommunications services. . . . . . . . . 97,396 76,641 61,289
Financial services . . . . . . . . . . . . . 2,221 2,308 1,766
-------- -------- --------
Total cost of sales. . . . . . . . . . . . 229,980 202,107 155,676
-------- -------- --------
GROSS MARGIN . . . . . . . . . . . . . . . . . 91,384 88,138 76,223
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . . 75,973 74,725 65,137
-------- -------- --------
OPERATING INCOME . . . . . . . . . . . . . . . 15,411 13,413 11,086
Interest expense . . . . . . . . . . . . . . (1,351) (1,587) (832)
Interest and other income (expense), net . . 89 (54) (106)
-------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE AND
PROVISION FOR INCOME TAXES . . . . . . . . . 14,149 11,772 10,148
Provision for income taxes . . . . . . . . . 5,660 4,709 4,161
-------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE . . . . . . . . . . . . 8,489 7,063 5,987
Cumulative effect of change in accounting
for income taxes . . . . . . . . . . . . . - - (375)
-------- -------- --------
NET INCOME . . . . . . . . . . . . . . . . . . $ 8,489 $ 7,063 $ 5,612
-------- -------- --------
-------- -------- --------
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE:
Income before cumulative effect of
accounting change. . . . . . . . . . . . . $ .94 $ .81 $ .70
Cumulative effect of change in accounting
for income taxes . . . . . . . . . . . . . - - (.04)
-------- -------- --------
NET INCOME PER SHARE . . . . . . . . . . . . . $ .94 $ .81 $ .66
-------- -------- --------
-------- -------- --------
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING . . . . . . . . . . . . . 9,028 8,750 8,504
-------- -------- --------
-------- -------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
NORSTAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
APRIL 30,
-------------------
1996 1995
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,133 $ 1,308
Accounts receivable, net of allowances for doubtful accounts of
$1,079 and $804 . . . . . . . . . . . . . . . . . . . . . . . . . . 55,723 51,779
Current lease receivables (Note 4). . . . . . . . . . . . . . . . . . 15,316 14,122
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,964 11,137
Costs and estimated earnings in excess of billings of $13,528 and
$16,691 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,202 10,926
Deferred income tax benefits (Note 7) . . . . . . . . . . . . . . . . 3,427 3,634
Prepaid expenses, deposits and other. . . . . . . . . . . . . . . . . 2,443 2,331
-------- --------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . 94,208 95,237
-------- --------
PROPERTY AND EQUIPMENT:
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . 75,126 64,652
Less-accumulated depreciation and amortization. . . . . . . . . . . . (40,815) (32,885)
-------- --------
Net property and equipment. . . . . . . . . . . . . . . . . . . . . 34,311 31,767
-------- --------
OTHER ASSETS:
Lease receivables, net (Note 4) . . . . . . . . . . . . . . . . . . . 24,556 26,381
Franchise rights and other intangible assets, net of amortization of
$3,991 and $3,435 (Note 2). . . . . . . . . . . . . . . . . . . . . 7,421 7,904
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 492 420
-------- --------
Total other assets. . . . . . . . . . . . . . . . . . . . . . . . . 32,469 34,705
-------- --------
$160,988 $161,709
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
22
<PAGE>
NORSTAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
APRIL 30,
-------------------
1996 1995
-------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . $ - $ 93
Current maturities of discounted lease rentals . . . . . . . . . . . . . 12,202 11,449
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,053 16,467
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,856 15,045
Accrued -
Salaries and wages . . . . . . . . . . . . . . . . . . . . . . . . . . 10,424 10,841
Warranty costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,655 1,756
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 6,880 5,118
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . 668 158
Billings in excess of costs and estimated earnings of $12,595 and
$10,121 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,571 2,127
-------- --------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . 69,309 63,054
-------- --------
LONG-TERM DEBT,
NET OF CURRENT MATURITIES (Note 5) . . . . . . . . . . . . . . . . . . . - 16,465
DISCOUNTED LEASE RENTALS,
NET OF CURRENT MATURITIES (Note 6) . . . . . . . . . . . . . . . . . . . 15,961 16,313
DEFERRED INCOME TAXES (Note 7) . . . . . . . . . . . . . . . . . . . . . . 8,201 8,893
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 9 and 11)
SHAREHOLDERS' EQUITY (Notes 8 and 9):
Common stock - $.10 par value;
40,000,000 and 20,000,000 authorized shares;
8,717,538 and 4,215,441 shares issued and outstanding. . . . . . . . . 872 422
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . 27,619 26,031
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,975 31,486
Unamortized cost of stock . . . . . . . . . . . . . . . . . . . . . . . (94) (149)
Foreign currency translation adjustments . . . . . . . . . . . . . . . . (855) (806)
-------- --------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . 67,517 56,984
-------- --------
$160,988 $161,709
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
23
<PAGE>
NORSTAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED APRIL 30
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK FOREIGN
------------------- CAPITAL IN CURRENCY
OUTSTANDING EXCESS OF RETAINED UNAMORTIZED TRANSLATION
SHARES AMOUNT PAR VALUE EARNINGS COST OF STOCK ADJUSTMENTS
----------- ------ ---------- -------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - APRIL 30, 1993 . . . . . 3,982 $398 $22,642 $18,811 $(905) $(352)
Stock issued for employee benefit
plans . . . . . . . . . . . . . 92 9 1,530 - 614 -
Purchase and retirement of stock . (3) - (40) - - -
Foreign currency translation
adjustments . . . . . . . . . . - - - - - (661)
Net income . . . . . . . . . . . - - - 5,612 - -
----------- ------ ---------- -------- ------------- -----------
BALANCE - APRIL 30, 1994 . . . . . 4,071 407 24,132 24,423 (291) (1,013)
Stock issued for employee benefit
plans. . . . . . . . . . . . . . 144 15 1,899 - 142 -
Foreign currency translation
adjustments. . . . . . . . . . . - - - - - 207
Net income . . . . . . . . . . . . - - - 7,063 - -
----------- ------ ---------- -------- ------------- -----------
BALANCE - APRIL 30, 1995 . . . . . 4,215 422 26,031 31,486 (149) (806)
Stock issued for employee benefit
plans . . . . . . . . . . . . . 144 14 2,024 - 55 -
Foreign currency translation
adjustments . . . . . . . . . . - - - - - (49)
Effect of two-for-one stock split
(Note 11). . . . . . . . . . . . 4,359 436 (436) - - -
Net income . . . . . . . . . . . . - - - 8,489 - -
----------- ------ ---------- -------- ------------- -----------
BALANCE - APRIL 30, 1996 . . . . . 8,718 $872 $27,619 $39,975 $ (94) $(855)
----------- ------ ---------- -------- ------------- -----------
----------- ------ ---------- -------- ------------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
24
<PAGE>
NORSTAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................... $ 8,489 $ 7,063 $ 5,612
Adjustments to reconcile net income to
net cash provided by operating activities -
Depreciation and amortization........... 12,517 10,830 8,717
Deferred income taxes................... (465) (132) 1,386
Cumulative effect of change in
accounting for income taxes............ - - 375
Changes in operating items, net of
effects from acquisition:
Accounts receivable.................... (3,961) (7,807) (8,281)
Inventories............................ 167 1,034 (3,640)
Costs and estimated earnings in
excess of billings.................... 5,715 4,150 (7,685)
Prepaid expenses, deposits and
other................................. (111) (503) 122
Accounts payable and accrued
liabilities........................... (151) 4,567 2,852
Deferred revenue....................... 2,815 1,405 1,836
Billings in excess of costs and
estimated earnings.................... 2,445 (866) 346
Income taxes payable................... 510 448 -
------- ------- --------
Net cash provided by operating
activities.......................... 27,970 20,189 1,640
------- ------- --------
INVESTING ACTIVITIES:
Additions to property and equipment,
net..................................... (14,385) (17,313) (9,093)
Cash paid for Acquisition (Note 3)....... - (726) -
Investment in lease contracts............ (17,622) (16,246) (25,149)
Collections from lease contracts......... 18,240 17,746 14,263
Other, net............................... (178) 13 6
------- ------- --------
Net cash used for investing
activities........................... (13,945) (16,526) (19,973)
------- ------- --------
FINANCING ACTIVITIES:
Repayment of short-term debt............. - (423) -
Borrowings under revolving credit
agreements.............................. 112,435 122,950 122,180
Repayments under revolving credit
agreements.............................. (128,900) (124,610) (115,288)
Borrowings on discounted lease rentals... 13,173 9,056 18,901
Repayments of discounted lease rentals... (12,767) (11,631) (9,167)
Repayments of other long-term debt....... (93) (229) (276)
Repurchase of common stock............... - - (40)
Proceeds from sale of common stock....... 1,615 1,353 1,362
Tax benefits from shares issued to
employees............................... 340 412 227
------- ------- --------
Net cash provided by (used for)
financing activities................. (14,197) (3,122) 17,899
------- ------- --------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH..................................... (3) 12 (30)
------- ------- --------
NET INCREASE (DECREASE) IN CASH........... (175) 553 (464)
CASH, BEGINNING OF PERIOD................. 1,308 755 1,219
------- ------- --------
CASH, END OF PERIOD ...................... $ 1,133 $ 1,308 $ 755
------- ------- --------
------- ------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
25
<PAGE>
NORSTAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS:
Norstan, Inc. (Norstan or the Company) manages the operations of its
subsidiaries, Norstan Communications, Inc. (NCI), Norstan Canada Inc. (NCDA),
Norstan Network Services, Inc. (NNS) and Norstan Financial Services, Inc.
(NFS).
Norstan is a full service communications systems provider creating
voice, video and data communications solutions for customers primarily in 18
states and throughout Canada. Norstan is the largest independent distributor
of private communications systems and application products manufactured by
Siemens ROLM Communications Inc. (ROLM) and has historically derived a
substantial majority of its revenues from the sale of telephone systems,
communications maintenance services and moves, adds and changes. The
Company's products and services also include call processing products, long
distance services, videoconferencing products, refurbished equipment,
cabling, leasing, outsourcing and data integration products and services. NFS
provides financing for the Company's customers. The Company sells its
products and services to a wide variety of customers and industries. A
substantial portion of the Company's operations are located in the Mideast,
Midwest and Southwestern regions of the United States.
Under its agreement with ROLM, the Company purchases communications
equipment and products for field application and installation. The current
distributor agreement with ROLM extends through July 1998. The Company
believes that any interruption of its business relationship with ROLM would
have a material adverse effect on its business.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements include the accounts
of the Company and its subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
REVENUE RECOGNITION:
Revenues from the sale of products and systems, including new products
and upgrades, as well as revenues generated from the secondary equipment
market, are recognized upon performance of contractual obligations, which is
generally upon installation or shipment. Revenues for certain installation
contracts are recognized under the percentage of completion method of
accounting for long-term contracts. Revenues from telecommunications
services, including maintenance/service revenues, moves, adds, and changes
(MAC) revenues, revenues from the resale of long distance services, and
network integration services, are recognized as the services are provided.
Financial services revenues are recognized over the life of the related lease
receivables using the effective interest method. In addition, the Company
grants credit to customers and generally does not require collateral or any
other security to support amounts due.
INVENTORIES:
Inventories include purchased parts and equipment and are stated at the
lower of cost, determined on a first-in, first-out basis, or realizable
market value.
26
<PAGE>
NORSTAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost and include expenditures which
increase the useful lives of existing property and equipment.
Maintenance, repairs and minor renewals are charged to operations as
incurred. Generally, when property and equipment is disposed of, the related
cost and accumulated depreciation is removed from the respective accounts and
any gain or loss is reflected in the results of operations. For capitalized
telecommunications equipment used as spare parts, the composite depreciation
method is used whereby the cost of property retired less any salvage is
charged against accumulated depreciation and no gain or loss is recognized.
The net book value of capitalized telecommunications equipment was
$14,933,000 and $13,984,000 as of April 30, 1996 and 1995, respectively.
Machinery and equipment is depreciated over the estimated useful lives of two
to ten years under the straight-line method for financial reporting purposes.
Accelerated methods of depreciation are used for income tax reporting.
FRANCHISE RIGHTS AND OTHER INTANGIBLE ASSETS:
Franchise rights and other intangible assets are being amortized on a
straight-line basis over 20 years. The Company periodically evaluates whether
events or circumstances have occurred which may indicate that the remaining
estimated useful lives may warrant revision or that the remaining intangible
asset balance may not be recoverable. In the event that factors indicate that
the intangible assets in question should be evaluated for possible
impairment, a determination of the overall recoverability of such intangible
assets would be made.
FOREIGN CURRENCY:
For the Company's foreign operations, assets and liabilities are
translated at year-end exchange rates, and revenues and expenses are
translated at average exchange rates prevailing during the year. Translation
adjustments are recorded as a separate component of shareholders' equity.
INCOME TAXES:
The Company and its subsidiaries file a consolidated federal income tax
return and separate state returns. Deferred income taxes are provided for
differences between the financial reporting basis and tax basis of the
Company's assets and liabilities at currently enacted tax rates.
SHARE DATA:
Net income per common and common equivalent share is based on the
weighted average number of shares of common stock outstanding during the
year, adjusted for the dilutive effect of common stock equivalents. As
described in Note 11, net income per common and common equivalent share for
all periods presented has been restated to reflect the June 20, 1996 stock
split.
27
<PAGE>
NORSTAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental disclosure of cash flow information is as follows (in
thousands):
YEARS ENDED APRIL 30,
------------------------
1996 1995 1994
------ ------ ------
Cash paid during each period for:
Interest . . . . . . . . . . . . . . . . . . $3,608 $3,650 $2,537
Income taxes . . . . . . . . . . . . . . . . 5,218 3,911 2,543
RECENTLY ISSUED ACCOUNTING STANDARD:
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" ("SFAS No. 121"), issued in March 1995 and effective for fiscal
years beginning after December 15, 1995, establishes accounting standards for
the recognition and measurement of impairment of long-lived assets, certain
identifiable intangibles, and goodwill either to be held or disposed of.
Management believes the adoption of SFAS No. 121 will not have a material
impact on the Company's financial position or results of operations.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities as of the date of the
financial statements. Estimates also affect the reported amounts of revenues
and expenses during the periods presented. Estimates are used for such items
as allowances for doubtful accounts, inventory reserves, depreciable lives of
property and equipment, warranty reserves and others. Ultimate results could
differ from those estimates.
NOTE 3 - ACQUISITION:
In November 1994, the Company acquired certain assets and assumed certain
liabilities of Toronto-based Renaissance Investments Ltd. (Renaissance).
Renaissance, a technology planning and integration services company,
specializes in local and wide area networks and graphical user interfaces,
and has been operating under the name of Renaissance Connects since 1990.
The purchase price of the assets was approximately $726,000. In addition, the
Company repaid approximately $423,000 of short-term bank obligations assumed
in the acquisition.
Pro forma information in the year of acquisition for this acquisition has
not been disclosed as such information was not materially different from the
Company's results of operations.
28
<PAGE>
NORSTAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - SUMMARIZED FINANCIAL INFORMATION OF NFS:
NATURE OF BUSINESS:
NFS provides financing for the Company's customers and has financed
customer equipment purchases from the Company in the amounts of $15,385,000,
$14,415,000, and $20,643,000 during fiscal years ended April 30, 1996, 1995
and 1994, respectively. Leases are accounted for as sales-type leases for
financial reporting purposes.
Summarized financial information of NFS is as follows (in thousands):
BALANCE SHEETS
ASSETS
AS OF APRIL 30,
-----------------
1996 1995
------- -------
Cash and other . . . . . . . . . . . . . . . . . . . . . $ 1,595 $ 1,740
Lease receivables, net . . . . . . . . . . . . . . . . . 35,321 34,879
Due from affiliated companies. . . . . . . . . . . . . . - 168
------- -------
$36,916 $36,787
------- -------
------- -------
LIABILITIES AND SHAREHOLDER'S EQUITY
Discounted lease rentals . . . . . . . . . . . . . . . . $25,132 $26,597
Other liabilities. . . . . . . . . . . . . . . . . . . . 6,787 6,638
Shareholder's equity . . . . . . . . . . . . . . . . . . 4,997 3,552
------- -------
$36,916 $36,787
------- -------
------- -------
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED APRIL 30,
-----------------------------
1996 1995 1994
-------- ------- --------
Interest and other income. . . . . . . . . . . $ 5,081 $ 4,656 $ 4,181
Interest expense . . . . . . . . . . . . . . . (1,788) (2,017) (1,673)
Other expenses . . . . . . . . . . . . . . . . (1,454) (1,037) (1,536)
-------- ------- --------
Income before provision for income taxes . . 1,839 1,602 972
Provision for income taxes . . . . . . . . . 394 629 123
-------- ------- --------
Net income . . . . . . . . . . . . . . . . . . $ 1,445 $ 973 $ 849
-------- ------- --------
-------- ------- --------
29
<PAGE>
NORSTAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - SUMMARIZED FINANCIAL INFORMATION OF NFS (CONTINUED):
The components of lease receivables outstanding are summarized as follows
(in thousands):
AS OF APRIL 30,
--------------------
1996 1995
--------- ---------
Gross lease receivables. . . . . . . . . . . . . . . $ 36,158 $ 37,164
Residual values. . . . . . . . . . . . . . . . . . . 7,390 7,613
Less:
Unearned income. . . . . . . . . . . . . . . . . . (8,528) (8,398)
Allowance for financing losses . . . . . . . . . . (1,750) (1,500)
--------- ---------
Total lease receivables - net. . . . . . . . . . . . 33,270 34,879
Less - current maturities. . . . . . . . . . . . . . (13,535) (12,902)
--------- ---------
Long-term lease receivables. . . . . . . . . . . . . $ 19,735 $ 21,977
--------- ---------
--------- ---------
The aggregate amount of gross lease receivables maturing in each of the
five years following April 30, 1996 is as follows (in thousands):
YEARS ENDING APRIL 30, AMOUNT
--------------------------------------------------------- -------
1997. . . . . . . . . . . . . . . . . . . . . . . . . . . $15,266
1998. . . . . . . . . . . . . . . . . . . . . . . . . . . 10,619
1999. . . . . . . . . . . . . . . . . . . . . . . . . . . 6,375
2000. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,004
2001 and thereafter . . . . . . . . . . . . . . . . . . . 894
-------
$36,158
-------
-------
The consolidated balance sheets as of April 30, 1996 and 1995 also
include $6,602,000 and $5,624,000, respectively, of net lease receivables
from customers of NCDA and NCI.
NOTE 5 - DEBT OBLIGATIONS:
LONG-TERM DEBT:
Long-term debt consists of the following (in thousands):
AS OF APRIL 30,
--------------------
1996 1995
--------- ---------
Bank financing:
Revolving credit agreement . . . . . . . . . . . . $ - $ 4,465
Commercial paper . . . . . . . . . . . . . . . . . - 12,000
Capital lease obligation, paid in 1996 . . . . . . . - 93
--------- ---------
Total long-term debt . . . . . . . . . . . . . . . . - 16,558
Less - current maturities. . . . . . . . . . . . . . - (93)
--------- ---------
$ - $ 16,465
--------- ---------
--------- ---------
30
<PAGE>
NORSTAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - DEBT OBLIGATIONS (CONTINUED):
BANK FINANCING:
The Company has a $35,000,000 unsecured revolving long-term credit
agreement with certain banks. Under this agreement, the total credit
facility of $35,000,000 is reduced by $750,000 per fiscal quarter effective
January 1995. As of April 30, 1996, the total capacity of the credit
facility was $30,500,000. There were no borrowings under this agreement at
April 30, 1996, and total consolidated borrowings were $16,465,000 at April
30, 1995 (of which $322,000 was borrowed on the account of NFS). Borrowings
under this agreement are due May 2, 1998 and bear interest at a bank's
reference rate (8.25% and 9.00% at April 30, 1996 and April 30, 1995,
respectively), except for LIBOR, CD and commercial paper based options which
generally bear interest at a rate lower than the bank's reference rate. The
Company is able to borrow up to $15,000,000 of this credit facility in the
form of commercial paper. In addition, NFS is able to borrow up to
$8,000,000 of this facility from Norstan, Inc. Annual commitment fees on the
unused portion of the credit facility are 3/8 of one percent.
Under the agreement, the Company is required to maintain minimum levels
of tangible net worth and certain other financial ratios. The Company was in
compliance with such requirements as of April 30, 1996.
SHORT-TERM BORROWINGS:
In addition to the Company borrowing funds under its revolving credit
agreement, the Company periodically borrows funds from banks on a short-term
basis for working capital purposes. There were no short-term borrowings
outstanding as of April 30, 1996 or 1995. Short-term borrowing amounts
during fiscal years 1996 and 1995 were as follows :
1996 1995
---- ----
Maximum amount outstanding during the year................ - $5,000
Average borrowings during the year........................ - 465
Weighted average interest rates during the year........... - 7.6%
NOTE 6 - DISCOUNTED LEASE RENTALS:
NFS and NCDA utilize their lease receivables and corresponding underlying
equipment to borrow funds from financial institutions at fixed rates on a
nonrecourse or recourse basis by discounting the stream of future lease
payments. Proceeds from discounting are recorded on the consolidated balance
sheet as discounted lease rentals. Interest rates on these credit agreements
range from 6% to 10% and payments are generally due in varying monthly
installments through July 2001.
Discounted lease rentals of NFS and NCDA consisted of the following (in
thousands):
AS OF APRIL 30,
---------------
1996 1995
---- ----
Nonrecourse borrowings.............................. $ 26,467 $ 24,712
Recourse borrowings................................. 1,696 3,050
-------- --------
Total discounted lease rentals...................... 28,163 27,762
Less - current maturities......................... (12,202) (11,449)
-------- --------
$ 15,961 $ 16,313
-------- --------
-------- --------
In addition to the recourse to NFS and/or NCDA as described above,
recourse to Norstan, Inc. relative to discounted lease rentals was limited to
$883,000 as of April 30, 1996 and $986,000 as of April 30, 1995.
31
<PAGE>
NORSTAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - DISCOUNTED LEASE RENTALS (CONTINUED):
Aggregate maturities of discounted lease rentals as of April 30, 1996 are
as follows (in thousands):
YEARS ENDING APRIL 30, AMOUNT
---------------------- ------
1997.................. $12,202
1998.................. 7,795
1999.................. 4,901
2000.................. 2,216
2001 and thereafter... 1,049
-------
$28,163
-------
-------
NOTE 7 - INCOME TAXES:
The Company adopted SFAS No. 109, "Accounting for Income Taxes", as of
May 1, 1993 and recorded a $375,000 charge to consolidated net income for the
cumulative effect of the change in method of accounting for income taxes.
The Company has recorded the following net deferred income taxes as of
April 30 (in thousands):
1996 1995
---- ----
Current deferred income tax benefits............ $ 3,782 $ 3,959
Current deferred income taxes................... (355) (325)
------- --------
Net current deferred income tax benefits........ 3,427 3,634
------- --------
Noncurrent deferred income tax benefits......... 18,499 13,260
Noncurrent deferred income taxes................ (26,476) (21,929)
Valuation allowance............................. (224) (224)
------- --------
Net noncurrent deferred income taxes............ (8,201) (8,893)
------- --------
Net deferred income taxes....................... $(4,774) $ (5,259)
------- --------
------- --------
The tax effects of significant temporary differences representing
deferred tax assets and liabilities are as follows as of April 30 (in
thousands):
1996 1995
---- ----
Accelerated depreciation......................... $(24,281) $(19,669)
Amortization of intangible assets................ (774) (923)
Capital leases................................... (581) (546)
Operating leases................................. 16,400 11,142
Long-term contract costs......................... 319 606
Inventory reserves............................... 400 676
Allowance for doubtful accounts.................. 1,111 901
Vacation reserves................................ 991 958
Warranty reserves................................ 450 489
Tax credits and carryforwards.................... - 220
Self insurance reserve........................... 377 245
Other, net....................................... 1,038 866
Valuation allowance.............................. (224) (224)
-------- --------
Net deferred tax liabilities..................... $ (4,774) $ (5,259)
-------- --------
-------- --------
32
<PAGE>
NORSTAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - INCOME TAXES (CONTINUED):
The domestic and foreign components of income (loss) before the cumulative
effect of accounting change and provision for income taxes are as follows (in
thousands):
YEARS ENDED APRIL 30,
-----------------------------------
1996 1995 1994
---------- ----------- -----------
Domestic . . . . . . . . $ 13,365 $ 11,363 $ 11,164
Foreign . . . . . . . . 784 409 (1,016)
---------- ----------- -----------
$ 14,149 $ 11,772 $ 10,148
---------- ---------- -----------
---------- ---------- -----------
The provision (benefit) for income taxes consisted of the following (in
thousands):
YEARS ENDED APRIL 30,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
Current
Domestic . . . . . . . $ 5,656 $ 4,325 $ 3,144
Foreign . . . . . . . . 469 516 (369)
----------- ----------- -----------
6,125 4,841 2,775
----------- ----------- -----------
Deferred
Domestic . . . . . . .. (235) 179 1,382
Foreign . . . . . . . . (230) (311) 4
----------- ----------- -----------
(465) (132) 1,386
----------- ----------- -----------
Provision for income taxes $ 5,660 $ 4,709 $ 4,161
----------- ----------- -----------
----------- ----------- -----------
The differences between the effective tax rate and income taxes computed
using the federal statutory rate were as follows:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Federal statutory rate . . . . . . . . . . . . . . . . . 35% 35% 34%
State income taxes, net of federal tax benefit . . . . . 4 4 4
Other, net . . . . . . . . . . . . . . . . . . . . . . . 1 1 3
-------- -------- --------
40% 40% 41%
-------- -------- --------
-------- -------- --------
</TABLE>
33
<PAGE>
NORSTAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - STOCK OPTIONS AND STOCK PLAN:
The Company has adopted the 1986 Long-Term Incentive Plan of Norstan, Inc.
(1986 Plan), a stock plan which provides for the granting of non-qualified stock
options, incentive stock options, and restricted stock. The following is a
summary of activity of the 1986 Plan:
YEARS ENDED APRIL 30,
-------------------------------
1996 1995 1994
--------- --------- ---------
Options outstanding, beginning of year 644,400 680,424 674,424
Granted . . . . . . . . . . . . . . . . 225,000 110,000 6,000
Exercised - at prices from $2.63 to
$4.25 per share (162,100) (128,852) -
Forfeited . . . . . . . . . . . . . . . . (29,400) (17,172) -
--------- --------- ---------
Options outstanding, end of year . . . . 677,900 644,400 680,424
--------- --------- ---------
--------- --------- ---------
The 1986 Plan, as amended in fiscal 1994, provides for a maximum of 1,600,000
shares to be granted to key employees in the form of stock options or restricted
stock. At April 30, 1996, options outstanding under the 1986 Plan were
exercisable to fiscal year 2006 at prices from $2.63 to $11.88 per share. There
were 677,900 options outstanding under the 1986 Plan at April 30, 1996, of which
options for approximately 376,000 shares were exercisable at that date.
In 1995, the Company adopted the Norstan, Inc. 1995 Long-Term Incentive
Plan (1995 Plan) which permits the granting of non-qualified stock options,
incentive stock options, stock appreciation rights and restricted stock. The
1995 Plan provides for a maximum of 1,200,000 shares to be granted as
performance awards and other stock-based awards. At April 30, 1996, there were
no options outstanding under the 1995 Plan and 1,200,000 shares available for
future grant.
In 1987, the Company adopted the Directors' Stock Option Plan which was
restated in September 1995. The Restated Non-Employee Directors' Stock Plan
(Restated Directors' Plan) provides for a maximum of 292,000 shares to be
granted. Options for 20,000 shares are to be granted to each non-employee
director of the Company upon election as a director at a price equal to the
market price on the date of grant, exercisable at 20% per year and expiring
after ten years. At April 30, 1996, options for 160,000 shares were outstanding
and exercisable at prices ranging from $3.07 to $12.50 per share. In addition
to the granting of options, the Restated Directors' Plan provides for the
payment of an annual retainer to each non-employee director. On the date of
each annual meeting of shareholders, each non-employee director is to receive an
annual retainer paid in shares of common stock of the Company. The annual
retainer paid to each non-employee director at the September 1995 annual meeting
of shareholders was $10,000 or 800 shares (based on the fair market value of the
shares on the date of the meeting). As of April 30, 1996, 6,400 shares had been
issued as an annual retainer to non-employee directors. At April 30, 1996,
125,600 shares were available for future grant/payment under the Restated
Directors' Plan.
The Company has maintained an Employee Stock Purchase and Bonus Plan (the
Plan) since 1980 which allows employees to set aside up to 10% of their earnings
for the purchase of shares of the Company's common stock. Shares are purchased
annually under the Plan at a price equal to 85% of the market price on the last
day of the calendar year. During fiscal 1996, 142,454 shares were issued under
the Plan and, at April 30, 1996, approximately 710,000 shares were available for
future issuance.
The tax benefits associated with the exercise of stock options or issuance
of shares under the Plan, not related to expenses recognized for financial
reporting purposes, have been credited to capital in excess of par value in the
accompanying consolidated balance sheets.
34
<PAGE>
NORSTAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - STOCK OPTIONS AND STOCK PLAN (CONTINUED):
The Company has adopted a Restricted Stock Award Plan which provided for
the awarding of 300,000 shares of Company stock to selected employees. In
addition, restricted stock was granted under the 1986 Plan. Recipients of
restricted stock awards under these plans were not required to make any payments
for the stock or provide consideration other than the rendering of services.
Shares of stock awarded under the plans are subject to certain restrictions on
transfer and all or part of the shares awarded to an employee may be subject to
forfeiture upon the occurrence of certain events, including termination of
employment. In fiscal 1996, 7,000 shares were awarded under the 1986 Plan.
Through April 30, 1996, 283,500 shares have been awarded under the Restricted
Stock Award Plan and 140,706 shares have been awarded under the 1986 Plan. The
fair market value of the shares granted under these plans is generally amortized
over a four year period. Amortization of $137,000, $74,000, and $146,000 has
been charged to operations in 1996, 1995 and 1994, respectively.
NOTE 9 - COMMITMENTS AND CONTINGENCIES:
LEGAL PROCEEDINGS:
The Company is involved in legal actions in the ordinary course of its
business. Although the outcomes of any such legal actions cannot be predicted,
in the opinion of management there is no legal proceeding pending against or
involving the Company for which the outcome is likely to have a material adverse
effect upon the consolidated financial position or results of operations of the
Company.
OPERATING LEASE COMMITMENTS:
The Company and its subsidiaries conduct a portion of their operations in
leased facilities. Most of the leases require payment of maintenance, insurance,
taxes and other expenses in addition to the minimum annual rentals. Lease
expense, as recorded in the accompanying consolidated statements of operations,
was $10,501,000 in 1996, $8,661,000 in 1995, and $8,319,000 in 1994.
Future minimum lease payments under noncancelable leases with initial or
remaining terms of one year or more were as follows at April 30, 1996 (in
thousands):
YEARS ENDING APRIL 30, AMOUNT
------------------------------ ----------
1997 . . . . . . . . . . . . $ 6,086
1998 . . . . . . . . . . . . 5,036
1999 . . . . . . . . . . . . 3,599
2000 . . . . . . . . . . . . 2,765
2001 and Thereafter . . . . . 3,120
----------
$ 20,606
----------
----------
CUSTOMER COMMITMENTS:
The Company has entered into sales contracts with certain customers
containing future performance obligations. Although the financial impact of
these performance obligations is not determinable, management believes they will
not have a material effect on the future operating results of the Company.
35
<PAGE>
NORSTAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED):
SHAREHOLDER RIGHTS PLAN:
In May 1988, the Board of Directors authorized a shareholder rights plan
which provides for a dividend distribution of one right for each outstanding
share of common stock to shareholders of record on June 13, 1988. The rights
will become exercisable in the event, with certain exceptions, an acquiring
party accumulates 20% or more of the voting power of the Company, or the
commencement of a tender or exchange offer which would result in the party
having beneficial ownership of 30% or more of the voting power of the Company.
Each right entitles the holder to purchase from the Company one share of common
stock at $12.50 per share, subject to adjustment. In addition, upon the
occurrence of certain events, holders of the rights will be entitled to purchase
either the Company's common stock at one-fourth of its market value or stock in
an acquiring party at one-half of its market value.
NOTE 10 - OPERATIONS BY GEOGRAPHIC AREA:
The following table sets forth the Company's operations by geographic area
as of and for the years ended April 30, 1996, 1995 and 1994 (in thousands):
1996 1995 1994
--------- --------- ---------
REVENUES:
United States . . . . . . . . . . $ 287,171 $ 262,235 $ 211,130
Canada . . . . . . . . . . . . . 34,193 28,010 20,769
---------- ---------- ----------
$ 321,364 $ 290,245 $ 231,899
---------- ---------- ----------
---------- ---------- ----------
NET INCOME (LOSS):
United States . . . . . . . . . . $ 7,943 $ 6,617 $ 6,263
Canada . . . . . . . . . . . . . 546 446 (651)
---------- ---------- ----------
$ 8,489 $ 7,063 $ 5,612
---------- ---------- ----------
---------- ---------- ----------
IDENTIFIABLE ASSETS:
United States . . . . . . . . . . $ 142,151 $ 143,443 $ 137,038
Canada . . . . . . . . . . . . . 18,837 18,266 12,624
---------- ---------- ----------
$ 160,988 $ 161,709 $ 149,662
---------- ---------- ----------
---------- ---------- ----------
36
<PAGE>
NORSTAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - SUBSEQUENT EVENTS:
ACQUISITION:
On June 4, 1996, the Company acquired Connect Computer Company (Connect),
in a transaction accounted for under the purchase method. Connect is a provider
of consulting, design and implementation services for local and wide area
networks, internets and intranets, client server applications and workgroup
computing, with offices in Minneapolis, Milwaukee, and Des Moines.
The acquisition consideration totaled approximately $15 million, consisting
of $8.2 million cash and $2 million of Norstan common stock, as well as $2.7
million paid in exchange for all outstanding Connect stock options, $1.1 million
in bonuses paid to Connect management and employees, and $1 million payable to
certain members of Connect management under non-compete agreements. In
addition, the Company agreed to pay up to $4 million in contingent consideration
over a three year period ending April 30, 1999, if certain operating income
levels are achieved. The Company financed the cash portions of the acquisition
through borrowings under its existing credit facility.
STOCK SPLIT:
On June 20, 1996, the Company's Board of Directors approved a two-for-one
stock split effected in the form of a stock dividend. The stock split has been
retroactively reflected in the accompanying consolidated financial statements
and related notes as if it had occurred as of April 30, 1996. All share and per
share data have been restated to reflect the stock split.
37
<PAGE>
NORSTAN, INC. AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
1996 ---------- ----------- ---------- ----------
- ----
Revenues $ 72,401 $ 78,705 $ 81,630 $ 88,628
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Gross Margin $ 20,418 $ 22,306 $ 23,182 $ 25,478
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Operating Income $ 2,738 $ 4,003 $ 4,150 $ 4,520
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Net Income $ 1,433 $ 2,148 $ 2,293 $ 2,615
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Net income per common and
common equivalent share $ .16 $ .24 $ .26 $ .29
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
1995
- ----
Revenues $ 62,824 $ 71,998 $ 74,612 $ 80,811
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Gross Margin $ 19,736 $ 22,060 $ 22,421 $ 23,921
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Operating Income $ 2,332 $ 3,449 $ 3,524 $ 4,108
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Net Income $ 1,203 $ 1,869 $ 1,871 $ 2,120
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Net income per common and
common equivalent share $ .14 $ .22 $ .22 $ .24
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Throughout each year, the income tax provision is recorded based upon estimates
of the overall expected tax rate for that year.
38
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
No changes in or disagreements with accountants which required reporting on
Form 8-K have occurred within the two-year period ended April 30, 1996.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to the directors and executive officers of the
Company, set forth under "Information Concerning Directors, Nominees and
Executive Officers" and under "Compliance with Section 16 (a)" in the Company's
definitive proxy statement for the annual meeting of shareholders to be held
September 12, 1996, is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
Information with respect to Executive Compensation set forth under
"Executive Compensation" in the Company's definitive proxy statement for the
annual meeting of shareholders to be held September 12, 1996, other than the
subsections captioned "Report of the Compensation and Stock Option Committee"
and "Performance Graph", is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to security ownership of certain beneficial owners
and management, set forth under "Beneficial Ownership of Principal Shareholders
and Management" in the Company's definitive proxy statement for the annual
meeting of shareholders to be held September 12, 1996, is incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information with respect to certain relationships and related transactions,
set forth under "Information Concerning Directors, Nominees and Executive
Officers" and under "Certain Transactions" in the Company's definitive proxy
statement for the annual meeting of shareholders to be held September 12, 1996,
is incorporated herein by reference.
39
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND EXHIBITS.
l. Financial Statements
See Index to Financial Statements and Financial Statement
Schedules on page 19 of this report.
2. Financial Statement Schedules
All schedules to the Consolidated Financial Statements normally
required by the applicable accounting regulations are omitted
since the required information is included in the Consolidated
Financial Statements or the Notes thereto or is not applicable.
3. Exhibits
See Index to Exhibits on page 43 of this report.
(b) REPORTS ON FORMS 8-K.
No reports on Form 8-K were filed by the Company during the last
quarter of the fiscal year covered by this report.
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: July 25, 1996
NORSTAN, INC.
Registrant
By /s/ PAUL BASZUCKI
----------------------------
Paul Baszucki, Co-Chairman
of the Board and Chief
Executive Officer
By /s/ RICHARD COHEN
----------------------------
Richard Cohen, Vice-Chairman
of the Board and
Chief Financial Officer (Principal
Financial and Accounting Officer)
41
<PAGE>
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.
SIGNATURE DATE
--------- ----
/s/ SIDNEY R. COHEN July 25, 1996
- ----------------------------------
Sidney R. Cohen, Co-Chairman of the Board
and Director
/s/ PAUL BASZUCKI July 25, 1996
- ----------------------------------
Paul Baszucki, Co-Chairman of the Board,
Chief Executive Officer and Director
/s/ RICHARD COHEN July 25, 1996
- ----------------------------------
Richard Cohen, Vice-Chairman of the Board,
Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
/s/ WINSTON E. MUNSON July 25, 1996
- ----------------------------------
Winston E. Munson, Secretary
and Director
/s/ DR. JAGDISH N. SHETH July 25, 1996
- ----------------------------------
Dr. Jagdish N. Sheth, Director
/s/ ARNOLD LEHRMAN July 25, 1996
- ----------------------------------
Arnold Lehrman, Director
/s/ CONNIE M. LEVI July 25, 1996
- ----------------------------------
Connie M. Levi, Director
/s/ GERALD D. PINT July 25, 1996
- ----------------------------------
Gerald D. Pint, Director
/s/ STANLEY SCHWEITZER July 25, 1996
- ----------------------------------
Stanley Schweitzer, Director
/s/ HERBERT F. TRADER July 25, 1996
- ----------------------------------
Herbert F. Trader, Director
42
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
3(a) Restated Articles of Incorporation of the
Company, as amended [filed as Exhibit 3(a)
to the Company's Annual Report on Form 10-K
for the year ended April 30, 1988 (File No.
0-8141) and incorporated herein by reference];
Amendments adopted September 9, 1993 and
June 20, 1996.
3(b) Bylaws of the Company [filed as Exhibit 3(b)
to the Company's Annual Report on Form 10-K
for the year ended April 30, 1993 (File No.
0-8141) and incorporated herein by reference];
Amendments adopted August 8, 1995.
3(c) Rights Agreement dated May 17, 1988 between
Norstan, Inc. and Norwest Bank Minnesota, N.A.
[filed as Exhibit 1 to the Company's Registration
Statement on Form 8-A (File No.
0-8141) and incorporated herein by reference].
10(a) Agreement for ROLM Authorized Distributors,
effective July 27, 1993, between Norstan
Communications, Inc. and ROLM Company [filed as
Exhibit 10(a) to the Company's Annual Report on
Form 10-K for the year ended April 30, 1993
(File No. 0-8141) and incorporated herein by
reference].
10(b) Credit Agreement dated as of October 28, 1994,
among Norstan, Inc., First Bank National
Association, and Harris Trust and Savings Bank
[filed as Exhibit 10(b) to the Company's Annual
Report on Form 10-K for the year ended April 30,
1995 (File No. 0-8141) and incorporated herein by
reference].
10(c) Loan and Security Agreement dated April 29, 1993,
between Norstan Financial Services, Inc. and Sanwa
Business Credit Corporation [filed as Exhibit 10(b)
to the Company's Current Report on Form 8-K, dated
April 29, 1993 (File No. 0-8141) and incorporated
herein by reference]; First Amendment dated December
30, 1993 [filed as Exhibit 10(c) to the Company's
Annual Report on Form 10-K for the year ended April
30, 1994 (File No. 0-8141) and incorporated herein
by reference].
(1)10(d) 1990 Employee Stock Purchase and Bonus Plan of
Norstan, Inc., as amended [filed as Exhibit 10(d)
to the Company's Annual Report on Form 10-K for
the year ended April 30, 1993 (File No. 0-8141) and
incorporated herein by reference].
(1)10(e) Norstan, Inc. 1986 Long-Term Incentive Plan, as
amended [filed as Exhibit 10(e)to the Company's
Annual Report on Form 10-K for the year ended April
30, 1993 (File No. 0-8141) and incorporated herein
by reference]; Amendment adopted August 8, 1995 and
July 9, 1996.
43
<PAGE>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
(1)10(f) Norstan, Inc. Restated Non-Employee Directors'
Stock Plan, [filed as Exhibit 28.1 to the Company's
Registration Statement on Form S-8 dated September
27, 1995 (File No. 0-8141) and incorporated herein
by reference].
(1)10(g) Norstan, Inc. 1995 Long-Term Incentive Plan [filed
as Exhibit 28.1 to the Company's Registration
Statement on Form S-8 dated September 27, 1995 (File
No. 0-8141) and incorporated herein by reference];
Amendment adopted July 9, 1996.
(1)10(h) Consulting Agreement dated March 4, 1995 between
Sidney Cohen and Norstan, Inc. [filed as Exhibit
10(g) to the Company's Annual Report on Form 10-K for
the year ended April 30, 1995 (File No. 0-8141) and
incorporated herein by reference].
(1)10(i) Employment Agreement dated April 7, 1995 between
Paul Baszucki and the Company [filed as Exhibit 10(h)
to the Company's Annual Report on Form 10-K for the
year ended April 30, 1995 (File No. 0-8141) and
incorporated herein by reference].
(1)10(j) Employment Agreement dated April 7, 1995 between
Richard Cohen and the Company [filed as Exhibit 10(i)
to the Company's Annual Report on Form 10-K for the
year ended April 30, 1995 (File No. 0-8141) and
incorporated herein by reference].
(1)10(k) Employment Agreement dated April 7, 1995 between Max
Mayer and the Company [filed as Exhibit 10(j) to the
Company's Annual Report on Form 10-K for the year
ended April 30, 1995 (File No. 0-8141) and incorporated
herein by reference].
10(l) Agreement and Plan of Merger dated May 24, 1996 among
the Company, Connect Computer Company and CCC Acquisition
Subsidiary, Inc. [filed as Exhibit 2 to the Company's
Current Report on Form 8-K dated June 4 , 1996 (File No.
0-8141) and incorporated herein by reference].
11 Statement Regarding Computation of Earnings Per Share 45
22 Subsidiaries of Norstan, Inc. 46
23.1 Consent of Independent Public Accountants 47
A copy of any of the exhibits listed or referred to above will be furnished at a
reasonable cost to any shareholder of the Company, upon receipt of a written
request from such person for any such exhibit. Such request should be sent to
Norstan, Inc., 605 North Highway 169, Twelfth Floor, Plymouth, Minnesota 55441,
Attention: Investor Relations.
(1) Items that are management contracts or compensatory plans or arrangements
required to be filed as an exhibit pursuant to Item 14(c) of this Form 10-K.
44
<PAGE>
Exhibit 3(a)
RESTATED ARTICLES OF INCORPORATION
OF NORSTAN, INC.
As Amended
<PAGE>
[SEAL]
TO ALL TO WHOM THESE PRESENTS SHALL COME, GREETING:
WHEREAS, Articles of Incorporation, duly signed and acknowledged under
oath, have been filed for record in the office of the Secretary of State, on
the --1st-- day of July, A. D. 1960 for the incorporation of
Norstan Mfg. Company, Inc.
- -----------------------------------------------------------------------------
under and in accordance with the provisions of the Minnesota Business
Corporation Act, Minnesota Statutes, Chapter 301;
NOW, THERFORE, I, Joseph L. Donovan, Secretary of State of the State of
Minnesota, by virtue of the powers and duties vested in me by law, do hereby
certify that the said
Norstan Mfg. Company, Inc.
- -----------------------------------------------------------------------------
is a legally organized Corporation under the laws of this State.
Witness my official signature hereunto
subscribed and the Great Seal of the
State of Minnesota hereunto affixed this
--first-- day of July in the year of our
Lord one thousand nine hundred and sixty.
/s/ Joseph L. Donovan
------------------------------------
Secretary of State.
<PAGE>
ARTICLES OF INCORPORATION
OF
NORSTAN MFG. COMPANY, INC.
We, the undersigned, of full age, for the purpose of forming a
corporation under and pursuant to the provisions of Chapter 301, Minnesota
Statutes, known as the Minnesota Business Corporation Act, and laws
amendatory thereof and supplementary thereto, do hereby associate ourselves
as a body corporate and adopt the following Articles of Incorporation:
ARTICLE I.
The name of this corporation is:
NORSTAN MFG. COMPANY, INC.
ARTICLE II.
Its purposes are as follows:
To design, develop, research, produce and assemble amusement and other
devices and otherwise deal in goods, wares and merchandise of every class and
description;
To hold, buy, sell, lease, mortgage or otherwise encumber real and
personal property or any interest therein, of all kinds and descriptions;
To hold, buy, sell, and invest in notes, stocks, bonds or, other
investments of all kinds; and
To engage in such other activities as in the judgment of the board of
directors are reasonably necessary to carry out any of the foregoing purposes
and, in general, to have and exercise all powers conferred by the laws of the
State of Minnesota in futherance of the purposes hereinbefore expressed.
ARTICLE III.
Its duration shall be perpetual.
ARTICLE IV.
The location and post office address of its registered office in this
state is 938 Northwestern Bank Building, Minneapolis, Minnesota.
<PAGE>
ARTICLE V.
The amount of stated capital with which this corporation will begin
business is One Thousand and no/100 ($1,000.00) Dollars.
ARTICLE VI.
The total authorized capital stock of this corporation is one million
(1,000,000) shares of common stock of the par value of ten cents ($.10) each.
All shares, when issued, shall be fully paid for and shall be non-assessable.
The shareholders shall not have any pre-emptive rights of any kind and the
corporation by its directors may offer for sale and sell, or grant options to
subscribe for, or purchase, the same at such times and under such conditions
as shall be determined to be for the best interests of the corporation.
ARTICLE VII.
The names and post office addresses of each of the incorporators are:
Name Post Office Address
------ ----------------------
Norman H. Stensager 8228 First Avenue South, Bloomington,
Minnesota
Sheldon J. Gensler 2851 Huntington Avenue, St. Louis Park,
Minnesota
Agnes Ellefson 22 East 22nd Street, Minneapolis, Minnesota
ARTICLE VIII.
The names, post office addresses and terms of office of the first
directors are:
Name Post Office Address Term
------ ---------------------- ------
Norman H. Stensager 8228 First Avenue South, Bloomington,
Minnesota 1 year
Sheldon J. Gensler 2851 Huntington Avenue, St. Louis
Park, Minnesota 1 year
Irvin E. Schermer 2306 Parkwoods Road, St. Louis
Park, Minnesota 1 year
Fred P. Berdass 2622 Raleigh Avenue, St. Louis
Park, Minnesota 1 year
Charles C. DeMoss 3322 Holmes Avenue South,
Minneapolis, Minnesota 1 year
- 2 -
<PAGE>
IN WITNESS WHEREOF, We have hereunto set our hands and seals this 28th day
of June, 1960.
/s/ Norman H. Stensager
IN THE PRESENCE OF: ------------------------
/s/ Irwin E. Schermer Norman H. Stensager
- ------------------------
/s/ Bernie E. Shingler
- ------------------------ /s/ Sheldon J. Gensler
------------------------
Sheldon J. Gensler
/s/ Agnes Ellefson
------------------------
Agnes Ellefson
STATE OF MINNESOTA )
) SS
COUNTY OF HENNEPIN )
On this 28th day of June, 1960, personally appeared before me, a notary
public, Norman H. Stensager, Sheldon J. Gensler and Agnes Ellefson, to me
known to be the persons named in and who executed the foregoing Articles of
Incorporation and each acknowledged this to be of his own free act and deed
for the uses and purposes therein expressed.
/s/ Irwin E. Schermer
------------------------
(Notarial Seal)
<PAGE>
CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORATION OF
NORSTAN MFG. COMPANY, INC.
We, the undersigned, Norman H. Stensager and Charles C. DeMoss,
respectively the president and secretary of Norstan Mfg. Company, Inc., a
corporation subject to the provisions of Chapter 301, Minnesota Statutes
1953, known as the Minnesota Business Corporation Act, do hereby certify that
pursuant to Section 301.26, Subdivision 11 of said Act, on August 31, 1960,
by written authorization signed by all of the holders of shares of stock of
said corporation who would be entitled to a notice of meeting of
shareholders, Article I. of the Articles of Incorporation of said corporation
was amended to read as follows:
"ARTICLE I.
The name of this corporation is: NORSTAN RESEARCH
& DEVELOPMENT COMPANY."
IN WITNESS WHEREOF, We have subscribed our names and caused the
corporate seal of said corporation to be hereto affixed this 14th day of
September, 1960.
NORSTAN MFG. COMPANY, INC.
By /s/ Norman H. Stensager
-------------------------
Its President
And /s/ Charles C. DeMoss
------------------------
Its Secretary
<PAGE>
STATE OF MINNESOTA )
)SS
COUNTY OF HENNEPIN )
Norman H. Stensager and Charles C. DeMoss, being first duly sworn, on
oath depose and say: that they are respectively the president and secretary
of Norstan Mfg. Company, Inc., the corporation named in the foregoing
certificate; that said certificate contains a true statement of the action of
the shareholders of said corporation, duly held as aforesaid; that the seal
attached is the corporate seal of said corporation; that said certificate is
executed on behalf of said corporation, by its express authority; that they
further acknowledged the same to be their free act and deed and the free act
and deed of said corporation.
/s/ Norman H. Stensager
---------------------------
Norman H. Stensager
/s/ Charles C. DeMoss
---------------------------
Charles C. DeMoss
Subscribed and sworn to before me
this 14th day of September, 1960.
/s/ Sheldon L. Gensler
- ----------------------
(Notarial Seal)
<PAGE>
CERTIFICATE OF CHANGE OF REGISTERED OFFICE
BY
NORSTAN RESEARCH & DEVELOPMENT COMPANY
We, Sidney R. Cohen and Richard Cohen, respectively the
President and Secretary of Norstan Research & Development Company, a
Minnesota corporation organized under or subject to the provisions of Chapter
301, Minnesota Statutes, hereby certify that the following resolutions were
adopted by the Board of Directors of said corporation on the 15th day of
July, A. D. 1971, to wit:
RESOLVED that the registered office in this state be changed from
938 Northwestern Bank Building in the City of Minneapolis, County
of Hennepin, to 524 North Fifth Street, in the City of Minneapolis,
County of Hennepin.
RESOLVED that the effective date of the change of registered office
shall be the date of the filing hereof with the Secretary of State
of Minnesota.
RESOLVED FURTHER that the President and the Secretary of this
corporation be and are hereby authorized and directed to make,
execute and acknowledge a certificate under the corporate seal of
this corporation embracing the foregoing resolutions and to cause
such certificate to be filed in accordance with the provisions of
Chapter 301, Minnesota Statutes.
/s/ Sidney R. Cohen
-------------------------
President
/s/ Richard Cohen
-------------------------
Secretary
(Corporate Seal)
Subscribed and sworn to before
me this 15th day of July, 1971.
/s/ Winston E. Munson
- -------------------------------
(Notarial Seal)
<PAGE>
CERTIFICATE OF
RESTATED ARTICLES OF INCORPORATION
OF
NORSTAN RESEARCH & DEVELOPMENT COMPANY
We, the undersigned, President and Secretary, respectively, of Norstan
Research & Development Company, a Minnesota corporation, do hereby certify
that at a duly called meeting of the shareholders of said corporation held on
the 12th day of July, 1973, prior notice of which meeting had been duly mailed
to each shareholder of record, the following resolutions adopting Restated
Articles of Incorporation were adopted by the affirmative vote of the holders
of a majority of the voting power of all shareholders entitled to vote and
said resolutions did not receive the negative vote of the holders of more than
one-fourth of the voting power of all shareholders entitled to vote:
RESOLVED, That the shareholders of Norstan Research &
Development Company do hereby adopt the following Restated
Articles of Incorporation, which consist of the original
Articles of Incorporation, as amended to date, together with
certain additional amendments to said original Articles of
Incorporation and which Restated Articles of Incorporation
shall, and hereby do, supersede and take the place of the
existing Articles of Incorporation of Norstan Research &
Development Company and all amendments thereto.
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
NORSTAN RESEARCH & DEVELOPMENT COMPANY
ARTICLE I
The name of the corporation is NORSTAN RESEARCH & DEVELOPMENT COMPANY.
ARTICLE II
The corporation shall have the following purposes:
To design, develop, research, produce and assemble amusement and other
devices and other wise deal in goods, wares and merchandise of every class
and description;
To hold, buy, sell, lease, mortgage or otherwise encumber real and
personal property or any interest therein, of all kinds and descriptions;
To hold, buy, sell and invest in notes, stocks, bonds or other
investments of all kinds; and
To engage in such other activities as in the judgment
of the Board of Directors are reasonably necessary to carry out any of the
foregoing purposes.
In addition, the corporation shall have general business purposes and
shall have unlimited power to engage in, and to do any lawful act concerning,
any and all lawful businesses for which corporations may be organized under
the Minnesota Business Corporation Act and all amendments thereto.
ARTICLE III
The duration of the corporation shall be perpetual.
ARTICLE IV
The location and post office address of the corporation's registered
office in the State of Minnesota shall be 524 North Fifth Street,
Minneapolis, Minnesota 55401.
<PAGE>
ARTICLE V
The total authorized number of par value common shares of the
corporation shall be Three Million (3,000,000), all of one class, and par
value of each share shall be Ten Cents($.10).
ARTICLE VI
The shareholders of the corporation shall not have the pre-emptive right
to subscribe for or to purchase any of the shares or other securities,
warrants or rights of the corporation, now or hereafter authorized,
including any of the same which may, from time to time, be in the treasury of
the corporation. The shareholders of the corporation are hereby denied the
right of cumulative voting.
ARTICLE VII
The amount of stated capital at the time of the adoption of these
Restated Articles of Incorporation is the sum of Seventy-Seven Thousand Seven
Hundred Fifty Dollars ($77,750.00)
ARTICLE VIII
The names and post office addresses of the directors of the corporation
at the time of the adoption of these Restated Articles of Incorporation are
as follows:
NAME ADDRESS
Sidney R. Cohen 524 North Fifth Street
Minneapolis, Minnesota
Arnold Lehrman Shelard Plaza, Suite 660
Highway 12 & County Road 18
Minneapolis, Minnesota
Richard W. Cohen 524 North Fifth Street
Minneapolis, Minnesota
Winston E. Munson 1000 First National
Bank Building
Minneapolis, Minnesota
Sheldon J. Gensler 2716 Tanglewood Drive
Sarasota, Florida
David B. Trach 2531 Kipling Avenue
Minneapolis, Minnesota
Carl A. Berg 8821 Science Center Drive
New Hope, Minnesota
James S. Sidwell 8521 Westmoreland
St. Louis Park, Minnesota
-2-
<PAGE>
The number of directors of the corporation shall not be less than three
(3) nor more than fifteen (15), and each shall hold office for a term of one
(1) year or such shorter term as may be specifically provided at the time of
election and until his successor is duly elected. The terms of office of the
above directors shall be until the next annual meeting of shareholders and
until their respective successors are duly elected.
ARTICLE IX
The Board of Directors shall have the power and authority to make and
alter the Bylaws of the corporation subject to the power of the shareholders
to change or repeal such Bylaws; provided, however, that the Board of
Directors shall not alter any Bylaw fixing their qualifications,
classifications, terms of office, or number, except that the Board of
Directors may make or alter any Bylaw to increase their number up to a
maximum of fifteen (15).
ARTICLE X
The power and authority to accept and reject subscriptions for shares
and other securities, and to allot shares and other securities, and to
otherwise issue, sell, transfer and otherwise dispose of the shares and other
securities of the corporation, whether authorized and unissued or in the
treasury of the corporation and whether made or done before or after
incorporation, is hereby granted to and vested in the Board of Directors of
the corporation. The Board of Directors, without action by the shareholders,
may from time to time, offer for subscription, or otherwise issue or sell, or
grant rights, warrants or options for the subscription to or purchase of any
of the authorized share or other securities of the corporation not then
issued or which may have been issued and reacquired as treasury shares or
other securities by the corporation, and any or all of any increased shares
or other securities of any class that may hereafter be authorized for such
consideration as the directors may determine. In connection with any rights,
warrants or options granted by the Board of Directors, the Board of
Directors is authorized to fix the terms, provisions and conditions of such
rights, warrants or options, including the conversion basis or bases and the
option or warrant price or prices at which shares may be purchased or
subscribed for and to authorize the issuance thereof. The Board of Directors
may specify in amount or value the proportions of the consideration over and
above the par value of any share, on its issue or sale, which shall be
capital and which shall be surplus. Bonds, debentures, certificates of
indebtedness, bonds convertible into shares, debentures convertible into
shares, or other debt securities, may be issued, sold or
-3-
<PAGE>
disposed of pursuant to resolution of the Broad of Directors, without action
by the shareholders, for such consideration and upon such terms and
conditions as may be deemed advisable by the Board of Directors in the
exercise of its discretion. The Board of Directors is hereby authorized and
empowered to fix or alter, as to shares unallotted at the time, any or all of
the following matters, to-wit: (1) the dividend rate; (2) the redemption
price; (3) the liquidation price; (4) the conversion rights; (5) the sinking
or purchase fund rights of any shares or other securities; or (6) the number
of shares in any series of any class, all in the manner and in accordance
with the statutes, as the same may be from time to time, for such cases made
and provided.
ARTICLE XI
The holders of a majority of the outstanding shares of the corporation
entitled to vote on the questions, respectively, shall have the power to
authorize the Board of Directors to sell, lease, exchange or otherwise
dispose of all or substantially all of the property and assets of the
corporation, including its good will, upon such terms and conditions and for
such consideration, which may be money, shares, bonds or other instruments
for the payment of money or other property, as the Board of Directors deems
expedient; to amend the Restated Articles of Incorporation of the
corporation; and to adopt or reject an agreement of consolidation or merger.
- 4 -
<PAGE>
FURTHER RESOLVED, That the President and the Secretary
of the corporation are hereby authorized and directed to
prepare, execute and file for record a proper Certificate
of Restated Articles of Incorporation of Norstan Research
& Development Company, reciting that the Restated Articles
of Incorporation supersede and take the place of the existing
Articles of Incorporation of Norstan Research & Development
Company and all amendments thereto, and said officers are
hereby authorized and directed to pay all fees in connection
therewith, and to do all other acts and things necessary,
required or convenient to carry out the purposes hereof.
The undersigned do hereby further certify that the total authorized
number of shares has been increased to Three Million (3,000,000), all of said
shares being of one class and each share having the par value of Ten Cents
($.10); and that the Restated Articles of Incorporation supersede and take
the place of the existing Articles of Incorporation of Norstan Research &
Development Company and all amendments thereto.
IN WITNESS WHEREOF, the undersigned, as President and Secretary,
respectively, of Norstan Research & Development Company have hereunto set
their respective hands and affixed the corporate seal of said corporation
this 13 day of July, 1973.
[SEAL]
IN PRESENCE OF: NORSTAN RESEARCH & DEVELOPMENT
COMPANY
/s/ Sara Rietz /s/ Sidney R. Cohen
- ------------------------- ------------------------------
Sidney R. Cohen, President
/s/ Arnold Lehrman /s/ Winston E. Munson
- ------------------------- ------------------------------
Winston E. Munson, Secretary
- 5 -
<PAGE>
STATE OF MINNESOTA)
) SS.
COUNTY OF HENNEPIN)
On this 13th day of July, 1973, before me, a Notary Public, within and
for said County, personally appeared Sidney R. Cohen and Winston E. Munson,
to me personally known, who being each by me duly sworn, did say that they
are respectively the President and Secretary of NORSTAN RESEARCH &
DEVELOPMENT COMPANY, the corporation named in the foregoing instrument, and
that the seal affixed to said instrument is the corporate seal of said
corporation, and that said instrument was signed and sealed in behalf of said
corporation by authority of its shareholders, and said Sidney R. Cohen and
Winston E. Munson acknowledged said instrument to be the free act and deed of
said corporation.
/s/ Roger V. Stagberg
----------------------------------
Notary Public, Hennepin County
[SEAL]
<PAGE>
CERTIFICATE OF
RESTATED ARTICLES OF INCORPORATION
OF
NORSTAN RESEARCH & DEVELOPMENT COMPANY
We, the undersigned, President and Secretary, respectively, of Norstan
Research & Development Company, a Minnesota corporation, do hereby certify
that at a duly called meeting of the shareholders of said corporation held on
the 18th day of July, 1974, prior notice of which meeting had been duly mailed
to each shareholder of record, the following resolutions adopting Restated
Articles of Incorporation were adopted by the affirmative vote of the holders
of more than two-thirds of the voting power of all shareholders entitled to
vote:
RESOLVED, That the shareholders of Norstan
Research & Development Company do hereby
adopt the following Restated Articles of
Incorporation which consist of the existing
Restated Articles of Incorporation, together
with certain amendments thereto, and which
Restated Articles of Incorporation shall,
and hereby do, supersede and take the place
of the existing Restated Articles of Incorporation
of Norstan Research & Development Company and
all amendments thereto.
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
NORSTAN RESEARCH & DEVELOPMENT COMPANY
ARTICLE I
The name of the corporation is NORSTAN RESEARCH & DEVELOPMENT
COMPANY.
ARTICLE II
The corporation shall have the following purposes:
To design, develop, research, produce and assemble amusement
and other devices and otherwise deal in goods, wares and merchandise of every
class and description;
To hold, buy, sell, lease, mortgage or otherwise encumber
real and personal property or any interest therein, of all kinds and
descriptions;
To hold, buy, sell and invest in notes, stocks, bonds or
other investments of all kinds; and
To engage in such other activities as in the judgement of the
Board of Directors are reasonably necessary to carry out any of the foregoing
purposes.
In addition, the corporation shall have general business
purposes and shall have unlimited power to engage in, and to do any lawful
act concerning, any and all lawful businesses for which corporations may be
organized under the Minnesota Business Corporation Act and all amendments
thereto.
ARTICLE III
The duration of the corporation shall be perpetual.
ARTICLE IV
The location and post office address of the corporation's
registered office in the State of Minnesota shall be 524 North Fifth Street,
Minneapolis, Minnesota 55401.
<PAGE>
ARTICLE V
The total authorized number of par value common shares of the
corporation shall be Three Million (3,000,000), all of one class, and the par
value of each share shall be Ten Cents ($.10).
ARTICLE VI
The shareholders of the corporation shall not have the
pre-emptive right to subscribe for or to purchase any of the shares or other
securities, warrants or rights of the corporation, now or hereafter
authorized, including any of the same which may, from time to time, be in the
treasury of the corporation. The shareholders of the corporation are hereby
denied the right of cumulative voting.
ARTICLE VII
The amount of stated capital at the time of the adoption of
these Restated Articles of Incorporation is the sum of Ninety-Seven Thousand
Nine Hundred Fifty and no/100 Dollars ($97,950.00).
ARTICLE VIII
The names and post office addresses of the directors of the
corporation at the time of the adoption of these Restated Articles of
Incorporation are as follows:
NAME ADDRESS
Sidney R. Cohen 524 North Fifth Street
Minneapolis, Minnesota
Arnold Lehrman Shelard Plaza, Suite 660
400 South County Road 18
Minneapolis, Minnesota
Richard W. Cohen 524 North Fifth Street
Minneapolis, Minnesota
Winston E. Munson 1000 First National Bank Bldg.
Minneapolis, Minnesota
Sheldon J. Gensler 2716 Tanglewood Drive
Sarasota, Florida
David B. Trach 2531 Kipling Avenue
St. Louis Park, Minnesota
<PAGE>
Carl A. Berg 8821 Science Center Drive
New Hope, Minnesota
James S. Sidwell 8521 Westmoreland Lane
St. Louis Park, Minnesota
The number of directors of the corporation shall not be less
than three (3) nor more than fifteen (15), and each shall hold office for a
term of one (1) year or such shorter term as may be specifically provided at
the time of election and until his successor is duly elected. The terms of
office of the above directors shall be until the next annual meeting of
shareholders and until their respective successors are duly elected.
ARTICLE IX
The Board of Directors shall have the power and authority to
make and alter the Bylaws of the corporation subject to the power of the
shareholders to change or repeal such Bylaws; provided, however, that the
Board of Directors shall not alter any Bylaw fixing their qualifications,
classifications, terms of office, or number, except that the Board of
Directors may make or alter any Bylaw to increase their number up to a
maximum of fifteen (15).
ARTICLE X
The power and authority to accept and reject subscriptions
for shares and other securities, and to allot shares and other securities,
and to otherwise issue, sell, transfer and otherwise dispose of the shares
and other securities of the corporation, whether authorized and unissued or
in the treasury of the corporation and whether made or done before or after
incorporation, is hereby granted to and vested in the Board of Directors of
the corporation. The Board of Directors, without action by the shareholders,
may from time to time, offer for subscription, or otherwise issue or sell, or
grant rights, warrants or options for the subscription to or purchase of any
of the authorized shares or other securities of the corporation not then
issued or which may have been issued and reacquired as treasury shares or
other securities by the corporation, and any or all of any increased shares
or other securities of any class that may hereafter be authorized for such
consideration as the directors may determine. In connection with any rights,
warrants or options granted by the Board of Directors, the Board of Directors
is authorized to fix the terms, provisions and conditions of such rights,
warrants or options, including the conversion basis or bases and the option
or warrant price or prices at which shares may be purchased or subscribed for
and to authorize
<PAGE>
the issuance thereof. The Board of Directors may specify in amount or value
the proportions of the consideration over and above the par value of any
share, on its issue or sale, which shall be capital and which shall be
surplus. Bonds, debentures, certificates of indebtedness, bonds convertible
into shares, debentures convertible into shares, or other debt securities, may
be issued, sold or disposed of pursuant to resolutions of the Board of
Directors, without action by the shareholders, for such consideration and
upon such terms and conditions as may be deemed advisable by the Board of
Directors in the exercise of its discretion. The Board of Directors is
hereby authorized and empowered to fix or alter, as to shares unallotted at
the time, any or all of the following matters, to-wit: (1) the dividend rate;
(2) the redemption price; (3) the liquidation price; (4) the conversion
rights; (5) the sinking or purchase fund rights of any shares or other
securities; or (6) the number of shares in any series of any class, all in
the manner and in accordance with the statutes, as the same may be from time
to time, for such cases made and provided.
ARTICLE XI
The holders of a majority of the outstanding shares of the
corporation entitled to vote on the questions, respectively, shall have the
power to authorize the Board of Directors to sell, lease, exchange or
otherwise dispose of all or substantially all of the property and assets of
the corporation, including its good will, upon such terms and conditions and
for such consideration, which may be money, shares, bonds or other
instruments for the payment of money or other property, as the Board of
Directors deems expedient; to amend the Restated Articles of Incorporation of
the corporation; and to adopt or reject an agreement of consolidation or
merger.
<PAGE>
FURTHER RESOLVED, That the President and the Secretary of the
corporation are hereby authorized and directed to prepare,
execute and file for record a proper Certificate of Restated
Articles of Incorporation of Norstan Research & Development
Company, reciting that the Restated Articles of Incorporation
supersede and take the place of the existing Restated Articles
of Incorporation of Norstan Research & Development Company and
all amendments thereto, and said officers are hereby
authorized and directed to pay all fees in connection
therewith, and to do all other acts and things necessary,
required or convenient to carry out the purposes hereof.
The undersigned do hereby further certify that the total
authorized number of shares is Three Million (3,000,000), all of said shares
being of one class and each share having the par value of Ten Cents ($.10);
and that the Restated Articles of Incorporation superscede and take the place
of the existing Restated Articles of Incorporation of Norstan Research &
Development Company and all amendments thereto.
IN WITNESS WHEREOF, the undersigned, as President and
Secretary, respectively, of Norstan Research & Development Company have
hereunto set their respective hands and affixed the corporate seal of said
corporation this 18th day of July, 1974.
IN PRESENCE OF: NORSTAN RESEARCH & DEVELOPMENT COMPANY
/s/ Frederick L. Thorson /s/ Sidney R. Cohen
- ------------------------------- -------------------------------
Sidney R. Cohen, President
/s/ George R. A. Johnson /s/ Winston E. Munson
- ------------------------------- -------------------------------
Winston E. Munson, Secretary
<PAGE>
STATE OF MINNESOTA)
) SS.
COUNTY OF HENNEPIN)
On this 18th day of July, 1974, before me, a Notary
Public, within and for said County, personally appeared Sidney R. Cohen and
Winston E. Munson, to me personally known, who being each by me duly sworn,
did say that they are respectively the President and Secretary of NORSTAN
RESEARCH & DEVELOPMENT COMPANY, the corporation named in the forgoing
instrument, and that the seal affixed to said instrument is the corporate
seal of said corporation, and that said instrument was signed and sealed in
behalf of said corporation by authority of its shareholders, and said Sidney R.
Cohen and Winston E. Munson acknowledged said instrument to be the free act
and deed of said corporation
/s/ Frederick L. Thorson
-----------------------------------
Notary Public, Hennepin County
FREDERICK L. THORSON
Notary Public, Hennepin County, Minn.
My Commission Expires April 20, 1977.
<PAGE>
CONSENT TO USE OF SIMILAR CORPORATE NAME OR TITLE
BY
Norstan Research & Development Company
-------------------------------------------------
Name of Consenting Corporation
TO
Norstan Communications Systems, Inc.
-------------------------------------------------
Name of New Corporation
To:
Secretary of State
State Capitol, St. Paul, Minn. 55101
The Norstan Research & Development Company, a corporation created,
organized and existing under and by virtue of the laws of the (State of
Minnesota), hereby consents to the use of the name
Norstan Communications Systems, Inc.
- --------------------------------------------------------------------------------
by a corporation organized or qualified under the laws of the State of
Minnesota, and hereby requests the Secretary of State of the State of
Minnesota to accept for record the Amendment to the Articles of Incorporation
of said corporation, setting forth therein its name as above.
In Testimony Whereof, we have hereunto affixed our signatures and the
seal of the corporation consistent with the provisions of Section 301.05,
Subd. 2, Minnesota Statutes, this 23rd day of June__________________ A.D. 1975.
AFFIX
CORPORATE
SEAL
NORSTAN RESEARCH & DEVELOPMENT COMPANY
--------------------------------------
Title of consenting corporation
By /s/ Sidney R. Cohen
------------------------------------
Sidney R. Cohen, President
ATTEST:
/s/ Winston E. Munson
- ----------------------------------
Winston E. Munson, Secretary
Filing fee $4.00
<PAGE>
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
NORSTAN RESEARCH & DEVELOPMENT COMPANY
We, the undersigned, President and Secretary, respectively, of
Norstan Research & Development Company, a Minnesota corporation, do hereby
certify that at the annual meeting of the shareholders of said corporation
duly held at the main office of the Northwestern National Bank of Minneapolis,
Minneapolis, Minnesota, on the 21st day of July, 1977, pursuant to written
notice of the time, place and purpose of said meeting, the following
resolutions amending the Articles of Incorporation of said corporation were
duly adopted by the shareholders of said corporation:
RESOLVED, that Article I of the Articles of Incorporation of the
Company be amended to read as follows:
"The name of the corporation is Norstan, Inc."
FURTHER RESOLVED, that the President and Secretary of the
corporation are hereby authorized and directed to prepare, execute
and file for record a proper Certificate of Amendment of Articles
of Incorporation of Norstan Research & Development Company, and
said officers are hereby authorized and directed to do all other
acts and things necessary, required or convenient to carry out the
purposes hereof.
IN WITNESS WHEREOF, the undersigned, as President and
Secretary, respectively, of Norstan Research & Development Company
have hereunto set their respective hands and caused the seal of
said corporation to be hereunto affixed this 28th day of July, 1977.
IN PRESENCE OF: NORSTAN RESEARCH & DEVELOPMENT COMPANY
/s/ Roger V. Stagberg /s/ Sidney R. Cohen
- ------------------------------- -------------------------------
Its President
/s/ Geneviene Neumann /s/ Winston E. Munson
- ------------------------------- -------------------------------
Its Secretary
(Corporate Seal)
<PAGE>
STATE OF MINNESOTA)
) ss.
COUNTY OF HENNEPIN)
On this 29th day of May, 1977, before me, a Notary Public within and for
said County, personally appeared Sidney R. Cohen and Winston E. Munson, to me
personally known, who, being each by me duly sworn, did say that they are
respectively the President and the Secretary of Norstan Research &
Development Company, the corporation named in the foregoing instrument, and
that the seal affixed to said instrument is the corporate seal of said
corporation, and that said instrument was signed and sealed in behalf of said
corporation by authority of its Board of Directors, and said Sidney R. Cohen
and Winston E. Munson acknowledged said instrument to be the free act and
deed of said corporation.
/s/ Roger V. Stagberg
----------------------------------------
(Notary Public)
-2-
<PAGE>
CERTIFICATE OF CHANGE OF REGISTERED OFFICE
By
NORSTAN, INC.
We, Sidney R. Cohen and Winston E. Munson respectively the _________
President and ________ Secretary of Norstan, Inc. a Minnesota corporation
organized under or subject to the provisions of Chapter 301 Minnesota
Statutes, hereby certify that the following resolutions were adopted by the
Board of Directors of said corporation on the 16th day of August, A.D. 1979,
to wit:
"Resolved that the registered office in this state be changed from
524 North Fifth Street in the city of Minneapolis County of Hennepin to
number 15755 - 32nd Avenue North in the city of Plymouth County of Hennepin"
"Resolved that the effective date of the change of registered office shall
be the date of the filing hereof with the Secretary of State of Minnesota."
"Resolved further that the _______ President and the _______ Secretary of
this corporation be and are hereby authorized and directed to make, execute
and acknowledge a certificate under the corporate seal of this corporation
embracing the foregoing resolutions and to cause such certificate to be filed
in accordance with the provisions of Chapter 301, Minnesota Statutes."
/s/ SIDNEY R. COHEN
--------------------------
President
Sidney R. Cohen
/s/ WINSTON E. MUNSON
--------------------------
Secretary
Winston E. Munson
CORPORATE SEAL
Subscribed and sworn to before me this 16th day of August
A.D. 1979.
/s/ FREDERICK L. THORSON
--------------------------
Notary Public
Hennepin County, Minn.
My Commission Expires: 4/20/84
NOTARIAL SEAL
<PAGE>
ARTICLES OF AMENDMENT
OF
RESTATED ARTICLES OF INCORPORATION
OF
NORSTAN, INC.
We, the undersigned, President and Secretary, respectively, of
Norstan, Inc., a Minnesota corporation, do hereby certify that at the annual
meeting of the shareholders of said corporation duly held in the Directors
Room at the main office of the Northwestern National Bank of Minneapolis,
Minneapolis, Minnesota, on the 20th day of August, 1981, pursuant to written
notice of the time, place and purpose of said meeting, the following
resolutions amending the Restated Articles of Incorporation of said
corporation were duly adopted by the shareholders of said corporation:
RESOLVED, that Article V of the Restated Articles of Incorporation of
Norstan, Inc. be and the same be amended to read as follows:
"ARTICLE V
"The total authorized number of par value common shares of the
corporation shall be Ten Million (10,000,000), all of one class,
and the par value of each share shall be Ten Cents ($.10)."
FURTHER RESOLVED, that the President and the Secretary of the
corporation are hereby authorized and directed to prepare, execute,
and file for record a proper Certificate of Amendment of the Restated
Articles of Incorporation of Norstan, Inc., and said officers are
hereby authorized and directed to do all other acts and things necessary,
required or convenient to carry out the purposes hereof.
IN WITNESS WHEREOF, the undersigned, as President and Secretary,
respectively, of Norstan, Inc. have hereunto
<PAGE>
Set their respective hands and caused the seal of and corporation to be
hereunto affixed this 24th day of August, 1981.
in presence of: NORSTAN, INC.
/s/ Cynthia Michael /s/ Sidney R. Cohen
- ----------------------------------- By -----------------------------------
Its President
/s/ Diana L. McGrail /s/ Winston E. Munson
- ----------------------------------- By -----------------------------------
Its Secretary
(Corporate Seal)
STATE OF MINNESOTA)
) ss.
COUNTY OF HENNEPIN)
On this 24th day of August, 1981, before me, a Notary Public within
and for said County personally appeared Sidney R. Cohen and Winston E.
Munson, to me personally known, who, being each by me duly sworn, did say that
they are respectively the President and the Secretary of Norstan, Inc., the
corporation named in the foregoing instrument, and that the seal affixed to
said instrument is the corporate seal of said corporation, and that said
instrument was signed and sealed in behalf of said corporation by authority
of its Board of Directors, and said Sidney R. Cohen and Winston E. Munson
acknowledged said instrument to be the free act and deed of said corporation.
/s/ Diana L. McGrail
--------------------------------------
Notary Public
[SEAL]
-2-
<PAGE>
ARTICLES OF AMENDMENT
OF
RESTATED ARTICLES OF INCORPORATION
OF
NORSTAN, INC.
We, the undersigned, Paul Baszucki and Winston E. Munson,
respectively the President and Secretary of Norstan, Inc., a corporation
subject to the provisions of Chapter 302A, Minnesota Statutes, do hereby
certify that at a meeting of the shareholders of said corporation, duly held
on the 29th day of September, 1987, pursuant to notice duly mailed to all
shareholders of record, the following resolutions were duly adopted by the
affirmative vote of the holders of more than a majority of the voting power
of the shares outstanding and entitled to vote:
RESOLVED, that the Restated Articles of Incorporation of Norstan, Inc.
shall be hereby amended by adding thereto a new Article XII which shall
read as follows:
"ARTICLE XII
"A director of the corporation shall not be personally liable
to the corporation or its shareholders for monetary damages for breach
of fiduciary duty as a director, except for liability (a) for any
breach of the director's duty of loyalty to the corporation or its
shareholders, (b) for acts or omissions not in good faith or that
involved intentional misconduct or a knowing violation of law, (c)
under section 302A.559 of the Minnesota Business Corporation Act or
section 80A.23 of the Minnesota Securities Act, (d) for any transaction
from which the director derived an improper personal benefit, or (e)
for any act or omission occurring prior to the effective date of this
Article XII. If the Minnesota Business Corporation Act is amended after
approval by the shareholders of this Article to authorize corporate
action further eliminating or limiting the personal liability of
directors, then the liability of a director of the corporation shall
be eliminated or limited to the fullest extent permitted by the
Minnesota Business Corporation Act, as so amended.
<PAGE>
"Any repeal or modification of the foregoing paragraph by the
shareholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of
such repeal or modification."
FURTHER RESOLVED, That the President and the Secretary of the
corporation are hereby authorized and directed to prepare, execute,
and file for record with the Secretary of State of the State of
Minnesota proper Articles of Amendment of the Restated Articles of
Incorporation, setting forth the foregoing amendment, and to pay all
fees in connection therewith, all as required by law, and to do all
other acts and things necessary, required or convenient to carry out
the purposes hereof.
IN WITNESS WHEREOF, we have subscribed our names this 29th
day of September, 1987.
/s/ Paul Baszucki
---------------------------------------
Paul Baszucki, President
(CORPORATE SEAL)
/s/ Winston E. Munson
---------------------------------------
Winston E. Munson, Secretary
STATE OF MINNESOTA)
) ss.
COUNTY OF HENNEPIN)
The foregoing instrument was acknowledged before me this 29th day
of September, 1987 by Paul Baszucki and Winston E. Munson, respectively the
president and the secretary of Norstan, Inc., a Minnesota corporation, on
behalf of said corporation.
/s/ Diana L. McGrail
--------------------------------------
Notary Public
-2-
<PAGE>
[SEAL]
STATE OF MINNESOTA
OFFICE OF THE SECRETARY OF STATE
Notice of Change of Registered Office-Registered Agent or Both
by
- -------------------------------------------------------------------------------
Name of Corporation
Norstan, Inc.
- -------------------------------------------------------------------------------
Pursuant to Minnesota Statutes, Section 302A.123, the undersigned hereby
certifies that the Board of Directors of the above named Minnesota
Corporation has resolved to change the corporation's registered office or
agent:
Note: the 'From' address must be the registered office address as shown in
item #2 on the rejection notice label.
FROM
- -------------------------------------------------------------------------------
Agent's (Fill in this box only of you already have an agent. Do NOT list
Name the corporate name in this box.)
- -------------------------------------------------------------------------------
Address
(No. & Street) 15755 32nd Ave N
- -------------------------------------------------------------------------------
City County MN Zip
Plymouth Henn 55340
- -------------------------------------------------------------------------------
TO
- -------------------------------------------------------------------------------
Agent's
Name
- -------------------------------------------------------------------------------
Address (You may not list a P.O. Box, but you may list a rural route
(No. & Street) and box number.)
6900 Wedgwood Road Suite 150
- -------------------------------------------------------------------------------
City County MN Zip
Maple Grove Henn 55369
- -------------------------------------------------------------------------------
The new address may not be a post office box. It must be a street address,
pursuant to Minnesota Statutes, Section 302A.011, Subd. 3.
This change is effective on the day it is filed
with the Secretary of State, unless you indicate
another date, no later than 30 days after filing
with the Secretary of State, in this box:
------------------------------
August 1, 1988
------------------------------
I certify that I am authorized to execute this certificate and I further
certify that I understand that by signing this Certificate I am subject to
the penalties of perjury as set forth in section 609.48 as if I had signed
this certificate under oath.
------------------------------------------------------------------
Name of Officer or Other Authorized Signature
Agent or Corporation
James D. Bonneville /s/ James D. Bonneville
------------------------------------------------------------------
Title or Office Date
Exe. VP Finance & Admin Feb. 7, 1989
------------------------------------------------------------------
Do not write below this line. For Secretary of State's use only.
- -------------------------------------------------------------------------------
Receipt Number File Data D.A.R.
- -------------------------------------------------------------------------------
- -------------------------------------------
FILING FEE: $25.00
Return To: Corporation Division
Office of the Secretary of State
180 State Office Building
St. Paul, MN 55155
<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED ARTICLES OF INCORPORATION
OF
NORSTAN, INC.
The undersigned, Ervin F. Kamm, Jr. and Winston E. Munson, the President
and Secretary, respectively, of Norstan, Inc., a corporation subject to the
provisions of Chapter 302A, Minnesota Statutes (the "Corporation"), do hereby
certify that by a required majority of the shareholders at the duly called
annual meeting of shareholders of the Corporation, held on September 9, 1993,
the following resolutions were duly adopted:
RESOLVED, that Article V of the Restated Articles of
Incorporation of Norstan, Inc. be and the same be amended to
read as follows:
"ARTICLE V
"The total authorized number of par value
common shares of the corporation shall be
Twenty Million (20,000,000), all of one
class, and the par value of each share shall
be Ten Cents ($.10)."
FURTHER RESOLVED, that the President and Secretary of the
corporation are hereby authorized and directed to prepare,
execute and file for record a proper Certificate of
Amendment of the Restated Articles of Incorporation of
Norstan, Inc., and said officers are hereby authorized and
directed to do all other acts and things necessary, required
or convenient to carry out the purposes hereof.
IN WITNESS WHEREOF, the undersigned have signed this Certificate of
Amendment this 9th day of September, 1993.
/s/ Ervin F. Kamm, Jr.
--------------------------------
Ervin F. Kamm, Jr., President
/s/ Winston E. Munson
--------------------------------
Winston E. Munson, Secretary
<PAGE>
STATE OF MINNESOTA
SECRETARY OF STATE
NOTICE OF CHANGE OF REGISTERED OFFICE/
REGISTERED AGENT
Please read the instructions on the back before completing this form.
1. Corporate Name: Norstan, Inc.
2. Registered Office Address (No. & Street): List a complete street address
or rural route box number. A POST OFFICE BOX IS NOT ACCEPTABLE.
605 Highway 169, Plymouth Hennepin 55441
Street City County MN Zip
3. Registered Agent (Registered agents are required for foreign corporations
but optional for MINNESOTA corporations): None
If you do not wish to designate an agent, you must list "NONE" in this
box. DO NOT LIST THE CORPORATE NAME
In compliance with Minnesota Statutes, Section 302A.123, 303.10, 308A.025,
317.19, 317A.123 or 322b.135 I certify that the above listed company has
resolved to change the company's registered office and/or agent as listed
above.
I certify that I am authorized to execute this certificate and I further
certify that I understand that by signing this certificate I am subject to
the penalties of perjury as set forth in MINNESOTA STATUTES SECTION 609.48 as
if I had signed this certificate under oath.
/s/ Winston E. Munson
- ------------------------------------------
SIGNATURE OF AUTHORIZED PERSON
Winston E. Munson
Name and Telephone Number of a Contract Person: Winston E. Munson (612) 305-1458
---------------------------------
- --------------------------------------------------------------------------------
OFFICE USE ONLY
Filing Fee: Minnesota Corporations, Cooperatives
and Limited Liability Companies: $35.00
Non-Minnesota Corporations: $50.00
Make checks payable to: Secretary of State
Return to: Minnesota Secretary of State
180 State Office Building
100 Constitution Ave.
St. Paul, MN 55155-1299
(612) 296-2803
<PAGE>
ARTICLES OF AMENDMENT
OF
RESTATED ARTICLES OF INCORPORATION
OF
NORSTAN, INC.
I, the undersigned, Paul Baszucki, Co-Chairman of the Board of Directors
and Chief Executive Officer of Norstan, Inc., a corporation subject to the
provisions of Chapter 302A, Minnesota statutes, known as the Minnesota
Business Corporation Act, do hereby certify that the resolutions hereinafter
set forth were duly adopted by the affirmative vote of a majority of the
director present and entitled to vote at a meeting of the Board of Directors
duly held on June 20, 1996, pursuant to which the Board of Directors declared
a share division in the form of a 2 for 1 stock split on the outstanding
shares of common stock of the Corporation and increased the authorized common
stock of the Corporation:
NOW, THEREFORE, BE IT RESOLVED, that the directors hereby declare a
two-for-one stock split of the outstanding common stock of the
Corporation, payable in shares of common stock of the Corporation on
July 31, 1996 to the shareholders of record of the Corporation, in
proportion to their holdings, at the close of business on July 15,
1996 ("Record Date"), said shares to be issued from the authorized
and unissued common stock of the Corporation, and that sufficient
shares of the authorized and unissued common stock of the
Corporation are hereby set aside for this purpose, and that a
required amount of earned surplus, if any, at the par value of $.10
per share shall be transferred to the capital account of the
Corporation in connection with this stock split; and
RESOLVED FURTHER, that Norwest Bank Minnesota, N.A. is hereby
authorized and directed to issue on July 31, 1996 to the
stockholders of record at the close of business on July 15, 1996, in
payment of said stock split, stock certificates for as many whole
shares of fully paid and nonassessable common stock of the
Corporation as said stockholders shall be entitled to under this
resolution: and
RESOLVED FURTHER, that all options for the purchase of common stock
of the Corporation that are outstanding but not exercised at the
Record Date shall be adjusted as follows: (i) the number of shares
covered by each such option at the Record Date shall be multiplied
by two (2); and (ii) the exercise price per share of each such
option at the Record Date shall be divided by two and rounded to the
nearest one cent ($.01); and the number of shares reserved for
issuance at the Record Date under the Corporation's Shareholder
Rights Plan and the Corporation's Option Plans including the 1986
Long-Term Incentive Plan, 1995 Long-Term Incentive Plan, Restated
Non-Employee Director's Stock Plan, and the Employee Stock Purchase
Plan shall be adjusted by multiplying such numbers of shares by two;
RESOLVED FURTHER, that in any case where a legend is affixed to the
original stock, the stock issued as a result of the stock split of
said original stock shall carry the same legend; and
<PAGE>
RESOLVED FURTHER, that the officers of the Corporation are hereby
authorized and directed to prepare, execute, file and deliver such
documents and take such other action as they may deem necessary to
effect such stock split, including but not limited to the filing of
notices with the Securities and Exchange Commission and the Nasdaq
Stock Market, and the preparation and delivery of notices to holders
of stock options setting forth the adjustments described above.
RESOLVED FURTHER, that the Board of Directors pursuant to the
provisions of the Minnesota Business Corporation Act, hereby
authorizes the amendment of the Corporation's Restated Articles of
Incorporation increasing the shares of authorized common stock from
20,000,000 shares, par value $.10, to 40,000,000 shares, par value
$.10;
FURTHER RESOLVED, that, to effect said amendment, Article V of the
Corporation's Restated Articles of Incorporation hereby is amended to
read as follows:
"ARTICLE V
"The total authorized number of par value common shares of the
corporation shall be Forty Million (40,000,000), all of one
class, and the par value of each share shall be Ten Cents
($.10)."
I further certify that the Amendment to the Restated Articles of
Incorporation referred to in the foregoing resolutions will not adversely
affect the rights or preferences of the holders of outstanding shares of any
class or series of capital stock of the Corporation and will not result in
the percentage of authorized shares that remains unissued after the stock
split exceeding the percentage of authorized shares that were unissued before
the stock split.
IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of July,
1996.
/s/ Paul Baszucki
----------------------------------------
Paul Baszucki, Co-Chairman of the Board
of Directors and Chief Executive Officer
<PAGE>
Exhibit 3(b)
BYLAWS OF
NORSTAN, INC.
As Amended
<PAGE>
BYLAWS
OF
NORSTAN, INC.
In Effect 7/23/96
<PAGE>
INDEX
Page
----
Article I OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Article II SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.01 Regular Meetings. . . . . . . . . . . . . . . . 1
Section 2.02 Special Meetings. . . . . . . . . . . . . . . . 1
Section 2.03 Demand by Shareholders. . . . . . . . . . . . . 2
Section 2.04 Notice. . . . . . . . . . . . . . . . . . . . . 3
Section 2.05 Quorum. . . . . . . . . . . . . . . . . . . . . 4
Section 2.06 Voting Rights . . . . . . . . . . . . . . . . . 4
Section 2.07 Share Register. . . . . . . . . . . . . . . . . 4
Section 2.08 Voting of Shares by Organizations and
Legal Representatives . . . . . . . . . . . . . 5
Section 2.09 Proxies . . . . . . . . . . . . . . . . . . . . 7
Section 2.10 Action Without a Meeting. . . . . . . . . . . . 7
Section 2.11 Inspectors of Election. . . . . . . . . . . . . 7
Section 2.12 Nominations of Directors. . . . . . . . . . . . 8
Section 2.13 Proposals by Shareholders . . . . . . . . . . . 12
Section 2.14 Order of Business . . . . . . . . . . . . . . . 12
Article III BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . 13
Section 3.01 Board to Manage . . . . . . . . . . . . . . . . 13
Section 3.02 Number, Qualifications and Terms. . . . . . . . 13
Section 3.03 Annual Meeting. . . . . . . . . . . . . . . . . 13
Section 3.04 Regular Meetings. . . . . . . . . . . . . . . . 14
Section 3.05 Special Meetings. . . . . . . . . . . . . . . . 14
Section 3.06 Notice. . . . . . . . . . . . . . . . . . . . . 15
Section 3.07 Quorum. . . . . . . . . . . . . . . . . . . . . 15
Section 3.08 Manner of Acting. . . . . . . . . . . . . . . . 16
Section 3.09 Presumption of Assent . . . . . . . . . . . . . 16
Section 3.10 Absent Directors. . . . . . . . . . . . . . . . 16
Section 3.11 Action Without a Meeting. . . . . . . . . . . . 17
Section 3.12 Resignation . . . . . . . . . . . . . . . . . . 17
Section 3.13 Removal . . . . . . . . . . . . . . . . . . . . 18
Section 3.14 Vacancies . . . . . . . . . . . . . . . . . . . 18
Section 3.15 Compensation. . . . . . . . . . . . . . . . . . 18
Article IV COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.01 Generally . . . . . . . . . . . . . . . . . . . 19
Section 4.02 Membership. . . . . . . . . . . . . . . . . . . 19
Section 4.03 Quorum. . . . . . . . . . . . . . . . . . . . . 19
Section 4.04 Procedure . . . . . . . . . . . . . . . . . . . 19
Section 4.05 Minutes . . . . . . . . . . . . . . . . . . . . 20
Article V OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.01 Number. . . . . . . . . . . . . . . . . . . . . 20
i
<PAGE>
Page
----
Section 5.02 Election and Term of Office . . . . . . . . . . 20
Section 5.03 Resignation . . . . . . . . . . . . . . . . . . 21
Section 5.04 Removal . . . . . . . . . . . . . . . . . . . . 21
Section 5.05 Vacancy . . . . . . . . . . . . . . . . . . . . 21
Section 5.06 Chairman of the Board . . . . . . . . . . . . . 21
Section 5.07 Vice Chairman of the Board. . . . . . . . . . . 21
Section 5.08 Chief Executive Officer . . . . . . . . . . . . 21
Section 5.09 President . . . . . . . . . . . . . . . . . . . 22
Section 5.10 Chief Operating Officer . . . . . . . . . . . . 22
Section 5.11 Vice President. . . . . . . . . . . . . . . . . 22
Section 5.12 Secretary . . . . . . . . . . . . . . . . . . . 23
Section 5.13 Chief Financial Officer . . . . . . . . . . . . 23
Section 5.14 Treasurer . . . . . . . . . . . . . . . . . . . 24
Section 5.15 Assistant Secretaries and
Assistant Treasurers. . . . . . . . . . . . . . 24
Section 5.16 Contracts, etc. . . . . . . . . . . . . . . . . 25
Section 5.17 Compensation. . . . . . . . . . . . . . . . . . 25
Article VI INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . 25
Article VII CERTIFICATES FOR SHARES AND THEIR TRANSFER . . . . . . . . 26
Section 7.01 Certificates for Shares . . . . . . . . . . . . 26
Section 7.02 Transfer of Shares. . . . . . . . . . . . . . . 27
Article VIII DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . 27
Article IX FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . . . 28
Article X SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Article XI AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . . 28
Article XII GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . 28
ii
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BYLAWS
OF
NORSTAN, INC.
ARTICLE I
OFFICES
The principal office of the corporation shall be located in Minnesota.
The corporation may have such other offices, either within or without
Minnesota, as the Board of Directors may designate or as the business of the
corporation may require from time to time.
The registered office of the corporation required by chapter 302A,
Minnesota Statutes, to be maintained in Minnesota may be, but need not be,
identical with the principal office in Minnesota, and the address of the
registered office may be changed from time to time by the Board of Directors.
ARTICLE II
SHAREHOLDERS
Section 2.01. REGULAR MEETINGS. The Board of Directors may cause
regular meetings of the shareholders to be held on an annual basis for the
purpose of electing directors and for the transaction of such other business
as may come before the meeting. Such regular meetings shall be held on the
date and at the time and place fixed by the Board of Directors.
Section 2.02. SPECIAL MEETINGS. Special meetings of the shareholders
may be called for any purpose or purposes at any time, by the chairman of the
Board of Directors, a vice chairman of the Board of Directors, the chief
executive officer, the
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president, the chief financial officer, two or more directors or a
shareholder or shareholders holding ten percent or more of the voting shares.
Special meetings shall be held on the date and at the time and place
fixed by the chairman of the Board of Directors or the Board of Directors,
except that a special meeting called by or at the demand of a shareholder or
shareholders pursuant to section 2.03 of these bylaws shall be held in the
county where the principal executive office is located.
The business transacted at a special meeting shall be limited to the
purposes stated in the notice of the meeting.
Section 2.03. DEMAND BY SHAREHOLDERS. If a regular meeting of
shareholders has not been held during the immediately preceding 15 months, a
shareholder or shareholders holding three percent or more of all voting
shares may demand a regular meeting of shareholders. A shareholder or
shareholders holding ten percent or more of the voting shares may demand a
special meeting of shareholders. The demand for a regular or a special
meeting shall be given in writing to the chairman of the Board of Directors,
the chief executive officer or the chief financial officer of the
corporation. Within 30 days after receipt of the demand by one of those
officers, the Board of Directors shall cause a meeting of shareholders to be
called and held on notice no later than 90 days after receipt of the demand,
all at the expense of the corporation. If the Board of Directors fails to
cause a meeting to be called and held as required by this section, the
shareholder or shareholders making the demand may
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call the meeting by giving notice as required by section 2.04 of these bylaws,
all at the expense of the corporation.
Section 2.04. NOTICE. Notice of all meetings of shareholders shall be
given to every holder of voting shares, except where the meeting is an
adjourned meeting and the date, time and place of the meeting were announced
at the time of adjournment. The notice shall be given at least five days
before the date of the meeting, and not more than 60 days before the date of
the meeting. The notice shall contain the date, time and place of the
meeting, and any other information required by this Article II. In the case
of a special meeting, the notice shall contain a statement of the purposes of
the meeting. The notice may also contain any other information deemed
necessary or desirable by the Board of Directors or by any other person or
persons calling the meeting.
A shareholder may waive notice of a meeting of shareholders. A waiver of
notice by a shareholder entitled to notice shall be effective whether given
before, at or after the meeting, and whether given in writing, orally or by
attendance. Attendance by a shareholder at a meeting shall be a waiver of
notice of that meeting, except where the shareholder objects at the beginning
of the meeting to the transaction of business because the meeting is not
lawfully called or convened, or objects before a vote on an item of business
because the item may not lawfully be considered at that meeting and does not
participate in the consideration of the item at that meeting.
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Section 2.05. QUORUM. The holders of a majority of the voting power of
the shares entitled to vote at a meeting present in person or by proxy at the
meeting shall constitute a quorum for the transaction of business. If a
quorum is present when a duly called or held meeting is convened, the
shareholders present may continue to transact business until adjournment,
even though the withdrawal of a number of shareholders originally present
leaves less than the proportion or number otherwise required for a quorum.
Section 2.06. VOTING RIGHTS. The Board of Directors may fix a date not
more than 60 days before the date of a meeting of shareholders as the date
for the determination of the holders of voting shares entitled to notice of
and to vote at the meeting. When a date is so fixed, only shareholders on
that date are entitled to notice of and permitted to vote at that meeting of
shareholders. If no record date is fixed for the determination of
shareholders entitled to notice of or to vote at a meeting of shareholders,
the date on which notice of the meeting is first mailed shall be the record
date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof.
Section 2.07. SHARE REGISTER. The office or agent having charge of the
share register of the corporation shall maintain a share register, not more
than one year old, containing a complete list of the shareholders with the
address of and the
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number, class and issuance dates of shares held by each. The share register
shall be kept on file at the principal executive office of the corporation,
or at another place or places within the United States determined by the
Board of Directors, and shall be subject to inspection by any shareholder at
any time during usual business hours.
A resolution approved by the affirmative vote of a majority of the
directors present may establish a procedure whereby a shareholder may certify
in writing to the corporation that all or a portion of the shares registered
in the name of the shareholder are held for the account of one or more
beneficial owners. Upon receipt by the corporation of the writing, the
persons specified as beneficial owners, rather than the actual shareholder,
shall be deemed the shareholders for the purposes specified in the writing.
A shareholder shall have one vote for each voting share held. Shares
owned by two or more shareholders may be voted by any one of them unless the
corporation receives written notice from any one of them denying the
authority of that person to vote those shares. Except as provided herein, a
holder of voting shares may vote any portion of the shares in any way the
shareholder chooses. If a shareholder votes without designating the
proportion or number of shares voted in a particular way, the shareholder
shall be deemed to have voted all of the shares in that way.
Section 2.08. VOTING OF SHARES BY ORGANIZATIONS AND LEGAL
REPRESENTATIVES. Shares of the corporation registered in
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the name of another domestic or foreign corporation may be voted by the
president or another legal representative of that corporation. Except as
provided herein, shares of the corporation registered in the name of a
subsidiary shall not be entitled to vote on any matter. Shares of the
corporation in the name of or under the control of the corporation or a
subsidiary in a fiduciary capacity shall not be entitled to vote on any
matter, except to the extent that the settlor or beneficial owner possesses
and exercises a right to vote or gives the corporation binding instructions
on how to vote the shares.
Shares under the control of a person in a capacity as a personal
representative, administrator, executor, guardian, conservator or
attorney-in-fact may be voted by the person, either in person or by proxy,
without registration of those shares in the name of the person. Shares
registered in the name of a trustee of a trust or in the name of a custodian
may be voted by the person, either in person or by proxy, but a trustee of a
trust or a custodian shall not vote shares held by the person unless they are
registered in the name of the person.
Shares registered in the name of a trustee in bankruptcy or a receiver
may be voted by the trustee or receiver either in person or by proxy. Shares
under the control of a trustee in bankruptcy or a receiver may be voted by
the trustee or receiver without registering the shares in the name of the
trustee or receiver, if authority to do so is contained in an appropriate
order of the court by which the trustee or receiver was appointed.
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Shares registered in the name of any organization not described herein
may be voted either in person or by proxy by the legal representative of that
organization.
A shareholder whose shares are pledged may vote those shares until the
shares are registered in the name of the pledgee.
Section 2.09. PROXIES. A shareholder may cast or authorize the casting
of a vote by filing a written appointment of a proxy with an officer of the
corporation at or before the meeting at which the appointment is to be
effective. An appointment of a proxy for shares held jointly by two or more
shareholders shall be valid if signed by any one of them, unless the
corporation receives from any one of those shareholders written notice either
denying the authority of that person to appoint a proxy or appointing a
different proxy. The appointment of a proxy shall be valid for eleven months
unless a longer period is expressly provided in the appointment.
Section 2.10. ACTION WITHOUT A MEETING. An action required or
permitted to be taken at a meeting of the shareholders may be taken without a
meeting by written action signed by all of the shareholders entitled to vote
on that action. The written action shall be effective when it has been signed
by all of those shareholders, unless a different effective time is provided
in the written action.
Section 2.11. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the Chairman of the Board shall appoint two or more inspectors
of election, who need not be
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shareholders, as to the matters to be submitted to a vote at any such
meeting, or any adjournment thereof. The inspectors of election when so
appointed shall take charge of all proxies and ballots and shall determine
the number of shares outstanding, the voting power of each, the shares
represented at the meeting, and the existence of a quorum. They shall
determine all questions relating to the qualifications of voters, the
authenticity, validity, and effect of proxies, and the acceptance or
rejection of votes, challenges, and questions arising in any way in
connection with the right to vote and the counting and tabulation of such
votes. They shall determine the number of votes cast for any office or for or
against any proposal, and shall determine and report the results to the
meeting. The inspectors shall take an oath that they will perform their duties
impartially, in good faith, and to the best of their ability and as
expeditiously as is practical. If, for any reason, an inspector previously
appointed shall fail to attend or refuse to be unable to serve, the vacancy
shall be filled by the Chairman of the Board in advance of convening the
meeting, or at the meeting by the person acting as Chairman. Each report of
the inspectors shall be in writing and signed by the inspectors. The report
of a majority shall be the report of the inspectors.
Section 2.12. NOMINATIONS OF DIRECTORS.
(a) Nominations of candidates for election as directors at any annual
meeting or any special meeting of shareholders may be made (i) by, or at the
direction of, the Board of Directors or (ii) by any shareholder of record
entitled
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to vote at such meeting. Only persons nominated in accordance with procedures
set forth in this Section 2.12 shall be eligible for election as directors at
any meeting of shareholders.
(b) Nominations, other than those made by, or at the direction of, the
Board of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the corporation as set forth in this Section 2.12. To be timely,
a shareholder's notice shall be delivered to, or mailed and received at, the
principal executive offices of the corporation not less than sixty (60) days
nor more than ninety (90) days prior to the date of the scheduled meeting,
regardless of postponements, deferrals, or adjournments of that meeting to a
later date; PROVIDED, HOWEVER, that if less than seventy (70) days' notice or
prior public disclosure of the date of the scheduled meeting is given or
made, notice by the shareholder to be timely must be so delivered or received
not later than the close of business on the tenth (10) day following the
earlier of the day on which such notice of the date of the scheduled meeting
was mailed or the day on which such public disclosure was made.
(c) Such shareholder's notice shall set forth (i) as to each person
whom the shareholder proposes to nominate for election as a director (A) the
name, age, business address and residence address of such person, (B) the
principal occupation or employment of such person, (C) the class and number
of shares of the corporation's equity securities which are beneficially owned
(as such term is defined in Rule 13d-3 or 13d-5 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"))
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by such person on the date of such shareholder notice and (D) any other
information relating to such person that would be required to be disclosed
pursuant to Schedule 13D under the Exchange Act in connection with the
acquisition of shares, and pursuant to Regulation 14A under the Exchange Act,
in connection with the solicitation of proxies with respect to nominees for
election as directors; and (ii) as to the shareholder giving the notice (A)
the name and address, as they appear on the corporation's books, of such
shareholder and any other shareholder who is a record or beneficial owner of
any equity securities of the corporation and who is known by such shareholder
to be supporting such nominee(s) and (B) the class and number of shares of
the corporation's equity securities which are beneficially owned, as defined
above, and owned of record by such shareholder on the date of such
shareholder notice and the number of shares of the corporation's equity
securities beneficially owned and owned of record by any person known by such
shareholder to be supporting such nominee(s) on the date of such shareholder
notice. At the request of the Board of Directors, any person nominated by, or
at the direction of, the Board of Directors for election as a director
at any annual or special meeting shall furnish to the Secretary of the
corporation that information required to be set forth in a shareholder's
notice of nomination which pertains to the nominee.
(d) No person shall be elected as a director of the corporation unless
nominated in accordance with the procedures set forth in this Section 2.12.
Ballots bearing the names of all the persons who have been nominated for
election as directors at
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any annual or special meeting in accordance with the procedures set forth in
this Section 2.12 shall be provided for use at the meeting.
(e) The Chairman of the Board may reject any nomination by a
shareholder not timely made in accordance with the requirements of this
Section 2.12. If the Chairman of the Board determines that the information
provided in a shareholder's notice does not satisfy the informational
requirements of this Section 2.12 in any material respect, the Secretary of
the corporation shall promptly notify such shareholder of the deficiency in
the notice. The shareholder shall have an opportunity to cure the deficiency
by providing additional information to the Secretary within such period of
time, not to exceed ten (10) days from the date such deficiency notice is
given to the shareholder, as the Chairman of the Board shall reasonably
determine. If the deficiency is not cured within such period, or if the
Chairman of the Board determines that the additional information provided by
the shareholder, together with the information previously provided, does not
satisfy the requirements of this Section 2.12 in any material respect, then
the Chairman of the Board may reject such shareholders' nomination. The
Secretary of the corporation shall notify a shareholder in writing whether
such person's nomination has been made in accordance with the time and
information requirements of this Section 2.12. Notwithstanding the procedure
set forth in this Section 2.12, if the Chairman of the Board does not make a
determination as to the validity of any nominations by a
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shareholder, the chairman of the annual or special meeting of shareholders
shall determine and declare at the meeting whether a nomination was made in
accordance with the terms of this Section 2.12. If the chairman of such
meeting determines that a nomination was not made in accordance with the
terms of this Section 2.12, he or she shall so declare at the meeting and the
defective nomination shall be disregarded.
Section 2.13. PROPOSALS BY SHAREHOLDERS.
(a) At any annual meeting or any special meeting of shareholders, only
such business shall be conducted, and only such proposals shall be acted upon
as shall have been brought before the meeting (i) by, or at the direction of,
the Board of Directors, or (ii) by any shareholder of the Company who
complies with the requirements of Rule 14a-8 under the Securities Exchange
Act of 1934, as amended.
(b) This provision shall not prevent the consideration and approval or
disapproval at any meeting of reports of officers, directors and committees
of the Board of Directors, but, in connection with such reports, no new
business shall be acted upon at such meeting unless stated, filed and
received as herein provided.
Section 2.14. ORDER OF BUSINESS. All meetings of shareholders shall be
conducted in accordance with such rules as are prescribed by the chairmen of
the meeting. The order of business at all meetings of the shareholders shall
be as determined by the chairman of the meeting.
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ARTICLE III
BOARD OF DIRECTORS
Section 3.01. BOARD TO MANAGE. The business and affairs of the
corporation shall be managed by or under the direction of the Board of
Directors, subject to the rights of the shareholders of the corporation as
provided in these Bylaws or the Articles of Incorporation or pursuant to
chapter 302A, Minnesota Statutes.
Section 3.02. NUMBER, QUALIFICATIONS AND TERMS. The number of
directors of the corporation shall not be less than three nor greater than
fifteen and shall be set from time to time by a resolution adopted by the
affirmative vote of two-thirds of the directors. The Board of Directors may,
at any time, increase the number of directors up to a maximum of fifteen or
decrease the number of directors except that any such decrease shall not
result in the removal of a director except a director named by the Board of
Directors to fill a vacancy. Directors shall be natural persons. Each director
shall hold office until his or her successor is elected and has qualified, or
until his or her earlier death, resignation, removal or disqualification.
Directors need not be residents of Minnesota or shareholders of the
corporation.
Section 3.03. ANNUAL MEETING. The Board of Directors shall meet for
the purpose of organization, the election of officers and the transaction of
other business, as soon as practicable after each annual meeting of
shareholders, on the same day and at the same place where such annual meeting
shall be
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held. Notice of such meeting need not be given. In the event such annual
meeting is not so held, the annual meeting of the Board of Directors may be
held at such other time or place (within or without the State of Minnesota)
as shall be specified in a notice thereof given as hereinafter provided in
Section 3.06 of these Bylaws.
Section 3.04. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such time and place as the Board of Directors may
fix. If any day fixed for a regular meeting shall be a legal holiday at the
place where the meeting is to be held, then the meeting which would otherwise
be held on that day shall be held at the same time and place on the next
succeeding business day. Notice of regular meetings of the Board of Directors
need not be given except as otherwise required by statute or these Bylaws.
Section 3.05. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called from time to time by or at the request of the chairman
of the Board of Directors, a vice chairman of the Board of Directors, the
chief executive officer, the president or any director. The person calling a
special meeting of the Board of Directors may fix the date, time and place of
the meeting. If the place fixed for the meeting is outside of Minnesota, the
Board of Directors may change the place of the meeting to a location within
Minnesota.
A conference among directors by any means of communication through which
the directors may simultaneously hear each other during the conference shall
constitute a meeting of the
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Board of Directors, if the same notice is given of the conference as would be
required by Section 3.06 of these Bylaws for a meeting, and if the number of
directors participating in the conference would be sufficient to constitute a
quorum at a meeting. Participation in a meeting by such means shall
constitute presence in person at the meeting.
Section 3.06. NOTICE. Notice of any special meeting shall be given at
least five days previously thereto by written notice mailed to each director
at his or her business address or at least 24 hours prior thereto delivered
personally or by telegram. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail so addressed, with postage
thereon prepaid. If notice be given by telegram, such notice shall be deemed
to be delivered when the telegram is delivered to the telegraph company. A
director may waive notice of a meeting of the Board of Directors. A waiver of
notice by a director entitled to notice shall be effective whether given
before, at or after the meeting, and whether given in writing, orally or by
attendance. Attendance by a director at a meeting shall be a waiver of
notice of that meeting, except where the director objects at the beginning
of the meeting to the transaction of business because the meeting is not
lawfully called or convened and does not participate thereafter in the
meeting.
Section 3.07. QUORUM. A majority of the directors currently holding
office present at a meeting shall constitute a quorum for the transaction of
business. In the absence of a
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quorum, a majority of the directors present may adjourn a meeting from time
to time until a quorum is present. If a quorum is present when a duly called
or held meeting is convened, the directors present may continue to transact
business until adjournment, even though the withdrawal of a number of
directors originally present leaves less than the number otherwise required
for a quorum.
Section 3.08. MANNER OF ACTING. Except as otherwise provided in
Minnesota Statutes, chapter 302A, the Board of Directors shall take action by
the affirmative vote of a majority of directors present at a duly held
meeting.
Section 3.09. PRESUMPTION OF ASSENT. A director who is present at a
meeting of the Board of Directors when an action is approved by the
affirmative vote of a majority of the directors present is presumed to have
assented to the action approved, unless the director objects at the beginning
of the meeting to the transaction of business because the meeting is not
lawfully called or convened and does not participate thereafter in the
meeting, or votes against the action at the meeting or is prohibited from
voting on the action due to a conflict of interest.
Section 3.10. ABSENT DIRECTORS. A director may give advance written
consent or opposition to a proposal to be acted on at a Board of Directors
meeting. If the director is not present at the meeting, consent or opposition
to a proposal shall not constitute presence for purposes of determining the
existence of a quorum, but consent or opposition shall be counted as a vote
in favor of or against the proposal and shall be entered in the
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minutes or other record of action at the meeting, if the proposal acted on at
the meeting is substantially the same or has substantially the same effect as
the proposal to which the director has consented or objected.
Section 3.11. ACTION WITHOUT A MEETING. An action required or
permitted to be taken at a meeting of the Board of Directors may be taken by
written action signed by all of the directors, and in the case of an action
which need not be approved by the shareholders, such action may be taken by
written action signed by the number of directors that would be required to
take such action at a meeting of the Board of Directors at which all
directors were present.
The written action shall be effective when signed by the required number
of directors, unless a different effective time is provided in the written
action.
When written action is permitted to be taken by less than all directors,
all directors shall be notified immediately of its text and effective date.
Failure to provide the notice shall not invalidate the written action. A
director who does not sign or consent to the written action shall have no
liability for the action or actions taken thereby.
Section 3.12. RESIGNATION. A director may resign at any time by giving
written notice to the corporation. The resignation shall be effective without
acceptance when the notice is given to the corporation, unless a later
effective time is specified in the notice.
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Section 3.13. REMOVAL. Any one or all of the directors may be removed
at any time, with or without cause, by the affirmative vote of the holders of
a majority of the common voting shares. A director may be removed at any
time, with or without cause, by the affirmative vote of a majority of the
remaining directors present if the director was named by the Board of
Directors to fill a vacancy, and the shareholders have not elected directors
in the interval between the time of appointment to fill the vacancy and the
time of removal.
Section 3.14. VACANCIES. Any vacancy occurring on the Board of
Directors may be filled by the affirmative vote of a majority of the
remaining directors, even though less than a quorum. Vacancies on the Board
of Directors resulting from newly created directorships may be filled by the
affirmative vote of a majority of the directors serving at the time of the
increase. A director elected to fill a vacancy shall hold office until a
qualified successor is elected by the shareholders at the next regular or
special meeting of the shareholders, or until his or her earlier death,
resignation, removal or disqualification.
Section 3.15. COMPENSATION. The Board of Directors may provide for the
payment to each director of a fixed annual or quarterly fee, a fixed fee for
attendance at each meeting of the Board or any committee thereof, and/or for
any other form or method of compensation as may be determined by the Board of
Directors. The Board of Directors may also provide for the payment of the
expenses of each director for attendance at each meeting of the Board or of
any committee thereof. No such
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payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
ARTICLE IV
COMMITTEES
Section 4.01. GENERALLY. A resolution approved by the affirmative vote
of a majority of the directors currently holding office may establish
committees having the authority of the Board of Directors in the management
of the business of the corporation to the extent provided in the resolution.
Committees shall be subject at all times to the direction and control of the
Board of Directors.
Section 4.02. MEMBERSHIP. A committee shall consist of one or more
natural persons, who need not be directors, appointed by affirmative vote of
a majority of the directors present.
Section 4.03. QUORUM. A majority of the members of the committee
present at a meeting shall constitute a quorum for the transaction of
business, unless a larger or smaller proportion or number is provided in a
resolution approved by the affirmative vote of a majority of the directors
present.
Section 4.04. PROCEDURE. The provisions of Sections 3.05, 3.06, 3.07,
3.08 and 3.11 of these Bylaws shall apply to committees and members of
committees to the same extent as those sections apply to the Board of
Directors and directors.
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Section 4.05. MINUTES. Minutes, if any, of committee meetings shall be
made available upon request to members of the committee and to any director.
ARTICLE V
OFFICERS
Section 5.01. NUMBER. The Board of Directors shall from time to time
elect a chief executive officer and a chief financial officer and may elect a
chairman or co-chairmen of the Board of Directors, one or more vice chairmen
of the Board of Directors, a president, a chief operating officer, one or
more vice presidents, a secretary, a treasurer, and such other officers and
assistant officers as it may deem necessary. Each officer shall be a natural
person. Any two or more offices may be held by the same person.
Section 5.02. ELECTION AND TERM OF OFFICE. The officers of the
corporation shall be elected by the Board of Directors. In the absence of an
election or appointment of officers by the Board of Directors, the person or
persons exercising the principal functions of the chief executive officer or
the chief financial officer shall be deemed to have been elected to those
offices. Each officer shall hold office until his or her successor is elected
and has qualified, or until his or her earlier death, resignation, removal or
disqualification. The election or appointment of a person as an officer or
agent shall not, of itself, create contract rights.
Section 5.03. RESIGNATION. An officer may resign at any time by giving
written notice to the corporation. The resig-
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nation shall be effective without acceptance when the notice is given to the
corporation, unless a later effective date is specified in the notice.
Section 5.04. REMOVAL. An officer may be removed at any time, with or
without cause, by a resolution approved by the affirmative vote of a majority
of the Board of Directors.
Section 5.05. VACANCY. A vacancy in any office because of death,
resignation, removal, disqualification or other cause may, or in the case of
a vacancy in the office of chief executive officer or chief financial officer
shall, be filled by the Board of Directors for the unexpired portion of the
term.
Section 5.06. CHAIRMAN OR CO-CHAIRMEN OF THE BOARD. A chairman or
co-chairmen of the Board of Directors may be elected by the Board of
Directors. The chairman shall, when present, preside at all meetings of the
Board of Directors and of the shareholders, and shall perform such duties as
shall be prescribed by the Board of Directors.
Section 5.07. VICE CHAIRMAN OF THE BOARD. One or more vice chairmen of
the Board of Directors may be elected by the Board of Directors, and shall
perform such duties as shall be prescribed by the Board of Directors.
Section 5.08. CHIEF EXECUTIVE OFFICER. The chief executive officer
shall:
(a) Have general active management of the business of the corporation;
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(b) In the absence of the chairman of the Board of Directors, preside
at all meetings of the Board of Directors and of the shareholders;
(c) See that all orders and resolutions of the Board of Directors are
carried into effect; and
(d) Perform other duties prescribed by the Board of Directors.
Section 5.09. PRESIDENT. In the absence of the chief executive officer
or in the event of his or her death, inability or refusal to act, the
president shall perform the duties of the chief executive officer, and when
so acting, shall have all the powers of and be subject to all the
restrictions upon the chief executive officer. The president may sign, with
the secretary or an assistant secretary, certificates for shares of the
corporation, and shall perform other duties as shall be prescribed by the
Board of Directors or by the chief executive officer.
Section 5.10. CHIEF OPERATING OFFICER. The chief operating officer
shall perform such duties as shall be prescribed by the Board of Directors or
by the chief executive officer.
Section 5.11. VICE PRESIDENT. In the absence of the president or in
the event of his or her death, inability or refusal to act, the vice
president (or in the event there be more than one vice president, the vice
presidents in the order designated at the time of their election) shall
perform the duties of the president, and when so acting, shall have all the
powers of
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<PAGE>
and be subject to all the restrictions upon the president. A vice president
shall perform other duties as shall be prescribed by the Board of Directors
or by the chief executive officer.
Section 5.12. SECRETARY. The secretary shall:
(a) Maintain records of and, whenever necessary, certify all
proceedings of the Board of Directors and the shareholders;
(b) See that all notices are duly given in accordance with the
provisions of these bylaws or as required by law;
(c) Be custodian of the corporate records and of the corporate seal, if
any;
(d) See that a share register of the corporation is maintained in
accordance with section 2.07 of these bylaws;
(e) Sign with the chief executive officer, or the president
certificates for shares of the corporation; and
(f) Perform other duties prescribed by the Board of Directors or by the
chief executive officer.
Section 5.13. CHIEF FINANCIAL OFFICER. The chief financial officer
shall:
(a) Keep accurate financial records for the corporation;
(b) Deposit all moneys, drafts and checks in the name of and to the
credit of the corporation in the banks and depositories designated by the
Board of Directors;
(c) Endorse for deposit all notes, checks and drafts received by the
corporation as ordered by the Board of Directors, making proper vouchers
therefor;
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<PAGE>
(d) Disburse corporate funds and issue checks and drafts in the name of
the corporation, as ordered by the Board of Directors;
(e) Render to the Board of Directors and the chief executive officer,
whenever requested, an account of all transactions by the chief financial
officer and of the financial condition of the corporation;
(f) Perform other duties prescribed by the Board of Directors or by the
chief executive officer; and
(g) If required by the Board of Directors, give a bond for the faithful
discharge of his or her duties in such sum and with such surety or sureties
as the Board of Directors shall determine.
Section 5.14. TREASURER. In the absence of the chief financial officer
or in the event of his or her death, inability or refusal to act, the
treasurer shall perform the duties of the chief financial officer, and when
so acting, shall have all the powers of and be subject to all the
restrictions upon the chief financial officer. The treasurer shall perform
other duties as shall be prescribed by the Board of Directors or by the chief
executive officer.
Section 5.15. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
assistant secretaries may sign with the chief executive officer or the
president certificates for shares of the corporation. The assistant
treasurers shall, if required by the Board of Directors, give bonds for the
faithful discharge of their duties in such sums and with such sureties as the
Board of
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<PAGE>
Directors shall determine. The assistant secretaries and assistant treasurers
shall perform such duties as shall be prescribed by the secretary or by the
chief financial officer or by the Board of Directors or by the chief
executive officer.
Section 5.16. CONTRACTS, ETC. The chairman of the Board of Directors,
any vice chairman of the Board of Directors, the chief executive officer, the
president, the chief operating officer, any vice president or the chief
financial officer may sign and deliver in the name of the corporation any
deeds, mortgages, bonds, contracts, certificates for shares or other
instruments pertaining to the business of the corporation, except in cases in
which the authority to sign and deliver is required by law to be exercised by
another person or is expressly delegated by the Articles of Incorporation or
these Bylaws or by the Board of Directors to some other officer or agent of
the corporation.
Section 5.17. COMPENSATION. The compensation of the officers shall be
fixed from time to time by the Board of Directors and no officer shall be
prevented from receiving such compensation by reason of the fact that he or
she is also a director of the corporation.
ARTICLE VI
INDEMNIFICATION
The corporation shall indemnify a person made or threatened to be made a
party to a proceeding by reason of the former or present official capacity of
the person with the
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<PAGE>
corporation in accordance with, and to the fullest extent permitted by, the
provisions of chapter 302A, Minnesota Statutes.
The corporation may purchase and maintain insurance at its expense to
protect itself or on behalf of a person in that person's official capacity
with the corporation or a subsidiary, against any liability asserted against
and incurred by the person in or arising from that capacity, whether or not
the corporation would be required by law to indemnify the person against the
liability.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 7.01. CERTIFICATES FOR SHARES. The shares of the corporation
shall be either certificated shares or uncertificated shares. Each holder of
certificated shares shall be entitled to a certificate of shares.
A certificate representing shares of the corporation shall contain on
its face the name of the corporation, a statement that the corporation is
incorporated under the laws of Minnesota, the name of the person to whom it
is issued, the number and class of shares, and the designation of the series,
if any, of shares represented by the certificate. A new share certificate may
be issued in place of one that is alleged to have been lost, stolen or
destroyed. All certificates surrendered to the corporation for transfer shall
be canceled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
canceled, except that in case of a certificate that is alleged to have been
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<PAGE>
lost, stolen or destroyed a new one may be issued therefor upon such terms
and indemnity to the corporation as the Board of Directors may prescribe.
Section 7.02. TRANSFER OF SHARES. Transfer of shares of the
corporation shall be made only on the share register of the corporation by
the record holder thereof or by his or her legal representative, who shall
furnish proper evidence of authority to transfer, or by his or her attorney
thereunto authorized by power of attorney duly executed and filed with the
secretary of the corporation, and on surrender for cancellation of the
certificate for such shares, or by evidence of transfer. The person in whose
name shares stand on the share register of the corporation shall be deemed by
the corporation to be the owner thereof for all purposes unless a different
beneficial owner shall have been designated as provided in section 2.07 of
these bylaws.
ARTICLE VIII
DISTRIBUTIONS
The Board of Directors may authorize, and the corporation may make, a
distribution only if the corporation will be able to pay its debts in the
ordinary course of business after making the distribution. For purposes of
this section, "distribution" means a direct or indirect transfer of money or
other property, other than shares of the corporation, with or without
consideration, or an incurrence of indebtedness by the corporation to or for
the benefit of its shareholders in respect of its shares. A distribution may
be in the form of a dividend
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<PAGE>
or a distribution in liquidation or as consideration for the purchase,
redemption or other acquisition of the corporation's shares, or otherwise.
ARTICLE IX
FISCAL YEAR
The fiscal year of the corporation shall commence on May 1 and end on
April 30 next succeeding.
ARTICLE X
SEAL
The Board of Directors may provide a corporate seal which shall be
circular in form and shall have inscribed thereon the state of incorporation
and the words "Corporate Seal."
ARTICLE XI
AMENDMENT
These Bylaws may be amended or repealed and new Bylaws may be adopted by
the Board of Directors, or by the shareholders, as provided in Chapter 302A,
Minnesota Statutes. No amendment shall be adopted that is inconsistent with
the provisions of the corporation's Articles of Incorporation.
ARTICLE XII
GOVERNING LAW
The corporation is subject to the provisions of Chapter 302A, Minnesota
Statutes. All references in these bylaws to Chapter 302A, Minnesota Statutes
shall mean and include such chapter as currently enacted or hereafter amended.
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<PAGE>
Exhibit 10(e)
NORSTAN, INC. 1986 LONG-TERM
INCENTIVE PLAN
As Amended
Amendment adopted August 8, 1995 to amend paragraph 11 to read as
follows:
11. CHANGE IN CONTROL. In case of a "Change in Control" (as such term is
hereinafter defined), each employee of the Company and its subsidiaries shall be
fully vested (as of the date of the Change in Control) in all shares of
restricted stock, performance awards, stock appreciation rights and stock
options granted or awarded under this Plan and any and all restrictions or
performance requirements on the issuance, exercise or sale of said grants,
awards, shares or rights under said restricted stock awards, stock performance
awards, stock appreciation rights and stock options shall be waived or removed
as of the date of the Change in Control. For purposes of this Plan, a Change in
Control shall be deemed to occur when and if:
e. Any Person (meaning any individual, firm, Corporation,
partnership, trust or other entity, and includes a "group" (as that term is used
in Sections 13(d) and 14(d) of the Act), but excludes Continuing Directors (as
defined below) and benefit plans sponsored by the Company):
(1) makes a tender or exchange offer for any shares of the
Company's outstanding voting securities at any point in time (the "Company
Stock") pursuant to which any shares of the Company's Stock are purchased; or
(2) together with its "affiliates" and "associates" (as those
terms are defined in Rule 12b-2 under the Securities Exchange Act of 1934 (the
"Act")) becomes the "beneficial owner" (within the meaning of Rule 13d-3 under
the Act) of at least 20% of Company's Stock; or
f. the stockholders of the Company approve a definitive agreement or
plan to merge or consolidate the Company with or into another unaffiliated
corporation, to sell or otherwise dispose of all or substantially all of its
assets, or to liquidate the Company; or
g. a majority of the members of the Board become individuals other
than Continuing Directors (as defined below).
<PAGE>
A "Continuing Director" means: (a) any member of the Board as of June
8, 1995, and (b) any other member of the Board, from time to time, who was (i)
nominated for election by the Board, or (ii) appointed by the Board to fill a
vacancy on the Board or to fill a newly-created directorship, in each case
excluding any individual nominated or appointed (y) at a Board meeting at which
the majority of directors present are not Continuing Directors or (z) by
unanimous written action of the Board unless a majority or the directors taking
such action are Continuing Directors.
Amendment adopted July 9, 1996 to amend paragraph 5(c) to read as
follows:
c. PAYMENT. Payment may be made in cash, or by such other form or forms
as determined by the Committee, including shares of Common Stock, withholding of
shares of Common Stock that would otherwise be issued, a cashless exercise
program of a broker or agent, or any combination thereof as determined by the
Committee, which has a fair market value which is not less than the option price
on the date of exercise.
<PAGE>
Exhibit 10(g)
NORSTAN, INC. 1995 LONG-TERM
INCENTIVE PLAN
As Amended
Amendment adopted July 9, 1996 adding the following paragraph (d) to
Section 8:
d. Notwithstanding the foregoing provisions of Section 8, the Committee
may impose such additional restrictions, limitations or requirements as it deems
appropriate on the vesting of any Award in the event of a Change in Control
before such Award shall be deemed to be fully vested. In the event that no such
additional restrictions, limitations or requirements on the vesting of any Award
in the event of a Change in Control are imposed in the Award Agreement, the
Change in Control provisions set forth in the preceding paragraphs of this
Section 8 shall govern such Award.
<PAGE>
EXHIBIT 11
NORSTAN, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(In Thousands, Except Per Share Amounts)
YEARS ENDED APRIL 30,
--------------------------------
1996 1995 1994
---------- ---------- ----------
PRIMARY EARNINGS PER SHARE -
Weighted average number of
issued shares outstanding 8,526 8,242 8,018
Effect of:
1986 Long-Term Incentive Plan 398 414 404
Restated Non-Employee Directors' Stock Plan 96 82 70
Employee Stock Purchase Plan 8 12 12
---------- ---------- ----------
Shares outstanding used to compute
primary earnings per share 9,028 8,750 8,504
---------- ---------- ----------
---------- ---------- ----------
Net income $ 8,489 $ 7,063 $ 5,612
---------- ---------- ----------
---------- ---------- ----------
Primary earnings per share $ .94 $ .81 $ .66
---------- ---------- ----------
---------- ---------- ----------
YEARS ENDED APRIL 30,
--------------------------------
1996 1995 1994
---------- ---------- ----------
FULLY DILUTED EARNINGS PER SHARE -
Weighted average number of shares used
for primary earnings per share 9,028 8,750 8,504
Effect of:
1986 Long-Term Incentive Plan 8 6 12
Restated Non-Employee Directors' Stock Plan 2 2 2
Employee Stock Purchase Plan - 2 6
---------- ---------- ----------
Shares outstanding used to compute
fully diluted earnings per share 9,038 8,760 8,524
---------- ---------- ----------
---------- ---------- ----------
Net income $ 8,489 $ 7,063 $ 5,612
---------- ---------- ----------
---------- ---------- ----------
Fully diluted earnings per share $ .94 $ .81 $ .66
---------- ---------- ----------
---------- ---------- ----------
45
<PAGE>
EXHIBIT 22
SUBSIDIARIES OF NORSTAN, INC.
Percentage of
State of Voting Securities
Name Incorporation Owned by the Company
- ---- ------------- --------------------
Norstan Communications, Inc. Minnesota 100%
Norstan Financial Services, Inc. Minnesota 100%
Norstan Canada Inc. Minnesota 100%
Norstan Network Services, Inc. Minnesota 100%
Norstan Network Services, Inc.
of New Hampshire New Hampshire 100%
Norstan Information Systems, Inc. Minnesota 100%
Summit Gear, Inc. Minnesota 100%
Connect Computer Company Minnesota 100%
46
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K into the Company's
previously filed Registration Statements on Form S-8 relating to the 1986 Long-
Term Incentive Plan of Norstan, Inc. (Registration Nos. 33-30323 and 33-72928),
the 1990 Employee Stock Purchase and Bonus Plan of Norstan, Inc. (Registration
Nos. 33-32310, 33-44470 and 33-72926), the 1995 Long-Term Incentive Plan of
Norstan, Inc. (Registration No. 33-62957), and the Restated Non-Employee
Directors' Stock Plan of Norstan, Inc. (Registration No. 33-62971).
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
July 25, 1996
47
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<PAGE>
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1996
<PERIOD-END> APR-30-1996
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0
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