SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended Commission File Number
December 31, 1996 0-8508
NORTHWEST TELEPRODUCTIONS, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Minnesota 41-0641789
(State or other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
4455 West 77th Street
Minneapolis, MN 55435
(Address of Principal (Zip Code)
Executive Offices)
Issuer's telephone number including Area Code: 612-835-4455
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 of Exchange Act during the past twelve months (or for such
shorter period that the issuer was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
1,356,425 shares of $.01 par value common stock were outstanding at February 1,
1997.
Transitional Small Business Disclosure Format (Check One):
Yes [ ] No [X]
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC
AND SUBSIDIARIES
INDEX
FORM 10-QSB
December 31, 1996
PART 1
Page No.
Consolidated Balance Sheets:
December 31, 1996 and March 31, 1996 3
Consolidated Statements of Operations:
Three Months Ended December 31, 1996 and 1995
Nine Months Ended December 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flow:
Nine Months Ended December 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Management Discussion and Analysis 7 & 8
Other Information 9 & 10
Exhibit Index 11
<PAGE>
PART 1
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1996 1996
(Unaudited) *
--------------------- ---------------------
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash $514,217 $19,188
Trade accounts receivable less doubtful accounts
reserve of $170,945 and $153,000 respectively 2,060,099 2,155,365
Prepaids 245,305 168,584
Inventory 197,216 214,105
Refundable income taxes 14,741 328,482
Deferred income taxes 216,000 216,000
Current portion of note receivable 0 99,831
--------------------- ---------------------
TOTAL CURRENT ASSETS 3,247,578 3,201,555
--------------------- ---------------------
PROPERTY, PLANT AND EQUIPMENT:
Land, buildings and improvements 3,657,946 3,645,043
Machinery and equipment 21,906,328 21,625,491
--------------------- ---------------------
25,564,274 25,270,534
Less accumulated depreciation 19,253,875 17,813,000
--------------------- ---------------------
6,310,399 7,457,534
INFOMERCIALS 176,432
PROPRIETARY PROGRAMMING 195,099 187,911
NOTE RECEIVABLE, less current portion 0 76,133
OTHER ASSETS 397,175 142,216
--------------------- ---------------------
768,706 406,260
--------------------- ---------------------
$10,326,683 $11,065,349
===================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Notes payable $1,187,199 $1,030,000
Accounts payable 635,276 $412,610
Commissions,salaries and withholding 304,615 455,320
Miscellaneous accounts payable and accrued expenses 161,790 185,408
Other liabilities 298,713 268,708
Payments due within one year on term obligations 3,083,950 3,844,659
--------------------- ---------------------
TOTAL CURRENT LIABILITIES 5,671,543 6,196,705
DEFERRED INCOME TAXES 306,360 556,000
LONG TERM DEBT AND CAPITAL LEASES, less current portion 605,354 107,751
OTHER LONG TERM LIABILITIES, less current portion 101,098 188,105
STOCKHOLDERS' EQUITY:
Common stock 13,564 13,564
Additional paid-in capital 577,123 577,123
Retained earnings 3,051,641 3,426,101
--------------------- ---------------------
3,642,328 4,016,788
--------------------- ---------------------
$10,326,683 $11,065,349
===================== =====================
</TABLE>
*The balance sheet at March 31, 1996 has been taken from the audited
financial statements at that date. See notes to condensed consolidated
financial statements.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31 DECEMBER 31
1996 1995 1996 1995
------------ ---------- ------------- ----------
<S> <C> <C> <C> <C>
NET SALES $3,040,479 $3,277,590 $9,090,741 $9,822,118
COSTS AND EXPENSES:
Costs of products and services sold 2,771,308 2,547,413 7,939,898 7,863,063
Selling, general and administrative 400,387 586,685 1,421,539 1,815,718
Litigation settlement 100,000 100,000
Interest 124,604 132,681 365,009 364,497
--------------------- ------------ --------------- ---------------
3,296,299 3,366,779 9,726,446 10,143,278
--------------------- ------------ --------------- ---------------
(255,820) (89,189) (635,705) (321,160)
OTHER INCOME 2,069 14,484 11,606 47,356
--------------------- ------------ --------------- ---------------
EARNINGS BEFORE TAXES ON INCOME (253,751) (74,705) (624,099) (273,804)
TAXES ON INCOME (INCOME TAX CREDIT) (101,501) (30,000) (249,640) (110,000)
===================== ============ =============== ===============
NET EARNINGS ($152,250) ($44,705) ($374,459) ($163,804)
===================== ============ =============== ===============
NET EARNINGS PER SHARE (1) ($0.11) ($0.03) ($0.28) ($0.12)
===================== ============ =============== ===============
</TABLE>
(1) Net earnings per share are based on the weighted average
number of common shares outstanding during the periods as
follows:
Three months: December 31, 1996 1,356,425
December 31, 1995 1,356,425
Nine months: December 31, 1996 1,356,425
December 31, 1995 1,439,926
See notes to condensed consolidated financial statements.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31
1996 1995
--------------- ---------------
<S> <C> <C>
CASH FLOW-OPERATING ACTIVITIES:
Net earnings ($374,460) ($119,099)
Adjustments:
Depreciation 1,440,875 1,073,559
Amortization of goodwill 0 27,948
(Increase) Decrease in trade receivables 95,266 (309,341)
Other - net (289,998) 102,152
-------------------- --------------------
Net cash provided by operating activities 871,683 775,219
CASH FLOW - INVESTING ACTIVITIES:
Property, plant and equipment additions (293,740) (941,150)
CASH FLOW - FINANCING ACTIVITIES:
Advances on line of credit 157,199 (210,000)
Payments on long term borrowing (909,226) (798,948)
Long term borrowing 519,113 1,450,000
Short-Term Loan 150,000
Repurchase common stock (399,950)
-------------------- --------------------
Net cash provided (used) by financing activities (82,914) 41,102
-------------------- --------------------
NET INCREASE (DECREASE) IN CASH $495,029 ($124,829)
==================== ====================
</TABLE>
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of December 31, 1996, the consolidated
statement of operations for the three month and nine month periods ended
December 31, 1996 and 1995, and the condensed consolidated statements of cash
flow for the nine month periods then ended have been prepared by the Company
without audit. In the opinion of management, all adjustments necessary to
present fairly the financial position, results of operations and changes in
financial position at December 31, 1996 and for all periods presented have been
made.
The Company received proceeds of $412,500 from the issuance of 10 1/2%
subordinated debt with warrants to purchase 165,000 shares of common stock at
$2.50 per share.
Certain information and footnotes normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. It is suggested that these condensed consolidated
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's March 31, 1996 annual report to
shareholders. The results of operations for the period ended December 31, 1996
are not necessarily indicative of the results for the full year.
During fiscal 1997 the Company began producing Infomercials. Infomercials are a
marketing tool used to sell products. The Company produces the Infomercial for a
client and in return receives a percent of the revenue associated with the sale
of the clients products. Costs and expenses relative to such programs are
capitalized to be amortized over their useful life based on the estimated
revenue from the direct sale of the products associated with the Infomercial.
Capitalized costs are reviewed quarterly. If it is determined that they are
impaired, based on current estimated future cash flows, then the capitalized
value is adjusted accordingly.
The Company has an employment agreement with its President through October 31,
1998. The agreement, which may be extended for successive one year terms,
provides for annual base salary plus increases determined by the Board of
Directors. The agreement also contains non-compete provisions and provisions
which require the continued payment, under certain circumstances, of the annual
base salary.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL REQUIREMENTS
Operating cash requirements for the first nine months of fiscal 1997 were met
from cash flow from operations and $157,200 of short term borrowing.
Additionally, the Company received proceeds of $412,500 from the issuance of 10
1/2% subordinated debt (with warrants to purchase common stock at $2.50 per
share) to certain directors of the Company in July and August.
In July the Company entered into a new debt agreement with its primary lender.
Although this agreement required full payment October 31, 1996 the Company is
currently in discussions to extend the terms of the agreement.
It is suggested that the Company's annual report to shareholders be read for
more detail as to the Company's overall financial position.
RESULTS OF OPERATIONS - NINE MONTHS ENDED DECEMBER 31, 1996 COMPARED WITH
CORRESPONDING PERIOD OF PRIOR YEAR.
SALES
Sales for the nine months ended December 31, 1996 of $9,090,741 compare with
sales of $9,822,118 for the corresponding period of the prior year, a 7.4%
decrease. A significant portion of the decrease results from a decrease in non
contract revenue attributable to general market conditions.
COST OF PRODUCTS AND SERVICES SOLD
.
Cost of products and services sold for the nine months ended December 31, 1996
equaled 87% of sales as compared to a cost of sales rate of 81% in the
corresponding period of the prior year. These unusually high rates reflect the
significant decline in sales in both years with only minimal reductions in fixed
production costs. The Company is exploring ways to reduce fixed overhead
expenses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the first nine months of fiscal
1997 totaled $1,421,539, a decrease of $394,179, or 21.7%, over the prior year's
first nine months. Decreased salary and related expenses, attributable mainly to
the resignation of the Company's Chief Executive Officer at the end of the
fiscal 1996, along with reduced rent expenses associated with the Chicago
operation account for most of the decrease.
INTEREST EXPENSE
Interest expense for the first nine months ended December 31, 1996 totaled
$365,009 compared with expense of $364,497 in the prior year's first nine
months, a less than 1% increase resulting from increased rates on variable rate
debt.
<PAGE>
INCOME TAX CREDIT
The 40% tax benefit rate for the first nine months of fiscal 1997 is consistent
with the 40% tax benefit rate for the nine months of fiscal 1996.
RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED WITH
CORRESPONDING PERIOD OF PRIOR YEAR.
SALES
Sales for the three months ended December 31, 1996 of $3,040,479 compare with
sales of $3,277,590 for the corresponding period of the prior year, a 7.2%
decrease. This is the result of a decrease in non contract revenue attributable
to general market conditions.
COST OF PRODUCTS AND SERVICES SOLD
.
Cost of products and services sold for the three months ended December 31, 1996
equaled 91% of sales as compared to a cost of sales rate of 77% in the
corresponding period of the prior year. The current quarter's unusually high
rate reflects a significant decline in sales volume with only minimal reductions
in fixed production costs. The Company is exploring ways to reduce fixed
overhead.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for three months ended December 31,
1996, totaled $400,387, a decrease of $186,298 over the prior year's
corresponding period. Decreased salary and related expenses, attributable mainly
to the resignation of the Company's Chief Executive Officer at the end of the
fiscal 1996, along with reduced rent expenses associated with the Chicago
operation account for most of the decrease.
INTEREST EXPENSE
Interest expense for the three months ended December 31, 1996 totaled $124,604
compared with expense of $131,681 in the prior year's corresponding period, a 5%
decrease resulting from a reduction in debt obligations.
INCOME TAX CREDIT
The 40% tax benefit rate for the first three months of fiscal 1997 is consistent
with the 40% tax benefit rate for the three months of fiscal 1996.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC.
AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
Exhibits.
See Exhibit Index on page following signatures.
Reports on Form 8-K
There were no reports on form 8-K filed for three months
ended December 31, 1996.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
Date: Northwest Teleproductions, Inc.
February 13, 1997
(Registrant)
By /s/ John McGrath
John McGrath
President
By /s/ Phillip A. Staden
Phillip A. Staden
Treasurer
<PAGE>
EXHIBIT INDEX
NORTHWEST TELEPRODUCTIONS, INC.
FORM 10-QSB FOR QUARTER ENDED DECEMBER 31, 1996
Exhibit Number Description
10.1 Employment Agreement dated November 2, 1996 between the
Registrant and John C. McGrath
10.2 Deferred Compensation Agreement dated November 2, 1996
between the Registrant and John C. McGrath
10.3 Incentive Stock Option Agreement dated Novemer 2, 1996
between the Registrant and John C. McGrath
27 Financial Data Schedule (filed in electronic format only)
EMPLOYMENT AGREEMENT
EFFECTIVE DATE: November 2, 1996
PARTIES: Northwest Teleproductions, Inc. ("Northwest")
4455 W. 77th Street
Edina, Minnesota 55435
John C. McGrath ("Executive")
5824 Iris Lane
Lisle, Illinois 60532
RECITALS:
A. The following recitals shall be considered a part of this Agreement and
explain the general nature and purposes of Northwest's business and the
Executive's rights and obligations under this Agreement. Any interpretation or
construction of this Agreement shall be considered in light of these recitals.
B. Northwest and its affiliates are engaged in the specialized and highly
competitive business of production of videotape and film television programs for
broadcast and cable, corporate communications, advertising and commercial
programs and creative production services such as sound, special effects,
animation, graphics resources, and post production services.
C. Northwest and its affiliates, through their research, creativity and
experience, have developed and acquired valuable Confidential Information (as
hereinafter defined), including valuable trade secrets.
D. Northwest has disclosed and will continue to disclose the valuable
Confidential Information to Executive during his employment, and Executive will
otherwise be exposed to, come in contact with, help create, and be required to
use such Confidential Information.
E. Executive desires to enter into this Agreement for employment with
Northwest in which he may contribute to and receive Confidential Information,
and acknowledges that Northwest will suffer irreparable harm if Executive, after
developing, obtaining or becoming familiar with any Confidential Information,
makes any unauthorized disclosure or communication of any Confidential
Information to any third party or uses any Confidential Information in
competition with Northwest while employed or after the termination of his
employment.
F. Executive recognizes, agrees and understands that execution of this
Agreement is an express condition of his employment by Northwest.
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<PAGE>
G. The parties desire to set forth their understanding and agreements with
respect to the terms of Executive's employment by Northwest.
THEREFORE, in consideration of the employment of Executive by Northwest and
compensation herein described or made available later to Executive by Northwest,
Executive and Northwest agree as follows:
AGREEMENTS:
ARTICLE 1.
DEFINITIONS
1.01 Confidential Information. For the purposes of this Agreement,
"Confidential Information" means any information relating to Northwest or its
business not generally known to the public or proprietary to Northwest and
includes, without limitation, trade secrets, inventions, and information
pertaining to research, development, methods, processes, techniques,
engineering, purchasing, marketing, selling, accounting, licensing, copyrights
and pending copyrights, business systems, business techniques, customer lists,
prospective or potential customer lists, price lists, business strategies and
plans. For example, and without limiting the foregoing, Confidential Information
may be contained in Northwest's marketing plans or proposals, customer lists,
prospective or potential customer list, the particular needs and requirements of
customers, the particular needs and requirements of prospective or potential
customers, and the identity of customers or prospective or potential customers.
Information relating to Northwest or its business shall be treated as
Confidential Information irrespective of its source and any information which is
identified as being "confidential" or "trade secret" shall be presumed to be
Confidential Information.
ARTICLE 2.
EMPLOYMENT, COMPENSATION AND BENEFITS
2.01 Term of Employment. Northwest hereby agrees to employ Executive as its
President and Chief Executive Officer for a term commencing as of November 2,
1996 and continuing to October 31, 1998 unless earlier terminated pursuant to
Article 5 hereof. Thereafter, the Agreement shall renew annually, for one year
periods, beginning November 1, 1998 unless either party gives sixty (60) days
written notice of the intent not to renew the Agreement or terminates pursuant
to Article 5 hereof.
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<PAGE>
2.02 Duties and Supervision. During the Term of Executive's employment by
Northwest, Executive agrees to devote his full-time best efforts to the business
and affairs of Northwest, and agrees to perform such services and duties as may,
from time to time, be assigned to him by the Board of Directors of Northwest.
Executive shall be responsible for, among other things, determining objectives
for the company, allocating and organizing resources for achieving such
objectives, formulating plans and policies, interpreting and applying such
policies, determining allocation of duties and authorities of subordinates, and
exercising control to see that objectives are achieved in accordance with basic
organizational policy. Executive shall be held fully accountable for the results
of the company. During the term of Executive's employment with Northwest,
Executive will not perform services for any other person, firm or corporation,
as an employee, agent, independent contractor, or in any other capacity, without
the express consent of the Board of Directors of Northwest. Executive agrees to
comply in every respect with the general standards and policies of Northwest in
effect from time to time, all of which Northwest reserves the right to change in
its sole discretion.
2.03 Compensation. Northwest shall pay to Executive, or provide for payment
or delivery of, the following compensation and consideration for services
rendered by Executive:
2.03.1 Base Salary. During the term of the Agreement, Northwest shall
pay Executive an annual base salary of Two Hundred Thousand
Dollars ($200,000), subject to withholding and other appropriate
deductions, payable in accordance with Northwest's normal payroll
practices in effect from time to time.
2.03.2 Bonus. For the fiscal year beginning 4/01/97 and each fiscal
year thereafter, a Management Incentive Bonus will be earned by
Executive for such fiscal year, provided Executive is a Northwest
employee on the last day of such fiscal year. The Management
Incentive Bonus shall be based upon 5% of the pre-tax earnings
for the fiscal year in excess of 8% of shareholder equity at the
beginning of the fiscal year, up to a maximum of 50% of
Executive's base salary with a minimum of Twenty Thousand Dollars
($20,000.00).
Executive shall earn a bonus for the current fiscal year
beginning 4/01/96 based on the formula described in this
paragraph 2.03.2, but pro rated based on the number of full
months worked by Executive during such fiscal year.
The Management Incentive Bonus earned by Executive for any fiscal
year shall be determined, and earned upon completion of
Northwest's annual audit by its independent certified public
accountants. As such, Bonuses earned by Executive shall be
credited to a deferred compensation account and shall be subject
to the terms and conditions contained in the Deferred
Compensation Agreement attached hereto as Exhibit A.
The full bonus amount shall be credited to an account for
Executive's behalf under the Agreement set forth in Exhibit A.
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<PAGE>
2.03.3 Discretionary Allowance. The Company will not provide a car or
allowance for such purchase, lease, insurance, maintenance, gas
or other automobile related expenses.
A monthly payment of $1,250.00, less required withholding and
appropriate deductions, will be paid to Employee without
designated use.
2.03.4 Long Term Incentive. Upon the date Executive becomes an
employee of Northwest, Executive shall be granted an incentive
stock option for 50,000 shares pursuant to the 1993 Northwest
Teleproductions, Inc. Stock Option Plan ("Plan"), vesting to the
extent of one-third of the total number of shares each year
beginning on the first anniversary of the date of grant, and
exercisable for a five-year term. The per share exercise price
shall equal the fair market value (as defined in the Plan) of
Northwest's common stock on the date of grant. Executive and
Northwest shall execute a separate Incentive Stock Agreement
setting forth all other terms and conditions of the incentive
stock option.
2.03.5 Subordinated Notes. Executive shall have the right, subject to
his execution of the attached Subscription Agreement, to
purchase, within 60 days of commencement of Executive's
employment, up to $150,000 principal amount of 10-1/2%
Subordinated Notes authorized and offered by Northwest's Board of
Directors to a limited number of investors and to receive, as
part of such Note purchase, a Warrant to purchase, at an exercise
price of $2.50 per share, the number of shares of Common Stock of
Northwest as is equal to the principal amount of the Note so
purchased by Executive divided by the Warrant exercised priced.
2.03.6 Relocation. Upon initial relocation to the Twin Cities for
employment, Northwest will pay all direct, out of pocket moving
expenses of Executive related to moving Executive's household
goods, provided Executive first obtains two competing bids for
such moving expenses.
Reasonable expenses for a family visit to the Twin Cities for the
purpose of "house hunting" shall be paid by Northwest.
Necessary travel and living expenses of the Executive shall be
paid by Northwest for up to two months while Executive
establishes a Twin Cities residence.
2.04 Other Executive Benefits. Northwest agrees to provide the following
benefits to Executive.
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<PAGE>
2.04.1 Vacation. Executive shall be entitled to four (4) weeks of paid
vacation during each twelve (12) month period of employment.
2.04.2 Expenses. Northwest shall reimburse Executive for all
documented reasonable and necessary out-of-pocket expenses
incurred in connection with performance of his duties and
obligations to Northwest hereunder.
2.04.3 Other Benefits. Northwest shall provide to Executive
participation in any other employee benefit programs made
available to employees generally from time to time as established
in the exclusive discretion of Northwest's Board of Directors or
authorized delegates of the Board of Directors. Such benefits may
include, but are not limited to health insurance, dental
insurance, life insurance, paid holidays and participation in
qualified retirements plans. Northwest retains the sole
discretion to amend, modify, or discontinue any and all benefit
plans.
ARTICLE 3.
PROTECTION OF TRADE SECRETS AND
CONFIDENTIAL BUSINESS DATA
3.01 Scope. The definition of "Confidential Information" as set forth in
Article 1, Paragraph 1.01, is not intended to be exhaustive. From time to time
during the term of his employment, Executive may gain access to or help create
other information concerning Northwest's business of commercial value to
Northwest, which information shall be included in the definition under Article
1, Paragraph 1.01, above, even though not specifically listed in that Paragraph.
The definition of Confidential Information and the provisions of this Article 3
apply to any form in which the subject information, trade secrets, or data may
appear, whether written, oral, or any other form of recording or storage.
3.02 Confidentiality. Executive promises and agrees that the Confidential
Information, including trade secrets and/or data, will be held in the strictest
confidence and will never, without prior written consent of Northwest, be
(directly or indirectly) disclosed, assigned, transferred, conveyed,
communicated to or used for his own or another's benefit or (directly or
indirectly) disclosed, assigned, transferred, conveyed, communicated to, or used
by him, a competitor of Northwest or any other person or entity, including but
not limited to, the press, other professionals, corporations, partnerships or
the public, at any time during his employment with Northwest or at any time
after his termination of employment with Northwest, regardless of the reason for
Executive's termination, whether voluntary or involuntary. Executive further
promises and agrees that he will develop and enforce such policies and
procedures as are necessary to protect Northwest's Confidential Information and
will faithfully implement and abide by any and all policies and procedures which
may be established by Northwest to insure the confidentiality of the
Confidential Information, including but not limited to, rules, polices,
practices or procedures:
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<PAGE>
3.02.1 (a) Limiting access to authorized personnel;
3.02.2 (b) Limiting copying of any writing, data or recording;
3.02.3 (c) Requiring storage of property, documents or data in secure
facilities provided by Northwest and limiting safe or vault lock
combinations or keys to authorized personnel; and/or
3.02.4 (d) Check out and return of other procedures promulgated by
Northwest from time to time.
3.03 Return of Information. Upon termination of the employer-employee
relationship, whether voluntary or involuntary, Executive will return to
Northwest any and all written or otherwise recorded form of all Confidential
Information (and any copies thereof) in his possession, custody or control, as
defined in Article 1, Paragraph 1.01, including, but not limited to notebooks,
software, memoranda, specifications, customer lists, prospective or potential
customer lists, or price lists, and will take with him, upon leaving Northwest's
place of business or employment with Northwest, no such information, property,
or reproduction thereof in any form which may have been entrusted to or obtained
by him during the course of his employment or to which he had access,
possession, custody or control. Upon termination of employment, whether
voluntary or involuntary, Executive will deliver to Northwest all Confidential
Information in recorded form in his property, devices, parts, mock-ups and
finished or unfinished product, machinery, or equipment in his possession,
custody or control.
Executive shall also deliver, upon his termination, whether voluntary or
involuntary, all records, software, drawings, blueprints, notes, notebooks,
memoranda, specifications and documents or data in any form, which contain
Confidential Information.
3.04 Copyrights. Executive acknowledges that any computer software, program
or other work of authorship prepared by Executive for Northwest's benefit or at
Executive's request shall be considered a "work made for hire" under U.S.
copyright laws. To the extent that any such work of authorship cannot be
considered a "work made for hire," Executive agrees to assign and hereby does
assign all right, title and interest in and to such work to Northwest.
3.05 Invention. "Invention" means any invention, discovery, improvement, or
idea, whether patentable or copyrightable or not, and whether or not shown or
described in writing or reduced to practice.
3.06 Disclosure and Assignment. Executive shall promptly and fully disclose
in writing to Northwest, and will hold in trust for Northwest's sole right and
benefit, any Invention that Executive, during the period of employment and for
one year thereafter, makes, conceives, or reduces to practice or cause to be
made, conceived, or reduced to practice, either alone or in conjunction with
others, that:
a. Relates to any subject matter pertaining to Executive's
employment;
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<PAGE>
b. Relates to or is directly or indirectly connected with
Northwest's business, products, processes, or Northwest's
Confidential Information; or
c. Involves the use of any of Northwest's time, material, or
facility.
Executive will keep accurate, complete, and timely records for such Inventions,
which records shall be Northwest's property and shall not be removed from
Northwest's premises. Executive hereby assigns to Northwest all of his right,
title, and interest in and to all such Inventions and, upon Northwest's request,
Executive shall execute, verify, and deliver to Northwest such documents,
including without limitation, assignments and patent applications, and shall
perform such other acts, including, without limitation, appearing as a witness
in any action brought in connection with this Agreement that are necessary to
enable Northwest to obtain the sole right, title, and benefit to all such
Inventions.
3.07 Notice of Excluded Inventions. Executive further agrees, and is hereby
notified, that the above agreement to assign Inventions to Northwest does not
apply to any Invention for which no equipment, supplies, facility, or Northwest
Confidential Information was used, which was developed entirely on Executive's
own time, and
a. Which does not relate:
(i) Directly to Northwest's business; or
(ii) To Northwest's actual or demonstrably anticipated research
or development; or
b. Which does not result from any work performed by Executive for
Northwest.
ARTICLE 4.
COVENANT NOT TO COMPETE
4.01 Actions Prohibited. At no time during the term of this Agreement or
for a period of one (1) year immediately following the termination of
Executives's employment (whether voluntary or involuntary), will Executive:
4.01.1 Acting on behalf of himself, another business or competitor,
call upon or communicate with or attempt to call upon or
communicate with any customer or potential or prospective
customer of Northwest with whom Executive (or other employees of
Northwest under his supervision), during the twelve (12) months
prior to his termination, had contact, for the purpose (either
directly or indirectly) of soliciting, selling or buying any
services, merchandise or products similar to or competitive with
the services, merchandise or products sold or purchased by
Northwest; and
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<PAGE>
4.01.2 In any way, directly or indirectly, render any services, advice
or counsel, as an owner, employee, partner, representative,
agent, independent contractor, consultant, or in any other
capacity, for any party or on his own behalf, if the rendering of
such services, advice or counsel involves, requires or is likely
to result in the use or disclosure by Executive of any
Confidential Information; and
4.01.3 Acting on behalf of himself, another business or entity, or a
competitor, solicit or hire any person employed by Northwest at
any time during the twelve (12) months prior to his termination.
ARTICLE 5.
TERMINATION OF EMPLOYMENT
5.01 Notwithstanding anything to the contrary elsewhere in this Agreement,
Executive's employment shall terminate, whether during the initial term or any
subsequent renewal term:
5.01.1 Upon mutual written agreement of the parties.
5.01.2 Upon the death of Executive.
5.01.3 Upon the physical or mental disability of Executive to such an
extent that he is generally unable to, with or without reasonable
accommodation, perform the essential functions of his job and
usual and customary duties and such inability continues for a
period of two (2) months or more.
5.01.4 Upon written notice to Executive by Northwest in the event of
Executive's final nonappealable conviction of or entry of a plea
of guilty or nolo contendere to any felony or the final
nonappealable entry of any civil judgment against him in
connection with any allegation against him of (a) fraud or
misrepresentation relating to Northwest or its business, or (b)
embezzlement.
5.01.5 Upon written notice to Executive by Northwest in the event of
Executive's willful and repeated misconduct in not following the
reasonable directions of the Board of Directors or willful
failure to perform his duties if Executive does not correct such
misconduct or failure within a period of ten (10) days after
written notice thereof from Northwest specifying the nature of
such misconduct or failure and demanding that it be cured.
5.01.6 Upon Executive's making a material false statement to the Board
of Directors or in matters relating to Northwest's business, as
determined by a majority vote of the Board of Directors,
excluding Executive.
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<PAGE>
5.01.7 Upon 60 days written notice by Executive without cause.
5.01.8 Upon 60 days written notice by Northwest without cause.
5.02 Decision and Waiver. Any determination by Northwest to terminate
Executive's employment with Northwest as outlined above must be made by a
majority decision of the Board of Directors. Nonexercise by Northwest of its
right to terminate Executive's employment pursuant to the subsections above
shall not constitute a waiver by Northwest of its right to terminate Executive's
employment pursuant to such subsections.
5.03 Continuing Payments. If Executive's employment is terminated pursuant
to paragraph 5.01.1, 5.01.2, 5.01.3, 5.01.4, 5.01.5, 5.01.6 or 5.01.7, then upon
such termination or nonrenewal Northwest shall have no further obligation or
liability to Executive whatsoever, except for accrued benefits and any
compensation earned through Executive's last day of employment. If Executive's
employment is terminated pursuant to paragraph 5.01.8 or nonrenewed by Northwest
pursuant to paragraph 2.01, then Northwest's only liability or obligation to
Executive shall be: (1) for accrued benefits and (2) the greater of (i)
Executive's base salary as defined in paragraph 2.03.1, at regular intervals,
for the unexpired initial term of employment or, if the Agreement has been
renewed, for the unexpired portion of such one-year renewal term, or (ii) the
one-year period described in paragraph 4.01 above, so long as Executive abides
by the restrictions contained in 4.01 during such one-year period.
5.04 Change of Control. If Executive's employment is terminated pursuant to
paragraph 5.01.7 or 5.01.8 within one year of a "change of control" as that term
is defined in the Deferred Compensation Agreement attached hereto as Exhibit A,
then this paragraph 5.04, instead of paragraph 5.03, shall govern which
payments, if any, are due Executive. If Executive's employment is terminated
pursuant to paragraph 5.01.7 or 5.01.8 within one year of a "change of control,"
then Northwest's only liability or obligation to Executive shall be: (1) for
accrued benefits and (2) Executive's base salary as defined in paragraph 2.03.1,
at regular intervals, for the greater of (i) the unexpired initial term of
employment or, if the Agreement has been renewed, for the unexpired portion of
such one-year renewal term, or (ii) the one-year period described in paragraph
4.01 above, so long as Executive abides by the restrictions contained in 4.01
during such one-year period; provided, however, that Executive shall not be
entitled to receive any payments under this paragraph 5.04 or any other
agreement with Northwest which would, with respect to Executive, constitute a
"parachute payment" for purposes of Internal Revenue Code Section 280G. In the
event any payments under this paragraph 5.04 or any other agreement with
Northwest would, with respect to Executive, constitute a "parachute payment,"
Executive shall have the right to designate those payments to Executive, whether
under this Agreement and/or any other agreement with Northwest, which should be
eliminated so that Executive will not receive a "parachute payment."
5.05 Mitigation. If Executive is entitled to continuing payments pursuant
to paragraph 5.03 or 5.04, Executive shall not be obligated to seek other
employment to receive such payments and such payments shall not be reduced by
any income from other sources received by Executive.
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<PAGE>
ARTICLE 6.
MISCELLANEOUS
6.01 Remedies. The parties acknowledge that Northwest will suffer
irreparable harm if the Executive breaches Article 3 and/or 4 of this Agreement,
either during or after its term. Accordingly, Northwest shall be entitled, in
addition to any other right and remedy it may have, at law or equity, to
injunctive relief, without the posting of a bond or other security, enjoining or
restraining Executive from any violation of this Agreement, and Executive hereby
consents to Northwest's right to the issuance of such injunction. If Northwest
institutes and prevails in any such action against Executive to enforce Article
3 and/or 4 of this Agreement, alone or in conjunction with any third party or
parties to enforce any terms or provisions of this Agreement, Executive shall
pay Northwest its reasonable attorneys' fees incurred in instituting and
maintaining such action and all costs and expenses incurred in connection
therewith.
6.02 Severability. The parties agree that, in the event that a court of
competent jurisdiction determines that any of the provisions of this Agreement
are unreasonable, it may limit such provisions to the extent it deems
reasonable, without declaring the provision or this Agreement invalid in its
entirety. This provision shall not be construed as an admission by Northwest,
but is only included to provide Northwest with the maximum possible protection
for its business, Confidential Information, trade secrets and data.
6.03 Modification. This Agreement supersedes any and all oral and written
negotiations, agreements and understandings, if any, between the parties
relating to the subject matter of this Agreement. The parties agree that this
Agreement sets forth the entire understanding and agreement between the parties
and is the complete and exclusive statement of the terms and conditions thereof,
that there are no other written or oral agreements in regard to the subject
matter of this Agreement. This Agreement shall not be changed or modified except
by a written document signed by the Parties hereto.
6.04 Successors. This Agreement is personal to Executive and Executive may
not assign or transfer any part of the rights or duties or any compensation due
to him hereunder, to any other person. This Agreement may be assigned by
Northwest.
6.05 Waiver. The waiver by Northwest of the breach or nonperformance of any
provisions of this Agreement by Executive shall not operate or be construed as a
waiver of any future breach or nonperformance under any provisions of this
Agreement.
6.06 Survival. Executive and Northwest agree that the provisions of this
Agreement that expressly extend beyond the termination of Executive's
employment, particularly Articles 3 and 4, shall continue in full force and
effect after termination of this Agreement or Executive's employment.
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<PAGE>
6.07 Governing Law. This Agreement shall be governed according to the laws
of the State of Minnesota.
IN WITNESS WHEREOF, the parties have executed this Agreement in the manner
appropriate to each on the date indicated.
NORTHWEST TELEPRODUCTIONS, INC.
By /s/ John G. Lindell
Its Chairman
Subscribed and sworn to before me
this 4th day of November, 1996. Dated: November 4, 1996
/s/ Melissa K. Cole
Notary Public
/s/ John C. McGrath
JOHN C. MCGRATH
Subscribed and sworn to before me
this 2nd day of November, 1996. Dated: November 2, 1996
/s/ Rhonda M. Gentz
Notary Public
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EXHIBIT 10.2
DEFERRED COMPENSATION AGREEMENT
EFFECTIVE DATE: November 2, 1996
PARTIES: Northwest Teleproductions, Inc. ("Northwest")
4455 W. 77th Street
Edina, Minnesota 55435
John C. McGrath ("Executive")
5824 Iris Lane
Lisle, Illinois 60532
RECITALS:
A. Northwest is a Minnesota corporation.
B. Executive will render valuable services to Northwest as its President
and Chief Executive Officer and Northwest desires to retain Executive in its
service.
C. Executive desires to defer a portion of his compensation.
D. This agreement constitutes an unfunded deferred compensation arrangement
for a select management or highly compensated employee within the meaning of
Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income
Security Act of 1974 and 29 C.F.R. ss. 2520.104.23(b)(2).
AGREEMENTS:
1. Deferred Compensation Account. Northwest shall maintain on its books a
deferred compensation account for Executive. Upon the completion of Northwest's
annual audit by its independent certified public accountants for the fiscal year
beginning April 1, 1996, and upon completion of such audit for each fiscal year
thereafter, Northwest shall credit to such account the amount of any Management
Incentive Bonus earned by Executive for such fiscal year, calculated pursuant to
the formula set forth in the Employment Agreement executed by Executive and
Northwest, dated November 2, 1996, as amended from time to time.
2. Ownership Rights in Account. All amounts credited to Executive's account
and any assets purchased with amounts so credited to Executive's account, if
any, shall be the sole property of Northwest, and Executive shall have no
ownership rights of any kind with respect thereto or any interest therein. The
amounts credited to Executive's account under this Agreement shall at all times
be entirely unfunded and no action shall be taken at any time which would have
the effect of segregating assets of Northwest for payment of any benefit
hereunder. Neither Executive nor any other person shall have any interest in any
particular assets of Northwest by reason of the right to receive a benefit
hereunder, and Executive or any such other person shall have only the rights of
a general unsecured creditor of Northwest with respect to any rights hereunder.
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<PAGE>
3. Valuation of Account. The value of Executive's account at any time shall
be the amounts of any Management Incentive Bonuses credited to such account,
adjusted for interest at a rate equal to the prime interest rate, as reported by
First Bank, N.A. on the first business day following January 1 of each year,
plus two (2) percentage points, compounded quarterly, until all amounts credited
to such account have been distributed as provided in Section 5 below.
4. Vesting. Amounts credited to Executive's account under this Agreement
shall vest according to the following schedule:
Vesting Date Percentage of Account
November 2, 1997 20%
November 2, 1998 40%
November 2, 1999 60%
November 2, 2000 80%
November 2, 2001 100%
Notwithstanding the foregoing schedule, Executive's account shall be fully
vested upon Executive's death or disability or upon a "change of control" as
defined in Section 8 below.
5. Distributions. Upon Executive's termination of employment for any
reason, the vested portion of the amounts credited to Executive's account shall
be paid to Executive in five (5) annual installments, in cash, with the first
payment due and payable sixty (60) days following such termination of
employment, and with each subsequent payment due and payable on the anniversary
date thereof. Each annual installment payment under this Section 5 shall include
interest on the unpaid balance of Executive's account, compounded quarterly, at
the rate specified in Section 3 above. In the event of Executive's death, such
amounts shall be paid to Executive's beneficiary as determined pursuant to
Section 6. Northwest may, in its sole discretion, pay all or any portion of the
amounts credited to Executive's account in a lump sum to Executive or, in the
event of Executive's death, to his beneficiary, within sixty (60) days following
Executive's termination of employment or at any time thereafter.
6. Beneficiary. Executive shall designate a beneficiary to whom payments
will be made in the event of Executive's death and shall have the right to
revoke or change his beneficiary designation at any time without the consent of
the beneficiary. To be effective, such designation, alteration or revocation
shall be in writing, in a form approved by Northwest, and shall be filed with
and accepted by Northwest. The most recently dated beneficiary designation form
which is validly filed with Northwest by Executive shall revoke all previously
dated beneficiary designation forms filed by Executive. If Executive fails to
designate a beneficiary or if no beneficiary designated by Executive survives
him, any amounts remaining shall be paid to Executive's estate.
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<PAGE>
7. Disability. For purposes of this Agreement, "disability" means that due
to illness or injury, Executive is unable to perform the material duties of
Executive's occupation with Northwest. Whether Executive is disabled for
purposes of this Agreement shall be determined by the Board of Directors of
Northwest after consulting with a physician selected by the Board. For purposes
of this Agreement, "injury" means accidental bodily injury resulting directly
from such accident and independently of all other causes, and "illness" means
lack of normal functioning of the body's organs, reduction in the body's ability
to function normally due to a temporary ailment, or mental and nervous disorder.
8. Change of Control. For purposes of this Agreement, "change of control"
shall mean:
(a) A merger or consolidation to which Northwest is a party if the
individuals and entities who were shareholders of Northwest
immediately prior to the effective date of such merger or
consolidation have, immediately following the effective date of
such merger or consolidation, beneficial ownership (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934) of less
than fifty percent (50%) of the total combined voting power of
all classes of securities issued by the surviving corporation for
the election of directors of the surviving corporation;
(b) The direct or indirect beneficial ownership (as defined in Rule
13d-3 under the Securities Exchange Act of 1934) of securities of
Northwest representing, in the aggregate, fifty-one percent (51%)
or more of the total combined voting power of all classes of
Northwest's then issued and outstanding securities by any person
or entity or by a group of associated persons or entities acting
in concert;
(c) The sale of substantially all of the properties and assets of
Northwest to any person or entity which is not a wholly-owned
subsidiary of Northwest;
(d) The shareholders of Northwest approve any plan or proposal for
the liquidation of Northwest; or
(e) A change in the composition of the Board at any time during any
consecutive twenty-four (24) month period such that the
"Continuing Directors" cease for any reason to constitute at
least a sixty percent (60%) majority of the Board. For purposes
of this event, "Continuing Directors" means those members of the
Board who either:
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<PAGE>
(1) were directors at the beginning of such consecutive twenty-
four (24) month period; or
(2) were elected by, or on the nomination or recommendation of,
at least a two-thirds (2/3) majority of the then-existing
Board of Directors.
9. Nontransferability. Neither Executive nor any beneficiary designated by
Executive to receive his benefit hereunder shall have any right to assign,
encumber or otherwise anticipate the right to receive payment hereunder, and the
benefits under this Agreement shall not be subject to garnishment, attachment or
any other legal process by the creditors of Executive or any beneficiary
hereunder.
10. Payment in Case of Incompetence. If, in the judgment of the Board of
Directors of Northwest, based upon facts and information readily available to
it, any person entitled to receive a payment hereunder is incapable for any
reason of personally receiving and giving a valid receipt of the payment of a
benefit, the Board may cause such payment or any part thereof to be made to the
duly appointed guardian or to the legal representative of such person or to any
person or institution contributing to or providing for the care and maintenance
of such person, provided that no prior claim for said payment has been made by a
duly appointed guardian or legal representative of such person. The Board shall
not be required to see to the proper application of any such payment made in
accordance with the provisions hereof and any such payment shall constitute a
payment for the account of such person and a full discharge of any liability or
obligation of Northwest.
11. Liability of Northwest. Northwest shall have no liability in connection
with this Agreement except to pay out any vested amounts credited to Executive's
account in accordance with the terms of this Agreement. Northwest has not made
any statements to Executive with respect to the tax implications of any
transactions contemplated by this Agreement and Executive has been advised by
his counsel with respect to tax effect of this Agreement.
12. Withholding. To permit Northwest to comply with all applicable federal
or state income tax laws or regulations, Northwest may take such action as it
deems appropriate to ensure that all applicable federal or state payroll, income
or other taxes are withheld from any amounts payable by Northwest to Executive
pursuant to this Agreement. If Northwest is unable to withhold such federal and
state taxes, for whatever reason, Executive hereby agrees to make the necessary
arrangements for the payment of such taxes, which may include paying to
Northwest an amount equal to the amount Northwest would otherwise be required to
withhold under federal or state law, or presenting to Northwest reasonably
satisfactory evidence that Executive has in fact paid the required federal and
state income taxes occasioned by the distribution of the deferred compensation
benefits to Executive.
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<PAGE>
13. Right to Terminate Employment. Neither this Agreement nor any action
taken hereunder shall be construed as giving Executive any right to be retained
in the employment of Northwest, interfere with the right of Northwest to
discharge Executive at any time, give Northwest the right to require Executive
to remain in its employ, or interfere with Executive's right to terminate
employment at any time. Either Northwest or Executive may terminate the
employment relationship as provided in Article 5 of the Employment Agreement
executed by Northwest and Executive and dated October 29, 1996, as amended from
time to time, and the rights and obligations of Northwest and Executive upon
such termination of employment shall be governed by the terms of that Employment
Agreement.
14. Notices. Any notice to be delivered under this agreement shall be given
in writing and delivered, personally or by first-class mail, postage prepaid, to
Northwest, Executive or any other person at his or its last known address.
15. Headings. Headings or titles at the beginning of sections and
paragraphs are for convenience of reference, shall not be considered a part of
this agreement, and shall not influence its construction.
16. Amendment or Termination. This Agreement may be amended or terminated
only by written agreement signed by Northwest and Executive.
17. Binding Effect. This Agreement shall be binding upon the parties hereto
and their heirs, executors and assigns. Northwest agrees that it will not be a
party to any merger, consolidation or reorganization unless and until its
obligations under this Agreement shall be expressly assumed by its successor or
successors.
18. Compliance with Applicable Laws. The parties intend that the Agreement
comply with the applicable provisions of the Internal Revenue Code of 1986, as
amended from time to time, and the regulations thereunder, with the applicable
provisions of ERISA, as amended, and the regulations thereunder, and with any
provisions of the Securities Exchange Act of 1934, as amended, that may be
applicable. If, at a later date, these provisions are construed in such a way as
to make the Agreement null and void, the Agreement shall be given effect in a
manner that shall best carry out the parties' purposes and intentions.
19. Governing Law. The provisions of this agreement shall be construed and
enforced according to the laws of the State of Minnesota, to the extent that
such laws are not preempted by any applicable federal law.
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<PAGE>
IN WITNESS WHEREOF, Northwest and Executive have executed this agreement in
the manner appropriate to each on the date indicated.
NORTHWEST TELEPRODUCTIONS, INC.
By /s/ John G. Lindell
Its Chairman
Subscribed and sworn to before me
this 4th day of November, 1996. Dated: November 4, 1996
/s/ Melissa K. Cole
Notary Public
/s/ John C. McGrath
JOHN C. MCGRATH
Subscribed and sworn to before me
this 2nd day of November, 1996. Dated: November 2, 1996
/s/ Rhonda M. Gentz
Notary Public
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Exhibit 10.3
INCENTIVE STOCK OPTION AGREEMENT
NORTHWEST TELEPRODUCTIONS, INC.
1993 STOCK OPTION PLAN
THIS AGREEMENT, made effective as of this 2nd day of November , 1996, by
and between Northwest Teleproductions, Inc., a Minnesota corporation (the
"Company"), and John G. McGrath ("Optionee").
W I T N E S S E T H:
WHEREAS, the Optionee on the date hereof is a key employee or officer of
the Company or one of its Subsidiaries; and
WHEREAS, the Company wishes to grant an incentive stock option to Optionee
to purchase shares of the Company's Common Stock pursuant to the Company's 1993
Stock Option Plan (the "Plan"); and
WHEREAS, the Company's Board of Directors has authorized the grant of an
incentive stock option to Optionee and has determined that, as of the effective
date of this Agreement, the fair market value of the Company's Common Stock is
$2.50 per share;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to Optionee on the date set
forth above (the "Date of Grant"), the right and option (the "Option") to
purchase all or portions of an aggregate of Fifty Thousand (50,000) shares of
Common Stock at a per share price of $2.50 on the terms and conditions set forth
herein, and subject to adjustment pursuant to Section 12 of the Plan. This
Option is intended to be an incentive stock option within the meaning of Section
422, or any successor provision, of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations thereunder.
2. Duration and Exercisability.
a. The term during which this Option may be exercised shall terminate on
November 2, 2001, unless terminated earlier under the provisions of Paragraphs
4(f) or 4(g) below. This Option shall not be exercisable during the first year
after the Date of Grant. Thereafter, on each succeeding anniversary of the Date
of Grant (the "vesting date"), this Option shall become exercisable to the
extent of one-third of the aggregate number of shares specified in Paragraph 1,
until the earlier of: (i) the time the Option shall have become exercisable to
the extent of one hundred percent (100%) of the total number of shares granted,
and (ii) the termination of the Option as provided herein. Once the Option
becomes exercisable to the extent of one hundred percent (100%) of the aggregate
number of shares specified in Paragraph 1, the Optionee may continue to exercise
this Option under the terms and conditions of this Agreement until the
termination of the Option as provided herein. If Optionee does not purchase upon
an exercise of this Option the full number of shares which Optionee is then
entitled to purchase, Optionee may purchase upon any subsequent exercise prior
to this Option's termination such previously unpurchased shares in addition to
those Optionee is otherwise entitled to purchase.
<PAGE>
b. During the lifetime of Optionee, the accrued Option shall be exercisable
only by the Optionee or by the Optionee's guardian or other legal
representative, and shall not be assignable or transferable by the Optionee, in
whole or in part, other than by will or by the laws of descent and distribution.
3. Manner of Exercise.
a. The Option may be exercised only by Optionee (or other proper party in
the event of death or incapacity), subject to the conditions of the Plan and
subject to such other administrative rules as the Board of Directors may deem
advisable, by delivering within the Option Period written notice of exercise to
the Company at its principal office. The notice shall state the number of shares
as to which the Option is being exercised and shall be accompanied by payment in
full of the Option price for all shares designated in the notice. The exercise
of the Option shall be deemed effective upon receipt of such notice by the
Company and upon payment that complies with the terms of the Plan and this
Agreement. The Option may be exercised with respect to any number or all of the
shares as to which it can then be exercised and, if partially exercised, may be
so exercised as to the unexercised shares any number of times during the Option
period as provided herein.
b. Payment of the Option price by Optionee shall be in the form of cash,
certified check or previously acquired shares of Common Stock of the Company, or
any combination thereof; provided, however, that the Board or any Committee
appointed by the Board to administer the Plan may, in its sole discretion, limit
the form of payment to cash or certified check and may exercise its discretion
any time prior to the termination of this Option or upon any exercise of this
Option by the Optionee. Any stock so tendered as part of such payment shall be
valued at its fair market value as provided in the Plan. As soon as practicable
after the effective exercise of all or any part of the Option, the Optionee
shall be recorded on the stock transfer books of the Company as the owner of the
shares purchased, and the Company shall deliver to the Optionee one or more duly
issued stock certificates evidencing such ownership. All requisite original
issue or transfer documentary stamp taxes shall be paid by the Company. For
purposes of this Agreement, "previously acquired shares of Common Stock" shall
include shares of Common Stock that are already owned by the Optionee at the
time of exercise.
4. Miscellaneous.
a. Employment; Rights as Shareholder. This Agreement shall not confer on
Optionee any right with respect to continuance of employment by the Company or
any of its Subsidiaries, nor will it interfere in any way with the right of the
Company to terminate such employment. Optionee shall have no rights as a
shareholder with respect to shares subject to this Option until such shares have
been issued to Optionee upon exercise of this Option. No adjustment shall be
made for dividends (ordinary or extraordinary, whether in cash, securities or
other property), distributions or other rights for which the record date is
prior to the date such shares are issued, except as provided in Section 12 of
the Plan.
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<PAGE>
b. Securities Law Compliance. The exercise of all or any parts of this
Option shall only be effective at such time as counsel to the Company shall have
determined that the issuance and delivery of Common Stock pursuant to such
exercise will not violate any state or federal securities or other laws.
Optionee may be required by the Company, as a condition of the effectiveness of
any exercise of this Option, to agree in writing that all Common Stock to be
acquired pursuant to such exercise shall be held, until such time that such
Common Stock is registered and freely tradable under applicable state and
federal securities laws, for Optionee's own account without a view to any
further distribution thereof, that the certificates for such shares shall bear
an appropriate legend to that effect and that such shares will be not
transferred or disposed of except in compliance with applicable state and
federal securities laws. Notwithstanding the foregoing, it is understood that
the Company intends to file a Form S-8 Registration Statement with the
Securities and Exchange Commission covering the granting of options and the
issuance of stock upon exercise of options under the Company's "1993 Stock
Option Plan." This registration will become effective on the date it is filed.
Once filed, the Company presently intends to maintain such registration, subject
always to the discretion of the Company's Board of Directors.
c. Mergers, Recapitalizations, Stock Splits, Etc. Pursuant and subject to
Section 12 of the Plan, certain changes in the number or character of the Common
Stock of the Company (through sale, merger, consolidation, exchange,
reorganization, divestiture (including a spin-off), liquidation,
recapitalization, stock split, stock dividend or otherwise) shall result in an
adjustment, reduction or enlargement, as appropriate, in Optionee's rights with
respect to any unexercised portion of the Option (i.e., Optionee shall have such
"anti-dilution" rights under the Option with respect to such events, but shall
not have "preemptive" rights).
d. Shares Reserved. The Company shall at all times during the Option Period
reserve and keep available such number of shares as will be sufficient to
satisfy the requirements of this Agreement.
e. Withholding Taxes on Disqualifying Disposition. In the event of a
disqualifying disposition of the shares acquired through the exercise of this
Option, the Optionee hereby agrees to inform the Company of such disposition.
Upon notice of a disqualifying disposition, the Company may take such action as
it deems appropriate to insure that, if necessary to provide the Company with
the opportunity to claim the benefit of any income tax deduction which may be
available to it upon such disqualifying disposition and to comply with all
applicable federal or state income tax laws or regulations, all applicable
federal and state payroll, income or other taxes are withheld from any amounts
payable by the Company to Optionee. If the Company is unable to withhold such
federal and state taxes, for whatever reason, the Optionee hereby agrees to pay
to the Company an amount equal to the amount the Company would otherwise be
required to withhold under federal or state law. The Optionee may, subject to
the approval and discretion of the Board of Directors or such other
administrative rules it may deem advisable, elect to have all or a portion of
such tax withholding obligations satisfied by delivering shares of the Company's
Common Stock having a fair market value equal to such obligations.
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<PAGE>
f. Termination of Employment (other than Disability or Death). If Optionee
ceases to be an employee of the Company or any Subsidiary for any reason
(including, without limitation, termination of employment as a result of the
reorganization, sale or liquidation by the Company or the Subsidiary which
employs Optionee where Optionee does not thereafter continue as an employee of
the Company or another Subsidiary), other than because of disability or death,
this Option shall completely terminate on the earlier of (i) the close of
business on the three-month anniversary date of such termination of employment,
and (ii) the expiration date of this Option stated in Paragraph 2 above. Except
as otherwise provided in Section 17 of the Plan, in such period following such
termination of employment, this Option shall be exercisable only to the extent
the Option was exercisable on the vesting date immediately preceding the date of
the Optionee's termination of employment but had not previously been exercised.
Subject to the provisions of Paragraph 4(h) below, to the extent this Option was
not exercisable upon such termination of employment, or if the Optionee does not
exercise the Option within the time specified in this Paragraph 4(f), all rights
of the Optionee under this Option shall be forfeited.
g. Disability. If Optionee ceases to be an employee of the Company or any
Subsidiary due to disability (as such term is defined in Section 22(e)(3), or
any successor provision, of the Code), this Option shall completely terminate on
the earlier of (i) the close of business on the twelve-month anniversary date of
such termination of employment, and (ii) the expiration date under this Option
stated in Paragraph 2 above. In such period following such termination of
employment, this Option shall be exercisable only to the extent the Option was
exercisable on the vesting date immediately preceding the date of the Optionee's
termination of employment, but had not previously been exercised. Subject to the
provisions of Paragraph 4(h) below, to the extent this Option was not
exercisable upon such termination of employment, or if the Optionee does not
exercise the Option within the time specified in this Paragraph 4(g), all rights
of the Optionee under this Option shall be forfeited.
h. Death. If Optionee dies (i) while in the employ of the Company or any
Subsidiary; (ii) within the three-month period after the termination of
employment in the case of Paragraph 4(f) above; or (iii) within the twelve-month
period after the termination of employment in the case of Paragraph 4(g) above,
this Option shall become fully exercisable, if not already fully exercisable by
such time, and shall terminate on the expiration date of this Option stated in
Paragraph 2 above. In such period following Optionee's death, this Option may be
exercised by the person or persons to whom Optionee's rights under this Option
shall have passed by Optionee's will or by the laws of descent and distribution
to the extent the Option had not previously been exercised.
i. 1993 Stock Option Plan. The Option evidenced by this Agreement is
granted pursuant to the Plan, a copy of which Plan has been made available to
Optionee and is hereby incorporated into this Agreement. This Agreement is
subject to and in all respects limited and conditioned as provided in the Plan.
The Plan governs this Option and, in the event of any questions as to the
construction of this Agreement or in the event of a conflict between the Plan
and this Agreement, the Plan shall govern, except as the Plan otherwise
provides.
- 4 -
<PAGE>
j. Scope of Agreement. This Agreement shall bind and inure to the benefit
of the Company and its successors and assigns and the Optionee and any successor
or successors of the Optionee permitted by Paragraph 2(b) above.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
NORTHWEST TELEPRODUCTIONS, INC.
By: /s/ John G. Lindell
Its: Chairman
/s/ John C. McGrath
Optionee
- 5 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE REGISTRANT'S FORM 10-QSB FOR THE
QUARTER ENDED 12-31-96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 514,217
<SECURITIES> 0
<RECEIVABLES> 2,231,044
<ALLOWANCES> 170,945
<INVENTORY> 197,216
<CURRENT-ASSETS> 3,247,578
<PP&E> 25,564,274
<DEPRECIATION> 19,253,875
<TOTAL-ASSETS> 10,326,683
<CURRENT-LIABILITIES> 5,671,543
<BONDS> 605,354
0
0
<COMMON> 13,564
<OTHER-SE> 577,123
<TOTAL-LIABILITY-AND-EQUITY> 10,326,683
<SALES> 9,090,741
<TOTAL-REVENUES> 9,090,741
<CGS> 7,939,898
<TOTAL-COSTS> 9,361,437
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 31,700
<INTEREST-EXPENSE> 365,009
<INCOME-PRETAX> (624,099)
<INCOME-TAX> (249,640)
<INCOME-CONTINUING> (374,459)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (374,459)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
</TABLE>
