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
September 30, 1998
Commission File Number
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)
4000 West 76th Street
Minneapolis, MN 55435
Address of Principal (Zip Code)
Executive Offices)
Issuer's telephone number including Area Code: 612-835-6450
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 November 13,
1998.
Transitional Small Business Disclosure Format (Check One):
Yes No X
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC.
AND SUBSIDIARIES
INDEX
FORM 10-QSB
September 30, 1998
PART I Financial Information
Item 1. Financial Statements Page No.
Condensed Consolidated Balance Sheets:
September 30, 1998 and March 31, 1998 3
Condensed Consolidated Statements of Operations:
Three and Six Months Ended September 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flow:
Six Months Ended September 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2.Management Discussion and Analysis 7 & 8
PART II Other Information
Item 4. Submission of Matters to a vote of security holders 9 & 10
Item 6. Exhibits and Reports on Form 8K 11
<PAGE>
PART I
NORTHWEST TELEPRODUCTIONS,INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30 MARCH 31
1998 1998
(Unaudited) *
---------------------------
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash $158,251 $330,055
Cash-restricted $76,690 $1,825
Trade accounts receivable less doubtful accounts
reserve of $141,460 and $137,842 respectively 1,173,667 1,850,187
Inventory 146,054 155,892
Refundable income taxes 13,624 16,886
Deferred rent 60,180 60,180
Other assets 254,967 49,783
Capitalized Finance Costs 162,000 108,096
Land and buildings held for sale 1,158,063
---------------------------
TOTAL CURRENT ASSETS 2,045,433 3,730,967
---------------------------
PROPERTY,PLANT AND EQUIPMENT:
Land,buildings and improvements 878,185 1,263,572
Machinery and equipment 19,734,862 19,299,785
---------------------------
20,613,047 20,563,357
Less accumulated depreciation 17,645,483 17,253,517
---------------------------
2,967,564 3,309,840
DEPOSITS 270,353 14,262
DEFERRED RENT 165,850 195,940
CAPITALIZED FINANCING COSTS 33,660 156,741
---------------------------
469,863 366,943
---------------------------
$5,482,860 $7,407,750
===========================
LIABILITIES AND STOCKHOLDERS'EQUITY:
CURRENT LIABILITIES:
Notes payable $0 $423,284
Accounts payable 746,412 $826,860
Commissions,salaries and withholding 401,412 359,086
Miscellaneous accounts payable and accrued expenses 115,519 296,633
Deferred Gain-Sale/Leaseback 123,996
Other liabilities 61,531 427,142
Payments due within one year on term obligations 722,993 1,679,282
---------------------------
TOTAL CURRENT LIABILITIES 2,172,235 4,012,287
DEFERRED GAIN-SALE/LEASEBACK 243,906
LONG TERM DEBT AND CAPITAL LEASES, less current portion 1,990,146 2,188,747
STOCKHOLDERS' EQUITY:
Preferred stock, 2,500,000 shares authorized, none issued
Common stock, Par value $.01 per share; authorized
10,000,000 shares, 1,356,425 issued and outstanding 13,564 13,564
Additional paid-in capital 577,123 577,123
Retained earnings 485,886 616,029
---------------------------
1,076,573 1,206,716
---------------------------
$5,482,860 $7,407,750
===========================
</TABLE>
*The balance sheet at March 31,1998 has been taken from the audited financial
statements at that date. See notes to unaudited condensed consolidated financial
statements.
<PAGE>
NORTHWEST TELEPRODUCTIONS,INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1998 1997 1998 1997
------------------------- ---------------------------
<S> <C> <C> <C> <C>
NET SALES $2,642,902 $3,212,531 $5,031,252 $6,099,371
COSTS AND EXPENSES:
Costs of products and services sold 2,193,422 2,943,192 4,122,354 5,725,238
Selling,general and administrative 449,579 511,159 900,680 1,004,465
Interest 82,752 143,622 204,817 279,601
------------------------- ---------------------------
2,725,753 3,597,973 5,227,851 7,009,304
------------------------- ---------------------------
(82,851) (385,442) (196,599) (909,933)
OTHER INCOME 21,359 1,396 76,456 50,058
------------------------- ---------------------------
EARNINGS BEFORE TAXES ON INCOME (61,492) (384,046) (120,143) (859,875)
TAXES ON INCOME 10,000 10,000
========================= ===========================
NET LOSS ($71,492) ($384,046) ($130,143) ($859,875)
========================= ===========================
BASIC AND DILUTIVE LOSS PER SHARE (1) ($0.05) ($0.28) ($0.10) ($0.63)
========================= ===========================
</TABLE>
(1) Net earnings per share are based on the weighted average number of common
shares outstanding during the periods as follows:
Three months: September 30, 1998 1,356,425
September 30, 1997 1,356,425
Six months: September 30, 1998 1,356,425
September 30, 1997 1,356,425
See notes to unaudited condensed consolidated financial statements.
<PAGE>
NORTHWEST TELEPRODUCTIONS,INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
September 30
1998 1997
------------------------------
<S> <C> <C>
CASH FLOW-OPERATING ACTIVITIES:
Net earnings ($ 130,143) ($ 859,876)
Adjustments:
Depreciation 531,396 873,810
Other 50,091 54,048
(Increase) Decrease in trade receivables 676,520 (315,302)
Change in assets and liabilities excluding accounts receivable (723,564) (214,869)
---------- ----------
Net cash provided (utilized) by operating activities 404,300 (462,189)
CASH FLOW - INVESTING ACTIVITIES:
Property,plant and equipment additions (414,190) (206,314)
Net Proceeds from Asset Sale 1,582,035
---------- ----------
Net cash provided (utilized) by investing activities 1,167,845 (206,314)
CASH FLOW - FINANCING ACTIVITIES:
Advances(payments)-Line of credit (577,177) (874,609)
Advances(payments)-Long term borrowing (1,166,772) 984,531
---------- ----------
Net cash provided (utilized) by financing activities (1,743,949) 109,922
---------- ----------
NET INCREASE (DECREASE) IN CASH ($ 171,804) ($ 558,581)
========== ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Interim Financial Statements
The consolidated balance sheet as of September 30, 1998, the consolidated
statement of operations for the three and six month periods ended September
30, 1998 and 1997, and the condensed consolidated statements of cash flow
for the six 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 September 30, 1998 and for all periods presented have
been made.
2. Sales - Leaseback
On June 24, 1998, the Company closed a three-year sale-leaseback transaction
involving the two parcels of land and buildings located at 4000 West 76th
Street and 4455 West 77th Street. After a three-year period, the Company has
the option of renewing the lease for an additional five years. The monthly
rental expense for the first three years will be as follows: $16,615 in year
1, $17,030 in year 2 and $17,456 in year 3.
The land and buildings were sold for $1.6 million in cash. The proceeds
from sale were used as follows:
Pay off mortgage $ 560,000
Pay down term debt 275,000
Reserve for building improvements 260,000
Reduce other liabilities 450,000
Payment of fees and security deposits 55,000
--------------
Total $ 1,600,000
==============
The transaction will be accounted for as an operating lease, wherein the
property and related mortgage will no longer remain on the Company's books,
and of which no additional depreciation will be taken. Included in the above
amounts paid from the proceeds were $112,000 in accrued interest and a
$20,000 security deposit
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, 1998 annual report to
shareholders. The results of operations for the period ended September 30,
1998 are not necessarily indicative of the results for the full year.
-6-
<PAGE>
3.Reclassifications
Certain reclassifications have been made to the March 31, 1998 consolidated
financial statements to conform to the classifications used at September 30,
1998. These reclassifications had no effect on the operations or stockholders'
equity as previously reported.
NORTHWEST TELEPRODUCTIONS, INC.
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL REQUIREMENTS
Operating cash requirements for the first six months of fiscal 1999 were met
from cash flow from operations, utilization of the cash reserves from March 31,
1998, borrowing from the Company's line of credit and cash proceeds from the
sale of the Company's Edina, MN facilities.
Subsequent to the year-end March 31, 1998 the Company sold and subsequently
leased back its facilities in Minneapolis. This transaction generated cash
proceeds of $1,600,000. The proceeds were utilized as follows:
Pay off mortgage $ 560,000
Pay down term debt 275,000
Reduce other liabilities 450,000
Reserve for building improvements 260,000
Payment of fees and security deposits 55,000
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 - SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH
CORRESPONDING PERIOD OF PRIOR YEAR.
SALES
Sales for the six months ended September 30, 1998 of $5,031,252 compare with
sales of $6,099,371 for the corresponding period of the prior year, a 17.5 %
decrease. A significant portion of the decrease results from the closing of the
Company's Minneapolis based Post and Transfer facility and its NW Film
Production Office.
COST OF PRODUCTS AND SERVICES SOLD
Cost of products and services sold for the six months ended September 30, 1998
equaled 81.9% of sales as compared to a cost of sales rate of 93.9% in the
corresponding period of the prior year. This reduction in cost of sales reflects
the improvements in project budgeting, reductions in payroll, depreciation and
general overhead.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the six months ended September
30, 1998 totaled $910,680, as compared to $1,004,465 in the corresponding period
of the prior year, a decrease of $93,785, or 9.3%. Decreased salary and related
expenses, attributable mainly to the consolidation of administrative functions,
along with reduced rent expenses in the Chicago and Minneapolis operations,
account for a majority of the decrease.
-7-
<PAGE>
RESULTS OF OPERATIONS - SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH
CORRESPONDING PERIOD OF PRIOR YEAR, continued.
INTEREST EXPENSE
Interest expense for the six months ended September 30, 1998 totaled $204,817
compared with expense of $279,601 in the corresponding period of the prior year,
a decrease of $74,784, or 26.7%. The decrease in interest expense is the result
of a reduction in the amount of outstanding debt.
INCOME TAX EXPENSE (CREDIT)
During the year ended March 31, 1998, the Company had a valuation allowance of
$957,000 on the deferred tax assets. For the six months ended September 30, 1998
the Company added $50,500 to the valuation allowance. Income tax expense of
$10,000 was recorded in the period to reflect an adjustment by the State of
Illinois of a previously received refund associated with the carryback of an
operating loss.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH
CORRESPONDING PERIOD OF PRIOR YEAR.
SALES
Sales for the three months ended September 30, 1998 of $2,642,902 compare with
sales of $3,212,531 for the corresponding period of the prior year, a 17.7 %
decrease. A significant portion of the decrease results from the closing of the
Company's Minneapolis based Post and Transfer facility and its NW Film
Production Office.
COST OF PRODUCTS AND SERVICES SOLD
Cost of products and services sold for the three months ended September 30, 1998
equaled 83% of sales as compared to a cost of sales rate of 91.6% in the
corresponding period of the prior year. This reduction in cost of sales reflects
the improvements in project budgeting, reductions in payroll, depreciation and
general overhead.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended
September 30, 1998 totaled $449,579 as compared to $511,159 in the corresponding
period of the prior year, a decrease of $61,580, or 12%. Decreased salary and
related expenses, attributable mainly to the consolidation of administrative
functions, along with reduced rent expenses in the Chicago and Minneapolis
operations, account for a majority of the decrease.
INTEREST EXPENSE
Interest expense for the three months ended September 30, 1998 totaled $82,752
compared with expense of $143,622 in the corresponding period of the prior year,
a decrease of $60,870, or 42.4%. The decrease in interest expense is the result
of a reduction in the amount of outstanding debt.
INCOME TAX EXPENSE (CREDIT)
During the year ended March 31, 1998, the Company had a valuation allowance of
$957,000 on the deferred tax assets. For the three months ended September 30,
1998 the Company added $30,000 to the valuation allowance. Income tax expense of
$10,000 was recorded in the period to reflect an adjustment by the State of
Illinois of a previously received refund associated with the carryback of an
operating loss.
-8-
<PAGE>
Year 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. When the year 2000 begins,
these computers may interpret "00" as the year 1900 and could stop processing
date related computations or could process them incorrectly. Beginning in the
year 2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates to be year compliant.
The Company has performed an assessment of its internal information systems and
has determined that its application software and internal information systems
are: (1) year 2000 compliant; (2) can be upgraded to be year 2000 compliant
without significant cost or effort; (3) do not pose a significant issue to the
Company if left uncorrected.
The Company has assessed non-IT systems within the Company and has determined
that the systems: (1) year 2000 compliant; (2) can be upgraded to be year 2000
compliant without significant cost or effort. Although the Company is not aware
of any material operational issues or costs associated with preparing its
internal systems for the year 2000, there can be no assurance that the Company
will not experience serious unanticipated negative consequences and or material
costs caused by undetected errors or defects in the technology used in its
internal operating systems, which are composed predominately of third party
software and hardware technology.
The Company is in the process of determining the impact those parties that are
not year 2000 compliant may have on the operations of the Company.
Non-compliance by any of the major vendors, suppliers, customers or financial
organizations could result in business disruptions that could have a material
adverse affect on the Company's results of operations, liquidity and financial
condition.
PART II
Item 4. Submission of Matters to a vote of Security Holders
(a) The annual meeting of the Registrants shareholders was held
on Friday September 25, 1998.
(b) At the Annual Meeting a proposal to set the number of
directors at six was adopted by a vote of 926,529 for and
27,323 against, 1,794 shares abstaining and no shares
represented by broker nonvotes.
(c) Proxies for the annual meeting were solicited pursuant to
Regulation 14A under the Securities and Exchange Act of 1934,
there was no solicitation in opposition to management's
nominees, and the following persons were elected directors of
the Registrant to serve until the next annual meeting of
shareholders and until their successors shall have been duly
elected and qualified:
Number of Number of
Nominee Votes For Votes Withheld
C. Dale Haworth 931,895 23,751
Ronald V. Kelly 931,922 23,724
Steven Lose 931,895 23,751
John McGrath 931,895 23,751
Gerald W. Simonson 931,922 23,724
Phillip A. Staden 931,922 23,724
-9-
<PAGE>
(d) At the Annual meeting the shareholders approved the
appointment of Deloitte and Touche LLP as independent auditors
for the current fiscal year by a vote of 948,543 in favor,
with 1,354 against 5,749 abstaining and no shares represented
by broker nonvotes.
(e) At the Annual meeting the shareholders approved an increase in
the number of shares of Common Stock reserved for issuance
pursuant to the Company's 1993 Stock Option Plan from 200,000
shares to 260,000 shares by a vote of 905,600 in favor, with
49,022 against, 1,024 abstaining and no shares represented by
broker nonvotes.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
3.1 Articles of Incorporation, as amended to date
27 Financial Data Schedule
b) Reports on form 8-K
None
Signatures
Pursuant to the requirements of he Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 1998 Northwest Teleproductions, Inc.
(Registrant)
By: /s/ Phillip A. Staden
Phillip A. Staden
President
-10-
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
3.1 Articles of Incorporation, as amended to date
27 Financial Data Schedule
CERTIFICATE OF RESTATED ARTICLES OF INCORPORATION
OF
NORTHWEST TELEPRODUCTIONS, INC.
We, the undersigned, John G. Lindell, President, and James N. Steffen,
Secretary, of Northwest Teleproductions, Inc., a Minnesota corporation, subject
to the provisions of Chapter 301 of the Minnesota Statutes, do hereby certify
that, acting pursuant to the provisions of Minnesota Statutes, Section 301.26,
Subd. 11, the shareholders of said corporation duly adopted by unanimous written
consent on the 2nd day of March, 1976, Restated Articles of Incorporation in the
form attached hereto, pursuant to Section 301.37, Subd. 3(5) of the Minnesota
Statutes, which Restated Articles of Incorporation shall supersede and take the
place of the existing Articles of Incorporation and all amendments thereto of
Northwest Teleproductions, Inc.
IN WITNESS WHEREOF, we have hereunto subscribed out names this 2nd day
of March, 1976.
/s/ John G. Lindell
John G. Lindell, President
(No Corporate Seal)
/s/ James N. Steffen
James N. Steffen, Secretary
STATE OF MINNESOTA )
) SS.
COUNTY OF CARVER )
The foregoing instrument was acknowledged before me this 2nd day of
March, 1976, by John G. Lindell and James N. Steffen.
(Notarial Seal) /s/ Karen Reamer
Notary Public
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
NORTHWEST TELEPRODUCTIONS, INC.
ARTICLE 1 - NAME
1.1) The name of the corporation shall be NORTHWEST TELEPRODUCTIONS,
INC.
ARTICLE 2 - REGISTERED OFFICE
2.1) The location and post office address of the registered office of
the corporation in this state shall be 4444 West 76th Street, Minneapolis,
Minnesota, 55435.
ARTICLE 3 - DURATION
3.1) The duration of the corporation shall be perpetual.
ARTICLE 4 - PURPOSES
4.1) The corporation shall have general business purposes and may
engage in any lawful activities.
ARTICLE 5 - CAPITAL STOCK
5.1) Authorized Shares. The total authorized number of shares of the
corporation shall be Two Million Five Hundred Thousand (2,500,000) shares of
Common Stock, par value $.01.
5.2) Issuance of Stock. The Board of Directors of the corporation is
authorized from time to time to accept subscriptions for, allot, issue, sell and
deliver shares of stock of any class of the corporation, including stock issued
as a stock dividend, to such persons, at such times and upon such terms and
conditions as the Board shall determine.
5.3) Issuance of Stock Rights. The Board of Directors is further
authorized from time to time to grant and issue rights to convert securities of
the corporation into shares of stock of the corporation of any class or classes,
options to purchase or subscribe for such shares of stock, and warrants to
purchase or subscribe for such shares of stock, and to fix the terms, provisions
and conditions of such rights, options or warrants, including the conversion
basis or bases and the option price or prices at which such shares may be
purchased or subscribed for.
<PAGE>
ARTICLE 6 - RIGHTS OF SHAREHOLDERS
6.1) Preemptive Rights. No holder of any stock of the corporation shall
have any preemptive right to subscribe for or purchase his proportionate share
of any stock of the corporation now or hereafter authorized or issued.
6.1) Voting Rights. At each meeting of the shareholders and with
respect to any matter upon which the shareholders shall have a right to vote,
each holder of record of shares of Common Stock shall be entitled to one (1)
vote for each share of Common Stock so held. No shareholder shall have the right
to cumulate his votes for the election of directors and there shall be no
cumulative voting for any purpose whatsoever.
ARTICLE 7 - DIRECTORS
7.1) Names. The names and post office addresses of the directors of the
corporation on the date of adoption of these Restated Articles of Incorporation
are:
John G. Lindell 4444 West 76th Street
Minneapolis, Minnesota 55435
7.2) Number and Term. The management of the corporation shall be vested
in a Board of Directors. The number of directors shall be fixed by the Bylaws
and may be altered by amending the Bylaws but shall never be less than required
by law. The term of office of each of the directors shall be fixed by the
Bylaws.
ARTICLE 8 - BYLAWS
8.1) The Board of Directors is expressly authorized to make and alter
Bylaws of this corporation, in the manner provided in the Bylaws, subject to the
power of the shareholders to change or repeal such Bylaws and subject to any
other limitations on such authority provided by the Minnesota Business
Corporation Act.
ARTICLE 9 - MISCELLANEOUS
9.1) Interested Directors. In the absence of fraud, no contract or
other transaction between the corporation and any other corporation, and no act
of the corporation, shall in any way be affected or invalidated by the fact that
any of the directors of the corporation are pecuniarily or otherwise interested
in, or are directors or officers of, such other corporation; and, in the absence
of fraud, any director, individually, or any firm of which any director may be a
member, may be a party to, or may be pecuniarily or otherwise interested in, any
contract or transaction off the corporation; provided, in any case, that the
fact that he or such firm is so interested shall be disclosed or shall have been
known to the Board of Directors or a majority thereof; and any director of the
corporation who is also a director or officer of any such other corporation or
who is so interested may be counted in determining the existence of a quorum at
any meeting of the Board of Directors of the corporation which shall authorize
any such contract, act or transaction and may vote thereat to authorize any such
contract, act or transaction, with like force and effect as if he were not such
director or officer of such other corporation or not so interested.
<PAGE>
9.2) Ratification by Shareholders. Any contract, act or transaction of
the corporation or of the directors may be ratified by a vote of a majority of
the shares having voting power at any meeting of shareholders and such
ratification shall, so far as permitted by law and by these Articles of
Incorporation, be as valid and as binding as though ratified by every
shareholder of the corporation.
9.3) Indemnification of Directors, Officers, Employees and Agents.
Except as otherwise provided in the Bylaws, directors, officers, employees and
agents of the corporation shall be indemnified to the maximum extent permitted
by the Minnesota Business Corporation Act, as from time to time amended, for
expenses and liabilities arising by reason of their position with, or by acts in
such capacities on behalf of, the corporation or another corporation which they
may serve at the request of the corporation.
ARTICLE 10 - MERGER, CONSOLIDATION AND SALE OF ASSETS
10.1) When and if authorized by the affirmative vote of the holders of
record of shares of Common Stock entitling them to exercise at least a majority
of the total voting power of all shareholders authorized under these Articles to
vote, the corporation may merge or consolidate into or with another corporation
or sell, lease, exchange or otherwise dispose of all or substantially all of its
property and assets, including its good will, upon such terms and conditions and
for such consideration (which may be money or other property) as the Board of
Directors shall deem advisable.
ARTICLE 11- AMENDMENT OF ARTICLES OF INCORPORATION
11.1) Reservation of Rights. The corporation reserves the right to
amend, alter, change or repeal any provisions contained in these Articles of
Incorporation in the manner now or hereafter prescribed by statute, and all
rights conferred upon shareholders herein are granted subject to this
reservation.
11.2) Amendment Procedure. Any amendment may be adopted by the
affirmative vote of the holders of record of shares of Common Stock entitling
them to exercise at least a majority of the total voting power of all
shareholders authorized under these Articles to vote, except as may be otherwise
prescribed by the Statutes of the State of Minnesota.
<PAGE>
ARTICLES OF AMENDMENT OF ARTICLES OF INCORPORATION
OF
NORTHWEST TELEPRODUCTIONS, INC.
Pursuant to the provisions of Minnesota Statutes, Section 302A.135, the
Articles of Incorporation of Northwest Teleproductions, Inc. were amended at a
meeting of the shareholders of the corporation duly convened and held on the
24th day of July, 1986, by (i) amending Section 5.1 thereof to read as set forth
on Exhibit A hereto, (ii) adding thereto a Section 5.4 to read as set forth on
Exhibit B hereto, and (iii) adding thereto a new Article 12 to read as set forth
on Exhibit C hereto.
I swear that the foregoing is true and accurate and that I have the
authority to sign this document on behalf of the corporation.
/s/ Robert C. Mitchell
Robert C. Mitchell, President
STATE OF MINNESOTA )
) SS.
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 14th day of
August, 1986, by Robert C. Mitchell, President of Northwest Teleproductions,
Inc., a Minnesota corporation, on behalf of the corporation.
(Notarial Seal) /s/ Michelle A. Caron
Notary Public
<PAGE>
EXHIBIT A
"5.1) Authorized Shares. The total authorized number of shares of the
corporation shall be 12,500,000 shares, par value $.01, consisting of 10,000,000
shares of Common Stock and 2,500,000 shares of Preferred Stock."
<PAGE>
EXHIBIT B
"5.4) Designation of Preferred Stock Rights. The Board of Directors is
further authorized to establish, by resolution adopted and filed in the manner
provided by law, and to grant rights to subscribe for or purchase, and issue,
one or more series of Preferred Stock having such preferences, rights and
limitations as the Board may establish in such resolution."
<PAGE>
EXHIBIT C
"ARTICLE 12 -- RELATED PERSON BUSINESS TRANSACTIONS
12.1) Whether or not a vote of shareholders is otherwise required, the
affirmative vote of the holders of not less than three-fourths of the voting
power of the outstanding "voting shares" (as hereinafter defined) of the
corporation shall be required for the approval or authorization of any "Related
Person Business Transaction" (as hereinafter defined) involving the corporation
or the approval or authorization by the corporation in its capacity as a
shareholder of any Related Person Business Transaction involving a Subsidiary"
(as hereinafter defined) which requires the approval or authorization of the
shareholders of the Subsidiary; provided, however, that such three-fourths
voting requirement shall not be applicable if:
(a) The "Continuing Directors" (as hereinafter defined) by a
majority vote have expressly approved the Related Person Business
Transaction; or
(b) The Related Person Business Transaction is a merger,
consolidation, exchange of shares or sale of all or substantially all
of the assets of the corporation, and the cash or fair market value of
the property, securities or other consideration to be received per
share by holders of Common Stock of the corporation other than the
"Related Person" (as hereinafter defined) in the Related Person
Business Transaction is an amount at least equal to the "Highest
Purchase Price" (as hereinafter defined).
12.2) For the purposes of this Article 12:
(a) The term "Related Person Business Transaction" shall mean
(i) any merger or consolidation of the corporation or a Subsidiary with
or into a Related Person, (ii) any exchange of shares of the
corporation or a Subsidiary for shares of a Related Person which, in
the absence of this Article, would have required the affirmative vote
of at least a majority of the voting power of the outstanding shares of
the corporation entitled to vote or the affirmative vote of the
corporation, in its capacity as a shareholder of the Subsidiary, (iii)
any sale, lease, exchange, transfer, or other disposition (in one
transaction or a series of transactions), including without limitation
a mortgage or any other security device, of all or any "Substantial
Part" (as hereinafter defined) of the assets either of the corporation
or of a Subsidiary to or with a Related Person, (iv) any sale, lease,
transfer, or other disposition (in one transaction or a series of
transactions) of all or any Substantial Part of the assets of a Related
Person to or with the corporation or a Subsidiary, (v) the issuance,
sale, transfer or other disposition to a Related Person of any
securities of the corporation (except pursuant to stock dividends,
stock splits, or similar transactions which would not have the effect
of increasing the proportionate voting power of a Related Person) or of
a Subsidiary (except pursuant to a pro rata distribution to all holders
of Common Stock of the corporation), (vi) any recapitalization or
reclassification that would have the effect of increasing the
proportionate voting power of a Related Person, and (vii) any
agreement, contract, arrangement, or understanding providing for any of
the transactions described in this definition of Related Person
Business Transaction.
<PAGE>
(b) The term "Related Person" shall mean and include (i) any
person or entity which, together with its "Affiliates" and "Associates"
(both as hereinafter defined), "beneficially owns" (as hereinafter
defined) in the aggregate 15 percent or more of the outstanding voting
shares of the corporation, and (ii) any Affiliate or Associate (other
than the corporation or a wholly-owned subsidiary of the corporation)
of any such person or entity. Two or more persons or entities acting as
a syndicate or group, or otherwise, for the purpose of acquiring,
holding, or disposing of voting shares of the corporation shall be
deemed to be a "person" or "entity" as the case may be.
(c) The term "Affiliate", used to indicate a relationship with
a specified person or entity, shall mean a person or entity that
directly, or indirectly through one or more intermediaries, controls,
or is controlled by, or is under common control with, the person or
entity specified.
(d) The term "Associate", used to indicate a relationship with
a specified person or entity, shall mean (i) any entity of which such
specified person or entity is an officer or partner or is, directly or
indirectly, the beneficial owner of 10 percent or more of any class of
equity securities, (ii) any trust or other estate in which such
specified person or entity has a substantial beneficial interest or as
to which such specified person or entity serves as trustee or in a
similar fiduciary capacity, (iii) any relative or spouse of such
specified person, or any relative of such spouse, who has the same home
as such specified person or who is a director or officer of the
corporation or any Subsidiary, and (iv) any person who is a director or
officer of such specified entity or any of its parents or subsidiaries
(other than the corporation or a wholly-owned subsidiary of the
corporation).
(e) The term "Substantial Part" shall mean 30 percent or more
of the fair market value of the total assets of the person or entity in
question, as reflected on the most recent balance sheet of such person
or entity existing at the time the shareholders of the corporation
would be required to approve or authorize the Related Person Business
Transaction involving the assets constituting any such Substantial
Part.
(f) The term "Subsidiary" shall mean any corporation, a
majority of the equity securities of any class of which are owned by
the corporation, by another Subsidiary, or in the aggregate by the
corporation and one or more of its Subsidiaries.
(g) The term "Continuing Director" shall mean (i) a director
who was a member of the Board of Directors of the corporation on the
date this Article 12 is first approved by the shareholders as an
amendment to the Articles of Incorporation of the corporation; or (ii)
a director who became a director before any Related Person involved in
the Related Person Business Transaction in question became a Related
Person; or (iii) any person becoming a director whose election, or
nomination for election by the corporation's shareholders, was approved
by a vote of a majority of the Continuing Directors; provided, however,
that in no event shall a Related Person involved in the Related Person
Business Transaction in question be deemed to be a Continuing Director.
<PAGE>
(h) The term "voting shares" shall mean shares of capital
stock of a corporation entitled to vote generally in the election of
directors, considered for the purposes of this Article as one class.
(i) The term "Highest Purchase Price" shall mean the highest
amount of cash or the fair market value of the property, securities or
other consideration paid by the Related Person for a share of Common
Stock of the corporation at any time while such person or entity was a
Related Person or in the transaction which resulted in such person or
entity becoming a Related Person; provided, however, that the Highest
Purchase Price shall be appropriately adjusted to reflect the
occurrence of any reclassification, recapitalization, stock split,
reverse stock split or other readjustment in the number of outstanding
shares of Common Stock of the corporation, or the declaration of a
stock dividend thereon, between the last date upon which the Related
Person paid the Highest Purchase Price and the effective date of the
merger, consolidation or exchange of shares or the date of distribution
to shareholders of the corporation of the proceeds from the sale of all
or substantially all of the assets of the corporation.
(j) (i) A person or entity "beneficially owns" voting shares
of the corporation if such person or entity, directly or indirectly,
through any contract, arrangement, understanding, relationship, or
otherwise has or shares (A) voting power which includes the power to
vote, or to direct the voting of, such voting shares, or (B) investment
power which includes the power to dispose, or to direct the disposition
of, such voting shares. Any person or entity which, directly or
indirectly, creates or uses a trust, proxy, power of attorney, pooling
arrangement or any other contract, arrangement, or device with the
purpose or effect of divesting such person or entity of beneficial
ownership of voting shares of the corporation or preventing the vesting
of such beneficial ownership as part of a plan or scheme to avoid
becoming a Related Person shall be deemed for purposes of this Article
12 to be the beneficial owner of such voting shares. All voting shares
of the corporation beneficially owned by a person or entity, regardless
of the form which such beneficial ownership takes, shall be aggregated
in calculating the number of voting shares of the corporation
beneficially owned by such person or entity. Any voting shares of the
corporation that any person or entity has the right to acquire pursuant
to any agreement, contract, arrangement, or understanding, or upon
exercise of any conversion right, warrant or option, or pursuant to the
automatic termination of a trust, discretionary account or similar
arrangement, or otherwise shall be deemed beneficially owned by such
person or entity. Any voting shares of the corporation not outstanding
which any person or entity has a right to acquire shall be deemed to be
outstanding for the purpose of computing the percentage of outstanding
voting shares of the corporation beneficially owned by such person or
entity but shall not be deemed to be outstanding for the purpose of
computing the percentage of outstanding voting shares of the
corporation beneficially owned by any other person or entity.
<PAGE>
(ii) Notwithstanding the foregoing provisions of subparagraph
12(j)(i) hereof.
(A) A member of a national securities exchange shall
not be deemed to be a beneficial owner of voting shares of the
corporation held directly or indirectly by it on behalf of
another person or entity solely because such member is the
record holder of such voting shares and, pursuant to the rules
of such exchange, may direct the vote of such voting shares,
without instruction, on other than contested matters or
matters that may affect substantially the rights or privileges
of the holders of the voting shares of the corporation to be
voted, but is otherwise precluded by the rules of such
exchange from voting without instruction;
(B) A commercial bank, broker or dealer or insurance
company which in the ordinary course of business is a pledgee
of voting shares of the corporation under a written pledge
agreement shall not be deemed to be the beneficial owner of
such pledged voting shares until the pledgee has taken all
formal steps necessary to declare a default and determines
that the power to vote or to direct the vote or to dispose or
to direct the disposition of such pledged securities will be
exercised, provided that the pledgee agreement is bona fide
and was not entered into with the purpose nor with the effect
of changing or influencing the control of the corporation nor
in connection with any transaction having such purpose or
effect and, prior to default, does not grant to the pledgee
the power to vote or to direct the vote of the pledged voting
shares of the corporation; and
(C) A person or entity engaged in business as an
underwriter of securities who acquires voting shares of the
corporation through its participation in good faith in a firm
commitment underwriting registered under the Securities Act of
1933, or comparable successor law, rule or regulation, shall
not be deemed to be the beneficial owner of such voting shares
until the expiration of forty days after the date of such
acquisition.
12.3) For the purposes of this Article 12 the Continuing Directors by a
majority vote shall have the power to make a good faith determination, on the
basis of information known to them, of: (a) the number of voting shares of the
corporation that any person or entity "beneficially owns" (b) whether a person
or entity is an Affiliate or Associate of another, (c) whether the assets
subject to any Related Person Business Transaction constitute a Substantial
Part, (d) whether any business transaction is one in which a Related Person has
an interest, (e) whether the cash or fair market value of the property,
securities or other consideration to be received per share by holders of Common
Stock of the corporation other than the Related Person in a Related Person
Business Transaction is an amount at least equal to the Highest Purchase Price,
and (f) such other matters with respect to which a determination is required
under this Article 12.
12.4) Notwithstanding Section 11.2 hereof, the provisions set forth in
this Article 12, including this Section 12.4, may not be repealed or amended in
any respect unless such action is approved by the affirmative vote of the
holders of not less than three-fourths of the voting power of the outstanding
voting shares of the corporation."
<PAGE>
ARTICLES OF AMENDMENT OF ARTICLES OF INCORPORATION
OF
NORTHWEST TELEPRODUCTIONS, INC.
Pursuant to the provisions of Minnesota Statutes, Section 302A.135, the
Articles of Incorporation of Northwest Teleproductions, Inc. were amended at a
meeting of the shareholders of the corporation duly convened and held on the
23rd day of July 1987, by adding a new Article 13 to read as follows:
"ARTICLE 13 - LIMITATION OF DIRECTOR LIABILITY
To the fullest extent permitted by the Minnesota Business
Corporation Act as the same exists or may hereafter be amended, a
director of this corporation shall not be personally liable to the
corporation or its shareholders for monetary damages for breach of
fiduciary duty as a director."
I swear that the foregoing is true and accurate and that I have the
authority to sign this document on behalf of the corporation.
/s/ Robert C. Mitchell
Robert C. Mitchell, President
STATE OF MINNESOTA )
) SS.
COUNT OF HENNEPIN )
The foregoing instrument was acknowledge before me this 23rd day of
July 1987, by Robert C. Mitchell, President of Northwest Teleproductions, Inc.,
a Minnesota corporation, on behalf of the corporation.
(Notarial Seal) /s/ David C. Grorud
Notary Public
<PAGE>
CERTIFICATE OF DESIGNATIONS
OF
SERIES A PREFERRED STOCK
OF
NORTHWEST TELEPRODUCTIONS, INC.
(Pursuant to Chapter 302A of the
Minnesota Business Corporation Act)
Northwest Teleproductions, Inc., a corporation organized and existing
under the Minnesota Business Corporation Act (hereinafter called the "Company"),
hereby certifies that the following resolution was adopted by the Board of
Directors of the Company at a meeting duly called and held on July 31, 1998:
RESOLVED, that, pursuant to the authority granted to and vested in the
Board of Directors of the Company (hereinafter called the "Board of Directors"
or the "Board") in accordance with the provisions of Section 5.4 of the Articles
of Incorporation, as amended to date (hereinafter called the "Articles of
Incorporation"), the Board of Directors hereby creates a series of Preferred
Stock, par value $.01 per share (the "Preferred Stock"), of the Company and
hereby states the designation and number of shares, and fixes the relative
rights, preferences, and limitations thereof as follows:
Series A Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Preferred Stock" (the "Series A Preferred Stock"), and
the number of shares constituting the Series A Preferred Stock shall be One
Hundred Thousand (100,000). Such number of shares may be increased or decreased
by resolution of the Board of Directors; provided, that, no decrease shall
reduce the number of shares of Series A Preferred Stock to a number less than
the number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Company convertible
into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any series of
Preferred Stock, par value $.01 per share (the "Preferred Stock"), of the
Company or Preferred Stock (or any similar stock) ranking prior and superior to
the Series A Preferred Stock with respect to dividends, the holders of shares of
<PAGE>
Series A Preferred Stock, in preference to the holders of Common Stock, par
value $.01 per share (the "Common Stock"), of the Company, and of any other
junior stock, shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the first day of March, June, September and
December in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series A Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the greater
of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth,
100 times (as adjusted, the "Dividend Multiple") the aggregate per share amount
of all cash dividends, and 100 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions, other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock
since the immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock. In the event the
Company shall at any time declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise) into a greater or lesser number of shares of Common Stock, then in
each such case the Dividend Multiple shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) The Company shall declare a dividend or distribution on the Series
A Preferred Stock as provided in paragraph (A) of this Section immediately after
it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided, that, in the event no
dividend or distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $1 per share on the Series A
Preferred Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series A Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be not more
than sixty (60) days prior to the date fixed for the payment thereof.
<PAGE>
Section 3. Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder
thereof to 100 votes (as adjusted, the "Vote Multiple") on all matters
submitted to a vote of the stockholders of the Company. In the event
the Company shall at any time declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock
(by reclassification or otherwise) into a greater or lesser number of
shares of Common Stock, then in each such case the Vote Multiple shall
be adjusted by multiplying such number by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided in Section 10 hereof, in any
other Certificate of Designations creating a series of Preferred Stock
or any similar stock, or by law, the holders of shares of Series A
Preferred Stock and the holders of shares of Common Stock and any other
capital stock of the Company having general voting rights shall vote
together as one class on all matters submitted to a vote of
stockholders of the Company.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series A Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Series A Preferred Stock outstanding shall have been paid in full, the
Company shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except
dividends paid ratably on the Series A Preferred Stock and all
such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all
such shares are then entitled;
<PAGE>
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series A Preferred Stock, provided that the Company may at
any time redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock of the
Company ranking junior (as to dividends and upon dissolution,
liquidation and winding up) to the Series A Preferred Stock;
or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any
shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board)
to all holders of such shares upon such terms as the Board,
after consideration of the respective annual dividend rates
and other relative rights and preferences of the respective
series and classes, shall determine in good faith will result
in fair and equitable treatment among the respective series or
classes.
(B) The Company shall not permit any subsidiary of the Company
to purchase or otherwise acquire for consideration any shares of stock
of the Company unless the Company could, under paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and
in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Company in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred Stock subject to
the conditions and restrictions on issuance set forth herein, in the Articles of
Incorporation, or in any other Certificate of Designations creating a series of
Preferred Stock or any similar stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Company, no distribution shall be
made (A) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received the greater of (i) $100 per share, plus an
amount equal to accrued and unpaid dividends and distributions thereon, whether
or not declared, to the date of such payment, or (ii) subject to the provision
for adjustment hereinafter set forth, 100 times (as adjusted, the "Liquidation
Preference Multiple") the aggregate amount to be distributed per share to
holders of shares of Common Stock, or (B) to the holders of shares of stock
ranking on a parity (either as to dividends or upon liquidation, dissolution or
<PAGE>
winding up) with the Series A Preferred Stock, except distributions made ratably
on the Series A Preferred Stock and all such parity stock in proportion to the
total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Company shall at any
time declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise) into a
greater or lesser number of shares of Common Stock, then in each such case the
Liquidation Preference Multiple shall be adjusted by multiplying such amount by
a fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 7. Consolidation, Merger, Etc. In case the Company shall enter
into any consolidation, merger, statutory exchange combination or other
transaction in which the shares of Common Stock are exchanged for or changed
into other stock or securities, cash and/or any other property, then in any such
case each share of Series A Preferred Stock shall at the same time be similarly
exchanged or changed into an amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times (as adjusted, the "Exchange
Multiple") the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged. In the event the Company shall at
any time declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise) into a
greater or lesser number of shares of Common Stock, then in each such case the
Exchange Multiple shall be adjusted by multiplying such amount by a fraction,
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock shall
not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets, junior to all series
of any other class of Preferred Stock hereafter issued that specifically provide
that they shall rank senior to the Series A Preferred Stock.
Section 10. Amendment. If any proposed amendment to the Articles of
Incorporation or this Certificate of Designation would alter or change the
preferences, special rights or powers given to the Series A Preferred Stock so
as to affect the Series A Preferred Stock adversely, or would authorize the
issuance of a class or classes of stock having preferences or rights with
respect to dividends or dissolutions or the distribution of assets that would be
superior to the preferences or rights of the Series A Preferred Stock, then the
holders of the Series A Preferred Stock shall be entitled to vote as a series
upon such amendment, and the affirmative vote of two-thirds of the outstanding
shares of Series A Preferred Stock shall be necessary to the adoption thereof,
in addition to such other vote as may be required by the Minnesota Business
Corporation Act.
<PAGE>
Section 11. Fractional Shares. Series A Preferred Stock may be issued
in fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
I certify that I am authorized to execute this Certificate of
Designations, 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.
Dated: August 3, 1998
/s/ Phillip A. Staden
Phillip A. Staden, President and
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENTS FROM THE REGISTRANT'S FORM 10-QSB FOR THE QUARTER
ENDED 9/30/98 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 158,251
<SECURITIES> 0
<RECEIVABLES> 1,315,127
<ALLOWANCES> (141,460)
<INVENTORY> 146,054
<CURRENT-ASSETS> 2,045,433
<PP&E> 20,613,047
<DEPRECIATION> 17,645,483
<TOTAL-ASSETS> 5,482,860
<CURRENT-LIABILITIES> 2,172,235
<BONDS> 1,990,146
0
0
<COMMON> 13,564
<OTHER-SE> 1,063,009
<TOTAL-LIABILITY-AND-EQUITY> 5,482,860
<SALES> 5,031,252
<TOTAL-REVENUES> 5,031,252
<CGS> 4,122,354
<TOTAL-COSTS> 5,023,034
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 22,200
<INTEREST-EXPENSE> 204,817
<INCOME-PRETAX> (120,143)
<INCOME-TAX> 10,000
<INCOME-CONTINUING> (130,143)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (130,143)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
