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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(MARK ONE)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended October 31, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________________ to
____________________
COMMISSION FILE NUMBER 0-19056
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NORTHSTAR COMPUTER FORMS, INC.
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(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
MINNESOTA 41-0882640
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(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
7130 NORTHLAND CIRCLE NORTH, BROOKLYN PARK, MINNESOTA 55428
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(612) 531-7340
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(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.05 PER SHARE
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(TITLE OF CLASS)
[Cover page 1 of 2 pages]
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes No X
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Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [________]
State issuer's revenues for its most recent fiscal year: $28,903,158.
State the aggregate market value of the voting stock held by
non-affiliates of the issuer computed by reference to the price at which the
stock was sold, or the average bid and asked prices of such stock, as of a
specified date within 60 days. (SEE definition of affiliate in Rule 12b-2 of
the Exchange Act.): $16,056,950.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
1,716,571 Shares of Common Stock as of January 17, 1997
DOCUMENTS INCORPORATED BY REFERENCE:
1. Portions of the Registrant's Annual Report to Shareholders for its
fiscal year ended October 31, 1996 are incorporated by reference into Part II
of this Form 10-KSB.
[Cover page 2 of 2 pages]
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Northstar Computer Forms, Inc. (the "Company"), incorporated in 1964,
designs, manufactures and markets custom business forms and financial forms
with an emphasis on machine readable MICR (Magnetic Ink Character
Recognition) printing. The Company's two business concentrations are
business forms, sold primarily in the five-state region of Minnesota,
Wisconsin, Iowa, South Dakota and North Dakota, and internal bank forms, sold
to a national market. The Company markets its products principally through
distributors as well as directly to certain large bank customers.
The corporate headquarters and manufacturing facility of the Company
are located at 7130 Northland Circle North, Brooklyn Park, Minnesota. The
Company also maintains a manufacturing facility in Roseville, Minnesota as a
result of its acquisition, in July 1996, of the financial forms division of
Deluxe Corporation. The Company maintains a manufacturing facility in
Milwaukee, Wisconsin, Wisconsin Business Forms, which operates as a division
of the Company. The Company also operates, through its wholly-owned
subsidiary, General Financial Supply, Inc. ("GFS"), manufacturing facilities
in the cities of Nevada, Iowa, Bridgewater, Virginia and Denver, Colorado.
As of October 31, 1996, the Company employed approximately 495 persons at its
six manufacturing facilities, and the Company foresees no significant
increase or decrease in personnel for the 1997 fiscal year.
The Company serves most markets where business and financial forms are
used, although its primary targeted customers are banks and other users of
MICR business and financial forms. During the past few years, the Company
has continued to shift its emphasis towards MICR form product lines,
investing over a million dollars each year in equipment and technology to
produce various kinds of MICR business and financial forms.
BUSINESS HIGHLIGHTS - 1996
- Acquisition of the financial forms division of Deluxe Corporation.
- Installation of a Xerox 4635MX production system for on-demand
variable-text printing with MICR and bar codes.
- Conversion of General Financial Supply to a new integrated computer
system linking its three plants for improved productivity.
- Signing of four multi-year printing contracts totaling $5.5 million
in annual sales.
- Investment of $1,021,415 in capital equipment including new computer
systems and new sheet-fed press equipment.
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- Expansion of Bridgwater, Virginia plant for greater production.
- Initiation of software development process to integrate all computer
systems.
BUSINESS AND FINANCIAL FORMS
Business and financial forms manufactured by the Company consist of
unit-sets, continuous forms and cut sheet forms.
Unit-sets, simply defined, are multiple part business and financial
forms carbon interleaved or carbonless forms whose parts can be easily
separated. Unit-sets are frequently referred to as snap apart or snap-out
forms and are used for a variety of business applications, such as invoices,
purchase orders, checks, vouchers, sales books and register forms.
Continuous forms are used for the same business applications as
unit-sets. They consist of strips of perforated sets of forms marginally
punched to facilitate high-speed feeding through electronic data processing
equipment. They are manufactured from a continuous web or roll of paper that
is not cut into separate units, thereby facilitating a more efficient
handling of business record keeping by eliminating separate handling of each
business form unit.
Cut sheet forms are forms produced in individual sheets or placed
together by padding or booking. Examples of cut sheets are internal bank
documents (general ledger debit/credit, cash tickets and process control
documents), laser cut sheets (checks, statements and letterheads) and check
base stock (stock for imprinting by check printers).
The Company manufactures unit-sets, continuous forms and laser cut
sheets in its Brooklyn Park, Minnesota plant and unit sets in its Milwaukee,
Wisconsin plant. The Company's internal bank forms product lines are produced
in the Company's Roseville, Minnesota, Nevada, Iowa, Bridgewater, Virginia
and Denver, Colorado plants and consist principally of unit-sets and cut
sheet forms used in the banking industry.
Internal bank forms produced by the Company are highly specialized
forms such as teller cash tickets, general ledger debit/credit tickets,
teller receipts, batch process control documents and deposit/withdrawal
forms. All of these products are MICR encoded for today's high speed
processing needs. The Company guarantees MICR readability on all forms.
Most internal bank forms products are produced on an extremely short delivery
cycle. This enables bank customers to enjoy lower costs by alleviating the
necessity to inventory products.
MARKETING
The Brooklyn Park and Milwaukee plants primarily serve customers in the
five-state region of Minnesota, Wisconsin, Iowa, South Dakota and North
Dakota. These plants sell through
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distributors, on a non-exclusive basis, and to printers and stationers. The
Company's Roseville, Bridgewater and Nevada plants also sell through
distributors as well as directly to certain large bank customers. The
Company's Denver plant sells directly to banks principally located in the
State of Colorado, with a small portion in surrounding states. The Company
believes that it has a competitive advantage over other business and
financial form manufacturers through the use of its independent distribution
network, because the network enables the Company to focus on specialized
products and produce them efficiently. The Company sells to over 1,500
independent distributors, no one of which is considered a major customer.
The Company's use of distributors enables it to save the expense of
supporting a direct sales force, sales offices and certain marketing
expenses. All major competitors of the Company distribute their products
(both business and internal bank forms) through direct sales which typically
account for expenses of at least 10% of revenues. The Company currently
serves distributors and customers in all 50 states.
The Company intends to continue to emphasize its financial forms
business because of the nature of the MICR business forms market. MICR
encoded business and financial forms require special composition equipment
and inks, thus such encoding provides a value-added feature to custom
business and financial forms manufacturing. Approximately ninety percent
(90%) of the business and financial forms produced by the Company, including
virtually all of the internal bank forms are MICR encoded. The Company
specializes in such forms, enabling it to handle large and small volumes and
create operating efficiencies.
RAW MATERIALS AND ENVIRONMENTAL REGULATIONS
Raw materials utilized by the Company consist principally of a wide
variety of weights, widths, colors, sizes and qualities of paper for business
and financial forms. Other raw materials include printing ink, lithographic
plate material and chemicals. The Company has a policy of purchasing its
paper supplies from several major paper mills. In 1995, bond paper prices,
the principal paper used by the Company, increased substantially. During
1996, paper prices levelled off and selected weights of bond paper prices
decreased somewhat. The Company believes that paper and other raw materials
will be sufficiently available for the foreseeable future.
To the best of the Company's knowledge, it complies with all applicable
federal, state and local environmental regulations governing the discharge of
materials into the environment. Compliance with applicable environmental
regulations has not had and, it is anticipated, will not have a material
adverse affect on the Company's capital expenditures, earnings or competitive
position.
COMPETITION
The business forms industry is highly competitive and fragmented. The
Company has a number of competitors with substantially larger resources. In
the past year, based upon sales, the Company has grown from the 36th to the
21st largest United States business and financial forms manufacturer,
primarily as a result of the acquisition of the financial forms division of
Deluxe
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Corporation. This position enables the Company to specialize in a smaller
product line (MICR-oriented forms). The ability to specialize in MICR forms
allows the Company to focus its capital and create economies of scale through
more efficient production techniques and significantly limit the number of
its direct competitors to those specializing in MICR technology. The Company
believes that the principal competitive factors in the business and financial
form industry are specialization, service, quality and price.
The same competitive factors exist also in the internal bank forms
market, which is highly specialized and fragmented, with nearly 17,000 banks,
savings and loans and credit unions, where a large order is considered
$10,000 or more. Most large suppliers of bank forms concentrate their
business on personal and business checks, handling MICR-encoded internal bank
forms as an accommodation to their larger clients.
ITEM 2. DESCRIPTION OF PROPERTY
The Company operates manufacturing facilities in five states as follows:
Square Feet
of Floor Space
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Location Leased Owned
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Brooklyn Park, Minnesota 94,800
Nevada, Iowa 38,500
Roseville, Minnesota 42,500
Milwaukee, Wisconsin 10,000
Bridgewater, Virginia 25,000
Denver, Colorado 10,500
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TOTAL 88,000 133,300
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The Company's general offices are located in Brooklyn Park, Minnesota.
All of the above properties are used for the production, warehousing and
shipping of business forms. Production capacity fluctuates with the ebb and
flow of market demands. Equipment, substantially all of which is owned by the
Company, is added as existing machinery becomes obsolete or irreparable, and
as new equipment becomes necessary to meet market demands. The Company may
make material additions to property, plant and equipment, with the
expectation that such additions or replacements will increase a plant's
capacity and efficiency.
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All of the above-discussed manufacturing facilities are deemed to be in
good condition. In July 1996, the Company exercised its option to lease
5,000 additional square feet in Bridgewater, Virginia. The lease on the
Bridgewater facility will expire on April 30, 1997. The Company anticipates
being able to renew that lease at an acceptable rate. The Company's
Milwaukee property lease will expire on June 30, 1997 and the Company is in
the process of securing a larger leased facility for the Milwaukee operation.
The Denver property lease was renewed on January 1, 1997 for eighteen
months. The Company has notified the landlord that it will move on July 1,
1998 if suitable additional space cannot be obtained. The Roseville location
is being leased as part of the acquisition from Deluxe Corporation. The
lease of the Roseville property expires July 31, 1997 with an option to
extend for an additional six months. The Company is currently discussing
with Deluxe Corporation the possible purchase of the Roseville property.
Management of the Company believes that each of these facilities is
adequately covered by insurance. These property locations are expected to be
adequate for operations during the remaining lease terms. No difficulty is
presently foreseen in renewing the leases or finding replacement facilities.
The Brooklyn Park, Minnesota and Nevada, Iowa plants are owned outright
by the Company, which is the only company occupying these properties. The
Brooklyn Park facility is financed by Variable Rate Industrial and
Development Bonds in the amount of $2,945,000, of which $2,595,000 was
outstanding at October 31, 1996. The bonds are collateralized by a bank
letter of credit and are payable in varying installments through 2004. The
bank letter of credit is collateralized by a mortgage on the facility. The
Nevada plant is also mortgaged to as collateral for the Term Loan used to
purchase the financial forms division of Deluxe Corporation.
ITEM 3. LEGAL PROCEEDINGS
There are presently no material claims, legal proceedings, or litigation
pending or threatened to which the Company or GFS are a party; and no claims,
litigation or legal proceedings which are expected to have a material adverse
effect on the Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY-HOLDERS
No matters were submitted during the fourth quarter of the Company's
1996 fiscal year to a vote of security holders, through the solicitation of
proxies or otherwise.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated herein by
reference to page 7 of the Company's Annual Report to Shareholders for the
fiscal year ended October 31, 1996 pursuant to Rule 12b-23.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
The information required by this item is incorporated herein by
reference to pages 8-10 of the Company's Annual Report to Shareholders for
the fiscal year ended October 31, 1996 pursuant to Rule 12b-23.
ITEM 7. FINANCIAL STATEMENTS
The information required by this item is incorporated herein by
reference to pages 11-19 of the Company's Annual Report to Shareholders for
the fiscal year ended October 31, 1996 pursuant to Rule 12b-23.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The names, ages and positions of the Company's directors and executive
officers are as follows:
Name Age Position
---- --- --------
Roger T. Bredesen 70 Chairman of the Board and
Chief Executive Officer
John Mutschler 68 Director
J.S. Braun 64 Director
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Roy W. Terwilliger 59 Director
Dr. Lester A Wanninger 59 Director
Kenneth E. Overstreet 55 President, Director
Mary Ann Morin 49 Treasurer and Chief Financial
Officer
Don E. Dearborn 56 Vice President (GFS)
The following is a list of each of the above person's principal
occupations or employment during the past five years. All directors have
been elected to serve until the next annual election of directors which shall
occur in April 1997 at the annual meeting of the shareholders, or until their
earlier resignation or removal pursuant to the Bylaws of the Company.
Officers are appointed at the annual meeting of the Board of Directors to
serve until the next annual election by the Board of Directors, which may be
set in accordance with the Bylaws of the Company at any time after the end of
the fiscal year on October 31st of each year, or until their earlier
resignation or removal by the Board of Directors.
ROGER T. BREDESEN. Mr. Bredesen is the founder and has been the Chief
Executive Officer and Chairman of the Board of Directors of the Company since
its incorporation in 1964. He has also been the President of GFS since that
company was purchased in 1984. In December 1994, the Board of Directors
accepted Mr. Bredesen's resignation as President, a position he held since
founding the Company, although he continues as Chief Executive Officer. Mr.
Bredesen will also continue as the Chairman of the Board.
JOHN MUTSCHLER. Mr. Mutschler has been a Director of the Company since
1972. Mr. Mutschler is an attorney in Minnesota, and since 1958 has been the
President of John G. Mutschler & Associates, Inc., a firm which designs and
administers qualified pension and profit-sharing plans for businesses in
Minnesota and adjacent states. He has also been the President of JGM Agency,
Inc., a firm engaged in the management of real estate, since 1980.
J.S. BRAUN. Mr. Braun has been a Director of the Company since 1992.
Since 1957, Mr. Braun has been Chief Executive Officer and Chairman of Braun
Intertec Corporation, an engineering and environmental consulting firm with
offices across the northwestern United States, Board member of Community Bank
Group and Vice Chairman of a joint venture firm in China, Yucai-Braun
Intertec.
ROY W. TERWILLIGER. Mr. Terwilliger has been a director since March
1994. Since 1992, Mr. Terwilliger has been a Minnesota Senator in District
42. Since 1989, Mr. Terwilliger has been President of Community Bank Group,
Inc. of Eden Prairie, Minnesota.
DR. LESTER A. WANNINGER. Dr. Wanninger has been a Director of the
Company since 1996. Since 1989, Dr. Wanninger has been a faculty member and
coordinator of extension classes in
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Information and Decision Sciences at the Carlson School of Management of the
University of Minnesota. Dr. Wanninger has a Ph.D. in chemical engineering.
KENNETH E. OVERSTREET. Mr. Overstreet has been a director since 1993.
Since December 1994, Mr. Overstreet has been the President of the Company.
From 1989 to 1994, he was the Executive Vice President of the Company.
MARY ANN MORIN. Ms. Morin was elected as Chief Financial Officer of the
Company in 1996. She has been Treasurer since 1992 and Assistant Treasurer
and Controller of the Company since 1983. Ms. Morin is a certified public
accountant.
DON E. DEARBORN. Mr. Dearborn has been the general manager of GFS since
1985, and a vice president since 1988.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
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The following table summarizes the cash and non-cash compensation paid
to or earned by the Company's Chief Executive Officer and its one other
executive officer during the past three fiscal years whose annual salary and
bonus exceeded $100,000 during the Company's fiscal year ended October 31,
1996.
SUMMARY COMPENSATION TABLE
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NAME AND FISCAL ALL OTHER
PRINCIPAL YEAR ENDED ANNUAL COMPENSATION LONG-TERM COMPENSATION COMPENSATION
POSITION OCTOBER 31, ____________________________________________________ ($)1
SALARY ($) BONUS ($) AWARDS OF OPTIONS($)
_____________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Roger T. Bredesen, 1996 180,726 25,000 -0- 5,008
Chairman of
the Board and Chief
Executive Officer _____________________________________________________________________________________
1995 175,656 40,000 -0- 50,876
_____________________________________________________________________________________
1994 172,899 50,000 -0- 46,666
_____________________________________________________________________________________________________________
Kenneth E. 1996 122,894 28,198 -0- 19,897
Overstreet,
President and
Director _____________________________________________________________________________________
1995 122,167 30,753 20,000 15,515
_____________________________________________________________________________________
1994 117,572 30,464 6,667 9,270
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(1) Consists of contributions under the Company's Profit Sharing Plan and Trust
($5,008 to both Mr. Bredesen and to Mr. Overstreet in fiscal year 1996) and
the value of deferred compensation
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benefits under the Company's Deferred Compensation Plan of $14,889 for
Mr. Overstreet in fiscal year 1996.
STOCK OPTIONS
No options were granted to any of the executive officers named in the
Summary Compensation Table during the fiscal year ended October 31, 1996.
The following table summarizes the value of the unexercised options held by
the executive officers named in the Summary Compensation table as of October
31, 1996:
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
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VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
___________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Roger T. Bredesen N/A N/A 17,167/4,500(2) $ 40,651/$7,650
___________________________________________________________________________________________________________
Kenneth Overstreet N/A N/A 44,666/28,668(3) $162,064/$44,938
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(1) Value of unexercised options is calculated by determining the difference
between the fair market value of the shares underlying the options at
October 31, 1996 and the exercise price of the options.
(2) Consists of options to purchase 15,000 shares under the Company's 1994
Employees' Incentive Stock Option Plan (the "1994 Plan") and 6,667 shares
for serving on the Board of Directors.
(3) Consists of options to purchase 6,667 shares for serving on the Board of
Directors, 40,000 shares under the 1994 Plan and 26,667 shares pursuant to
a grant made by the Company in August 1990.
DIRECTORS' COMPENSATION
Directors receive annual directors' fees of $2,500 plus $600 per meeting
attended. In addition, directors of the Company receive options for serving
on the Board as follows:
Number of Purchase Price Date
Director Shares Per Share Granted
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Roger T. Bredesen 6,667 $4.88 1988(1)
John Mutschler 6,667 $4.88 1988(1)
J. S. Braun 6,667 $5.63 1992(1)
Kenneth E. Overstreet 6,667 $6.00 1993(1)
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Roy W. Terwilliger 6,667 $7.25 1995(2)
Dr. Lester A. Wanninger 6,667 $7.00 1996(2)
(1) These options were granted by resolution of the Board of Directors. The
option exercise prices (Purchase Price Per Share) were determined by the
bid price listed in the STAR TRIBUNE newspaper of the Twin Cities on the
date of grant (as adjusted for stock splits). Such options may be
exercised at the rate of 1,333 shares for each year of continuous service
on the Board of Directors. Board members who have served on the Board in
excess of five (5) years are able to exercise options for all 6,667 shares.
The right to exercise such options shall expire ten (10) years from the
date of grant.
(2) These options were granted pursuant to the Company's Outside Directors
Stock Option Plan (the "Directors Plan") which provides formula grants of
stock options to outside (non-employee) directors ("Outside Directors").
Pursuant to the Directors Plan, each Outside Director elected to the Board
during or after 1993 will receive an Option to purchase 6,667 shares of
Common Stock at a purchase price equal to the closing price of the Common
Stock on the date of grant. Options granted under the Directors Plan vest
and become exercisable over a five year period at the rate of 20% per year
commencing one year from the date of grant, and expire at the earlier of
(i) 10 years from the date of grant, or (ii) one year after the Outside
Director ceases to be a member of the Board.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Roger T. Bredesen,
its Chief Executive Officer, effective December 17, 1986, to serve in such
capacity until terminated by one of the parties upon 90 days notice. Mr.
Bredesen's annual base salary under the employment agreement is adjusted
annually by the Compensation Committee of the Board of Directors (in 1996,
Mr. Bredesen's base salary was $180,726). The employment agreement also
establishes an aggregate of $500,000 to be paid over the course of 10 years
following Mr. Bredesen's termination of employment with the Company at the
rate of $50,000 per year (which amount is subject to adjustment annually
based on changes in the Consumer Price Index). In October 1996, the Board of
Directors amended this plan to allow Mr. Bredeson to begin receiving these
payments in November 1996.
The Company entered into an employment agreement with Kenneth E.
Overstreet, its President, effective May 10, 1989, to serve originally as its
Executive Vice President until terminated by one of the parties. Mr.
Overstreet's annual base salary under the employment agreement is Adjusted
annually by the Compensation Committee of the Board of Directors (in 1996,
Mr. Overstreet's base salary was $122,894). The employment agreement also
granted to Mr. Overstreet an option to purchase 26,667 shares of the
Company's Common Stock at a purchase price of $4.50 per share. Mr.
Overstreet has agreed not to compete with the Company for a period of two
years after the termination of his employment.
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth as of January 19, 1997 the number of
shares of Common Stock beneficially owned by each person known to the Company
to be the beneficial owner of more than five percent (5%) of the outstanding
shares of the Company's capital stock by each director and by all executive
officers and directors as a group. Except as otherwise indicated, the
persons listed possess all voting and investment power with respect to the
shares listed for them.
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------- -------------------- ----------------
Roger T. Bredesen 101,633 Shares (1) 6%
7130 Northland Circle North
Brooklyn Park, MN 55428
Roger T. Bredesen 143,200 Shares 8%
Income Trust A dated
June 29, 1990
E. Burke Hinds, Trustee
100 So. 5th Street, Suite 1100
Minneapolis, MN 55402
Roger T. Bredesen 143,200 Shares 8%
Income Trust B dated
June 29, 1990
Clarence J. Hynes, Trustee
1433 Utica Avenue So.
Minneapolis, MN 55416
E. Fay Bredesen Income Trust 158,237 Shares 9%
dated June 29, 1990
Wendall J. Davidson, Trustee
11931 54th Avenue So.
Minneapolis, MN 55442
E. Faye Bredesen 1996 Annuity 141,857 Shares 8%
Trust U/A dated December 20, 1996
E. Faye Bredesen and E. Burke
Hinds, Trustees
100 So. Fifth Street, Suite 1100
Minneapolis, MN 55402
E. Burke Hinds 320,057 Shares (2) 18%
100 So. Fifth Street, Suite 1100
Minneapolis, MN 55402
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NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------- -------------------- ----------------
John Mutschler 7,667 Shares (3) *
7130 Northland Circle North
Brooklyn Park, MN 55428
Kenneth E. Overstreet 46,810 Shares (4) 3%
7130 Northland Circle North
Brooklyn Park, MN 55428
J.S. Braun 9,333 Shares (5) *
8000 Townline Avenue So.
Minneapolis, MN 55439
Roy W. Terwilliger 2,666 Shares (6) *
P. O. Box 444005
Eden Prairie, MN 55344
Dr. Lester A. Wanninger 0 Shares
395 Hubert H. Humphrey Building
271 19th Avenue South
Minneapolis, MN 55455
All executive officers (4)
and directors as a group
(8 individuals) 198,191 Shares (1, 3-7) 11%
_________________________________
*Represents less than 1%
(1) Includes 17,167 shares issuable upon exercise of currently exercisable
options.
(2) Represents 143,200 shares beneficially owned by the Roger T.
Bredesen Income Trust A dated June 29, 1990, 141,857 shares beneficially
owned by the E. Faye Bredesen 1996 Aunnuity Trust U/A dated December 20,
1996 and 35,000 shares beneficially owned by the Roger T. Bredesen 1996
Annuity Trust U/A dated December 20, 1996, as to all of which trusts Mr.
Hinds serves as trustee.
(3) Includes 6,667 shares issuable upon exercise of currently exercisable
options.
(4) Includes 44,666 shares issuable upon exercise of currently exercisable
options.
(5) Includes 6,667 shares issuable upon exercise of currently exercisable
options.
(6) Includes 2,666 shares issuable under currently exercisable options.
(7) Includes 8,400 shares issuable to two officers upon exercise of currently
exercisable options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable
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ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as a part of the report:
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Exhibit
Number Title Method of Filing
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<S> <C> <C>
3.1 Restated Articles of Incorporation *
of the Company, as amended
3.2 Bylaws of the Company *
4 Instruments defining rights of *
security holders
10.1 Employment Agreement of Roger *
Bredesen
10.1(a) Employment Agreement, dated May 10,
1989, of Kenneth E. Overstreet *
10.3 Northstar Computer Forms, Inc. *
Deferred Compensation Plan for
Officers of the Company
10.4 Northstar Computer Forms, Inc. *
Amended and Restated Employees'
Profit Sharing Plan and Trust
10.4.1 Amendment to Northstar Computer Incorporated by
Forms, Inc. Amended and Restated reference to the
Employees' Profit Sharing Plan same numbered Exhibit
and Trust to the Company's
Form 10-KSB filed on
January 27, 1993
10.4.2 General Financial Supply, Inc. Incorporated by
Amended and Restated Employees' reference to the
Profit Sharing Plan and Trust same numbered Exhibit
to the Company's Form
10-KSB filed on
January 27, 1993
10.5 Northstar Computer Forms, Inc. *
1984 Stock Option Plan
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Title Method of Filing
------- ----- ----------------
<S> <C> <C>
10.6 Milwaukee, Wisconsin Lease *
10.6(a) Fifth and Sixth Addendums dated Incorporated by
March 10, 1994 and December 13, reference to the
1994, respectively, to Milwaukee, same numbered Exhibit
Wisconsin Lease to the Company's
Form 10-KSB filed on
January 27, 1995
10.7 Bridgewater, Virginia Lease Incorporated by
reference to the
same numbered Exhibit
to the Company's
Form 10-KSB filed on
January 25, 1994
10.7(a) Bridgewater, Virginia Lease Incorporated by
Option, dated July 8, 1994, and reference to the
lease extension dated December same numbered Exhibit
12, 1994 to the Company's
Form 10-KSB filed on
January 27, 1995
10.9 Denver, Colorado Lease Incorporated by
reference to the
same numbered Exhibit
to the Company's
Form 10-KSB filed on
January 29, 1991
10.9(a) Extension to Denver, Colorado Incorporated by
Business Lease dated December reference to the
26, 1994 same numbered Exhibit
to the Company's
Form 10-KSB filed on
January 27, 1995
10.10 License Agreement dated May 31, Incorporated by
1991 between the Company and reference to the
Standard Register Company same numbered Exhibit
to the Company's
Form 10-KSB filed on
January 29, 1991
10.12 1994 Employee Incentive Incorporated by
Stock Option Plan reference to the
same numbered Exhibit
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Title Method of Filing
------- ----- ----------------
<S> <C> <C>
to the Company's
Form 10-KSB filed on
January 25, 1994
10.14 Purchase Agreement for 1226 Linden Avenue Incorporated by
between Benson-Orth Associates, Incorporated reference to the
as Buyer and the Company as Seller, dated same numbered Exhibit
July 28, 1994 to the Company's
Form 10-KSB filed on
January 27, 1995
10.15 Like Kind Exchange Agreement by and Incorporated by
between the Company, Benson-Orth reference to the
Associates, Incorporated, and same numbered Exhibit
Creative Land Services dated July to the Company's
28, 1994 Form 10-KSB filed on
January 27, 1995
10.16 Loan Agreement between Brooklyn Incorporated by
Park Economic Development Authority reference to the
and the Company dated August 1, 1994 same numbered
Exhibit to the Company's
Form 10-KSB filed on
January 27, 1995
10.17 Indenture of Trust between Brooklyn Incorporated by
Park Economic Development Authority reference to the
and First Trust National Association same numbered Exhibit
dated August 1, 1994 to the Company's
Form 10-KSB filed on
January 27, 1995
10.18 Reimbursement Agreement between First Incorporated by
Bank National Association and the reference to the
Company dated August 1, 1994 same numbered Exhibit
to the Company's
Form 10-KSB filed on
January 27, 1995
10.19 First Bank National Association Incorporated by
Initial Letter of Credit dated reference to the
August 25, 1994 same numbered Exhibit
to the Company's
Form 10-KSB filed on
January 27, 1995
10.20 Northstar Computer Forms Outside Incorporated by
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Title Method of Filing
------- ----- ----------------
<S> <C> <C>
Directors Stock Option Plan reference to the
same numbered
Exhibit to the
Company's Form
10-QSB filed on June
14, 1995
10.21 Lease, dated July 22, 1996 by and Filed herewith
between Northstar Computer Forms,
Inc. and Deluxe Corporation relating
to the Company's Roseville facility
13 Annual Report to Shareholders Filed herewith
for the fiscal year ended
October 31, 1996
18 Letter re change in accounting principles Incorporated by
reference to the
same numbered Exhibit
to the Company's Form
Form 10-KSB filed on
January 29, 1996
22 Subsidiaries of the Company Incorporated by
reference to the
same numbered Exhibit
to the Company's Form
Form 10-KSB filed on
January 29, 1991
23.1 Consent of Coopers & Lybrand, L.L.P. Filed herewith
</TABLE>
____________
* Incorporated by reference to the same numbered exhibit to the Company's
Registration Statement on Form 10 which was rendered effective on May 7,
1991, pursuant to Rule 12b-32.
(b) REPORTS ON FORM 8-K. The Company filed one report on Form 8-K on
August 7, 1996 relating to its acquisition, on July 22, 1996 of substantially
all of the assets of the financial forms division of Deluxe Corporation.
Because this acquisition is deemed significant in relation to the Company's
financial statements, the Company was required to provide certain audited and
proforma financial information about the acquired division in its Form 8-K
filing, but has not yet provided the information. As a result of this, the
Company is deemed not to be in compliance with its reporting obligations
under the Securities Exchange Act of 1934, as amended. Except for the
foregoing, no other reports on Form 8-K were filed during the last quarter of
the period covered by this report.
-18-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
NORTHSTAR COMPUTER FORMS, INC.
By:/s/ Mary Ann Morin
--------------------------------
Mary Ann Morin, Treasurer
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Roger T. Bredesen 1/23/97
- ---------------------------------------- -------
Roger T. Bredesen, Chairman of the Board, Date
President and Chief Executive Officer
/s/ John Mutschler 1/23/97
- ---------------------------------------- -------
John Mutschler, Director Date
/s/ Kenneth E. Overstreet 1/23/97
- ---------------------------------------- -------
Kenneth E. Overstreet, Director Date
/s/ J. S. Braun 1/23/97
- ---------------------------------------- -------
J. S. Braun, Director Date
/s/ Roy W. Terwilliger 1/23/97
- ---------------------------------------- -------
Roy W. Terwilliger, Director Date
/s/ Dr. Lester A. Wanninger 1/23/97
- ---------------------------------------- -------
Dr. Lester A. Wanninger, Director Date
-19-
<PAGE>
LEASE
THIS LEASE, made this 22nd day of July, 1996, between DELUXE CORPORATION,
a Minnesota corporation, (hereinafter designated as "Landlord") and NORTHSTAR
COMPUTER FORMS, INC., a Minnesota corporation, (hereinafter designated
"Tenant");
WITNESSETH:
ARTICLE 1 - PREMISES AND TERM. The Landlord, in consideration of the
rental herein agreed to be paid by the Tenant and the other conditions,
agreements and stipulations of the Tenant herein expressed and agreed to be
kept and performed by the Tenant, does hereby demise and lease unto the
Tenant the building containing approximately 40,000 square feet situated in
the City of St. Paul, County of Ramsey, State of Minnesota, located at 2341
St. Croix Street, Roseville, MN 55113, together with parking areas,
sidewalks and yard areas adjacent thereto, all legally described in the
attached Exhibit A hereinafter referred to as the "leased premises".
TO HAVE AND TO HOLD the leased premises and appurtenances for a term
commencing July 22, 1996, and shall continue for a period of One (1) year and
nine (9) days unless sooner terminated, as hereinafter provided until July
31, 1997. Tenant shall have the option to extend the term for an additional
six (6) calendar months on the same terms and conditions, which option must
be exercised by written notice given by Tenant to Landlord not less than
ninety (90) days prior to expiration of the initial term.
ARTICLE 2 - RENT. Landlord reserves and Tenant covenants to pay to
Landlord, without demand, at its office, or at such other place as Landlord
may, from time to time, designate in writing, a gross rent of Two Hundred
Thousand Dollars ($280,000.00) for the term payable in monthly installments
of $23,333.33 per month on the first day of each and every calendar month in
advance during the year of the term. Partial months shall be pro-rated.
ARTICLE 3 - BUSINESS USE. The leased premises shall be used and occupied
by Tenant for operation as a printing facility or for any other legal purpose.
ARTICLE 4 - CERTIFICATION THAT LEASE IS IN FULL FORCE AND EFFECT. For the
purposes of mortgaging the leased premises or for the sale of the leased
premises, Tenant shall, at any time, on fifteen (15) days' prior written
notice by Landlord, execute, acknowledge, and deliver to Landlord a written
statement certifying that this Lease continues unmodified and is in full
force and effect (or if there have been modifications, that this Lease
continues in full force and effect as modified and stating the
modifications), and the dates to which the rent and the additional rent have
been paid, and stating whether Tenant is in default in performing any
covenant to this Lease, and, should Tenant be in default, specifying each and
every such default.
<PAGE>
ARTICLE 5 - CARE OF PREMISES. Tenant shall, at its expense, keep the
leased premises used by it and all of Tenant's leasehold improvements used by
it in a clean, safe and sanitary and a good and reasonable condition.
ARTICLE 6 - REPAIRS. Tenant shall at all times keep the interior
non-structural components of leased premises and all of Tenant's leasehold
improvements in a good state of repair subject to ordinary wear. Landlord
shall be responsible for maintenance, repair or replacement of exterior walls
and entrances, all glass, and window moldings, parking areas, striping,
seal-coating thereof and the surface thereof, floors, lighting, heating and
plumbing fixtures, utility lines, roof, heating and air conditioning systems
any of which are located in or about the leased premises in good order and
condition. Structural portions of the building shall be the responsibility of
Landlord. For purposes of this Article, structural portions of the building
shall include the outer walls, roof, foundation and supporting members of the
building structure of which the leased premises constitute a part. If the
exterior walls entrances, glass, window moldings, parking areas, striping,
seal coating (or the surface thereof), floors, lighting, plumbing fixtures,
utility lines, roof, heating or air conditioning systems located in or about
the leased premises fall into a state of disrepair or become damaged or
destroyed through the negligence, carelessness or misuse of Tenant or its
agents or employees, the cost of the necessary maintenance, repair or
replacement shall be the responsibility of Tenant.
ARTICLE 7 - SIGNS. The Tenant may erect, place or display or allow to be
erected, placed, or displayed any lettering, sign, advertisement, awning, or
other projection in or on the leased property or in or on the building of
which it forms a part without the Landlord's consent.
At the end of the term of this Lease or of any renewal thereof, the Tenant
shall remove its signs at its own expense and repair any damage to the
demised premises resulting from the erection, maintenance, or removal of its
sign.
ARTICLE 8 - ALTERATIONS, INSTALLATIONS, FIXTURES. Except as hereinafter
provided, Tenant shall not make any alterations in or additions to the leased
premises which exceed $50,000.00 in costs without the written consent of
Landlord and alterations or additions under $50,000.00 may be made without
the consent of the Landlord. If alterations become necessary because of the
application of laws or ordinances or of the directions, rules or regulations
of any regulatory body, Landlord shall make such alterations at its own cost
and expense. At the expiration or sooner termination of this Lease, Tenant,
at the option of the Landlord, shall return the premises to their original
condition, subject to normal wear and tear. Title to any and all such
leasehold improvements, alterations, installations or additions shall revert
to Landlord upon expiration or sooner termination of this Lease at Landlord's
option at Tenant's option.
ARTICLE 9 - COVENANTS TO HOLD HARMLESS. Unless the liability for damage
or loss is caused by intentional acts or the negligence of Landlord, its
agents or employees, Landlord shall be held harmless by Tenant from any
liability for damages to any person or property in or upon the leased
premises, including the person and property of Tenant and its employees and
all persons in the building at its or their invitation. All property kept,
stored or maintained in the leased premises shall be so kept, stored or
maintained at the sole risk of
2
<PAGE>
Tenant. Tenant agrees to pay all sums of money in respect of any labor,
services, materials, supplies, or equipment furnished or alleged to have been
furnished to Tenant in or about the leased premises, and not furnished on
order of Landlord, which may be secured by any Mechanic's, Materialmen's or
other lien against the leased premises or the Landlord's interest therein and
will cause each such lien to be discharged at the time performance of any
obligation secured thereby matures. Landlord shall have the right to post
and maintain on the leased premises, notice of non-responsibility under the
laws of Minnesota. Tenant shall have the reasonable right to protest any such
Mechanic's, Materialmen's or other such lien through appropriate legal
proceedings provided Tenant shall provide Landlord a bond or other evidence
satisfactory to Landlord evidencing Tenant's ability to pay such lien even if
so contested.
ARTICLE 10 - ASSIGNMENT OR SUBLETTING. Tenant may not sell, assign,
mortgage, pledge, sublease, or transfer this Lease or any estate or interest
thereunder without the previous written consent of Landlord in each instance.
Landlord's right to assign this Lease is and shall remain unqualified.
ARTICLE 11 - UTILITY SERVICE. Gas, Water, and Electricity. Landlord
agrees to cause mains, conduits, and other facilities to be provided to the
property lines and to supply gas, water, electricity and sanitary sewer to
the property lines. Tenant shall pay, when billed, for all water, gas and
electricity or other utility services used in the leased premises.
ARTICLE 12 - EMINENT DOMAIN. In the event of any eminent domain or
condemnation proceeding commenced by the filing of a petition in respect to
the leased premises during the term hereof, the following provisions shall
apply:
(a) TOTAL CONDEMNATION OF LEASED PREMISES. If the whole of the leased
premises shall be acquired or condemned by eminent domain for any
public or quasi-public use or purpose, then the term of this Lease
shall cease and terminate as of the date possession shall be taken in
such proceeding and all rentals shall be paid up to that date and
Tenant shall have no claim against Landlord nor the condemning
authority for the value of any unexpired term of this Lease.
(b) PARTIAL CONDEMNATION. If any part of the leased premises shall be
acquired or condemned as aforesaid, and in the event that such partial
taking or condemnation shall render the leased premises substantially
unsuitable for the business of the Tenant in the reasonable opinion of
Tenant, then the term of this Lease shall cease and terminate as of
the date possession shall be taken in such proceeding. Tenant shall
have a claim against Landlord or the condemning authority for the
value of any unexpired term of this Lease and rent shall be adjusted
to the date of such termination. In the event of a partial taking or
condemnation which is not extensive enough to render the premises
unsuitable for the business of the Tenant in the reasonable opinion of
the Tenant and Landlord, then Landlord shall promptly restore the
leased premises so as to constitute the remaining premises a complete
architectural unit, and this Lease shall continue in full force and
effect with a proportionate abatement of rent based on the portion of
the leased premises
3
<PAGE>
taken. The rent shall also abate during
restoration as to the portion of the leased premises rendered
untenantable.
(c) TENANT'S DAMAGES. Tenant shall have the further right to claim and
recover from the condemning authority such compensation as may be
separately awarded or recoverable by Tenant in Tenant's own right on
account of any cost or loss to which Tenant might be put in removing
and relocating Tenant's inventory, merchandise, equipment and personal
property.
(d) LANDLORD'S DAMAGES. In the event Landlord seeks any recovery from the
condemning authority, Tenant shall provide reasonable cooperation to
Landlord in such pursuit, provided such action shall not be
detrimental to Tenant's own claim for damages.
ARTICLE 13 - DAMAGE.
(a) PARTIAL OR TOTAL DESTRUCTION. In case the leased premises shall be
partially or totally destroyed by fire or other casualty insurable
under full standard fire and extended coverage insurance so as to
become partially or totally untenantable, the same, unless either
party shall elect to terminate this Lease as provided for in
subparagraph (b) below, shall be repaired as speedily as possible at
the cost of Landlord and a portion of the rent based upon the amount
of the leased premises rendered untenantable shall be abated until so
repaired.
(b) In the event the leased premises shall be substantially destroyed due
to a cause which is not insurable under such insurance, either party
may elect, within ten (10) days of such event by sending written
notice thereof, to terminate this Lease. In the event that such
partial or total destruction shall be to the extent that (i) the cost
of repair is reasonably estimated to exceed thirty-five (35%) percent
of the replacement cost of the building and improvements, or (ii) the
reasonably estimated time period for repair will exceed three (3)
months or will extend beyond the expiration date of the Lease term, as
extended by an exercise of the renewal option, either party may elect
to terminate this Lease within ten (10) days of such event by sending
written notice thereof to the other. Upon such termination, the
parties shall remain liable for their obligations which accrued prior
to the termination. Such termination shall be retroactive to the date
of casualty, but Tenant shall be permitted reasonable opportunity post
termination to remove its property.
(c) FIRE INSURANCE PROVISION.
(1) Landlord hereby waives and releases all claims, liabilities and
causes of action against Tenant and its agents, servants and
employees for loss or damage to, or destruction of, the leased
premises or buildings and other improvements situated on the
property resulting from fire, explosion or the other perils
included in standard extended coverage insurance, whether
4
<PAGE>
caused by the negligence of any of said persons or otherwise.
Likewise, Tenant hereby waives and releases all claims,
liabilities and causes of action against Landlord and its
agents, servants and employees or other tenants in the building
for loss or damage to, or destruction of, any of the
improvements, fixtures, equipment, supplies, merchandise and
other property, whether that of Tenant or of others in, upon or
about the leased premises or the buildings or improvements of
which the leased premises are a part resulting from fire,
explosion or the other perils included in standard extended
coverage insurance, whether caused by the negligence of any of
said persons or otherwise.
(2) Landlord will keep in force a standard form of Fire and Extended
Coverage Insurance with replacement cost endorsement in the event
of damage or destruction of the building and including public
liability insurance of the Landlord with respect to the leased
premises with limits of $500,000 for injury or death to any one
person, $1,000,000 for injury or death to more than one person,
and $500,000 with respect to damage to property. The Tenant
shall not pay any of the annual cost of such insurance premiums.
Tenant shall have sole responsibility to insure its leasehold
improvements, trade fixtures, fixtures, furnishings, inventory,
personal property and equipment.
ARTICLE 14 - SURRENDER. On the last day of the term demised or on the
sooner termination thereof, Tenant shall peaceably surrender the leased
premises in good order and condition, casualty loss only excepted. On or
before the last day of the term or the sooner termination thereof, Tenant
shall, at its expense, remove its trade fixtures, personal property and
equipment and signs from the leased premises and any property not removed
shall be deemed abandoned. Any damage caused by Tenant in the removal of
such items shall be repaired by and at Tenant's expense. All alterations,
additions, improvements and fixtures (other than Tenant's trade fixtures and
equipment) which shall have been made or installed by either Landlord or
Tenant upon the leased premises and all flooring shall remain upon and be
surrendered with the leased premises as a part thereof, without disturbance,
molestation or injury, and without charge, at the expiration or termination
of this Lease.
ARTICLE 15 - DEFAULT OF TENANT AND REMEDIES.
(a) RIGHT TO RE-ENTER. In the event of any failure of Tenant to pay any
rental within five (5) days written notice after the same shall be
due, or any failure to perform any other of the terms, conditions or
covenants of this Lease to be observed or performed by Tenant for more
than thirty (30) days after written notice of such other default shall
have been given to Tenant, (or in the event such other default cannot
reasonably be cured within thirty (30) days and Tenant commences to
cure and diligently pursue a course of action to so cure and continue
towards completion then for a reasonable period of time thereafter, or
if an agent of Tenant shall substantially falsify any report required
to be furnished to Landlord pursuant to the terms of this Lease, or if
Tenant or any guarantor of this Lease
5
<PAGE>
shall become bankrupt or insolvent, or file any debtor proceedings
or take or have against Tenant or any guarantor of this Lease in any
court pursuant to any statute either of the United States or of any
state a petition in bankruptcy or insolvency or for reorganization or
for the appointment of a receiver or trustee of all or a portion of
Tenant's or any such guarantor's property, or if Tenant or any such
guarantor makes an assignment for the benefit of creditors, or
petitions for or enters into an arrangement, or suffer this Lease
to be taken under any writ of execution, then Landlord, besides
other rights or remedies it may have, shall have the immediate
right of re-entry and may remove all persons and property from the
leased premises in accordance with applicable law.
(b) RIGHT TO RELET. Should Landlord elect to re-enter, as herein
provided, or should it take possession, it may either terminate this
Lease or make such reasonable alterations and repairs at Tenant's
expense as may be necessary in order to relet the premises, and relet
said premises or any part thereof upon reasonable terms and conditions
and Landlord shall use its best efforts to mediate Tenant's damages.
(c) LEGAL AND OTHER EXPENSES. In case suit shall be brought because of
the breach of any covenant herein contained on the part of Tenant or
Landlord to be kept or performed, and a breach shall be established,
or a party shall successfully defend against an alleged breach, the
party so breaching or unsuccessfully defending against an alleged
breach shall pay to the party establishing the breach or successfully
defending against an alleged breach, all expenses incurred therefor,
including a reasonable attorney's fee and costs and any court having
jurisdiction over the matter shall fix and order payment of same. The
parties hereto waive any right to a trial by a jury to the maximum
extent waivable.
ARTICLE 16 - GENERAL. This Lease does not create the relationship of
principal and agent or of partnership or of joint venture or of any
association between Landlord and Tenant, the sole relationship between
Landlord and Tenant being that of Landlord and Tenant. No waiver of any
default by a party hereunder shall be implied from any omission by the other
party to take any action on account of such default if such default persists
or is repeated, and no express waiver shall affect any default other than the
default specified in the express waiver and that only for the time and to the
extent therein stated. The marginal or topical headings of the several
articles, paragraphs and clauses are for convenience only and do not define,
limit or construe the contents of such articles, paragraphs or clauses. All
preliminary negotiations are merged into and incorporated in the Lease. The
laws of the State of Minnesota shall govern the validity, performance and
enforcement of the Lease. This paragraph likewise applies in favor of the
Tenant to the same extent as if it had been retyped with the applicable
terminology reversed.
(a) ENTIRE AGREEMENT. This Lease and the Exhibits attached hereto and
forming a part hereof, set forth all the covenants, promises,
agreements, conditions and understandings between Landlord and Tenant
concerning the leased premises and there are no covenants, promises,
agreements, conditions or understandings,
6
<PAGE>
either oral or written, between them other than are herein set
forth. Except as herein otherwise provided, no subsequent
alteration, amendment, change or addition to this Lease shall be
binding upon Landlord or Tenant unless reduced to writing and
signed by them.
(b) PARTIAL INVALIDITY. If any term, covenant or condition of this Lease
or the application thereof to any person or circumstance shall, to
any extent, be invalid or unenforceable, the remainder of this Lease,
or the application of such term, covenant or condition to persons or
circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby and each term, covenant
or condition of this Lease shall be valid and be enforced to the
fullest extent permitted by law.
ARTICLE 17 - HOLDING OVER. In the event Tenant remains in possession of
the premises herein leased after the expiration of this Lease and without the
execution of a new lease, it shall be deemed to be occupying said premises as
a tenant from month-to-month, subject to all the conditions, provisions and
obligations of the Lease insofar as the same can be applicable to a
month-to-month tenancy.
ARTICLE 18 - QUIET ENJOYMENT. Landlord covenants and agrees with Tenant
and upon Tenant paying the rent and performing all of the terms and
conditions on Tenant's part to be observed and performed, Tenant may
peaceably and quietly enjoy the premises hereby leased for the business uses
permitted hereunder, subject, nevertheless, to the terms and conditions of
this Lease.
ARTICLE 19 - REAL ESTATE TAXES. Landlord shall pay all of the real estate
taxes and installments of assessments (including interest thereon)
attributable to the land and building of the leased premises, including the
parking area and any and all charges or fees imposed by any City County or
State, whether by special assessment or otherwise, for services rendered or
to be rendered in the future to or for the benefit of all or any part of the
leased premises and which are due and payable during the term or any renewal
term of this Lease and Tenant shall be under no obligation to reimburse
Landlord for any such matters.
ARTICLE 20 - NOTICES. Any notice required or permitted under this Lease
shall be deemed sufficiently given or served if sent by registered or
certified return receipt mail to Tenant at the address of the leased
premises, and to Landlord at 3680 Victoria Street North, Shoreview, MN 55126
and either party may by like written notice at the address where rent is
currently paid at any time designate a different address to which notices
shall subsequently be sent.
ARTICLE 21 - SUCCESSORS AND ASSIGNS. The terms, covenants and conditions
hereof shall be binding upon and inure to the successors in interest and
assigns of the parties hereto.
ARTICLE 22 - NON-LIABILITY. Landlord, except for Landlord's intentional or
negligent acts, shall not be liable for any damage to property of Tenant or of
others located on
7
<PAGE>
the leased premises, nor for the loss of or damage to any property of Tenant
or of others by theft or otherwise.
ARTICLE 23 - HAZARDOUS MATERIALS INDEMNITY. Tenant covenants, represents
and warrants to Landlord, its successors and assigns, (i) that it will not
use or permit the leased premises to be used, whether directly or through
contractors, agents or tenants, for the generating, transporting, treating,
storage, manufacture, emission of, spillage, or disposal of any dangerous,
toxic or hazardous pollutants, chemicals, wastes or substances as defined in
the Federal Comprehensive Environmental Response Compensation and Liability
Act of 1980 as amended by the Super Fund Amendments Reauthorization Act of
1986 ("CERCLA"), the Federal Resource Conservation and Recovery Act of 1976
("RCRA"), the Minnesota Petroleum Tank Release Cleanup Act (Minn. Stat.
Section 115C), or the Minnesota Response and Liability Act (Minn. Stat.
Section 115B) ("MERLA"), or any other federal, state or local environmental
laws, statutes, regulations, requirements and ordinances as amended from time
to time ("Hazardous Materials") in violation of any applicable law (provided
that Tenant may use the leased premises or permit the uses specified in this
subparagraph provided they do so in compliance with the requirements of any
Federal, State, or local government or any agency or department thereof
without the written consent of the Landlord); (ii) that it will disclose
within 3 business days any investigations or reports involving Tenant, or the
leased premises by any governmental authority which in any way pertain to
Hazardous Materials (iii) that Tenant shall not bring upon, use in, or
incorporate into the leased premises any polychlorinated biphenyls (PCB's),
petroleum or petroleum based derivations, urea formaldehyde, or asbestos
except in compliance with the requirements at law.
Landlord covenants, represents and warrants to Tenant, its successors and
assigns, to its knowledge, (i) that it has not used or permitted the leased
premises to be used, for the generating, transporting, treating, storage,
manufacture, emission of, or disposal of any Hazardous Materials; (ii) that
there have been no investigations or reports involving Landlord, or the
leased premises by any governmental authority which in any way pertain to
Hazardous Materials (iii) that the operation of the leased premises is not
currently violating any federal, state or local law, regulation, ordinance or
requirement governing Hazardous Materials; (iv) that the leased premises is
not listed in the United States Environmental Protection Agency's National
Priorities List of Hazardous Waste Sites nor any other list, schedule, log,
inventory or record of Hazardous Materials or hazardous waste sites, whether
maintained by the United States Government or any state or local agency; and
(v) that the leased premises does not contain any PCB's, petroleum or
petroleum based derivations, urea formaldehyde, or asbestos, except as may
have been disclosed in writing to Tenant by Landlord at the time of execution
and delivery of this Lease. In connection with the purchase of certain
assets by Tenant from Landlord, Tenant's environmental engineer is
undertaking a Phase I Environmental Assessment of the Premises, which may or
may not be completed as of the commencement of the term hereof and approval
of which shall not be unreasonably withheld. If the Phase I Environmental
Assessment has not been completed as of the commencement of the term hereof,
Tenant shall take reasonable action to have it promptly completed. Tenant's
environmental engineer shall be permitted reasonable access to the leased
premises for the purpose of conducting such inspections as may be necessary
in order to complete the Phase I Environmental Assessment. In the event that
the Phase I Environmental Assessment discloses matters of concern which may
require testing that
8
<PAGE>
would fall within the scope of what is commonly referred to as a Phase II
Environmental Assessment, Landlord agrees to pay the cost of performing such
tests and preparation of a Phase II Environmental Assessment and shall
undertake and pay the cost of any remedial action recommended therein or
required or recommended by any governmental agency. In the event that a
Phase I or Phase II Environmental Assessment discloses the release or
discharge of any Hazardous Substance upon the leased premises, as between
Landlord and Tenant, Landlord shall be irrebuttably presumed to be the sole
party responsible for such release or discharge and such release or discharge
shall be deemed to have occurred prior to the date hereof even though Tenant
may subsequent to the date of this Lease use similar chemicals, Hazardous
Substances or processes to those used by Landlord prior to the date of this
Lease and Landlord hereby agrees to indemnify and hold harmless Tenant
against loss or liability including attorneys' fees to third parties and
governmental authorities arising out of such releases or discharges occurring
prior to the effective date of this Lease and Tenant agrees to indemnify and
hold harmless Landlord against any loss or liability including attorneys'
fees to third parties and governmental authorities arising out of such
subsequent releases or discharges. Tenant shall repair or fill any borings
taken as part of the Phase II Environmental Assessment.
Additionally, each party agrees to indemnify and reimburse the other
party, its successors and assigns, for:
(a) any breach of any representations or warranties, and
(b) any loss, damage, expense or cost arising out of or incurred by the
other party which is the result of a breach of, misstatement of or
misrepresentation of the above covenants, representations and
warranties, and
together with all attorneys' fees, costs and disbursements incurred in
connection with the defense of any action against Landlord arising out of the
above. These covenants, representations and warranties shall be deemed
continuing covenants, representations and warranties for the benefit of
Landlord, and any successors and assigns of Landlord and shall survive
expiration or sooner termination of this Lease. The amount of all such
indemnified loss, damage, expense or cost, shall bear interest thereon at the
rate of 1% in excess of the prime rate or reference rate established from
time to time by Norwest Bank of Minnesota, N.A. and shall become immediately
due and payable in full on demand of any party so indemnified and entitled to
reimbursement, its successors and assigns. The indemnification contained
herein shall survive expiration or sooner termination of this Lease.
ARTICLE 24 - MISCELLANEOUS.
(a) The paragraph headings of this Lease are inserted only as a matter of
convenience and for reference and in no way define, limit or describe
the scope or intent of this agreement or any provision thereof or in
any way affect this agreement.
(b) This Lease may be executed in counterparts and when so executed shall
constitute one agreement binding on all parties hereto,
notwithstanding that they are not signatory to the original or same
counterpart.
9
<PAGE>
This Lease is a gross lease and Tenant shall not be obligated to pay all
or any portion of AD VALOREM real estate taxes, assessments, insurance
premiums, or any other Landlord obligations or incurred costs or expenses,
and Tenant shall be put to no other expense except its obligation to pay rent
and utilities and other expenses specifically described herein.
ARTICLE 25 - QUIET PERIOD. For a period of 120 days after the date hereof
Landlord agrees (i) not to list the leased Premises for sale with a broker,
(ii) not to offer the leased premises for sale, and (iii) not to negotiate
with any third party for sale of the leased premises nor enter into any
agreement of sale.
IN WITNESS WHEREOF, the Landlord and the Tenant have hereunto set their
hands the day and year first above written.
LANDLORD:
DELUXE CORPORATION, a Minnesota corporation
By: /s/ Guy C. Feltz
____________________________________
Its: VICE PRESIDENT-GM
________________________________
By: /s/ Stephen C. Peterson
____________________________________
Its: VICE PRESIDENT
________________________________
TENANT:
NORTHSTAR COMPUTER FORMS, INC., a Minnesota
corporation
bY: /S/ Roger Bredesen
________________________________
Its: CHAIRMAN C.E.O.
____________________________
10
<PAGE>
EXHIBIT A
T.L. #46356
LEGAL DESCRIPTION
All that part of the Northeast quarter (NE 1/4) of the Southwest quarter (SW
1/4), of Section Eight (8), Township Twenty-nine (29), Range Twenty-three
(23), lying Southeast of the Southeast line of right of way acquired by St.
Croix Falls, Minnesota Improvement Company, except that part thereof lying in
the West 189 feet of said Northeast quarter (NE 1/4) of Southwest quarter (SW
1/4) and except that part thereof lying Easterly of a line described as
follows:
Beginning at the intersection of the north line of right of way of Trunk
Highway No. 36, and the center line of St. Croix Street; thence running
Northerly on said center line, 140.1 feet; thence reflecting 17 degrees 44
minutes left on said center line, 310.95 feet; thence deflecting 40 degrees 00
minutes left, 50 feet; thence Northwesterly 291.8 feet, more or less, to a
point distant 322.31 feet from the North line of said Northeast quarter (NE
1/4) of Southwest quarter (SW 1/4) measured on said Southeasterly line; and
except part thereof lying East of a Southerly extension of said center line
of St. Croix Street; Subject to St. Croix Street, Trunk Highway No. 36 and
Northern States Power Company's easement, according to the United States
Government Survey thereof.
(Registered Property)
<PAGE>
COMPANY OVERVIEW:
- - Northstar Computer Forms, Inc. designs, manufactures, and markets
custom business forms, financial forms, and internal bank forms
with an emphasis on MICR (Magnetic Ink Character Recognition)
printing.
- - The Company's two business concentrations are custom security
documents and internal bank forms printing. Customers include
financial institutions and processors of MICR encoded documents.
- - Both business segments market their products through distributors
except for the top 200 banks that are marketed directly. Products
are sold to customers in all 50 states.
- - Corporate headquarters are in Brooklyn Park, Minnesota.
BUSINESS HIGHLIGHTS - 1996
- - Acquisition of the financial forms division of Deluxe Corporation
in July.
- - Installation of a Xerox 4635MX production system for on-demand
variable text printing with MICR and bar codes.
- - Conversion of General Financial Supply's three plants to a new
integrated computer system.
- - Signing of four multi-year printing contracts totaling $5.5 million
in annual sales.
- - Investment of $1,021,415 on capital equipment, including new
computer systems and new sheet-fed press equipment.
- - Expansion of Bridgewater, Virginia plant for greater production
capacity.
- - Initiation of software development to integrate all company
computer systems.
<PAGE>
KEY FINANCIAL HIGHLIGHTS
Year Ended October 31 1996 1995 % Change
_____________________________________________________________
RESULTS OF OPERATIONS (In thousands)
Net Sales $28,903 $24,216 19
Operating Income 2,375 1,903 25
Net Earnings 1,263 1,363 (7)
FINANCIAL CONDITION (In thousands)
Total Assets $29,401 $17,523 68
Stockholders' Equity 12,639 11,587 9
Working Capital 5,381 4,546 18
Weighted Average Shares 1,763 1,751 --
PER SHARE DATA
Net Earnings $ .72 $ .78 (8)
Dividends Declared .13 .125 --
Stockholders' Equity 7.16 6.62 8
KEY RATIOS AND OTHER DATA
Current Ratio 2.2 3.3
Long-Term Debt-to-
Capitalization 45.5% 18.0%
Gross Profit on Sales 23.3% 20.6%
Return on Average Equity 10.4% 12.4%
Return on Net Sales, Pretax 7.3% 9.1%
Number of Employees 495 230
<PAGE>
KEY FINANCIAL HIGHLIGHTS
PAGE 2
[GRAPH]
Bar Graph - SALES - Dollars in Millions
Vertical Axis - Range $0 - $30
Horizontal Axis - 1991 - 1996
Plot Points 1991 $16.2 1992 $19.4
1993 $20.0 1994 $22.7
1995 $24.2 1996 $28.9
[GRAPH]
Bar Graph - NET EARNINGS - Dollars in Millions
Vertical Axis - Range 0 - 14
Horizontal Axis - 1991 - 1996
Plot Points 1991 $ .7 1992 $1.1
1993 $1.4 1994 $1.3
1995 $1.4 1996 $1.3
[GRAPH]
Bar Graph - WORKING CAPITAL - Dollars in Millions
Vertical Axis - Range $0 - $6
Horizontal Axis - 1991 - 1996
Plot Points 1991 $3.5 1992 $4.0
1993 $3.9 1994 $3.4
1995 $4.5 1996 $5.4
[GRAPH]
Bar Graph - STOCKHOLDER'S EQUITY - Dollar in Millions
Vertical Axis - Range $0 - $14
Horizontal Axis - 1991 - 1996
Plot Points 1991 $ 7.1 1992 $ 8.1
1993 $ 9.3 1994 $10.4
1995 $11.6 1996 $12.7
<PAGE>
Dear Fellow Stockholders,
Northstar Computer Forms has undergone dramatic changes in the past year
through the largest acquisition in our corporate history, and has become a
much stronger company as a result. While our financial performance was under
plan due to a major customer being bought by a competitor, the strong
contribution of our new Northstar Financial Forms division enabled us to end
the year on a very solid note in the fourth quarter.
Since the acquisition, we have had many questions posed to us about the
performance and strategy of the expanded company. So, we decided to
incorporate some key questions and answers in this letter:
WERE YOU PLEASED WITH THE FINANCIAL PERFORMANCE IN 1996?
Northstar had a good year in 1996. Sales set a record year with an increase
of 19.4 percent to $28,903,158. Net income totaled $1,263,056, a decrease of
7.4 percent. Earnings per share were $ .72 compared to $ .78 for fiscal
1995. Stockholders' equity increased 9.2 percent from $11,587,122 to
$12,638,535 with the combined contribution of Northstar Financial Forms, and
the other improvement we've made, we have high expectations for our
performance next year.
WHAT WERE THE MAIN FOCUS AREAS OF THE COMPANY FOR THE YEAR?
Our focus centered on our two main product areas - internal bank forms and
security documents.
In the internal bank forms area, the acquisition in July gave us one full
quarter of results for the year. This included an 80 percent increase in
sales and 108 percent increase in profits for the fourth quarter compared to
below average performance for the first three quarters. With four plants
producing internal bank forms, our focus is centered on these higher margin
product lines.
In the security documents area, we expanded our features to deter
counterfeiting by offering customers multiple ways to combat document fraud.
In addition, we added the ability to furnish our customers with smaller
quantity orders for secure documents and internal bank forms with a new
technology system called the Xerox 4635MX. This on-demand laser printing
system can print variable information on each document while providing the
highest quality MICR and bar code printing.
WHAT OTHER COMPETITIVE STRATEGIES DID YOU IMPLEMENT DURING THE YEAR?
We continued to stay on the leading edge of prepress and printing
technologies. We are 90 percent direct computer-to plate including metal,
onyx, and paper plates. This capability enabled us to increase quality and
decrease order delivery cycles. By staying competitive, we were able to
negotiate four new contracts worth $5.5 million per year in sales.
HOW DID GENERAL FINANCIAL SUPPLY PERFORM IN 1996?
General Financial Supply contributed another outstanding annual performance
and, at the same time, completed a total upgrade of computer software that
integrated their three production facilities.
<PAGE>
We should also note that the strong presence GFS has established in the
financial form markets over the years gave us the know how and confidence
necessary to complete the Deluxe acquisition. Financial forms now
constitutes a much larger portion of our total business and the foundation
built by GFS will enable us to develop this part of our business to its full
potential in the future.
WHAT OTHER FACTORS AFFECTED YOUR BUSINESS?
Paper prices balanced out for the year after increasing for two quarters and
decreasing significantly for the last two quarters. Our paper projection is
for a soft market the early part of 1997. Another major factor was our
inability to hire and train employees fast enough to meet production needs.
Training has become a major factor in our ability to meet customer
expectations for quality and service. Our employees met the challenge and
performed extremely well.
WHAT ARE THE LIFE CYCLE PROJECTIONS FOR YOUR PRODUCT LINES?
MICR (Magnetic Ink Character Recognition) technology shows no sign of being
replaced in the short or long term. Ninety percent of our product line
contains MICR printing. The changes in technology center on the PROCESSING
of MICR documents more effectively. Through investment in technology,
Northstar and GFS remain leaders in providing optical character recognition
(OCR), bar coding, and image scanning to their customer base.
Bank acquisitions and mergers have not caused a decrease in the volume of
internal bank forms. Quite the contrary, much of our new business is in
supplying new documents as a result of conversion programs.
In fiscal 1996, our company took a huge step forward with a major acquisition
to solidify our position as the leader in our two market segments of security
documents and internal bank forms. We appreciate the support of our
customers, shareholders, and employees as we prepare for new levels of
challenges and opportunities in 1997.
Roger T. Bredesen Kenneth E. Overstreet
Chief Executive Officer President
[PHOTO] [PHOTO]
<PAGE>
A GIANT STEP FORWARD THROUGH ACQUISITION
Northstar undertook the acquisition of its largest competitor to become the
leader in the financial forms niche market. Combining the Deluxe financial
forms revenues together with those of the General Financial Supply subsidiary,
the company now has over 20 percent market share in the financial forms
segment and is the largest single competitor among a number of players.
Products in this market have a long life cycle, and the technology of the
combined businesses provide competitive advantages that will be enhanced
through continued capital investment.
The new division, renamed Northstar Financial Forms Division, produces
internal bank forms, using MICR printing. The forms, which are used for
financial controls in banking operations, include cash tickets, general ledger
tickets, process control documents and teller receipts as well as official
checks and drive-up envelopes. General Financial Supply manufactures the same
product categories.
Northstar acquired the division with confidence because of the similarity, not
only in terms of products, but also in technology and markets, with its
existing GFS business. Through this acquisition, Northstar added 7,600 bank
customers, a strong revenue stream, and economies of scale in terms of
manufacturing, purchasing and marketing, that will benefit the total company.
Northstar acquired more than just assets. The division's employees and
vendors are facilitating a smooth transition to provide products and services
to the customer base.
After a transition, Northstar expects to be able to build upon the revenue
flow of the new division. The objective over time is to manage this
additional business to financial performance levels comparable to the General
Financial Supply business, through economies of scale, improving purchasing
power and productivity gains. From the start, the acquisition significantly
enhances Northstar's operating flexibility and competitive positioning in a
market that is expected to increase steadily in size for years to come.
<PAGE>
MARKET POSITIONING FOR PERFORMANCE
Having built its reputation consistently over the years as the low-cost
producer of high quality forms, Northstar Computer Forms has now acquired the
distinction of being the largest supplier of financial forms in the U.S. With
six manufacturing facilities across the middle of the country and distributors
in every state, Northstar is positioned to serve the critical needs of more
than 10,000 banking and business customers.
Within the evolving forms market, Northstar Computer Forms addresses several
segments, including general business forms as well as financial and internal
bank forms. The company's marketing strategy has remained the achievement of
strength through market share. From its traditional base in business forms,
Northstar established itself in the higher-margin internal bank forms market
in 1984 through the acquisition of General Financial Supply. Since then,
Northstar has expanded financial forms from about eight percent to an
anticipated 90 percent of its total business in fiscal 1997.
The U.S. internal bank forms market represents approximately $200 million in
shipments and is growing at a rate of approximately 10 percent annually.
General Financial Supply serves medium-sized and smaller banks through its
national network of distributors. Prior to the acquisition, Northstar's new
division sold directly to banks through the Deluxe sales force as part of its
check printing business. Northstar Financial Forms Division continues to
service existing accounts through its customer service representatives, and is
in the process of transitioning many of these bank customers to being served
by Northstar distributor/business partners. Northstar is forging strategic
alliances with a number of current distributors to provide the high level of
sales support many banks require, while accommodating their individual needs
in terms of distribution channels.
[MAP]
[PHOTO] [PHOTO]
<PAGE>
The negotiable document market, consisting of money orders, official checks
and cashier's checks, represents annual shipments of $100 million on a
national basis. Having invested in the technology required for security in
this product category, Northstar has come to control about eight percent of
this market, primarily through its Brooklyn Park manufacturing facility.
The general business forms market, represents about $5 billion in shipments
nationally, with a small percentage in the north central states served by
Northstar and Wisconsin Business Forms division in Milwaukee. With
competition in business forms limiting margins over the long term, the
company's strategy is to provide the highest-quality products to this segment,
while focusing its development efforts on the other higher-margin segments.
Over time, this market strategy has resulted in a dramatic shift in business
mix toward higher-margin products for financial markets.
[PHOTO] [PHOTO]
<PAGE>
Northstar Computer Forms
FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED, OCTOBER 31:
RESULTS OF OPERATIONS 1996 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $28,903,158 $24,215,962 $22,633,951 $20,019,575 $19,370,486 $16,207,092
Gross Profit 6,748,180 4,975,894 5,177,970 4,652,286 4,602,740 3,725,142
Operating Income 2,375,086 1,902,976 2,135,223 1,697,710 1,778,169 1,273,693
Net Earnings 1,263,056 1,363,410 1,285,835 1,374,657 1,100,380 744,185
Cash Flow/Ops 2,872,187 1,376,858 2,322,240 2,076,189 2,006,162 1,979,790
FINANCIAL CONDITION
- -------------------------------------------------------------------------------------------------------------
Total Assets $29,401,432 $17,523,364 $16,499,238 $12,042,847 $11,021,136 $10,326,393
Working Capital 5,381,223 4,545,734 3,357,561 3,935,416 3,977,305 3,469,135
Current Ratio 2.2 3.3 2.6 3.4 3.1 3.1
Long Term Debt 10,565,175 2,535,000 2,795,000 - - 439,509
Stockholders' Equity 12,638,535 11,587,122 10,399,485 9,303,208 8,108,402 7,132,348
KEY RATIOS ANALYSIS
- -------------------------------------------------------------------------------------------------------------
Gross Profit 23.3% 20.6% 22.9% 23.2% 23.8% 23.0%
Operating Income 8.2 7.9 9.4 8.4 9.2 7.9
Net Earnings 4.4 5.6 5.7 6.9 5.7 4.6
Return on Equity 10.4 12.4 13.0 15.7 14.4 11.0
L-T Debt to Capitalization 45.5 18.0 21.2 - - 5.8
PER SHARE DATA
- -------------------------------------------------------------------------------------------------------------
Book Value $ 7.16 $ 6.62 $ 5.90 $ 5.33 $ 4.69 $ 4.21
Net Earnings .72 .78 .73 .79 .64 .44
Dividends .13 .125 .115 .105 .10 .08
Weighted Average
Outstanding Shares 1,762,681 1,750,729 1,761,699 1,744,818 1,727,259 1,693,067
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
STOCK INFORMATION/REGISTER 1996 Quarter High Low Close
------------ ---- --- -----
<S> <C> <C> <C> <C>
1st 8.00 6.75 8.00
The Company's common stock is traded under the symbol 2nd 7.13 6.95 6.75
NSCF on the NASDAQ/NMS. As of January 17, 1997, the 3rd 9.50 6.75 9.06
approximate number of stockholders was 700 and holders 4th 8.75 8.00 8.30
of record 290. The following table sets forth the range Present 1-17-97 12.50 12.50 12.50
of high and low quotations per share for 1996 and 1995.
In 1996 and 1995 the Company declared dividends of $ .13 1995 Quarter High Low Close
per share and .125 per share, respectively. ------------ ---- --- -----
1st 8.75 7.00 8.25
Future dividends are restricted to a maximum of 20 2nd 9.00 7.25 8.00
percent of consolidated net income under the term loan 3rd 8.00 7.25 7.50
agreement. (See Note 9 to Consolidated Financial 4th 8.00 7.25 7.62
Statements.)
</TABLE>
<PAGE>
NORTHSTAR COMPUTER FORMS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
INTRODUCTION
The following discussion supplements the information presented in the
consolidated financial statements beginning on page 11. For better
understanding, key data has been illustrated in graphs. Additional
information and statistics are provided in the six-year Financial Data table
on page 7.
The following table sets forth, for the periods indicated, certain items in
the Company's consolidated statements of earnings as a percentage of net
sales and the percentage changes of the dollar amounts of such items as
compared with the prior period.
1996 1995
COMPARED COMPARED
1996 1995 1994 TO 1995 TO 1994
---- ---- ---- ------- -------
Net Sales 100.0% 100.0% 100.0% 19.4% 7.0%
Cost of Goods Sold 76.7 79.4 77.1 15.2 10.2
Gross Profit 23.3 20.6 22.9 35.6 (3.9)
Selling, General,
and Administrative 15.1 12.7 13.5 42.3 1.0
Operating Income 8.2 7.9 9.4 24.8 (10.9)
Net Earnings 4.4 5.6 5.7 (7.4) 6.0
- -------------------------------------------------------------------------------
Bar Graph NET SALES - $ in Millions
Vertical Axis 0 - 30 (Bottom to Top)
Horizontal Axis - 1991 - 1996 (Left to Right)
Plot Points 1991 - $16.2 1992 - $19.4
1993 - $20.0 1994 - $22.7
1995 - $24.2 1996 - $28.9
RESULTS OF OPERATIONS
NET SALES. Net sales in fiscal 1996 of $28,903,158
increased $4,687,196 or 19.4 percent from 1995 sales of
$24,215,962. Internal bank forms contributed 63.5 percent
of the sales; general business forms contributed 36.5 percent.
Sales of internal bank forms increased $6,688,073
from $11,670,986 to $18,359,059, an increase of 57.3 percent.
On July 22, 1996, just prior to the beginning of the fourth
quarter, the Company acquired substantially all
the assets of the financial forms division of Deluxe
Corporation. This acquisition contributed approximately
77 percent of the year's increase of internal bank form sales.
The remaining increase occurred mainly due to growth in
standard bank form orders from new and existing customers.
Sales of general business forms decreased $2,000,877 from
$12,544,976 to $10,544,099, a decrease of 16.0 percent.
This decrease in general business forms includes a
reduction of $1,100,000 in sales to one customer for the
year as a result of the customer being acquired by a
competitor.
Net sales in fiscal 1995 of $24,215,962 increased
$1,582,011 or 7.0 percent from 1994 sales of $22,633,951.
Internal bank forms contributed 48.2 percent of sales;
general business forms contributed 51.8 percent. Sales of
internal bank forms increased $1,046,873 from $10,624,113
to $11,670,986, an increase of 9.9 percent. The increase
in internal bank forms sales was due to growing demand in
the financial industry and price increases to offset higher
paper costs. Sales of general business forms increased
$535,138 from $12,009,838 to $12,544,976, an increase of
4.4 percent. This increase in sales was due to price
increases to offset higher paper costs.
Bar Graph GROSS PROFIT PERCENTAGE
Vertical Axis 0 - 25 (Bottom to Top)
Horizontal Axis - 1991 - 1996 (Left to Right)
Plot Points 1991 - 20.3 1992 - 23.8
1993 - 23.2 1994 - 22.9
1995 - 20.6 1996 - 23.3
GROSS PROFIT. Gross profit increased to 23.3 percent
in 1996. This increase was due to the higher gross
profit of the newly acquired
division. Without the contribution of the new
division, gross profit would have been 20.7 percent
compared to 20.6 percent for 1995. During 1996,
manufacturing costs, exclusive of material and fixed
costs, remained relatively constant. Material costs
decreased slightly as certain paper price increases
that were incurred in 1995 were decreased in 1996 as
paper prices declined. Fixed costs, particularly
depreciation and real estate taxes, increased
for 1996 due to the new corporate headquarters
and manufacturing plant which opened in March
1995. The Company incurred a full year of costs
for this location in 1996 compared to only seven
months cost in 1995.
For 1995, despite a 7.0 percent increase in
sales, gross profit decreased to 20.6 percent
from 22.9 percent in 1994. During 1995
manufacturing costs, exclusive of material,
remained constant or decreased slightly as a
percentage of sales. Material costs,
particularly bond paper prices, increased
steadily during fiscal 1995 with some prices
increasing in excess of 70 percent. Bond paper
represents approximately 70 percent of the total
paper used by the Company. In addition, the
Company changed its method of valuation of the
inventories for its subsidiary from the first-in
first-out method to the last-in first-out method
which further reduced 1995 gross profit by
approximately $92,000. (See Note 5 to
Consolidated Financial Statements.) During 1995
overall material costs as a percentage of sales
increased approximately 5 percent.
<PAGE>
Bar Graph SELLING, GENERAL AND ADMINISTRATIVE EXPENSE - $ in Millions
Vertical Axis 0 - 5 (Bottom to Top)
Horizontal Axis - 1991 - 1996 (Left to Right)
Plot Points 1991 - $2.5 1992 - $2.8
1993 - $2.9 1994 - $3.0
1995 - $3.1 1996 - $4.4
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling,
general and administrative expenses increased
approximately $1,300,000, from 1995 to 1996, of which
approximately $1,000,000 is due to the acquired financial
forms division. This new division markets its products
on a retail basis as compared to the other locations
which market through distributors. The retail sales
approach requires additional personnel for customer
service and administration thus increasing these
expenses. Selling, general and administrative expenses
increased only $30,171 or one percent, from 1994 to 1995.
The Company engaged in a continued effort during the year
to contain costs in these areas.
OTHER INCOME AND EXPENSE. The Company incurred long-term
debt of $9,000,000 when it acquired the new financial
forms division. Approximately $208,000 of the interest
expense increase for 1996 of $262,090 relates to the
acquisition debt. Interest expense also increased
$85,714 in 1995 as a result of interest on the Variable
Rate Demand Industrial Development Revenue Bonds (the
'Bonds') used to finance the construction of the new
headquarters and manufacturing facility occupied in March
1995. Other income in 1995 includes a gain on sale of
land of $301,952.
PROVISION FOR INCOME TAXES. The provision for income
taxes remained relatively constant at 40% in 1996
compared to 38% in 1995 and 40% in 1994.
`
Bar Graph NET EARNINGS - $ in Millions
Vertical Axis 0 - 1.4 (Bottom to Top)
Horizontal Axis - 1991 - 1996 (Left to Right)
Plot Points 1991 - $ .7 1992 - $1.1
1993 - $1.4 1994 - $1.3
1995 - $1.4 1996 - $1.3
NET EARNINGS. Earnings before taxes totaled $2,103,056
for 1996 compared to $2,204,410 for 1995 and $2,159,835
in 1994. Net earnings were $1,263,056 ($ .72 per share)
in 1996 compared to net earnings of $1,363,410 ($ .78 per
share) in 1995 and $1,285,835 ($ .73 per share) in 1994.
Return on average assets was 5.4 percent compared to 8.0
percent in 1995 and 9.0 percent in 1994. Return on
average stockholders' equity was 10.4 percent down from
12.4 percent in 1995 and 13.0 percent in 1994.
FINANCIAL CONDITION
ACQUISITION. On July 22, 1996 the Company acquired
certain assets of the financial forms division of
Deluxe Corporation for $9.2 million and incurred
$124,754 of direct acquisition costs. This
acquisition was financed with a $9.0 million term
loan (the 'Term Loan') with First Bank National
Association ('First Bank') with borrowings at the
bank's reference rate. The acquisition consisted
principally of manufacturing equipment at an
appraisal value of approximately $7.3 million and
goodwill. In addition, the Company continues to
expand its manufacturing capacity through the
acquisition of other equipment. Capital
expenditures for 1996 were $1.0 million compared to
1995 expenditures of $2.0 million, exclusive of
building construction cost, and $1.8 million for
1994.
LONG-TERM DEBT. The Company's long term debt
consists of the $9.0 million Term Loan and the
Bonds which were used to finance the construction
of the new corporate headquarters and manufacturing
facility in Brooklyn Park, Minnesota that the
Company occupied in March 1995. The Company's
obligation to repay the Bonds is collateralized by
an irrevocable, direct-pay letter of credit issued
by First Bank. The Term Loan and the Bonds are
collateralized by the Company's property, plant and
equipment, inventories and accounts receivable.
The Term Loan principal is payable from annual
excess cash flow as defined in the Loan Agreement
($404,825 as of October 31, 1996) and in quarterly
installments beginning July 31, 1997, with any
remaining principal balance due on July 31, 2003.
Interest is payable monthly. The Bonds require
annual principal payments and monthly interest
payments at a variable rate based upon comparable
tax- exempt issues. Both the Term Loan and the
Bonds specify limits on capital expenditures and
dividends. Both also specify working capital, net
worth and certain financial ratios that the Company
must maintain.
CASH AND CASH EQUIVALENTS. Cash provided by
operations increased to $2.9 million in 1996
compared to $1.4 million in 1995 and $2.3 million
in 1994. The increase in 1996 is due principally
to an increase in operating income as well as an
increase in non-cash depreciation and amortization
expense. The Company's working capital was $5.4
million as of October 31, 1996 compared to $4.5
million as of October 31, 1995. The principal
reason for the increase was that accounts
receivable and inventories increased approximately
$2.0 million while accounts payable and accrued
liabilities increased $1.6 million. As of October
31, 1996, accounts receivable and inventory related
to the newly acquired financial forms division were
approximately $1.3 million and $1.1 million
respectively.
<PAGE>
If necessary to finance operations, the Company has a $1.5 million line of
credit at an interest rate equal to the bank reference rate. The Company did
not have to utilize this line of credit during 1996. The Company believes
its existing financing sources are adequate to fund its 1997 operations,
including capital expenditures and dividend payments, and foresees no events
or uncertainties that are likely to have a material impact on its liquidity.
The Company expects to be able to generate sufficient cash flow from
operations to avoid relying on external sources of financing beyond the
financing sources already in place.
OUTLOOK
The most significant event in 1996 was the acquisition of the financial forms
division of Deluxe Corporation on July 22, 1996. While part of Deluxe
Corporation, this division previously generated sales of approximately $20
million annually. This acquisition has significantly increased production
capacity and will have a significant impact on the Company's business going
forward. In 1997, management will focus on integrating the operations,
developing computer reporting systems and implementing marketing plans to
improve operating efficiency between all manufacturing locations. The
savings from the operating efficiencies, however, will be somewhat offset by
additional costs, particularly interest expense on the Term Loan and the
depreciation and amortization costs of the new operation.
The Company is not aware of any trends, events or other uncertainties that
will have a significant impact on its financial condition or results of
operations.
<PAGE>
Northstar Computer Forms, Inc. and Subsidiary
Consolidated Statements of Earnings
for the years ended October 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net sales $ 28,903,158 $ 24,215,962 $ 22,633,951
Cost of goods sold 22,154,978 19,240,068 17,455,981
-------------- -------------- -------------
Gross profit 6,748,180 4,975,894 5,177,970
Selling, general and
administrative expenses 4,373,094 3,072,918 3,042,747
-------------- -------------- -------------
Operating income 2,375,086 1,902,976 2,135,223
-------------- -------------- -------------
Other income (expense):
Interest expense (366,439) (104,349) (18,635)
Gain on sale of land 301,952
Other, net, principally
interest income 94,409 103,831 43,247
-------------- -------------- -------------
(272,030) 301,434 24,612
Earnings before income taxes 2,103,056 2,204,410 2,159,835
Provision for income taxes 840,000 841,000 874,000
-------------- -------------- -------------
Net earnings $ 1,263,056 $ 1,363,410 $ 1,285,835
-------------- -------------- -------------
-------------- -------------- -------------
Net earnings per common share $ .72 $ .78 $ .73
Weighted average common and common
equivalent shares outstanding 1,762,681 1,750,729 1,761,699
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
October 31, 1996 and 1995
ASSETS 1996 1995
Current assets:
Cash and cash equivalents $ 2,378,105 $ 1,180,788
Accounts receivable, net 4,728,735 3,646,156
Inventories 2,292,057 1,317,914
Deferred income taxes 148,796 132,481
Other current assets 216,280 222,147
------------ ------------
Total current assets 9,763,973 6,499,486
------------ ------------
Property, plant and equipment, net 16,169,652 9,600,608
Notes receivable, less current portion 990,060 1,052,238
Goodwill 1,959,305
Other assets 518,442 371,032
------------ ------------
Total assets $ 29,401,432 $ 17,523,364
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt 1,029,825 200,000
Accounts payable 2,103,537 819,561
Accrued liabilities 1,249,388 934,191
------------ ------------
Total current liabilities 4,382,750 1,953,752
Long-term debt, less current portion 10,565,175 2,535,000
Deferred compensation 775,199 772,032
Deferred income taxes 1,039,773 675,458
Commitments (Notes 9 and 10)
Stockholders' equity:
Common shares; $.05 par value, authorized
5,000,000 shares; issued and outstanding,
1996: 1,716,571; 1995: 1,713,896 85,828 85,695
Additional paid-in capital 1,995,177 1,983,865
Retained earnings 10,557,530 9,517,562
------------ ------------
Total stockholders' equity 12,638,535 11,587,122
------------ ------------
Total liabilities and stockholders' equity $ 29,401,432 $ 17,523,364
------------ ------------
------------ ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,263,056 $ 1,363,410 $ 1,285,835
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization of leasehold
improvements 1,760,197 1,397,381 1,229,483
Goodwill amortization 55,760
Provision for losses on receivables 63,857 11,948 43,921
Gain on sale of land and equipment (3,687) (340,824)
Loss on sale of marketable securities 4,757
Changes in assets and liabilities (266,996) (1,055,057) (241,756)
------------ ------------ ------------
Net cash provided by operating activities 2,872,187 1,376,858 2,322,240
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures and equipment deposits (1,021,415) (2,040,478) (1,767,577)
Purchase of certain assets of a division of Deluxe
Corporation (9,324,754)
Cash restricted for construction 497,459 (800,000)
Proceeds from sale of land and equipment 5,550 543,386
Loans to officers and employees (3,219)
Officers and employees loan repayments 134,120 21,187
Notes receivable granted (65,919) (300,000)
Notes receivable repayments 83,137 61,424
Sale of marketable securities 358,218
Purchase of marketable securities (15,000)
------------ ------------ ------------
Net cash used in investing activities (10,323,401) (804,089) (2,506,391)
Cash flows from financing activities:
Principal payments on long-term debt (140,000) (210,000)
Borrowing on long-term debt 9,000,000
Borrowings on bank line of credit 225,000
Payments on bank line of credit (225,000)
Dividends paid (222,914) (204,668) (187,467)
Other 11,445 37,965 6,510
------------ ------------ ------------
Net cash provided by (used in) financing activities 8,648,531 (376,703) (180,957)
Net increase (decrease) in cash and cash equivalents 1,197,317 196,066 (365,108)
Cash and cash equivalents at beginning of year 1,180,788 984,722 1,349,830
Cash and cash equivalents at end of year $ 2,378,105 $ 1,180,788 $ 984,722
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
Northstar Computer Forms, Inc. and Subsidiary
Consolidated Statement of Changes in Stockholders' Equity
for the years ended October 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Common Stock
-------------- Additional
Stated Paid-In Retained
Shares Capital Capital Earnings
------ ------- ------- --------
<S> <C> <C> <C> <C>
Balances at October 31, 1993 1,704,234 $85,212 $1,939,873 $7,278,123
Stock options exercised 1,334 66 6,444
Cash dividends, $.115 per share (196,068)
Net earnings 1,285,835
--------- ---------- ---------- -----------
Balances at October 31, 1994 1,705,568 85,278 1,946,317 8,367,890
Purchase and retirement of stock (6) (45)
Stock options exercised 8,334 417 37,593
Cash dividends, $.125 per share (213,738)
Net earnings 1,363,410
Balances at October 31, 1995 1,713,896 85,695 1,983,865 9,517,562
Purchase and retirement of stock (389) (20) (2,704)
Stock options exercised 3,064 153 14,016
Cash dividends, $.130 per share (223,088)
Net earnings 1,263,056
--------- ---------- ---------- -----------
Balances at October 31, 1996 1,716,571 $ 85,828 $1,995,177 $10,557,530
--------- ---------- ---------- -----------
--------- ---------- ---------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF THE BUSINESS:
Northstar Computer Forms, Inc. and Subsidiary (the Company) designs,
manufactures and markets custom business forms and financial forms with an
emphasis on MICR (Magnetic Ink Character Recognition) printing. The
Company's two business concentrations are Northstar Computer Forms
(Northstar), which serves a five-state region with business and financial
forms, and its wholly owned subsidiary, General Financial Supply, Inc.
(General Financial), which provides internal bank form to a national market.
Both businesses market their products principally through distributors. A
sales/service force provides communication between distributors and
manufacturing facilities. The Company's corporate headquarters are in
Brooklyn Park, Minnesota.
REVENUE RECOGNITION:
The Company recognizes sales upon shipment of the product to the customer.
CONSOLIDATION:
The consolidated financial statements include the accounts of Northstar and
General Financial. All significant intercompany balances and transactions
have been eliminated in consolidation.
<PAGE>
CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
INVENTORIES:
Inventories are stated at the lower of cost or market using the last-in,
first-out (LIFO) method. Effective November 1, 1994, the Company changed its
method of valuation of General Financial inventories from the first-in,
first-out (FIFO) method to LIFO (see Note 5). Consolidated inventories, if
stated at FIFO, would exceed the LIFO inventory values by approximately
$316,000 and $339,000 at October 31, 1996 and 1995, respectively.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are recorded at cost. Depreciation of the
buildings and equipment are provided over the estimated useful lives of the
respective assets using the straight-line method. Leasehold improvements are
amortized on a straight-line basis generally over the term of the respective
leases. Gains or losses on dispositions are included in current earnings.
Major renewals or betterments are capitalized while maintenance and repairs
are charged to current operations when incurred.
The Company capitalizes interest cost related to major construction projects.
GOODWILL:
During fiscal year 1996, the Company recorded goodwill in connection with its
purchase of substantially all the assets of the Financial Forms Division of
Deluxe Corporation (see Note 2). Goodwill represents the excess of the
purchase price over the estimated fair value of the assets acquired and is
being amortized on a straight-line basis of 10 years.
The Company periodically assesses the recoverability of its goodwill based on
anticipated future earnings and operating cash flows.
INCOME TAXES:
Deferred income taxes are recorded to reflect the tax consequences on future
years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end, based on enacted tax laws
and statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income. Income tax expense or benefit is the
tax refundable or payable for the period and the change during the period in
deferred tax assets and liabilities.
EARNINGS PER SHARE:
Earnings per common and common equivalent share are computed using the
weighted average number of common and common equivalent shares outstanding.
Common equivalent shares are the result of dilutive stock options. The
difference between primary and fully diluted earnings was not significant in
any year presented.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The most significant areas
which require the use of management's estimates relates to the determination
of the allowances for uncollectible accounts receivable and obsolete
inventory, components of the calculation of the deferred compensation
accrual, and the need for a valuation allowance for deferred tax assets.
2. ACQUISITION:
In July 1996, the Company purchased substantially all of the assets of the
Financial Forms Division of Deluxe Corporation (the Acquisition) for
$9,324,754 in cash. The purchase price consisted of $9,000,000 borrowed from
a bank under a term loan agreement (see Note 9) and $200,000 of the Company's
own funds paid to Deluxe Corporation. The Company incurred $124,754 of
direct acquisition costs related to the Acquisition. The assets acquired
consist principally of plant and equipment which were used by Deluxe
Corporation to manufacture internal bank forms. The Company intends to
continue to use the assets to manufacture internal bank forms which is the
same product manufactured by the Company's subsidiary, General Financial.
The Company recorded goodwill of $2,015,065 in connection with the
Acquisition.
The financial results attributable to the Acquisition are included in the
Consolidated Statement of Earnings for the period from the acquisition date
through October 31, 1996. The unaudited financial results of operations on a
pro forma basis as though the Acquisition occurred as of November 1, 1994,
are as follows:
FISCAL YEARS (UNAUDITED)
----------------------------
1996 1995
Net sales $ 43,650,175 $ 45,308,195
Net earnings 1,773,502 1,773,490
Net earnings per common share $1.01 $1.01
<PAGE>
3. SELECTED BALANCE SHEET INFORMATION:
The following provides additional information concerning selected balance
sheet accounts at October 31, 1996 and 1995:
1996 1995
Accounts receivable:
Accounts receivable $ 4,872,735 $ 3,733,535
Allowance for doubtful accounts (144,000) (87,379)
------------ ------------
$ 4,728,735 $ 3,646,156
------------ ------------
------------ ------------
Other current assets:
Income taxes receivable 91,175
Current portion of notes receivable 101,436 56,476
Prepaid expenses 114,844 74,496
------------ ------------
$ 216,280 $ 222,147
------------ ------------
------------ ------------
Property, plant and equipment, net:
Land $ 109,626 $ 109,626
Buildings 3,481,423 3,478,048
Machinery and equipment 22,370,207 14,717,471
Furniture and fixtures 1,396,381 851,494
Automobiles 306,830 224,677
Leasehold improvements 66,313 66,313
------------ ------------
27,730,780 19,447,629
Accumulated depreciation and amortization (11,561,128) (9,847,021)
------------ ------------
$16,169,652 $ 9,600,608
Accrued liabilities:
Payroll and bonuses 355,064 249,247
Vacation 220,005 163,111
Profit sharing 192,856 193,227
Real estate taxes 231,848 149,748
Dividends 111,578 111,404
Other 138,037 67,454
------------ ------------
$ 1,249,388 $ 934,191
------------ ------------
------------ ------------
4. SUPPLEMENTAL CASH FLOW INFORMATION:
Changes in assets and liabilities:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Accounts receivable $ (1,146,436) $ (720,069) $ (470,386)
Inventories (974,143) (197,223) (33,152)
Other assets (96,583) (227,003) (130,704)
Accounts payable 1,283,976 30,237 28,077
Accrued liabilities 269,662 (177,123) 247,198
Deferred income taxes 348,000 157,000 100,000
Deferred compensation 48,528 79,124 17,211
------------ ----------- -----------
$ (266,996) $(1,055,057) $ (241,756)
------------ ----------- -----------
------------ ----------- -----------
Cash paid during the year for:
Interest, net of amount capitalized of
$76,497 and $19,868 in 1995 and
1994, respectively $ 357,948 $ 112,763 $ 10,151
Income taxes 384,105 779,405 763,225
</TABLE>
In 1995, noncash investing and financing activities consisted of the following:
Costs of $2,784,509 related to the construction of the Company's new
corporate headquarters and manufacturing facility were paid through draws
from cash restricted for construction (see Note 6).
The Company's previous corporate headquarters and manufacturing facility
was exchanged for a $800,000 note receivable from the general contractor of
the new facility (see Note 6).
<PAGE>
4. SUPPLEMENTAL CASH FLOW INFORMATION, CONTINUED:
In 1994, noncash investing and financing activities consisted of the following:
Proceeds from the issuance of Variable Rate Demand Industrial Revenue Bonds
of $2,945,000 (see Note 9) were deposited directly in a restricted cash
account maintained with a trustee.
Costs of $463,032 related to the construction of the Company's new
corporate headquarters and manufacturing facility were paid through draws
from cash restricted for construction (see Note 6).
5. CHANGE IN METHOD OF ACCOUNTING FOR INVENTORIES:
Effective November 1, 1994, the Company changed its method of valuing its
General Financial inventories from the FIFO method to the LIFO method. This
change was made to match current costs with current revenues more closely. The
effect of the change resulted in a reduction in net income of approximately
$55,000 or $0.03 per common share in fiscal year 1995. The cumulative effect of
this change on retained earnings at the beginning of fiscal year 1995 is not
determinable, nor are the pro forma effects of retroactive applicatio of LIFO
to prior years.
6. CONSTRUCTION OF CORPORATE HEADQUARTERS AND MANUFACTURING FACILITY:
During fiscal year 1995, construction of the Company's corporate headquarters
and manufacturing facility was completed and its previous facility was sold. In
connection with the transaction, the Company entered into an agreement with the
general contractor and an intermediary in which the Company exchanged its
previous facility with the general contractor as partial consideration for the
new facility. In consideration for the previous facility, the Company and the
general contractor entered into a $800,000 long-term note agreement (see Note
7). The transaction was accounted for as a nonmonetary exchange transaction such
that no gain was recognized by the Company upon the exchange.
Proceeds from the issuance of Variable Rate Demand Industrial Development
Revenue Bonds of $2,945,000 (see Note 9), as well as the Company's escrow
deposit of $800,000 during fiscal year 1994, were restricted for the payment of
construction costs associated with the Company's new corporate headquarters and
manufacturing facility. Cash restricted for construction was invested in highly
liquid investments. In fiscal year 1995, the remaining cash restricted for
construction of $497,459 after the payment of all construction costs was
released to the Company.
7. NOTES RECEIVABLE:
Notes receivable consisted of the following at October 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Brooklyn Park Economic Development Authority Tax Increment
Financing Note, interest at 9.5%, payable in semi-annual
installments ranging from $21,940 to $48,889 beginning
August 1996, with remaining principal and interest payment
due August 2001. $ 295,217 $ 300,000
Note receivable, interest at 8%, payable in equal monthly
installments of $9,751 beginning August 1995, with
remaining principal and interest payment due August 2005.
Collateralized by the Company's previous corporate
headquarters and manufacturing facility. 684,488 763,204
Other, mainly customers, with various terms 111,791 45,510
----------- ----------
1,091,496 1,108,714
Less current portion, included in other current assets (101,436) (56,476)
----------- ----------
$ 990,060 $1,052,238
----------- ----------
----------- ----------
</TABLE>
Management believes that the carrying value of its notes receivable as of
October 31, 1996, approximates its fair value.
8. BANK LINE OF CREDIT:
In July 1996, the Company entered into a Revolving Credit agreement
(Agreement) with a bank in connection with a term loan (see Note 9) and the
Acquisition (see Note 2). Under this Agreement, the Company may borrow up to
$1,500,000 at an interest rate which would vary based upon the prime interest
rate. The Company would have the option to convert the variable interest
rate on all or a portion of these borrowings to a fixed rate determinable at
the date of conversion upon notification to the bank. Collateral for
borrowings under this Agreement, as well as the related covenants, are the
same as the term loan the Company entered into during July 1996 (see Note 9).
There were no borrowings under this Agreement during fiscal year 1996.
The Company had a line of credit in fiscal years 1994 and 1995 which was
replaced by the revolving line of credit described above.
<PAGE>
9. LONG-TERM DEBT:
Long-term debt consisted of the following at October 31, 1996 and 1995:
1996 1995
Revenue Bonds $ 2,595,000 $ 2,735,000
Term Loan 9,000,000
------------ -----------
11,595,000 2,735,000
Less current portion (1,029,825) (200,000)
------------ -----------
$ 10,565,175 $ 2,535,000
------------ -----------
------------ -----------
REVENUE BONDS:
In August 1994, the Company received proceeds of $2,945,000 from the issuance
of Variable Rate Demand Industrial Development Revenue Bonds (Revenue Bonds)
in connection with the construction of the Company's new corporate
headquarters and manufacturing facility. The Revenue Bonds require annual
principal payments ranging from $250,000 to $335,000 through fiscal year 2004
and bear interest at an interest rate which varies based upon comparable
tax-exempt issues, but not to exceed 12%. The interest rate at October
31,1996, was 3.9%. The Company has an option to convert the variable interest
rate on these bonds to a fixed interest rate determinable at the date of
conversion upon notification to the trustee. The Revenue Bonds are
collateralized by an outstanding irrevocable direct-pay letter of credit with
a financial institution equal to the outstanding principal amount of the
Revenue Bonds.
The Company's outstanding letter of credit expires in August 1997 and is
collateralized by its corporate headquarters and manufacturing facility,
inventories and accounts receivable. The letter of credit agreement, among
other things, requires the Company to not exceed capital expenditures ranging
from $1,000,000 to $1,400,000 from fiscal year 1997 until the Revenue Bonds
have been fully paid, maintain certain minimum net worth requirements, meet
certain leverage and cash flow ratios, as well as limit cash dividends to a
maximum amount.
During fiscal year 1996, the Company was in violation of a certain covenant
pursuant to the Revenue Bond agreement with the bank. The Company received a
waiver of the covenant violation from the bank.
TERM LOAN:
In July 1996, the Company entered into a term loan (Term Loan) with a bank
for $9,000,000 in connection with the Acquisition (see Note 2). The Term
Loan is collateralized by substantially all the Company's assets and requires
quarterly principal payments beginning in July 1997, ranging from $187,500 to
$262,500 through April 2003 with the remaining principal amount to be paid in
July 2003. The Term Loan bears interest at an interest rate which varies
based upon the prime interest rate. The prime interest rate at October 31,
1996, was 8.26%. Also, the Term Loan agreement requires excess cash, as
defined in the agreement, as well as the net proceeds on any sale of stock be
used to make principal payments on the Term Loan. Accordingly, due to the
excess cash provision, the Company recorded an additional $404,825 as a
current liability in addition to its scheduled principal payments under the
Term Loan agreement. The Company has an option to convert the variable
interest rate on all or a portion of the Term Loan to a fixed interest rate
determinable at the date of conversion upon notification to the bank.
The Term Loan agreement, among other things, requires the Company to not
exceed capital expenditures ranging from $1,000,000 to $1,400,000 from fiscal
year 1997 until the Term Loan and related revolving line of credit (see Note
8) have been fully paid, maintain certain minimum net worth requirements,
meet certain current and cash flow ratios, as well as limit cash dividends
and lease payments to maximum amounts.
During fiscal year 1996, the Company was in violation of a certain covenant
pursuant to the Term Loan agreement with the bank. The Company received a
waiver of the covenant violation from the bank.
Aggregate maturities of long-term debt are as follows:
Fiscal Year
1997 $ 1,029,825
1998 1,235,000
1999 1,385,000
2000 1,385,000
2001 1,385,000
Thereafter 5,175,175
---------
$ 11,595,000
Management believes that the carrying value of its long-term debt as of
October 31, 1996, approximates its fair value.
<PAGE>
10. OPERATING LEASES:
The Company leases certain buildings under four separate operating lease
agreements requiring monthly payments in addition to real estate taxes,
insurance and maintenance costs. The Company has the option to extend the lease
term upon expiration of one of the current leases. Future minimum payments
under operating lease agreements with noncancellable terms as of October 31,
1996, are $315,598 and $9,750 for fiscal years 1997 and 1998, respectively.
Rent expense was $221,328, $194,493 and $116,692 in fiscal years 1996, 1995 and
1994, respectively, exclusive of real estate taxes, insurance and maintenance
expense.
11. INCOME TAXES:
The provision for income taxes consisted of the following:
FISCAL YEARS
-------------------------------------------
1996 1995 1994
Currently payable:
Federal $ 414,000 $ 573,000 $ 641,000
State 78,000 111,000 133,000
--------- --------- ---------
492,000 684,000 774,000
--------- --------- ---------
Deferred:
Federal 298,000 136,000 72,000
State 50,000 21,000 28,000
--------- --------- ---------
348,000 157,000 100,000
--------- --------- ---------
$ 840,000 $ 841,000 $ 874,000
--------- --------- ---------
--------- --------- ---------
The actual provision for income taxes differs from the "expected" amounts
computed by applying the U.S. federal corporate tax rate of 34% to earnings
before income taxes for the years ended October 31, 1996, 1995 and 1994,
respectively, as follows:
<TABLE>
<CAPTION>
FISCAL YEARS
-------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Computed "expected" provision for income taxes $ 715,000 $ 749,500 $ 734,300
State income taxes, net of federal tax effect 51,500 73,300 87,800
Other net 73,500 18,200 51,900
--------- --------- ---------
Actual provision for income taxes $ 840,000 $ 841,000 $ 874,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
The approximate effects of temporary differences that gave rise to deferred tax
balances at October 31, 1996 and 1995, are as follows:
1996 1995
Deferred tax assets:
Accounts receivable allowance for doubtful accounts $ 57,600 $ 41,529
Inventories 1,000
Accrued liabilities 92,802 56,902
Deferred compensation 336,357 283,029
---------- ----------
Total deferred tax assets 486,759 382,460
Deferred tax liabilities:
Accelerated depreciation (1,108,938) (669,403)
Investment in limited partnership (268,798) (256,034)
---------- ----------
Total deferred tax liabilities (1,377,736) (925,437)
---------- ----------
Net deferred tax liabilities $ (890,977) $(542, 977)
---------- ----------
---------- ----------
The Company has not recorded a valuation allowance as of October 31, 1996 and
1995, related to its deferred tax assets as management believes no such
allowance is necessary.
<PAGE>
12. PROFIT-SHARING AND BONUS PLANS:
The Company has a profit-sharing and 401(k) plan covering substantially all
full-time employees of Northstar and General Financial. Contributions are
determined based upon a profitability formula approved by the Company's Board
of Directors, but are not to exceed 15% of the salary and wages paid to the
participants for the year. Vesting of benefits occurs at a rate of 20% for
each year of service, commencing after the second full year of service.
Vested benefits allocated to the employees' accounts are payable upon
retirement, death or earlier termination in a lump sum or installments.
Company expense under the plan was $192,856, $193,227 and $208,224 in fiscal
years 1996, 1995 and 1994, respectively.
The Company also has a bonus plan for certain key salaried employees.
Bonuses are determined in part based on a profitability formula approved by
the Company's Board of Directors and in part at the Board of Directors'
discretion. Company expense under the plan was $149,027, $168,886 and
$205,317 in fiscal years 1996, 1995 and 1994, respectively.
13. DEFERRED COMPENSATION:
The Company has deferred compensation plans for certain key employees
calling for periodic payments ranging from ten to fifteen years at
retirement or death of such employees. Deferred compensation expense,
based on the present value of such compensation, was $65,114, $101,691
and $57,874 in fiscal years 1996, 1995 and 1994, respectively.
14. STOCK OPTIONS:
The Company has certain stock incentive and option plans which provide for
grants of stock options. Options are granted at prices not less than the
fair market value at the date of grant. Options become exercisable
generally over a five- to ten-year period or based on the discretion of
the Company's Board of Directors, but in no event earlier than six months
following the date of grant.
The following is a summary of stock option activity with respect to the
stock incentive and option plans:
Option Options
Price Per Options Available
Share Outstanding for Grant
Balance at October 31, 1993 $3.75 - $6.63 184,802 124,090
Exercised $4.88 (1,334)
Granted $6.00 6,667 (6,667)
Expired $4.88 (1,333)
-------
Balance at October 31, 1994 $3.75 - $6.63 188,802 117,423
Authorization of additional stock options 33,335
Exercised $4.50 - $4.88 (8,334)
Canceled $3.75 - $6.63 (30,733) 30,733
Granted $7.25 47,867 (47,867)
Expired $4.50 (6,334)
-------
Balance at October 31, 1995 $4.50 - $7.25 191,268 133,624
Exercised $4.88 (9,333)
Canceled $7.25 (2,400) 2,400
Granted $7.00 - $8.50 54,667 (54,667)
Expired $5.63 (1,333)
-------
Balance at October 31, 1996 $4.50 - $8.50 232,869 81,357
------- -------
------- -------
In October 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation." This statement establishes
financial accounting and reporting standards for stock-based employee
compensation plans. The Company intends to follow the option that permits
entities to continue to apply current accounting standards to stock-based
employee compensation arrangements. Effective with year-end 1997 reporting, the
Company will disclose pro forma net income and earnings per share amounts as if
Statement No. 123 accounting were applied to the Company's stock compensation
programs.
15. STOCKHOLDERS' EQUITY:
The Company has 200,000 shares of authorized, nonvoting preferred stock that to
date have not been issued. The terms of the preferred stock will be finalized
and approved by the Board of Directors prior to issuance.
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The accompanying consolidated financial statements and related
information are the responsibility of management. They have been prepared in
conformity with generally accepted accounting principles and include amounts
that are based on our best estimates and judgments under the existing
circumstances. The financial information contained elsewhere in this Annual
Report is consistent with that in the consolidated financial statements.
The Company maintains internal accounting control systems that are
adequate to provide reasonable assurance that the assets are safeguarded from
loss or unauthorized use. These systems produce records adequate for
preparation of financial information. We believe the Company's systems are
effective, and the cost of the systems does not exceed the benefits obtained.
The role of independent accountants is to render an independent,
professional opinion of management's consolidated financial statements to the
extent required by generally accepted auditing standards.
Roger T. Bredesen Mary Ann Morin
Chief Executive Officer Chief Financial Officer
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS NORTHSTAR COMPUTER FORMS, INC.:
We have audited the consolidated balance sheets of Northstar Computer Forms,
Inc. and Subsidiary as of October 31, 1996 and 1995, and the related
consolidated statements of earnings, changes in stockholders' equity, and
cash flows for each of the three years in the period ended October 31, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Northstar
Computer Forms, Inc. and Subsidiary as of October 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended October 31, 1996, in conformity with
generally accepted accounting principles.
As described in Note 5 to the consolidated financial statements, effective
November 1, 1994, the Company changed its method of accounting for
inventories.
Coopers & Lybrand L.L.P.
Minneapolis, Minnesota
January 22, 1997
<PAGE>
INVESTOR INFORMATION
ANNUAL MEETING
The annual meeting of the shareholders of Northstar Computer Forms, Inc. will be
held Thursday, April 3, 1997 at 3:30 p.m. at the Minneapolis Athletic Club, 615
Second Avenue South, Minneapolis, Minnesota 55402.
FORM 10-KSB
A copy of the Form 10-KSB Report filed with the Securities and Exchange
Commission by the Company may be obtained without charge by written request to:
Mary Ann Morin, Northstar Computer Forms, Inc., 7130 Northland Circle North,
Brooklyn Park, MN 55428-1530.
INDEPENDENT ACCOUNTANTS TRANSFER AGENT
Coopers & Lybrand L.L.P. Norwest Bank Minnesota
650 Third Avenue South Stock Transfer
Minneapolis, MN 55402 P.O. Box 64854
St. Paul, MN 55164-0854
CORPORATE OFFICES 1-800-468-9716
7130 Northland Circle North
Brooklyn Park, MN 55428-1530 LEGAL COUNSEL
612-531-7340 Parsinen, Bowman, Kaplan & Levy
100 South Fifth Street
Suite 1100
Minneapolis, MN 55402
QUARTERLY FINANCIAL INFORMATION
(Unaudited and not reviewed)
Fiscal Year 1996 1st Qtr, 2nd Qtr, 3rd Qtr, 4th Qtr,
Jan. '96 Apr. '96 July '96 Oct. '96
---------- ---------- ---------- -----------
Sales $5,603,897 $5,922,005 $6,077,608 $11,299,648
Earnings before taxes 125,736 255,707 305,940 1,415,673
Provision for income taxes 43,000 105,500 127,500 564,000
Net earnings 82,736 150,207 178,440 851,673
Earnings per share .05 .09 .10 .48
Depreciation and amortization 378,150 375,820 402,388 659,599
Fiscal Year 1995 1st Qtr, 2nd Qtr, 3rd Qtr, 4th Qtr,
Jan. '95 Apr. '95 July '95 Oct. '95
---------- ---------- ---------- -----------
Sales $5,945,875 $5,884,092 $6,108,910 $6,277,085
Earnings before taxes 445,219 649,980 496,959 612,252
Provision for income taxes 178,000 260,000 199,000 204,000
Net earnings 267,219 389,980 297,959 408,252
Earnings per share .15 .22 .17 .24
Depreciation and amortization 309,136 324,116 355,746 408,383
<PAGE>
COMPANY PRODUCTS:
Custom/Financial Forms Internal Bank Forms
Custom Security Documents Cash Tickets
Continuous Business Forms General Ledger Forms
Unit Set Business Forms Custom Bank Forms
Short-Run Continuous Forms Official Checks
Money Orders Control Documents
Official Financial Forms Teller Receipts and Envelopes
Cut-Sheet Forms
COMPANY OPERATING LOCATIONS:
Northstar Computer Forms, Inc. Northstar Financial Forms
7130 Northland Circle North 2341 St. Croix Street
Brooklyn Park, MN 55428 Roseville, MN 55113
800-765-6787 800-328-9600
FAX: 612-535-5671 FAX: 612-638-5237
General Financial Supply General Financial Supply
321 11th Street 213 B Dry River Road
P.O. Box 179 P.O. Box 105
Nevada, IA 50201 Bridgewater, VA 22812
800-759-4374 800-333-6167
FAX: 515-382-2414 FAX: 703-828-6176
Wisconsin Business Forms Western Financial Suppliers
6580 North Industrial Road 6160 West 55th Avenue
Milwaukee, WI 53223 Arvada, CO 80002
800-333-9472 800-288-1223
FAX: 414-358-1894 FAX: 303-467-0701
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Northstar Computer Forms, Inc. And Subsidiary on Form S-8 (File No. 33-83846) of
our report dated January 28, 1997, on our audits of the consolidated financial
statements of Northstar Computer Forms, Inc. And Subsidiary as of October 31,
1996 and 1995, and for the years ended October 31, 1996, 1995 and 1994, which
report is included in this Annual Report on Form 10-KSB.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
January 28, 1997
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