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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
For the fiscal year ended October 31, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 X No
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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. [ X ]
State issuer's revenues for its most recent fiscal year: $46,277,461.
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.):
$36,915,525.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
1,763,071 Shares of Common Stock as of December 31, 1997
DOCUMENTS INCORPORATED BY REFERENCE:
1. Portions of the Registrant's Annual Report to Shareholders for its
fiscal year ended October 31, 1997 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 printed forms with an emphasis on machine
readable MICR (Magnetic Ink Character Recognition) printing. The Company's two
business concentrations are business/financial forms and internal bank forms.
Sales are principally through distributors with the remainder to other printers
or on a direct retail basis. A majority of the retail accounts are serviced by
distributor "partners" whereby the distributor acts as a manufacturer's
representative. A sales/service force provides communication between the
customer and the manufacturing facilities.
The corporate headquarters and manufacturing facility of the Company are
located at 7130 Northland Circle North, Brooklyn Park, Minnesota. The Company
also maintains manufacturing facilities in Roseville, Minnesota (Northstar
Financial Forms), and Milwaukee, Wisconsin (Wisconsin Business Forms), which
operate as divisions 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, 1997, the Company employed approximately 535
persons at its six manufacturing facilities, and the Company foresees no
significant increase or decrease in personnel for the 1998 fiscal year.
The Company serves most markets where business forms are used, although its
primary targeted customers are banks and other users of MICR 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, financial and internal
bank forms.
BUSINESS HIGHLIGHTS - 1997
- Thirty-fifth (35th) anniversary of the Company in September.
- Record year - 60% increase in sales and 228% increase in net earnings.
- Completed 10,000 sq. ft. addition to Iowa facility.
- Introduced new technology to produce airline forms (OCR-B) and Scan
Forms (OMR).
- Implemented new software (Star System) and hardware at Northstar
Financial Forms in August.
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- Introduced new marketing materials for the Company's line of security
documents.
- Published Disaster Recovery Plan and revised Employee Handbook.
- Expanded financial envelope printing capacity.
- Invested over $2 million in capital equipment.
BUSINESS, FINANCIAL AND INTERNAL BANK 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 gift certificates).
The Company manufactures unit-sets, continuous forms and laser cut sheets
in its Brooklyn Park, Minnesota plant and 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.
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MARKETING
The Brooklyn Park and Milwaukee plants serve customers nationally through
distributors, on a non-exclusive basis, and directly with respect to other
printers and stationers. The Company's Bridgewater and Nevada plants also sell
through distributors and to printers on a non-exclusive basis. The Roseville
plant sells through distributor "partners" and directly to certain bank
customers on a retail basis. The Company's Denver plant sells directly to banks
principally located in the State of Colorado, with a small portion sold 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 in
its wholesale plants. The Roseville plant, which sells on a retail basis,
incurs higher sales and marketing expenses. All major competitors of the
Company distribute their products (both business/financial and internal bank
forms) through direct sales which typically account for expenses ranging between
10% and 20% of revenues. The Company currently serves distributors and
customers in all 50 states.
The Company intends to continue to emphasize its financial forms and
internal bank forms business because of the nature of these markets. MICR
encoded forms require special composition equipment and inks, thus MICR encoding
provides a value-added feature. 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.
In addition to regular MICR forms, the Company also intends to continue to
focus on secure and negotiable documents, which are both MICR encoded and
non-MICR encoded. Examples of secure and negotiable MICR encoded documents are
bank official checks, business checks, gift certificates and money orders.
Examples of non-MICR encoded secure and negotiable documents are vehicle
certificates of title, gift certificates, birth certificates and death
certificates. Security features include security papers (watermark and threads),
security inks that react to ultraviolet light and temperature and security
printing features such as void pantographs and modulus numbering. The Company
markets these documents on a national basis to both financial institutions and
commercial accounts.
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. 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
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the Company, increased substantially. During 1997 and 1996, paper prices
leveled off and selected weights of bond paper prices decreased resulting in a
paper cost decrease as a percentage of sales for 1997. The Company anticipates
that paper prices will again begin to increase in 1998. 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. The
Company is the 21st largest United States business and financial forms
manufacturer, primarily as a result of the acquisition of the financial forms
division of Deluxe 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 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. The internal bank forms market is becoming
increasingly competitive and especially price and service sensitive with the top
200 banks in the country.
ITEM 2. DESCRIPTION OF PROPERTY
The Company operates manufacturing and warehousing 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 48,500
Roseville, Minnesota 42,500
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Square Feet
of Floor Space
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Location Leased Owned
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Shoreview, Minnesota 24,000
Milwaukee, Wisconsin 10,000
Bridgewater, Virginia 25,000
Denver, Colorado 10,500
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TOTAL 112,000 143,300
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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 and financial 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.
All of the above-discussed facilities are deemed to be in good condition.
The lease on the Bridgewater facility will expire on May 31, 1999. The
Company's Milwaukee property lease will expire on June 30, 1998 and the Company
is in the process of determining if that operation should be moved to a larger
facility. 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 lease of the Roseville
property expires August 31, 2007. The Shoreview facility is used as warehousing
space for the Roseville facility and is leased until March 31, 1999. 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 $2,345,000 was outstanding at October 31,
1997. The bonds are collateralized by a bank letter of credit and are payable
in varying installments through fiscal year 2004. The bank letter of credit is
collateralized by a mortgage on the facility. The Nevada plant is also
mortgaged for the Term Loan.
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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 1997
fiscal year to a vote of security holders, through the solicitation of proxies
or otherwise.
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 8 of the Company's Annual Report to Shareholders for the fiscal year
ended October 31, 1997 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 9-11 of the Company's Annual Report to Shareholders for the fiscal
year ended October 31, 1997 pursuant to Rule 12b-23.
ITEM 7. FINANCIAL STATEMENTS
The information required by this item is incorporated herein by reference
to pages 12-22 of the Company's Annual Report to Shareholders for the fiscal
year ended October 31, 1997 pursuant to Rule 12b-23.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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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
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Roger T. Bredesen 71 Chairman of the Board and
Chief Executive Officer
John Mutschler 69 Director
J.S. Braun 65 Director
Roy W. Terwilliger 60 Director
Dr. Lester A Wanninger 60 Director
Kenneth E. Overstreet 56 President, Director
Mary Ann Morin 50 Treasurer and Chief Financial
Officer
Don E. Dearborn 57 Vice President (GFS)
Stanley J. Klarenbeek 44 Vice President Sales and
Marketing, Internal Bank
Forms
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 is expected to occur in
April of 1998 at the annual meeting of the shareholders, or until their earlier
resignation or removal pursuant to the Bylaws of the Company. Officers are
appointed by 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.
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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. 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 and 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. Mr.
Braun is the Chairman of Braun Intertec Corporation, an engineering and
environmental consulting firm that he founded in 1957, 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 of the Company
since 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 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.
STANLEY J. KLARENBEEK. Mr. Klarenbeek has been Vice President Sales and
Marketing of GFS since 1990. In December 1997, Mr. Klarenbeek was appointed
Vice President Sales and Marketing for Internal Bank Forms.
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ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table summarizes the cash and non-cash compensation paid to
or earned by the Company's Chief Executive Officer and its four other executive
officers during the past three fiscal years whose annual salary and bonus
exceeded $100,000 during the Company's fiscal year ended October 31, 1997.
SUMMARY COMPENSATION TABLE
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NAME AND FISCAL ANNUAL COMPENSATION LONG-TERM COMPENSATION ALL OTHER
PRINCIPAL YEAR ENDED COMPENSATION
POSITION OCTOBER 31, -------------------------------------------------------------- ($) (2)
SALARY ($) BONUS ($) AWARDS OF OPTIONS (#)
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<S> <C> <C> <C> <C> <C>
1997 282,561(1) 50,000 -0- 5,238
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Roger T. Bredesen,
Chairman of 1996 180,726 25,000 -0- 5,008
the Board and Chief
Executive Officer
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1995 175,656 40,000 -0- 50,876
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1997 172,576 64,382 -0- 20,573
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Kenneth E.
Overstreet, 1996 122,894 28,198 -0- 19,897
President and
Director
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1995 122,167 30,753 20,000 15,515
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1997 84,929 30,546 -0- 15,353
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Mary Ann Morin,
Treasurer and Chief 1996 67,597 11,621 6,000 15,064
Financial Officer
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1995 63,200 14,941 -0- 13,300
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1997 78,231 33,861 -0- 20,549
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Don Dearborn,
Vice President, General 1996 72,128 22,590 6,000 20,069
Manager, GFS
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1995 69,216 22,708 -0- 22,814
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1997 76,657 27,652 20,000 4,664
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Stanley Klarenbeek,
Vice President, Sales 1996 76,911 16,130 6,000 4,931
and Marketing Internal
Bank Forms
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1995 73,698 14,982 -0- 4,627
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</TABLE>
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(1) Includes $65,786 paid as deferred compensation pursuant to an annual
deferred compensation benefit established pursuant to Mr. Bredesen's
employment agreement with the Company and $16,775 in directors' fees.
(2) Consists of contributions under the Company's Profit Sharing Plan and Trust
($5,238, $5,238, $2,782, $4,688 and $4,664 in 1997 to each of Messrs./Ms.
Bredesen, Overstreet, Morin, Dearborn and Klarenbeek, respectively) and the
value of deferred compensation benefits under the Company's Deferred
Compensation Plan ($15,335, $12,571 and $15,861 in 1997 for Mr. Overstreet,
Ms. Morin and Mr. Dearborn, respectively).
STOCK OPTIONS
The following table summarizes option grants made during the fiscal year
ended October 31, 1997 to the executive officers named in the Summary
Compensation Table:
OPTION GRANTS IN 1997 FISCAL YEAR
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<CAPTION>
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PERCENT OF TOTAL
OPTIONS GRANTED TO
OPTIONS GRANTED EMPLOYEES IN FISCAL EXERCISE PRICE EXPIRATION DATE
NAME (#) YEAR ($/SH)
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<S> <C> <C> <C> <C>
Stanley Klarenbeek 20,000(1) 31% $15.875 2003
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</TABLE>
(1) Granted in October 1997 to Mr. Klarenbeek under the Company's 1994
Employees' Incentive Stock Option Plan (the "1994 Plan").
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,
1997:
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
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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 15,000 $148,500 6,667/0(2) $82,471/$0
- ---------------------------------------------------------------------------------------------------------------------------------
Kenneth Overstreet N/A N/A 60,000/13,334(3) $705,012/$134,996
- ---------------------------------------------------------------------------------------------------------------------------------
Mary Ann Morin N/A N/A 6,000/6,000(4) $67,500/$52,500
- ---------------------------------------------------------------------------------------------------------------------------------
Don Dearborn 4,200 $31,850 1,800/6,000(4) $20,250/$52,500
- ---------------------------------------------------------------------------------------------------------------------------------
Stanley Klarenbeek 3,500 $22,750 1,500/26,000(4) $16,875/$80,100
- ---------------------------------------------------------------------------------------------------------------------------------
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</TABLE>
(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, 1997 and the exercise price of the options.
(2) Consists of options to purchase 6,667 shares for serving on the Board of
Directors.
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(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.
(4) All under the 1994 Plan.
DIRECTORS' COMPENSATION
Directors receive annual directors' fees of $3,000 plus $800 per meeting
attended (except for the Chairman of the Compensation and Audit Committees, who
are paid $1,000 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
-------- --------- -------------- -------
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)
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 1997, Mr.
Bredesen's base salary was $200,000). The employment agreement also establishes
an aggregate of $500,000 to be paid over the course of 10 years as deferred
compensation at the rate of $50,000 per year (which amount
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is subject to adjustment annually based on changes in the Consumer Price Index).
In March 1996, Mr. Bredesen began receiving these payments at an annual rate of
$65,786 for 1997.
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 1997, Mr.
Overstreet's base salary was $160,000). 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.
The Company and/or GFS have also entered into employment agreements with
each of Mary Ann Morin, Don Dearborn and Stanley Klarenbeek, effective January
3, 1989, in the case of Ms. Morin and Mr. Dearborn, respectively, and May 1,
1990 in the case of Mr. Klarenbeek, to serve as officers of the Company and GFS
(as appropriate) until terminated by one of the parties. Each officer's annual
base salary under their respective employment agreements is adjusted annually by
the Compensation Committee of the Board of Directors (in 1997, Ms. Morin's, Mr.
Dearborn's and Mr. Klarenbeek's base salary was $84,000, $78,000 and $73,500,
respectively). Under the employment agreements, each has agreed not to compete
with the Company and/or GFS, as appropriate, for a period of two years after the
termination of his or her employment.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
To the knowledge of the Company, based solely upon review of Forms 3 and 4
and amendments thereto furnished to the Company during the fiscal year ended
October 31, 1997, pursuant to Rule 16(a)-3(e) of the Rules and Regulations
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and forms 5 and amendments thereto furnished to the Company with respect
to its fiscal year ended October 31, 1997, no one failed to file, on a timely
basis, such filings for the Company's 1997 fiscal year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth as of January 1, 1998 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 141,133 Shares (1) 7.6%
7130 Northland Circle North
Brooklyn Park, MN 55428
14
<PAGE>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------- -------------------- ----------------
Roger T. Bredesen 143,200 Shares 7.7%
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 7.7%
Income Trust B dated
June 29, 1990
Clarence J. Hynes, Trustee
1433 Utica Avenue So.
Minneapolis, MN 55416
E. Fay Bredesen Income Trust 148,737 Shares 8.0%
dated June 29, 1990
Wendall J. Davidson, Trustee
11931 54th Avenue So.
Minneapolis, MN 55442
E. Fay Bredesen 1996 Annuity 125,811 Shares 6.8%
Trust U/A dated December 20, 1996
E. Fay Bredesen and E. Burke
Hinds, Trustees
100 So. Fifth Street, Suite 1100
Minneapolis, MN 55402
E. Burke Hinds 301,005 Shares (2) 16.2%
100 So. Fifth Street, Suite 1100
Minneapolis, MN 55402
John Mutschler 7,667 Shares (3) *
7130 Northland Circle North
Brooklyn Park, MN 55428
Kenneth E. Overstreet 62,144 Shares (4) 3.3%
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 3,999 Shares (6) *
P. O. Box 444005
Eden Prairie, MN 55344
15
<PAGE>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------- -------------------- ----------------
Dr. Lester A. Wanninger 1,333 Shares (7) *
395 Hubert H. Humphrey Building
271 19th Avenue South
Minneapolis, MN 55455
All executive officers (4)
and directors as a group
(9 individuals) 256,591 Shares (1, 3-8) 13.8%
- ---------------------------------
* Represents less than 1%
(1) Includes 6,667 shares issuable upon exercise of currently exercisable
options, 31,994 shares held in an annuity trust, 3,006 shares in a
revocable trust and 9,466 shares held in the Company's Profit Sharing Plan
and Trust in a segregated directed account.
(2) Represents 143,200 shares beneficially owned by the Roger T. Bredesen
Income Trust A dated June 29, 1990, 125,811 shares beneficially owned by
the E. Fay Bredesen 1996 Annuity Trust U/A dated December 20, 1996 and
31,994 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 60,000 shares issuable upon exercise of currently exercisable
options.
(5) Includes 6,667 shares issuable upon exercise of currently exercisable
options.
(6) Consists of 3,999 shares issuable under currently exercisable options.
(7) Consists of 1,333 shares issuable upon exercise of currently exercisable
options.
(8) Includes 11,100 shares issuable to three officers upon exercise of
currently exercisable options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective August 1997, the Company leased its Roseville, Minnesota facility
from two trusts controlled by Roger T. Bredesen and his spouse, E. Fay Bredesen.
The facility is rented at an annual rate of $191,000 (for the first three Lease
years and then escalates based on various price indices thereafter) plus taxes,
utilities, insurance, certain repair and maintenance obligations and other
operating costs for the property. The initial term of the Lease is 10 years
with the Company having the right to extend the term for two additional periods
of five years each.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as a part of the report:
Exhibit
Number Title Method of Filing
------ ----- ----------------
3.1 Restated Articles of Incorporation *
of the Company, as amended
3.2 Restated and Amended Bylaws Filed herewith
of the Company
16
<PAGE>
Exhibit
Number Title Method of Filing
------ ----- ----------------
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
10.6 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, filed herewith
dated March 10, 1997
17
<PAGE>
Exhibit
Number Title Method of Filing
------ ----- ----------------
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
10.12 1994 Employees' Incentive Incorporated by
Stock Option Plan reference to the
same numbered Exhibit
to the Company's
Form 10-KSB filed on
January 25, 1994
10.12(a) First Amendment to 1994 Employees' Filed herewith
Incentive Stock Option Plan
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
18
<PAGE>
Exhibit
Number Title Method of Filing
------ ----- ----------------
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
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 Incorporated by
between Northstar Computer Forms, reference to the
Inc. and Deluxe Corporation relating same numbered Exhibit
to the Company's Roseville facility to the Company's Form
Form 10-KSB filed on
January 29, 1997
10.22 Equipment Lease Agreement effective Filed herewith
as of July 16, 1997 between Northstar
Computer Forms, Inc. and Deluxe
Financial Services, Inc.
10.23 Sublease dated January 31, 1997 Filed herewith
between Northstar Financial Forms,
Inc., as sublessee, and Deluxe
Corporation, as sublessor, under a
Master Lease dated September 24, 1993
between St. Paul Properties, Inc.,
as lessor, and Deluxe Corporation,
as sublessee
10.24 Lease effective August 22, 1997, by Filed herewith
and between Northstar Computer Forms,
Inc., as tenant, and Roger T. Bredesen
and E. Fay Bredesen as trustees under
certain revocable trusts
10.25 Employment Agreement, dated January Filed herewith
3, 1989 between Northstar Computer
Forms, Inc. and Mary Ann Morin
19
<PAGE>
Exhibit
Number Title Method of Filing
------ ----- ----------------
10.26 Employment Agreement, dated January Filed herewith
3, 1989 between General Financial
Supply, Inc. and Don Dearborn
10.27 Employment Agreement, dated May 1, Filed herewith
1990, between General Financial
Supply, Inc. and Stan Klarenbeek
11 Statement re Computation of per Filed herewith
share earnings
13 Annual Report to Shareholders Filed herewith
for the fiscal year ended
October 31, 1997
18 Letter re change in accounting Incorporated by
principles 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 Filed herewith
L.L.P.
- ---------------------------------
* 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. No reports on Form 8-K were filed during the
last quarter of the period covered by this report.
20
<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
- --------------------------------------------
J. S. Braun, Director
/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
21
<PAGE>
RESTATED AND AMENDED BYLAWS
OF
NORTHSTAR COMPUTER FORMS, INC.
<PAGE>
RESTATED AND AMENDED BYLAWS
OF
NORTHSTAR COMPUTER FORMS, INC.
TABLE OF CONTENTS
Page
----
ARTICLE I: OFFICES. . .. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01 Registered Office. . . . . . . . . . . . . . . . . . 1
Section 1.02 Other Offices. . . . . . . . . . . . . . . . . . . . 1
ARTICLE II: MEETINGS OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . 1
Section 2.01 Place of Meetings. . . . . . . . . . . . . . . . . . 1
Section 2.02 Time of Meetings . . . . . . . . . . . . . . . . . . 1
Section 2.03 Regular Meetings . . . . . . . . . . . . . . . . . . 1
Section 2.03-a Frequency of Regular Meetings . . . . . . . . . . . 1
Section 2.03-b Demand by Shareholders for
a Regular Meeting. . . . . . . . . . . . . . . . . 1
Section 2.03-c Election of Directors . . . . . . . . . . . . . . . 2
Section 2.04 Special Meetings . . . . . . . . . . . . . . . . . . 2
Section 2.05 Notice of Meetings . . . . . . . . . . . . . . . . . 2
Section 2.06 Waiver of Notice . . . . . . . . . . . . . . . . . . 2
Section 2.07 Purpose of Special Meetings. . . . . . . . . . . . . 2
Section 2.08 Quorum; Adjournment. . . . . . . . . . . . . . . . . 2
Section 2.09 Vote Required. . . . . . . . . . . . . . . . . . . . 3
Section 2.10 Voting Rights. . . . . . . . . . . . . . . . . . . . 3
ii
<PAGE>
Section 2.11 Proxies. . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.12 Action in Writing. . . . . . . . . . . . . . . . . . 3
Section 2.13 Closing of Books; Record Date. . . . . . . . . . . . 4
ARTICLE III: DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.01 General Powers . . . . . . . . . . . . . . . . . . . 4
Section 3.02 Election of Directors. . . . . . . . . . . . . . . . 4
Section 3.03 Vacancies. . . . . . . . . . . . . . . . . . . . . . 4
Section 3.04 Meetings . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.04-a Place of Meetings . . . . . . . . . . . . . . . . . 4
Section 3.04-b Regular Meetings . . . . . . . . . . . . . . . . . . 5
Section 3.04-c Special Meetings . . . . . . . . . . . . . . . . . . 5
Section 3.04-d Notice . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.04-e Quorum; Voting Requirements; Adjournment . . . . . . 5
Section 3.04-f Organization of Meetings . . . . . . . . . . . . . . 5
Section 3.04-g Action in Writing . . . . . . . . . . . . . . . . . 6
Section 3.04-h Absent Directors . . . . . . . . . . . . . . . . . . 6
Section 3.05 Committees . . . . . . . . . . . . . . . . . . . . . 6
Section 3.05-a Executive Committee. . . . . . . . . . . . . . . . . 6
Section 3.05-b Committee of Disinterested Persons . . . . . . . . . 6
Section 3.05-c Other Committees . . . . . . . . . . . . . . . . . . 7
Section 3.05-d Limitations on Authority . . . . . . . . . . . . . . 7
Section 3.05-e Minutes of Committee Meetings. . . . . . . . . . . . 7
iii
<PAGE>
Section 3.06 Telephone Conference Meetings. . . . . . . . . . . . 7
Section 3.07 Compensation . . . . . . . . . . . . . . . . . . . . 7
Section 3.08 Limitation of Director's Liabilities . . . . . . . . 8
Section 3.09 Resignation and Removal. . . . . . . . . . . . . . . 8
ARTICLE IV: OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.01 Selection and Qualification. . . . . . . . . . . . . 8
Section 4.01-a Election; Qualifications . . . . . . . . . . . . . . 8
Section 4.01-b Additional Officers. . . . . . . . . . . . . . . . . 8
Section 4.02 Salaries . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.03 Term of Office . . . . . . . . . . . . . . . . . . . 8
Section 4.04 Chairman of the Board of Directors . . . . . . . . . 9
Section 4.05 President. . . . . . . . . . . . . . . . . . . . . . 9
Section 4.06 Vice President . . . . . . . . . . . . . . . . . . . 9
Section 4.07 Secretary. . . . . . . . . . . . . . . . . . . . . . 9
Section 4.08 Treasurer. . . . . . . . . . . . . . . . . . . . . . 9
Section 4.08-a Custody of Funds and Accounting. . . . . . . . . . . 9
Section 4.08-b Disbursements and Reports. . . . . . . . . . . . . . 10
Section 4.08-c Bond . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE V: CERTIFICATES FOR STOCK. . . . . . . . . . . . . . . . . . . 10
Section 5.01 Issuance of Shares and Fractional Shares . . . . . . 10
Section 5.02 Form of Certificate. . . . . . . . . . . . . . . . . 10
Section 5.03 Facsimile Signatures . . . . . . . . . . . . . . . . 11
iv
<PAGE>
Section 5.04 Lost, Stolen, or Destroyed Certificates. . . . . . . 11
Section 5.05 Transfer of Stock. . . . . . . . . . . . . . . . . . 11
Section 5.06 Closing of Transfer Books; Record Date . . . . . . . 11
Section 5.07 Registered Shareholders. . . . . . . . . . . . . . . 12
Section 5.08 Stock Options and Agreements . . . . . . . . . . . . 12
ARTICLE VI: DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.01 Method of Payment. . . . . . . . . . . . . . . . . . 12
Section 6.02 Closing of Books; Record Date. . . . . . . . . . . . 12
Section 6.03 Reserves . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.04 Determining Fair Market Value. . . . . . . . . . . . 12
ARTICLE VII: CHECKS . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 7.01 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VIII: CORPORATE SEAL. . . . . . . . . . . . . . . . . . . . . . . 13
Section 8.01 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE IX: FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 9.01 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE X: AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 10.01. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE XI: BOOKS AND RECORDS . . . . . . . . . . . . . . . . . . . . . 13
Section 11.01 Books and Records. . . . . . . . . . . . . . . . . . 13
Section 11.02 Documents Kept at Principal
Executive or Registered Office . . . . . . . . . . 14
Section 11.03 Financial Statements . . . . . . . . . . . . . . . . 14
v
<PAGE>
Section 11.03-a Required Financial Statements . . . . . . . . . . . 14
Section 11.03-b Preparation of Annual Financial
Statements for Shareholders . . . . . . . . . . . 14
Section 11.04 Computerized Records . . . . . . . . . . . . . . . . 15
ARTICLE XII: INSPECTION OF BOOKS . . . . . . . . . . . . . . . . . . . . 15
Section 12.01 Examination and Copying by Shareholders. . . . . . . 15
Section 12.02 Information to Shareholders. . . . . . . . . . . . . 15
ARTICLE XIII: LOANS AND ADVANCES. . . . . . . . . . . . . . . . . . . . . 15
Section 13.01 Loans, Guarantees, and Suretyship. . . . . . . . . . 15
Section 13.02 Advances to Officers, Directors, and Employees . . . 16
ARTICLE XIV: INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . 16
Section 14.01. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE XV: DEFINITIONS AND USAGE . . . . . . . . . . . . . . . . . . . 16
Section 15.01 Singular, Plural; Masculine,
Feminine, and Neuter . . . . . . . . . . . . . . . . 16
vi
<PAGE>
RESTATED AND AMENDED BYLAWS
OF
NORTHSTAR COMPUTER FORMS, INC.
ARTICLE I: OFFICES
SECTION 1.01. REGISTERED OFFICE. The registered office of the Company in
Minnesota shall be that set forth in the Articles of Incorporation or in the
most recent amendment of the Articles of Incorporation or in a certificate
prepared by the Board of Directors and filed with the Secretary of State of
Minnesota changing the registered office.
SECTION 1.02. OTHER OFFICES. The Company may also have offices and places
of business at such other places both within and without the State of Minnesota
as the Board of Directors may from time to time determine or the business of the
Company may require.
ARTICLE II: MEETINGS OF SHAREHOLDERS
SECTION 2.01. PLACE OF MEETINGS. All meetings of the shareholders of the
Company shall be held at its registered office or at such other place within or
without the State of Minnesota as shall be stated by the Board of Directors in
the notice of the meeting. In the absence of designation otherwise, meetings
shall be held at the registered office of the Company in the State of Minnesota.
SECTION 2.02. TIME OF MEETINGS. The Board of Directors shall designate
the time and day for each meeting. In the absence of such designation, every
meeting of the shareholders shall be held at 3:30 p.m.
SECTION 2.03. REGULAR MEETINGS
SECTION 2.03-a. FREQUENCY OF REGULAR MEETINGS. Regular meetings of
shareholders may be held on an annual or less frequent basis, but need not be
held unless required by Section 2.03-b hereof or by applicable law.
SECTION 2.03-b. DEMAND BY SHAREHOLDERS FOR A REGULAR MEETING. A
shareholder or shareholders holding three percent (3%) or more of the voting
power of all shares entitled to vote may demand that a regular meeting of the
shareholders be held within ninety (90) days of such demand in the county where
the principal executive office of the Company is located if a regular meeting of
the shareholders has not been held during the fifteen (15) months immediately
preceding such demand. The demand shall be in writing and shall be delivered to
the President or Secretary. The Board shall call for such a shareholders'
meeting on notice within thirty (30) days of receipt of the demand.
<PAGE>
SECTION 2.03-c. ELECTION OF DIRECTORS. At the regular meeting the
shareholders, voting as provided in the Articles of Incorporation or in these
Restated and Amended Bylaws (the "Restated Bylaws"), may designate any change in
the number of Directors to constitute the Board of Directors, shall elect a
Board of Directors, and shall transact such other business as may properly come
before the meeting.
SECTION 2.04. SPECIAL MEETINGS. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Articles of Incorporation, may be called by the President or the Board of
Directors and shall be called by the President or Secretary at the request in
writing of any two or more members of the Board of Directors or at the request
in writing of one or more shareholders owning a total of ten (10%) percent or
more of the voting power of all shares entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting.
SECTION 2.05. NOTICE OF MEETINGS. Notice of meetings shall be in writing.
Such notice shall state the place, date, and time of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. A copy of such notice shall be either delivered personally or mailed,
postage prepaid, to each shareholder of record entitled to vote at such meeting
pursuant to Section 2.13 hereof not less than ten (10) nor more than sixty (60)
days before such meeting. If mailed, it shall be directed to each shareholder
at his address as it appears upon the records of the Company, and upon such
mailing of any such notice, the service thereof shall be complete, and the time
of the notice shall begin to run from the date that such notice is deposited in
the mail for transmission to such shareholder. Personal delivery of any such
notice to a corporation, an association, or a partnership shall be accomplished
by personal delivery of such notice to any officer of a corporation or an
association or to any member of a partnership.
SECTION 2.06. WAIVER OF NOTICE. Notice of any meeting of the shareholders
may be waived before, at, or after such meeting in a writing signed by the
shareholder or representative thereof entitled to vote the shares so
represented. Such waiver shall be filed with the Secretary or entered upon the
records of the meeting.
SECTION 2.07. PURPOSE OF SPECIAL MEETINGS. Business transacted at any
special meeting of the shareholders shall be limited to the matters stated in
the notice, or other matters necessarily incidental thereto.
SECTION 2.08. QUORUM; ADJOURNMENT. The holders of a majority of the
voting power of all shares entitled to vote, present in person or represented by
proxy, shall constitute a quorum for the transaction of business at all meetings
of the shareholders, except as may be otherwise provided by statute or by the
Articles of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the shareholders, the shareholders entitled to
vote thereat, present in person or represented by proxy, shall have the power to
adjourn the meeting from time to time, without notice other than announcement at
such meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the original meeting in
accordance
2
<PAGE>
with the notice thereof. If a quorum is present when a duly called or held
meeting is convened, the shareholders present in person or represented by proxy
may continue to transact business until adjournment notwithstanding the
withdrawal of enough shareholders originally present in person or by proxy to
leave less than a quorum, and for the purposes of voting pursuant to Section
2.09 hereof, shareholders holding a majority of the voting power of all shares
entitled to vote shall be deemed to be present in person.
SECTION 2.09. VOTE REQUIRED. When a quorum is present or represented at
any meeting, the vote of the holders of a majority of the voting power of all
shares entitled to vote present in person or represented by proxy shall decide
any question brought before such meeting, unless the question is one that by
express provision of statute or of the Articles of Incorporation or of these
Restated Bylaws requires a different vote, in which case such express provision
shall govern the vote required.
SECTION 2.10. VOTING RIGHTS. Except as may be otherwise required by
statute or the Articles of Incorporation or these Restated Bylaws, every
shareholder of record of the Company shall be entitled at each meeting of the
shareholders to one vote for each share of stock standing in his name on the
books of the Company.
SECTION 2.11. PROXIES. At any meeting of the shareholders, any
shareholder may be represented and vote by a proxy or proxies appointed by an
instrument in writing and filed with the Secretary at or before the meeting. An
appointment of a proxy or proxies for shares held jointly by two or more
shareholders is valid if signed by any one of them, unless and until the Company
receives from any one of those shareholders written notice denying the authority
of such other person or persons to appoint a proxy or proxies or appointing a
different proxy or proxies, in which case no proxy shall be appointed unless all
joint owners sign the appointment. In the event that any instrument shall
designate two or more persons to act as proxies, a majority of such persons
present at the meeting, or if only one shall be present then that one, shall
have and may exercise all of the proxies so designated unless the instrument
shall otherwise provide. If the proxies present at the meeting are equally
divided on an issue, the shares represented by such proxies shall not be voted
on such issue. No proxy shall be valid after the expiration of eleven (11)
months from the date of its execution unless coupled with an interest or unless
the person executing it specifies therein the length of time for which it is to
continue in force, which in no case shall exceed three (3) years from the date
of its execution. Subject to the above, any duly executed proxy shall continue
in full force and effect and shall not be revoked unless written notice of its
revocation or a duly executed proxy bearing a later date is filed with the
Secretary of the Company.
SECTION 2.12. ACTION IN WRITING. Except as may be otherwise required by
statute or the Articles of Incorporation, any action required or permitted to be
taken at any meeting of the shareholders of the Company may be taken without a
meeting, without prior notice, and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by all of the holders of the
shares of outstanding stock that would be entitled to vote thereon at a meeting
of the shareholders.
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SECTION 2.13. CLOSING OF BOOKS; RECORD DATE. The Board of Directors may
fix a date, not exceeding sixty (60) days preceding the date of any meeting of
the shareholders of the Company, as a record date for the determination of the
shareholders entitled to notice of and to vote at such meeting, and in such case
only shareholders of record on the date so fixed or their legal representatives
shall be entitled to notice of and to vote at such meeting, notwithstanding any
transfer of shares on the books of the Company after any record date so fixed.
The Board of Directors may close the books of the Company against the transfer
of shares during the whole or any part of such period. If the Board of
Directors fails to fix such a record date, the record date shall be the
twentieth (20th) day preceding the date of such meeting.
ARTICLE III: DIRECTORS
SECTION 3.01. GENERAL POWERS. The business of the Company shall be
managed by its Board of Directors, which may exercise all such powers of the
Company and do all such lawful acts and things as are by statute or by the
Articles of Incorporation or by these Restated Bylaws directed or required to be
exercised or done by the shareholders.
SECTION 3.02. ELECTION OF DIRECTORS. At each annual meeting of the
shareholders, at least three (3) but not more than six (6) directors shall be
elected to hold office until the next annual meeting of the shareholders and
until their respective successors shall be elected. Successors to the Board of
Directors shall be elected by a majority vote of the stock entitled to vote.
The directors shall elect the officers of the Company.
SECTION 3.03. VACANCIES. In the event that any member of the Board of
Directors shall resign, die, be removed from office, become disqualified, or
refuse to act during his term of office, or any vacancy or vacancies in the
Board of Directors shall occur for any other reason, such vacancy or vacancies
may be filled by a majority vote of the remaining members of the Board of
Directors, although less than a quorum, the provisions of Section 3.04-e hereof
notwithstanding. However, in the event that there are no duly elected and
qualified Directors remaining in office, then the shareholders shall elect by
majority vote a new Director or new Directors to fill such vacancy or vacancies.
The voting by the shareholders to fill such vacancy or vacancies shall be
conducted as provided in the Articles of Incorporation and these Restated
Bylaws. When one or more Directors shall give notice of his or their
resignation to the Board, effective at a future date, the Board shall have power
to fill such vacancy or vacancies to take effect when such resignation or
resignations shall become effective. Each Director elected to hold office as
provided in this Section 3.03 shall hold office for the unexpired term of his
predecessor in office, or until his earlier resignation or removal from office
as hereinafter provided.
SECTION 3.04. MEETINGS.
SECTION 3.04-a. PLACE OF MEETINGS. The Board of Directors of the Company
may hold meetings, both regular and special, either within or without the State
of Minnesota.
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SECTION 3.04-b. REGULAR MEETINGS. As soon as practicable after each
regular election of Directors, the Board of Directors shall meet at the
registered office of the Company, or at such other place within or without the
State of Minnesota as may be designated by the Board of Directors, for the
purpose of electing the officers of the Company and for the transaction of such
other business as shall come before the meeting. Other regular meetings of the
Board of Directors may be held without notice at such time and place within or
without the State of Minnesota as shall from time to time be determined by
resolution of the Board of Directors.
SECTION 3.04-c. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the President or Secretary or by one or more
Directors and shall be held at such time and place as shall be designated in the
notice of such meeting.
SECTION 3.04-d. NOTICE. Notice of a special meeting shall be given to
each Director at least 24 hours before the time of the meeting, or at the
earliest time possible thereafter, but prior to such meeting, if it is
impractical to given such notice 24 hours in advance. Notice may be given by
any means calculated to apprise the Directors of the time, place and subject
matter of the special meeting. Notice by mail shall be deemed to be given at
the time when the same shall be mailed, such mailing to take place at least
three (3) business days prior to such meeting. Whenever any provision of law,
the Articles of Incorporation, or these Restated Bylaws require notice to be
given, any Director may, in writing, either before or after the meeting, waive
notice thereof. Without notice, any Director, by his attendance at and
participation in the action taken at any meeting, shall be deemed to have waived
notice thereof.
SECTION 3.04-e. QUORUM; VOTING REQUIREMENTS; ADJOURNMENT. A majority of
the Board of Directors then in office shall be necessary to constitute a quorum
for the transaction of business, and the act of a majority of the Directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, except as may be otherwise specifically provided by statute or by
the Articles of Incorporation or these Restated Bylaws.
If a quorum shall not be present at any meeting of the Board of Directors,
the Directors present thereat may adjourn the meeting to another time or place,
and no notice as to such adjourned meeting need be given other than by
announcement at the meeting at which such adjournment is taken. If a quorum is
present at the call of a meeting, the Directors may continue to transact
business until adjournment notwithstanding the withdrawal of enough Directors to
leave less than a quorum.
SECTION 3.04-f. ORGANIZATION OF MEETINGS. At all meetings of the Board of
Directors, the Chairman of the Board, if appointed, or in his absence, the
President, or in his absence, any Director appointed by the President, shall
preside, and the Secretary, or in his absence, any person appointed by the
President, shall act as Secretary.
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SECTION 3.04-g. ACTION IN WRITING. Except as may be otherwise required by
statute or the Articles of Incorporation, any action required or permitted to be
taken at any meeting of the Board of Directors of the Company may be taken
without a meeting, without prior notice, and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the number of
Directors that would be necessary to authorize or take such action at a meeting
at which all Directors entitled to vote thereon were present and voted. Prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those Directors who have not
consented in writing.
SECTION 3.04-h. ABSENT DIRECTORS. A Director may give advance written
consent or opposition to a proposal to be acted on at a meeting of the Board of
Directors. Such advance written consent or opposition shall be ineffective
unless the writing is delivered to the President or Secretary of the Company
prior to the meeting at which such proposal is to be considered. If the
Director is not present at the meeting, consent or opposition to a proposal does
not constitute presence for purposes of determining the existence of a quorum,
but such consent or opposition shall be counted as a vote in favor of or against
the proposal and shall be entered in the minutes or other record of action at
the meeting, if the proposal acted on at the meeting is substantially the same
or has substantially the same effect as the proposal to which the Director has
consented or objected, such substantial similarity to be determined in the sole
judgment of the presiding officer at the meeting.
SECTION 3.05 COMMITTEES.
SECTION 3.05-a. EXECUTIVE COMMITTEE. The Board of Directors may, by
affirmative action of a majority of the Directors present, establish an
Executive Committee consisting of two (2) or more Directors. Such Committee may
meet at stated times or on notice by any committee member to all other members.
The Executive Committee, to the extent determined by such action of the Board,
shall have and exercise the authority of the Board and the management of the
business of the Company. Any such Executive Committee shall act only in the
interval between meetings of the Board and shall be subject at all times to the
control and direction of the Board.
SECTION 3.05-b. COMMITTEE OF DISINTERESTED PERSONS. The Board of
Directors may establish a Committee composed of two or more disinterested
Directors or other disinterested persons to determine, among other things,
whether it is in the best interests of the Company to pursue a particular legal
right or remedy of the Company, whether to cause the dismissal or discontinuance
of a particular proceeding that seeks to assert a right or remedy on behalf of
the Company, or to evaluate a proposed transaction involving the Company and one
or more persons not deemed to be "disinterested." For purposes of this Section
3.05-b, a Director or other person is "disinterested" if the Director or other
person is not the owner of more than one (1%) percent of the outstanding shares
of stock of the Company, is not currently an officer, employee, or agent of the
Company or of a related corporation, has not been an officer within the
immediately preceding two (2) years, and has not been made or threatened to be
made a party to the proceeding in question. The Committee, once established, is
not subject to the direction or control of, or termination by, the Board of
Directors. A vacancy on the Committee may be filled by a majority vote of the
remaining
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members. The good faith determination of the Committee is binding upon the
Company and its Directors, officers, and shareholders. The Committee shall be
dissolved upon the issuance of a final written report of its determinations to
the Board of Directors.
SECTION 3.05-c. OTHER COMMITTEES. The Board of Directors may establish,
by affirmative action of a majority of the Directors present, other committees
from time to time, making such regulations as it deems advisable with respect to
the membership, authority, and procedures or such committees.
SECTION 3.05-d. LIMITATIONS ON AUTHORITY. No committees of the Company
shall have authority as to any of the following matters:
(a) The submission to shareholders of any action as to which
shareholders' authorization is required by law;
(b) The filling of vacancies in the Board of Directors or on any
committees;
(c) The fixing of compensation of any Director for serving on the
Board or on any committee;
(d) The amendment or repeal of these Restated Bylaws or the adoption
of new bylaws; or
(e) The amendment or repeal of any resolution of the Board, which by
its terms shall not be so amendable or repealable.
SECTION 3.05-e. MINUTES OF COMMITTEE MEETINGS. The committees shall keep
regular minutes of their proceedings and report the same to the Board when
required.
SECTION 3.06. TELEPHONE CONFERENCE MEETINGS. Any Director or any member
of a duly constituted committee of the Board of Directors may participate in any
meeting of the Board of Directors or of any duly constituted committee thereof
by means of a conference telephone or other comparable communication technique
whereby all persons participating in such a meeting can hear and communicate
with each other. For the purpose of establishing a quorum and taking any action
at such a meeting, the members participating in such a meeting pursuant to this
Section 3.06 shall be deemed present in person at such meeting.
SECTION 3.07. COMPENSATION. Directors may be paid their expenses, if any,
of attendance at each meeting of the Board of Directors. Directors, including
employee directors, also may be paid a fixed sum for attendance at each meeting
of the Board of Directors. Nothing herein contained shall preclude any Director
from serving the Company in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
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SECTION 3.08. LIMITATION OF DIRECTORS' LIABILITIES. A Director shall not
be liable to the Company or its shareholders for dividends illegally declared,
distributions illegally made to shareholders, or any other actions taken in good
faith reliance upon financial statements of the Company represented to him to be
correct by the President of the Company or the officer having charge of its
books of account or certified by an independent or certified public accountant
to fairly reflect the financial condition of the Company; nor shall he be liable
if in good faith in determining the amount available for dividends or
distribution the Board values the assets in a manner allowable under applicable
law.
SECTION 3.09. RESIGNATION AND REMOVAL. Any Director may resign at any
time by giving written notice to the Secretary. Such resignation shall take
effect on the date of the Secretary's receipt of such notice or at such later
date as specified therein. Except as otherwise provided by law, the entire
Board of Directors or any individual Director may be removed from office with or
without cause by a vote of the shareholders holding a majority of the shares
entitled to vote at an election of the Directors.
ARTICLE IV: OFFICERS
SECTION 4.01. SELECTION AND QUALIFICATIONS.
SECTION 4.01-a. ELECTION; QUALIFICATIONS. The Board of Directors at its
next meeting after each regular meeting of the shareholders shall choose a
Chairman, President, a Secretary, a Treasurer, and such other officers or agents
as it deems necessary, none of whom need be members of the Board. Any two or
more of the offices, except those of President and Vice President, may be held
by the same person.
SECTION 4.01-b. ADDITIONAL OFFICERS. The Board of Directors may choose
additional Vice Presidents, Assistant Secretaries, and Assistant Treasurers and
such other officers and agents as it shall deem necessary, who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board.
SECTION 4.02. SALARIES. The salaries of all officers of the Company shall
be fixed by the Board of Directors, or by a committee pursuant to Section 3.05-c
hereof.
SECTION 4.03. TERM OF OFFICE. The officers of the Company shall hold
office until their successors are chosen and qualified. Any officer elected or
appointed by the Board of Directors may be removed at any time with or without
cause by the affirmative vote of a majority of the Board of Directors. Any
officer may resign at any time by giving written notice to the President or the
Secretary of the Company. Any vacancy occurring in any office of the Company by
death, resignation, removal, or otherwise shall be filled by the Board of
Directors. However, in the event that there should be no duly elected and
qualified Directors remaining in office, then the shareholders shall elect a
new Director or new Directors to fill such vacancy or vacancies.
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SECTION 4.04. CHAIRMAN OF THE BOARD OF DIRECTORS. If the Board shall
appoint a Chairman of the Board of Directors, such Chairman shall preside at all
meetings of the Board of Directors and of the shareholders and shall perform
such other duties as he may be directed to perform by the Board of Directors.
The Chairman of the Board of Directors may also be an officer and/or the chief
executive officer of the Company, as determined by the Board of Directors. If
the Chairman is the chief executive officer, he shall be responsible for the
supervision of all affairs of the Company and over all other officers, including
the President.
SECTION 4.05. PRESIDENT. In the event the Chairman of the Board of
Directors is the chief executive officer of the Company, the President shall
report to the Chairman and generally assist the Chairman and exercise such other
powers and perform such other duties as are delegated to him by the Chairman and
the Board of Directors. In the event the Board of Directors has not designated
the Chairman as the chief executive officer of the Company, the President shall
be the chief executive officer of the Company and shall have general supervision
over the affairs of the Company and over the other officers. Unless the Board
has appointed a Chairman of the Board of Directors, the President shall preside
at all meetings of the Board of Directors and of the shareholders. The
President shall, subject to approval of or review by the Board of Directors,
appoint and discharge employees and agents of the Company and fix their
compensation and make and sign contracts and agreements in the name and on
behalf of the Company. The President shall put into operation such business
policies of the Company as shall be decided upon by the Board.
SECTION 4.06. VICE PRESIDENT. Unless otherwise determined by the Board of
Directors, the Vice Presidents, if any, shall, in the absence or disability of
the President, perform the duties and exercise the powers of the President.
They shall also generally assist the President and exercise such other powers
and perform such other duties as are delegated to them by the President as the
Board of Directors shall prescribe.
SECTION 4.07. SECRETARY. The Secretary shall attend all meetings of the
shareholders and of the Board of Directors and shall record all the proceedings
of the meetings of the shareholders and of the Board of Directors in a book to
be kept for that purpose and shall perform like duties for the standing
committees when required, and shall give, or cause to be given, notice of all
meetings of the shareholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or the President, under whose supervision he shall be.
SECTION 4.08. TREASURER.
SECTION 4.08-a. CUSTODY OF FUNDS AND ACCOUNTING. The Treasurer shall have
the custody of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Company and shall deposit all moneys and other valuable effects in the name and
to the credit of the Company in such depositories as may be designated by the
Board of Directors.
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SECTION 4.08-b. DISBURSEMENTS AND REPORTS. The Treasurer shall disburse
the funds of the Company as may be ordered by the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the President and
the Board of Directors at the regular meetings of the Board, or when the Board
of Directors so requires, an account of all his transactions as Treasurer and of
the financial condition of the Company.
SECTION 4.08-c. BOND. If required by the Board of Directors, the
Treasurer shall give the Company a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration, upon the
expiration of his term of office or his resignation, retirement, or removal from
office, of all books, papers, vouchers, money, and other property of whatever
kind in his possession or under his control belonging to the Company.
ARTICLE V: CERTIFICATES FOR STOCK
SECTION 5.01. ISSUANCE OF SHARES AND FRACTIONAL SHARES. The Board of
Directors is authorized to issue shares and fractional shares of stock of the
Company up to the full amount authorized by the Articles of Incorporation in
such amounts as may be determined by the Board of Directors and as permitted by
law. No shares shall be allotted except in consideration of cash or other
property, tangible or intangible, received or to be received under a written
agreement by the Company, or services rendered or to be rendered under a written
agreement to the Company, or an amount transferred from surplus to stated
capital upon a share dividend. At the time of each such allotment of shares,
the Board of Directors shall state by resolution its determination of the fair
market value to the Company in monetary terms of any consideration other than
cash for which shares are allotted. The amount of consideration to be received
in cash or otherwise shall not be less than the par value of the shares so
allotted nor less than the stated capital to be represented by shares without
par value so allotted.
SECTION 5.02. FORM OF CERTIFICATE. Every shareholder shall be entitled to
have a certificate, signed by the President, a Vice President, the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Company, certifying the number of shares of capital stock owned by him in the
Company. If the Company shall be authorized to issue more than one class of
stock or more than one series of any class, the designations, preferences, and
relative, participating, optional, or other special rights of the various
classes of stock or series thereof and the qualifications, limitations, or
restrictions of such rights, together with a statement of the authority of the
Board of Directors to determine the relative rights and preferences of
subsequent classes or series, shall be set forth in full on the face or back of
the certificate which the Company shall issue to represent such stock, or, in
lieu thereof, such certificate shall contain a statement that the stock is, or
may be, subject to certain rights, preferences, or restrictions and that a
statement of the same will be furnished without charge by the Company upon
request by any shareholder. Certificates representing the shares of the capital
stock of the Company shall be in such form not inconsistent with law or the
Articles of Incorporation or these Restated Bylaws as shall be determined by the
Board of Directors.
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SECTION 5.03. FACSIMILE SIGNATURES. Whenever any certificate is
countersigned or otherwise authenticated by a transfer agent, transfer clerk, or
registrar, then a facsimile of the signatures of the officers or agents of the
Company may be printed or lithographed upon such certificate in lieu of the
actual signatures. In case any officer or officers who shall have signed, or
whose facsimile signature shall have been used on, any such certificate or
certificates shall cease to be such officer or officers of the Company, whether
because of death, resignation, or otherwise, before such certificate or
certificates shall have been delivered by the Company, such certificate or
certificates may nevertheless be adopted by the Company and be signed and
delivered as though the person or persons who signed such certificate or
certificates, or whose facsimile signature or signatures shall have been used
thereon, had not ceased to be the officer or officers of the Company.
SECTION 5.04. LOST, STOLEN, OR DESTROYED CERTIFICATES. The Board of
Directors may direct a new certificate or new certificates to be issued in place
of a certificate or certificates previously issued by the Company alleged to
have been lost, stolen, or destroyed, upon the making of an affidavit of the
fact by the person claiming the certificate of stock to be lost, stolen, or
destroyed. When authorizing such issue of a new certificate or new
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen, or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or give the Company a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Company with respect to the certificate or certificates alleged to
have been lost, stolen, or destroyed.
SECTION 5.05. TRANSFER OF STOCK. Upon surrender to the Company or any
transfer agent of the Company of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment, or authority to
transfer, it shall be the duty of the Company to issue a new certificate to the
person entitled thereto, cancel the old certificate, and record the transaction
upon its books; except that the Board of Directors may, by resolution duly
adopted, establish conditions upon the transfer of shares of stock to be issued
by the Company, and the purchasers of such shares shall be deemed to have
accepted such conditions on transfer upon the receipt of the certificate
representing such shares, provided that the restrictions shall be referred to on
the certificates or the purchaser shall have otherwise been notified thereof.
SECTION 5.06. CLOSING OF TRANSFER BOOKS; RECORD DATE. The Board of
Directors may close the stock transfer books of the Company for a period not
exceeding sixty (60) days preceding the date of any meeting of shareholders as
provided in Section 2.13 hereof or the date for payment of any dividend as
provided in Section 6.02 hereof or the date for the allotment of rights or the
date when any change or conversion or exchange of capital stock shall go into
effect. In lieu of closing the stock transfer books as aforesaid, the Board of
Directors may fix in advance a date, not exceeding sixty (60) days preceding the
date for payment of any dividend, or the date for the allotment of rights, or
the date when any change or conversion or exchange of capital stock shall go
into effect, as a record date for the determination of the shareholders entitled
to receive payment as aforesaid.
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SECTION 5.07. REGISTERED SHAREHOLDERS. The Company shall be entitled to
recognize the exclusive right of the persons registered on its books as the
owners of shares to receive dividends and to vote as such owners and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Minnesota.
SECTION 5.08. STOCK OPTIONS AND AGREEMENTS. In addition to any stock
options, plans, or agreements into which the Company may enter, any shareholder
of this Company may enter into an agreement giving to any other shareholder or
shareholders or any third party an option to purchase any of his stock in the
Company, and such shares of stock shall thereupon be subject to such agreement
and transferable only upon proof of compliance therewith; provided, however,
that a copy of such agreement shall be filed with the Company and reference
thereto placed upon the certificates representing said shares of stock.
ARTICLE VI: DIVIDENDS
SECTION 6.01. METHOD OF PAYMENT. Dividends upon the capital stock of the
Company may be declared by the Board of Directors at any regular or special
meeting pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Articles of
Incorporation.
SECTION 6.02. CLOSING OF BOOKS; RECORD DATE. The Board of Directors may
fix a date not exceeding sixty (60) days preceding the date fixed for the
payment of any dividend as the record date for the determination of the
shareholders entitled to receive payment of the dividend and, in such case, only
shareholders of record on the date so fixed shall be entitled to receive payment
of such dividend notwithstanding any transfer of shares on the books of the
Company after the record date. The Board of Directors may close the books of
the Company against the transfer of shares during the whole or any part of such
period. If the Board of Directors fails to fix such a record date, the record
date shall be the twentieth (20th) day preceding the date of such payment.
SECTION 6.03. RESERVES. Before payment of any dividend, there may be set
aside out of the funds of the Company available for dividends such sum or sums
as the Board of Directors from time to time, in its absolute discretion, deems
proper as a reserve or reserves for meeting contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Company, or for
such other purpose as the Board shall think conducive to the interest of the
Company, and the Board may modify or abolish any such reserve in the manner in
which it was created.
SECTION 6.04. DETERMINING FAIR MARKET VALUE. The Board of Directors in
computing the fair market value of the assets of the Company to determine
whether the Company may pay a dividend or purchase its shares shall not include
unrealized appreciation of assets, except that readily marketable securities of
other issuers may be valued at not more than market value.
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ARTICLE VII: CHECKS
SECTION 7.01. All checks or demands for money or notes of the Company
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
ARTICLE VIII: CORPORATE SEAL
SECTION 8.01. The Company shall have no corporate seal unless the Board of
Directors so adopts.
ARTICLE IX: FISCAL YEAR
SECTION 9.01. The fiscal year of the Company shall commence on the 1st day
of November and shall end on the last day of October, or shall be otherwise
fixed by resolution of the Board of Directors.
ARTICLE X: AMENDMENTS
SECTION 10.01. These Restated Bylaws may be altered or repealed at any
regular meeting of the shareholders or any special meeting of the shareholders
if notice of such alteration or repeal shall be contained in the notice of such
special meeting. These Restated Bylaws may be altered or amended by action of
the Board of Directors at any regular or special meeting, provided that such
alterations and/or amendments shall be subject to the power of the holders of a
majority of the outstanding stock to change or repeal these Restated Bylaws,
and, provided, further, that the Board of Directors shall not make, alter, or
repeal any bylaws fixing a quorum for meetings or shareholders, prescribing
procedures for removing Directors or filling vacancies on the Board of
Directors, or fixing the number of Directors or their classifications,
qualifications, or terms of office, except that the Board of Directors may adopt
or amend a Bylaw to increase the number of Directors or to decrease such number
to not less than the number last designated by the shareholders.
ARTICLE XI: BOOKS AND RECORDS
SECTION 11.01. BOOKS AND RECORDS. The Board of Directors of the Company
shall cause to be kept:
(a) a share register not more than one year old, giving the names and
addresses of the shareholders, the number and classes held by
each, and the dates on which the certificates therefor were
issued;
(b) records of all proceedings of shareholders and Directors; and
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(c) such other records and books of account as shall be necessary and
appropriate to the conduct of the corporate business.
SECTION 11.02. DOCUMENTS KEPT AT PRINCIPAL EXECUTIVE OR REGISTERED OFFICE.
The Board of Directors shall cause to be kept at the principal executive or
registered office of the Company originals or copies of:
(a) records of all proceedings of shareholders and Directors for the
past three (3) years;
(b) articles and bylaws of the Company and all amendments thereto;
(c) reports made to any or all shareholders within the immediately
preceding three (3) years;
(d) a statement of the names and usual business addresses of the
Directors and principal officers of the Company;
(e) voting trust agreements;
(f) shareholder control agreements; and
(g) financial statements as described in Section 11.03 hereof, if
such statements have been prepared by or for the Company.
SECTION 11.03. FINANCIAL STATEMENTS.
SECTION 11.03-a. REQUIRED FINANCIAL STATEMENTS. To the extent that they
have been prepared by or for the Company, the financial statements required to
be kept by the Board of Directors at the principal executive or registered
office of the Company pursuant to Section 11.02(g) hereof are as follows:
(1) ANNUAL FINANCIAL STATEMENTS. The Company shall keep annual
financial statements for the Company, including at least a
balance sheet as of the end of, and a statement of income for,
each fiscal year.
(2) INTERIM FINANCIAL STATEMENTS. The Company shall keep financial
statements for the most recent interim period prepared in the
course of the operations of the Company for distribution to the
shareholders or to a governmental agency as a matter of public
record.
SECTION 11.03-b. PREPARATION OF ANNUAL FINANCIAL STATEMENTS FOR
SHAREHOLDERS. If a shareholder of the Company demands an annual financial
statement pursuant to Section 12.02 hereof, such statement shall be prepared on
the basis of accounting methods reasonable in the
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circumstances and may be a consolidated statement of the Company and one or more
of its subsidiaries. In the case of a statement audited by a public accountant,
each copy shall be accompanied by a report setting forth the opinion of the
accountant on the statement. In other cases, each copy shall be accompanied by
a statement of the Treasurer of the Company stating the reasonable belief of
such person that the financial statement was prepared in accordance with
accounting methods reasonable in the circumstances, describing the basis of
presentation, and describing any respects in which the financial statement was
not prepared on a basis consistent with that prepared for the pervious year if
one was so prepared.
SECTION 11.04. COMPUTERIZED RECORDS. The records maintained by the
Company, including its share register, financial records, and minute books, may
utilize any information storage technique, including, for example, punched
holes, printed or magnetized spots, or micro-images, even though that makes them
illegible visually, if the records can be converted, by machine and within a
reasonable time, into a form that is legible visually and whose contents are
assembled by related subject matter to permit convenient use by persons in the
normal course of business. The Company shall convert any such records to
legible form upon the request of a person entitled to inspect them under Section
12.01 hereof, and the expense of the conversion shall be borne by the person who
bears the expense of copying pursuant to Section 12.01.
ARTICLE XII: INSPECTION OF BOOKS
SECTION 12.01. EXAMINATION AND COPYING BY SHAREHOLDERS. Every shareholder
of the Company and every holder of a voting trust certificate shall have a right
to examine, in person or by agent or attorney, at any reasonable time or times,
and at the place or places where usually kept, the share register and all
documents identified in Section 11.02 hereof. Other documents may be examined
and copied (at the expense of the examining party) only upon the showing of a
proper purpose. The expense of copying all documents identified in Section
11.02 hereof shall be borne by the Company. The Company shall bear the expense
of copying the share register only if the shareholder shows a proper purpose.
SECTION 12.02. INFORMATION TO SHAREHOLDERS. Upon the written request by a
shareholder of the Company, the Board of Directors shall furnish to him the most
recent annual financial statement of the Company as described in Section
11.03-a(1) hereof.
ARTICLE XIII: LOANS AND ADVANCES
SECTION 13.01. LOANS, GUARANTEES, AND SURETYSHIP. The Company may lend
money to, guarantee an obligation of, become a surety for, or otherwise
financially assist a person, if the transaction, or a class of transactions to
which the transaction belongs, is approved by the affirmative vote of a majority
of the Directors present at a lawfully convened meeting and such action (a) is
in the usual and regular course of business of the Company, (b) is with, or for
the benefit of, a related corporation, an organization with which the Company
has the power to make donations, (c) is with, or for the benefit of, an officer
or other employee of the Company or a subsidiary, including an officer or
employee who is a Director of the Company or a subsidiary, and
15
<PAGE>
may reasonably be expected, in the judgment of the Board of Directors, to
benefit the Company, or (d) has been approved by the affirmative vote of the
holders of two-thirds (2/3) of the outstanding shares of the Company. The loan,
guarantee, or other assistance may be with or without interest and may be
unsecured or may be secured in any manner that a majority of the Board of
Directors approves, including, without limitation, a pledge of or other security
interest in shares of the Company.
SECTION 13.02. ADVANCES TO OFFICERS, DIRECTORS, AND EMPLOYEES. The
Company may, without a vote of the Directors, advance money to its Directors,
officers, or employees to cover expenses that can reasonably be anticipated to
be incurred by them in the performance of their duties and for which they would
be entitled to reimbursement in the absence of an advance.
ARTICLE XIV: INDEMNIFICATION
SECTION 14.01. The Company shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceedings, wherever brought, whether civil,
criminal, arbitration, administrative, or investigative, whether or not by or in
the right of the Company, by reason of such person's being or having been a
Director, officer, member of a committee, employee, or agent of the Company,
against expenses, including without limitation, attorney's fees and
disbursements, judgments, fines, penalties, excise taxes assessed against the
person with respect to an employee benefit plan, and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
proceeding to the fullest extent allowable pursuant to and in accordance with
the provisions of the Minnesota Business Corporation Act, as amended from time
to time; provided, however, that in the event said Act shall be amended to
increase or expand the permitted indemnification of persons provided for
therein, the Company shall be deemed to have adopted such amendment as of its
effective date, and provided that such indemnification shall be limited by other
applicable law.
ARTICLE XV: DEFINITIONS AND USAGE
SECTION 15.01. SINGULAR, PLURAL; MASCULINE, FEMININE, AND NEUTER.
Whenever the context of these Restated Bylaws requires, the plural shall be read
to include the singular, and vice versa; and words of the masculine gender shall
refer to the feminine gender, and vice versa; and words of the neuter gender
shall refer to any gender.
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Secretary of this
Company, does hereby certify that the foregoing Restated Bylaws constituting
pages numbered one through sixteen were duly adopted as the Bylaws of this
Company in accordance with applicable law.
/s/ Mary Ann Morin
-----------------------------------
Secretary
Dated: October 29, 1997
-----------
16
<PAGE>
GOOD PRINTERS, INC.
213 Dry River Road
Bridgewater, Virginia 22812
(540) 828-4663
THIS LEASE is entered into this 10th day of March, 1997, between Good
Printers, Inc. (Good), a Virginia corporation, and General Financial Supply,
Inc., an Iowa corporation, with principal offices at 321 Eleventh Street,
Nevada, Iowa, and NORTHSTAR COMPUTER FORMS, INC., a Minnesota corporation who
agree as follows:
1. LEASED PROPERTY. Upon the terms and conditions hereinafter set forth
in consideration of the payment of the rents and performance by General
Financial of the covenants and agreements to be kept and performed by General
Financial, Good does lease, let and demise to General Financial and General
Financial hereby leases from Good the north warehouse portion (including the
loading docks) of the property owned by Good at 213 Dry River Road, Bridgewater,
Virginia; containing approximately 25,000 square feet at a cost of $2.82 per
square foot annually, during the term of the lease and any extension thereof,
lying in Rockingham County and being more particularly outlined in Exhibit A
which is attached hereto and made a part hereof (Leased Property) together with
the non-exclusive easement, right and privilege for General Financial and its
employees and invitees to use the designated common areas for the land and
parking areas as hereinafter defined, without charge, in common with Good and
the other tenants and occupants of the building and their respective employees
and invitees. The Term "common areas" is hereby defined to mean those portions
of the land and parking areas made available for the general non-exclusive use,
convenience and benefit of all occupants of the building and their respective
invitees, including, without limitation, parking areas and facilities,
driveways, truckways, delivery passages, access and egress entrances and roads,
walkways, sidewalks, and restrooms adjacent to leased space.
2. TERM. The term of this lease shall commence on June 1, 1997 and shall
continue through May 31, 1999. Good grants to General Financial an option of
two years to extend the term of
<PAGE>
this lease. The option may be exercised by General Financial giving notice to
Good no later than March 30, 1999.
3. ADJACENT PROPERTY. General Financial, in the conduct of its business,
shall not interfere with the operations of Good in the property adjacent to the
Leased Property.
4. RENT. General Financial agrees to pay to Good rent payable in monthly
installments each in the amount of Five Thousand Eight Hundred Seventy-Five
Dollars ($5,875). The rent shall be payable on the lst day of each month
commencing June 1, 1997 and shall continue on the same day of each month
thereafter. General Financial agrees to pay Good rent of $5,875 per month
during any extension of this lease.
5. NET LEASE. It is the intention of Good and General Financial that the
rent herein specified shall be net to Good in each year during the term of this
Lease, except as hereinafter provided to the contrary. Accordingly, all costs,
expenses, and obligations specifically related to the Leased Property which may
arise or become due during the term of this Lease shall be paid by General
Financial, and Good shall be indemnified and saved harmless by General Financial
from and against all such costs, expenses, and obligations. Nothing herein
contained shall be deemed to require General Financial to pay or discharge any
liens or mortgages of any character whatsoever which may now exist or may
hereafter be placed upon the Leased Property by the affirmative act of Good, nor
to pay any costs or expenses associated with or arising from environmental
conditions which were not caused by General Financial or which existed prior to
General Financial's occupancy of the Leased Property. The net rent shall be
paid to Good without notice or demand and without abatement, deduction, or
setoff (except as otherwise specifically provided in this Lease).
6. UTILITIES. Good warrants and represents that all utilities serving
the Leased Property are separately metered, and all electric, water, heat, gas,
sewer, sprinkler, and other utility systems are in good working order and
condition. General Financial agrees to pay for its use of all utilities serving
the Leased Property.
7. TAXES. General Financial shall pay all taxes, licenses and permit
fees and other governmental charges, general and special, of all kind and nature
whatsoever, levied or imposed upon
2
<PAGE>
or become due and payable out of or with respect to any improvements to be
constructed by General Financial on the Leased Property. Good shall pay all
taxes assessed against the real estate comprising the Leased Property.
8. USE. General Financial shall use the Leased Property for a warehouse
facility and for light industrial use to receive, process, store, assemble,
distribute and transport incoming and outgoing shipments of its product and for
no other purposes without the prior written consent of Good, which consent shall
not be unreasonably withheld, delayed or conditioned. General Financial shall
use its best efforts to comply with all laws, regulations and ordinances,
federal, state and local, governing its use of the Leased Property.
9. HAZARDOUS WASTE/BY-PRODUCTS. In the event General Financial shall
create, use or store any items which would constitute "hazardous waste or
materials" within the meaning of any federal state or local law or ordinance, it
shall promptly notify Good of such event, keeping Good advised as to the nature
of its handling of such hazardous waste and materials, and shall comply in all
respects with the handling, disposition or storage of such hazardous waste and
materials as required by all federal, state and local laws, regulations and
ordinances.
Good represents and warrants that, to the best of its knowledge and belief,
the Leased Property is in compliance with all federal, state, or local laws
and/or ordinances. Good agrees to indemnify and hold General Financial harmless
from any damage caused by the presence of hazardous materials located in the
Leased Property that were not caused by General Financial or caused by the
Non-Leased Property with any federal, state or local laws or ordinances.
10. LIENS. General Financial will not permit or suffer to be filed any
lien or claim of any kind against the Leased Property. If any such lien is
claimed or filed, General Financial shall, within thirty (30) days after receipt
of notice from Good, cause the Leased Property to be released from such claim,
either by payment or by the posting of a bond.
11. MUTUAL INDEMNITY. Good agrees to indemnify General Financial and save
it harmless from and against all claims for personal injury, bodily injury
including loss of life, and property damage arising from or out of any
occurrence in or upon the Leased Property, occurring during the
3
<PAGE>
term hereof. This indemnity and hold harmless agreement shall include indemnity
against all costs, expenses and liabilities incurred in or in connection with
any such claim or proceeding brought thereon, and the defense thereof.
General Financial agrees to indemnify Good and save it harmless from and
against all claims for personal injury, loss of life and property damage arising
from or out of any occurrence in or upon the Leased Property, occurring after
delivery of the Leased Property to General Financial during the term hereof.
This indemnity and hold harmless agreement shall include indemnity against all
costs, expenses, and liabilities incurred in or in connection with any such
claim or proceeding brought thereon, and the defense thereof.
12. INSURANCE. All Trade fixtures and Personal Property of General
Financial placed upon the Leased Property and all property of General Financial
shall be insured by General Financial at General Financial's expense against any
loss or damage caused by fire or other casualty through obtaining such broad
form of fire and casualty insurance policies as are customary in the industry.
Good agrees to rely entirely upon its own property insurance for recovery with
respect to any damage, loss or injury to the interests of Good thereby waiving
any subrogation against General Financial since General Financial through its
rent payments shares in the prorated costs of the insurance. Good further
agrees to make such notifications as its insurance carrier(s) may request or
demand so that the policies can be revised or noted to permit the release and
waiver of subrogation agreed to herein. Good shall pay for and carry fire and
casualty insurance policies as are customary in the industry insuring the Leased
Property, exclusive of the personal property placed thereon by General
Financial. In addition, General Financial shall maintain general public
liability insurance in amounts of not less than $1,000,000 single limit
coverage. These policies (or policy) shall protect Good and General Financial
for losses occurring in the area leased by General Financial for bodily injury
and personal injury. All such policies, and those insurance policies of Good
maintained with respect to the Leased Property and the property adjacent
thereto, shall name Good and General Financial as insurers as their respective
interest may appear. Both parties shall cause to be delivered to the other
certificates of insurance
4
<PAGE>
evidencing such coverage and containing provisions for thirty (30) days notice
to both Good and General Financial of cancellation.
13. DAMAGE OR DESTRUCTION. In the event of the destruction or damage of
the existing improvements upon the Leased Property during the term of this Lease
by fire or other insurable casualty, Good shall, subject to the time that
elapses due to the adjustment of fire insurance, repair and/or restore the same
to substantially the condition it was in immediately prior to such damage or
destruction, except as otherwise provided in this paragraph. Good shall not be
required to, but General Financial shall with due dispatch, replace or restore
forthwith any trade fixtures, signs or other installations theretofore installed
by General Financial. Rent payable under this Lease, shall be abated
proportionately according to the floor area of the demised premises which is
unusable by General Financial. Such abatement shall continue for the period
commencing with such damage or destruction and ending with the completion by
Good of such work of repair and/or reconstruction as good is obligated to do.
If, however, the Leased Property should be damaged or destroyed by any cause,
and Good shall decide to demolish or not to reconstruct the improvements
thereon, Good may, within sixty (60) days after such damage or destruction, give
General Financial written notice of such decision and thereupon this Lease shall
be deemed to have terminated as of the date of the damage or destruction and
General Financial shall immediately quit or surrender the leased premises to
Good.
14. ASSIGNMENT AND SUBLEASING. This Lease may not be assigned or
subleased by General Financial, except to subsidiaries or affiliates, without
the prior written consent of Good, which consent shall not be unreasonably
withheld, delayed or conditioned.
15. IMPROVEMENTS. General Financial shall not make any additions,
alterations or improvements exceeding $50,000 in or to the Leased Property
without Good's written consent, which consent shall not be unreasonably
withheld, delayed or conditioned. All additions, alterations and improvements
made in or to the Leased Property by General Financial, shall be at the expense
of General Financial and shall become the property of Good and be surrendered
with the premises at the termination of this Lease. General Financial shall
have the right to remove its trade fixtures, provided General Financial repairs
any damage caused by such removal. The failure of General Financial to
5
<PAGE>
remove, within a reasonable time, its fixtures or any of its property upon the
termination of the term of this Lease, shall be deemed abandonment of such
property at the option of Good.
16. CONDEMNATION. If at any time during the term of this Lease, the
Leased Property or any improvements located thereon, are taken by eminent
domain, this Lease shall expire on the date when the Leased Property shall be so
taken, and the rent shall be apportioned as of that date, except as herein
provided. No part of any award shall belong to General Financial. If the
amount of property taken by eminent domain is not so much as to make the Leased
Property unusable for its intended purpose, then this Lease shall continue, and
the rent shall be proportionately abated, based upon the amount of the Leased
Property taken. General Financial shall have the right to make a separate claim
with the condemning authority for the value of General Financial's property
and/or moving and relocation expenses; provided, however, that such separate
claims shall not reduce or adversely affect the amount of Good's award.
17. DEFAULT/TERMINATION.
(a) Subject to Article 25 below, the occurrence of any of the
following shall constitute a default of this Lease:
1. RENT DEFAULT. Any failure by General Financial to pay the rental
or any other payment required to be made where such failure continues for twenty
(20) days after written notice by Good.
2. ABANDONMENT. The abandonment of the Leased Property by General
Financial.
3. BREACH. A failure by General Financial to observe and perform
any other material provisions of this Lease, where such failure continues for
thirty (30) days after written notice by Good to General Financial. However, if
the nature of such default is such that it cannot reasonably be cured within
such period, General Financial shall not be deemed to be in default if General
Financial shall within this period commence to cure and then diligently complete
such curing.
4. INSOLVENCY. The making by General Financial of a general
assignment for the benefit of creditors; the filing by or against General
Financial of a petition to have General Financial adjudged bankrupt or of a
petition for reorganization or arrangement under any bankruptcy law (unless,
6
<PAGE>
in the case of a petition filed against General Financial, the same is dismissed
within sixty (60) days); the appointment of a trustee or a receiver to take
possession of substantially all of General Financial's assets or of General
Financial's interests in this Lease, were such possession is not restored to
General Financial within thirty (30) days; or the attachment, or other judicial
seizure of substantially all of General Financial's assets or of General
Financial's interests in this Lease where such seizure is not discharged within
thirty (30) days.
(b) In the event of any default by General Financial, Good shall,
upon its election, have the immediate option to terminate this Lease by giving
written notice, and re-enter the Leased Property with process of law, and Good
shall have all other remedies as the law and this Lease may provide. Upon
default by General Financial, Good shall be required to mitigate General
Financial's damages by attempting in good faith to re-let the property, receive
and collect the rent therefrom and apply the same first to the payments of such
expenses as it may have incurred, including all reasonable attorney's fees in
recovering possession and re-letting the Leased Property, and then to the rental
herein provided, and General Financial agrees to pay any deficiency which may
arise.
(c) Upon the termination of this Lease, whether upon its expiration
or termination, General Financial shall surrender and deliver the Leased
Property peaceably to Good in the same condition as it existed at the inception
of this Lease, reasonable wear and tear and damage by fire or other casualty
excepted.
(d) General Financial acknowledges that late payment by General
Financial to Good of rent and other sums due hereunder will cause Good to incur
costs not contemplated by this Lease, the exact amount of which will be
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Good by the
terms of any mortgage or trust deed covering the property. Accordingly, if any
installment of rent or any other sum due from tenant shall not be received by
Good within twenty (20) days after written notice that is such amount due,
General Financial shall pay to Good a late charge equal to 10% of such over due
amount. The parties agree that such late charge represents a fair and
reasonable estimate of the costs Good will incur by reason of late payment by
General Financial. Acceptance of such late
7
<PAGE>
charge by Good shall in no event constitute a waiver of General Financial's
default with respect to such overdue amount, nor prevent Good from exercising
any of the other rights and remedies granted hereunder.
18. MAINTENANCE.
SECTION 1. General Financial shall maintain the interior and dock areas of
the Leased Property and all improvements located thereon in a good state of
repair (reasonable wear and tear and damage by fire or other casualty excluded)
and shall repair any damage caused solely by General Financial. It is clearly
understood that General Financial shall not be responsible for any
maintenance/repair of any structural portion of the building, including, but not
limited to, the roof, walls, plumbing, sprinklers, floors, windows/plate glass,
roof drains, electrical, etc. unless such damage is caused solely by General
Financial.
SECTION 2. Good agrees to maintain all previously described common areas of
the property in good order, condition and repair and is a safe, clean, sightly
and sanitary condition in accordance with good and accepted industry practices.
The maintenance obligations of Good shall include, the prompt cleaning and
removal of ice and snow, prompt repairing of common areas, if requested, and
adequate lighting of all exterior common areas.
19. QUIET ENJOYMENT. Good covenants and agrees with General Financial
that so long as General Financial keeps and performs all of the covenants and
conditions required of it under the terms of this Lease, General Financial
shall, at all times during the Lease term and during any extension or renewal,
have quiet, undisturbed and continued possession of the Leased Property, free
from any claims of Good.
20. RIGHT OF INSPECTION. Good shall have the right, with prior notice to
General Financial, at all reasonable times to examine the condition and use of
the Leased Property.
21. GOVERNING LAW. This agreement shall be governed under the laws of the
Commonwealth of Virginia.
22. SUCCESSORS AND ASSIGNS. This agreement shall be binding upon and
insure to the benefit of the parties hereto and their respective permitted
successors and assigns.
8
<PAGE>
23. ENTIRE AGREEMENT. This agreement contains the entire agreement
between the parties of this date.
24. SUBORDINATION. This lease shall be subordinate to any deed of trust
or mortgage which Good may place upon the Leased Property. General Financial
shall execute any such documents required by any lender of Good's to evidence
such subordination.
25. INVALIDITY OF PARTICULAR PROVISIONS. If any term or provision of this
Lease, or the application thereof to any person or circumstance, shall, to any
extent, be invalid or unenforceable, the remainder of the Lease, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Lease shall be valid and be
enforced to the fullest extent permitted by law.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed by and on their behaves as thereunto duly authorized.
GOOD PRINTERS, INC.
("Good")
By:_______________________________
Chester Bradfield
President
GENERAL FINANCIAL SUPPLY, INC.
("General Financial")
By:_______________________________
Kenneth E. Overstreet
President
NORTHSTAR COMPUTER FORMS, INC.
By:________________________________
Mary Ann Morin
Chief Financial Officer
9
<PAGE>
EXHIBIT A
LEASE SPACE GOOD PRINTERS
03/10/97
10
<PAGE>
AMENDMENT NO. 1 TO
NORTHSTAR COMPUTER FORMS, INC.
1994 EMPLOYEE'S INCENTIVE STOCK OPTION PLAN
THIS AMENDMENT NO. 1 is effective as of October 1, 1997 and amends the
Northstar Computer Forms, Inc. (the "Company") 1994 Employee's Incentive
Stock Option Plan (the "Plan").
WHEREAS the Company adopted the Plan in 1994 to incentivize employees of
the Company and its subsidiaries through the grant of stock options; and
WHEREAS the Plan originally provided that the maximum number of shares
of Common Stock issuable thereunder would be 200,000 shares, substantially
all of which are reserved for issuance pursuant to outstanding options; and
WHEREAS the Company desires to increase the maximum number of shares
issuable under the Plan to 400,000 shares as provided in this Amendment.
NOW THEREFORE, pursuant to resolution of the Board of Directors of the
Company, the Plan is hereby amended as follows:
1. INCREASE IN NUMBER OF SHARES. The maximum number of shares of
Common Stock which may be issued pursuant to the Plan is hereby increased
from 200,000 shares to 400,000 shares.
2. SHAREHOLDER APPROVAL OF AMENDMENT. This Amendment is subject to
the approval of the shareholders of the Company at the next Annual Meeting of
the Shareholders of the Company. In the event shareholder approval of this
Amendment is not obtained at such meeting, then this Amendment shall be of no
force or effect.
3. GRANTS OF OPTIONS. The Committee charged with administering the
Plan shall have the authority, subject to shareholder approval as provided in
paragraph 2 above, to grant awards of stock options and other rights under
the Plan effective immediately.
4. GOVERNING LAW. This Amendment shall be governed by and construed
in accordance with the laws of the State of Minnesota.
IN WITNESS WHEREOF this Amendment is adopted effective as of the day and
year first above written.
NORTHSTAR COMPUTER FORMS, INC.
/s/ Mary Ann Morin
---------------------------------------
MARY ANN MORIN, CHIEF FINANCIAL OFFICER
<PAGE>
EQUIPMENT LEASE AGREEMENT
Equipment Lease Agreement, effective as of the 16th day of July, 1997, by
and between Deluxe Financial Services, Inc., a Minnesota corporation ("Lessor"),
and Northstar Computer Forms, Inc., a Minnesota corporation ("Lessee").
WHEREAS, Lessee and Deluxe Corporation, a Minnesota corporation and the
parent corporation of Lessor ("Deluxe"), are parties to that certain Agreement
of Purchase and Sale of Assets, effective as of July 21, 1996 (the "Asset
Purchase Agreement") pursuant to which Lessee purchased substantially all of the
assets of Deluxe's Financial Forms Division;
WHEREAS, pursuant to Section 10.4 of the Asset Purchase Agreement, Lessee
leased certain "DCOP Presses" from Deluxe for a term expiring as of the
effective date of this Agreement;
WHEREAS, ownership of the DCOP Presses has been transferred by Deluxe to
Lessor;
WHEREAS, Lessee wishes to lease the DCOP Presses from Lessor for the term
and subject to the conditions of this Agreement and Lessor is willing to lease
the DCOP presses to Lessee in accordance with this Agreement; and
WHEREAS, capitalized terms used herein without definition shall have the
meanings assigned to such terms in the Asset Purchase Agreement.
NOW, THEREFORE, in consideration of the respective covenants and
commitments of Lessor and Lessee that are hereinafter set forth and other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Lessor and Lessee hereby agree as follows:
1. LEASE. Lessor hereby leases to Lessee, and Lessee hereby leases and
hires from Lessor the (i) five dual stream DCOP Presses, (ii) one PCD DCOP Press
and (iii) two spare Actuator Banks (collectively, the "Equipment") currently
located at Lessee's leased Roseville, Minnesota facility.
2. RENTAL.
2.1. As rental for the Equipment, Lessee agrees to pay Lessor the
following rental payments (the "Rental Payments"):
Monthly Rental
Item Per Press
---- ---------
Dual Stream DCOP Press $3,960
PCD DCOP PRESS $2,070
Actuator Bank 0
<PAGE>
2.2. Rental Payments with respect to the first 15 days of this
lease shall be paid upon execution of this Agreement and with respect to
subsequent periods shall be paid in advance on or before the first day of each
month during the term of this lease at the office of Lessor, or to such other
person, firm or corporation or at such other place as Lessor may from time to
time designate in writing. In addition to the Rental Payments, Lessee shall pay
the amount of any personal property, or any other, taxes (excluding taxes
imposed on the income of the Lessor) and all maintenance, insurance and other
costs and expenses associated with the Equipment, payment thereof to be made
when due to the person or entity entitled thereto.
2.3. Should Lessee fail to pay the Monthly Rental or any sum
required to be paid to Lessor hereunder within ten (10) days after the due date
thereof, Lessee shall pay to Lessor interest on such delinquent payment from the
original due date thereof until such sum is fully paid at the lower of one
percent (1%) per month or the highest lawful contract rate allowed by the State
of Minnesota.
3. TERM OF LEASE.
3.1. Subject to Sections 3.2 and 3.3, this lease shall commence on
the Effective Date and continue for a period of 15 days and three years until
July 31, 2000.
3.2. Lessee shall have the right to terminate the lease of one or
more of the DCOP Presses upon written notice given at least 60 days prior to any
July 31 date occurring during the term of the Lease. Any such termination shall
be effective on the next succeeding July 3 1. The lease of the spare Actuator
Banks shall terminate concurrently with the last lease for a DCOP Press.
3.3. In addition to its termination rights under Section 3.2,
Lessee shall have the right to terminate the lease of the PCD DCOP Press
immediately upon written notice to Lessor in the event such press becomes
inoperative or substantially impaired due to the failure of one or more of its
components, if such failure cannot be remedied with reasonable efforts.
3.4. The Rental Payment payable for the first 15 days of the Lease
and Rental Payments payable with respect to a DCOP Press the lease of which is
being terminated under Section 3.3 shall be prorated for the month, based on the
ratio between the number of days in such month during which the lease is to be
in effect and the total number of days in such month.
4. NO WARRANTIES. THE EQUIPMENT IS LEASED ON AN "AS-IS" BASIS AND LESSOR
MAKES NO WARRANTIES WHATSOEVER, WHETHER EXPRESS OR IMPLIED, AS TO ITS
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL LESSOR
OR ITS AFFILIATES BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES BY REASON OF ANY FAILURE OF THE EQUIPMENT TO OPERATE IN
ACCORDANCE WITH ITS SPECIFICATIONS OR LESSEE'S EXPECTATIONS.
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<PAGE>
5. LOCATION AND RIGHT OF INSPECTION. The Equipment at all times shall be
located at the address of Lessee specified in this lease or, with prior written
notice to Lessor, at any other place of business of Lessee located in the United
States of America. Lessor shall at any and all times during Lessee's normal
business hours, upon reasonable notice and accompanied by a representative of
Lessee, have the right to enter into and upon the premises where the Equipment
is located for the purpose of inspecting the same or observing its use.
6. USE. The Equipment shall only be used for printing of Restricted
Products for customers of Lessee and printing of Requirements Products for
Lessor or Deluxe Corporation. Lessee shall operate the Equipment properly and
safely and shall comply with all laws, ordinances or regulations relating to the
operation of the Equipment. Lessee shall put the Equipment only to the use
described by the manufacturer.
7. REPAIRS, ALTERATIONS AND MAINTENANCE.
7.1. Except with respect to the PCD DCOP in the circumstances
described in Section 3.3, Lessee will keep and maintain the Equipment in good
working order and shall supply and install all replacement parts and accessories
required to maintain the Equipment in good working condition, which parts and
accessories shall be and become the sole property of Lessor. Lessee shall not,
without the prior written consent of Lessor, make any alterations,
modifications, additions, subtractions or improvements to the Equipment, but if
so authorized by Lessor, any such alterations, modifications, additions, or
improvements shall become the property of the Lessor and shall be deemed to be a
part of the Equipment. Lessee shall use on the Equipment only such compatible
parts as are approved by Lessor.
7.2. Lessee shall purchase from Lessor any required accessories and
replacement parts (or, with respect to non-proprietary off-the-shelf items, from
Lessor-approved suppliers, provided such items are equal in quality to those
available from Lessor) and, if purchased from Lessor, pay for such items the
prices charged by Lessor to its affiliates, plus I 00 percent, plus the cost of
shipping. Lessor makes no representation nor warranty whatsoever regarding the
availability or timeliness of delivery of any spare parts. Lessee is solely
responsible, at its own cost and expense, for promptly repairing any damage to
the Equipment, arranging for regular servicing of the Equipment, keeping
accurate records of servicing, and maintaining the Equipment in compliance with
all applicable safety and other laws, rules, codes and other regulations. At
the request of Lessee, Lessor will provide on-site maintenance of the Equipment
during Lessor's normal business hours at a cost of $120.00 per hour. Amounts
payable with respect of such maintenance shall be payable within 30 days of
Lessee's receipt of an invoice therefor.
7.3. Lessee shall, as soon as reasonably possible, implement any
updates of the Equipment requested by Lessor, but only if (a) such updates
relate to a safety concern and (b) Lessor simultaneously undertakes to implement
such updates with respect to the DCOP equipment in use in its own manufacturing
plants. Lessor will be responsible for the cost of
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any additional parts required for any such change, update or enhancement and any
other costs incurred in complying with this Section 7.3.
8. LOSS AND DAMAGE, INSURANCE; INDEMNIFICATION.
8.1. Lessee hereby assumes and shall bear the entire risk of loss,
theft, damage or destruction of or to the Equipment from any cause whatsoever
(ordinary wear and tear resulting from proper use excepted), and no loss, theft,
damage or destruction of or to the Equipment shall relieve Lessee of the
obligation to pay the Rental Payments or of any other obligation under this
lease, which shall continue in full force and effect.
8.2. Lessee, at its sole cost and expense, shall procure, maintain
and pay for insurance against the loss, theft, or damage of or to the Equipment
for the full replacement value thereof, naming Lessor as a loss payee. Lessee
shall also maintain an appropriate level of accident and other casualty and
liability insurance and shall name Lessor as an additional insured thereon, as
its interest may appear. Upon request by Lessor, Lessee shall provide Lessor a
Certificate of Insurance identifying Lessor as a loss payee.
8.3. If any event or accident shall occur with respect to the
Equipment which is a risk covered by Lessee's insurance, Lessee shall
immediately notify Lessor thereof, shall not compromise any such claim without
the consent of Lessor, shall allow Lessor to take over the conduct of any
related negotiations, and shall hold all sums recovered, together with any
monies received by Lessee under its policy of insurance, in trust for Lessor.
8.4. Lessee will indemnify and hold Lessor and its officers,
directors employees and agents harmless from and against any and all damages,
claims, losses, liabilities or obligations arising out of or related to any
claim that the Equipment was operated or maintained in an unlawful or unsafe
manner.
9. TRAINING. At the request of Lessee, Lessor will provide on-site
training during Lessor's normal business hours on the operation and maintenance
of the Equipment at a cost of $120.00 per hour. Amounts payable with respect of
such training shall be payable within 30 days of Lessee's receipt of an invoice
therefor.
10. CONFIDENTIALITY.
10.1. Lessee agrees that all information previously or hereinafter
disclosed to Lessee regarding the specifications, features, functionality,
performance and means of operation of the Equipment (including without
limitation the related computer controlled check numbering devices and any user
or technical manuals) constitutes valuable proprietary information of Lessor
("Confidential Information").
10.2. Lessee agrees that during the term of this Agreement and for a
period of five years thereafter, it shall (i) not use the Confidential
Information for any purpose (the "Authorized Purpose") other than for the
maintenance and operation of the Equipment in
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accordance herewith, (ii) not disclose the Confidential Information to any
third parties and (iii) limit disclosure of the Confidential Information to
such of its employees and/or representatives as have a direct "need to know"
in connection with the Authorized Purpose. The provisions of this Section 10
shall survive any termination or expiration of this Agreement.
10.3. Information shall not be deemed "Confidential Information"
insofar as and to the extent that it (i) is or becomes part of the public domain
without violation of this Agreement, (ii) is lawfully obtained by Lessee from a
third party without restriction on its further disclosure or (iii) is developed
by Lessee independent of any disclosure by Lessor.
11. DEFAULT.
11.1. If (i) Lessee shall fail to make a Rental Payment when due, (ii)
Lessee shall fail to make any other payment or perform or observe any other
covenant, condition or agreement to be performed or observed by it hereunder and
such failure shall continue for a period of ten (10) days after written notice
thereof by Lessor, provided, however, if the nature of such default is such that
it cannot be cured within the aforesaid ten (10) days, Lessee shall be permitted
such longer period of time as may be reasonably necessary to cure such default
on the condition that Lessee diligently pursues a course of action to effectuate
such cure, (iii) Lessee shall become insolvent or bankrupt or make an assignment
for the benefit of creditors or consent to the appointment of a trustee or
receiver, (iv) a trustee or a receiver shall be appointed for Lessee or for a
substantial part of its property without its consent and shall not be dismissed
for a period of sixty (60) days, (v) bankruptcy, reorganization or insolvency
proceedings shall be instituted by or against Lessee and, if instituted against
Lessee, shall not be dismissed for a period of (60) days, (vi) Lessee's business
is dissolved or Lessee terminates its existence or is discontinued or (vii)
Lessee attempts to remove, sell, transfer, encumber, part with possession or
sublet the Equipment or any item thereof without Lessor's prior written consent,
then, upon the occurrence of any such event (hereinafter called "Event of
Default"), Lessor may, at its option, declare this lease to be in default and
may do any one or more of the following with respect to any or all of the
Equipment, all as Lessor in its sole discretion may elect:
(a) cause Lessee, upon written demand of Lessor and at Lessee's
expense, to promptly return any or all items of the Equipment
to Lessor in accordance with all of the terms of Section 14
hereof, or Lessor, at its option, may take possession of any
or all items of the Equipment and remove the same without
liability for injuries suffered through or loss caused by
such repossession and repossession shall not constitute
termination of this lease. LESSEE WAIVES ANY AND ALL RIGHTS TO
NOTICE AND JUDICIAL HEARING WITH RESPECT TO THE REPOSSESSION
OR ATTACHMENT OF THE EQUIPMENT BY LESSOR FOLLOWING THE
OCCURRENCE OF AN EVENT OF DEFAULT HEREUNDER;
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(b) dispose of, hold, use, operate or keep idle the Equipment,
free and clear of any rights of Lessee for such action or
inaction or for any proceeds generated thereby;
(c) exercise any other right or remedy which may be available to
Lessor under the Uniform Commercial Code or any other
applicable law or proceed by appropriate court action to
enforce the terms hereof or to recover damages for the breach
hereof or to rescind this lease as to any or all of the
Equipment.
11.2. Notwithstanding any Event of Default, Lessee shall continue to
be liable for the Rental Payments (provided, however, if Lessor declares this
lease to be in default, Lessee's liability for Rental Payments shall extend only
until the next succeeding July 31) and other amounts owing under this Agreement
and for all legal fees and other costs and expenses resulting from the Event of
Default or the exercise of Lessor's remedies hereunder. No remedy granted to
Lessor is exclusive, but each shall be cumulative and in addition to any other
remedy referred to above or otherwise available to Lessor at law or in equity.
Any repossession or subsequent sale or lease by Lessor of any item of the
Equipment shall not bar an action for a deficiency as herein provided and the
bringing of any action or the entry of judgment against the Lessee shall not bar
the Lessor's right to repossess any item or all of the Equipment. No express or
implied waiver by Lessor of any Event of Default shall constitute a waiver of
any other default by Lessee. To the fullest extent permitted by applicable law,
Lessee hereby waives any rights now or hereafter conferred, by law or otherwise,
which may require Lessor to sell, lease or otherwise use any Equipment in
mitigation of Lessor's damages as set forth in this Section 11 or which may
otherwise limit or modify any of Lessor's rights or remedies under this Section
11.
12. ASSIGNMENT. Lessee shall not assign, pledge or hypothecate
this Agreement in whole or in part, nor any interest therein, nor shall Lessee
sublet or lend any item of the Equipment without the prior written consent of
Lessor.
13. OWNERSHIP. The Equipment is and shall at all times remain the
sole and exclusive property of Lessor. Lessee shall have no right, title or
interest therein or thereto, except as expressly set forth in this lease. The
Equipment shall remain personal property regardless of whether it becomes
affixed or attached to real property or permanently rests upon any real property
or any improvement thereon. Lessee agrees to execute all such agreements and
other documents, and to obtain the execution thereof in recordable form by all
parties having an interest in any real property to which any of the Equipment is
affixed, as Lessor may from time to time reasonably request in order to maintain
the identity of the Equipment as personal property of Lessor. Lessee consents
to the public recordation of all such agreements and documents.
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14. SURRENDER.
14.1. Except with respect to the PCD DCOP in the circumstances
described in Section 3.3, upon expiration of the lease for an item of Equipment,
Lessee shall return such item (together with any related technical manuals) to
Lessor in good condition, repair and working order, ordinary wear and tear
resulting from proper use thereof excepted, in the following manner (i) by
delivering the item, at Lessee's sole cost and expense, to any location selected
by Lessor within Ramsey County, Minnesota or (ii) by loading the item on board
any carrier designated by Lessor and shipping the same, freight paid, F.O.B.
Lessor, to the location in said County by Lessor.
15. NOTICES. All notices required or permitted under this Agreement shall
be sufficient if delivered personally, by telecopy or mailed to the party at the
address set forth herein, or at such other address as either party may designate
in writing from time to time. Any such notice shall be effective upon receipt,
if delivered by messenger or by confirmed telecopy or two days after mailing if
delivered by United States mail, duly addressed, postage prepaid.
16. MISCELLANEOUS. Any provision of this Agreement which may be
determined by competent authority to be prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective, to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. No term or provision of this Agreement may be changed,
waived, discharged, or terminated orally, but only by an instrument in writing
signed by the party against which the enforcement of the charge, waiver,
discharge or termination is sought. The captions in this Agreement are for
convenience only and shall not define or limit any of the provisions hereof.
This Agreement shall in all respects be governed by, and construed in accordance
with, the laws of the State of Minnesota, including all matters of construction,
validity and performance. This Agreement and the Asset Purchase Agreement
constitute the entire, final, complete and exclusive agreement between the
parties with respect to the lease of the Equipment and supersede and replace any
previous or inconsistent agreements or representations, written or oral, with
regard to such subject matter. Time is of the essence hereunder.
During the term of this Lease, Lessor agrees, for itself and its
affiliates, not to lease DCOP Presses to any third party printer of internal
bank forms which competes with Lessee in the sale of such products.
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IN WITNESS WHEREOF, Lessor and Lessee have executed this Agreement
effective as of the date set forth above.
NORTHSTAR COMPUTER FORMS, INC. DELUXE FINANCIAL SERVICES, INC.
- -------------------------------- --------------------------------
By: By:
----------------------------- -----------------------------
Its: Its:
-------------------------- --------------------------
Address: Northstar Computer Forms, Inc. Address: Deluxe Financial
7130 Northland Circle, No. Services, Inc.
Brooklyn Park, MN 55428 3680 Victoria St., N.
Shoreview, MN 55126
8
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SUBLEASE
1. PARTIES
This Sublease is entered into this 31st day of January, 1997, by and
between Deluxe Corporation, Sublessor, and Northstar Financial Forms,
Sublessee, at a Sublease under the Master Lease dated September 24, 1993,
entered into by St. Paul Properties, Inc. as Lessor, and Sublessor under
this Sublease as Lessee; a copy of the Master Lease is attached hereto as
Exhibit "A".
2. PROVISIONS CONSTITUTING SUBLEASE
(a) This Sublease is subject to all of the terms and conditions of the
Master Lease in Exhibit "A" and Sublessee shall assume and perform the
obligations of Sublessor and Lessee in said Master Lease, to the
extent said terms and conditions are applicable to the Demised
Premises subleased pursuant to this Sublease. Sublessee shall not
commit or permit to be committed on the Demised Premises any act or
omission which shall violate any term or condition of the Master
Lease. In the event of the termination of Sublessor's interest as
Lessee under the Master Lease for any reason, then this sublease shall
terminate coincidentally therewith without any liability of Sublessor
to Sublessee.
3. PREMISES
Sublessor leases to Sublessee and Sublessee hires from Sublessor the
following described Demised Premises located at 1240 Grey Fox Road within
the building described as 1230-1240 Grey Fox Road, together with the
appurtenances, situated in the City of Arden Hills, County of Ramsey, State
of Minnesota, as designated on attached Exhibit "B".
4. RENTAL
Sublessee shall pay to Sublessor as base rent for the Demised Premises in
advance on the first day of each calendar month of the term of this
Sublease without deduction, offset, prior notice, or demand in lawful money
of the United States, the sum of Seven Thousand Four Hundred Twenty Four
and 10/100 Dollars ($7,424.10). If the commencement date is not the first
day of the month, or if the Sublease termination date is not the last day
of the month, a prorated monthly installment shall be paid at the then
current rate for the fractional month during which the Sublease commences
and/or terminates. Receipt of Fourteen Thousand Eight Hundred Forty Eight
and 20/100 Dollars ($14,848.20) is hereby acknowledged for base rent for
the months of February and March 1997, and the additional amount of $ Zero
Dollars as non-interest bearing security for performance under this
Sublease. In the event Sublessee has performed all the
<PAGE>
terms and conditions of this Sublease throughout the term, upon Sublessee
vacating the Demised Premises, the amount paid as a security deposit shall
be returned to Sublessee after first deducting any sums owing to Sublessor.
5. TERM
(a) The term of this Sublease shall be for a period of twelve (12)
commencing on February 1, 1997, and ending on January 31, 1998.
(b) In the event Sublessor is unable to deliver possession of Demised
Premises at the commencement of the term, Sublessor shall not be
liable for any damage caused thereby, nor shall this Sublease be void
or voidable but Sublessee shall not be liable for rent until such time
as Sublessor offers to deliver possession of the Demised Premises to
Sublessee, but the term hereof shall not be extended by such delay.
If Sublessee, with Sublessor's consent, takes possession prior to the
commencement of the term, Sublessee shall do so subject to all of the
covenants and conditions hereof and shall pay rent for the period
ending with the commencement of the terms at the same rental as that
prescribed for the first month of the term, prorated at the rate of
1/30th thereof per day.
6. USE
Sublessee shall use the Demised Premises for Office, Warehouse and
Fulfillment and for no other purpose without the prior written consent of
Sublessor.
Sublessee's business shall be established and conducted through the term
hereof in a first class manner. Sublessee shall not use the Demised
Premises for, or carry on, or permit to be carried on, any offensive, noisy
or dangerous trade, business, manufacture or occupation nor permit any
auction sale to be held or conducted on or about the Demised Premises.
Sublessee shall not do or suffer anything to be done upon the Demised
Premises which will cause structural injury to the Demised Premises or the
building of which the Demised Premises form a part. The Demised Premises
shall not be overloaded and no machinery, apparatus or other appliance
shall be used or operated in or upon the Demised Premises which will in any
manner injury, vibrate or shake the Demised Premises or the building of
which it is a part. No use shall be made of the Demised Premises which
will in any way impair the efficient operation of the sprinkler system (if
any) within the building containing the Demised Premises. Sublessee shall
not leave the Demised Premises unoccupied or vacant during the term. No
music instrument of any sort, or any noise making device will be operated
or allowed upon the Demised Premises for the purposed of attracting trade
or otherwise. Sublessee shall not use or permit the use of the Demised
Premises or any part thereof for any purpose which will increase the
existing rate of insurance upon the building in which the Demised Premises
are located, or cause a cancellation of any insurance policy covering the
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building or any part thereof. If any act on the part of Sublessee or use
of the Demised Premises by Sublessee shall cause, directly or indirectly,
any increase of Sublessor's insurance expense, said additional expense
shall be paid by Sublessee to Sublessor upon demand. No such payment by
Sublessee shall limit Sublessor in the exercise of any rights or remedies,
or constitute a waiver of Sublessor's right to require Sublessee to
discontinue such act or use.
7. NOTICES
All notices or demands of any kind required or desired to be given by
Sublessor or Sublessee hereunder shall be in writing and shall be deemed
delivered forty-eight (48) hours after depositing the notice or demand in
the United States mail (certified or registered, postage prepaid),
addressed to the Sublessor or Sublessee respective at the address set forth
after their signatures at the end of this Sublease. All rent and other
payments due under this Sublease or the Master Lease shall be made by
Sublessee to Sublessor at the same address.
SUBLESSOR: SUBLESSEE:
Deluxe Corporation Northstar Financial Forms
By: By:
-------------------------------- ---------------------------
Its: Its:
------------------------------- --------------------------
Date: Date:
------------------------------ -------------------------
Address: Address:
--------------------------- ----------------------
- ----------------------------------- ------------------------------
Telephone No. Telephone No.
---------------------- -----------------
The undersigned, Lessor under the Master Lease attached as Exhibit "A", hereby
consents to the subletting of the Demised Premises described herein on the terms
and conditions contained in this Sublease. This consent shall apply only to
this Sublease and shall not be deemed to be a consent to any other Sublease.
LESSOR:
St. Paul Properties
By:
--------------------------------
Its:
-------------------------------
Date:
------------------------------
Address:
---------------------------
- -----------------------------------
Telephone No.
----------------------
3
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(If Sublessor or Sublessee is a corporation, the corporate seal must be affixed
and the authorized officers must sign on behalf of the corporation. The
Sublease must be executed the President or a Vice President and the Secretary of
Assistant Secretary unless the Bylaws or a Resolution of the Board of Directors
shall otherwise provide. In which event the Bylaws or a certified copy of the
Resolution, as the case may be, must be furnished.)
4
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EXHIBIT "A"
5
<PAGE>
EXHIBIT "B"
6
<PAGE>
EXHIBIT "C"
7
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EXHIBIT "D"
8
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LEASE
-----
THIS LEASE is made and entered into retroactively effective as of August
22, 1997, by and between Roger T. Bredesen and E. Fay Bredesen, as trustees of
that certain revocable trust under that certain Amendment and Restatement of
Roger T. Bredesen Revocable Trust Agreement dated December 20, 1996, an
undivided 1/2 interest and E. Fay Bredesen and Roger T. Bredesen as trustees
under that certain Amendment and Restatement of E. Fay Bredesen Revocable Trust
Agreement dated December 20, 1996 an undivided 1/2 interest, whose address is
10800 - 57th Avenue North, Plymouth, MN 55442, hereinafter referred to as
"LANDLORD", and Northstar Computer Forms, Inc., a Minnesota corporation, whose
address is 7130 Northland Circle North, Brooklyn Park, MN 55428 hereinafter
referred to as "TENANT".
Landlord in consideration of the rents, terms, covenants, conditions and
agreements hereinafter provided and described on the part of the Tenant to be
paid, kept and performed, does lease and let unto the Tenant, and Tenant does
hereby take and hire from Landlord the building and improvements described in
Section 1 hereof located on the real property described in Section 1 hereof
together with said real property and the parties do hereby covenant, promise and
further agree as follows:
1. LEASED PREMISES
The leased premises shall consist of the building and improvements located
at 2341 St. Croix Street, Roseville, Minnesota legally described in EXHIBIT "A"
attached hereto and made a part hereof, hereinafter referred to as the
"PREMISES".
2. TERM
2.1 The term of this Lease (the "LEASE TERM") shall be for ten (10)
years commencing on August 22, 1997 ("COMMENCEMENT DATE"). The first Lease Year
shall be for a period of twelve (12) consecutive calendar months from the
Commencement Date, except that if the Commencement Date shall be other than the
first day of a calendar month, the first Lease Year shall be the period from
such Commencement Date to the end of the calendar month in which it shall occur,
plus the following twelve (12) calendar months. Each Lease Year after the first
Lease Year shall be a successive period of twelve (12) calendar months ("LEASE
YEAR"). At either party's request, the other agrees to execute for recording
purposes a short form or memorandum of this Lease, which short form or
memorandum of this Lease will set forth the Commencement Date, and the date of
termination of the Lease Term.
2.2 Tenant shall have the right to extend the Lease Term for two (2)
additional periods of five (5) years each the "OPTION TERM(S)" upon the same
terms and conditions as
<PAGE>
provided in the original Lease Term. Tenant shall exercise this option by
giving Landlord nine (9) months written notice prior to the date of commencement
of such Option Term, as applicable. The annual rent during the Option Term
shall be as set forth in Section 3.3 hereof.
3. RENT
3.1 For purposes of computing rent under this Section 3, the following
terms shall have the meanings set forth below:
3.1.1 "BUREAU" means the Federal Bureau of Labor Statistics or any
successor agency that shall issue indices of data referred to in
(ii) below.
3.1.2 "PRICE INDEX" means the Consumer Price Index for Urban Wage
Earners and Clerical Workers (United States City Average) issued
from time to time by the Bureau, or any other measure hereafter
employed by the Bureau in lieu of such price index that measures the
cost of living nationally.
3.1.3 "AVERAGE PRICE INDEX" for any Lease Year is the average of
Price Indices issued in the twelve (12) month period ending two (2)
months prior to the first day of that Lease Year and such average is
the "AVERAGE PRICE INDEX" for that Lease Year. In making an average
there shall be excluded any index which itself is an average (i.e.,
there shall be no averaging of averages).
3.1.4 "BASE INDEX" is the average of the Price Indices issued by
the Bureau in the twelve (12) month period from September 1, 1997 to
August 31, 1998. In making such average, there shall be excluded
any index which itself is an average.
3.1.5 The "ISSUE" of a Price Index means the release to the public
of the Price Index, and the date of issue shall be the date it is so
released whether or not the issued Index is for the current month or
period in which the release occurs or for a prior month or period.
3.2 Tenant shall pay to Landlord at the address set forth above or at
such other place as Landlord shall from time to time designate in writing,
annual rental for each Lease Year in the amounts hereinafter set forth, payable
in advance in successive equal monthly installments on the first day of each and
every month during the Lease Term. Rental for a partial month shall be pro
rated based on the annual rent for the applicable Lease Year and shall be
payable together with the monthly rental installment next coming due. Except as
provided for in Section 7.3 below, it is understood and agreed that the annual
rent provided for herein shall be absolutely net to Landlord throughout the
Lease Term, free of any and all real estate taxes, costs, insurance, expenses,
liabilities, charges or other deductions whatsoever with respect to the Premises
and/or the ownership, leasing, operation, maintenance, the repair, rebuilding,
use or occupation thereof, or with respect to any interest of Landlord therein,
it
2
<PAGE>
being the intention of the parties hereto that by the execution of this Lease,
the Tenant shall, during the Lease Term, assume with respect to the Premises
every obligation relating thereto which the ownership thereof would entail and
which, but for this Lease, would be borne by Landlord. This Lease is a net
Lease, and, notwithstanding any law, all rents and other sums payable under this
Lease by Tenant whether as rents or otherwise, shall be paid without offset,
counterclaim, abatement or defense, and this Lease shall not be subject to
termination by Tenant by reason of any cause whatever, unless such right to
terminate is expressly set forth in this Lease.
3.3 The annual rental for each Lease Year is as follows:
3.3.1 For the 1st, 2nd and 3rd Lease Years, the annual rental
shall be $191,000.
3.3.2 For the 4th, 5th and 6th Lease Years $191,000, plus a sum
equal to the amount by which $191,000 times the Average Price Index
for the 4th Lease Year divided by the Base Index exceeds $191,000.
3.3.3 For the 7th, 8th and 9th Lease Years, $191,000, plus a sum
equal to the amount by which $191,000 times the Average Price Index
for the 7th Lease Year divided by the Base Index exceeds $191,000.
3.3.4 For the 10th Lease Year and the 11th and 12th Lease Years of
the Option Term, if applicable, $191,000, plus a sum equal to the
amount by which $191,000 times the Average Price Index for the 10th
Lease Year divided by the Base Index exceeds $191,000.
3.3.5 For the 13th, 14th and 15th Lease Years of the Option Term,
if applicable, $191,000, plus a sum equal to the amount by which
$191,000 times the Average Price Index for the 13th Lease Year
divided by the Base Index exceeds $191,000.
3.3.6 For the 16th, 17th and 18th Lease Years of the Option Term,
if applicable, $191,000, plus a sum equal to the amount by which
$191,000 times the Average Price Index for the 16th Lease Year
divided by the Base Index exceeds $191,000.
3.3.7 For the 19th and 20th Lease Years of the Option Term, if
applicable, $191,000, plus a sum equal to the amount by which
$191,000 times the Average Price Index for the 19th Lease Year
divided by the Base Index exceeds $191,000.
In no event shall annual rent in any Lease Year be less than $191,000.
3
<PAGE>
4. INSURANCE AND INDEMNITY
4.1 The Tenant shall, throughout the Lease Term, at its own cost and
expense, procure and maintain insurance which covers the Premises against fire,
and wind and storm damage and such other risks as may be included in the
broadest form of extended coverage insurance as may from time to time be
available to Tenant. Replacement cost and agreed amount endorsements must be
obtained, with a deductible not greater than $25,000.00.
4.2 The Tenant agrees to procure and maintain, at the Tenant's own
expense, comprehensive general liability insurance with respect to the Tenant's
use and occupancy of the Premises, the real estate described in EXHIBIT "A" and
improvements thereon, with limits of at least $500,000.00 per
person/$1,000,000.00 per occurrence for bodily injury and $500,000.00 for
property damage.
4.3 The Tenant agrees to place and maintain, at the Tenant's own
expense, rent loss insurance in an amount not less than one year's rent plus the
amount of real estate taxes and annual installments of special assessments, and
the annual insurance premiums hereunder.
4.4 The Tenant agrees to notify the Landlord in writing if it is unable
to procure all or some part of the insurance, and if the Landlord shall procure
such insurance, then the Tenant will, within three (3) days from receiving
written notice, pay the Landlord the amount of the premiums paid.
4.5 All policies of insurance provided for or contemplated by this
Section shall name the Landlord and the Tenant as insureds or additional
insured, as their respective interests may appear and shall provide that the
policies cannot be canceled without ten (10) days written notice to the parties.
All insurance companies must be approved in writing by the Landlord, such
consent not to be unreasonably withheld. The Tenant shall provide the Landlord
with a certificate of insurance evidencing all required coverages on or before
the Commencement Date and upon request copies of all such policies. In the
event that Landlord shall mortgage its interest or grant a deed of trust
conveying its interest in the Premises, the holder thereof shall be named as
loss payee and the policies shall further provide that the policies cannot be
canceled without ten (10) days written notice to the holder.
4.6 The Tenant shall defend, indemnify and hold the Landlord harmless
against any and all claims, damages and lawsuits arising after the Commencement
Date of this Lease and any orders, decrees or judgments which may be entered
therein, brought for damages or alleged damages resulting from any injury to
person or property or from loss of life sustained in or about the Premises, and
the Tenant agrees to save the Landlord harmless from, and indemnify the Landlord
against, any and all injury, loss or damage, of whatever nature, to any person
or property caused by, or resulting from any act, omission or negligence of the
Tenant or by any employee or agent of the Tenant. Provided that Tenant
maintains comprehensive general liability insurance as required under Section
4.2 above, the indemnification under the
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foregoing sentence shall be limited to amounts payable under the comprehensive
general liability insurance described therein. Landlord and Tenant hereby
release each other from any and all liability for any loss or damage caused by
fire or any of the extended coverage casualties to the Premises or the parties'
respective property located thereon, and hereby waive on behalf of their
respective insurance carriers any right of subrogation with respect to recovery
on account of any such loss. It is the intent hereof that so long as Tenant
maintains insurance in accordance with the provisions of this Article 4 that
Landlord only look to the proceeds of the insurance required to be maintained by
Tenant hereunder for recovery on account of such loss and Tenant shall look only
to the proceeds of any contents insurance which it may choose to carry for
recovery with respect to any loss which it may incur.
5. TAXES, ASSESSMENTS AND UTILITIES
5.1 The Tenant shall be liable and agrees to pay the charges for all
public utility services rendered or furnished to the Premises, including heat,
water, gas, electricity, sewer, sewage treatment facilities and the like, all
personal property taxes, real estate taxes, special assessments and municipal or
government charges, general and special, ordinary and extraordinary, of every
kind and nature whatsoever, which may be levied, imposed or assessed against the
Premises, or due and payable at any time after the Commencement Date of this
Lease and prior to the expiration of the Lease Term, or any Option Term.
5.2 The Tenant shall pay all real estate taxes, assessments for public
improvements or benefits, and other governmental impositions, duties and charges
of every kind and nature whatsoever which shall or may, during the Lease Term,
become due or payable, laid, levied, assessed, or imposed upon, or become a lien
or liens upon the Premises or any part thereof or the real estate described in
EXHIBIT "A". Such payments may be considered as additional rent paid by the
Tenant. The Tenant shall be deemed to have complied with the foregoing covenant
if payment is permitted without penalty or interest, or before the same shall
become a lien upon the Premises. If by law any real estate taxes, assessments
for public improvements or benefits, or other governmental impositions, duties
and charges of every kind and nature whatsoever may at the option of the
taxpayer be paid in installments (whether or not interest shall accrue on the
unpaid balance), the Tenant may exercise the option to pay the same in
installments and shall pay such installments as they become due during the Lease
Term. If due to a change in the method of taxation, a franchise tax, rental
tax, or income or profit tax shall be levied against Landlord in substitution
for or in lieu of any tax which would otherwise constitute a real estate tax,
such tax shall be deemed a real estate tax for the purposes herein and shall be
paid by Tenant. If any Mortgagee or holder of a deed of trust shall require
Landlord to escrow the amount of such taxes and assessments on a monthly basis,
Tenant shall then pay Landlord such amounts on a similar monthly basis.
5.3 All real estate taxes, assessments for public improvements or
benefits, water rates and charges, sewer rents and other governmental
impositions, duties and charges which shall become payable for the first and
last tax years of the Lease Term shall be apportioned pro rata between the
Landlord and the Tenant in accordance with the respective number of
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days during which each party shall be in possession of the Premises in said
respective tax years. For the purposes of this provision, all personal property
taxes, real estate taxes and special assessments shall be deemed to have been
assessed in the year that the first payment or any installment thereof is due.
5.4 The Tenant shall have the right to contest or review by legal
proceedings or in such other manner as may be legal (which, if instituted, shall
be conducted solely at Tenant's own expense) any tax, assessment for public
improvements or benefits, or other governmental imposition aforementioned, upon
condition that, before instituting such proceeding the Tenant shall pay (under
protest) such tax, assessment for public improvements or benefits, or other
governmental imposition, duties and charges aforementioned, unless such payment
would act as a bar to such contest or interfere materially with the prosecution
thereof and in such event Tenant shall post with Landlord alternative security
satisfactory to Landlord. All such proceedings shall be begun as soon as
reasonably possible after the imposition or assessment of any contested items
and shall be prosecuted to final adjudication with reasonable dispatch. In the
event of any reduction, cancellation, or discharge, the Tenant shall pay the
amount that shall be finally levied or assessed against the Premises or
adjudicated to be due and payable, and, if there shall be any refund payable by
the governmental authority with respect thereto, the Tenant shall be entitled to
receive and retain the same, subject, however, to apportionment as provided
during the first and last years of the Lease Term.
5.5 The Landlord, within sixty (60) days after notice to Tenant if
Tenant fails to commence such proceedings, may, but shall not be obligated to,
contest or review by legal proceedings, or in such other manner as may be legal,
and at the Landlord's own expense, any tax, assessments for public improvements
and benefits, or other governmental imposition aforementioned, which shall not
be contested or reviewed, as aforesaid, by the Tenant, and unless the Tenant
shall promptly join with the Landlord in such contest or review, the Landlord
shall be entitled to receive and retain any refund payable by the governmental
authority with respect thereto.
5.6 The Landlord shall not be required to join in any proceeding
referred to in this Section 5, unless in the Tenant's reasonable opinion, the
provisions of any law, rule or regulation at the time in effect shall require
that such a proceeding be brought by and/or in the name of the Landlord, in
which event the Landlord shall upon written request, join in such proceedings or
permit the same to be brought in its name.
5.7 Nothing herein contained shall require or be construed to require
Tenant to pay any inheritance, estate, succession, transfer, gift, franchise,
income or profit tax that is or may be imposed upon the Landlord, its successors
or assigns.
6. SUBLEASING OR ASSIGNMENT
The Tenant shall not sublease, sell, assign, mortgage or transfer any of
its interest in the Lease or the Premises, without the prior written consent of
the Landlord, which shall not be unreasonably withheld.
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7. REPAIRS AND MAINTENANCE
7.1 The Tenant covenants and agrees to keep and maintain in good order,
condition and repair the interior and exterior of the Premises during the Lease
Term, and further agrees that the Landlord shall be under no obligation to make
any repairs or perform any maintenance to the Premises. The Tenant covenants
and agrees that it shall be responsible for all structural and non-structural
repairs, alterations or maintenance, including but without limitation the
interior and exterior portions of all doors, door checks and operators, windows,
plate glass, plumbing, water and sewage facilities, fixtures, electrical
equipment, interior walls, ceilings, signs, interior building appliances and
similar equipment, heating and air conditioning equipment, and further agrees to
replace any of said equipment when necessary. The Tenant further agrees to be
responsible for, at its own expense, snow removal, landscaping, maintenance of
the parking lot (including parking lines and blacktop surfacing), and other
similar items.
7.2 If the Tenant refuses or neglects to commence or complete repairs
promptly and adequately, the Landlord may, but shall not be required to, do so
and the Tenant shall pay the cost thereof to Landlord upon demand. It is
understood that the intention of the parties hereto is that the Tenant shall pay
all expenses and maintenance and repair during the Lease Term. The Tenant
further covenants and agrees not to permit alterations of or upon any part of
the Premises except by and with the prior written consent of the Landlord. All
alterations and additions to the Premises shall be made in accordance with all
applicable laws and shall remain for the benefit of the Landlord unless
otherwise provided in the said written consent; and the Tenant further agrees,
in the event of making such alterations as herein provided, to indemnify and
save harmless the Landlord from all expense, liens, claims or damages to either
persons or property or the Premises arising out of or resulting from the
undertaking or making of said alterations or additions.
7.3 Notwithstanding anything contained herein to the contrary, if during
the last two Lease Years of the initial Lease Term only, the building's roof
needs to be replaced, Landlord and Tenant shall each pay one-half the cost
thereof. In the event of such roof replacement under this Section 7.3, Landlord
and Tenant must mutually agree upon the contractor and the terms of any bid or
contract with respect to the work. If the parties are unable to reach
agreement, then they will jointly select an independent architect or engineer
who shall prepare specifications for the work and contract, solicit competitive
bids and award the contract on their joint behalf. Any fee of the architect or
engineer shall be paid equally by Landlord and Tenant. Notwithstanding anything
contained herein to the contrary, if during the last two years of the initial
Lease Term only, the aggregate cost of repairs, maintenance and replacement of
the heating, ventilation, and air conditioning equipment ("HVAC Equipment")
shall exceed $5,000 (the amount in excess of $5,000 hereinafter referred to as
the "Excess Cost"), the Landlord shall pay one-half of the Excess Cost and
Tenant shall pay the costs up to and including $5,000.00 plus one-half of the
Excess Cost. In the event of replacing any HVAC Equipment during the last two
years of the initial Lease Term, Landlord and Tenant must mutually agree upon
the contractor and the terms of any bid or contract with respect to
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the work. If the parties are unable to reach agreement as to the contractor and
the terms of any such bid or contract, or in the event that the parties are
unable to reach agreement as to whether or not repairs versus replacement is
appropriate, then they shall jointly select a mechanical engineer who shall
first determine whether or not repair or replacement is appropriate and, if
replacement is appropriate, the mechanical engineer shall prepare specifications
for the work and contract, solicit competitive bids and award the contract on
their joint behalf. Any fee of the mechanical engineer shall be paid equally by
Landlord and Tenant. In the event that (i) at the time of any such repair,
maintenance or replacement of HVAC Equipment, Tenant has exercised its first
option to extend the term hereof pursuant to Section 2.2, then Landlord shall
only be required to pay 25% of any Excess Cost, and (ii) if subsequent to such
repair, maintenance and replacement resulting in a payment of 50% of Excess Cost
by Landlord, Tenant subsequently exercises its first option to extend the term
pursuant to Section 2.2, then as a condition of exercise, Tenant must
contemporaneously with sending notice thereof reimburse Landlord 25% of the
Excess Cost. In the event that Tenant desires to exercise its second option to
extend the term pursuant to Section 2.2, then as a condition of exercise Tenant
must contemporaneously with sending notice thereof reimburse Landlord an
additional 25% of any Excess Cost.
8. USE
8.1 The Premises shall be used exclusively for warehouse and
manufacturing purposes and related office purposes or for such other purposes as
Landlord may expressly approve in writing. Tenant shall not store any goods or
merchandise or use the Premises for any purpose which will in any way impair or
violate the requirements of any policies of insurance on the Premises or result
in a rating of the Premises or an increase in the insurance premium on account
thereof.
8.2 The Tenant and its use of the Premises will comply with and will
conform the Premises to all statutes, ordinances, rules, orders, regulations and
requirements of all federal, state, city and local governments, and with all
rules, orders and regulations of the applicable board of fire underwriters which
affect the use of the Premises.
9. SIGNS
The Tenant shall have the right to install and maintain a sign or signs
advertising the Tenant's business, provided that the signs conform to law, and
further provided that the sign or signs conform specifically to the written
requirements of the appropriate governmental authorities.
10. SUBORDINATION
The Landlord reserves the right and privilege to subject and subordinate
this Lease at all times to the lien of any mortgage or mortgages or deeds of
trust now or hereafter placed upon the Landlord's interest in the Premises and
to any and all advances to be made thereunder, and all renewals, modifications,
extensions, consolidations and replacements
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thereof, provided, however, as a condition thereof such lien holder agrees not
to disturb Tenant's right of possession so long as Tenant is not in default
hereunder and Tenant hereby also agrees to attorn to such lienholder. The
Tenant covenants and agrees to execute and deliver, upon demand, such further
instrument or instruments subordinating this Lease on the foregoing basis to the
lien of any such mortgage or mortgages or deed of trust as shall be desired by
the Landlord or any present or future mortgagee or holder of a deed of trust,
provided that such agreements contain the foregoing described covenants of
non-disturbance and attornment.
11. CONDEMNATION OR EMINENT DOMAIN
11.1 If the whole of the Premises are taken by any public authority under
the power of eminent domain, or by private purchase in lieu thereof, then this
Lease shall automatically terminate upon the date possession is surrendered, and
rent shall be paid up to that day. If any part of the Premises shall be so
taken as to render the remainder thereof unusable for the purposes for which the
Premises were leased, then Tenant shall have the right to terminate this Lease
upon thirty (30) days notice to the other Landlord and given within ninety (90)
days after the date of such taking. In the event that this Lease shall
terminate or be terminated, the rental shall be paid up to the day that
possession was surrendered. If after such a taking, the Lease shall not
terminate nor be terminated, Landlord shall at its cost and expense, restore the
remaining portion of the Premises to as near as practicable its pre-existing
condition, and shall make all repairs to the building in which the Premises is
located to the extent necessary to constitute the building a complete
architectural unit, provided that Landlord shall not be obligated to expend any
sums in excess of any condemnation award which it receives. Rent shall be
prorated on the basis of useable building space before and after such repairing
or restoration. Landlord and Tenant agree that if a taking results in a loss of
thirty (30) or more parking stalls on the Premises and Landlord can not provide
replacement parking within an one block radius of the Premises, then such taking
shall be deemed substantial enough to make the Premises unuseable for their
intended purpose under this clause.
11.2 All compensation awarded or paid upon such total, temporary or
partial taking of the Premises shall belong to and be the property of the
Landlord without any participation by the Tenant, whether such damages shall be
awarded as compensation for diminution in value to the leasehold estate or to
the fee estate of the Premises. Nothing contained herein shall be construed to
preclude the Tenant from prosecuting any claim directly against the condemning
authority in such proceedings for loss of business, damage to or cost of removal
of or for the value of the stock, trade fixtures, furniture, equipment and other
personal property belonging to the Tenant; provided, however, that no such claim
shall diminish or otherwise adversely affect the Landlord's award or the award
of any fee mortgagee.
12. RIGHT TO INSPECT
The Landlord reserves the right to enter upon, inspect and examine the
Premises at any time during business hours upon not less than 24 hours advance
notice, the Tenant agrees to allow the Landlord free access to the Premises to
show the Premises, and within One Hundred
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Eighty (180) days of the termination of this Lease, to place "for sale" or "for
rent" signs on the Premises.
13. DESTRUCTION OF THE PREMISES
In the event the Premises shall be destroyed or so damaged by fire,
explosion, windstorm or other casualty as to be entirely untenantable, Landlord
shall provide Tenant with a written estimate ("Estimate Notice") of the time
necessary to adjust the loss with the insurance carrier and the additional time
necessary to restore the Premises (such entire period of time for loss
adjustment and restoration hereinafter referred to as the "Restoration Period")
and Landlord's reasonable estimate of the cost of restoration (the "Restoration
Estimate"). If the Restoration Estimate equals or exceeds thirty percent (30%)
of the amount of casualty insurance required to be carried pursuant to Section
4.1 hereof, Landlord may terminate this Lease and the Lease Term as of the date
of the destruction or damage, by giving Tenant notice within ninety (90) days
after the date of the destruction or damage. In the event that the Restoration
Period shall be two-hundred seventy (270) days or longer, Tenant may terminate
this Lease and the Lease Term as of the date of destruction or damage by giving
Tenant notice within fifteen (15) days after receiving the Estimate Notice. If
the Lease is not terminated as provided for in this Section 13, then the
Landlord shall repair and restore the same with reasonable promptness to as near
as practicable its preexisting condition; provided, however, Landlord shall not
be obligated to expend any sums in excess of the amount of insurance proceeds
which it receives on account of said casualty. Rent shall be pro rated on the
basis of useable space during such repairing or restoration.
14. ACTS OF DEFAULT
Each of the following shall be deemed a default by the Tenant and a breach
of this Lease:
14.1 Failure to pay the rent herein reserved, or any part thereof, for a
period of ten (10) days after notice.
14.2 Failure to do, observe, keep and perform any of the terms,
covenants, conditions, agreements and provisions of this Lease to be
done, observed, kept or performed by the Tenant including failure to
pay any additional rent, for a period of thirty (30) days after
notice, provided, however, if such default is non-monetary in
nature, then Tenant shall be allowed such additional period of time
as may reasonably required to effectuate a cure for so long as
Tenant is diligently pursuing a course of action to effectuate a
cure, but in no event longer that one-hundred twenty (120) days
after the notice.
14.3 The abandonment of the Premises by the Tenant, the adjudication of
the Tenant as a bankrupt, the making by the Tenant of a general
assignment for the benefit of creditors, the taking by the Tenant of
the benefit of any insolvency act or law, the appointment of a
permanent receiver or trustee in bankruptcy for the Tenant's
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property, or the appointment of a temporary receiver which is not
vacated or set aside within sixty (60) days from the date of such
appointment.
15. REMEDIES ON ACCOUNT OF DEFAULT
In the event of any such uncured default by Tenant after notice as
aforesaid if required, and at any time thereafter, Landlord may at its option
and without limiting Landlord in the exercise of any other right or remedy it
may have on account of such default, and without any further demand notice:
15.1 Declare this Lease at an end, reenter the Premises with or without
process of law, eject all parties in possession and repossess and
enjoy the Premises together with all additions, alterations and
improvements thereto.
15.2 Reenter the Premises with or without process of law, eject all
parties in possession thereof and without terminating this Lease, at
any time and from time to time, relet the Premises or any part or
parts thereof, for the account of Tenant or otherwise, receive and
collect the rents therefor, applying the same first to the payment
of such expenses as Landlord may have paid, assumed or incurred in
recovering possession of the Premises, including costs, expenses and
attorneys' fees, and for placing the same in good order and
condition or reasonably incurred in preparing or altering the same
for reletting and all other reasonable expenses, commissions and
charges paid, assumed or incurred by Landlord in reletting the
premises, and then to the fulfillment of the covenant of Tenant.
Any such reletting as provided for herein may be for the remainder
of the Lease Term or any Option Term as originally granted or for a
longer or shorter period, and Landlord may execute any Lease made
pursuant to the terms hereof in its own name. Tenant shall pay to
Landlord all such sums required to be paid by Tenant up to the time
of reentry by Landlord, and thereafter Tenant shall, if required by
Landlord, pay to Landlord until the end of the Lease Term or any
Option Term the equivalent of the amount of all rent and other
charges required to be paid by Tenant under the terms of this Lease,
less the avails of such reletting during the initial Lease Term or
any Option Term after payment of the expenses of Landlord as
aforesaid, and the same shall be due and payable on the same days
that rent is due hereunder.
The foregoing rights of Landlord shall be cumulative to all other rights or
remedies now or hereafter given to Landlord by law or by the terms of this
Lease. The remedies of Landlord as hereinabove provided are in addition to and
not exclusive of any other remedy of Landlord herein given or which may be
permitted by law.
16. LIENS
Tenant shall not do or cause anything to be done whereby the Premises may
be encumbered by any mechanic's or other liens. Whenever and as often as any
mechanic's or
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other lien is filed against the Premises purporting to be for labor or materials
furnished or to be furnished to the Tenant, the Tenant shall remove the lien of
record by the payment or by bonding with a surety company authorized to do
business in the state in which the property is located, within twenty (20) days
from the date of the filing of said mechanic's or other lien. Should the Tenant
fail to take the foregoing steps within said twenty (20) day period, then the
Landlord shall have the right, among other things, to pay said lien without
inquiring into the validity thereof, and the Tenant shall forthwith reimburse
the Landlord for the total expense incurred by it in discharging said lien as
additional rent hereunder.
17. NO WAIVER
No agreement to accept a surrender of the Premises shall be valid unless in
writing signed by the Landlord. The delivery of keys to any employee of the
Landlord or the Landlord's agents shall not operate as a termination of this
Lease or a surrender of the Premises. No waiver by Landlord of any breach of
any covenant, condition or agreement herein contained shall operate as a waiver
of such covenant, condition or agreement itself or of any subsequent breach
thereof. No payment by Tenant or receipt by Landlord of a lesser amount than
the monthly installments of rent herein stipulated or of additional rent due
hereunder shall be deemed to be other than on account of the earliest stipulated
rent nor shall any endorsement or statement on any check or letter accompanying
the check for payment of rent be deemed an accord and satisfaction, and Landlord
may accept such check or partial payment without prejudice to Landlord's right
to recover the balance of such rent or to pursue any other remedy provided in
this Lease. This Lease contains the entire agreement between the parties and
may not be amended or modified except in writing. Landlord shall not be
responsible for and hereby disclaims any representations or warranties
communicated or made by any leasing or rental agent used in connection with the
negotiating or entering into of this Lease and Tenant acknowledges it has not
relied on any such representations in executing this Lease.
18. QUIET ENJOYMENT
Landlord covenants that subject to the terms of Section 10, Tenant on
paying the rent and performing the covenants hereof, shall at all times during
the Lease Term, peaceably and quietly have, hold and possess and enjoy the
Premises, provided, however, this covenant of quiet enjoyment shall not apply
with respect to any claims or title matters asserted arising out of defects in
Tenant's title to the real estate described in EXHIBIT "A". The term "LANDLORD"
as used herein shall mean solely the owner of the Premises, so that in the event
of any sale or transfer of the Premises, the covenants and obligations of
Landlord hereunder shall be imposed upon such successor in interest and any
prior Landlord shall be freed and relieved of all covenants and obligations of
Landlord hereunder. Landlord specifically reserves the right to so sell and
transfer the Premises.
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19. ESTOPPEL CERTIFICATES
Either party to this Lease will, at any time from time to time, upon not
less than ten (10) days prior request by the other party, execute, acknowledge
and deliver to the requesting party a statement in writing certifying that this
Lease is unmodified (or if modified then disclosure of such modification shall
be made) and in full force and effect on the date to which the rents and other
charges have been paid, and stating whether or not said party has knowledge of
any default hereunder on the part of the other party in the performance of any
covenant, agreement or condition contained herein and if so, specifying each
such default, it being intended that any such statement delivered pursuant to
this Section may be relied upon by any prospective purchaser, mortgagee or
holder of a deed of trust of the Premises or any assignee of any such party.
20. MISCELLANEOUS PROVISIONS
20.1 All written notices shall be given by certified mail or a nationally
recognized overnight courier such as Federal Express which is sent in a manner
that documents receipt. Notices shall be sent to the parties at the addresses
set forth on the first page hereof, unless such party shall give written notice
of a change of address.
20.2 The terms, conditions and covenants contained herein shall bind and
inure to the benefit of the Landlord and the Tenant and their respective
successors, heirs and legal representatives and assigns.
20.3 This Lease shall be governed by and construed under the laws of the
State where the Premises are located.
20.4 In the event that any provision of this Lease shall be held invalid
or unenforceable, no other provisions of this Lease shall be affected by such
holding, and all of the remaining provisions of this Lease shall continue in
full force and effect pursuant to the terms hereof.
20.5 If either party fails to perform timely any of the terms, covenants
or conditions of this Lease and such failure is due in whole or in part to any
strike, lockout, labor trouble, civil disorder, inability to procure materials,
failure of power, restrictive governmental laws or regulations (other than those
which constitute a taking under power of eminent domain), riots, insurrections,
war, fuel shortages, accidents, casualties or acts of God, or any other cause
beyond the reasonable control of such party, then such party shall not be deemed
in default under this Lease as a result of such failure and time for performance
of such covenant or condition provided for herein shall be extended until the
earlier of (i) the period of delay resulting from such cause expiring, and (ii)
the expiration of ninety (90) days after the first day of the occurrance
excusing performance. Nothing contained herein shall be deemed to excuse any
delay in the payment of rent or additional rent hereunder.
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20.6 Paragraph captions are inserted only for convenience in reference,
and are not intended, in any way, to define, limit or describe the scope, intent
and language of this Lease or its provisions.
21. ENVIRONMENTAL
Tenant covenants, represents and warrants to Landlord, its successors and
assigns (i) that it will not use or permit the Premises to be used, whether
directly or through contractors, agents, or subtenants, for the generating,
transporting, treating, storage, manufacture, omission or disposal of any
dangerous, toxic or hazardous pollutants, chemicals, waste or substances as
defined in the Federal Comprehensive Environmental Response Compensation and
Liability Act of 1980 ("CERCLA"), the Federal Resource Conversation and Recovery
Act of 1976 ("RCRA"), or any other federal, state or local environmental laws,
statutes, regulations, requirements, or ordinances ("hazardous materials"); (ii)
that the operation of the Premises will not violate any federal, state or local
law, regulation, ordinance or requirement governing hazardous materials; (iv)
that the Premises are not listed in the United States Environmental Protection
Agency's national priorities list of hazardous waste site 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 Premises will not contain any formaldehyde, urea or
asbestos, except as may have previously been disclosed in writing to Landlord by
Tenant at the time of execution and delivery of this Lease. Notwithstanding the
foregoing, Tenant shall be entitled to store and use upon the Premises inks and
solvents customarily used in its printing business, provided that such items
are stored, used and disposed of in compliance with the above described
environmental laws, regulations, requirements, ordinances and the like and
Tenant shall keep a log or other record of its proper disposal of all barrels or
containers which at any time held such inks or solvents. Tenant further agrees
to indemnify and reimburse Landlord, its successors and assigns, for:
21.1 Any breach of these representations and warranties, and
21.2 Any loss, damage, expense or cost arising out of or incurred by
Landlord which is the result of a breach, misstatement or
misrepresentation of the above covenants, representations and
warranties, and
21.3 Any and all liability of any kind whatsoever which Landlord may at
any time sustain or incur by reason of hazardous materials released
upon the Premises as the result of any action or inaction by Tenant,
its employees, contractors or agents,
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. The amount of all such
indemnified loss, damage, expense or cost, shall bear interest thereon at the
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lesser of 10% per annum or the highest rate of interest allowed by law and shall
become immediately due and payable in full on demand of Landlord, its successors
and assigns.
IN WITNESS WHEREOF, Landlord and Tenant have entered into this Lease as of
the date first above written.
LANDLORD: Roger T. Bredesen and E. Fay Bredesen, as
Trustees of that certain Revocable Trust under that
certain Amendment and Restatements of Roger T.
Bredesen Revocable Trust Agreement dated
December 20, 1996,
By
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Its:
--------------------------------
and
E. Fay Bredesen and Roger T. Bredesen, as
Trustees of that certain Amendment
and Restatement of E. Fay Bredesen Revocable
Trust Agreement dated December 20, 1996
By
---------------------------------------
Its:
--------------------------------
15
<PAGE>
TENANT: NORTHSTAR COMPUTER FORMS, INC.
a Minnesota corporation
By:
---------------------------------------
Its:
------------------------------------
16
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION
Subject to the following:
1. Real Estate taxes and special assessments for 1997 and subsequent years.
17
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT made this 3rd day of January, 1989, between NORTHSTAR COMPUTER
FORMS, INC., a Minnesota corporation ("Corporation"), having its principal place
of business at 1226 Linden Avenue, Minneapolis, Minnesota 55403, and Mary Ann
Morin of Brooklyn Park, Minnesota ("Employee").
WHEREAS, Employee has been employed by the Corporation and the services of
the Employee will continue to be of value to the Corporation; and
WHEREAS, the Corporation has adopted a Deferred Compensation Plan for
Officer/Employees of the Corporation; and
WHEREAS, The execution by the Employee of an Employment Agreement is a
condition for participation by the Employee in the Deferred Compensation
Plan.
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, it is mutually agreed as follows:
1. EMPLOYMENT AND DUTIES. Corporation employs Employee as an officer of
Corporation to perform such duties as may be assigned to him from time to time
by the Board of Directors as an integral part of the Corporation's operating
organization. Employee's duties shall include the application of all of his
skills and knowledge toward promoting and improving Corporation's business.
Employee shall be subject to the supervision and direction of the Board of
Directors of Corporation as to assignment and performance of his services.
Employee agrees to comply with the general standards and policies of Corporation
in every respect. Employee shall not enter into any contracts whatsoever on
behalf of Corporation, except as expressly authorized by the Board of Directors
of Corporation.
2. TIME DEVOTED. Employee agrees to devote substantially all of his time
and best efforts to the business of Corporation and the performance of his
duties hereunder, and he will not, without the express consent of the Board of
Directors of the Corporation, become actively associated with or engages in any
business or active employment other than that of Corporation. Employee may take
reasonable vacations, sick leaves and leaves of absence as Corporation may
agree, and as may be consistent with the current business of Corporation. The
use of Employee's non-corporation time IS a personal matter. Any contemplated
personal matter, activity or investment which reasonably affects Employee's
performance as an Employee of Corporation, or which may conflict with
Corporation's purposes, must be disclosed and consented to by Corporation.
3. TERM. The term of employment under this Agreement shall continue
until terminated by the Corporation or the Employee as hereinafter provided in
Paragraph 8.
4. COMPENSATION. As compensation for his services hereunder, including
services as an officer, director, member of any committee or any other duties
assigned him by the Board of Directors of Corporation, Employee shall receive
from Corporation an annual salary payable in equal monthly installments, plus
bonuses if any, in such amounts as shall be determined from time to time by the
Board of Directors of Corporation.
<PAGE>
5. INSURANCE. Employee agrees that Corporation, in its discretion, may
apply for and procure in its own name and for its own behalf, life insurance on
Employee in an amount or amounts considered advisable, and Employee shall have
no right, title or interest therein; and Employee further agrees to submit to
any medical or other examination, and to execute and deliver any application or
other instrument in writing reasonably necessary to effectuate such insurance.
6. COVENANT NOT TO COMPETE. During the term of this Agreement and for a
period of two (2) years from and after the termination of employment of the
Employee for any reason, the Employee:
(a) Will not, directly or indirectly, solicit any of the customers of
the Corporation for the benefit of himself personally, or divert to
others any business of the Corporation.
(b) Will not, directly or indirectly, effect the solicitation of
employment of any employee or independent contractor of the
Corporation.
7. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. During the term of this
Agreement and after the termination of this Agreement for any reason, the
Employee:
(a) Will not directly or indirectly use for himself or others or
disclose Confidential Information so long as said information
retains the characteristics of Confidential Information as
hereinafter defined.
(b) CONFIDENTIAL INFORMATION. Confidential Information means any
information or compilations of information that derives independent
economic value from not being generally known or readily
ascertainable by proper means. Confidential Information includes,
but is not limited to, trade secrets, customer lists, manufacturing
processes, sales techniques, marketing plans, marketing information,
management systems and procedures, and the results of research and
development whether complete or in process.
(c) DOCUMENTS AND TANGIBLE ITEMS. All documents and tangible items
which contain or deal in any manner with Confidential Information
are the property of Corporation and shall remain the exclusive
property of Corporation along with all copies, recordings,
abstracts, notes or reproductions of any kind made from or about the
documents and tangible items or the information they contain.
(d) INJUNCTIVE RELIEF. Injunctive relief is an appropriate remedy for
breach of any of the provisions of the Employment Agreement relating
to non-disclosure of information and to the Employee's Covenant Not
to Compete and shall be in addition to and not in limitation of any
monetary relief or other remedies or rights to which the Corporation
is or may be entitled to at law under the terms of the Employment
Agreement.
8. TERMINATION. This Agreement will terminate upon the occurrence of
any of the following events:
(a) The mutual written agreement of the parties at any time.
(b) Death of the Employee.
2
<PAGE>
(c) Physical or mental disability of Employee to the extent that
Employee is unable to carry on a substantial part of the
usual and customary duties of employment and such inability
continues for a period of twelve (12) months.
(d) Termination by the Corporation of Employee's employment for
"Good Cause".
(i) Breach by Employee of this Agreement including but
not limited to, violation of the Covenant Not to
Compete a hereinbefore defined, disclosure of any
Confidential Information and the refusal, neglect or
failure of Employee to perform his or her duties
consistent with the terms and conditions of
Paragraphs 1 and 2 hereof, and consistent with the
general standards, policies and objectives of the
Corporation.
(ii) Conviction of Employee of any crime punishable as a
felony or misdemeanor involving moral turpitude.
(iii) Any act of dishonesty involving corporate assets,
chemical dependency or continued failure to comply
with the rules and regulations of the Corporation
following written notice to the Employee as to the
specifics of his non-compliance.
(e) Upon the insolvency or bankruptcy of the Corporation.
9. MODIFICATIONS. This agreement supersedes all prior agreements and
understandings between the parties, and it may not be changed or terminated
orally. No modification, termination, or attempted waiver of any of the
provisions hereof shall be valid unless in writing signed by the party against
whom same is sought to be enforced. However, Employee's compensation may be
increased at any time by Corporation without in any way affecting any of the
other terms and conditions of this agreement, which in all respects shall remain
in full force and effect.
10. GOVERNING LAW. This agreement and all questions arising in
connection therewith shall be governed by the laws of the State of Minnesota.
11. ARBITRATION. If any controversy or claim arising out of this
agreement cannot be settled it shall be determined by arbitration in accordance
with the terms of the Uniform Arbitration Act, Minnesota Statutes Sections
572.08-572.30, except as hereinafter modified. Either party may, by written
notice to the other within ten (10) days after a controversy has arisen
hereunder, appoint an arbitrator. The other party shall, by written notice,
within ten (10) days after receipt of such notice by the first party, appoint a
second arbitrator and in default of such second appointment the first arbitrator
appointed shall be sole arbitrator. When- two (2) arbitrators have been
appointed as hereinabove provided, they shall, if possible, agree on a third
arbitrator and shall appoint him by written notice signed by both of them and a
copy shall be mailed to each party hereto within ten (10) days after such
appointment. On appointment of three (3) arbitrators as hereinabove provided,
such arbitrators shall hold an arbitration hearing at the registered office of
the Corporation within ten (10) days after the final appointment. At the
hearing, the laws of evidence of the State of Minnesota shall apply, and the
three (3) arbitrators shall allow each party to present his case, evidence, and
witnesses, if any, in the absence of the other party, and shall within thirty
(30) days of the appointment of the last arbitrator, render their award,
including a provision for payment of costs and
3
<PAGE>
expenses of arbitration to be paid by one or both of the parties hereto as the
arbitrators deem just. The award of the majority of the arbitrators shall be
binding on the parties hereto, in the same manner as a judgment of a court
having competent jurisdiction and shall be reviewed only in accordance with the
terms of the Uniform Arbitration Act, Minnesota Statutes Sections 572.08-572.30.
IN WITNESS WHEREOF, Corporation has caused this instrument to be executed
in its corporate name, and Employee has executed this Agreement the day and year
first above written.
IN PRESENCE OF: NORTHSTAR COMPUTER FORMS, INC.
By
- -------------------------------- ------------------------------------
Its
- -------------------------------- -----------------------------------
CORPORATION
- -------------------------------- ------------------------------------
EMPLOYEE
4
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT made this 3rd day of January, 1989, between GENERAL
FINANCIAL SUPPLY, INC., an Iowa corporation ("Corporation"), having its
principal place of business at Nevada, Iowa, and Don E. Dearborn of Nevada, Iowa
("Employee").
WHEREAS, Employee has been employed by the Corporation and the services of
the Employee will continue to be of value to. the Corporation; and
WHEREAS, the Corporation has adopted a Deferred Compensation Plan for
Officer/Employees of the Corporation; and
WHEREAS, The execution by the Employee of an Employment Agreement is a
condition for participation by the Employee in the Deferred Compensation
Plan.
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, it is mutually agreed as follows:
1. EMPLOYMENT AND DUTIES. Corporation employs Employee as an officer of
Corporation to perform such duties as may be assigned to him from time to time
by the Board of Directors as an integral part of the Corporation's operating
organization. Employee's duties shall include the application of all of his
skills and knowledge toward promoting and improving Corporation's business.
Employee shall be subject to the supervision and direction of the Board of
Directors of Corporation as to assignment and performance of his services.
Employee agrees to comply with the general standards and policies of Corporation
in every respect. Employee shall not enter into any contracts whatsoever on
behalf of Corporation, except as expressly authorized by the Board of Directors
of Corporation.
2. TIME DEVOTED. Employee agrees to devote substantially all of his time
and best efforts to the business of Corporation and the performance of his
duties hereunder, and he will not, without the express consent of the Board of
Directors of the Corporation, become actively associated with or engages in any
business or active employment other than that of Corporation. Employee may take
reasonable vacations, sick leaves and leaves of absence as Corporation may
agree, and as may be consistent with the current business of Corporation. The
use of Employee's non-corporation time is a personal matter. Any contemplated
personal matter, activity or investment which reasonably affects Employee's
performance as an Employee of Corporation, or which may conflict with
Corporation's purposes, must be disclosed and consented to by Corporation.
3. TERM. The term of employment under this Agreement shall continue
until terminated by the Corporation or the Employee as hereinafter provided in
Paragraph 8.
4. COMPENSATION. As compensation for his services hereunder, including
services as an officer, director, member of any committee or any other duties
assigned him by the Board of Directors of Corporation, Employee shall receive
from Corporation an annual salary payable in equal monthly installments, plus
bonuses if any, in such amounts as shall be determined from time to time by the
Board of Directors of Corporation.
<PAGE>
5. INSURANCE. Employee agrees that Corporation, in its discretion, may
apply for and procure in its own name and for its own behalf, life insurance on
Employee in an amount or amounts considered advisable, and Employee shall have
no right, title or interest therein; and Employee further agrees to submit to
any medical or other examination, and to execute and deliver any application or
other instrument in writing reasonably necessary to effectuate such insurance.
6. COVENANT NOT TO COMPETE. During the term of this Agreement and for
a period of two (2) years from and after the termination of employment of the
Employee for any reason, the Employee:
(a) Will not, directly or indirectly, solicit any of the customers of
the Corporation for the benefit of himself personally, or divert to
others any business of the Corporation.
(b) Will not, directly or indirectly, effect the solicitation of
employment of any employee or independent contractor of the
Corporation.
7. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. During the term of this
Agreement and after the termination of this Agreement for any reason, the
Employee:
(a) Will not directly or indirectly use for himself or others or
disclose Confidential Information so long as said information
retains the characteristics of Confidential Information as
hereinafter defined.
(b) CONFIDENTIAL INFORMATION. Confidential Information means any
information or compilations of information that derives independent
economic value from not being generally known or readily
ascertainable by proper means. Confidential Information includes,
but is not limited to, trade secrets, customer lists, manufacturing
processes, sales techniques, marketing plans, marketing information,
management systems and procedures, and the results of research and
development whether complete or in process.
(c) DOCUMENTS AND TANGIBLE Items. All documents and tangible items
which contain or deal in any manner with Confidential Information
are the property of Corporation and shall remain the exclusive
property of Corporation along with all copies, recordings,
abstracts, notes or reproductions of any kind made from or about the
documents and tangible items or the information they contain.
(d) INJUNCTIVE RELIEF. Injunctive relief is an appropriate remedy for
breach of any of the provisions of the Employment Agreement relating
to non-disclosure of information and to the Employee's Covenant Not
to Compete and shall be in addition to and not in limitation of any
monetary relief or other remedies or rights to which the Corporation
is or may be entitled to at law under the terms of the Employment
Agreement.
8. TERMINATION. This Agreement will terminate upon the occurrence of
any of the following events:
(a) The mutual written agreement of the parties at any time.
(b) Death of the Employee.
2
<PAGE>
(c) Physical or mental disability of Employee to the extent that
Employee is unable to carry on a substantial part of the usual and
customary duties of employment and such inability continues for a
period of twelve (12) months.
(d) Termination by the Corporation of Employee's employment for "Good
Cause".
(i) Breach by Employee of this Agreement including but not
limited to, violation of the Covenant Not to Compete a
hereinbefore defined, disclosure of any Confidential
Information and the refusal, neglect or failure of Employee
to perform his or her duties consistent with the terms and
conditions of Paragraphs 1 and 2 hereof, and consistent with
the general standards, policies and objectives of the
Corporation.
(ii) Conviction of Employee of any crime punishable as a felony
or misdemeanor involving moral turpitude.
(iii) Any act of dishonesty involving corporate assets, chemical
dependency or continued failure to comply with the rules and
regulations of the Corporation following written notice to
the Employee as to the specifics of his non-compliance.
(e) Upon the insolvency or bankruptcy of the Corporation.
9. MODIFICATIONS. This agreement supersedes all prior agreements and
understandings between the parties, and it may not be changed or terminated
orally. No modification, termination, or attempted waiver of any of the
provisions hereof shall be valid unless in writing signed by the party against
whom same is sought to be enforced. However, Employee's compensation may be
increased at any time by Corporation without in any way affecting any of the
other terms and conditions of this agreement, which in all respects shall remain
in full force and effect.
10. GOVERNING LAW. This agreement and all questions arising in
connection therewith shall be governed by the laws of the State of Minnesota.
11. ARBITRATION. If any controversy or claim arising out of this
agreement cannot be settled it shall be determined by arbitration in accordance
with the terms of the Uniform Arbitration Act, Minnesota Statutes Sections
572.08-572.30, except as hereinafter modified. Either party may, by written
notice to the other within ten (10) days after a controversy has arisen
hereunder, appoint an arbitrator. The other party shall, by written notice,
within ten (10) days after receipt of such notice by the first party, appoint a
second arbitrator and in default of such second appointment the first arbitrator
appointed shall be sole arbitrator. When two (2) arbitrators have been
appointed as hereinabove provided, they shall, if possible, agree on a third
arbitrator and shall appoint him by written notice signed by both of them and a
copy shall be mailed to each party hereto within ten (10) days after such
appointment. On appointment of three (3) arbitrators as hereinabove provided,
such arbitrators shall hold an arbitration hearing at the registered office of
the Corporation within ten (10) days after the final appointment. At the
hearing, the laws of evidence of the State of Minnesota shall apply, and the
three (3) arbitrators shall allow each party to present his case, evidence, and
witnesses, if any, in the absence of the other party, and shall within thirty
(30) days of the appointment of the last arbitrator, render their award,
including a provision for payment of costs and expenses of arbitration to be
paid by one or both of the parties hereto as the arbitrators deem just. The
award of the majority of the arbitrators shall be binding on the parties hereto,
in the same manner as a
3
<PAGE>
judgment of a court having competent jurisdiction and shall be reviewed only in
accordance with the terms of the Uniform Arbitration Act, Minnesota Statutes
Sections 572.08-572.30.
IN WITNESS WHEREOF, Corporation has caused this instrument to be executed
in its corporate name, and Employee has executed this Agreement the day and year
first above written.
IN PRESENCE OF: GENERAL FINANCIAL SUPPLY, INC.
By
- -------------------------------- ------------------------------------
Its
- -------------------------------- ------------------------------------
CORPORATION
- -------------------------------- ------------------------------------
EMPLOYEE
- --------------------------------
4
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT made this lst day of May, 1990, between GENERAL FINANCIAL
SUPPLY, INC., an Iowa corporation ("Corporation"), having its principal place of
business at 321 11th Street, Nevada, Iowa 50201, and Stanley K. Klarenbeek of
Nevada, Iowa ("Employee").
IN consideration of the premises and the covenants contained herein, it is
mutually agreed as follows:
1. EMPLOYMENT AND DUTIES. Corporation employs Employee to perform such
duties as may be assigned to him from time to time as an integral part of the
Corporation's operating organization. Employee's duties shall include the
application of all of his skills and knowledge toward promoting and improving
Corporation's business. Employee agrees to comply with the general standards
and policies of Corporation in every respect. Employee shall not enter into any
contracts whatsoever on behalf of Corporation, except as expressly authorized by
the Board of Directors of Corporation.
2. TIME DEVOTED. Employee agrees to devote substantially all of his time
and best efforts to the business of Corporation and the performance of his
duties hereunder, and he will not become actively associated with or engage in
any business or active employment other than that of Corporation. Employee may
take reasonable vacations, sick leaves and leaves of absence as Corporation may
agree, and as may be consistent with the current business of Corporation. the
use of Employee's non-corporation time is a personal matter. Any contemplated
personal matter, activity or investment which reasonably affects Employee's
performance as an Employee of Corporation, or which may conflict with
Corporation's purposes, must be disclosed and consented to by Corporation.
3. TERM. The term of employment under this Agreement shall continue
until terminated by the Corporation or the Employee as hereinafter provided in
Paragraph 8.
4. COMPENSATION. As compensation for his services hereunder, Employee
shall receive from Corporation an annual salary payable in equal weekly
installments, plus bonuses if any, in such amounts as shall be determined from
time to time by the Board of Directors of Corporation.
5. INSURANCE. Employee agrees that Corporation, in its discretion, may
apply for and procure in its own name and for its own behalf, life insurance on
Employee in an amount or amounts considered advisable, and Employee shall have
no right, title or interest therein; and Employee further agrees to submit to
any medical or other examination, and to execute and deliver any application or
other instrument in writing reasonably necessary to effectuate such insurance.
6. COVENANT NOT TO COMPETE. During the term of this Agreement and for a
period of two (2) years from and after the termination of employment of the
Employee for any reason, the Employee:
(a) Will not, directly or indirectly, solicit any of the customers of the
Corporation for the benefit of himself personally, or divert to others
any business of the Corporation.
(b) Will not, directly or indirectly, effect the solicitation of
employment of any employee or independent contractor of the
Corporation.
<PAGE>
7. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. During the term of this
Agreement and after the termination of this Agreement for any reason, the
Employee:
(a) Will not directly or indirectly use for himself or others or disclose
Confidential Information so long as said information retains the
characteristics of Confidential Information as hereinafter defined.
(b) CONFIDENTIAL INFORMATION. Confidential Information means any
information or compilations of information that derives independent
economic value from not being Generally known or readily ascertainable
by proper means. Confidential Information includes, but is not
limited to, trade secrets, customer lists, manufacturing processes,
sales techniques, marketing plans, marketing information, management
systems and procedures, and the results of research and development
whether complete or in process.
(c) DOCUMENTS AND TANGIBLE ITEMS. All documents and tangible items which
contain or deal in any manner with Confidential Information are the
property of Corporation and shall remain the exclusive property of
Corporation along with all copies, recordings, abstracts, notes or
reproductions of any kind made from or about the documents and
tangible items or the information they contain.
(d) INJUNCTIVE RELIEF. Injunctive relief is an appropriate remedy for
breach of any of the provisions of the Employment Agreement relating
to non-disclosure of information and to the Employee's Covenant Not to
Compete and shall be in addition to and not in limitation of any
monetary relief or other remedies or rights to which the Corporation
is or may be entitled to at law under the terms of the Employment
Agreement.
8. TERMINATION. This Agreement will terminate upon the occurrence of any
of the following events:
(a) The mutual written agreement of the parties at any time.
(b) Death of the Employee.
(c) Physical or mental disability of Employee to the extent that
Employee is unable to carry on a substantial part of the usual and
customary duties of employment and such inability continues for a
period of twelve (12) months.
(d) Termination by the Corporation of Employee's employment for "Good
Cause".
(i) Breach by Employee of this Agreement including but not
limited to, violation of the Covenant Not to Compete a
hereinbefore defined, disclosure of any Confidential
Information and the refusal, neglect or failure of Employee
to perform his or her duties consistent with the terms and
conditions of Paragraphs 1 and 2 hereof, and consistent with
the general standards, policies and objectives of the
Corporation.
(ii) conviction of Employee of any crime punishable as a felony
or misdemeanor involving moral turpitude.
2
<PAGE>
(iii) Any act of dishonesty involving corporate assets, chemical
dependency or continued failure to comply with the rules and
regulations of the Corporation following written notice to
the Employee as to the specifics of his non-compliance.
(e) Upon the insolvency or bankruptcy of the Corporation.
9. MODIFICATIONS. This agreement supersedes all prior agreements and
understandings between the parties, and it may not be changed or terminated
orally. No modification, termination, or attempted waiver of any of the
provisions hereof shall be valid unless in writing signed by the party against
whom same is sought to be enforced. However, Employee's compensation may be
increased at any time by Corporation without in any way affecting any of the
other terms and conditions of this agreement, which in all respects shall remain
in full force and effect.
10. GOVERNING LAW. This agreement and all questions arising in
connection therewith shall be governed by the laws of the State of Minnesota.
11. ARBITRATION. If any controversy or claim arising out of this
agreement cannot be settled it shall be determined by arbitration in accordance
with the terms of the Uniform Arbitration Act, Minnesota Statutes Sections
572.08-572.30, except as hereinafter modified. Either party may, by written
notice to the other within ten (10) days after a controversy has arisen
hereunder, appoint an arbitrator. The other party shall, by written notice,
within ten (10) days after receipt of such notice by the first party, appoint a
second arbitrator and in default of such second appointment the first arbitrator
appointed shall be sole arbitrator. When two (2) arbitrators have been
appointed as hereinabove provided, they shall, if possible, agree on a third
arbitrator and shall appoint him by written notice signed by both of them and a
copy shall be mailed to each party hereto within ten (10) days after such
appointment. On appointment of three (3) arbitrators as hereinabove provided,
such arbitrators shall hold an arbitration hearing at the registered office of
the Corporation within ten (10) days after the final appointment. At the
hearing, the laws of evidence of the State of Minnesota shall apply, and the
three (3) arbitrators shall allow each party to present his case, evidence, and
witnesses, if any, in the absence of the other party, and shall within thirty
(30) days of the appointment of the last arbitrator, render their award,
including a provision for payment of costs and expenses of arbitration to be
paid by one or both of the parties hereto as the arbitrators deem just. The
award of the majority of the arbitrators shall be binding on the parties hereto,
in the same manner as a judgment of a court having competent jurisdiction and
shall be reviewed only in accordance with the terms of the Uniform Arbitration
Act, Minnesota Statutes Sections 572.08-572.30.
IN WITNESS WHEREOF, Corporation has caused this instrument to be executed
in its corporate name, and Employee has executed this Agreement the day and year
first above written.
IN PRESENCE OF: GENERAL FINANCIAL SUPPLY, INC.
By
- ------------------------------ ------------------------------
Its
- ------------------------------ -----------------------------
CORPORATION
- ------------------------------ ---------------------------------
EMPLOYEE
- ------------------------------
3
<PAGE>
EXHIBIT 11
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Fiscal Year Ended October 31
------------------------------------
1997 1996 1995
<S> <C> <C> <C>
NET EARNINGS $4,135,922 $1,263,056 $1,363,410
---------- ---------- ----------
---------- ---------- ----------
EARNINGS PER SHARE
Primary (1) $ 2.25 $ .72 $ .78
---------- ---------- ----------
---------- ---------- ----------
Fully diluted (2) $ 2.21 $ .72 $ .78
---------- ---------- ----------
---------- ---------- ----------
AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES
Primary (1):
Weighted average number of common shares outstanding 1,732,102 1,715,106 1,707,984
Common equivalent shares:
Dilutive stock options, using Treasury Stock Method 110,040 47,575 42,745
---------- ---------- ----------
1,842,142 1,762,681 1,750,729
---------- ---------- ----------
---------- ---------- ----------
Fully diluted (2):
Weighted average number of common shares outstanding 1,732,102 1,715,106 1,707,984
Common equivalent shares:
Dilutive stock options, using Treasury Stock Method 138,779 50,558 42,745
---------- ---------- ----------
1,870,881 1,765,664 1,750,729
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
<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 - 1997
- - Thirty-fifth (35th) anniversary of the Company in September.
- - Record year - 60% increase in sales and 228% increase in net earnings.
- - Completed 10,000 sq. ft. addition to Iowa facility.
- - Introduced new technology to produce airline forms (OCR-B) and Scan Forms
(OMR).
- - Implemented new software (Star System) and hardware at Northstar Financial
Forms in August.
- - Introduced new marketing materials for the Company's line of security
documents.
- - Published Disaster Recovery Plan and revised new Employee Handbook.
- - Installed and expanded financial envelope printing capacity.
- - Invested over $2 million in capital equipment.
1 Front Cover
<PAGE>
KEY FINANCIAL HIGHLIGHTS
Year Ended October 31 1997 1996 % Change
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS (In thousands)
Net Sales $46,277 $28,903 60
Operating Income 7,298 2,375 207
Net Earnings 4,136 1,263 228
FINANCIAL CONDITION (In thousands)
Total Assets $33,325 $29,401 13
Stockholders' Equity 16,766 12,639 33
Working Capital 7,214 5,381 34
Weighted Average Shares 1,842 1,763 4
PER SHARE DATA
Net Earnings $ 2.25 $ .72 213
Dividends Declared .165 .13 27
Stockholders' Equity 9.10 7.16 27
KEY RATIOS AND OTHER DATA
Current Ratio 2.0 2.2
Long-Term Debt-to-
Capitalization 30.4% 45.5%
Gross Profit on Sales 33.3% 23.3%
Return on Average Equity 28.1% 10.4%
Return on Net Sales, Pretax 14.3% 7.3%
Number of Employees 535 495
[SALES GRAPH]
SALES (DOLLARS IN MILLIONS)
- ---------------------------
1992 1993 1994 1995 1996 1997
19.4 20.0 22.6 24.2 28.9 46.3
[NET EARNINGS GRAPH]
NET EARNINGS (DOLLARS IN MILLIONS)
- ----------------------------------
1992 1993 1994 1995 1996 1997
1.1 1.4 1.3 1.4 1.3 4.1
[WORKING CAPITAL GRAPH]
WORKING CAPITAL (DOLLARS IN MILLIONS)
- -------------------------------------
1992 1993 1994 1995 1996 1997
4.0 3.9 3.4 4.5 5.4 7.2
[STOCKHOLDERS' EQUITY GRAPH]
STOCKHOLDERS' EQUITY (DOLLARS IN MILLIONS)
- ------------------------------------------
1992 1993 1994 1995 1996 1997
8.1 9.3 10.4 11.6 12.6 16.8
1
<PAGE>
Dear Fellow Stockholders,
Northstar employees provided shareholders with exceptional new records in sales
and earnings for fiscal 1997. With the record levels came strength for future
growth and industry leadership. Much of the year's success was attributed to
three factors: (1) the integration and performance of Northstar Financial Forms,
(2) the best performance in five years of the business forms and security
document segments, and (3) the increase in General Financial internal bank forms
business from supportive distributors.
Our performance began with a 60.1 percent increase in sales from $28,903,158 to
$46,277,461. Net profit was more impressive with an increase of 227.5 percent
from $1,263,056 to $4,135,922. Primary earnings per share were $2.25 compared
to $ .72 in fiscal 1996. Stockholder's equity increased 32.7 percent from
$12,638,535 to $16,765,854. It was the year when all sectors contributed and
established the strength for success in 1998.
In order to understand the Company's focus and competitive advantages,
shareholders, employees, and customers must share an understanding of our
culture and business philosophy. In the simplest of terms, Northstar focuses on
two main product areas: internal bank forms and security documents. We have the
leadership position in both niches. Being the best provider in these areas
requires innovation, competitive strategy, a willingness to LISTEN to the
customer, and a desire to CHANGE in order to meet customer requirements.
Our philosophy encompasses three critical areas of focus:
1. DOING BUSINESS WITH NORTHSTAR MUST BE EASY FOR OUR CUSTOMERS. We do this
by creating ways to receive, process and bill customer's orders better than
our competition. Examples are on-line order entry from the bank branch
level, customer service handled by one phone call, efficient processing at
one of six regional plants, and a variety of billing methods tailored to
the customer's computer and tracking systems. New software was introduced
in 1997 to make this possible.
2. BEING THE LOW COST PROVIDER OF PRODUCTS AND SERVICES. In situations where
price is the deciding factor, we can fulfill this requirement because we
have equipment specifically engineered and built for our product lines.
The annual capital equipment expenditures give our employees the tools to
be efficient and to provide lower costs. Our forms management services
adds the features of warehousing and distribution for customers where
inventories are essential for their operational effectiveness.
3. STAYING ON THE LEADING EDGE OF TECHNOLOGY TO PROVIDE INNOVATIVE SOLUTIONS.
The practice of pushing the technology envelope is routine at Northstar.
We were the first forms printer to use laser image setting technology in
North America in 1982. In 1993, we pioneered the use of computer design
direct to metal plate technology for forms. Presently, we are developing
variable text on-demand printing of very short run MICR and bar-code
technology. The process enables our customers to get same day service on
letter checks, gift certificates, and forms requiring complex numbering
requirements.
2
<PAGE>
We believe that our practice of being easy to do business with, being the low
cost producer, and being willing to stay on the leading edge of technology has
and will serve our customers, employees, and shareholders well.
We appreciate your support as we enjoy the challenges and opportunities of 1998.
Roger T. Bredesen Kenneth E. Overstreet
Chief Executive Officer President
[PICTURE]
3
<PAGE>
CUSTOMER RELATIONSHIPS - MARKET SUPPORT
Northstar supports multiple distribution channels in its different business
areas, providing flexibility to serve customer needs. The channels include
distributors, business partners and other printers. While addressing the
extensive servicing requirements of major banks, Northstar also focuses on the
needs of smaller customers. Working through its channels, Northstar provides a
variety of market support services for customers.
- - FORMS MANAGEMENT. Northstar provides this comprehensive service option
(typically to large banks) by assuming direct responsibility for the
fulfillment process from order through invoice. This includes the ordering
process itself, the warehousing of inventory on- or off-site, the rapid
shipment of orders and billing according to client requirements. A large
bank using forms management can assume that every branch and operating unit
will have a constant supply of all required forms and materials. The bank
will also be able to track exactly where its forms budget is being spent by
cost center.
- - SUMMARY BILLING. This form of invoicing, available in electronic or paper
versions, creates a single "summary" statement with usage broken out to the
level of detail requested by the customer. An operations manager of a
large bank, by monitoring the summary invoice, can tell which forms are
being used in each cost center.
- - PICK AND PACK. Using the Pick and Pack service provided by Northstar, a
customer can achieve economies of scale not available when ordering in
small quantities. The pick and pack customer maintains a three to six
month inventory of forms at Northstar. Upon request, Northstar "picks"
from the customer's inventory whatever forms are requested, "packs" them
and ships them wherever specified with 24 hours.
- - CONTINGENCY CUSTOMER SERVICE. With a major investment in production
equipment in six manufacturing plants around the country, Northstar has the
capacity to cover customers' peak demand periods, bank conversions and
other extraordinary requirements, regardless of when they occur. A
Northstar-supported bank conversion means a quick changeover of all forms
and documents in a manner transparent to bank customers. Northstar
successfully supported seven major bank conversions in 1997.
- - SECURESTAR. To support customers in selecting appropriate features in
their documents, Northstar created the SecureStar system in 1997. Using
this approach, customers can select from over 30 security options in paper
and ink, as well as numbering and printing techniques, that help them avoid
fraudulent use or copying of documents. In essence, SecureStar enables the
customer to choose specific security features from a menu for the
appropriate level of protection and at a suitable cost for the application.
4
<PAGE>
[MAP]
Brooklyn Park, Minnesota - NORTHSTAR COMPUTER FORMS (NCF)
- - Corporate Headquarters
- - Business/Financial Forms
- - Laser Cut Sheets
Roseville, Minnesota - NORTHSTAR FINANCIAL FORMS (NFF)
- - Internal Bank Forms
- - Forms Management
- - Financial Forms
Milwaukee, Wisconsin - WISCONSIN BUSINESS FORMS (WBF)
- - Business Forms
- - Laser Cut Sheets
Nevada, Iowa - GENERAL FINANCIAL SUPPLY (GFS - IA)
- - Internal Bank Forms
Bridgewater, Virginia - GENERAL FINANCIAL SUPPLY (GFS - VA)
- - Internal Bank Forms
Denver, Colorado - GENERAL FINANCIAL SUPPLY (GFS - CO)
- - Internal Bank Forms
5
<PAGE>
THE TECHNOLOGY INVESTMENT - CUTTING-EDGE RESOURCES, MULTIPLE APPLICATIONS
Through on-going investment in its people and systems, Northstar has developed
expertise in multiple technologies with application across its business areas
and product lines. Long a leader in MICR technology, Northstar guarantees a
99.9 percent reliability in financial forms such as cash tickets, general ledger
forms, process control documents, and official checks. Northstar has built on
this technology base to offer customers more product offerings, more support
choices, greater ease-of-use and overall greater value.
VARIABLE IMAGE PRINTING. Through investment last year in a 4635MX, the most
advanced variable image processor from Xerox, Northstar positioned itself to
address the emerging market of on-demand MICR printing with individualized
content. The MX provides the rapid print rate of 135 pages per minute, with
resolution indistinguishable from offset printing. With this capability,
Northstar addresses the need for mass customization in gift certificates,
redemption checks and other applications in the direct mail market. Variable
image printing is also ideal for multiple, short runs of complex documents such
as business checks, general ledger tickets, and letterchecks. When a
long-distance phone carrier was planning a major direct-mail promotion in 1997,
Northstar met the challenge through the MX by printing individualized
letterchecks, providing new subscribers $25 to be spent at a national brand
store.
SECURITY. Northstar has become a leader in the field of security features in
financial forms and negotiable documents through the implementation of a variety
of technologies. Northstar's advanced security features prevent checks from
being counterfeited through the use of computer scanners and color copies, or
from being fraudulently altered using chemical solvents or erasure.
- - Modulus numbering gives each Northstar check a unique number in a specified
pattern that cannot be replicated.
- - Thermochromatic ink changes appearance when the temperature is increased.
- - Fluorescent fibers and security threads embedded in the paper are not
available to counterfeiters.
- - Through void pantographs, the word "void" appears when the document is
copied.
- - Chemically reactive paper clearly shows any attempt to use solvents for
erasure.
- - Laser-treated paper that makes it difficult to remove toner from documents.
- - The three-dimensional graphic of a hologram cannot easily be replicated by
counterfeiters.
- - Fluorescent inks used in Northstar documents can be seen only under
ultraviolet light.
- - Specialty papers including watermarks and security threads.
ELECTRONIC ORDERING/ELECTRIC COMMERCE. For the customer, on-line ordering is as
easy as point-and-click on the computer screen. For Northstar, the system means
accurate order entry directly by customers and efficient invoicing via the same
system. Underlying this easy-to-use system is sophisticated communication
technology called Electronic Data Interchange (EDI), using ANSI-standard
transmission protocols.
6
<PAGE>
COMPUTER-TO-PLATE COMPOSITION. Northstar designers create documents on their
computer screens using state-of-the-art graphics software. Next, designs proofs
are transmitted electronically to customers for approval or modification. Then,
advanced laser pre-press systems etch the printing plate directly from the
computer file without any photographic processes or film.
IMAGE PROCESSING. For banks, image processing means high-speed and lower costs
in the processing of massive quantities of paper documents. Industry experts
see image processing as one of the most important innovations in banking since
MICR and believe it will be part of the industry standard in a few years. Image
processing has the critical advantage of allowing banks to process the paper
documents electronically rather than sending the document throughout the entire
check clearing system.
- - Image processing reads documents at a speed of up to 2,400 images per hour,
nearly double the rate of standard MICR processing.
- - Image processing has flexibility, allowing machine recognition of OCR
(Optical Character Recognition) data, hand-printed data and machine printed
data.
For Northstar, the trend toward image processing is a positive development. The
printing accuracy and multiple colors required by image processing raise the
competitive bar in financial forms printing. Northstar adds value through its
investment in advanced document printing systems as well as its expertise in
guiding customers in their image processing needs. The Company presented 32
customer training programs for image processing in 1997.
- - Through association with the top image-processing equipment manufacturers,
Northstar had developed the knowledge and experience to design forms that
work with the hardware and software used by most major banks.
- - Northstar forms are designed to work in the full spectrum of specification
in terms of length, width, print contrast and type of paper.
- - Northstar forms provide the required identification of document type
through unique MICR encoding.
7
<PAGE>
Northstar Computer Forms
FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED, OCTOBER 31:
RESULTS OF OPERATIONS 1997 1996 1995 1994 1993 1992
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $46,277,461 $28,903,158 $24,215,962 $22,633,951 $20,019,575 $19,370486
Gross Profit 15,417,187 6,748,180 4,975,894 5,177,970 4,652,286 4,602,740
Operating Income 7,298,492 2,375,086 1,902,976 2,135,223 1,697,710 1,778,169
Net Earnings 4,135,922 1,263,056 1,363,410 1,285,835 1,374,657 1,100,380
Cash Flow/Ops 5,833,641 2,872,187 1,376,858 2,322,240 2,076,189 2,006,162
FINANCIAL CONDITION
----------------------------------------------------------------------------------------------------------------
Total Assets $33,324,874 $29,401,432 $17,523,364 $16,499,238 $12,042,847 $11,021,136
Working Capital 7,214,439 5,381,223 4,545,734 3,357,561 3,935,416 3,977,305
Current Ratio 2.0 2.2 3.3 2.6 3.4 3.1
Long Term Debt 7,330,550 10,565,175 2,535,000 2,795,000 - -
Stockholders' Equity 16,765,854 12,638,535 11,587,122 10,399,485 9,303,208 8,108,402
KEY RATIOS ANALYSIS
----------------------------------------------------------------------------------------------------------------
Gross Profit 33.3% 23.3% 20.6% 22.9% 23.2% 23.8%
Operating Income 15.8 8.2 7.9 9.4 8.4 9.2
Net Earnings 8.9 4.4 5.6 5.7 6.9 5.7
Return on Equity 28.1 10.4 12.4 13.0 15.7 14.4
L-T Debt to Capitalization 30.4 45.5 18.0 21.2 - -
PER SHARE DATA
----------------------------------------------------------------------------------------------------------------
Book Value $ 9.10 $ 7.16 $ 6.62 $ 5.90 $ 5.33 $ 4.69
Net Earnings 2.25 .72 .78 .73 .79 .64
Dividends .165 .13 .125 .115 .105 .10
Weighted Average
Outstanding Shares 1,842,142 1,762,681 1,750,729 1,761,699 1,744,818 1,727,259
----------------------------------------------------------------------------------------------------------------
</TABLE>
STOCK INFORMATION/REGISTER
The Company's common stock is traded under the symbol NSCF on the NASDAQ
National Market. As of January 16, 1998, the approximate number of stockholders
was 900 and holders of record 275. The following table sets forth the range of
high and low quotations per share for 1997 and 1996. In 1997 and 1996 the
Company declared dividends of $ .165 per share and .13 per share, respectively.
Future dividends are restricted to a maximum of 20 percent of consolidated net
income under the Company's term loan agreement. (See Note 9 to Consolidated
Financial Statements.)
1997 Quarter High Low Close
------------ ---- --- -----
1st 20.50 8.25 11.50
2nd 13.87 10.00 11.00
3rd 17.50 11.50 17.00
4th 18.25 14.25 17.25
Present 1-16-98 21.50 21.50 21.50
1996 Quarter High Low Close
------------ ---- --- -----
1st 8.00 6.75 8.00
2nd 7.13 6.95 6.75
3rd 9.50 6.75 9.06
4th 8.75 8.00 8.30
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INTRODUCTION
The following discussion and analysis provides information that the Company's
management believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. This discussion should
be read in conjunction with the financial statements and footnotes which appear
elsewhere in this Report.
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions readers that statements
contained herein, other than historical data, may be forward-looking and subject
to risks and uncertainties. The following important factors could cause the
Company's actual results to differ materially from those projected in
forward-looking statements made by, or on behalf of, the Company:
- Inability to successfully complete the integration of the new software
system within all internal bank forms production facilities.
- Loss of a major customer due to bank consolidations or other reasons.
- Rise in paper prices which outpaces the Company's ability to pass the
increase onto its customers.
- Technological obsolescence.
- Competition from large national manufactures of internal bank forms.
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.
1997 1996
COMPARED COMPARED
1997 1996 1995 TO 1996 TO 1995
- --------------------------------------------------------------------------------
NET SALES 100.0% 100.0% 100.0% 60.1% 19.4%
COST OF GOODS SOLD 66.7 76.7 79.4 39.3 15.2
GROSS PROFIT 33.3 23.3 20.6 128.5 35.6
SELLING, GENERAL AND
ADMINISTRATIVE 17.5 15.1 12.7 85.7 42.3
OPERATING INCOME 15.8 8.2 7.9 207.3 24.8
NET EARNINGS 8.9 4.4 5.6 227.5 (7.4)
RESULTS OF OPERATIONS
NET SALES. Net sales in 1997 of $46,277,461 increased $17,374,303 compared to
1996 sales of $28,903,158, which increased $4,687,196 from 1995 sales of
$24,215,962. Internal bank forms contributed 72.4 percent of sales in 1997
compared to 63.5 percent in 1996 and 48.2 in 1995. The balance of the sales
were sales of general business forms products.
Sales of internal bank forms increased $15,321,643 from $18,359,059 in 1996 to
$33,680,702, an increase of 83.5 percent. The 1996 internal bank form sales
increased $6,688,073, a 57.3 percent increase from the 1995 sales of
$11,670,986. The Financial Forms Division of Deluxe Corporation that the
Company acquired in July 1996, now called Northstar Financial Forms, contributed
approximately 79 percent of the increase for 1997 and 77 percent of the increase
for 1996. The remaining increase in internal bank form sales occurred mainly
due to growth in standard bank form orders from new and existing customers.
9
<PAGE>
Sales of general business forms includes sales of custom business forms as well
as sales of financial forms products such as money orders and bank official
checks. General business forms sales increased $2,052,659 in 1997 to
$12,596,758 from $10,544,099 in 1996, an increase of 19.4 percent. The 1996
general business form sales represented a decrease of $2,000,877, a 16.0 percent
decrease from 1995 sales of $12,544,976. Approximately 92 percent of the
increase in 1997 was from increased sales in one financial forms product line.
In 1996 approximately 55 percent of the decrease was due to a reduction in sales
to a customer as a result of the customer's company being acquired by a
competitor.
GROSS PROFIT. Gross profit increased 128.5 percent in 1997. The gross profit
of the Northstar Financial Forms Division is typically higher than the Company's
other divisions because this division sells directly to the end user customer
while the other divisions sell primarily through distributors. This higher
gross profit is partially offset by higher sales and administrative expense in
this division. Generally, retail sales require a larger sales and
administrative staff than is required by facilities which sell to distributors
and printers. Without the contribution of the new division, gross profit would
have been 26.3 percent compared to a 20.7 percent gross profit for 1996 and 20.6
percent for 1995. During 1997, variable manufacturing costs, exclusive of
material, remained relatively constant as a percentage of sales. Material costs
decreased approximately 7 percent. This decrease in material cost is due to
paper price declines in certain types of paper and changes in product mix to
more labor intensive products. The increased volumes also improved the
absorption of fixed costs in 1997. During 1996, manufacturing costs, exclusive
of material and fixed costs, remained relatively constant. Material costs
decreased slightly as certain paper price increases from 1995 were partially
rescinded. 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 of cost in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately $3,750,000 from 1996, which
increased approximately $1,300,000 from 1995. Of these increases, $3,350,000 in
1997 and $1,000,000 in 1996, is due to the acquired financial forms division.
This division sells on a retail basis, thus incurring increased sales and
administrative expenses compared to divisions selling to distributors and
printers. The balance of the increase in 1997 is principally due to increased
contributions to employee benefit plans.
OTHER INCOME AND EXPENSE. The Company incurred long-term debt of $9,000,000
when it acquired the new financial forms division. Interest expense for 1997
and 1996, respectively, reflect $735,752 and $208,312 relating to the
acquisition debt. Other income in 1995 includes a gain on sale of land of
$301,952.
PROVISION FOR INCOME TAXES. The provision for income taxes decreased to 37.4
percent in 1997 compared to 40 percent in 1996 and 38 percent in 1995.
NET EARNINGS. Net earnings were $4,135,922 ($2.25 per share) in 1997 compared
to $1,263,056 ($ .72 per share) in 1996 and $1,363,410 ($ .78 per share) in
1995. Return on average assets was 13.2 percent compared to 5.4 percent in 1996
and 8.0 percent in 1995. Return on average stockholder's equity was 28.1
percent in 1997 compared to 10.4 percent in 1996 and 12.4 percent in 1995.
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 with borrowings at the bank's reference rate. The acquisition
consisted principally of manufacturing equipment at an appraised 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 1997 were $2.0 million compared to 1996 expenditures of
$1.0 million and 1995 expenditures of $2.0 million, exclusive of building
construction cost.
LONG-TERM DEBT. The Company's long-term debt consists of the term loan related
to the financial forms division acquisition and Industrial Development Revenue
Bonds which were used to finance the construction of the corporate headquarters
and manufacturing facility in Brooklyn Park, Minnesota. The Company's
obligation to repay the bonds is collateralized by an irrevocable, direct-pay
letter of credit issued by a 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 ($2,000,000 and $404,825 as of October 31,
1997 and 1996 respectively) and in quarterly installments, 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.
10
<PAGE>
LIQUIDITY
Cash provided by operations increased to $5.9 million in 1997 compared to $2.9
million in 1996 and to $1.4 million in 1995. The increase in 1997 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 $ 7.2 million as of October 31, 1997 compared to $5.4 million as of October
31, 1996.
If necessary to finance operations, the Company has a $1.5 million line of
credit at an interest rate equal to the bank's reference rate. The Company did
not have to utilize this line of credit during 1997. The Company believes its
existing financial resources are adequate to fund its 1998 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 facilities already in
place.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standard Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share," a new standard for computing and presenting earnings per share. The
Company believes diluted earnings per share computed under the new standard will
approximate primary earnings per share currently reported. Effective with
fiscal year 1998 first quarter reporting, the Company will disclose both basic
and diluted earnings per share.
OUTLOOK
Competition, in both price and services provided, has always been a significant
factor in the general business forms industry. Recently, competition in the
internal bank forms industry has become increasingly prevalent and is
particularly strong in contract negotiations with the larger banks and could
result in non-renewal of contracts or renewals at reduced profit margin levels
to the Company. In addition, bank merger and acquisition activity is extremely
strong at this time. Banks generally consolidate their purchasing of internal
bank forms with one supplier. Therefore, the Company can obtain or lose
customer base as this strong bank acquisition and merger activity continues.
To offset the possible impact of this competition, the integration of Company
systems is increasingly important. The internal bank forms computer system
which the Company developed and installed in the Northstar Financial Forms
Division in 1997 will be enhanced and installed in all internal bank forms
production facilities in 1998. This integrated computer system is expected to
increase operating efficiencies within these plants by streamlining order
processing, enhancing equipment utilization and improving billing and reporting
capabilities. In addition, the Company is developing and implementing marketing
strategies to strengthen the Company's position. These marketing efforts will
focus on the internal bank forms industry as well as purchasers of the other
financial forms products manufactured at the general business forms production
facilities.
READINESS FOR YEAR 2000
The Company has taken actions to understand the nature and extent of work
required to make systems Year 2000 compliant. The Company has been working to
prepare its financial, informational and other computer-based systems for the
Year 2000, including replacing and/or updating existing systems. The Company
continues to evaluate the estimated costs associated with these efforts based on
actual experience. While these efforts involve additional costs, the Company
believes, based on available information, that it will be able to manage its
total Year 2000 transition without any material adverse effect on its business
operations, products or financial prospects.
[SALES GRAPH]
SALES (DOLLARS IN MILLIONS)
- ---------------------------
1992 1993 1994 1995 1996 1997
19.4 20.0 22.6 24.2 28.9 46.3
[GROSS PROFIT GRAPH]
GROSS PROFIT PERCENTAGE
- -----------------------
1992 1993 1994 1995 1996 1997
23.8 23.2 22.9 20.6 23.3 33.3
[NET EARNINGS GRAPH]
NET EARNINGS (DOLLARS IN MILLIONS)
- ----------------------------------
1992 1993 1994 1995 1996 1997
1.1 1.4 1.3 1.4 1.3 4.1
11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Northstar Computer Forms, Inc.:
We have audited the consolidated balance sheet of Northstar Computer Forms,
Inc. and Subsidiary as of October 31, 1997 and 1996, 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, 1997.
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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended October 31, 1997, 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 6, 1998
12
<PAGE>
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1997 AND 1996
ASSETS 1997 1996
Current assets:
Cash and cash equivalents $ 5,317,881 $ 2,378,105
Accounts receivable, net 6,614,209 4,728,735
Inventories 1,912,646 2,292,057
Deferred income taxes 318,656 148,796
Other current assets 267,737 216,280
----------- -----------
Total current assets 14,431,129 9,763,973
----------- -----------
Property, plant and equipment, net 15,211,143 16,169,652
Notes receivable, less current portion 829,108 990,060
Goodwill, net 1,757,799 1,959,305
Other assets 1,095,695 518,442
----------- -----------
Total assets $33,324,874 $29,401,432
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt 3,235,000 1,029,825
Accounts payable 1,373,805 2,103,537
Accrued liabilities 2,607,885 1,249,388
----------- -----------
Total current liabilities 7,216,690 4,382,750
Long-term debt, less current portion 7,330,550 10,565,175
Deferred compensation 827,147 775,199
Deferred income taxes 1,184,633 1,039,773
Commitments (Note 10)
Stockholders' equity:
Common shares; $.05 par value, authorized
5,000,000 shares; issued and outstanding,
1997: 1,761,471; 1996: 1,716,571 88,073 85,828
Additional paid-in capital 2,289,767 1,995,177
Retained earnings 14,388,014 10,557,530
----------- -----------
Total stockholders' equity 16,765,854 12,638,535
----------- -----------
Total liabilities and stockholders' equity $33,324,874 $29,401,432
----------- -----------
----------- -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
13
<PAGE>
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
1997 1996 1995
Net sales $46,277,461 $28,903,158 $24,215,962
Cost of goods sold 30,860,274 22,154,978 19,240,068
----------- ----------- -----------
Gross profit 15,417,187 6,748,180 4,975,894
Selling, general and administrative
expenses 8,118,695 4,373,094 3,072,918
----------- ----------- -----------
Operating income 7,298,492 2,375,086 1,902,976
----------- ----------- -----------
Other income (expense):
Interest expense (892,516) (366,439) (104,349)
Gain on sale of land 301,952
Other, net, principally interest
income 196,946 94,409 103,831
----------- ----------- -----------
(695,570) (272,030) 301,434
----------- ----------- -----------
Earnings before income taxes 6,602,922 2,103,056 2,204,410
Provision for income taxes 2,467,000 840,000 841,000
----------- ----------- -----------
Net earnings $ 4,135,922 $ 1,263,056 $ 1,363,410
----------- ----------- -----------
----------- ----------- -----------
Net earnings per common share:
Primary $ 2.25 $ .72 $ .78
----------- ----------- -----------
----------- ----------- -----------
Fully diluted $ 2.21 $ .72 $ .78
----------- ----------- -----------
----------- ----------- -----------
Weighted average common and common
equivalent shares outstanding:
Primary 1,842,142 1,762,681 1,750,729
----------- ----------- -----------
----------- ----------- -----------
Fully diluted 1,870,881 1,765,664 1,750,729
----------- ----------- -----------
----------- ----------- -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
14
<PAGE>
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Common Stock
------------------- Additional
Stated Paid-in Retained
Shares Capital Capital Earnings
--------- ------- ---------- -----------
<S> <C> <C> <C> <C>
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
Stock options exercised 44,900 2,245 294,590
Cash dividends, $.175 per share (305,438)
Net earnings 4,135,922
--------- ------- ---------- -----------
Balances at October 31, 1997 1,761,471 $88,073 $2,289,767 $14,388,014
--------- ------- ---------- -----------
--------- ------- ---------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
15
<PAGE>
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 4,135,922 $ 1,263,056 $ 1,363,410
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 2,458,399 1,736,839 1,372,841
Amortization 271,519 79,118 24,540
Provision for losses on receivables 167,437 63,857 11,948
Gain on sale of land and equipment (5,576) (3,687) (340,824)
Changes in certain operating assets
and liabilities (1,194,060) (266,996) (1,055,057)
----------- ----------- -----------
Net cash provided by operating activities 5,833,641 2,872,187 1,376,858
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures and equipment deposits (1,465,679) (1,021,415) (2,040,478)
Capitalized computer software costs (584,321)
Purchase of certain assets of a division
of Deluxe Corporation (9,324,754)
Cash restricted for construction 497,459
Proceeds from sale of land and equipment 12,400 5,550 543,386
Officers and employees loan repayments 134,120
Notes receivable granted (65,919)
Notes receivable repayments 117,219 83,137 61,424
----------- ----------- -----------
Net cash used in investing activities (1,920,381) (10,323,401) (804,089)
----------- ----------- -----------
Cash flows from financing activities:
Principal payments on long-term debt (1,029,450) (140,000) (210,000)
Borrowing on long-term debt 9,000,000
Dividends paid (240,869) (222,914) (204,668)
Stock options exercised 296,835 14,169 38,010
Other (2,724) (45)
----------- ----------- -----------
Net cash (used in) provided by financing
activities (973,484) 8,648,531 (376,703)
----------- ----------- -----------
Net increase in cash and cash equivalents 2,939,776 1,197,317 196,066
Cash and cash equivalents at beginning of year 2,378,105 1,180,788 984,722
----------- ----------- -----------
Cash and cash equivalents at end of year $ 5,317,881 $ 2,378,105 $ 1,180,788
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
16
<PAGE>
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
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 printed forms with an emphasis on MICR (Magnetic
Ink Character Recognition) printing. The Company's two business
concentrations are custom business forms which are marketed in the North
Central United States and financial forms and internal bank forms which are
marketed nationally. Sales are principally made through distributors, with
the remainder directly to end-user customers. Approximately 37% of the
Company's sales were to financial institutions. The Company's corporate
headquarters is in Brooklyn Park, Minnesota.
REVENUE RECOGNITION:
The Company recognizes sales principally upon shipment of the product to
the customer.
CONSOLIDATION:
The consolidated financial statements include the accounts of Northstar
Computer Forms (Northstar) and General Financial Supply, Inc. (General
Financial), its wholly-owned subsidiary. All significant intercompany
balances and transactions have been eliminated in consolidation.
CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
INVENTORIES:
Inventories, consisting primarily of raw materials, 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 $5,000 and $316,000 at October
31, 1997 and 1996, respectively.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are recorded at cost. Depreciation of the
buildings, machinery and equipment, furniture and fixtures and automobiles
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.
17
<PAGE>
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
COMPUTER SOFTWARE COSTS:
The Company capitalizes costs incurred for developing and obtaining
computer software, primarily relating to modifying and installing new
information technology systems for internal use. These costs are amortized
on a straight-line basis over five years, the estimated useful lives of the
underlying assets.
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
identifiable assets acquired and is being amortized on a straight-line
basis over 10 years.
The Company periodically assesses the recoverability of its goodwill based
on anticipated future earnings and nondiscounted 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.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share," a new standard for computing and presenting earnings per share.
The Company believes diluted earnings per share computed under the new
standard will approximate primary earnings per share currently reported.
Effective with fiscal year 1998 first quarter reporting, the Company will
disclose both basic and diluted earnings per share.
18
<PAGE>
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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 and components of
the calculation of the deferred compensation accrual.
2. ACQUISITION:
In July 1996, the Company purchased substantially all of the assets of the
Financial Forms Division of Deluxe Corporation (the Acquisition) for
$9,200,000 in cash and incurred $124,754 of direct acquisition costs. The
assets acquired consisted principally of equipment which was used by Deluxe
Corporation to manufacture internal bank forms. The Company has continued
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.
In the year of acquisition, the financial results attributable to the
Acquisition were 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 Year (Unaudited)
--------------------------
1996 1995
Net sales $43,650,175 $45,308,195
Net earnings 1,773,502 1,773,490
Primary net earnings per common share $1.01 $1.01
19
<PAGE>
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. SELECTED BALANCE SHEET INFORMATION:
The following provides additional information concerning selected balance
sheet accounts at October 31, 1997 and 1996:
1997 1996
Accounts receivable:
Accounts receivable $ 6,908,209 $ 4,872,735
Allowance for doubtful accounts (294,000) (144,000)
------------ -------------
$ 6,614,209 $ 4,728,735
------------ -------------
------------ -------------
Other current assets:
Current portion of notes receivable 145,169 101,436
Prepaid expenses 122,568 114,844
------------ -------------
$ 267,737 $ 216,280
------------ -------------
------------ -------------
Property, plant and equipment, net:
Land 109,626 109,626
Buildings 3,927,785 3,664,781
Machinery and equipment 23,346,491 22,476,272
Furniture and fixtures 1,733,622 1,396,381
Automobiles 295,068 306,830
Leasehold improvements 66,313 66,313
------------ -------------
29,478,905 28,020,203
Accumulated depreciation (14,201,449) (11,784,238)
Accumulated amortization (66,313) (66,313)
------------ -------------
$ 15,211,143 $ 16,169,652
------------ -------------
------------ -------------
Goodwill, net:
Goodwill 2,015,065 2,015,065
Accumulated amortization (257,266) (55,760)
------------ -------------
$ 1,757,799 $ 1,959,305
------------ -------------
------------ -------------
Other assets:
Computer software costs, net of
accumulated amortization of
$48,429 at October 31, 1997 535,892
Cash value of life insurance, net of
outstanding loans 308,646 269,469
Other 251,157 248,973
------------ -------------
$ 1,095,695 $ 518,442
------------ -------------
------------ -------------
20
<PAGE>
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. SELECTED BALANCE SHEET INFORMATION, CONTINUED:
1997 1996
Accrued liabilities:
Payroll and bonuses $ 676,811 $ 355,064
Vacation 341,050 220,005
Profit sharing 540,000 192,856
Real estate taxes 214,192 231,848
Dividends 176,147 111,578
Other 659,685 138,037
---------- ----------
$2,607,885 $1,249,388
---------- ----------
---------- ----------
4. SUPPLEMENTAL CASH FLOW INFORMATION:
Changes in certain operating assets and liabilities:
1997 1996 1995
Accounts receivable $(2,052,911) $(1,146,436) $ (720,069)
Inventories 379,411 (974,143) (197,223)
Other assets (111,704) (96,583) (227,003)
Accounts payable (729,732) 1,283,976 30,237
Accrued liabilities 1,293,928 269,662 (177,123)
Deferred income taxes (25,000) 348,000 157,000
Deferred compensation 51,948 48,528 79,124
------------ ------------ ------------
$(1,194,060) $ (266,996) $(1,055,057)
------------ ------------ ------------
------------ ------------ ------------
Cash paid during the year for:
Interest, net of amount
capitalized of $76,497
in 1995 $ 834,348 $ 357,948 $ 112,763
Income taxes 2,222,243 384,105 779,405
In fiscal year 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).
21
<PAGE>
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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 application 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.
22
<PAGE>
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. NOTES RECEIVABLE:
Notes receivable consisted of the following at October 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
<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, with remaining
principal and interest payment due August 2001. $ 258,008 $ 295,217
Note receivable, interest at 8%, payable in equal monthly installments
of $9,751, with remaining principal and interest payment due
August 2005. Collateralized by the Company's previous corporate
headquarters and manufacturing facility. (Subsequent to
October 31, 1997, this note receivable was paid in full to the
Company.) 614,666 684,488
Other, mainly customers, with various terms 101,603 111,791
---------- -----------
974,277 1,091,496
Less current portion, included in other current assets (145,169) (101,436)
---------- -----------
$ 829,108 $ 990,060
---------- -----------
---------- -----------
</TABLE>
Management believes that the carrying values of its notes receivable as of
October 31, 1997, approximate their 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 with interest accruing at 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 years 1997 or 1996.
The Company had a line of credit in fiscal year 1995 which was replaced by
the revolving line of credit described above.
23
<PAGE>
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. LONG-TERM DEBT:
Long-term debt consisted of the following at October 31, 1997 and 1996:
1997 1996
Revenue Bonds $ 2,345,000 $ 2,595,000
Term Loan 8,220,550 9,000,000
------------ ------------
10,565,550 11,595,000
Less current portion (3,235,000) (1,029,825)
------------ ------------
$ 7,330,550 $10,565,175
------------ ------------
------------ ------------
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, 1997, was 3.95%. 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 bond
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 letter of credit is renewable in incremental one-year terms upon mutual
agreement of the Company and the financial institution. If the letter of
credit is not renewed and the Company is unable to obtain a similar letter
of credit with another financial institution, the Revenue Bonds may be
callable at the option of the bond trustee.
The Company's outstanding letter of credit expires in August 1998 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 annual capital
expenditures ranging from $1,000,000 to $1,400,000 from fiscal year 1997
until the fiscal year in which 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. The letter of credit
agreement also allows for the lender to call the debt upon any "material
change in the nature of the business." For fiscal year 1997 only, the
letter of credit agreement was amended to increase the maximum capital
expenditure amount allowed under the letter of credit to $2,100,000.
During fiscal year 1996, the Company was in violation of a certain covenant
pursuant to the letter of credit agreement with the bank. The Company
received a waiver of the covenant violation from the bank.
24
<PAGE>
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. LONG-TERM DEBT, CONTINUED:
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 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 accrues interest at the
prime interest rate. The prime interest rate at October 31, 1997, was
8.5%. Also, the Term Loan agreement requires excess cash flow, 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 flow provision, the Company classified an additional $2,000,000
and $404,825 as of October 31, 1997 and 1996, respectively, as a component
of the current portion of long-term debt (current liability) in addition to
its scheduled principal payments due in the succeeding fiscal year 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 annual capital expenditures ranging from $1,000,000 to $1,400,000
from fiscal year 1997 until the fiscal year in which 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. The
Term Loan agreement also allows for the lender to call the debt upon any
"material change in the nature of the business." For fiscal 1997 only, the
Term Loan agreement was amended to increase the maximum capital expenditure
amount allowed under the Term Loan agreement to $2,100,000.
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
1998 $ 3,235,000
1999 1,385,000
2000 1,385,000
2001 1,385,000
2002 1,385,000
Thereafter 1,790,550
-----------
$10,565,550
-----------
-----------
Management believes that the carrying value of its long-term debt as of
October 31, 1997, approximates its fair value.
25
<PAGE>
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. OPERATING LEASES, INCLUDING RELATED PARTY LEASE:
The Company leases certain buildings and equipment under six separate
operating lease agreements expiring through 2007 and 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 leases.
In August 1997, the Company began leasing the Company's Financial Forms
Division manufacturing facility from the Company's Chairman and Chief
Executive Officer under an operating lease agreement expiring in fiscal
year 2007, with two additional five-year extensions available at the option
of the Company. This operating lease agreement requires monthly payments,
subject to increase every three years based on that period's average price
index, as defined in the agreement, in addition to real estate taxes,
utilities, assessments, insurance and maintenance costs.
Future minimum payments under operating lease agreements with
noncancellable terms are as follows:
Non-
Related Related
Party Party Total
1998 $421,845 $ 191,000 $ 612,845
1999 303,565 191,000 494,565
2000 196,830 191,000 387,830
2001 191,000 191,000
2002 191,000 191,000
Thereafter 923,167 923,167
-------- ---------- ----------
$922,240 $1,878,167 $2,800,407
-------- ---------- ----------
-------- ---------- ----------
Total rent expense was $806,468, $221,328 and $194,493 in fiscal years
1997, 1996 and 1995, respectively, exclusive of real estate taxes,
insurance and maintenance costs. Rent expense related to the related
party lease, exclusive of real estate taxes, insurance and maintenance
costs, was $31,384 in fiscal year 1997.
26
<PAGE>
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. INCOME TAXES:
The provision for income taxes consisted of the following:
Fiscal Years
---------------------------------
1997 1996 1995
Currently payable:
Federal $2,153,000 $414,000 $573,000
State 339,000 78,000 111,000
----------- -------- --------
2,492,000 492,000 684,000
----------- -------- --------
Deferred provision (benefit):
Federal (21,000) 298,000 136,000
State (4,000) 50,000 21,000
----------- -------- --------
(25,000) 348,000 157,000
----------- -------- --------
$2,467,000 $840,000 $841,000
----------- -------- --------
----------- -------- --------
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, 1997, 1996 and 1995,
respectively, as follows:
Fiscal Years
---------------------------------
1997 1996 1995
Computed "expected" provision for
income taxes $2,245,000 $715,000 $749,500
State income taxes, net of federal
tax effect 221,000 51,500 73,300
Other, net 1,000 73,500 18,200
---------- -------- --------
Actual provision for income taxes $2,467,000 $840,000 $841,000
---------- -------- --------
---------- -------- --------
27
<PAGE>
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. INCOME TAXES, CONTINUED:
The approximate effects of temporary differences that gave rise to deferred
tax balances at October 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred tax assets:
Accounts receivable allowance for doubtful accounts $ 117,600 $ 57,600
Inventories 35,505
Accrued liabilities 130,420 92,802
Deferred compensation 321,153 336,357
Goodwill 31,258
------------ ------------
Total deferred tax assets 635,936 486,759
------------ ------------
Deferred tax liabilities:
Property, plant and equipment (1,289,063) (1,108,938)
Investment in limited partnership (212,850) (268,798)
------------ ------------
Total deferred tax liabilities (1,501,913) (1,377,736)
------------ ------------
Net deferred tax liabilities $ (865,977) $ (890,977)
------------ ------------
------------ ------------
</TABLE>
The Company has not recorded a valuation allowance as of October 31, 1997
and 1996, related to its deferred tax assets as management believes no such
allowance is necessary.
12. PROFIT-SHARING AND BONUS PLANS:
The Company has a profit-sharing and 401(k) plan (the Plan) covering
substantially all full-time employees of the Company. The Plan was amended
during fiscal year 1997 to include the Company's employees who became
employed with the Company in connection with the Acquisition (see Note 2)
and who were previously ineligible to participate in the Plan. Company
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. The Company recognized expense under the Plan of
$540,000, $192,856 and $193,227 in fiscal years 1997, 1996 and 1995,
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 bonus plan was $408,440, $149,027
and $168,886 in fiscal years 1997, 1996 and 1995, respectively.
28
<PAGE>
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
13. DEFERRED COMPENSATION:
The Company has deferred compensation plans covering four current officers
and one former officer of the Company. The plans for one current and the
former officer call for periodic payments ranging from ten to fifteen years
at retirement or death of such employees. The plans for the remaining
three officers call for contributions to a trust to maintain benefits to be
paid upon retirement or termination. Deferred compensation expense was
$51,397, $65,114 and $101,691 in fiscal years 1997, 1996 and 1995,
respectively.
14. STOCK OPTIONS:
The Company has certain stock incentive and option plans which provide for
grants of stock options. The Company has 233,335 shares of its common
stock authorized for grant under these plans, except for its nonqualified
stock option plan, for which the Company has not established a limit on the
number of shares authorized for grant. 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.
The following is a summary of stock option activity with respect to the
stock incentive and option plans:
Weighted
Average Options
Exercise Price Available
Per Share Options for Grant
Balance at October 31, 1994 $5.47 188,802 117,423
Authorization of additional
stock options 33,335
Exercised 4.56 (8,334)
Cancelled 5.33 (30,733) 30,733
Granted 7.25 47,867 (47,867)
Expired 4.50 (6,334)
------- -------
Balance at October 31, 1995 6.01 191,268 133,624
Exercised 4.88 (9,333)
Cancelled 7.25 (2,400) 2,400
Granted 8.32 54,667 (54,667)
Expired 5.63 (1,333)
------- -------
Balance at October 31, 1996 6.59 232,869 81,357
Exercised 6.61 (44,900)
Cancelled 8.37 (5,700) 5,700
Granted 10.75 64,000 (64,000)
Expired 5.81 (9,333)
------- -------
Balance at October 31, 1997 $7.69 236,936 23,057
------- -------
------- -------
29
<PAGE>
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. STOCK OPTIONS, CONTINUED:
In addition to the stock incentive and option plans, the Company granted
20,000 options with per share option prices ranging from $6.75 to $8.50 to
a vendor in fiscal year 1995. At October 31, 1997, all of these options
were exercisable.
The weighted average fair value of options at the date of grant was $4.89
and $3.57 per option during fiscal years 1997 and 1996, respectively.
The following table summarizes information about stock options outstanding
and exercisable at October 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------ -------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
<S> <C> <C> <C> <C> <C>
$4.50 - $7.25 134,936 4.1 years $6.00 110,935 $5.78
$8.25 - $9.25 82,000 5.6 years 8.48 14,500 8.25
$15.875 20,000 6.0 years 15.875
------- -------
236,936 4.8 years $7.69 125,435 $6.06
------- -------
------- -------
</TABLE>
In accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company has chosen to continue to account for
stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, compensation cost for stock options granted to
employees is measured as the excess, if any, of the fair value of
the Company's stock at the date of the grant over the amount an
employee must pay to acquire the stock. The Company accounts for
stock-based compensation to nonemployees using the fair value
method prescribed by SFAS No. 123. Such compensation costs are
amortized on a straight-line basis over the underlying option or
warrant vesting terms.
If the Company had elected to recognize compensation expense for options
granted in fiscal 1997 and 1996 based on the fair value of the options
granted at the date of grant as prescribed by SFAS No. 123, the
Company's net earnings for fiscal 1997 and 1996 would have been as
follows:
1997 1996
Net earnings:
As reported $4,135,922 $1,263,056
Pro forma 4,021,562 1,250,964
Primary earnings per share:
As reported $2.25 $0.72
Pro forma $2.18 $0.71
30
<PAGE>
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. STOCK OPTIONS, CONTINUED:
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model and the following key
assumptions:
1997 1996
Risk-free interest rates 6.3% 6.5%
Expected life 5 years 5 years
Expected volatility 47.24% 44.58%
Expected dividend yield 1.79% 1.56%
15. PREFERRED STOCK:
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.
16. CONCENTRATIONS OF CREDIT RISK:
At October 31, 1997, 14.2% of the Company's accounts receivable were from
one customer and cash and cash equivalents totaling approximately
$4,844,000 were concentrated in one financial institution.
17. FOURTH QUARTER ADJUSTMENTS:
In the fourth quarter of fiscal year 1997, the Company recorded certain
adjustments to reflect changes in accounting estimates to amounts reported
in previous interim periods of the fiscal year. The adjustments were
related to the estimation in gross profit on net sales from the Company's
financial forms division and the interim income tax rate used in previous
interim periods of fiscal year 1997. These adjustments increased fourth
quarter net earnings by approximately $207,000 or $0.11 for primary
earnings per common share.
31
<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
32
<PAGE>
INVESTOR INFORMATION
ANNUAL MEETING
The annual meeting of the shareholders of Northstar Computer Forms, Inc. will be
held Thursday, April 9, 1998 at 3:30 p.m. at the Radison Plaza Hotel, 35 South
7th Street, 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 Kaplan Levy Rosberg & Gotlieb P.A.
100 South Fifth Street
Suite 1100
Minneapolis, MN 55402
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
QUARTERLY FINANCIAL INFORMATION
(UNAUDITED AND NOT REVIEWED)
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
1st Qtr, 2nd Qtr, 3rd Qtr, 4th Qtr,
FISCAL YEAR 1997 Jan. '97 Apr. '97 July '97 Oct. '97
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $11,608,757 $11,740,931 $11,330,222 $11,579,551
Earnings before taxes 952,693 1,326,609 1,261,296 4,478,824
Provision for income taxes 382,000 531,000 503,500 1,050,500
Net earnings 570,693 795,609 757,796 2,011,824
Earnings per share .31 .44 .40 1.10
Depreciation and amortization 623,731 590,659 638,267 877,261
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
1st Qtr, 2nd Qtr, 3rd Qtr, 4th Qtr,
FISCAL YEAR 1996 Jan. '96 Apr. '96 July '96 Oct. '97
-------- -------- -------- --------
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
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
NORTHSTAR COMPUTER FORMS
CORPORATE DIRECTORY
- -------------------
BOARD OF DIRECTORS COMPANY OFFICERS
- ------------------ ----------------
Roger T. Bredesen Roger T. Bredesen
Chairman & C.E.O. Chief Executive Officer
Northstar Computer Forms, Inc.
Kenneth E. Overstreet
Kenneth E. Overstreet President
President
Northstar Computer Forms, Inc. Mary Ann Morin
Chief Financial Officer
John G. Mutschler (1)(2) Secretary
President
John G. Mutschler & Assoc. Don Dearborn
Vice President
Roy W. Terwilliger (2)
President Community Bank Group Stan Klarenbeek
Minnesota Senator District 42 Vice President
Dr. Lester A. Wanninger (1)
Faculty Member
Information and Decision Sciences
University of Minnesota
J. S. Braun (2)
Founder & Chairman
Braun Intertec Corp.
(1) Audit Committee
(2) Compensation Committee
[PHOTO]
- ---------------------------------
[PHOTO]
------------------------------
34
<PAGE>
COMPANY MANAGEMENT:
- ------------------
Northstar Computer Forms, Brooklyn Park, MN
Mike O'Neil, VP Operations
Jim Staricha, National Sales Manager
John Christenson, National Sales Manager
Northstar Financial Forms, Roseville, MN
Stan Klarenbeek, VP Sales/Marketing
Henry Schultz, Operations Manager
Wisconsin Business Forms, Milwaukee, WI
Steve Otto, General Manager
General Financial Supply, Nevada, IA
Don Dearborn, VP & General Manager
General Financial Supply, Bridgewater, VA
Tony Scarselletta, General Manager
General Financial Supply, Denver, CO
Terry Kennedy, General Manager
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: 540-828-6176
Wisconsin Business Forms General Financial Supply
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
Inside Back Cover
<PAGE>
EXHIBIT 23.1
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 6, 1998, on our audits of the consolidated
financial statements of Northstar Computer Forms, Inc. and Subsidiary as of
October 31, 1997 and 1996, and for the years ended October 31, 1997, 1996 and
1995, which report is incorporated by reference in this Annual Report on
Form 10-KSB.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
January 29, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 5,317,881
<SECURITIES> 0
<RECEIVABLES> 6,908,209
<ALLOWANCES> 294,000
<INVENTORY> 1,912,646
<CURRENT-ASSETS> 14,431,129
<PP&E> 29,478,905
<DEPRECIATION> 14,267,762
<TOTAL-ASSETS> 33,324,874
<CURRENT-LIABILITIES> 7,216,690
<BONDS> 7,330,550
0
0
<COMMON> 88,073
<OTHER-SE> 16,677,781
<TOTAL-LIABILITY-AND-EQUITY> 33,324,874
<SALES> 46,277,461
<TOTAL-REVENUES> 46,277,461
<CGS> 30,860,274
<TOTAL-COSTS> 38,811,532
<OTHER-EXPENSES> (196,946)
<LOSS-PROVISION> 167,437
<INTEREST-EXPENSE> 892,516
<INCOME-PRETAX> 6,602,922
<INCOME-TAX> 2,467,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,135,922
<EPS-PRIMARY> 2.25
<EPS-DILUTED> 2.21
</TABLE>
